Siemens Gamesa to review financial guidance as challenges mount

Siemens Gamesa Renewable Energy SA placed its full-year earnings guidance under review after revealing a fourth straight quarterly loss due to continued technical challenges and inflationary pressure in the supply chain.

The company's EBIT before purchase price allocation and integration and restructuring costs amounted to negative €304 million during the period, compared with profit of €111 million a year ago, according to preliminary fiscal second-quarter earnings released April 19.

The result is more than double the estimated €130.4 million EBIT loss for the quarter based on the polling of five analysts by S&P Capital IQ.

"A very helicopter view would lead us to the assumption that ... two-thirds of the difficulties are internal," CEO Jochen Eickholt told analysts April 20, referring to the new 5.X onshore platform that continues to encounter problems.

The platform has suffered from technical issues in the design phase, and the ramp-up of manufacturing has proven to be more complex than previously understood, impacting production and project timelines.

"[In] my view right now, the issues can be solved," said Eickholt, who joined Siemens Gamesa in early March. "And as we've said previously, the technology ... is understood to be sound, and that's also in a way good news."

Eickholt added that the turbine "will be good for its purpose" and "is designed to be one of the most attractive models in the market."

Beyond its internal issues, Siemens Gamesa continues to be hit by inflated costs for transportation and raw materials, which are also impacting other wind-turbine makers and forcing the companies to raise their prices. Eickholt said there is an "increasing awareness" of inflation on the part of the company's customers.

"That means that after decades of price stability and even reducing prices, we perhaps now have to include the concept of inflation into, for instance, the contracts that we have," the CEO said. This includes clauses for indexation and price escalation.

The challenges mean Siemens Gamesa's previous financial guidance for its fiscal 2022 is "no longer valid and is under review," the company said April 19. Parent company Siemens Energy AG is similarly reviewing its guidance, citing the issues at Siemens Gamesa and the war in Ukraine.

Siemens Gamesa had adjusted its financial outlook in January to target annual revenue growth of between negative 9.0% and negative 2.0% along with an EBIT margin of between negative 4.0% and 1.0%.

The company will still "continue to work to achieve" the revenue guidance and will aim for the low end of the EBIT margin forecast, Siemens Gamesa said, adding that its efforts will be positively impacted by an agreement to sell a 3.9-GW pipeline of wind farm development projects in Southern Europe to SSE Renewables Ltd.

The €580 million deal, announced April 19, includes wind farms at various stages of development in Spain, France, Italy and Greece and about 40 employees on the ground, and it is "proof of our commitment to focus on our core competencies," Eickholt said. The transaction is expected to close by the end of September.

The turbine-maker's fortunes might be buoyed by EU efforts to secure energy independence from Russia over its invasion of Ukraine, part of which involves higher renewables deployment in the coming years.

"I've never, ever been able to work in my entire career in a business space with such positive overall outlooks mid-to-long-term," Eickholt said. "It's just that we all have to overcome the more short-term difficulties."

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