HOW TO CAPITALISE ON THE CHINESE GROWTH POTENTIAL Hamburg, 5th October 2010 By Randall Hoeflein/ Alexis Crama Discussion topic 5th OCT 17:00hrs How to capitalise on the Chinese growth potential – a case study from LM Wind Power Find out how LM Wind Power are positioning themselves for the future and the role the Chinese market has to play Get in-depth analysis of the opportunities and challenges for European OEMs and suppliers establishing business in China Share their experience of how LM Wind Power worked with Asian OEMs and suppliers Discover how they maintain quality, reliability and flexibility of their products Randall Hoeflein, Vice President, Quality Strategy & Product Development, LM Wind Power Alexis Crama, Director, Corporate Strategy, LM Wind Power 2 AGENDA 1. LM Wind Power Introduction 2. Global Wind market evolution and focus on China 3. Evolving industrial footprint to best match global customer’s needs 4. Capitalize on China growth 3 World’s largest supplier of components and service to the wind industry More than one in three wind turbines worldwide carries LM Blades each year saving nature more than 74 million tons of CO2 Global manufacturing footprint and in-house research and development  More than 130,000 blades installed world-wide  Brake systems supplied to more than 46,000 wind turbines  13 production and assembly facilities on three continents  App. 4,500 employees worldwide STRONG Track record More than 130,000 blades since 1978 From technology pioneering to global industrial excellence 2001-2009: Capacity expansions in Spain, India, China, USA and Poland… 1978 2009 1978 1989 1993 1994 1996 1999 Rotor blade production starts in Denmark LM the world’s largest manufacturer of rotor blades 1999 Manufacturing in India Manufacturing in Spain starts; Aeroconstruct is acquired in Germany 1st generation LightningProtection; Vortex generators VARTM vacuum infusion technology Manufacturing in USA Rotorline (NL) acquired 2001 2002 2003 2004 2005 Manufacturing in China Pre-bending FutureBlade technology The world’s largest rotor blade (61.5 m) introduced; LM Blade Monitoring LM Drain-Receptor; LM Diverter-Strips; Multi-Receptor lightning protection; LM SuperRoot 2008 2009 2006 2006 2007 Manufacturing in Canada; Global Management team Global R&D; Wind tunnel inaugurated New factories in New factories Spain, India and China; on-line in Global business USA and Poland office (NL) New factory on-line in Qin Huang Dao. Capacity adjustments in Europe Highlights 2009 results Includes 5 months revenue from Svendborg Brakes EUR 777 million Sales 18.9% EBITDA margin 130,300 blades produced since 1978 46,000 wind turbines equipped with braking systems since 1989 4,667 employees at year end Full report may be downloaded at: 2009report.lmwindpower.com 6 The blades are the motor The rotor blades alone represent app. 20% of the investment in an onshore wind turbine The most direct way to exert any decisive influence on the cost of wind energy is by increasing the rotor performance and thus the annual energy production of the wind turbine An increase of 4-5% in annual energy production over the normal lifespan of the wind turbine (20 years) pays for the blade set GloBlade® is an innovative new blade solution that further increases the competitiveness of wind power. GloBlades ® increase the energy production by up to 5% and allows the expansion of wind power into lower wind areas AGENDA 1. LM Wind Power Introduction 2. Global Wind market evolution and focus on China 3. Evolving industrial footprint to best match global customer’s needs 4. Capitalize on China growth 8 Accumulated global installation 2010-2015e (GW) Global acc. Installation of 319 GW Wind Power – Key Markets > 0.5 GW acc. installation 13.8 56.3   91.7 1.2  119  1.8 2.9  1.1 13.3 3.2 0.6 4.2  1.4  Diverging predictions on Brazil between analysts (NEF indicates 19GW of total pipeline) 2.9 0.8 >0.5GW >2GW >10 GW >1GW >5 GW >50 GW  90% of next 5 years projected installations are in 7 major geographies  LM has production capability in 5 of 7 representing 92% of forecast installations 9 Source: MAKE