TIDMCWP
RNS Number : 3019S
Clipper Windpower Plc
15 May 2009
CLIPPER WINDPOWER PLC
ANNOUNCES RESULTS FOR THE YEAR ENDED DECEMBER 31, 2008
London, (UK), Carpinteria, CA (USA). Clipper Windpower Plc (London Stock
Exchange: AIM-CWP) and its subsidiaries (together "Clipper", "Clipper
Windpower," or "the Group"), a leading manufacturer of advanced wind turbines
and developer of wind energy projects, is pleased to announce its results for
the year ended December 31, 2008.
Highlights:
* Dramatic revenue growth to $737.3 million vs. 2007 revenues of $23.8 million.
Sales of 248 Liberty turbines (620 MW) in 2008 vs. 9 turbines in 2007 (23 MW).
* Cash balance of $209.0 million at December 31, 2008 vs. $114.4 million at
December 31, 2007. Net cash outflow to date is in line with expectations and
reflects remediation activities and certain customer order deferrals to 2010.
Current cash balance approximates $80.0 million, which has been trending
upwards, and is anticipated to be higher at the end of 2009 due to expected net
cash inflows in the second half of year. Although not required, alternatives are under review to further strengthen the
balance sheet and an application has been submitted to U.S. Department of Energy
for loan guaranty support.
* Successfully ramped up production: 289 turbines (723 MW) were produced and 324
turbines (810 MW) installed in 2008.
* Operational milestones achieved: as of April 2009, over 335 turbines (838 MW)
commissioned and 178 turbines exceeded 1,000 operating hours threshold.
* Net loss for 2008 of $313.3 million vs. $192.5 million loss in 2007. Loss
reflects $235.0 million of charges primarily incurred for remediation activity
and lower than expected revenues from turbine sales due to late grid
interconnections at customers' sites.
* Blade skin remediation over 50% complete and expected to be fully completed in
Q3 2009. All expected remediation costs are provided for in 2008 financials.
* Expect to deliver approximately 300 to 325 turbines (750 MW to 813 MW) in 2009.
84 turbines commissioned through April 2009 are in line with expectations.
* Reduced costs in line with lower production levels: total operating costs
expected to be reduced by at least 15% in 2009 (excluding fleet services)
including 11% headcount reduction.
* 2009 cash flow savings target of $125 million from lower component costs and
implementation of new working capital model.
* 2009 full year EBIT margins expected to benefit from lower component,
manufacturing and remediation costs, offset somewhat by higher steel costs in
first half of 2009 and lower production volumes during the year.
* Clipper's 50% stake in 5,050 MW Titan wind project as of October 2008 includes a
turbine supply agreement of up to 2,020 Liberty turbines.
* Clipper's current 10,000 MW development asset portfolio includes 800 MW of
advance stage projects.
Doug Pertz, Clipper's Chief Executive Officer and President, commented:
"Clipper's tremendous revenue growth in 2008 highlights our important transition
from a technology development company to the delivery of industrial-scale
production of the 2.5 MW Liberty turbine. We are aggressively meeting the
challenges presented by the current difficult market conditions, while ensuring
we retain the flexibility to scale up the business when growth returns. The
Obama Administration has set a goal of doubling U.S. wind generating capacity
within three years and has approved legislation to support technologies
essential to accelerating wind deployment."
Clipper's management will host a conference call for analysts and shareholders
today at 09:00 hrs (London time). To join the conference call, please dial +44
(0) 20 7784 1036 (U.K. Local) or +1 718 354 1152 (U.S. Local), participation
code: 8096624 (listen only). Presentation slides will be available for viewing
on Clipper's website at http://www.clipperwind.com during the conference call.
Forward Looking Statements
Statements contained in this press release and the conference call, particularly
those regarding the possible or assumed future performance of the Company,
industry growth or other trend projections and any estimated company earnings
are, or may be, forward looking statements and, as such, involve risks and
uncertainties. Any such statements may be influenced by factors that could cause
actual outcomes and results to be materially different from those expressed or
implied by these statements.
For further information please contact:
Investors:
Jenny Matthews
Investor Relations Director
+44 (0)20 7820 1078
JPMorgan Cazenove (Nominated Adviser and Corporate Broker to Clipper):
Patrick Magee
+44 (0)207 588 2828
Financial Press:
Patrick d'Ancona or Charlotte Kirkham
M: Communications
+44 (0)20 7153 1547 / 1531
This announcement was approved by the Board of Directors on May 14, 2009. A copy
of this announcement and the Annual Report for the year ended December 31, 2008,
including a Notice of Annual General Meeting, will be available for review on
Clipper's website at http://www.clipperwind.com.
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
U.S. Securities Act 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 Regulation S as
promulgated under the Securities Act of 1933, unless such shares have been
registered under the Securities Act or there is an available exemption from
registration.
JOINT STATEMENT BY THE CHAIRMAN AND THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
2008 was one of the most volatile years ever experienced with the global economy
shifting from rapid growth to sharp contraction in the fourth quarter and
continuing into 2009. Debt markets froze, consumer spending declined and
corporate capital investments came to a halt. Clipper and the U.S. wind market
have been profoundly impacted by the dramatic dislocation of the debt markets
limiting our customers' ability to finance wind projects and turbine purchases.
While Clipper aggressively addressed the rapidly deteriorating market, it also
met the challenges of transitioning from early stages of technology adoption to
delivery of industrial-scale production and high-volume commissioning of the 2.5
MW Liberty turbine. The Group, in only its second year of production, met the
rigorous demands of rapidly expanding manufacturing activities with 289 turbines
(722 MW) completed at its facility in Cedar Rapids, Iowa, compared to total US
turbine installations of approximately 8,400 MW. Revenue in 2008 was $737
million compared with $24 million in 2007, reflecting sales of 248 turbines (620
MW) in 2008 compared to 9 turbines (23 MW) in 2007. Net losses of $313.3
million and $192.5 million were incurred in 2008 and 2007 respectively,
primarily attributable to the significant costs in ramping up all facets of the
Group's operations, along with the remediation of early stage technology
adoption issues, including design-related and supply chain/production
refinements. The net loss in 2008 is higher than was anticipated at mid-year due
to increased provisions for remediation activities and lower than expected
revenues from turbine sales due to late grid interconnections at customers'
sites. Net losses for 2008 and 2007 include provisions for turbine remediation
related expenses, loss making contracts, inventory obsolescence and other
non-recurring expenses of $235.0 million and $107.1 million, respectively.
Key operational milestones for the Liberty turbine were achieved: the full
International Electrotechnical Commission power curve validation and the
drivetrain test validating the Clipper gearbox design's capability to withstand
the 20-year life. As of April 2009, over 335 Liberty turbines (838 MW) have been
commissioned and 178 have exceeded the 1,000 operating hours threshold. The
average availability of new turbines coming online free of remediation are well
ahead of the industry standard for new wind turbine introductions.
While significantly stepping up production during the year, the Group also
successfully completed the remediation of turbine drivetrains and blades at
customers' sites identified during 2007. In September 2008, the Group detected
a limited number of additional blade skin defects during routine turbine service
inspections. Engineering analysis determined the root cause to be a deficient
manufacturing process at the blade supplier, which, by October 2008, was
rectified for all new blade production. Concurrently, the Group implemented a
field remediation program for all previously produced blades, which is expected
to be completed by the end of the third quarter of 2009. As of April 2009,
approximately 50% of the blades have been repaired in line with the estimated
costs which have been provided for in the 2008 financial statements.
