RNS Number : 1451E
Clipper Windpower PLC
24 September 2008
CLIPPER WINDPOWER PLC - ANNOUNCEMENT OF 2008 INTERIM RESULTS
London, (UK), Carpinteria, CA (USA). Clipper Windpower Plc ("Clipper"), a wind turbine manufacturer and wind project developer,
announces its interim results for the six months ended 30 June 2008.
Highlights:
* James G.P. Dehlsen concludes role as CEO, continues as Chairman; Doug Pertz appointed CEO and Michael Keane appointed CFO.
* Manufacturing tracking to plan with an average build rate of 8 turbines per week; new turbine production expected to exceed 300
turbines for 2008.
* 1H'08 Revenue of $156.1 million with 46 commissioned turbines (1H'07: $20.4 million).
* 1H'08 Net loss of $211.2 million (1H'07: Net loss of $78.0 million). Loss includes $145.1 million of charges primarily due to
remediation costs and inventory provisions.
* Cash balance as of 30 June was $268 million. Expect year end 2008 balance to be at a similar level.
* Turbine remediation work identified in 2007 essentially complete. A non-structural, manufacturing quality issue has been
identified on a number of blades during recent routine inspections and is being rectified with the expected costs provided for in first half
2008 charges.
* Turbines are performing well with 53 turbines operating in excess of 1,000 hours; average fleet availability on completed projects
exceeds 95%.
* 2008 Full year revenue expected to be over $800 million with over 300 turbines commissioned. 2H'08 operating results approaching
or exceeding break even.
* 2009 EBIT margins will be adversely affected by increasing steel prices; expect improvement in 2010 margins through higher pricing
and improved commercial terms.
Chairman's Statement
Clipper revenue for the first six months of 2008 was $156.1 million, as the Company recorded revenue for 46 turbines commissioned at
customer sites. This is the first reporting period that the Company has recognised substantial revenue from turbine sales. Despite the
increase in revenue, the Company reported a net loss of $211.2 million due to: (i) increased remediation costs; (ii) provisions for
inventory obsolescence and one time charges; and (iii) higher operating costs as the Company continues the build-up of personnel in
manufacturing and fleet services. Revenue and net loss for the comparable period in 2007 were $20.4 million and $78.0 million, respectively.
The net losses for the 2008 and 2007 periods include $138.9 million and $40.8 million, respectively, in additional charges relating to
remediation of supplier quality issues and strengthening of the blades. As of 30 June 2008, the Company had a cash balance of $268.1 million
and no significant outstanding debt.
The 2008 first half financial loss, reflecting the significant direct and indirect costs of remediation is large and disappointing, but
the Company believes dealing with issues thoroughly and expeditiously is the proper way to advance new technology to high-volume production.
While new technologies - particularly a product as advanced as the Clipper Liberty Turbine - will experience problems when ramping to full
production, it is how a company responds to the problems that determines its future viability. From inception, Clipper's approach to
remediation has been to quickly identify the fundamental causes of the issue and create a permanent solution. At Clipper, machine faults are
subjected to a rigorous six sigma methodology for root cause analysis by the Company's engineering and quality teams, corrective actions are
developed, and a full remediation plan is then implemented by the Fleet Services division. The benefits of such an approach are evident in
the progress made by the Company in correcting the drivetrain issue reported in 2007 with corrective action now completed. A rigorous testing and quality assurance regime, combined with
drivetrain testing under load conditions before shipping, has been implemented. Manufacturing, installation and commissioning are
accelerating and the supply chain has been strengthened.
In May 2008, Clipper implemented the next phase of its operational plan, focusing on achieving 1000 hours of full power operation on 100
turbines, a plan backed by equity of $150 million from One Equity Partners / JPMorgan Chase and a $50 million private placement. Five
months into "100 by 1,000", more than 50% of the commissioned machines have achieved the goal with no significant issues, providing
confidence in the basic design and operational characteristics of the Liberty Turbine.
While the Company is confident that it has successfully addressed major component supplier quality deficiencies and blade design issues,
there may continue to be fixes, upgrades and improvements. Recently, minor defects in the blade skin were detected in a limited number of
blades during routine inspections. Processes developed in prior remediation efforts are benefiting current activities; in the three weeks
since discovery of the defects, Clipper is working with its customers and blade suppliers to implement a comprehensive repair and the blade
supplier's flawed manufacturing process has been corrected. More details are described under "Remediation progress". Solving this problem
and continuing progress in implementing the "100 by 1,000" operational plan will be the top focus of the Company and newly appointed CEO
Doug Pertz through the second half of 2008. Further details follow.
Management Change
I am concluding my role as Chief Executive Officer, while continuing to serve as Chairman of the Board of Directors. On behalf of the
Board, I am very pleased to announce that Mr. Doug Pertz has been appointed as the new President and Chief Executive Officer of Clipper. I
have worked closely with Doug since he joined the Company as Interim Chief Operating Officer in May 2008, transitioning from One Equity
Partners. Through this period, I have gained a high level of confidence in his business acumen, his work ethic, and his clear ability to
provide effective and energetic leadership. I am impressed with the speed with which he has grasped Clipper's strategic and tactical issues;
he is already effectively contributing across a wide range of Clipper's activity. Doug is an experienced CEO with substantial executive
leadership background in manufacturing and technology intensive sectors that will be invaluable as Clipper enters its next stage of growth.
Before Doug was selected, the Board conducted a national CEO search using a pre-eminent recruiting firm. Doug's interim COO role made
him a natural candidate in the search process, but it was his credentials and proven performance, measured against the full field of highly
qualified candidates, that earned him the CEO post.
