Siemens Energy Ag

Good morning, ladies and gentlemen, and welcome to the Siemens Energy's 2023 second quarter conference call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on page two of the Siemens Energy presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Michael Hagmann, Head of Investor Relations. Please go ahead, sir.

Thank you, Timo. Good morning and a warm welcome to the Siemens Energy Q2 Analyst Call. As always, all documents were released at 7 on our website. Here with me are Christian Buch, our President and CEO, and our Chief Financial Officer Maria Ferraro. They will take you through the major events during the last quarter. Approximately, that should take 30 minutes. Thereafter, as usual, about 30 minutes for Q&A. We do have a hard stop today. So I would ask you to ask only one question later. And with that, I hand over to Christian.

Yeah, thank you very much, Michael. And also good morning, everybody from my side. Thank you very much for joining Maria and myself for our quarter two conference call. And that is the first conference call without a separate conference call from SGE. And this is something obviously what we're going to pick up here in our discussion. It has been a very important quarter for us. The one thing is obviously Siemens Gamesa delisted in February and in March we successfully refinanced the transaction via the equity raise and the green bond. And I'm really super proud of what the Siemens Energy and the Siemens Gamesa team have achieved within the last quarter. Post the Siemens Gamesa delisting, we initiate the process to attain now the remaining shares in Siemens Gamesa. We target a selective capital reduction and called for an extraordinary general meeting on June 12th and 13th and obviously hope that this will be successful. These achievements, what we have seen also really over this quarter in particular, mark major milestones on our journey, which started three years ago when we kicked off Siemens Energy. And three years after the spin-off, the operating performance of the former gas and power business is gaining momentum. Our orders are strong, which proves that we are able really to capitalize on the opportunities provided by the energy transition. And the different parts of our portfolio help to address very diverse challenges across the globe, which we need to overcome to build a more resilient energy supply. We are at the beginning of a substantial investment cycle in the energy infrastructure and in that obviously we are well positioned really to benefit from it. We were able to convert backlog into strong revenue growth. Maria will talk about that and also enjoy margin expansion in line with the trajectory we need to reach to our guidance and our medium term targets. We continue with the remedial actions at Siemens Gamesa and the leading indicators suggest that we are stabilizing the organization. Nevertheless, Siemens Gamesa incurred another big loss as Jochen and the team are dealing with operational challenges, including those related to the ramp-up of new capacity and new products in the offshore business and the rectification of the quality issues. And for the former GP business, the operating environment continues to improve, while it remains challenging in the wind industry. Even so, we see that the various government initiatives are starting to have an effect. It will remain a task for the wind industry, including policymakers, to define auction schemes and commercial conditions in the projects, which ensure a reliable risk and reward profile for all participants in the market and in that regard, seeing that we have a stronger demand growth in the US and in Europe particular, which allows us to continue to remain selective, reaching a better order quality. But it will be very interesting also to see the second half of the year where a lot of auctions, particularly on the offshore side, are going to continue. Let me briefly touch on our guidance. 20% comparable growth during the first half was stronger than expected. We therefore raise our revenue guidance from a range of 3% to 7% to a range of 10% to 12%. We maintain our margin guidance of 1% to 3%. However, because of the performance of Siemens Gamesa in the first half of the year, we now expect the group margin to be around the low end of this range. And Maria will more talk about the exact numbers. Let me touch base a bit on the boundary conditions in the energy market. And obviously, with the Inflation Reduction Act and European Green Deal as important initiatives, they accelerate the shift in these boundary conditions. And we are definitely seeing that we are benefiting from this shift. Let me start with wind. The key message here is that the demand will be strong, which allows us to continue to remain selective in the commercial approach. In the U.S., production and investment tax credits will foster investments in renewables, including onshore and offshore wind. And in Europe, we expect the Green Deal to create a more predictable and simplified regulatory environment and to provide faster access to funding, which will be required, obviously, also because a lot of extension of fabrication infrastructure and so forth is needed at the end to implement all these projects. This push in renewables requires further investments