These remediation programs, while common in the early stages of deployment and
operational shakedown of wind turbines, have been very expensive and disruptive
to the Group's operations. The direct and indirect costs of all remediation
programs comprise over $300 million of the operating losses recorded for 2007
and 2008. While these costs are large, Clipper has pursued long term solutions
to remediate issues in both manufacturing and operations. Clipper has worked
with its customers in a straightforward, open manner to develop agreed
solutions, and has thus earned their confidence in Clipper as a trusted
supplier.
With 178 units in the field with a range of 1,000 to 8,000 hours of operation
the Liberty turbine's major components have now undergone extensive technical
vetting, along with refinements in quality processes, component and full system
testing, and exposure to extreme operating conditions. This is providing
increasing confidence that the adoption issues are rapidly diminishing.
Responding to the Economic Downturn
Reducing Costs, Managing Cash and Working Capital
The current severe global economic and credit dislocations, combined with lower
energy prices, are presenting new challenges for the wind industry and Clipper.
After the strong U.S. Market growth in 2007 and 2008 of 114% and 49%,
respectively, the global financial turmoil has affected the Group's customers
and the entire wind industry. The constrained credit markets and reduced
availability of financing for wind projects have markedly slowed activity in
U.S. wind deployment. Customers have responded by reducing capital expenditures
and delaying the timing of turbine deliveries, which have resulted in
significantly fewer installations planned for 2009 and 2010. Clipper is
responding aggressively to the current difficult economic conditions, working
closely with our customers, and proactively managing to align with current
demand. The Group has taken swift measures to improve results and conserve cash
through reductions in operating expenses and product costs, combined with
improvements in working capital management.
In response to the current extraordinary economic and market conditions,
Clipper has implemented a series of initiatives to reduce costs, improve cash
flow and profitability while also reducing production to match reduced firm
order levels in 2009. Steps have been taken to lower the Group's fixed costs and
ensure efficient utilization of the Cedar Rapid's manufacturing plant, further
enhancing Clipper's variable cost business model.
Due to customer deferrals of some projects in 2009, and the ensuing lower number
of turbines ordered and shipped, Clipper reduced its workforce by 90 employees
in early 2009, representing 11% of the total employee base and 30% of
production-related areas. This action and other cost savings implemented in 2009
are expected to reduce operating costs by approximately 15%, excluding
activities at customer sites. Clipper has also implemented a new working capital
model which enhances the efficiency of the Group's cash cycle by negotiating
favorable supplier payment terms and substantially reducing down payments on
certain key components. In addition, significant efforts have been made to
reduce inventory and match component purchases to 2009 business levels to
improve utilization of working capital. This new working capital model should
enable the Group to save over $125.0 million in cash flow in 2009 and positions
it to leverage greater future cash flow and profitability.
2009 Objectives and Outlook
In 2009, Clipper expects continued dislocation of the debt markets resulting in
a continued unfavorable impact on our current customers and the wind market.
Given these extraordinary challenges, management is focused on three priorities:
- Increase cash flow to offset the impact of deferred and reduced orders;
- Reduce operating and component costs to improve margins; and
- Prove turbine design and operation.
=--Successfully complete remediation activities
=--Improve turbine availability to exceed industry averages
=--Continue to qualify the Liberty turbine for third party financing
Clipper has aligned both internal programs and management incentives to achieve
these three objectives and establish the Clipper Liberty as a leading wind
turbine with advanced and efficient technology for multi-megawatt power
generation.
The Group expects to achieve improved operating results in 2009 despite a
difficult and challenging year for the wind industry. Clipper anticipates the
sale of approximately 300 to 325 Liberty turbines in 2009 based on the Company's
current order book and customer project schedules. Although margin improvement
is anticipated, margin growth will be constrained by lower than market legacy
pricing on contracts entered during the Liberty introduction phase. After 2009,
legacy pricing will have less of a negative impact on Clipper margins. Margins
are also expected to benefit from lower component and manufacturing costs,
though the benefit will be somewhat offset in the first half of 2009 by higher
steel prices for longer lead time components such as towers that were contracted
in 2008.
Strong Wind Support by the Obama Administration
Despite the current slowdown, the renewable sector and particularly wind energy
is gaining significant public and regulatory support that should accelerate wind
turbine production and project development to much greater long-term growth
rates, well beyond those envisioned just a few years ago. The Obama
Administration has set a goal of doubling wind generating capacity within three
years. Despite the dramatic market slowdown in the last quarter of the year,
approximately 8,400 MW of wind capacity was added in 2008 making the U.S. the
largest wind market in the world with installed capacity of 25,400 MW.
The approval of the American Recovery and Reinvestment Act (the "Stimulus
Bill") by the U.S. legislature in February 2009 is based on three core
initiatives - education, health care and renewable energy. Pursuant to the
latter, new Department of Energy (DOE) support programs should lead to
large-scale capital formation for viable renewable energy technologies and
transmission projects essential to accelerating wind deployment. Furthermore,
the three-year extension of the Production Tax Credit (PTC) and the option to
elect a 30% Investment Tax Credit or cash grant in place of the PTC are also
potent drivers to the financing of wind industry projects and meeting the
Administration's goal of adding 25,000 MW over the next three years.
A federal Renewable Portfolio Standard (RPS) has also been introduced and, if
passed as legislation later in 2009, will be another significant driver of
long-term demand for wind energy and growth of installed wind capacity in the
U.S.
Titan Partnership Formed
In October 2008, Clipper completed a joint venture agreement with BP Wind Energy
with their investment in a 50% stake in the 5,050 MW Titan Wind Project in South
Dakota. Known for its outstanding wind resource, the Titan Project is positioned
to become one of the leading large-scale suppliers of wind energy from the
Dakotas to the broader US electric power market. The joint venture includes a
Master Turbine Sale Agreement for the supply of up to 2,020 Clipper Liberty
turbines to the project as it is built out. Together, Clipper and BP represent a
formidable development team to advance a project of this scale, including
long-standing experience in wind turbine technology, wind project development,
and large-scale infrastructure development.
One of the key success factors for the development of the Titan Project is the
build-out of transmission capability to a major electric power market. The Obama
Administration has recognized the need for substantial transmission build-out to
support the current national renewable energy initiatives and has included
transmission as a priority element of the $30 billion portion of the stimulus
package directed to renewable energy. In addition, legislation has been proposed
to empower the Department of Interior and the Federal Energy Regulatory
Commission ("FERC") with interstate transmission siting authority, and the
subject of rate basing transmission for renewables is being debated for the
first time. Titan is well situated to participate in federal support for
transmission as substantial transmission feasibility work has already been
conducted for Titan, and other key project elements are progressing.
Pressing Ahead on the Technology Front
Clipper is also working toward the future. We believe that wind turbines will
become larger and that the vast offshore wind resource will be harnessed,
particularly in Europe where land for wind farms is in short supply. Clipper's
offshore 10 MW turbine development project made considerable progress in 2008
with the Crown Estate's commitment to purchase the first commercial prototype,
in addition to major planned investment by the U.K. Government's New and
Renewable Energy Center ("NaREC") and One Northeast for development of a major
campus for advanced wind power testing facilities adjacent to Clipper's
engineering center in Blyth Harbor. These test facilities will replicate the
rigorous loads experienced by offshore turbine operation, and should provide
high technical confidence in the 10 MW turbine before its planned 2012-2013
deployment timeframe. The engineering and design work is progressing on a now
extended schedule which reflects a more conservative budget due to current
economic conditions. So far, this effort has yielded significant new technology
and patent filings, further strengthening the potential for product line
extensions and confirming Clipper's continuing technology leadership in the
industry.