Doug's background includes serving as Chairman and CEO of IMC Global, Inc. until it merged to form The Mosaic Company. He has served as
President, CEO and director of Culligan Water Technologies, Inc., Group Executive and Corporate VP of the Danaher Corporation, and held
executive positions within the energy businesses of both Cummins Engine and Caterpillar. He is a director since 2004 of Nalco Holding Co.
and previously a director of Compass Minerals International, the Mosaic Company and Bowater Incorporated. Doug earned a B.S. in Mechanical
Engineering from Purdue. With his appointment to CEO, Doug is leaving One Equity Partners.
The Company also previously announced that Michael Keane has been appointed Chief Financial Officer and Senior Vice President effective
2 September 2008. Michael is a seasoned finance professional with substantial leadership experience as a public company CFO within the
manufacturing and technology sectors. Michael's proven abilities with manufacturing-based, public companies will be a great asset as the
scale of Clipper's operations continues to grow.
From the founding of Clipper in 2001, my personal commitment has been to guide Clipper from its launch to a solid foundation as an
industrial-scale turbine manufacturer with strong momentum in the market and as a major wind project developer. I believe this has been
largely accomplished. We have surmounted formidable obstacles along the way and many new challenges will undoubtedly arise during the
expansive growth in Clipper's future. This is an opportune time for new leadership to drive forward in this next phase of growth.
With this change, I will dedicate more time to corporate strategy, product and technology development, including the Britannia turbine
project, and broader communication of Clipper's unique position and the wind industry's vital role in the urgent task of transforming our
economy toward greater energy security and sustainability. While stepping back from day-to-day operational issues, I will remain very much
involved in helping to chart the course for Clipper.
Remediation Progress
The Company has completed the remediation of all drivetrains and blade design issues at customers' projects. Final completion of the
overall blade remediation is pending due to the non-structural, blade skin defects mentioned above. Upon detecting the defect, the Company
immediately extended its inspections over the entire fleet and performed a thorough root cause analysis of the problem. This identified a
periodic manufacturing defect whereby inconsistent layering of laminates allows a skin defect to develop under load. The flawed
manufacturing procedure is now corrected within the blade supplier's fabrication process. A corrective and preventive program for all blades
is being implemented, the vast majority of which can be performed "up tower". The estimated costs for this program were not anticipated in
the 30 July update and have now been provided for in the first half 2008 operating results.
The commissioned turbines are performing well with average turbine availability on completed projects in excess of 95% as of the end of
August. We have established an internal goal of achieving "100 turbines operating for 1,000 hours" by fourth quarter of this year. As of
August, 53 turbines have exceeded the 1,000 hours goal. This is an important benchmark to further demonstrate that the Liberty turbine
technology is proving itself operationally.
Clipper continues to increase resources dedicated to key areas such as quality control, field engineering and supply chain to help
ensure that technical and operational issues are recognised early and effectively corrected. The field performance of the Liberty Turbine
provides confidence that the majority of the remediation efforts and costs are now behind the Company. A strengthened management team, a
strong balance sheet, and now an experienced and seasoned field service and engineering team provide confidence that when new problems
arise, Clipper will be able to work through them.
Turbine Production Increasing
Clipper's operating performance continues to gain momentum. Our manufacturing facility in Cedar Rapids, Iowa has produced 233
drivetrains through August and is on track to produce over 300 turbines (750 MW) in 2008. With gearbox remediation activities substantially
complete, Clipper has been able to significantly ramp-up production since mid-year. The Company produced 72 turbines during the two month
period of July and August and is currently averaging a build rate of 8 turbines per week in support of 2008 and 2009 full-year production
targets. Clipper has expanded the number of suppliers of critical components and has increased quality control activities, including 20
quality assurance engineers at key supplier manufacturing sites. Plans for augmenting Clipper's supply of blades and generators are underway
to meet the growth ahead. The drivetrain production capacity at Cedar Rapids is sufficient to deliver on projected growth for the next two
to three years without significant additional capital expenditures.
Of the cumulative 323 Liberty series 2.5 MW turbines produced as of the end of August 2008, 205 turbines are installed and 81 are
commissioned. Clipper has trebled the number of field service engineers since 2007 in order to meet its goal of commissioning at least 300
turbines in 2008.
Turbine Orders Rise
Demand for multi-megawatt wind turbines is robust, driven by the increasing number of large utility companies pursuing wind power
development projects worldwide. Clipper's order book has continued to be strong with orders for 2009 delivery increasing by 250 MW (100
turbines) since March 2008. This includes the Company's first order from an internationally based utility company. In addition, the recently
announced strategic transaction with BP (discussed below) includes the potential purchase of 2,000 new Liberty turbines should full
development of the Titan project be accomplished. As a consequence of Liberty's field performance, several projects have received financing
with Clipper turbines, helping to expand the universe of potential buyers.
Major Project Development Transaction Completed
In July, Clipper signed an agreement with BP Alternative Energy creating a joint venture to develop the Titan 5,050 MW project in South
Dakota, USA. When complete, Titan will be the largest wind facility in the Americas. The transaction transfers 1,750 MW of Clipper
development assets to BP for a potential all-in value of $62,000/MW. Titan exemplifies the Company's new business model for project
development activity where Clipper will partner with major wind operators to combine its development assets and expertise with the partner's
resources. Projects will deploy Clipper turbines and Clipper will seek opportunities to monetize its ownership stake as the projects
develop, while limiting Clipper's financial commitment. The Titan project accomplishes this, providing Clipper: (i) a staged payment
schedule for the 1,750 MW; (ii) a compelling upside for Clipper either through monetizing its interest or in ownership benefits as the
project is developed; and (iii) the sale of up to 2,000 Liberty turbines.
