Our roadmap to profitability

By 2023 it is well-established that wind energy has a firm place in the energy supply of the future. Backed by ambitious government policies, the potential for growth is enormous. But the market for wind energy is still developing and far from mature. And we at Siemens Gamesa have homemade problems we need to solve.

We’re going through a difficult period at Siemens Gamesa. Last week’s disappointing net loss for fiscal year 2023 was loud and clear. The question is: How do we get out of it? How do we rise to the challenge?

I answered that question today at Siemens Energy’s Capital Markets Day in Hamburg, Germany.

Together with Siemens Energy’s Executive Board Members, who talked about their respective businesses, I gave a comprehensive update on where we are at Siemens Gamesa and provided our investors with an outlook until fiscal year 2026.

The wind energy market has a positive long-term outlook

To understand where we are as a company, it’s important to include the context we find ourselves in.

By 2023 it is well-established that wind energy has a firm place in the energy supply of the future. Backed by ambitious government policies, the potential for growth is enormous. Nine percent is the annual rate, excluding China, at which wind energy is projected to grow worldwide until 2030.

As a pioneer of the first hour, Siemens Gamesa is predestined to lead the field of original equipment manufacturers (OEMs) in the wind industry. With a total installed base of 137 gigawatts, with nearly 60,000 onshore and about 4,600 offshore turbines installed, we are a relevant player in the market:

• We have the world’s second largest service fleet.
• We are the number one when it comes to the availability of offshore wind turbines for our customers.
• With our RecyclableBlade technology, our GreenerTower, and many more patented inventions, we are the global sustainability frontrunner in the industry.
• And as part of the Siemens Energy Group with its grid technologies, gas services, and industrial applications like hydrogen, we can offer a unique range of solutions. ??

But the market for wind energy is still developing and far from mature. Take the unsustainable competition among OEMs in recent years, which has resulted in market pricing below levels that would be considered healthy. Furthermore, sizable cost increases have deteriorated the profitability of our backlog projects. That is because the contractual terms and conditions previously agreed do not allow us to pass these increases on to our customers. In other words, inadequate market conditions are forcing us to assume unbalanced risks.

At the same time, most of our problems at Siemens Gamesa are homemade, such as the issues with our 4.X and 5.X platforms. In addition, we are facing operational challenges due to the rapid growth in offshore demand. Although we, for example, more than doubled our output of 11 MW offshore turbines over the past fiscal year (from our factory in Cuxhaven, Germany), we need to do even better in ramping up the production in our various offshore locations. ??

The Siemens Gamesa Masterplan

Over the past 18 months we’ve already tackled both external and internal issues:

• We are now even more selective when it comes to choosing our projects.
• We have increased our prices, rebalanced the risk in our terms and conditions, and reopened contracts with our suppliers and customers.
• We’ve also divested in areas that are not of prime importance for us, and we rebalanced between making and buying certain parts of our wind turbines.
• We are now focusing our partnerships on strategic suppliers.
• Our new operating model, which came into effect at the beginning of 2023, has significantly improved the collaboration between our technology and manufacturing teams.
• And the integration with Siemens Energy ensures both stability and synergies. ?????

But the past year has shown that we still have a lot of work to do. That is why we will be making further adjustments to address our problems and achieve our break-even target for fiscal year 2026. It’s the Siemens Gamesa Masterplan that will not only get us out of the current situation but also lay the groundwork for this decade of growth in wind energy.

We will focus on five levers going forward.

First, we are continuing to tackle the quality issues we’ve found in a small number of our onshore turbines. As part of a quality taskforce with Siemens Energy and consulting experts from AlixPartners, we’ve set up workstreams that are dedicated to the technical aspects, our contracts, and our operations.

The technical workstream has identified the deficiencies we’re now fixing with both short-term and long-term measures. Important to note: No additional charges had to be made in the fourth quarter of fiscal year 2023. Our contracts workstream is looking at a little over 300 projects, more than half of which concern new units, while the other half relates to service. Here, we’ve started discussions with our customers to reach agreements. And the operations workstream is about rolling out corrective measures to remediate the affected turbines.

In addition, we’re working on a timely return to business with our products. Going forward, we will only target markets that we consider attractive. By “attractive” I am referring to stable regulatory frameworks, sizeable profit pools, strong customer relationships, and a match between market requirements and the products and services we’re offering. Taking these criteria into account, Europe will be a core market for Siemens Gamesa.

Second, we’re making sure that our offshore business meets the market’s demands and grows profitably. That means we’re securing the ramp-up in our manufacturing plants with specifically assigned cross-functional teams. They will contribute to reducing the cycle and idle times. They will help implement our ramp-up plans and track our progress every week. Furthermore, we’ve launched a cost-out program with targets that are broken down by turbine components. And we’ve identified more than 500 improvement measures that we’re also tracking on a weekly basis. That is how we’ll improve our productivity.

Third, we will strengthen our service business by continuing to rebalance risk and return through improved terms and conditions, commercial selectivity, and increased pricing. Since the quality issues with our 4.X and 5.X platforms also affected our service business, we will streamline operations and further improve our productivity. And we will target the aftermarket and concentrate on spare parts, repairs, and upgrades – while leveraging our domain know-how in new business models. It is safe to say that our service business will be a strong contributor to our profitability.

Fourth, we will ensure a healthy order intake. That includes some of the measures I’ve already mentioned, such as commercial selectivity and better terms and conditions. We will make absolutely sure that our bidding is disciplined. We will concentrate on the profitable parts of projects and rely on external partners for the rest. We will limit our risk from price increases in our supply chain and logistics. And we will limit our liability for performance obligations like adjacent industries are doing it. ?

Finally, we are going to further strengthen our operations. That means optimizing our footprint by adjusting our capacity in the onshore business and by making smart investments in the offshore business. We will focus on our core activities by rebalancing our make-or-buy strategy and by outsourcing components to strategic partners. 400 million euros is the amount by which we’ll reduce our structural costs by fiscal year 2026. We will simplify our portfolio, reduce our product variants, harmonize technologies, and increase the lifetime of our platforms. And we will further improve our setup for product development, involve suppliers at the earliest stage possible, and collaborate even more closely with our strategic partners. ?

Clean energy for generations to come

I have full confidence that our Masterplan and its levers will bring us back to profitability. But levers need to be operated by people. And it is because of my colleagues at Siemens Energy and Siemens Gamesa that I know we will get back on our feet.

I’ve seen my colleagues in our factories, sites, and offices work hard over the past months, day in and day out. We all care about our business and want it to succeed – not only to become profitable but to be the force we can be in producing clean energy for generations to come.