ENR Siemens Energy AG

By Giulia Petroni

THE NEWS: Siemens Energy is in the news ahead of a potential deal with the German government to secure guarantees for its long-term projects. Shares tumbled last week on worries about the company's financial position after it warned of a worse-than-expected loss at its wind division and confirmed it was in preliminary talks with different stakeholders, including the German government and banking partners, to secure guarantees. According to people familiar with the matter, the company is seeking state guarantees of up to 15 billion euro ($$15.85 billion). Supervisory Board Chairman Joe Kaeser said in an interview with newspaper Welt am Sonntag over the weekend that talks with the German government concern state guarantees, not a direct cash injection. German business newspaper Handelsblatt reported that a decision could be made in the coming days.

MARKET REACTION: Share trade 5% higher at EUR7.86. The stock recovered Friday after plunging 32% a day earlier, when the energy company made the discussions public and warned that losses at its troubled wind unit, Siemens Gamesa, are expected to be higher than market forecasts.

STATE GUARANTEES: Such guarantees are financial backstop commonly issued to ensure viability of sizeable or long-term projects. Siemens Energy said it needs the guarantees due to strong growth in order intake. The company's order backlog stood at EUR109 billion as of the end of June.

ANALYSTS' COMMENTS: Most investors agree that Siemens Energy isn't facing a liquidity issue and that political support is clear, according to Citi analysts. However, "what conditions may come alongside political support are an unknown, as are the potential operational impacts to the business from its woes," they said in a note. The analysts see Siemens Energy's liquidity position as still strong, with total equity standing at EUR9.4 billion euros as of the last reporting date. In regards to Siemens's involvement, Berenberg analysts said that the German conglomerate's guarantees for Siemens Energy have reduced to around EUR7 billion as of end of March from around EUR28 billion at the time of the spinoff. "Given Siemens' desire to ultimately exit its position in Siemens Energy in full, we consider it unlikely that it would rally behind Siemens Energy at this moment," the analysts said.

FINANCIAL SITUATION: Siemens Energy's results for fiscal 2023 are expected to be fully in line with guidance, the company said. In August, the German company said it expects its net loss to widen to around EUR4.5 billion, from expectations that it would exceed the prior year's loss of EUR712 million by up to a low triple-digit million amount. The profit margin before special items is seen at between minus 10% and minus 8%, while comparable revenue growth is expected between 9% and 11%. Free cash flow (pretax) is seen up to a negative low triple-digit million amount. The company is scheduled to release results for the fourth quarter of its fiscal year on Nov. 15 and host its capital market day on Nov. 21. No decisions have been made yet in regards to the annual budget for 2024, it said.

WIND DIVISION TROUBLES: Siemens Gamesa's net losses and cash outflow are expected to be worse than market expectations in fiscal 2024, while order intake and revenue should be lower, Siemens Energy said. Challenges are mainly due to quality issues of the 4.X and 5.X onshore platforms, with expenses amounting to EUR1.6 billion. The main part of the expected repair costs for the platforms is expected in fiscal 2024 and 2025. The unit also expects to see increased product costs and ramp-up challenges in the offshore business, leading to additional charges of EUR600 million. The cash outflow resulting from these burdens will be spread over several years and amount to a low two-to-three-digit million sum in the current year, according to Siemens Energy.

Write to Giulia Petroni at giulia.petroni@wsj.com

(END) Dow Jones Newswires

October 30, 2023 08:52 ET (12:52 GMT)

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