Letter from the CEO

Despite high prices of crude oil and coal, the appetite for financing projects in renewable energy projects was dampened in Europe by sovereign debt issues that prompted new rounds of government spending cuts. The U.S. market, meanwhile, fell sharply due to relatively low natural gas prices and uncertainty about the status of investment tax credits.

China overall however, increased installed capacity by 40% to 18.9 GW which represented nearly half of the total volume installed in 2010 compensating for at least some of the traditional demand that fell away from the mature markets of North America and Europe. The Chinese state council identified new energy as one of the seven strategic emerging industries in its latest 5-year plan. Conditions in India and Brazil were also more favorable. These latter two markets are where we expect most growth to come in the next few years, driven by their growing energy needs.

A resilient financial performance
LM Wind Power achieved EBITDA on ordinary activities before impairment and special items of EUR 125.1 million in the year 2010. This represents a decline of less than 9% from the EUR 137.4 million earned in 2009. Sales were 6.4% lower at EUR 727.5 million (EUR 777.5 million in 2009). These results reflect a resilient performance in a continuing difficult global market and our partial success in compensating the sudden geographic shift in demand and downward pricing pressure.

Competitive landscape: gearing up for greater growth
In an industry that continues to consolidate, LM Wind Power has a strong competitive position thanks to our significant know-how, flexibility, innovation and service offering. These qualities afford us some degree of protection in our market niche. However, no player in this market was immune to margin erosion in 2010. Given the intense competitive pressures, the substantially higher costs of raw materials in 2010 were not passed on to end users. Fortunately, our relentless focus on quality, cost and value meant we were able to withstand these pressures and position our company more firmly to capture future growth. In the past two years we have taken actions and steps designed to ensure our company is fit for the future. In 2010 our restructuring efforts yielded structural savings which come on top of productivity and efficiency savings also realized in 2010. To ensure we remain focused on efficiency going forward, we initiated further cost reduction programs which will yield further efficiency gains in 2011 and beyond.

Expansion in China and India
The year 2010 was one of major expansion in China. At the end of 2009 we opened one new factory. In 2010, we expanded the new factory and added a new one, corresponding to almost doubling the capacity. By the end of 2010 we had achieved optimal capacity utilization in China as more customers placed bigger orders, thanks in part to our new product offerings. Our success in China required taking prompt action in response to legal and regulatory changes. The Chinese government Ministry of Industry and Information Technology drafted tighter standards for wind turbine suppliers and restrictions on the numbers of permitted manufacturers and terms under which foreign operators can produce and export.

The China market does present some challenges however. The integration of wind energy into the country’s power distribution grid has caused bottlenecks and limited the effect of the government’s generous support for the sector. Meanwhile, competition among government-owned companies remains fierce. Prices for turbines have consequently fallen in recent project tenders, and this has had a knock-on effect in the form of margin erosion and has since spurred further consolidation. Against this background, LM Wind Power put in a strong performance in 2010, raising its share of the Chinese wind turbine market to 11% from 6% in blades. The longer term outlook for the Chinese market remains highly positive. The country needs to expand its wind capacity to a minimum of 200GW by 2020 if it is to meet the Chinese government’s aim to source 15% of its energy needs that year from renewable sources. Currently China has just over 40GW of wind installed, meaning the country will need to add an average of 16GW each year. The outlook for prices in China, meanwhile, is expected to improve through 2015.

Sustaining our competitive edge through technological innovation
In 2010, innovation was once again a key driver behind our resilient performance. Just 20 years ago, the largest wind turbine blades had a length of 15 meters and were only capable of producing 50 kW of electricity. Today, the largest LM Wind Power blades are 61.5 meters long. This blade is currently the world’s longest in serial production and the supply agreement with REpower Systems AG cements our leading position within the large blade types segment. Our latest large blades conceived and developed by a global team of designers will help wind farm developers take wind energy to new heights. We are also currently in negotiations with a number of wind turbine manufacturers who have expressed a need for blades between 37 and 83 meters length for installation on turbines in this growing market for wind energy. After the year ended, we announced the acquisition of Encore Power Services, a leading provider of field services and component repair for wind turbine generators in North America.