Siemens Gamesa Renewable Energy, a leading global wind turbine manufacturer, cut its full-year margin guidance for 2020 due to “one-off” project delays in Norway.
SGRE, the world's second-largest wind turbine supplier, warned investors last week that 1.1 gigawatts' worth of projects had been delayed and the company would take a €150 million ($166 million) hit in the first quarter.
In announcing its Q1 results on Tuesday, the Spain-based company trimmed its EBIT margin guidance for 2020 by one percentage point, to a range of 4.5 to 6.0 percent. It held revenue guidance at €10.2 billion to €10.6 billion.
Siemens Gamesa said it has taken measures to prevent a repeat of the Norway issue. “The company's financial performance fell short of the expectations we had when we set our targets for the year,” said Markus Tacke, CEO of Siemens Gamesa, in a statement.
“This was a one-off impact, and we do not expect it to recur in future quarters as we are taking the necessary measures" to prevent it, Tacke said. "We have stepped up risk analysis to ensure project execution is on track, and we will also strengthen our internal control system to avoid a recurrence."
Beyond the Norway issue, SGRE gave investors reasons for cheer, with an order backlog up 21.8 percent since last year to just shy of €28.1 billion. The company recently passed the 100-gigawatt landmark for installations, with 86 gigawatts of onshore turbines operating globally and another 15 gigawatts offshore. Vestas achieved the same milestone in January last year.
The Norway hitch
Access to projects in northern Norway was hindered last quarter by the early winter conditions and unprepared roads, SGRE said. A pointed footnote stated that preparing those roads was outside the scope of SGRE’s responsibility. Of the €150 million charge it took, SGRE said around €68 million to €70 million was yet to be incurred and €25 million to €30 million was potentially “recoverable.”
Tacke offered more detail in a Tuesday morning press conference.
“We need to separate what we call internally the 'northern pipeline.' It's at the very far end of Norway; the weather conditions are very harsh. [...] The weather window, under normal circumstances, is sufficient to complete installation, [but] the early winter did not favor that, and we had to realize that continuing installation would be very difficult,” he explained.
“Such a severe situation for the company deserves a review. The early winter is unforeseen; we need to strengthen our risk management to be very sure [we] are in control of our projects around the world so we'll strengthen our project risk management,” Tacke said.
“We execute projects on a day-to-day basis, and the majority are executed in a flawless...way. In Spain, we executed 24 projects in parallel in high season, a record number of installations. In offshore, we installed 400 turbines, a record, and without any unforeseen material challenges,” he said.
Senvion deal finalized
The acquisition of Senvion’s European service business, worth 9 gigawatts' worth of contracts, as well as the bankrupt German wind turbine maker's intellectual property, closed last quarter. SGRE expects the addition of Senvion’s Ria blade facility in Portugal to be completed this quarter.
David Mesonero, CFO at Siemens Gamesa, told the press conference that there would likely be no impact on the firm’s profitability as a direct result of the Senvion deal. An estimated €150 million bump in revenue would be offset by the costs of ramping the Ria facility to make SGRE blades.
Siemens Gamesa confirmed to GTM that it has no plans to acquire any of the roughly 5 gigawatts' worth of service contracts that Senvion still manages outside Europe, but it said it will offer a range of services to Senvion customers.
With control of its SCADA platform and spare parts supply, it has some undeniable advantages that it acknowledges puts it in “pole position” to service Senvion turbines whether or not they are covered by the acquisition.
An eye on Brexit and Siemens Energy's IPO
The U.K.'s recent exit from the EU could have a considerable impact on Siemens Gamesa, given its huge rotor blade production facility in Hull, along the eastern coast of England.
Tacke said the facility has prepared for a "hard Brexit," which is one without a smooth trade deal with the EU, by hiring additional administrative staff. The hard Brexit scenario is the one embedded in the midpoint of the firm’s forecast. In that regard, as long as the subsequent relationship and trade deal between the EU and the U.K. is less impactful, the company should experience some upside.
Tacke said the firm had a “vital interest” in maintaining a tariff-free environment and stressed that the benefits of a tight relationship between the U.K. and EU extend further to logistics and the free movement of labor for its global installation teams.
“Indications we have received so far from people involved is that there is consensus on both sides, so it should not harm companies like SGRE that are dependent on good relationships between U.K. and EU,” said Tacke.
SGRE will have another major change to contend with later in the year when Siemens spins off all of its power businesses into a new company. The Siemens Energy IPO is scheduled for September, and the freshly floated entity will become the new major shareholder in SGRE.
Join Wood Mackenzie's upcoming wind webinar, Winds of change in onshore wind O&M - a look into 2020s, on February 20th, at 11:00am GMT.