The Company believes that this evolved business model has the potential to create greater shareholder value than the previously
announced CAPGEN structure, which Clipper has discontinued. Our development portfolio continues to grow. Prior to the Titan transfer of
1,750 MW, Clipper had 10,500 MW of project development portfolio ranging from early to advanced stage assets.
Focused Product Development Strategy
Advancing wind technologies is fundamental to Clipper's product line strategy and for the Britannia Project 7.5 MW prototype turbine.
Britannia is designed to meet the rigours of offshore operation, and the commercial version of the turbine targets the UK Government's
policy of adding 25 GW of wind power over the next 12 years. Clipper's goal is to earn a substantial portion of the growing offshore wind
energy business by capitalising on the Company's technological advantages in scaling up turbine size. The Company's MBE turbine development
base is in Blyth Harbour, UK, adjacent to the NaREC (New and Renewable Energy Centre) state-of-the-art Wind Energy Test Facility, where
Clipper will also be proceeding with the introduction of a 50Hz 2.5 MW Liberty turbine into the European market in 2010.
Outlook
As per previous guidance, Clipper expects to report a net loss for the year ending 31 December 2008 with substantially all the loss in
the first half of the year. Due to increased blade remediation costs related to blade skin defects, the first half loss exceeded earlier
expectations; however the Company currently believes the majority of remediation costs have been provided for as of June 30 2008. The second
half is expected to approach or exceed break even with improvement on operating performance and income from the expected gains from sale of
development assets, somewhat offset by the timing of recognition of certain loss making contracts. Revenue is expected to be over $800
million with over 300 turbines commissioned in 2008. Clipper recognises revenue when turbines are fully installed, tested and commissioned
- events that are largely influenced by our customers' timing of their projects' interconnection to the power grid. Therefore, delays in
commissioning have an impact on the timing of revenue recognition. Such delays do not have as significant an impact on Clipper's cash flow because a majority of customer payments have been
received prior to the time turbines are shipped. Cash flow is expected to be slightly positive in the second half of 2008.
With major start-up and remediation issues near resolution, Clipper will benefit from higher sales volumes and improved pricing in 2009.
However, steel prices have risen substantially since the beginning of the year; steel is the largest raw material cost in a turbine, so
rising steel prices will have an adverse effect on Clipper margins going into next year. If the recent increases in steel costs do not
abate, and considering Clipper's fixed pricing for all its current 2009 orders, we project 2009 EBIT margins to be substantially lower than
the previous guidance of 9 -12%. Clipper is undertaking aggressive cost reduction and control programs, and working with its customers on
defensive pricing measures in order to reduce the impact of the unprecedented steel price increases.
Wind turbine demand is strong and the forecast for global growth indicates sustained double digit annual increases for the foreseeable
future. This strong demand has already allowed North America wind turbine pricing for 2010 deliveries to increase 20-30% above Clipper's
2009 pricing. The Company expects this to provide significant potential for margin improvement in 2010 resulting from sophisticated buyers'
recognition of Liberty turbines operational and technological advantages. Entry into the European market in 2010 should also enhance margins
from generally higher energy prices which allow for higher turbine prices than attainable in the US market.
Despite Clipper's disappointing first half financial performance, I believe the future is quite positive driven by: the significant and
growing market for Clipper's Liberty turbine; a proven leadership team; a product development program to gain a significant share of the
offshore turbine market; a project development portfolio and strategy well suited to needs of major energy companies seeking wind assets;
and the powerful fundamentals driving the global wind energy market. In barely its second full year of turbine production, Clipper is now
firmly established beyond the start-up phase with 300 turbines (750 MW of capacity) on target for 2008, representing significant market
share for the US, with further gains expected in 2009 and beyond.
From my perspective in the wind power industry since 1980, the extraordinary accomplishments of the Clipper organisation in developing
major technology innovation, with rapid build-up in manufacturing and commercialisation, while also overcoming daunting start-up challenges,
is unparalleled in the history of wind energy. I am confident in Clipper's strengthening position and strategy for gaining market leadership
and economic advantage through wind technology innovation, and with commensurate value creation for our shareholders. I sincerely believe
that over the next few years, Doug and our talented and committed Clipper team will take the Company to a leading position in the global
wind industry.
I am deeply appreciative of the exceptional effort and commitment of our employees, shareholders, and fellow Directors, which has made
possible Clipper*s great progress during my years as Chief Executive Officer.
James G.P. Dehlsen
Chairman
Financial Review
Results for the six month periods ended 30 June 2008 and 30 June 2007 are un-audited. The results for the year ended 31 December 2007
have been extracted from the statutory financial statements of Clipper Windpower Plc ("the Company") and subsidiaries (together, the
"Group", "Clipper" or "Clipper Windpower").
Financial Summary
Revenue for the six months ended 30 June 2008 was $156.1 million and was primarily attributed to the commissioning and transfer of
ownership of 46 turbines that achieved contractually agreed availability and run time (six months ended 30 June 2007: $20.4 million from
commissioning and transfer of ownership of 8 turbines). In the current period, turbines were commissioned at four separate customer sites in
the United States.
