Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Siemens Energy AG (SMEGF, Financial) reported a healthy order intake of EUR10.4 billion for the quarter, with a book-to-bill ratio of 1.2.
- Revenue rose close to 20% in the quarter and 12% during the first nine months, driven by strong growth in Grid Technologies and Siemens Gamesa.
- The company raised its cash flow guidance from up to EUR1 billion to a range of EUR1 billion to EUR1.5 billion.
- Siemens Energy AG (SMEGF) inaugurated a new gas turbine combustion burner factory in Budapest, enhancing its capacity.
- The order backlog reached a new high of EUR120 billion, with improved margin quality, providing a solid foundation for future profitability.
Negative Points
- Siemens Gamesa reported a loss of EUR450 million for the quarter, contributing to a total loss of EUR1.3 billion for the first nine months.
- The company faced one-time legacy effects impacting profitability, particularly in Gas Services and Transformation of Industry.
- Order intake at Siemens Gamesa was low, affecting the overall order intake for the quarter.
- The market for green hydrogen is developing slower than expected, impacting the sustainable energy business.
- The company anticipates continued challenges in the supply chain, particularly in Grid Technologies, due to high demand and capacity constraints.
Q & A Highlights
Q: My question is on the very strong cash flow in there. Would you mind giving us a bit more color on the drivers of this? And in particular, I noticed there was quite a large contribution from the change in other assets and liabilities line this quarter. Is there anything to be aware of around this?
A: Thank you, Vivek. The development of our free cash flow is heavily linked to our volume development. We booked quite a lot of orders, reflecting a book to bill of 1.4. We are expecting a positive free cash flow in Q4, driven by continued strength in orders and typical seasonal effects. Regarding the change in other assets and liabilities, it includes employee-related accruals, changes in market value in derivatives, and sales tax and VAT receivables.
Q: I also have a question around free cash flow and it's around the guidance. So you have updated the guidance, but still, the quarter four only implies around EUR100 million to EUR600 million in quarter four of free cash flow. Can you walk us through the key building blocks here behind the new guidance?
A: As we go into Q4, we now stand at EUR0.9 billion. We're expecting positive free cash flow in the fourth quarter, with a range of EUR1 billion to EUR1.5 billion. The midrange is where we would expect at this point in time. One distinctive difference is the tempered expected order intake from Siemens Gamesa, which affects the seasonal working capital release.
Q: One query is on gas service. How to translate the gigawatt opportunities into dollars? Is EUR400 million per gigawatt a fair calculation? And can you update us on the demand and supply for gas turbines?
A: It's more complex to apply a straightforward equation to overall order intake. The mixture between gas turbine, steam turbine, generators, and services varies. Regarding demand and supply, our H1 order intake underlines strong demand. We are extending certain capacities and the whole industry is busy. We look forward to continuous market momentum due to higher-than-expected electricity growth.
Q: I want to come back to this legacy item mentioned in Gas Services. Can you give us more detail? Was this a delay on a project due to supply chains? Is the project now fully handed over to the customer?
A: It's really onetime in nature and a legacy item. It has nothing to do with a project or customer requirements not being met, and it's not technical in nature. That's all we can share at this point in time.
Q: Statistical model review for Gamesa mentioned EUR100 million headwinds in total this quarter. Does this mean the underlying operating loss is now trending closer to EUR350 million on a quarterly basis?
A: Be careful with quarterly mathematics due to many puts and takes. We continue to believe in continuous improvement in the service margin. There is no fundamental change in the margin outlook. We had three stable quarters with losses between EUR400 million to EUR450 million, and we adjusted the outlook for Siemens Gamesa to a negative EUR2 billion.
Q: My question is on wind. Can you explain the profile of the margins, especially the heavy negative WT margin moving to minus 5% in Q3? And how much of your onshore order backlog will be worked through in '24?
A: We expect to execute EUR1 billion to EUR1.5 billion of the onshore backlog this year, with the remainder next year. Regarding the margin profile, the quality issues burden service margins, while optimization efforts positively impact WTG profit margin. This mix issue should normalize in the future.
Q: Do you see any issue with your supply chain, especially in the Grid Technology division?
A: Yes, we anticipated it over the last quarters. We see a busy supply chain and have been investing in extending capacity. We are establishing a joint venture to extend capacity and focusing on building up capacities smartly. The EUR120 billion order book unfolds over time, but we are working on all ends to manage it.
Q: How would you describe the capacity utilization across the gas turbine new unit production currently? Are there bottlenecks that need to be addressed?
A: Our main factories can manage the growth, but the blades and vanes supply chain is constrained. We are investing in extending capacity with key suppliers. Delivery times are increasing, and we will update the market with our future outlook on gas services in the next quarterly results.
Q: Can you provide more color on the project execution for Siemens Gamesa, especially on the legacy project part? And is the approval process in Germany and the EU improving?
A: We continue to hand over projects and improve availability in the field. More than half of the projects under execution have been handed over. The approval process in Germany has improved, but there's room for further improvement. We will see how this plays out when we reenter the market.
Q: On Transformation of Industries, the order intake was slightly disappointing. How are you thinking about CapEx allocation to this segment, and how quickly could this become profitable?
A: We flagged a bigger project not reflected in this quarter's order intake. Our focus is on keeping some load in the factory and practicing quality assurance. The market is slower than anticipated, delayed by a year or 1.5 years. We will be careful with cash burn but focus on commercializing and building up the supply chain. We expect the business to be commercial by the end of the decade.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
