Wind Sector Results Weaken in the Downturn

Among the most intriguing is the commercial powerhouse that is Germany’s Siemens. Although the company continued broad-based revenue growth in the second quarter of fiscal 2012 – revenue rose by 9% year-on-year – new orders were down 13%. Income was considerably below the prior year due to burdens in the Power Transmission Division, which are related to wind power. Siemens has reportedly been experiencing problems connecting offshore wind farms in the German North Sea to the power grid.

In part, the company says, profit was held back by project charges of €278 million at the Power Transmission Division. Second-quarter profit at the Energy Sector totaled €573 million compared with €2.4 billion a year earlier.

For fiscal 2012 Siemens has confirmed its expectations of moderate organic revenue growth compared to fiscal 2011. But, challenges, mostly in Siemens’ power transmission business, are expected to impact the level of income from continuing operations that the company originally expected to achieve in fiscal 2012. As a result the €6 billion original forecast is expected to be slashed by an estimated €0.6-€0.8 billion.

‘As expected, the second quarter was not easy. For fiscal 2012, we’re on course to achieve our goals for revenue and orders. Profit for the quarter was below our expectation due to charges at power transmission projects in Germany,’ said Siemens president and CEO Peter Löscher.

Revenue came in at €19.3 billion. In the energy sector, new orders were down by nearly one-third to €5.8 billion, while revenue rose 13% to €6.9 billion. The decline in new orders was mostly due to a lower volume of large orders compared with the prior-year period, which had included orders for three offshore wind farms in Germany. Nonetheless, the largest increase in revenue was achieved by the renewable energy business.

Meanwhile, Vestas, the world’s largest wind turbine manufacturer, reported a disappointing first-quarter revenue and earnings due to low level of deliveries, high turbine costs and additional unexpected warranty provisions of €40 million.

Generating revenue of €1105 million in the first quarter of 2012 – an increase of 4% year-on-year – EBIT before special items nonetheless declined by €135 million to a loss of €204 million.

Intake of firm and unconditional orders was 1269 MW at the end of March. However, in a blow to the company, it has revealed that monitoring data shows that 376 V90-3.0 MW gearboxes delivered to Vestas from June 2009 to September 2011 may potentially need additional maintenance, repair or replacement due to malfunctioning bearings. Thus, additional provisions of €40 million have been made in the quarter. Vestas will pursue potential compensation from the suppliers ZF/Hansen.

In addition, the company has slowed development of its V164-7.0 MW offshore turbine, to align the expected serial production date with Vestas’ current offshore market outlook, the company says. The prototype is now expected to be installed in Denmark during 2014.

Describing 2011 as a very challenging year for the wind industry, Vestas had to issue two profit warnings. In 2011, Vestas recorded revenue of €5.8 billion but the results and revenue for the year are substantially lower than the original expectations of revenue of €7 billion. Vestas will introduce guidance ranges for earnings and revenue to take into account the heavy fluctuations characterising these items. As a result, for 2012, Vestas expects to achieve a revenue of €6.5-€8 billion, including service revenue, which is expected to rise to some €850 million with an EBIT margin of around 14%. The EBIT margin will be adversely affected primarily by too high production costs for the V112-3.0 MW turbine and the GridStreamer™ technology.

Shipments which are expected to increase to about 7 GW with the present production plans will peak in the middle of the year, while deliveries may fluctuate heavily. However, Vestas says, disruptions in production and challenges in relation to wind turbine installation, such as bad weather, lack of grid connections and similar matters, may cause delays that could affect its financial results for 2012.

Spanish major Gamesa says the complex economic environment, volatility in many wind markets, new product launches and the industry’s seasonality has impacted on its profitability and debt. The company nonetheless says it expects the trend of recent quarters to reverse in 2012 when it will attain profitability and free cash flow in line with annual guidance.

For the first quarter of 2012, Gamesa has reported sales of €777 million, up close to one-third, but earnings of just €32 million, down 58% and a net loss of €21 million. Orders amounted to 687 MW, up more than 100%, bringing the total pipeline to 1776 MW with Latin America and the Southern Cone providing the greatest contribution to sales (30%), followed by the US (27%) and India (19%).

Gamesa’s sales were driven mainly by wind farm development and sales, offsetting the performance of the wind turbine division, which was affected by the decline in activity in China and India, the company said. Even so, the macroeconomic and industry situation, growing price competition (mainly in China), and the costs of implementing new platforms have had an impact on profitability. Gamesa expects the profitability of the wind turbine area and of the group to gradually recover in the coming quarters.

Furthermore, with a view to ensuring future competitiveness in the face of a sluggish economic recovery and volatility in the industry, Gamesa has revealed a series of new optimisation measures, including reducing materials costs, rationalising manufacturing, and optimising support functions.


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