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India accounts for 19% of total wind turbine sales for Gamesa last year

Ignacio Martín, the Executive Chairman of Gamesa, announced the appointment of Xabier Etxeberria as the company’s Business CEO with responsibility for the manufacturing group’s business operations, in a shareholders meeting a couple of days ago.

With an extensive track record in industry and outside Spain, Xabier Etxeberria – a graduate in industrial engineering from Universidad Politécnica de Bilbao – has spent much of his professional career at the automotive engineering specialist group, GKN. In the last 10 years he worked at GKN Driveline, where he served as Managing Director with responsibility over manufacturing, sales and operations (since 2006), among other duties; he was also Chairman of the Board of the Spanish subsidiary and member of its global Executive Committee since 2011.

In his first keynote address to Gamesa’s shareholders in his capacity as Executive Chairman, Ignacio Martín defined the company as a “benchmark endeavour in the development and maintenance of wind turbines, a company that has proven astute in making the most of the benign conditions thrown up during the boom years” which now has to adapt if it is to compete “in the very different conditions that will shape the opportunities in the wind energy sector in the months and years to come”. “The main challenge is to come out a stronger enterprise at the other end, bolstering our leadership by reinforcing Gamesa’s financial strength and lowering leverage as prerequisites to ensuring a profitable and sustainable future for the company”.

2011 was characterised by the exacerbation of the international financial crisis and tensions, most particularly in the eurozone, where the spotlight bore down on the weakness of certain European economies, including that of Spain. Against this backdrop of widespread crisis, mitigated only by the development of the new economic powers where Gamesa has already established a foothold, the company met the guidance provided to the market and made progress on streamlining the cost of energy, developing and diversifying its penetration of new markets and customers and shoring up productivity, “these being the key drivers for reinforcing the Gamesa’s competitive positioning and leadership in our industry”.

Gamesa generated revenue of €3.03 billion in 2011 (+10%), thanks to a recovery in the manufacturing business, where sales volumes rose 16% to 2,802 MW. “This recovery was enabled by the sales diversification strategy deployed, positioning the company to offset the slowdown in demand in traditional markets”. Ninety-two per cent of wind turbine sales was generated outside Spain, with the contributions by India (accounting for 19% of the total) and Latin America (contributing 15%, almost four times the 2010 level) standing out.  The volume-led recovery, coupled with cost cutting, enabled the wind turbine division to close 2011 with an EBIT margin of 4%, in line with guidance (4%-5%).

“In short, the company navigated an extremely competitive and complex environment, delivering on the commitments made and reinforcing its position in the wind energy sector. However, last year’s share price performance was dictated by the weakness of the global economy, the sovereign debt issues engulfing several southern European nations and surplus capacity in the wind energy business. Not only did Gamesa’s share price suffer, those of its main competitors also corrected sharply” noted Ignacio Martín.

Short term, global economic weakness and questions about the sustainability of public debt levels in the US and Europe are undermining demand in the wind energy industry. Against this backdrop of lower returns on wind power developments coupled with limited access to more expensive borrowings, customers – developers and the major European and US power utilities – are paring back their near-term investment plans. “These uncertainties mean we must take a conservative and rigorous approach to this period of regulatory transition in which we have to guarantee our capital strength and profitability”.

However, it is worth highlighting that that lower demand from traditional markets is being partially offset by the boost from emerging markets in Asia, Latin America and Africa, places where the commitment to renewable energies is underpinned not only by the need to fight climate change, but also the imperative of addressing structural energy deficits or excessive dependence on a single source of domestic energy. “That being said, these markets are not without their challenges, both from the financial standpoint and in terms of the lack of infrastructure for connecting wind power up to the grid, circumstances which could affect our company’s sales”.

Faced with a challenging and uncertain environment near term, Martín stressed that “Gamesa needs to adapt if it is to come through a stronger enterprise at the other end. The company’s flexible approach to manufacturing, combining in-house production with outsourcing to maximise margins and rationalise investments, together with its ability to swiftly adjust capacity to match demand and its track record in streamlining costs, constitute the essential tools for competing in the current environment”.

Gamesa will continue to lower the cost of energy, grow geographically, diversify its customer base and enhance productivity. “These drivers are vital to reinforcing the company’s positioning in the manufacturing sector”, he said, adding that the company “will place special emphasis on lowering the breakeven point and streamlining variable costs. In 2012, Gamesa’s financial targets will prioritise capital structure solidity and profitability, sacrificing volumes to this end as necessary”.

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