Clipper is undertaking these efforts in light of the U.K. government's 2008
announced goal for 25,000 MW of wind energy by 2020 (about 20% of the present
world total wind capacity), along with significant new incentives in the pricing
for offshore wind power delivery. Additionally, the US is now making steady
progress for initiating offshore wind energy development under direction of the
FERC rather than individual state regulatory authorities.
Clipper Growth Prospects and Drivers
Clipper is well positioned in the manufacturing sector of the wind industry with
its proprietary and proven 2.5 MW technology. The U.S. Department of Energy in
2007 described the Liberty turbine as "the most advanced and efficient
technology in the wind industry." Customers have begun to appreciate that the
Liberty modular design and proprietary drivetrain technology should lead to
overall lower cost of energy over the life of the turbine compared to existing
conventional turbine designs. As a result, there has been a steady adoption of
the Liberty by some of the most sophisticated buyers in the U.S.
Clipper also offers a geographically diversified development portfolio within
the U.S. with over 10,000 MW under development, including over 800 MW of
advanced-stage projects. The company's strategy is to use these developments
assets in combination with the Liberty turbine, creating, in effect, a one-stop
shop for customers seeking to introduce renewable power generating capability.
The combination of Clipper's advanced stage development assets with the Liberty
turbine is particularly attractive to new entrants to wind energy generation -
utilities incentivized by the new federal regulations coming online to meet
state and national renewable power generation standards.
Looking Ahead
Clipper is now firmly beyond the start-up phase and positioned for long-term
expansion and improved profitability. Having just completed its second full year
of turbine production, the 722 MW of wind capacity we produced for the year
represented a healthy 8% share of the U.S. market in 2008. As we weather the
current downturn and turbine demand recovers, the prospect for resuming a strong
long-term growth trend is very bright. The U.S. general public is becoming much
more apprehensive of the risk of energy supply interruptions and price
volatility to the economy, as well as, the environmental damage of fossil fuels,
therefore becoming much more committed to renewable energy sources. The new U.S.
administration has recognized this, responding with directives for strong
renewable support, adding further momentum to the wind industry.
The Liberty turbine's technological and operational advantages should gain
broadening acceptance as the remaining start-up issues fade, a pattern which has
been experienced by key members of our management and engineering teams on
earlier generations of turbines which, once past the initial adoption stage,
reached highly successful and profitable volumes. Accordingly, we believe
Clipper is well positioned to further strengthen its US market share and should
also benefit from planned entry into the U.K. and other markets in 2010.
Many new challenges and opportunities will undoubtedly arise as we move
ahead, and we are confident that our talented and committed Clipper team will
manage these effectively, lifting the Group to increasingly greater share of the
global wind market and enhancing greater shareholder value in 2009 and beyond.
We are deeply appreciative of the exceptional effort, dedication and commitment
of our employees, shareholders and fellow Directors, which have made Clipper's
great progress possible.
+----------------------------------------+----------------------------------------+
| ___________________________________ | ___________________________________ |
+----------------------------------------+----------------------------------------+
| James G.P. Dehlsen | Douglas A. Pertz |
+----------------------------------------+----------------------------------------+
| Chairman of the Board of Directors | President and Chief Executive Officer |
+----------------------------------------+----------------------------------------+
Management and Board Changes
By James G.P. Dehlsen:
Since Clipper's founding in 2001, I have served as Chairman and Chief Executive
Officer. During 2009, I transitioned from the Chief Executive Officer position,
while continuing to serve as Chairman of the Board of Directors.
In September 2008, the Group announced the appointment of Doug Pertz as
President and Chief Executive Officer of Clipper. I have worked closely with
Doug since he joined from One Equity Partners in May 2008 as interim Chief
Operating Officer, and have gained high confidence in his ability to manage
Clipper toward strong future growth. Doug's effective and energetic leadership
is exemplified in how the Clipper team has responded positively to the current
challenging environment.
In May and November, respectively, Clipper welcomed the appointments of Dr.
Joseph Michels and Mr. Kenneth C. Brown to the Board of Directors (the "Board").
Dr. Michels and Mr. Brown are Managing Directors of One Equity Partners, and
have brought valuable operating and energy industry perspectives to the Board.
The Group also announced in September 2008 the appointment of Michael Keane as
Chief Financial Officer and Senior Vice President. Michael's proven abilities
with technology and manufacturing public companies are a great asset as the
scale of Clipper's operations continues to grow.
FINANCIAL REVIEW
The results for the Group for 2008 and the comparative year have been stated in
accordance with International Financial Reporting Standards ("IFRS").
Summary Financial Results
2008 was the second year of production and the first year of recognizing
substantial revenue from sales of Clipper's Liberty 2.5 MW wind turbines.
Revenue in 2008 was $737.3 million primarily from sales of 248 turbines compared
to $23.9 million from sales of 9 turbines in 2007. Net loss in 2008 was $313.3
million or $2.56 loss per share compared to $192.5 million or $1.79 loss per
share in 2007. The loss in 2008 includes $235.0 million of provisions for
turbine remediation related expenses, loss making contracts, inventory
obsolescence and other non-recurring expenses, compared to $107.1 million of
such expenses in 2007.
Income Statement
Revenue
Revenue for the year ended December 31, 2008 was $737.3 million from delivery
and installation of 248 2.5 MW Liberty turbines compared to $23.9 million from
delivery and installation of 9 turbines in 2007. Revenue in 2008 includes $140.2
million from the completion of one turn-key wind development project, including
40 turbines, that was constructed in 2007 - 2008 by Clipper and delivered to the
customer in 2008. Customer delays in obtaining connections to the grid deferred
completion of several projects at the end of 2008 resulting in lower than
expected turbine commissionings and, thus, deferral of revenue recognition until
early 2009.
Gross loss
Gross loss for the year ended December 31, 2008 was $250.8 million compared to
$146.4 million in 2007. The gross loss includes provisions for turbine
remediation related expenses, loss making contracts, inventory obsolescence and
other non-recurring expenses of $222.0 million compared to $107.1 million in
2007. All remediation work relating to the drivetrain and blade design upgrades
identified in 2007 were completed by the third quarter of 2008. In addition,
work relating to a non-structural blade skin defect identified in the third
quarter of 2008 is ongoing and is expected to be completed in the third quarter
of 2009; however, the expected costs to complete the project have been provided
in 2008. The blade supplier's manufacturing process, which was identified as the
cause of the defect, was corrected in October of 2008.
Project development expenses
Project development expenses, which primarily include costs associated with
identification of potential wind project sites, securing land rights, and
pursuing various permits and studies, increased from $9.9 million in 2007 to
$15.7 million in 2008. The increase reflects the continued strategic emphasis by
the Company to identify and develop locations for future wind projects. As of
December 31, 2008, the Company had a project development portfolio, at various
stages, approximating 10,000 MW.
Research and development expenses
Research and development expenses, which include engineering costs for both
advanced technology activities such as the 10 MW Britannia project in Blyth
Harbour, England and support of ongoing operations, increased from $10.5 million
in 2007 to $21.1 million in 2008. The increase reflects additional staffing in
2008 for these initiatives.