Consulting, Q2/2010 Market Outlook Update Geographic demand evolution Split of Wind Turbine installation per geographic area 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 MWN MWS W E 44% 28% 18% 10% 38% 34% 17% 11% 36% 34% 19% 11%  North America  Europe  China  RoW 36% 34% 19% 12% 36% 32% 17% 15% 35% 34% 16% 14% NE CE SE 54% 57% 59% 59% 57% 57% 18% 11% 10% 10% 10% 10% 28% 32% 31% 32% 33% 33% 2010 2011 2012 2013 2014 2015 NE N E C S W 46% 47% 47% 46% 48% 31% 25% 21% 19% 18% 8% 10% 13% 15% 14% 6% 9% 11% 12% 12% 3% 3% 3% 3% 3% 5% 6% 5% 5% 5% => Shift expected in demand with increasing share of South and East region => Stable long term geographic demand trends with 2/3 for the North => Stable long term geographic split with half of demand in North East region => Low long term demand assuming South America will be part of “America” region 10 50% 17% 14% 11% 3% 5% Wind industry expected to deliver attractive growth rates until 2020 – largely driven by China and US as growth in Europe slows down Wind power market outlook Regional markets – LMWP forecast (Annually added capacity) Europe: Onshore growth slowing down, growth increasingly derives from offshore sector from 2012 onward Shift towards larger turbines as site access becomes limited 35 30 China Market forecast will be updated downwards China Americas 25 Europe 20 15 10 Market increasingly dominated by captives, Asians will seek to enter, particularly offshore China: Positive growth prospects, but highly dependent on political regulations and China overall energy security situation Shift towards larger turbines may come quicker than anticipated Large number of maturing competitors ramping-up fast production capacity and technology North America: 5 Higher growth than Europe, not exposed to same country specific challenges as China 0 Highly industrialized value chain with high requirements for all parameters impacting CoE and after sales service US growth slows in Q1 2010 due to political ambiguity around Renewable Energy Standard China Market driven by incremental energy capacity requirement vs Europe/North America driven by replacement 11 CUSTOMERS: Wind Turbine Manufacturers becomes bigger - Chinese WTM are becoming dominant - Power Generation Giants are positioning and push for consolidation TOP 10 WTM evolution Consolidation accelerates 2006 2007 2008 2009 2010* Vestas Vestas Vestas Vestas Vestas (4.2 GW) (4.5 GW) (5.6 GW) (4.8 GW) (6.3 GW) Gamesa GE GE GE GE (2.3 GW) (3.3 GW) (5.2 GW) (4.7 GW) (4.4 GW) GE Gamesa Gamesa Sinovel Sinovel (2.3 GW) (3.0 GW) (3.4 GW) (3.5 GW) (4.0 GW) Enercon Enercon Enercon Enercon Suzlon/Repower (2.3 GW) (2.8 GW) (2.8 GW) (3.2 GW) (3.7 GW) Suzlon Suzlon Suzlon Goldwind Enercon (1.2 GW) (2.0 GW) (2.5 GW) (2.7 GW) (3.2 GW) Siemens Siemens Siemens Gamesa Goldwind (1.1 GW) (1.4 GW) (1.9 GW) (2.5 GW) (3.0 GW) Nordex Acciona Sinovel Dongfang Gamesa (0.5 GW) (0.9 GW) (1.4 GW) (2.5 GW) (2.9GW) Acciona Goldwind Acciona Suzlon Siemens (0.4 GW) (0.8 GW) (1.3 GW) (2.4 GW) (2.9GW) Goldwind Nordex Goldwind Siemens Dongfang (0.4 GW) (0.7 GW) (1.1 GW) (2.3 GW) (2.5 GW) Sinovel Sinovel Nordex Repower Nordex (0.1 GW) (0.7 GW) (1.0 GW) (1.3 GW) (1.3 GW) Dongfang, Repower Nordex, Acciona XEMC, Envision, CSIC Others Others Others Others Others (2.6 GW) (2.6 GW) (5.0 GW) (7.0 GW) (4.9 GW) 16 GW 22.2 GW 31.3 GW 37 GW Source: BTM Consult – March 2010; LM internal intelligence * 2010 data are preliminary estimates Source: BTM Consult ApS - March 2010 % -point difference in Market Share (2008-2009) VESTAS (DK) GE WIND (US) GAMESA (ES) SUZLON (IND) Performed poorer than the market ! Performed better than the market ! ENERCON (GE) Lead With… Suzlon REpower (IN) (GE) Alstom Ecotecnia (FR) (SP) Areva Multibrid (FR) (GE) UTC Clipper (USA) (USA) XEMC Darwind (CH) (NL) GE Scanwind (USA) (NO) Daewoo DeWind (KP) (GE) Sinovel American Superconductor (US) (CH) Type of alliance When Acquisition 20072010 Acquisition 2007 Acquisition 20082010 Acquisition 2009 Acquisition 2009 Acquisition 2009 Acquisition 2009 Strategic alliance 2010 41 GW  New Chinese wind market access law expected to further enforce consolidation