Material costs hurt Siemens Gamesa Renewable Energy profits

The 5.x turbine rollout, replacing the pictured 2.x platform, has proved more costly than expected. Credit: Siemens Gamesa Renewable Energy.

 

Siemens Gamesa Renewable Energy also announced that its new line of wind turbines would prove less profitable than expected.

Material costs and production of a new line of wind turbines have hurt the profits of Siemens Gamesa Renewable Energy (SGRE), the company announced in its preliminary results for the second quarter of 2021.

A statement by the company advised of lower financial goals in 2021 because of “increased estimates of ramp-up costs for the Siemens Gamesa 5.X platform, especially in Brazil”. The company’s reassessment of the profitability of its new turbines has decreased expected earnings by approximately $271m (€229m). According to the statement, most of these changes come from orders in Brazil expected between 2022 and 2023.

The statement also blamed a “sharp” a rise in material prices, given the increase in steel costs in recent months. In a conference call, CEO Andreas Nauen told analysts that the company passed the rising cost of steel onto consumers.

He said: “[Customers] do not happily discuss that, it’s clear, but it’s also clear that in light of the size of the increases, the cost cannot stay with us.” Nauen also said that he remained confident of SGRE’s profit margin target of 8-10%. However, this may now arrive later than expected, in 2024.

As a result, the company’s board advised that annual pre-tax earnings will likely move into negative figures. The board also said that annual revenue will fall to the low end of estimates, at approximately $12bn (€10.2bn). Long term guidance remains unchanged.

This marks the second lowering of profit ambitions this year, after SGRE made a similar statement about material costs and delays.

The announcement caused shares to lose nearly 20% of their value on Spanish markets on Thursday. Markets in the US have not yet seen a fall. As a result, SGRE has now lost approximately one-third of its market value since the start of the year.

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