Administrative expenses
Administrative expenses increased from $29.8 million in 2007 to $55.7 million in
2008 primarily from increased staffing to strengthen the infrastructure to and
support the Group's growth, initial cost to implement a new ERP system,
increased sales commission and a $13.0 million provision related to a litigation
matter.
Profit from sale of subsidiary undertakings
Profit from sale of subsidiary undertakings increased from $2.0 million in 2007
to $30.9 million in 2008, primarily from sale of a 50% interest in an early
stage development project to BP Alternative Energy. The project, referred to as
the Titan Wind Project, is located in South Dakota and has the potential to
become a 5,050 MW wind facility.
Balance Sheet
Non-current assets
Non-current assets increased from $41.9 million at the end of 2007 to $79.0
million at the end of 2008, primarily due to a $10.0 million long-term
receivable from the sale of an interest in an early stage development project,
increased investments in joint ventures to fund project site build-outs and
investments made in equipment and IT hardware.
Inventories
Inventories increased from $523.2 million at the end of 2007 to $557.4 million
at the end of 2008. The composition of gross inventories remained relatively
consistent between the two periods with raw material and component inventory
comprising approximately one-third of the total, while inventories at project
sites comprise the other two-thirds. At the end of 2007, there was a significant
build up of inventory reflecting the increased production activity combined with
some delays in commissioning similar to what was experienced at the end of 2008.
Trade and other receivables
Trade receivables increased from $3.6 million at the end of 2007 to $97.9
million at the end of 2008 reflecting the increased sales volumes and invoicing
relative to meeting various production and delivery milestones on customer
projects. In addition, the credit period was in some cases extended while
remediation was ongoing. Trade receivables are expected to decrease toward the
end of 2009 as remediation activities complete and the project delivery schedule
is lower.
Cash
Cash and cash equivalents increased from $114.4 million at the end of 2007 to
$209.0 million at the end of 2008. The increase is primarily a result of
additional customer deposits in addition to $200.0 million of equity capital
infusions ($150.0 million from One Equity Partners, a private equity firm
affiliated with JPMorgan Chase, and $50.0 million from existing institutional
investors), partly offset by negative cash flows from operations and remediation
activities.
Deferred revenue
Deferred revenue (i.e., customer deposits), increased from $623.4 million at the
end of 2007 to $802.5 million at the end of 2008, reflecting the increased
progress payments from Clipper's order book and the more advanced stage of
completions of ongoing projects. This is reflected on the balance sheet in both
current and non-current liabilities.
Cash Flows
Cash outflows from operating activities increased from $87.8 million in 2007 to
$102.3 million in 2008 reflecting the increased net operating loss, mostly as a
result of various remediation activities and associated expenditures. The
negative cash flow from operating activities was primarily due to the operating
loss of $312.0 million, increase in receivables and inventories of $96.0 million
and $34.3 million, respectively, partly offset by $179.5 million increase to
customer deposits and $138.8 million in additional provisions.
On May 13, 2009, the Group entered into an arrangement for a $20.0 million
secured loan funded by a customer associated with the deferral of certain 2009
committed turbine deliveries into 2010. The secured loan will mature on March
31, 2011.
Despite this negative cash flow, the Directors have a reasonable
expectation that the Group has and will continue to have adequate resources to
ensure that future cash flow will be sufficiently positive to enable the Group
to continue to operate as a going concern for the foreseeable future.
CONSOLIDATED INCOME STATEMENT
+-------------------------------------+-----------------+-----------------+
| | | |
+-------------------------------------+-----------------+-----------------+
| | Year ended December 31, |
+-------------------------------------+-----------------------------------+
| | 2008 | 2007 |
+-------------------------------------+-----------------+-----------------+
| |(Dollars in thousands, except per |
| | share amount) |
+-------------------------------------+-----------------------------------+
| | | |
+-------------------------------------+-----------------+-----------------+
| Revenue | 737,326 | 23,869 |
+-------------------------------------+-----------------+-----------------+
| Cost of sales | (988,109) | (170,221) |
+-------------------------------------+-----------------+-----------------+
| Gross loss | (250,783) | (146,352) |
+-------------------------------------+-----------------+-----------------+
| Project development | (15,735) | (9,896) |
+-------------------------------------+-----------------+-----------------+
| Research and development | (21,064) | (10,456) |
+-------------------------------------+-----------------+-----------------+
| Administrative expense | (55,720) | (29,770) |
+-------------------------------------+-----------------+-----------------+
| Other operating expense | (207) | (2,066) |
+-------------------------------------+-----------------+-----------------+
| Share of profit/(loss) from joint | 601 | (324) |
| ventures | | |
+-------------------------------------+-----------------+-----------------+
| Profit on sale of subsidiary | 30,908 | 2,027 |
| undertakings | | |
+-------------------------------------+-----------------+-----------------+
| Operating loss | (312,000) | (196,837) |
+-------------------------------------+-----------------+-----------------+
| Investment revenue | 3,119 | 7,145 |
+-------------------------------------+-----------------+-----------------+
| Finance costs | (4,358) | (2,180) |
+-------------------------------------+-----------------+-----------------+
| Loss before tax | (313,239) | (191,872) |
+-------------------------------------+-----------------+-----------------+
| Tax on loss | (57) | (608) |
+-------------------------------------+-----------------+-----------------+
| Loss for the period attributable to | | |
| equity | | |
+-------------------------------------+-----------------+-----------------+
| holders of the parent | (313,296) | (192,480) |
+-------------------------------------+-----------------+-----------------+
| | | |
+-------------------------------------+-----------------+-----------------+
| Loss per share ($/share) - basic | $ (2.56) | $ (1.79) |
| and diluted | | |
+-------------------------------------+-----------------+-----------------+
| | | |
+-------------------------------------+-----------------+-----------------+
CONSOLIDATED BALANCE SHEET
+---------------------------------+-----------------+-----------------+
| | As of December 31, |
+---------------------------------+-----------------------------------+
| | 2008 | 2007 |
+---------------------------------+-----------------+-----------------+
| | (Dollars in thousands) |
+---------------------------------+-----------------------------------+
| Non-current assets | | |
+---------------------------------+-----------------+-----------------+
| Intangible assets | 1,179 | 710 |
+---------------------------------+-----------------+-----------------+
| Property, plant & equipment | 40,871 | 32,889 |
+---------------------------------+-----------------+-----------------+
| Other investments | 15,789 | 7,744 |
+---------------------------------+-----------------+-----------------+
| Investments in joint ventures | 4,546 | 33 |
+---------------------------------+-----------------+-----------------+
| Other assets | 16,604 | 548 |
+---------------------------------+-----------------+-----------------+
| Non-current assets | 78,989 | 41,924 |
+---------------------------------+-----------------+-----------------+
| | | |
+---------------------------------+-----------------+-----------------+
| Current assets | | |
+---------------------------------+-----------------+-----------------+
| Inventories, net | 557,446 | 523,195 |
+---------------------------------+-----------------+-----------------+
| Prepaid inventories | 32,951 | 52,493 |
+---------------------------------+-----------------+-----------------+
| Trade and other receivables, | 97,940 | 3,566 |
| net | | |
+---------------------------------+-----------------+-----------------+
| Other current assets | 12,874 | 8,055 |
+---------------------------------+-----------------+-----------------+
| Cash and cash equivalents | 208,988 | 114,420 |
+---------------------------------+-----------------+-----------------+
| Current assets | 910,199 | 701,729 |
+---------------------------------+-----------------+-----------------+
| Total assets | 989,188 | 743,653 |
+---------------------------------+-----------------+-----------------+
| | | |
+---------------------------------+-----------------+-----------------+
| Current liabilities | | |
+---------------------------------+-----------------+-----------------+
| Deferred revenue | 668,085 | 531,652 |
+---------------------------------+-----------------+-----------------+
| Trade and other payables | 140,580 | 88,553 |
+---------------------------------+-----------------+-----------------+
