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Wind Turbine Manufacturer DeWind Faces Demise

With yearly business growth rates averaging 30 percent across the global wind power industry, the news cycle tends to be predictably positive and optimistic for businesses in the growing industry. No so for the Germany-based DeWind, which just received notice that its parent company UK-based FKI Energy Technology Group is pulling out from further investment in the wind turbine company.

"A number of recent developments have had a material adverse impact on the market position of DeWind and its operating model," both companies said in a joint statement. "The rapid consolidation of wind turbine manufacturers and the increasing influence of major wind power developers have significantly increased competitive pressures." The major impacts can be seen in continually reducing turbine prices, increasingly onerous contract terms and conditions, and higher levels of investment in new product and inventory, according to the statement. As a consequence, the cash commitments required have increased significantly, particularly for small turbine manufacturers. Dewind isn't exactly in the small turbine market, however, there are many competitors in and above their turbine output range. Dewind manufactures three major wind turbines, the 600 kW D4, the 1.25 MW D6 and the 2 MW D8. "At the January 2004 Strategic Review I described the wind turbine business as a high-risk but potentially high-reward venture," FKI Chief Executive Paul Heiden said. "During the past twelve months, however, a number of issues have weakened DeWind's position and delayed or impaired its growth opportunities." Now, the need to keep up with product development and the ramp-up in inventories to address future sales opportunities requires further significant investments, Heiden said. The FKI Board does not believe a material cash commitment is justified by the risk profile and potential returns of the wind turbine business and hence believes that the proposed withdrawal is in the best interests of shareholders. The companies said existing customer commitments will be met and some new transactions accepted. Discussions to seek technology transfer agreements with interested parties, notably in the Far East, will continue. In the year to March 2004 DeWind made an operating loss of £6.3 million (US$11.69 million). The full detailed financial impact of the proposed withdrawal is still being assessed but it is anticipated that exceptional charges will not be more than £90 million (US$167 million), of which £45 million (US$83.5 million) will represent the write-off of goodwill. The cash cost of exit is currently estimated at £20 million (US$37 million) and will be spread over several years. The impact will be mitigated by any proceeds from the sale of inventory and by any income from technology agreements. Consultation with employees will begin immediately regarding potential redundancies in Germany and the UK. DeWind currently employs 316 people, including approximately 130 service and support staff. The proposal is to provide ongoing customer support from a service organization based in Germany.

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