Due to unexpectedly high costs in connection with quality problems, Siemens Energy has now withdrawn its earnings forecast for the full year. Gas Services, Grid Technologies and Transformation of Industry revenue guidance and assumptions are maintained.
In its announcement, Siemens Energy refers to a technical review of the installed fleet and the product design. The current status suggests that achieving the desired product quality for certain onshore platforms will incur significantly higher costs than previously assumed. Possible quality-related measures and the associated costs are currently still being evaluated and are expected to be over 1 billion euros.
In addition, Siemens Energy reviews the key assumptions underlying the business plans. In addition, there are still difficulties in ramping up production capacities in the offshore sector. Therefore, the group felt compelled to withdraw the profit forecast for Siemens Gamesa and thus also for Siemens Energy.
The group intends to provide details and specific figures in the context of reporting on the third quarter of the financial year.
When the second-quarter figures were published in mid-May, Siemens Energy still forecast a profit margin adjusted for special effects at the lower end of the forecast range of 1 to 3 percent. After taxes, a loss should occur that exceeds the previous year’s level of 712 million euros by up to a low three-digit million amount. The growth forecast is 10 to 12 percent on a comparable basis.
Siemens Energy shares collapse
Siemens Energy shares fell by 36.66 percent to 14.81 euros in XETRA trading on Friday. The previous daily low was even lower at 15.02 euros, the share cost as little as last November. Trading was interrupted several times due to excessive fluctuations. The shares of the major shareholder Siemens are also coming under pressure in the wake of Energy. They temporarily lose 2.87 percent to 155.92 euros.
This is very bad news, a trader said. If you don’t have any clues as to where the costs are going, how is the market supposed to assess that, the retailer worries. He spoke of “total insecurity”.
If the price loss for Siemens Energy remains in the current magnitude at the end of trading, Siemens Energy would be one of the biggest daily losers in the DAX ever. Measured in terms of market value, the loss is currently around six billion euros. A price slump of more than 30 percent is very rare for a Dax value. However, there have been a few titles in history, such as those of the payment processor Wirecard, which fell in 2020, or Hypo Real Estate, which was nationalized in the financial crisis, that have lost even more.
Up until the previous day, the papers had been among the biggest winners in the DAX since the beginning of the year. They started the rally in mid-October and posted a peak gain of 140 percent through the end of May. Now, however, they have also fallen below the support area of the 61.8 percent Fibonacci retracement. This means that they have lost more than 61.8 percent of their gain since October – in technical terms this is considered a massive warning signal for the entire trend. Since the beginning of the year, the papers have been in the red by eleven percent and are thus at the bottom of the DAX field.
The disappointment of many investors spread to the entire industry. For example, the shares of wind turbine manufacturer Nordex fell in the MDAX at times by 3.08 percent to 10.86 euros.
Goldman Sachs nevertheless confirms its buy vote for Siemens Energy
The US investment bank Goldman Sachs left the rating for Siemens Energy on “Buy” with a target price of EUR 31.70. New problems at the subsidiary Siemens Gamesa put a dark cloud in front of the energy technology group’s revaluation story, analyst Ajay Patel wrote on Thursday evening in a first reaction to the withdrawn earnings forecasts. He rates the message as “clearly negative”.
The wind power subsidiary Gamesa is a well-known problem for Siemens Energy, explained capital market expert Jürgen Molnar from broker RoboMarkets. After the complete takeover at the beginning of the year, Gamesa has so far turned out to be a black hole in the balance sheet. “The future of Siemens Energy depends more and more on whether it gets the problem child under control.” The bitter thing about the current sell-off in Energy shares is that the strong recovery since last October has come to an abrupt end, according to the expert.
Potential buyers who could use the low price of Siemens Energy to enter the market have not yet appeared on Friday. Bernstein analyst Green also advises investors against it. In the worst case, if more than 30 percent of Gamesa’s installed systems are defective, there is a risk of an even more significant price slide. If Gamesa were rated zero, the fair value of Siemens Energy would be eleven euros, Green calculated.
Market observer Alexander Paulus from the Stock3 stock exchange service sees the next important supports in the price chart at EUR 14.37 and EUR 13.36. Until then, the papers would still have some space. In general, however, he advises after such price slumps to “let the shares settle down first” and wait for the first attempt to bottom out. Chart supports would rarely have any effect amid selling panics.
Siemens Energy continues to not question the wind business
The management of Siemens Energy does not fundamentally question the wind energy business, even in view of the recent quality problems at the subsidiary Gamesa. CEO Christian Bruch said in a telephone press conference that he couldn’t see why a balanced risk/opportunity profile could not be created for the wind turbine manufacturer. Of course it was “bitter for us” to surprise the capital market again with a profit warning. But the energy transition needs wind energy as a component, he added.
On Thursday evening, Siemens Energy surprisingly canceled the earnings forecast, which had already been reduced twice in the current fiscal year, citing additional quality problems with onshore wind turbines that had already been installed. “Significantly increased” failure rates were found for some components, it said. Repair and replacement will probably devour more than a billion euros.
The Siemens Energy share lost 35 percent of its value in the morning at the start of trading because Gamesa has been causing problems for years. The parent company recently invested a good 4 billion euros in order to gain full control over Gamesa. This is not a mistake, Bruch said. The price paid was also reasonable. But it will be looked at again and strategically reassessed.
The head of the wind business, Jochen Eickholt, admitted at the press conference that the problems were more serious than he could have imagined. As part of the reorganization of the Mistral program, a new crew has now taken a close look at the entire installed fleet. Further anomalies were found in younger systems, for example in bearings and rotor blades. However, according to Eickholt, these are just a few isolated cases, which, given the installed base of thousands of wind turbines and guarantee contracts, some of which are 20 years old, are extrapolated using statistical models.
Bruch spoke of the “most substantiated analysis of the existing fleet” that has ever existed. Since it has not yet been completed, Siemens Energy intends to inform the capital market about the consequences for earnings when the third-quarter figures are presented at the beginning of August. Eickholt assumes that the costs will accrue over the years and that some components can be replaced with campaigns. As a rule, it will be possible to repair the systems on site. Gamesa also wants to use the suppliers of components for the costs wherever possible.
Siemens Gamesa also has problems with building up additional capacity in the booming offshore business for wind farms at sea. In some cases, halls could not be erected in the planned time frame, because components such as cranes were then missing. The labor shortage is noticeable when recruiting new employees. The company wants to increase the production of offshore components by 30 percent.
FRANKFURT/NEW York (Dow Jones / dpa-AFX)
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