| Provisions | 117,817 | 4,044 |
+---------------------------------+-----------------+-----------------+
| Income tax payable | 2,467 | 402 |
+---------------------------------+-----------------+-----------------+
| Obligations under finance | 243 | 250 |
| leases | | |
+---------------------------------+-----------------+-----------------+
| Total current liabilities | 929,192 | 624,901 |
+---------------------------------+-----------------+-----------------+
| | | |
+---------------------------------+-----------------+-----------------+
| Non-current liabilities | | |
+---------------------------------+-----------------+-----------------+
| Deferred revenue | 134,458 | 91,715 |
+---------------------------------+-----------------+-----------------+
| Provisions | 23,924 | 13,341 |
+---------------------------------+-----------------+-----------------+
| Obligations under finance | 240 | 482 |
| leases | | |
+---------------------------------+-----------------+-----------------+
| Other non-current liabilities | 734 | 902 |
+---------------------------------+-----------------+-----------------+
| Total liabilities | 1,088,548 | 731,341 |
+---------------------------------+-----------------+-----------------+
| Net (liabilities) / assets | (99,360) | 12,312 |
+---------------------------------+-----------------+-----------------+
| | | |
+---------------------------------+-----------------+-----------------+
| (Deficit) / Equity | | |
+---------------------------------+-----------------+-----------------+
| Share capital | 24,076 | 19,772 |
+---------------------------------+-----------------+-----------------+
| Share premium account | 374,655 | 188,982 |
+---------------------------------+-----------------+-----------------+
| Other reserves | 62,832 | 51,739 |
+---------------------------------+-----------------+-----------------+
| Retained loss | (560,923) | (248,181) |
+---------------------------------+-----------------+-----------------+
| Total (deficit) / equity | (99,360) | 12,312 |
+---------------------------------+-----------------+-----------------+
| | | |
+---------------------------------+-----------------+-----------------+
CONSOLIDATED STATEMENT OF CASH FLOWS
+---------------------------------------------+--------------+--------------+
| | Year ended December 31, |
+---------------------------------------------+-----------------------------+
| | 2008 | 2007 |
+---------------------------------------------+--------------+--------------+
| | (Dollars in thousands) |
+---------------------------------------------+-----------------------------+
| Operating activities | | |
+---------------------------------------------+--------------+--------------+
| Loss before tax | (313,239) | (191,872) |
+---------------------------------------------+--------------+--------------+
| Add back: | | |
+---------------------------------------------+--------------+--------------+
| Finance income | (3,119) | (7,145) |
+---------------------------------------------+--------------+--------------+
| Finance costs | 4,636 | 1,844 |
+---------------------------------------------+--------------+--------------+
| Foreign exchange (gain)/loss | (278) | 336 |
+---------------------------------------------+--------------+--------------+
| Operating loss | (312,000) | (196,837) |
+---------------------------------------------+--------------+--------------+
| Adjustments to reconcile loss before tax to | | |
| net cash flows: | | |
+---------------------------------------------+--------------+--------------+
| Depreciation and amortization | 12,936 | 9,148 |
+---------------------------------------------+--------------+--------------+
| Loss on disposal of fixed assets | 116 | 363 |
+---------------------------------------------+--------------+--------------+
| Share-based payments | 3,166 | 3,915 |
+---------------------------------------------+--------------+--------------+
| Loss from investment in joint ventures | (601) | 64 |
+---------------------------------------------+--------------+--------------+
| Gain from sale of subsidiary undertakings | (30,908) | (636) |
+---------------------------------------------+--------------+--------------+
| (Increase)/decrease in receivables | (95,998) | 8,547 |
+---------------------------------------------+--------------+--------------+
| Increase in inventories | (34,251) | (393,408) |
+---------------------------------------------+--------------+--------------+
| Decrease/(increase) in other current assets | 13,715 | (20,924) |
+---------------------------------------------+--------------+--------------+
| Increase in trade and other payables | 34,811 | 35,999 |
+---------------------------------------------+--------------+--------------+
| Increase in provisions for liabilities and | 138,776 | 16,572 |
| charges | | |
+---------------------------------------------+--------------+--------------+
| Increase/(decrease) in income taxes payable | 2,467 | (33) |
+---------------------------------------------+--------------+--------------+
| Increase/(decrease) in other non-current | 677 | (874) |
| liabilities | | |
+---------------------------------------------+--------------+--------------+
| Increase in other assets | (16,075) | (348) |
+---------------------------------------------+--------------+--------------+
| Increase in deferred revenue | 179,473 | 444,219 |
+---------------------------------------------+--------------+--------------+
| Income taxes paid | (221) | (301) |
+---------------------------------------------+--------------+--------------+
| Interest paid | (895) | (119) |
+---------------------------------------------+--------------+--------------+
| Interest received | 2,519 | 6,901 |
+---------------------------------------------+--------------+--------------+
| Net cash flow from operating activities | (102,293) | (87,752) |
+---------------------------------------------+--------------+--------------+
| | | |
+---------------------------------------------+--------------+--------------+
| Cash flows from investing activities | | |
+---------------------------------------------+--------------+--------------+
| Investment in subsidiaries and joint | (11,958) | (5,863) |
| ventures | | |
+---------------------------------------------+--------------+--------------+
| Proceeds from sale of subsidiary | 30,908 | 636 |
| undertakings | | |
+---------------------------------------------+--------------+--------------+
| Purchase of property, plant & equipment | (20,232) | (12,487) |
+---------------------------------------------+--------------+--------------+
| Additions to intangible assets | (539) | (271) |
+---------------------------------------------+--------------+--------------+
| Net cash flow from investing activities | (1,821) | (17,985) |
+---------------------------------------------+--------------+--------------+
| | | |
+---------------------------------------------+--------------+--------------+
| Cash flows from financing activities | | |
+---------------------------------------------+--------------+--------------+
| Capital element of finance lease payments | (235) | (213) |
+---------------------------------------------+--------------+--------------+
| Proceeds from exercise of share options and | 1,082 | 1,715 |
| warrants | | |
+---------------------------------------------+--------------+--------------+
| Proceeds from issuance of share capital | 200,000 | - |
+---------------------------------------------+--------------+--------------+
| Costs associated with issue of share | (3,329) | - |
| capital | | |
+---------------------------------------------+--------------+--------------+
| Net cash flow from financing activities | 197,518 | 1,502 |
+---------------------------------------------+--------------+--------------+
| | | |
+---------------------------------------------+--------------+--------------+
| Net increase/(decrease) in cash and cash | 93,404 | (104,235) |
| equivalents | | |
+---------------------------------------------+--------------+--------------+
| Cash and cash equivalents at beginning of | 114,420 | 218,814 |
| period | | |
+---------------------------------------------+--------------+--------------+
| Effect of changes in foreign exchange rates | 1,164 | (159) |
+---------------------------------------------+--------------+--------------+
| Cash and cash equivalents at end of period | 208,988 | 114,420 |
+---------------------------------------------+--------------+--------------+
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| | | | | | Foreign | | |
| | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| | Share | Share |Revaluation | Other |currency | Retained | Total |
| | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| | capital | premium | reserve | reserves | reserve | earnings | equity |
| | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| | (Dollars in thousands) |
+-------------------------+---------------------------------------------------------------------------------------+
| Balance at January 1, | 19,526 | 187,513 | 265 | 48,215 | (32) | (56,533) | 198,954 |
| 2007 | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Net loss for the | - | - | - | - | - | (192,480) | (192,480) |
| period | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Exchange differences | | | | | | | |
| arising | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| on translation of | | | | | | | |