The net loss for the period was $211.2 million (30 June 2007: $78.0 million loss) and includes $138.9 million (30 June 2007: $40.8
million) in additional charges and associated expenses for remediation of turbine quality issues including the non-structural skin defect
observed during a recent post-commissioning inspection. The remediation efforts for blade and gearbox issues identified in 2007 were
approximately 72% complete and 95% complete, respectively, at 30 June 2008. Clipper believes the majority of its startup issues and
remediation tasks are now behind it and that the Group is in a position to execute its larger scale manufacturing, installation and
commissioning processes to meet increased order demand.
Results of Operations
Total revenue for the period was $156.1 million (six months ended 30 June 2007: $20.4 million) and includes turbine sales and related
freight of $155.7 million (six months ended 30 June 2007: $20.3 million).
Cost of sales of $319.0 million (six months ended 30 June 2007: $81.7 million) represents a $237.3 million increase over the six month
period ended 30 June 2007. It includes $66.2 million (six months ended 30 June 2007: $17.9 million) for additional turbine gearbox and blade
remediation including provisions made to remediate the recently identified blade skin defect, $33.4 million for late delivery liquidated
damages and contract settlement (six months ended 30 June 2007: $0.3 million), $24.2 million for inventory write downs (six months ended 30
June 2007: $nil), $10.0 million for warranty provisions (six months ended 30 June 2007: $nil) and $5.1 million in provisions for loss making
contracts (six months ended 30 June 2007: $22.7 million).
The Group reports costs associated with the early stages of project development and product research and development expenses separately
from cost of sales. Project development costs expensed in the period were $6.1 million (six months ended 30 June 2007: $3.7 million). The
increase was largely due to higher employee costs, Clipper's share of professional fees associated with a joint venture to develop global
wind projects and expenses of upgrading transmission capability for future wind projects in the US.
Product research and development costs were $10.9 million in the period versus $3.8 million in the comparable prior year period. The
increase represents the Company's continuing investment in new technology and includes amounts for Clipper's Project Britannia, a large
offshore wind turbine under development in Northeast England, and for purchase of an interest in a development stage wind tower
manufacturing company.
Administrative expenses were $27.7 million compared to $13.7 million for the six month period ended 30 June 2007. The $14.0 million
increase over the prior period was due largely to $6.2 million in litigation related expenses, $4.3 million in higher employee costs to
support the growth of the Group, $1.6 million for professional fees and $1.1 million for expenses relating to an early implementation phase
of new enterprise resource planning software. At 30 June 2008, Clipper's employee count was 695 (30 June 2007: 438).
Finance income for the period was $1.3 million compared to $4.5 million for the six month period ended 30 June 2007 reflecting interest
earned on lower average cash balances.
Finance costs were $5.1 million (six months ended 30 June 2007: $0.2 million) and included $3.3 million for accelerated amortization of
fees and other expenses associated with terminating a credit facility.
Balance Sheet
Inventories totalled $675.6 million at 30 June 2008 compared to $523.2 million at 31 December 2007. The $152.4 million increase reflects
a build-up of components to meet future delivery needs and turbines awaiting completion of remediation efforts to enable commissioning. The
$675.6 million balance includes $274.8 million in development and construction projects (31 December 2007: $325.2 million).
Prepaid inventory totalled $60.8 million at 30 June 2008, compared to $52.5 million as of 31 December 2007. Prepaid inventory includes
advance payments to certain long lead time suppliers prior to the shipment of components.
Payments received in advance represent turbine sale deposits received from customers. The current portion of payments received in
advance totalled $669.7 million at 30 June 2008 compared to $531.7 million at 31 December 2007. Non-current payments received in advance
totalled $253.5 million, compared to $91.7 million as of 31 December 2007. The $299.8 million combined increase since 31 December 2007 was
due to the receipt of milestone payments on both new and existing orders of $437.6 million offset by $137.8 million recognised as revenue in
the period ending 30 June 2008.
Cash on hand at period end was $268.1 million (31 December 2007: $114.4 million). The increase was primarily due to customer deposits
and share capital raised as noted below.
On 22 April 2008, institutional shareholders, through a private placement, subscribed to 4.7 million new ordinary shares of the Company
at a price per share of 537.5 pence raising gross proceeds of �25.2 million (US $50 million). On 12 May 2008, One Equity Partners invested
US $150 million in the Company in exchange for 15.8 million shares at a price of 480 pence per share and 2.9 million warrants to purchase
ordinary shares with a strike price of �5.38 per share.
The Group has historically met the working capital and capital expenditure requirements through cash provided by advance payments from
customers or equity offerings. The directors have a reasonable expectation that the Group has adequate resources to continue its operations
for the foreseeable future.
Conference Call
Clipper's management will host a conference call to discuss the Group's developments today at 9:00 am (UK Time). To join this call,
please dial +44 (0)20 7806 1951 for UK, +1 718 354 1385 for US (Conference code: 4876405). Replay telephone numbers: +44 (0)207 806 1970 for
UK, +1 718 354 1112 for US. Replay Passcode: 4876405�.
For further information please contact:
Investors:
Jenny Matthews
Investor Relations Director
+44 (0)20 7820 1078
Financial Press:
Patrick d'Ancona
M: Communications
+44 (0)20 7153 1547
This announcement was approved by the Board of Directors on 23 September 2008.
The ordinary shares of Clipper Windpower Plc are traded on the Alternative Investment Market of the London Stock Exchange and are not
registered under the US Securities Act of 1933, as amended. Such shares may not be offered or sold to residents of the United States or to
persons acting on their behalf, or to other persons who are "United States Persons" within the meaning of the Regulation S as promulgated
under the Securities Act of 1993, unless such shares have been registered under the Securities Act or there is an available exemption from
registration.
