On Monday, CEO Christian Bruch of Siemens Energy announced the necessity to decelerate the introduction of new products. This decision comes after the company incurred costs of 2.2 billion euros ($2.4 billion) due to quality-related challenges within its wind turbine division.
Back in June, Siemens Energy abandoned its profit projection and issued a cautionary statement regarding the potential for prolonged costly setbacks originating from its wind turbine subsidiary, Siemens Gamesa. This announcement caused a decline in the company’s stock value.
Presently, the Siemens Gamesa board is engaged in an evaluation of the quality concerns. Several analysts have raised the possibility that these issues might have a widespread impact throughout the industry.
Bruch, on Monday, attributed the quality problems to historical factors and acknowledged that the rapid introduction of platforms to the market played a role.
“It’s not simply a matter of costs; it’s primarily a matter of compromising quality by rushing new products into the market too quickly. Another aspect is ensuring the stabilization of the business as we progressively expand new manufacturing facilities.”
Despite being considerably lower than the most pessimistic projections, Siemens Energy clarified that the impact of 2.2 billion euros will lead to a net loss of approximately 4.5 billion euros for the year. This outcome is notably more unfavorable than earlier anticipations.
Company stocks, Siemens experienced an initial decline of approximately 5% as the Frankfurt markets commenced trading, but promptly rebounded to achieve a 2.6% increase.
Siemens Energy’s Strong Performance
On a positive note, Siemens Energy, which emerged as an independent entity following the separation from the former gas and power division of the German conglomerate Siemens, showcased robust expansion in both orders and revenue. In its third-quarter financial report released on Monday, the company also unveiled an all-time high order backlog of 109 billion euros.
Bruch further commented, “I maintain my belief that the market itself remains highly promising, as evidenced by the 7.5 billion euros worth of orders obtained in the wind sector this quarter.”
“Nonetheless, it is imperative to establish a framework that enables the operation of a profitable enterprise. Ensuring a controlled deceleration of our rapid introduction of new products remains a pivotal component in achieving this objective.”
Benefiting from a “favorable market environment,” Siemens Energy achieved order bookings totaling 14.9 billion euros in the quarter, indicating a remarkable 54.2% year-on-year growth. This surge was primarily attributed to significant orders within Siemens Gamesa and Grid Technologies.
Revenues witnessed an 8% rise on a comparable basis, reaching 7.5 billion euros. However, the company registered a net loss of 2.93 billion euros for the third quarter, contrasting with the 564 million euro loss reported during the same period in 2022.
This loss encompassed “adverse tax effects stemming from valuation allowances on deferred tax assets related to the charges at Siemens Gamesa,” as detailed by the company.
Siemens Energy’s Strategic Pivot
Siemens Energy intends to pivot its focus towards a reduced number of product platforms and concentrate on specific regions for growth, as Bruch revealed. A comprehensive strategy outlining these changes will be unveiled during the company’s capital markets day scheduled for November.
On Monday, Deutsche Bank reiterated its “hold” rating for Siemens Energy stock, underscoring the sustained strength in commercial dynamics.
“From an operational perspective, all divisions exhibited commendable performance, except Gamesa. Notably, Gas Services exceeded revenue and profit expectations by 5% and 25% respectively, showcasing a robust margin of 10.9%, surpassing consensus by 170 basis points,” remarked Gael de-Bray, World Energy Council, European Head of Capital Goods at Deutsche Bank.
During the fiscal third quarter, Siemens Energy reported a negative free cash flow of 55 million euros, encompassing a pre-tax outflow of 393 million euros at Gamesa. This outcome was relatively better than initially anticipated.
“Nonetheless, the cash outflow stemming from Gamesa-related challenges is foreseen to manifest over the upcoming years. As of the end of June, the group’s adjusted net debt, which incorporates pension obligations, escalated to €919 million,” de-Bray appended.
“In light of the intrinsically precarious aspects of the business… and the lingering uncertainties regarding the transformation of Gamesa, our conviction persists that a 10% augmentation in capital might be essential to ensure the group’s financial stability.”
Siemens Energy acknowledges quality-related issues, plans strategic shifts, and faces financial challenges. Despite setbacks, it shows order and revenue growth. Deutsche Bank’s assessment highlights operational strength. Focus on stability and growth continues, guided by CEO Bruch. Challenges persist but strategic adjustments aim for market resilience.