| foreign currency | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| recognized directly in | - | - | - | - | (99) | - | (99) |
| equity | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Reversal of tax on | - | - | - | 307 | - | - | 307 |
| warrants | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Employee share option | | | | | | | |
| scheme: | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Exercise of options | 246 | 1,469 | - | (832) | - | 832 | 1,715 |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Issuance of options | | | | 3,915 | | | 3,915 |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Balance at December | 19,772 | 188,982 | 265 | 51,605 | (131) | (248,181) | 12,312 |
| 31, 2007 | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Net loss for the | - | - | - | - | - | (313,296) | (313,296) |
| period | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Exchange differences | | | | | | | |
| arising | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| on translation of | | | | | | | |
| foreign currency | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| recognized directly in | - | - | - | - | 1,005 | - | 1,005 |
| equity | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Issuances of shares | | | | | | | |
| from private | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| placement | 4,083 | 186,619 | - | - | - | - | 190,702 |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Offering cost | - | (1,807) | - | - | - | - | (1,807) |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Warrants issued | - | - | - | 10,768 | - | - | 10,768 |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Tax on Warrants | - | - | - | (3,015) | - | - | (3,015) |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Employee share option | | | | | | | |
| scheme: | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Exercise of options | 221 | 861 | - | (554) | - | 554 | 1,082 |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Issuance of options | - | - | - | 2,889 | - | - | 2,889 |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| Balance at December | 24,076 | 374,655 | 265 | 61,693 | 874 | (560,923) | (99,360) |
| 31, 2008 | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
| | | | | | | | |
+-------------------------+-----------+----------+-------------+-----------+----------+-------------+-------------+
Notes to Financial Statements
1. Announcement based on audited accounts
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 31 December 2008, but is derived
from those accounts. Statutory accounts for 2007 have been delivered to the
Registrar of Companies and those for 2008 will be delivered following the
Company's annual general meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under s. 237(2) or
(3) of the Companies Act 1985.
While the financial information included in this preliminary announcement has
been prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards ("IFRS") as adopted by the European
Union ("EU"), this announcement does not itself contain sufficient information
to comply with IFRS. The Company expects to publish full financial statements
that comply with IFRS in May 2009, and those accounts will contain full
accounting policies under IFRS.
2. Critical accounting judgments and key sources of estimation uncertainty
In applying the Group's accounting policies, the Directors are required to make
judgments, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the
estimate is revised if the revision affects only that period or in the period of
the revision and future periods if the revision affects both current and future
periods.
Critical judgments in applying the Group's accounting policies
The following are the critical judgments that the Directors have made in the
process of applying the Group's accounting policies and that has the most
significant effect on the amounts recognized in financial statements.
Revenue recognition
Turbine revenue is recognized when the turbines have been commissioned or
contractual obligations are considered complete such that the Group has
transferred the risks and rewards of ownership. In making its judgment, the
Directors considered the detailed criteria for the recognition of revenue from
the sale of turbines set out in IAS 18 Revenue and, in particular, whether the
Group had transferred to the buyer the significant risks and rewards of
ownership of the goods. Following the detailed quantification of the Group's
liability in respect to certain remediation work, the Group was able to satisfy
itself that the risk and reward had passed on $737.3 million of sales in the
year ended December 31, 2008 (2007: $23.9 million).
Key sources of estimation uncertainty
The following are the key assumptions concerning the future values, and other
key sources of estimation uncertainty, at the balance sheet date that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
Inventory provisions
The carrying value of inventory has been reduced by $50.0 million in the year
ended December 31, 2008 (2007: $83.5 million) reflecting the estimated future
costs of remediating certain components, estimated loss on future contracts and
excess and obsolete inventory.
Included within the calculation of the provision for remediation are estimates
of labor costs, crane costs, transportation costs, material costs, and time to
complete, which is in itself dependent upon a number of unknown and
uncontrollable factors such as the weather. The Group conducted a detailed study
of the estimated costs to remediate the turbine components and continues to
monitor the program closely but could be required to make positive or negative
adjustments to the provision in future periods.
If it is determined that the costs of meeting contractual obligations exceed the
economic benefit arising under such contracts, the resulting net loss under the
contract is recognized immediately. The calculation to determine the loss
includes an estimate of the cost to complete a project and the cost of other
associated and unavoidable obligations such as late delivery payments, which are
dependent on an estimate of the time to complete. The Group provided $2.9
million (2007:$30.5 million) against inventory work in progress in the current
period relating to projects on which the estimated contractual obligations
exceeds the estimated economic benefits. Such losses have arisen chiefly as a
result of the delays and issues associated with turbine remediation (see above).
Warranty provisions
The Group has established provisions for the future costs estimated under
standard turbine warranties. These provisions are based on estimates of future
costs to repair the turbines and involve substantial levels of judgment due to
the limited operating history of the Group. In 2008, due to the need to
remediate certain turbine components, the Group estimated that on a number of
projects the costs related to the future warranties, including standard
warranty, remediation and liquidated damages, totaled $126.7 million (2007:
$20.1 million). In coming to this conclusion the Group carried out a detailed
project by project study of all warranties; however, given the uncertainties in
the calculation, the Company could be required to adjust the provision either in
the Company's favor or to its detriment in future periods.
Recoverability of development projects held for sale
The Group tests for recoverability of costs compared with the carrying value of
development projects held for sale using relevant facts and circumstances to
create an estimate of future cash flows to determine the appropriate carrying
values of development projects. Where costs exceed the carrying value of the
project value, a net realizable value adjustment is booked to the carrying value
of the work in progress recognized to ensure the value is accurately reflected
at the recoverable amount of the asset. Adjustments will be made in future
periods if future market activity indicates that the net resalable value of the
projects is lower than the value of the asset recognized.
Share-based payments
The Group uses the Black-Scholes option pricing model to determine the fair
value of options granted to employees and non-employees under the Group's
equity-based compensation plan. The Company recognized an expense of $3.2
million in 2008 (2007: $3.9 million) on the options, however the model
incorporates various assumptions, the alteration of which would lead to a
different charge. Key assumptions include the volatility of the Company's share
price, the rate of forfeiture of options, the vesting period of the share
options, dividend yield, risk-free interest rate and expected life.
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
currently organized into two operating divisions - wind project development, and
turbine technology and manufacturing. These divisions are the basis on which the
Group reports its primary segment information. The Directors believe that for
2008 and 2007 the Group's only material geographic segment was North America.
Wind project development includes activities associated with developing wind
energy facilities, including identifying and acquiring rights to potential wind
sites, engineering, construction, project financing, project management and
ownership. Turbine technology and manufacturing includes designing, engineering,
manufacturing and the sale and servicing of wind turbines. Corporate pertains to
administrative functions that support but are not specifically attributable to
the Group's operating segments.