Clipper Windpower Plc
Condensed Consolidated Income Statement
For the six months ended 30 June 2008
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
($'000s except loss per share Notes 30 June 2008 30 June 2007 31 December 2007
amounts)
Revenue 4 156,086 20,375 23,869
Cost of sales 5 (319,011) (81,667) (170,221)
Gross loss (162,925) (61,292) (146,352)
Project development (6,134) (3,709) (9,896)
Research and development (10,945) (3,820) (10,456)
Administrative expense 5 (27,735) (13,680) (29,770)
Other operating (24) 442 (2,066)
(expense)/income
Share of loss from joint (156) (324)
ventures (61)
Profit on sale of subsidiary - - 2,027
undertakings
Operating loss 5 (207,919) (82,120) (196,837)
Finance income 1,264 4,515 7,145
Finance costs (5,081) (201) (2,180)
Loss before tax (211,736) (77,806) (191,872)
Income tax 556 (236) (608)
Loss for the period (211,180) (78,042) (192,480)
Loss per share- basic and 6 184 73 179
diluted (cents)
Clipper Windpower Plc
Condensed Consolidated Balance Sheet
At 30 June 2008
Unaudited Unaudited Audited
At 30 June 2008 At 30 June 2007 At 31 December 2007
Notes $'000s $'000s $'000s
Non-current assets
Intangible assets, net 692 531 710
Property, plant and equipment, 39,451 28,252 32,889
net
Available for sale investments 8,969 1,873 7,744
Investment in joint ventures 17 - 33
Other assets 1,115 236 548
Non-current assets 50,244 30,892 41,924
Current assets
Inventories 7 675,554 270,540 523,195
Trade and other receivables, 47,439 3,491 3,566
net
Prepaid inventory 60,784 64,440 52,493
Other current assets 12,832 7,756 8,055
Cash 268,121 118,448 114,420
Current assets 1,064,730 464,675 701,729
Total assets 1,114,974 495,567 743,653
Current liabilities
Payments received in advance 8 669,733 205,507 531,652
Trade and other payables 153,688 63,615 88,553
Provisions 18,933 5,058 4,044
Income tax payable 3,198 199 402
Obligations under finance 1,104 244 250
leases
Total current liabilities 846,656 274,623 624,901
Non-current liabilities
Payments received in advance 8 253,468 94,652 91,715
Obligations under finance 341 1,140 482
leases
Provisions 14,688 702 13,341
Other non-current liabilities - 209 902
Total liabilities 1,115,153 371,326 731,341
Net (liabilities)/assets (179) 124,241 12,312
Equity
Share capital 9 24,027 19,712 19,772
Share premium account 374,429 188,625 188,982
Other reserves 60,323 49,647 51,739
Retained loss (458,958) (133,743) (248,181)
Total (deficit)/equity (179) 124,241 12,312
Clipper Windpower Plc
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2008
Unaudited Unaudited
Six months ended Six months ended
30 June 2008 30 June 2007
$'000s $'000s
Cash flows from operating activities
Operating loss (207,919) (82,391)
Adjustments for:
Depreciation and amortization 7,161 4,360
Write off of construction-in-progress 403 -
Loss on disposal of assets 12 -
Share-based compensation 1,299 2,083
Loss from investments in joint 156 105
ventures
(Increase)/decrease in receivables (43,937) 8,378
Increase in inventories (152,359) (145,796)
Increase in other current assets (13,069) (32,629)
Increase in trade and other payables 62,695 16,053
Increase in provisions 16,237 5,043
Decrease in income taxes payable (556) (236)
Increase in other noncurrent 202 209
liabilities
Increase in other assets (566) (36)
Increase in payments received in 299,834 121,010
advance
Cash used in operating activities (30,407) (103,847)
Income tax received/(paid) 1,190 (54)
Net cash used in operating activities (29,217) (103,901)
Cash flows from investing activities
Interest received 1,264 4,515
Investment in subsidiaries and joint (2,474) -
ventures
Purchase of property, plant and (11,254) (1,877)
equipment
Additions to intangible assets - (92)
Net cash (used in)/from investing (12,464) 2,546
activities
Cash flows from financing activities
Proceeds from issue of share capital 199,719 -
Costs associated with issue of share (314) -
capital
Capital element of finance lease (111) (59)
payments
Proceeds from exercise of share 795 1,299
options
Finance costs (4,524) (112)
Net cash from financing activities 195,565 1,128
Net increase/(decrease) in cash and 153,884 (100,227)
cash equivalents
Cash and cash equivalents at beginning 114,420 218,814
of period
Exchange losses on cash and cash (183) (139)
equivalents
Cash and cash equivalents at end of 268,121 118,448
period
Clipper Windpower Plc
Condensed Consolidated Statement of Changes in Shareholders' Equity
For the six months ended 30 June 2008
Foreign
currency
Share Share Revaluation Other translation Retained Total
capital premium reserve reserves reserve earnings equity
$'000s $'000s $'000s $'000s $'000s $'000s $'000s
Balance at 1 January 2007 19,526 187,513 265 48,215 (32) (56,533) 198,954
Net loss for the period - - - - - (78,042) (78,042)
Exchange differences arising - - - - (52) - (52)
on translation of foreign
currency recognised directly
in equity
Employee share option scheme:
Exercise of options 186 1,112 - (832) 832 1,298
Issuance of options - - - 2,083 - - 2,083
Balance at 30 June 2007 19,712 188,625 265 49,466 (84) (133,743) 124,241
Net loss for the period (114,438) (114,438)
Exchange differences arising - - - - (47) - (47)
on translation of foreign
currency recognised directly
in equity
Reversal of tax on warrants - - - 307 - - 307
Employee share option scheme:
Exercise of options 60 357 - - - - 417
Issuance of options - - - 1,832 - - 1,832
Balance at 31 December 2007 19,772 188,982 265 51,605 (131) (248,181) 12,312
Net loss for the period - - - - - (211,180) (211,180)
Exchange differences arising - - - - (64) - (64)
on translation of foreign
currency recognised directly
in equity
Shares and warrant issued 4,056 186,647 10,766 201,469
Less: cost of shares and - (1,796) - - - - (1,796)
warrant issued
Tax payable on warrant issued - - - (3,014) - - (3,014)
Employee share option scheme:
Exercise of options 199 596 - (403) - 403 795
Issuance of options - - - 1,299 - - 1,299
Balance at 30 June 2008 24,027 374,429 265 60,253 (195) (458,958) (179)
1. Basis of preparation
The consolidated results of Clipper Windpower Plc for the six months to 30 June 2008 have been prepared in accordance with IAS 34
Interim Financial Reporting, and using accounting policies consistent with International Financial Reporting Standards (IFRS) adopted for
use in the European Union.