around main Chinese WTM and suppliers SIEMENS (DK) REPOWER (GE)  European pioneers losing Market Share DONGFANG (PRC) GOLDWIND (PRC) SINOVEL (PRC) -10% -9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12 Focus on China Market outlook highly dependant upon central government directives Accumulated Chinese installation 2010-2015e (GW) Uncertainty around new regulations for wind industry supply chain China acc. installation of 119 GW Wind Power – Key provinces > 0.5 GW acc. installation Beijing Shanghai HL Fujian Gansu JL Guangdong Hainan NM XJ LN BJ Hebei Heilongjiang GS HE NX SH Jiangsu SD Jilin JS HA Liaoning SH ZJ Shandong Shanxi Yunnan FJ YN GD Zhejiang Inner Mongolia Ningxia Xinjiang >0.5GW July 2010 - Manufacturing Footprint strategy MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs MW # of WTGs Total MW Total WTGs 2010 100 67 100 67 300 200 1000 667 300 113 150 100 2000 1109 1000 667 800 533 1500 1000 1500 1000 1000 667 200 133 74 49 100 67 4500 3000 500 333 800 533 16000 10348 2011 100 61 100 61 500 303 1500 909 300 113 150 91 2200 1144 1200 727 1000 606 1500 909 1500 909 1200 727 200 121 100 61 100 61 3500 2121 700 424 1000 606 17000 10034 2012 100 56 100 56 800 444 2000 1111 300 113 150 83 2500 1224 1500 833 1500 833 1800 1000 1800 1000 1500 833 200 111 200 111 100 56 3200 1778 1000 556 1000 556 20000 10884 2013 100 51 100 51 800 410 2500 1282 300 70 150 77 2500 973 1500 769 2000 1026 1800 923 2000 1026 1500 769 200 103 200 103 100 51 3000 1538 1000 513 1000 513 21000 10363 2014 100 47 100 47 800 377 2500 1179 300 70 150 71 2800 1036 1500 708 2000 943 2000 943 2200 1038 1800 849 200 94 200 94 100 47 3000 1415 1000 472 1000 472 22000 10010 2015 100 44 100 44 800 351 2500 1096 300 70 150 66 2800 989 1800 789 2200 965 2000 877 2500 1096 2000 877 200 88 200 88 100 44 3000 1316 1000 439 1000 439 23000 9777 >1GW >2GW >5GW >3 GW >10GW >20GW Source: MAKE Consulting, Q2/2010 Market Outlook Update High excess capacity for components supply driving strong price competition Despite general interest on Cost of Energy (CoE), current information indicate that end customers primarily buy on price Position as local player 11 Optimize product offering and simplify mix to realize economy of scale and lower cost 13 AGENDA 1. LM Wind Power Introduction 2. Global Wind market evolution and focus on China 3. Evolving industrial footprint to best match global customer’s needs 4. Capitalize on China growth 14 From local to global - The Danish Wind Energy Hub is a good example Strong historic basis: First electricity producing wind turbine in 1891. First to develop the large efficient wind turbines we see on the market today. The Danish leadership in wind power technology is based on a very heterogeneous group of companies with strong roots in other industries working together in a wind power network or hub. The close cooperation with sub suppliers, research institutes and customers has been a key driver of the Danish wind power adventure. We have to build our future technology leadership on the same tradition, but on a global scale 15 Global Technology Center in Lunderskov (DK) The global hub for innovation and technology development – and platform for external networks Playground for new ideas, a place where hands-on employees mix with engineering and theoretical approaches The Nordic Synergy Park will support our further development in Denmark 16 Responding to growth opportunities by expanding capacity and global footprint Europe Annual MW 3,787 3,455 North America 2,516 2,769 2,716 3,021 China 2,580 2,140 2,207 1,296 753 1,459 967 2006 2007 2008 2009 2010 307 389 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 India 600 521 495 326 327 TOTAL 20062007200820092010 8,900 7,200 7,400  2009 − Restructuring in America and Europe − Expending with 1 new factory in China − Significant improvement in asset utilization 4,900 4,100  2010 − Further expending in China with 3 new factories − Further improvement of capacity utilization expected through LM S&OP planning 2006 2007 2008 2009 2010 Growing in China means growing as a business First Chinese factory in 2001 – growth and expansion for 9 consecutive years Over the past 5 years alone we have increased our activity in China almost 10-fold Key strategic focus for the next 5 years: More than 1/3 of group’s business to come from Asia Why: Because this is where the growth is and will be in the next 10-20 years. LM Wind Power Blades manufacturing capacity in China, MW 3500 3000 2500 2000 1500 1000 500 0 2006 2007 2008 2009 2010 2011 We are doubling our capacity in China between 2009 and 2010 with high focus on quality and innovative better performing products 18 Facilitating capital efficient growth and flexibility Key industry challenge Capital efficient growth and flexibility Our valued proposition Uniform modular factory layout Global best practice with lean global manufacturing and design footprint Strategic sourcing and technology partnership Safe working environments Driving technological innovation Key industry challenge Technological innovation, improving efficiency and reliability to reduce cost of wind power Our value proposition Shorter time-to-market through both standard and tailor-made cost competitive products Cutting edge air foil design Highly reliable blades and hydraulic brake solutions AGENDA 1. LM Wind Power Introduction 2. Global Wind market evolution and focus on China 3. Evolving industrial footprint to best match global customer’s needs 4. Capitalize on China growth 21 Opportunities and Challenges on China market Opportunities  High Growth Market  Strong government support  Good infrastructure and skilled workers availability  Fast move to high end products including (large turbines >2MW and Offshore)  Increased focus on Cost of Energy => high potential for superior product performance  Long term relationships with strategic partners Challenges  IP Protection  Network and relationships  Bidding process  High Turnover of people  Fast ramp-up requirements 22 Strategic answers Demonstrate superior Quality Leadership in high quality and reliable products Servicing capabilities develop through new Service & Logistic organization Customers, geographies and markets Focus on customers' responsiveness while optimizing product portfolio to reduce cost Focus on flexible supply chain model matching the new wind market requirement Broaden our reach into new customers, geographies and market segments Local management that understands culture Innovate Fulfill customers needs by providing both costefficient standard products and premium customized versions Develop breakthrough innovations BM 26 Aug 2010 Corporate Strategy 23 Match WTM and Wind Farm’s operator needs Superior Quality and Reliability Global Reach and flexible supply chain Innovation and broad Product Portfolio Focus on quality and reliability increases driven by utilities (operating and maintenance costs) and large industrial giants (warranty costs) Become preferred supplier to global wind turbine makers through integrated supply chain Become the most “CoE efficient” tier 1 supplier Our approach: Our approach: Our approach: Design quality and reliability into all our products Large capacity in all key markets Build quality into products Rapid global expansion program to secure rapid move advantage in growing markets Rapidly resolve customer issues in the field Optimized reliable global supply chain with high level of long-term agreements and local sourcing Innovative new products and technologies in partnership with customers Optimize product portfolio, balancing customers' need with cost of complexity of maintaining high mix Standardized components and materials to leverage scale 24 Leverage Growth in China We expanded capacity in China to respond to local market demand for high quality and high performing blades We support Tier 1 WTM in China in their global expansion plans by providing necessary supply chain support for key components such as blades Benefit from strong footprint in China and support European and American WTM to develop highly performing Wind Turbines in China Prepare for export from China… But logistics cost and local content requirements are challenges 25 Questions? 26 Thank you! 27