+----------------------------+-------------+---------------+------------+---------------+
| | Wind | Turbine | | |
| | project | technology | | |
+----------------------------+-------------+---------------+------------+---------------+
| Year ended December 31, | development | and | Corporate | Total |
| 2008 | | manufacturing | | |
+----------------------------+-------------+---------------+------------+---------------+
| | (Dollars in thousands) |
+----------------------------+----------------------------------------------------------+
| Income statement | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| - Revenue | 140,197 | 597,129 | - | 737,326 |
+----------------------------+-------------+---------------+------------+---------------+
| - Net loss after tax | (20,017) | (235,716) | (57,563) | (313,296) |
+----------------------------+-------------+---------------+------------+---------------+
| - Inventory, warranty, and | | | | |
| other | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| provisions included in net | (28,733) | (193,217) | (13,000) | (234,950) |
| loss | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| Balance sheet | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| - Assets | 44,097 | 726,046 | 219,045 | 989,188 |
+----------------------------+-------------+---------------+------------+---------------+
| - Liabilities | (24,918) | (1,037,101) | (26,529) | (1,088,548) |
+----------------------------+-------------+---------------+------------+---------------+
| Capital expenditures | 582 | 15,770 | 3,880 | 20,232 |
+----------------------------+-------------+---------------+------------+---------------+
| Non-cash items: | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| - Depreciation and | 811 | 11,322 | 790 | 12,923 |
| amortization | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| - Share based payments | 98 | 539 | 2,529 | 3,166 |
+----------------------------+-------------+---------------+------------+---------------+
| | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| Year ended 31 December 2007 | | | |
+------------------------------------------+---------------+------------+---------------+
| | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| Income statement | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| - Revenue | 429 | 23,440 | - | 23,869 |
+----------------------------+-------------+---------------+------------+---------------+
| - Net loss after tax | (44,714) | (123,035) | (24,731) | (192,480) |
+----------------------------+-------------+---------------+------------+---------------+
| - Inventory, warranty, and other | | | |
+------------------------------------------+---------------+------------+---------------+
| provisions included in net | | (69,746) | - | |
| loss | (33,021) | | | (102,767) |
+----------------------------+-------------+---------------+------------+---------------+
| Balance sheet | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| - Assets | 50,628 | 563,006 | 130,019 | 743,653 |
+----------------------------+-------------+---------------+------------+---------------+
| - Liabilities | (34,816) | (687,698) | (8,827) | (731,341) |
+----------------------------+-------------+---------------+------------+---------------+
| Capital expenditures | 1,906 | 13,394 | 1,432 | 16,732 |
+----------------------------+-------------+---------------+------------+---------------+
| Non-cash items: | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| - Depreciation and | 763 | 7,733 | 652 | 9,148 |
| amortization | | | | |
+----------------------------+-------------+---------------+------------+---------------+
| - Share based payments | 89 | 564 | 3,262 | 3,915 |
+----------------------------+-------------+---------------+------------+---------------+
The revenue recorded in the wind project development and turbine technology and
manufacturing segments was generated from external customers located in North
America. Three customers accounted for 57%, 20% and 12% of revenue for the year
ended December 31, 2008 (2007 - one customer: 85.8%), respectively.
Segment assets consist primarily of operating and invested cash, inventories,
property, plant and equipment, intangible assets and investments at fair value.
Segment liabilities consist largely of receipts from customers 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.
Corporate assets consist primarily of cash and cash equivalents, while corporate
liabilities primarily consist of various accruals and legal provisions.
4. Provision for remediation related expenses and other unusual transactions
In 2007 and 2008 provisions were made for remediation of turbines arising
primarily from supplier quality issues and blade design. This has resulted in
significant remediation work and associated costs in both 2007 and 2008. Of the
$313.3 million loss in 2008 (2007: $192.5 million) approximately $222.0 million
(2007: $107.1 million) is directly or indirectly attributable to the significant
gearbox and turbine blade activities that occurred through 2007 and 2008 and
continue into 2009. The remediation costs include direct costs to devise and
implement repair solutions, costs to mobilize the workforce and equipment to
perform the repairs, inventory obsolescence and liquidated damages to compensate
customers for delays in power generation. The costs provided in 2007 and 2008
are summarized below:
+---------------------------------------------------+--------------+--------------+
| | Year Ended December 31, |
+---------------------------------------------------+-----------------------------+
| | 2008 | 2007 |
+---------------------------------------------------+--------------+--------------+
| | (Dollars in thousands) |
+---------------------------------------------------+-----------------------------+
| Provision for remediation related expenses | | |
+---------------------------------------------------+--------------+--------------+
| - Inventory write down for loss making contracts | 2,866 | 30,540 |
+---------------------------------------------------+--------------+--------------+
| -Provision for turbine and blade remediation | 134,588 | 69,907 |
+---------------------------------------------------+--------------+--------------+
| -Provision for inventory obsolescence | 32,385 | - |
+---------------------------------------------------+--------------+--------------+
| -Provision for liquidated damages | 52,111 | 6,673 |
+---------------------------------------------------+--------------+--------------+
| | 221,950 | 107,120 |
+---------------------------------------------------+--------------+--------------+
| Provisions for litigation related matters | 13,000 | - |
+---------------------------------------------------+--------------+--------------+
| | 234,950 | 107,120 |
+---------------------------------------------------+--------------+--------------+
| | | |
+---------------------------------------------------+--------------+--------------+
5. Inventories
+--------------------------------------------+--------------+--------------+
| | As of December 31, |
+--------------------------------------------+-----------------------------+
| | 2008 | 2007 |
+--------------------------------------------+--------------+--------------+
| | (Dollars in thousands) |
+--------------------------------------------+-----------------------------+
| Raw materials and components | 205,410 | 196,469 |
+--------------------------------------------+--------------+--------------+
| Less reserves | (46,999) | (10,794) |
+--------------------------------------------+--------------+--------------+
| Net | 158,411 | 185,675 |
+--------------------------------------------+--------------+--------------+
| | | |
+--------------------------------------------+--------------+--------------+
| Completed assembly | 81,149 | 12,284 |
+--------------------------------------------+--------------+--------------+
| Less reserves | - | - |
+--------------------------------------------+--------------+--------------+
| Net | 81,149 | 12,284 |
+--------------------------------------------+--------------+--------------+
| | | |
+--------------------------------------------+--------------+--------------+
| Inventory at project sites | 320,841 | 397,901 |
+--------------------------------------------+--------------+--------------+
| Less reserves | (2,955) | (72,665) |
+--------------------------------------------+--------------+--------------+
| Net | 317,886 | 325,236 |
+--------------------------------------------+--------------+--------------+
| | | |
+--------------------------------------------+--------------+--------------+
| Total net inventory | 557,446 | 523,195 |
+--------------------------------------------+--------------+--------------+
6. Trade and other receivables
+--------------------------------------------+--------------+--------------+
| | As of December 31, |
+--------------------------------------------+-----------------------------+
| | 2008 | 2007 |
+--------------------------------------------+--------------+--------------+
| | (Dollars in thousands) |
+--------------------------------------------+-----------------------------+
| Trade receivables | 97,559 | 1,698 |
+--------------------------------------------+--------------+--------------+
| Other receivables | 431 | 398 |
+--------------------------------------------+--------------+--------------+
| U.K. income tax refund receivable | - | 1,598 |
+--------------------------------------------+--------------+--------------+
| Receivable from joint venture partner | - | 62 |
+--------------------------------------------+--------------+--------------+
| Amounts owed by related parties | 15 | 4 |
+--------------------------------------------+--------------+--------------+
| Less: allowance for doubtful accounts | (65) | (194) |
+--------------------------------------------+--------------+--------------+
| | 97,940 | 3,566 |
+--------------------------------------------+--------------+--------------+
No interest is charged on current or past due trade or other receivables.
