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Siemens Energy to restructure wind turbine business after steep losses

German clean energy group does not see unit returning to profitability until 2026

Siemens Energy, the German clean energy company, reported a full-year net loss of €4.6bn on Wednesday, hours after agreeing a government-led rescue plan.

The group said it was restructuring its wind turbine business, Siemens Gamesa, after confirming steep losses which it described as an “unexpected, serious setback”. The company had issued a profit warning in June.

Siemens Energy said it did not expect its wind business to return to profitability until 2026, weighing heavily on group earnings even as its other divisions were expected to continue growing strongly.

Overall, the company expects to return to profitability next year. Shares in the DAX-listed company, which was spun out of Siemens in 2020, have slid more than 40 per cent so far this year. Siemens still holds a 25 per cent stake.

“In a year of unprecedented challenges, Siemens Energy showed that turnarounds are achievable, with the businesses, excluding wind, meeting or exceeding their full-year targets,” said chief executive Christian Bruch.

“We are seeing progress in dealing with the issues at Siemens Gamesa, and I am encouraged that the data from the installed onshore turbines confirm our previous findings. Our strong balance sheet remains a top priority, and Siemens Energy’s vital role in the energy transition will continue to drive our growth and success in the years ahead.”

Problems at Siemens Gamesa have been “ringfenced”, the company added. The division has been plagued with technical problems in some of its core products and hit hard by inflation, which has eroded its margins thanks to locked-in sale prices.

The German government confirmed on Tuesday it was providing €7.5bn in credit guarantees to Siemens Energy as part of a €15bn rescue package, with €12bn lent by banks, to try and shore up its order book.

Due to the difficulties at Siemens Gamesa and broader problems in the renewables financing market, the company warned on October 26 that without billions of euros in additional lending and credit guarantees, it would struggle to fulfil a huge order backlog of more than €110bn.

The company will suspend its dividend for the duration of the government support, as well as bonuses for its board of directors.

The bailout deal will also involve Siemens Energy selling a stake in its Indian joint venture with Siemens, at a 15 per cent discount, raising €2.1bn.

Chief executive of French train maker says company will also consider capital increase

Train manufacturer Alstom is seeking up to €1bn in asset sales and has said it will consider a capital raise, after a cash flow warning last month spooked investors and raised concerns about the French company’s debt level.

Henri Poupart-Lafarge, Alstom’s chief executive, told the Financial Times that the cash warning had been a “call for change” as he outlined measures to cut the group’s net debt by €2bn over the next year and a half, as well as job cuts to trim costs.

Alstom shares fell by more than 15 per cent in late morning trading on Wednesday, having slumped by more than a third in early October when the company said it expected negative free cash flow of €500mn-€750mn for the year to March 2024. The group had net debt of €3.4bn at the end of September.

Known for making France’s high-speed TGV trains, Alstom is the world’s second-biggest train manufacturer after China’s CRRC and has contracts stretching from Australia to Saudi Arabia, with more than 80,000 employees globally.

The company is riding high on record orders for trains and related services — its backlog reached €90.1bn in its first half ending in September, it confirmed in results on Wednesday — but Alstom is coming under pressure from short-term problems, including some downpayments on deals not coming in as rapidly as planned.

“I’ve always said to the market that our trajectory allows us not to need any capital increase. It is fair to say that we have deviated from this trajectory . . . and having a strong balance sheet for me is key,” Poupart-Lafarge said.

He added that Alstom was not envisaging a capital raise from investors straight away as the company felt no pressure to do so and wanted to give asset sales a chance.

The group is focused on preserving its investment-grade credit rating, Poupart-Lafarge said, while top shareholders were on board with Alstom’s latest plans. The group is also set to forgo a dividend payment for its full year.

The Caisse de dépôt et placement du Québec pensions fund holds 17 per cent of Alstom, while French state-backed investment bank Bpifrance has 7.4 per cent.

The chief executive — who is set to relinquish his additional role of chair after taking on both jobs in 2016 — said the group would increase cash generation by tackling operational problems that tripped up Alstom.

It has struggled with problem contracts inherited from its acquisition of Bombardier’s rail unit and had trouble keeping up with an increased pace of production.

Alstom is also exposed to political uncertainty. UK Prime Minister Rishi Sunak last month radically scaled back Britain’s planned High Speed 2 rail line, although Poupart-Lafarge said Alstom’s train orders as part of that project had been confirmed.

“The decision is where to run the trains, as these trains could run on conventional lines,” he added.

Looming job cuts at Alstom’s manufacturing plant in Derby were linked to different train programmes now coming to an end, Poupart-Lafarge said. These are expected to reach about 550.

Part of Alstom’s recent issues have derived from its delay in producing as many trains as planned as it increased its manufacturing, creating issues with inventory costs.

The hangover from the €5.5bn Bombardier deal that closed in early 2021 also persists and has weighed on Alstom’s efforts to increase its operating profit margins. Some of Bombardier’s contracts were lossmaking.

Alstom announced 1,500 job cuts in administrative and support roles on Wednesday as it speeds up the last phase of its Bombardier integration.

Poupart-Lafarge said the group would still “in the middle of the battle . . . have a fully efficient organisation” after the acquisition, in line with the three to four years of adjustments it had always expected.

“There is no silver bullet. We solved all the individual problems on all the individual projects that existed,” he said of the deal.

Alstom is rated one notch above junk status by Moody’s.

The company said it was aiming for €500mn-€1bn in asset sales and would consider selling equity stakes in some of its subsidiaries to other businesses. It would also examine other forms of capital injection.

Alstom is now proposing to split the roles of chief executive and chair after feedback from top investors before its cash flow warning, Poupart-Lafarge said.

Philippe Petitcolin, a former boss of jet engine maker Safran, will be proposed as chair ahead of Alstom’s shareholder meeting next July.

Latest downgrade comes amid rising expectations of stagnation in the coming quarters

The EU economy will grow less than previously forecast this year, the European Commission has said, as it unveiled fresh downgrades to its GDP expectations owing to high inflation and sluggish business activity weighing on the bloc’s markets.

Finding ways to kick-start the EU’s moribund economy and falling global competitiveness has become the commission’s most pressing task, as growth remains tepid despite a €800bn stimulus programme rolled out across the bloc.

Both the EU and the eurozone will grow 0.6 per cent in 2023, the commission said on Wednesday, 0.2 percentage points lower than expected in its September forecast, and the second consecutive cut this year.

The EU economy will grow 1.3 per cent in 2024, the commission forecast, down 0.1 percentage point less than previously expected. The eurozone’s economy is expected to expand by just 1.2 per cent next year, a downward revision from 1.3 per cent.

Stubbornly high inflation, triggered first by the Covid-19 pandemic and then the energy shock following Russia’s invasion of Ukraine, and the economic fallout of the conflict, have hamstrung European output over the past few years, with growth falling further behind the US.

Mario Draghi, the former Italian prime minister and president of the European Central Bank, told the FT last week: “It is almost sure [that Europe is] going to have a recession by the year-end.”

The commission said inflation remained “on a downward trend” and would fall from 6.5 per cent this year to 3.5 per cent in 2024.

“Uncertainty and downside risks to the economic outlook have increased in recent months amid Russia’s protracted war of aggression against Ukraine and the conflict in the Middle East,” the commission said in a statement.

“So far, the latter’s impact on energy markets has been contained, but there is a risk of disruptions to energy supplies that could potentially have a significant impact on energy prices, global output and the overall price level. Economic developments in the EU’s major trading partners, especially China, could also pose risks,” it added.