The information for the year ended 31 December 2007 does not constitute statutory accounts as defined in section 240 of the Companies
Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those
accounts was not qualified and did not contain statements under section 237(2) or (3) of the Companies Act.
This interim report was approved by the Board of Directors on 23 September 2008. The interim report is unaudited but has been reviewed
by the auditors whose report is set out on page 27.
2. Accounting policies
The accounting policies are consistent with those adopted in the preparation of the Group's annual financial statements for the year
ended 31 December 2007.
3. Segment information
The following is an analysis of the Group's revenue and results by operating segment for the periods under review. For management
purposes, the Group is organised into two operating divisions, turbine technology and manufacturing and wind project development. These
divisions are the basis on which the Group reports its primary segment information. The directors believe that for the periods under review,
the Group's only material geographic segment was North America.
Turbine technology and manufacturing includes designing, engineering, manufacturing and the sale and servicing of wind turbines. Wind
project development includes activities associated with developing wind energy facilities including engineering, construction, project
financing, project asset management and ownership. Corporate pertains to administrative functions that support, but are not specifically
attributable to, the Group's operating segments.
Six months ended Turbine technology Wind project
30 June 2008 and manufacturing development Corporate Total
$'000s $'000s $'000s $'000s
Income statement
-Revenue 155,843 243 - 156,086
-Net loss (164,054) (16,760) (30,366) (211,180)
Balance sheet
-Assets 792,007 43,152 279,815 1,114,974
-Liabilities (1,088,227) (5,365) (21,561) (1,115,153)
Capital expenditures 9,247 182 1,691 11,120
Non-cash items
-Depreciation and 6,227 430 504 7,161
amortisation
-Share-based payments 284 40 975 1,299
Inventory, warranty and 122,240 16,689 6,156 145,085
other provisions
Six months ended Turbine technology Wind project
30 June 2007 and manufacturing development Corporate Total
$'000s $'000s $'000s $'000s
Income statement
-Revenue 20,340 35 - 20,375
-Net loss (34,852) (34,050) (9,140) (78,042)
Balance sheet
-Assets 235,211 130,607 129,749 495,567
-Liabilities (352,132) (12,821) (6,373) (371,326)
Capital expenditures 6,300 (4,891) 468 1,877
Non-cash items
-Depreciation and 3,756 357 247 4,360
amortisation
-Share-based payments 216 44 1,823 2,083
Inventory, warranty and - - - -
other provisions
3. Segment information (continued)
Year ended31 December 2007 Turbine technology Wind project Corporate$*000s Total$*000s
and development $*000s
manufacturing$*000s
Income statement
-Revenue 23,440 429 - 23,869
-Net loss (123,035) (44,714) (24,731) (192,480)
Balance sheet
-Assets 563,006 50,628 130,019 743,653
-Liabilities (687,698) (34,816) (8,827) (731,341)
Capital expenditure 13,394 1,906 1,432 16,732
Non-cash items
-Depreciation and 7,733 763 652 9,148
amortisation
-Share-based payments 564 89 3,262 3,915
-Inventory and warranty 74,099 33,021 - 107,120
provisions
All of the segment revenue reported above is from external customers located in North America. One customer accounted for 65.7% of
revenue for the period ended 30 June 2008 (and for the periods ended 30 June 2007 and 31 December 2007, two separate customers accounted for
99.8% and 85.8% of revenue, respectively).
Segment assets consist primarily of operating and invested cash, inventories, property, plant and equipment, intangible assets and
investments. Segment liabilities consist largely of payments in advance received for future turbine deliveries. Inventory provisions reduce
the carrying value of inventory for the estimated future costs of wind turbine blade and gearbox remediation, loss-making contracts and
excess and obsolete inventory.
4. Revenue and income
The Group recorded the following categories of revenue and income:
Six months ended 30 Six months ended 30 Year ended 31 December
June 2008$*000s June 2007$*000s 2007$*000s
Saleof turbines 150,051 20,292 23,222
Development revenue 150 35 378
Other revenue 5,885 48 269
Total revenue 156,086 20,375 23,869
Profit on sale of - - 2,027
subsidiaryundertakings
Finance income 1,264 4,515 7,145
Total 157,350 24,890 33,041
Included in the other revenue category in the current period is freight revenue charged to customers for shipping of turbine
components.
