Rising Steel Costs Chop Off Turbine Maker Siemens Gamesa’s Profits

Highlights :

  • The firm has released preliminary results for Q3 FY21 and updates the guidance for FY21.
  • Increased material costs and estimates of ramp-up costs for the Siemens Gamesa 5.X platform, especially in Brazil, have hurt profits.
Rising Steel Costs Chop Off Turbine Maker Siemens Gamesa’s Profits

Spanish-German wind engineering company Siemens Gamesa Renewable Energy (SGRE) has released preliminary results for the third quarter of financial year 2021 and updates the guidance for financial year 2021. The company reports that the “sharp” rise in steel costs and the production of a new line of wind turbines have decreased its profits.

Siemens Gamesa’s official statement said that financial goals for 2021 are being revised to make provisions for onerous projects affected by two decisive factors: The sharp increase of raw material prices; and increased estimates of ramp-up costs for the Siemens Gamesa 5.X platform, especially in Brazil.

The impact of these elements has been exacerbated by the pandemic, especially in countries like Brazil where we face supply chain shortfalls and execution related bottlenecks, said SGRE.

On the basis of this, the company has adjusted its guidance for financial year 2021 as follows:

  • Group revenue for financial year 2021 is expected to be at the low end of the range communicated together with the results of the second quarter on 30 April 2021 (€10.2-€10.5bn).
  • Group EBIT margin pre PPA and before I&R costs for financial year 2021 is adjusted to a range of -1% to 0%.

Consequently, the preliminary earnings of Q3 FY21 (quarterly results will be published on July 30, 2021) are as follows:

  • Revenue of c. €2.7bn.
  • EBIT pre PPA and I&R costs of c. -€150 million. The reassessment of the profitability of the WTG order backlog due to the factors mentioned above has resulted in provisions of an estimated amount of €229 million in this quarter. Impact is mainly concentrated in the first Siemens Gamesa 5.X projects in Brazil for delivery in financial years 2022 and 2023.
  • Net debt c. -€0.8 bn.
  • Order intake during the quarter amounted to €1.5bn, impacted by the standard volatility of the Offshore market. Total backlog of c. €32.6bn.

Siemens Gamesa CEO Andreas Nauen has recently said that he remains optimistic that the company could reach a profit margin of 8-10% but the timing could slip from 2023 to 2024.

But such reassurance is not easy to accept as the company has lost almost a third of its market value so far this year, extending losses that began in January with a sector-wide fall in renewable energy stocks. At current share prices, the remaining 33% stake would cost Siemens Energy around 5 billion euros ($5.9 billion).

"Want to be featured here or have news to share? Write to info[at]saurenergy.com

Soumya Duggal

Soumya is a master's degree holder in English, with a passion for writing. It's an interest she has directed towards environmental writing recently, with a special emphasis on the progress being made in renewable energy.