Included in the balance shown above are debtors with a carrying amount of $26.1
million (2007:$1.2 million) which are past due at the reporting date for which
the Group has provided an allowance of $65,000 (2007: $194,000). The Group does
not hold any collateral over these balances. The credit period was in some cases
extended while remediation was ongoing; however, the Directors believe full
recovery will be made of the carrying value of trade receivables once the
remediation work is complete. The average age of these receivables is 44 days
(2007: 127 days).
Aging of past due receivables at estimated fair value:
+-----------------------------------------+--------------+--------------+
| | As of December 31, |
+-----------------------------------------+-----------------------------+
| | 2008 | 2007 |
+-----------------------------------------+--------------+--------------+
| | (Dollars in thousands) |
+-----------------------------------------+-----------------------------+
| 60-90 days | 17,811 | 19 |
+-----------------------------------------+--------------+--------------+
| Over 90 days | 8,292 | 1,182 |
+-----------------------------------------+--------------+--------------+
| | 26,103 | 1,201 |
+-----------------------------------------+--------------+--------------+
7. Deferred revenue
+---------------------------------+--------------+--------------+--------------+
| | Current | Non-current | Total |
+---------------------------------+--------------+--------------+--------------+
| | (Dollars in thousands) |
+---------------------------------+--------------------------------------------+
| At January 1, 2007 | 157,218 | 21,930 | 179,148 |
+---------------------------------+--------------+--------------+--------------+
| Customer deposits received | 397,141 | 69,785 | 466,926 |
+---------------------------------+--------------+--------------+--------------+
| Recognized as revenue in the | (22,707) | - | (22,707) |
| period | | | |
+---------------------------------+--------------+--------------+--------------+
| At January 1, 2008 | 531,652 | 91,715 | 623,367 |
+---------------------------------+--------------+--------------+--------------+
| Customer deposits received | 802,348 | 42,743 | 845,091 |
+---------------------------------+--------------+--------------+--------------+
| Recognized as revenue in the | (665,915) | - | (665,915) |
| period | | | |
+---------------------------------+--------------+--------------+--------------+
| At December 31, 2008 | 668,085 | 134,458 | 802,543 |
+---------------------------------+--------------+--------------+--------------+
Deferred revenue reflects consideration received from customers for manufacture
and delivery of wind turbines.
8. Provisions
+--------------------+------------+-------------+------------+----------+-----------+
| | | | Liquidated | | |
+--------------------+------------+-------------+------------+----------+-----------+
| | Warranty | Remediation | Damages | Other | Total |
+--------------------+------------+-------------+------------+----------+-----------+
| Current | (Dollars in thousands) |
+--------------------+--------------------------------------------------------------+
| At January 1, 2007 | - | - | - | - | - |
+--------------------+------------+-------------+------------+----------+-----------+
| Charged in the | 567 | 6,631 | - | - | 7,198 |
| year | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
| Utilization of | (200) | (2,654) | - | - | (2,854) |
| provision | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
| At December 31, | 367 | 3,977 | - | - | 4,344 |
| 2007 | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
| | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
| Non current | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
| At January 1. 2007 | - | - | - | - | - |
+--------------------+------------+-------------+------------+----------+-----------+
| Charged in the | 12,863 | - | - | 451 | 13,314 |
| year | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
| Utilization of | - | - | - | - | - |
| provision | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
| Amortization of | - | - | - | 27 | 27 |
| discount | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
| At December 31, | 12,863 | - | - | 478 | 13,341 |
| 2007 | | | | | |
+--------------------+------------+-------------+------------+----------+-----------+
+--------------------+-----------+-------------+------------+-----------+------------+
| | | | Liquidated | | |
+--------------------+-----------+-------------+------------+-----------+------------+
| | Warranty | Remediation | Damages | Other | Total |
+--------------------+-----------+-------------+------------+-----------+------------+
| Current | (Dollars in thousands) |
+--------------------+---------------------------------------------------------------+
| At January 1, 2008 | 367 | 3,677 | - | - | 4,044 |
+--------------------+-----------+-------------+------------+-----------+------------+
| Charged in the | 9,045 | 77,508 | 25,113 | 13,000 | 124,666 |
| year | | | | | |
+--------------------+-----------+-------------+------------+-----------+------------+
| Reclassification | 2,773 | - | 10,595 | - | 13,368 |
+--------------------+-----------+-------------+------------+-----------+------------+
| Utilization of | (3,352) | (19,409) | (1,500) | - | (24,261) |
| provision | | | | | |
+--------------------+-----------+-------------+------------+-----------+------------+
| At December 31, | 8,833 | 61,776 | 34,208 | 13,000 | 117,817 |
| 2008 | | | | | |
+--------------------+-----------+-------------+------------+-----------+------------+
| | | | | | - |
+--------------------+-----------+-------------+------------+-----------+------------+
| Non current | | | | | - |
+--------------------+-----------+-------------+------------+-----------+------------+
| At January 1, 2008 | 12,863 | - | - | 478 | 13,341 |
+--------------------+-----------+-------------+------------+-----------+------------+
| Charged in the | 13,331 | - | - | - | 13,331 |
| year | | | | | |
+--------------------+-----------+-------------+------------+-----------+------------+
| Reclassification | (2,773) | - | - | - | (2,773) |
+--------------------+-----------+-------------+------------+-----------+------------+
| Utilization of | - | - | - | - | - |
| provision | | | | | |
+--------------------+-----------+-------------+------------+-----------+------------+
| Unwinding of | - | - | - | 25 | 25 |
| discount | | | | | |
+--------------------+-----------+-------------+------------+-----------+------------+
| At December 31, | 23,421 | - | - | 503 | 23,924 |
| 2008 | | | | | |
+--------------------+-----------+-------------+------------+-----------+------------+
The provision for warranty claims represents the present value of the Directors'
best estimate of the future cost that will be required under the Group's turbine
warranty agreements. Actual outflows may vary based on the result of new
materials, altered manufacturing processes or other events affecting product
quality. These amounts are expected to be utilized from 2009 through 2014.
Remediation represents accruals for estimated costs to repair and replace
gearboxes and blades on completed turbines. Liquidated damages represent
estimates of contractual obligations to compensate customers for project delays
or lost power generation as a result of not meeting guaranteed turbine
performance, power curve or noise. Other primarily relates to legal claims
against the Group.
9. 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 (2007:
$33.3 million) for the first four project companies with payments for the fifth
based on the final generation capacity of the site.During the period, no
additional contingent purchase price consideration was received or receivable.
Contingent liability
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 recognized revenue based on their view of the probable outcome
of this transaction.
In September 2007, the Group entered into an industrial jobs training agreement
with the State of Iowa. Under the agreement, Clipper will receive reimbursement
of payroll taxes paid in exchange for hiring and training a defined number of
new employees through 2010. In the event the Group does not fulfill this quota,
the Group is liable to pay the State up to $2.6 million. The Group does not
believe that any such payments are probable and accordingly has not recorded a
liability related to this agreement.
10. Events subsequent to the balance sheet date
On May 13, 2009, the Group entered into an arrangement for a $20.0 million
secured loan funded by a customer associated with the deferral of certain 2009
committed turbine deliveries into 2010. The secured loan will mature on March
31, 2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BELBFKEBFBBE
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