COVID-19 Weighs on Siemens Gamesa Earnings

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Siemens Gamesa Renewable Energy (SGRE) on May 6 said delaysto its renewable energy projects, in part due to supply chain disruptions fromthe coronavirus pandemic, will continue to negatively impact the company'searnings this year.

The company reported its fiscal second-quarter earnings on Wednesday and said the COVID-19 outbreak had a direct negative impact of 56 million [$60.63 million] on profitability, and intensified challenges experienced by the onshore business in India and Northern Europe." SGRE reported that its margin on earnings before interest and tax (EBIT) fell to 1.5% in the first three months of this year, down from 7.5% in the year-ago period.

The wind turbine maker, which is scheduled to be merged intoa larger Siemens entity later this year, said earnings fell despite the company'sbuild of a record-breaking order book for equipment and services. SGRE lastmonth withdrew its earnings guidance for 2020; Vestas, the world's largest windturbine manufacturer along with SGRE, has done the same.

Siemens Gamesa Renewable Energy in its second-quarter earnings report said the coronavirus pandemic has had a negative impact on its wind turbine manufacturing business. Courtesy: Siemens Gamesa Renewable Energy

We are experiencing a situation without precedent that haschanged our lives in just weeks. Siemens Gamesa considers that the renewablesindustry must play a key role in the economic recovery to move towards asustainable energy model that generates quality jobs. It is in our hands toavoid another crisis: the climate crisis," said Markus Tacke, CEO of SiemensGamesa, in a statement.

The company said its revenue in the January-March period fell by 8%, to 2,204 million ($2.4 million), mostly due to fewer sales of wind turbines. The company said the pandemic has brought disruptions to its equipment supply chain, including the movement of components from China, and some manufacturing factories have been closed. It also said the normal pace of project construction will likely be slowed for the rest of this year.

Record Order Book

SGRE said it ended the first half of its fiscal year (October 2019-March 2020) with a record order book of 28.6bn ($30.9 billion), up 21% year-over-year, which sustains good long-term prospects." The company said that figure was bolstered by several deals, including its integration of service assets acquired from Senvion, a Germany-based wind turbine manufacturer.

SGRE in January completed the acquisition of about 9 GW of wind energy capacity from Senvion across 13 countries, at the time giving the company a serviced fleet of about 69 GW worldwide. The deal also included Senvion's intellectual property, allowing SGRE to offer competitive service solutions for other OEM [original equipment manufacturer] business and grow its multi-brand offering."

The company said its second-quarter order intake was off 11% year-over-year, which it said reflected the normal volatility" of the offshore wind power market, as well as the impact of COVID-19" on the signing of onshore contracts. SGRE said some orders have been deferred to later quarters.

SGRE said orders for onshore wind energy equipment rose 13%year-over-year-a total rise of about 9.5 GW-over the past 12 months, despite a6% year-over-year reduction in the second quarter. Orders for offshoreinstallations in the past year increased 56%, to 2.879 GW. The company in thesecond quarter also signed a preferred supplier agreement with Orsted for theBorkum Riffgrund 3 (900 MW) and Gode Wind 3 (242 MW) offshore wind farms, bothlocated in the German sector of the North Sea.

The company said the Senvion acquisition helped increase itsservice sector orders by 75% year-over-year covering the past 12 months, withtotal orders of 3,870 million ($4.2 million). Orders in the second quarterrose 4% year-over-year.

Lack of Short-Term Predictability'

SGRE noted that the the lack of short-term predictabilityhas led the company to withdraw the guidance it issued in the first quarter of2020," but said the long-term prospects for the industry and Siemens Gamesaremain sound." It noted that According to the International Energy Agency,renewables will account for two-thirds of total capacity installed by 2040,with a sustained level of installations averaging 57 GW per year."

The company said it has maintained a sound liquidityposition," with total credit lines of 4.0 billion ($4.32 billion), againstwhich it has drawn 1.1 billion ($1.2 billion).

Siemens has said it plans to spin off its power and gasunits and merge them with SGRE, with an initial public offering of stock forthe new company-Siemens Energy-scheduled for September. Joe Kaeser, Siemens'CEO, has said he plans to leave the company later this year when his contractexpires. He has made simplifying the company his signature goal, with the newenergy company likely his last action in that process.

Kaeser on a call with investors earlier this year said, SiemensEnergy, in particular, can and will play a significant role in supporting theglobal energy transition from conventional generation to renewable energy andsupplying technology to produce synthetic fuels for the high growth in [the]economy." Kaeser said SGRE will be the cornerstone" of the new business.

Siemens has said the new Siemens Energy would have annualrevenue of about 30 billion ($32.6 billion), with an order backlog of 70billion ($76 billion).

-Darrell Proctor is associate editor for POWER (@DarrellProctor1, @POWERmagazine).

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