Siemens Energy plans €400mn in cuts at struggling wind turbine business

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Siemens Energy has said it is targeting €400mn of cost cuts at its struggling wind turbine business after huge losses forced it to take a €15bn government-backed bailout last week. 

“We are making sure we are streamlining wherever possible,” said chief executive Christian Bruch at an investor day in Hamburg, promising that the German company — a market leader in green energy with annual revenues of more than €31bn — would break even next year. 

The group would look into outsourcing production for important components of its turbines, narrowing its international focus and revising unfavourable contract terms with customers, it said, as it embarks on a radical shake-up of the business aimed at restoring investor sentiment and protecting its fragile balance sheet.

Dax-listed shares in Siemens Energy, which was spun out of its namesake German engineering conglomerate Siemens in 2020, fell 6 per cent to €11.14 by late Tuesday afternoon.

The company warned the turnaround at Siemens Gamesa, its wind division, would be painful, but sought to assure investors that it now had a grip on further downside and had instigated a thorough plan to put it back on track within three years.

Gamesa reported a €4.4bn loss this fiscal year, leading to a €4.6bn group loss. The wind division expects to rack up a further €2bn of losses in 2024, the company revealed.

Siemens Energy stressed its other business lines, representing 70 per cent of group revenues, in gas technology, power grids and industrial transformation, were performing strongly and that it expected them to continue to do so.

The company last week secured a €15bn financial lifeline, backed by €7.5bn of state guarantees from Berlin, to help it work through a huge €112bn backlog of projects that had stalled amid a marketwide funding drought made critical by added fears over the company’s balance sheet due to its wind losses.

Jochen Eickholt, head of Gamesa, said the company had begun to identify technical problems with its turbines more than 12 months ago, but the complexity of the manufacturing and management processes in the business meant the full scale of the problem did not become evident until the summer this year. The division issued a profit warning in August, which caused its shares to crater.

Of the 65,000 turbines installed by Gamesa so far, Eickholt said the company was now confident the faults affected about 2,900 turbines.

Only a few turbines have failed: meaning the company has been frantically trying to model the problem and see how many might be theoretically affected, since it is typically responsible for maintenance over a 30-year time horizon.

The “utmost level of diligence” had been applied, Eickholt said, with a task force helped by external consultants and technical experts.

“Everything is being analysed and discussed rigorously . . . what I can say now is that we do not have any new intelligence [to indicate a higher number of affected turbines].

Not all the problems are technical, however. In particular, a focus on breakneck growth and gaining market share led to unfavourable contracts often being negotiated with customers, the company believes, which have given it little room for manoeuvre.

As part of the division’s reorganisation, it will focus in the future on a smaller “core” market for onshore wind turbines in particular, in countries where the regulation and financial incentives to build are greatest.

“Making everything in-house . . . doesn’t make sense,” said Eickholt, with the division also looking to close down manufacturing capabilities and outsource some engineering tasks more cheaply. “We will continue to simplify the technology portfolio.”