Siemens Energy launched a strategic review of its wind power business as problems with its turbines are expected to cause a €4.5 billion ($5 billion) net loss in one of industrial Germany’s biggest debacles.
The shares fell as much as 5.1% after the company disclosed the loss, which follows repeated setbacks for the German manufacturer in getting to grips with quality flaws. Previously the company expected a net loss of roughly €1 billion in the year through September.
“It has been a very demanding quarter,” Chief Executive Officer Christian Bruch said Monday in an interview with Bloomberg Television. The company is now reviewing different elements in its wind business, he added, as the problems “delay our path to profitability” for the division.
The announcement marks the first update from Siemens Energy after it scrapped its annual profit guidance in June. At the time, its shares slumped by a record after the company said technical problems with onshore turbines from its Spanish subsidiary Siemens Gamesa could cost more than €1 billion to resolve. Shares have remained more than 30% lower than before the disclosure, which follows a number of issues in fixing problems with the turbines.
On Monday, Siemens Energy said it expects €1.6 billion in repair costs to fix flaws in Gamesa’s onshore turbines. Quality problems can occur in “certain rotor blades and main bearings in the 4.X and 5.X platforms,” according to a statement. A limited number of onshore turbines are affected, which can still be operated. The main part of the repair costs is expected over the next two fiscal years.
In addition, the company detailed issues in its offshore business, where higher product costs and ramp-up challenges incurred charges of €600 million during the fiscal third quarter through June. The higher outlays mean Siemens Energy is making a loss on certain contracts if customers take delivery.
Adding to the expected annual net loss is a €700 million writedown of deferred tax assets during the fiscal year through September. Despite the additional charges, Siemens Energy has cash and cash equivalents of around €4.3 billion.
To contain the fallout from its quality problems at Gamesa, Siemens Energy is trying to delay delivery of new wind turbines from its troubled 5.X platform by as much as seven months, people familiar with the matter have said.
The company will give details on its wind business review in November during an investor day.
While the wind turbine problems at Gamesa weigh on earnings and outlook, revenue and profit in the company’s gas turbine and grid technology segments rose.
During the fiscal third quarter through June, revenue rose 8% to €7.5 billion on strong orders for the German maker’s gas turbines and grid technologies units. Net losses ballooned more than five-fold to €2.93 billion as as the costs of fixing issues at its Gamesa units drag on earnings.
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