5. Operating loss
During the period, there were significant, additional charges primarily relating to remediation of supplier quality issues and blade
design. These costs are summarised below.
Six months ended Six months ended Year ended
30 June 2008 30 June 2007 31 December 2007
$'000s $'000s $'000s
Inventory write down
-provision for loss making 5,118 22,697 30,540
contracts
-provision for turbine 66,196 17,853 49,846
remediation
-provision for inventory 24,180 - 2,320
obsolescence
-provision for liquidated 7,910 - -
damages
103,404 40,550 82,706
Provision for warranties 10,036 - 20,061
Accrual for liquidated damages 25,489 275 4,353
and contract settlement
138,929 40,825 107,120
Provision-other 6,156 - -
145,085 40,825 107,120
The provision for loss making contracts relates to wind projects for which costs will exceed contractual economic benefit. The provision
for turbine remediation relates to the cost to repair blades, including both remediation efforts resulting from the 2007 blade manufacturing
deficiencies
5. Operating loss (continued)
and the recently identified blade quality issue and gearboxes on wind turbines held in inventories. The provision for inventory
obsolescence pertains to the difference between inventory's carrying value and net realisable value on certain un-certified products. The
provision for warranties relates to contracts where the expected cost of the warranty exceeds the economic benefits anticipated to arise
from the contractual arrangements as well as exceptional costs relating to blade and gearbox remediation on commissioned turbines. The
accrual for liquidated damages relates to the contractual penalties arising from the late delivery of turbines and related services on
certain contracts. Provision-other relates to various litigation related matters.
6. Loss per share
The calculation of the basic and diluted loss per share is based on the following:
30 June 2008 30 June 2007 31 December 2007
Loss
Loss for the purpose of basic (211,180)
and diluted loss per share (78,042) (192,480)
($*000s)
test test
Number of shares
Weighted average number of
ordinary shares for the
purpose of basic
and diluted loss per share 114,584,677
107,256,694 107,689,464
Basic and diluted loss per (184)
share (cents) (73)
(179)
Unexercised share options and warrants to purchase 15,664,276 shares, 13,956,888 shares and 12,012,271 shares for the six months ended
30 June 2008 and 30 June 2007 and the year ended 31 December 2007, respectively, were not included in the computation of basic and diluted
EPS because the exercise of the options and warrants would be anti-dilutive. Of the unexercised share options and warrants, 431,583 share
options were out of the money at 30 June 2008 (30 June 2007: 50,011; 31 December 2007: 100,006).
7. Inventories
30 June 2008 30 June 2007 31 December 2007
$'000s $'000s $'000s
Finished goods 123,001 - 12,284
Less: Finished goods - - -
-provision
Net Finished goods 123,001 - 12,284
Material and components 350,960 158,167 196,469
Less: Material and components (73,218) (7,672) (10,794)
-provision
Net Material and components 277,742 150,495 185,675
Development and construction 376,642 148,676 397,901
projects work in progress
Less: Development and (101,831) (28,631) (72,665)
construction projects work in
progress- provision
Net Development and 274,811 120,045 325,236
construction projects held for
sale
Total net inventory 675,554 523,195
270,540
Development projects includes both construction and development costs together with all turbine assemblies and components at development
sites.
There is no material difference between the balance sheet value of inventories and its replacement cost.
8. Payments received in advance
Current$*000s Non current$*000s Total$*000s
At 30 June 2007 205,507 94,652 300,159
Customer deposits received 283,704 41,994 325,698
Recognised as revenue in the (2,490) - (2,490)
period
Transferred to current 44,931 (44,931) -
At 31 December 2007 531,652 91,715 623,367
Customer deposits received 244,989 192,675 437,664
Recognised as revenue in the (137,830) - (137,830)
period
Transferred to current 30,922 (30,922) -
At 30 June 2008 669,733 253,468 923,201
Payments in advance reflect receipt of contractually-required advance deposits to order turbine components and milestone payments for
progress on delivery and commissioning of turbines.
9. Share capital
30 June 2008 30 June 2007 31 December 2007
Authorised $*000s $*000s $*000s
165,000,000 ordinary shares of 27,392
10 pence each (30 June 2007 27,392 27,392
and 31 December 2007:
150,000,000 ordinary shares)
50,000 redeemable preference 91
shares of �1 each (30 June 91 91
2007 and 31 December 2007:
50,000 ordinary shares)
Allotted, called up and fully
paid
129,749,954 ordinary shares of 24,027
10 pence each (30 June 19,712 19,772
2007:107,884,112, 31 December
2007:108,210,646)
On 12 May 2008, the Company issued 15.8 million shares and 2.9 million warrants to purchase ordinary shares with a strike price of �5.38
per share to One Equity Partners ("One Equity") for consideration of US $150 million. On 22 April 2008, institutional shareholders, through
a private placement, subscribed to 4.7 million new ordinary shares of the Company at a price per share of 537.5 pence raising gross proceeds
of �25.2 million (US $50 million). The proceeds raised in the offerings will be used for the ongoing cash requirements of the Group. On 21
June 2008, the Company issued 140,660 new ordinary shares with a value on that date of US $1.5 million to Lehman Brothers as payment for
services rendered regarding the share capital raising transactions.
Issued share capital as at 30 June 2008 amounted to $24.0 million (30 June 2007: $19.7 million and 31 December 2007: $19.8 million).
