Siemens Energy's Wind Turbine Division Faces £2.42 Billion Charge
Posted 08/08/2023 13:15
The group's shares slid 7.4% to the bottom of Germany's blue-chip index, as the group disclosed more details about the far-reaching issues, which affect both its onshore and offshore wind turbine businesses.
Most of the issues revolve around quality problems at Siemens Gamesa's two most recent onshore wind turbine platforms, the 4.X and 5.X, specifically certain rotor blades and main bearings. Fixing these issues will cost £1.6 billion, with most of these costs expected to occur in the fiscal years 2024 and 2025.
In the offshore turbine part of Siemens Gamesa's business, there is a separate set of challenges, centered around a delay in the 30% ramp-up of production as well as potentially loss-making legacy contracts. This includes slower-than-expected headcount addition, the delay of production site construction, supply-chain issues, and higher than expected material costs. Additionally, a small number of contracts concluded at much lower pricing assumptions could incur losses if Siemens Gamesa's customers decide to go ahead with the projects, due to inflation eroding potential profit margins. These problems led to a £600 million charge in the third quarter, with the cash outflow to be spread over several years.
Siemens Energy has not disclosed the identity of all its suppliers but confirmed that they were part of the review and are in talks over potential compensation payments. Siemens Energy said certain third-party suppliers had been excluded from further deliveries.
Siemens Gamesa is a global company based in Spain, which manufactures onshore and offshore turbines for the wind industry and offers services to wind power developers globally. The company generates revenue of £9.8 billion a year and had an order backlog worth £39.9 billion as of the end of June.
Siemens Gamesa has provided wind turbines to some of the biggest power companies and oil and gas majors worldwide. In March, it announced an order from Scottish Power Renewables in Britain to supply 95 turbines to the East Anglia 3 wind power project in the North Sea, with a total capacity of 1.4 GW. In May, it signed contracts with Spain's Repsol for the supply of 40 onshore wind turbines which would provide power to around 160,000 homes in Spain. It has also agreed to tie up with Poland's PGE Group and Denmark's Orsted to supply 107 wind turbines for the Baltica 2 offshore wind project in the Baltic Sea.
Siemens Energy's supervisory board has set up a special committee to look into the quality and productivity problems, and a task force consisting of experts from Siemens Gamesa, Siemens Energy, and Alix Partners, has been put in charge of fixing the quality issues for the affected 4.X and 5.X turbines as well as implementing a quality management system. Siemens Energy said the aim was to fix the problems within the regular service intervals.