LAn old proverb says that it is better to have a terrible end than a terror without end. For shareholders of Siemens Energy, it is probably more of an endless horror. On Thursday evening, the German energy technology group again lowered its own annual targets in a mandatory notification due to several problems at the Spanish wind power subsidiary Gamesa and expects additional costs in the billions – the board is not yet more specific. The Munich group had already expected a net loss of more than 800 million euros for the financial year ending at the end of September. How much worse the year will turn out to be, the board of directors did not provide any information on Friday, but wants to comment in detail on the presentation of the figures for the third quarter on August 7th.
On Friday, the share price of the Dax group plummeted by around 37 percent – to its lowest level since November last year. The market value fell by more than 6 billion euros. The ground that the paper had made up over the past few weeks and months was lost within a very short time. The investors are experienced in crises, the wind power company Gamesa, which Siemens Energy only took over completely a few weeks ago, has been causing high losses and forecast reductions for years.
Reserves are not enough
“This is a major setback,” said Christian Bruch, CEO of Siemens Energy, in a conference call with journalists on Friday. And further: “I would not have expected this extent today”. Specifically, it is about several construction sites at Gamesa, which are increasingly turning out to be a bottomless pit for the energy technology group. A few months ago, quality problems with installed wind turbines were identified. Gamesa had already set aside almost half a billion euros for warranty and maintenance costs in January. According to Jochen Eickholt, however, this is far from enough. “The quality problems go well beyond what was previously known,” said the Gamesa boss, who has been managing the Spanish wind power business for a good year, during the conference call.
Recently, significantly higher failure rates have occurred, explained Eickholt. Extensive investigations have shown early warning indicators such as abnormal vibration behavior. The defective parts are different components, such as rotor blades and bearings. It is not yet clear how many repairs will be necessary. The wind turbines would not necessarily fail, the manager said. But due to the long life cycle of around 20 years, costs will probably accrue over the years. “We don’t have a conclusive result yet, but the result of the investigation is worse than I thought possible,” said Eickholt. There are also some design issues. According to the CEO, the fact that errors in the existing fleet are only now becoming apparent is also due to the corporate culture. There is a lack of transparency. Too many things have been swept under the rug.
Restructurers should fix it
Gamesa boss Eickholt is considered a successful restructuring company in the Siemens cosmos, having previously restructured the train business of the former parent company Siemens AG, for example. He took office in the spring of 2022 after his predecessor had lasted less than two years in the post.
For months he has been trying to get the business back on track with the Mistral program. Initially, it was mainly delays in the ramp-up of the new onshore platform 5.X and higher raw material and logistics costs that caused problems. It was only many months later that the first quality defects in the existing fleet became known.
On Friday, Eickholt made no secret of the fact that Siemens Gamesa is now turning out to be an even bigger restructuring case than originally thought. In recent months he has repeatedly emphasized that he sees nothing at Gamesa that he has not already seen elsewhere. “I wouldn’t make that statement again today,” he said. “With today’s knowledge, the turnaround will take longer than expected,” he said. Bruch and Eickholt did not comment on when it should succeed.
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For detailed view
After all, there are also problems in the offshore business because capacity expansion is not going smoothly. The construction of new halls is delayed, tools are delivered too late, and staff is difficult to find. Rising material costs also had a negative impact. According to Eickholt, productivity in the onshore sector has not yet improved as much as planned. The sum of these issues worries him.
Siemens Energy has been independently listed on the stock exchange since autumn 2020. At that time, conventional power plant technology was considered to be a phased-out model, while wind power was the future driving force of the energy technology group. Of course, competitors such as Nordex or Vestas were also burdened by high material costs, for example. However, in the past few years, Gamesa has always had home-made problems that overshadowed the good business from other areas of the group. Energy boss Bruch now also admitted that he misjudged the situation when he started his job. At the time, he assumed Gamesa would be the smaller problem.
The uncertainty on the stock market is now greater than ever, since not even the board of directors can estimate the costs, according to traders. Nicholas Green from the analysis house Bernstein Research wrote that the quality problems are currently not calculable. If, in the worst case, more than 30 percent of the installed systems are defective, there is a risk of an even more massive price slide.