During the period ended 30 June 2008, the actual number of share options exercised was 879,522 (six months ended 30 June 2007: 1,010,168 and
year ended 31 December 2007: 1,337,439). The total consideration received from the exercise of these options was $0.8 million (six months
ended 30 June 2007: $1.3 million and 31 December 2007: $1.7 million) of which $0.2 million was credited to share capital (six months ended
30 June 2007: $0.2 million and 31 December 2007: $0.2 million) and the remaining $0.6 million (six months ended 30 June 2007: $1.1 million
and 31 December 2007: $1.5 million) was credited to share premium.
10. Reconciliation of Movements in Group Shareholders' Funds
Six months ended Six months ended Year ended
30 June 2008 30 June 2007 31 December 2007
$'000s $'000s $'000s
Loss for the financial period (211,180) (192,480)
(78,042)
Exchange differences on (64)
foreign currency translation (52) (99)
(211,244) (192,579)
(78,094)
Par value of new shares issued 4,255 246
186
Share premium arising 187,243 1,469
1,112
Share options and warrant 12,065 3,915
issued 2,083
Cost of shares and warrant (1,796) - -
issued
Tax on warrant (3,014) 307
(accrued)/reversed -
Net addition to (deduction (12,491)
from) shareholders' funds (74,713) (186,642)
Opening shareholders' funds 12,312 198,954
198,954
Closing shareholders' funds (179) 12,312
124,241
On 12 May 2008, the Company issued a call option to One Equity Partners that entitles One Equity Partners to purchase 2.9 million new
ordinary shares in the Company at a price of �5.38 for up to five years. This option was assigned a value of $10.8 million, based on a
calculation using the Black Scholes option pricing model, and credited to other reserves within shareholders' equity.
11. Contingencies
Contingent asset
In 2006, the Group sold a 50% membership interest in four project limited liability companies ("LLCs") and an 85% membership interest in
one project LLC. In the event certain notice-to-proceed conditions in the contracts are satisfied, the Group will receive additional
contingent purchase price consideration for the project companies up to a maximum of $33.3 million for the first four project companies with
payments on the fifth project company based on the final generation capacity of the site. During the period, no additional contingent
purchase price consideration was received.
Contingent liability
The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by
management for these litigation matters when a probable loss estimate can be made.
11. Contingencies (continued)
In 2004, a former employee initiated litigation alleging various monetary claims related to breach of an employment agreement and
entitlement to 875,000 ordinary shares of Clipper Windpower Plc at a purchase price of $0.25 per share. The Company filed an appeal based on
its belief that the options had expired and were therefore cancelled. On 3 June 2008, the Court of Appeal found in favour of the former
employee stating that the options had not expired and that the former employee was still entitled to the options for a further five years.
Because the share options were originally issued prior to 7 November 2002 and the court judgment interpreted but did not modify the original
options granted, no compensation expense has been recorded based on the transitional provisions of IFRS 2: Share-based payments. A second
claim was made by the former employee alleging a loss from declining market value when compared to the time the former employee attempted to
exercise the disputed options. Details of the litigation provision have not been disclosed in further detail as such information is considered to be seriously prejudicial to the position of
the Group.
In 2006, the Group sold part of its investment in five subsidiary undertakings. It has retained an interest, either as a joint venture
partner or investor in each of these wind farm development projects. Each project was sold on the basis that on completion, it would achieve
a contractually-agreed capacity. If one of the Group's projects has a lower capacity upon completion than that anticipated at commencement,
or falls short of other contractually-agreed commitments, the Group is required to transfer a new project in its place or, failing that, the
Group is responsible for reimbursing its joint venture partner for any amounts paid plus interest at LIBOR plus 2% up to a maximum of $4
million. The Directors consider it remote that any payments will arise under this arrangement and, accordingly, have recognised revenue
based on their view of the probable outcome of this transaction.
The Group has signed turbine supply agreements with customers that require the Group to make payments to the buyers in the event the
Group is unable to meet certain conditions of the contracts relating to delivery, commissioning and assembly dates in the ordinary course of
business. The Group is also contractually committed for liquidated damages in certain turbine supply agreements if turbine availability does
not meet minimum stated thresholds or the power curve does not meet specified levels of output. The specific terms vary by contract but, in
general, the maximum potential future payments under the guarantees are subject to daily and overall project limits. Such costs are accrued
once the agreed delivery date expires, as time passes and in accordance with contractual terms unless such contracts are loss making, in
which case total losses on the contracts are recognised in full.
12. Related party transactions
In January 2008, the Group made an investment of $2.1 million in a tower company. This expenditure is reflected in research and
development expense in the consolidated interim income statement due to the company being a development stage enterprise with there
currently being insufficient certainty that the investment will generate
12. Related party transactions (continued)
future economic benefits. One of the Group's directors is also a director of the investee company, where his son is a principal.
13. Events after the balance sheet date
On 30 July 2008, Clipper announced the formation of a joint venture, Titan, with BP Alternative Energy ("BP") to develop a single 5,050
MW wind energy project in South Dakota, USA. BP will acquire 1,750 MW of wind development assets from the Company for an initial price of
$26.3 million. As the project moves forward to construction phases, the new joint venture has agreed to purchase up to 2,000 Clipper Liberty
turbines over a period through July 2025, subject to the satisfaction of certain conditions in accordance with its Master Turbine Supply
Agreement.
INDEPENDENT REVIEW REPORT TO CLIPPER WINDPOWER PLC
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six
months ended 30 June 2008 which comprises the condensed income statement, the condensed balance sheet, the condensed cash flow statement,
the condensed statement of changes in equity and related notes 1 to 13. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements 2410 issued by the Auditing
Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange
As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
London, UK
23 September 2008
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FKQKPKBKKDCB
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