in grid infrastructure. In the US, 3 trillion US dollars will be made available in form of loans and grants to support grid investments. In Europe, the Green Deal will support investment, especially due to easier and faster permitting. And a higher share of renewables also requires grid stabilization. And with our modern and highly efficient gas turbines, we are well positioned to provide the pickers and the solutions needed to stabilize these grids. We're developing a lot of new technology around grid stabilization. So there's a lot of things to come. The IRA and the Green Deal support the build of hydrogen infrastructure to decarbonize industry and transport. And now the details and some of the programs need to be defined to convert this ambition level into the extraordinary growth, which is needed to achieve a resilient energy infrastructure. Through our transformation of industry business area, we want to provide these type of key components as well as the solutions for this build out. Let me give you an update on Siemens Gamesa. As I said, this is the first time with all the dedicated Siemens Gamesa call. Even so, the financial performance remains weak. It is our focus that the Mistral program is leading to a stabilization of our operations in the short term. and that we are paving the ground for the road to profitability. Over the last six months, we have progressively been able to de-risk the business via selective bidding, contractual indexation and hedging, the stabilization of our supply chains, and the industrialization of our product development. We have been able to increase prices and to improve terms and conditions on new contracts. Furthermore, we are building long-term partnerships with our clients as our recently announced agreement with RWE attests. We have been able to improve project execution, manufacturing volume and installations of the Siemens Gamesa 5X continue to increase. And we see improved project delivery times. Installations have, as for example, rotor up figures risen by 45% in quarter two. And our plan fulfillment is up 35%, which compares to an increase of plus 10% in quarter one. So these things go in the right direction, even so, and we... clearly also said it the environment in 2023 for wind we expect still volatile there's a lot of things still happening back and forth so there's still a long way to go from the current performance to our targets but we are moving in the right direction even so challenges remain let me now turn to the transaction itself and as mentioned before we have calls for an egm on June 12th and 13th. Here, shareholders are invited to approve a selective capital reduction in case, obviously, 25% at the end of the shareholders participate in the EGM and vote in favor for the capital reduction. We would be able to gain control of 100% of the shares and fully integrate Siemens Gamesa into Siemens Energy. Within 30 days, the remaining minority shareholders would receive the 1805 per Siemens Gamesa share, and the shares remain non-fungible in case these conditions are not met. Siemens Gamesa is now treated as a reporting segment of Siemens Energy. This means that reporting in regulated documents is limited due to IFRS. However, for an interim period... We will continue to provide you with the KPIs you need so you can see how we progress as transparent as possible. As we speak, we are working on the integration and aligning the functions to leverage the best of both processes and structures. Let me briefly comment on the order intake at Siemens Gamesa. In Onshore, we had a well-balanced order intake between the regions, Americas, Europe, and Asia-Pacific. Order volume remained low. Our customers are adjusting to the new market conditions and our focus on profitability and a balanced risk and reward profile. The onshore order intake ASP remains on the right trajectory. It increased by around 10% year-on-year to 0.9 million euros per megawatt in the second quarter and by 28% to 0.88 per megawatt over the last 12 months. We were able to realize strong underlying comparable price increase and had a positive country mix. And this was partially offset by lower project scope and product mix. So this is why this number always has to be taken with some grain of salt to really understand on what it means. But so far, going in the right direction, we will continue to work on pricing. And this also needs to be an element which we carefully look after. You are aware also of the seasonality in offshore. We booked one large order in the quarter, but I believe the focus should be really on the pipeline. And as you can see, we not only have a strong order backlog of 8.6 gigawatts, but we also have a strong order pipeline of 8.5 gigawatts, both of which reflect our market position and the strength of the market. Important here is that it allows to continue to be selective. It will be an interesting second half of the year seeing the auctions coming and obviously how they finally turn out. I already mentioned the IRA and the Green Deal. We are seeing the impacts already. If you look at the latest forecast by Wood Mac, we are now looking at a faster rise in installations. On a cumulative base, Wood Mac expects demand to be 464 gigawatts to the end of the decade and 54 gigawatts or 13% higher than a year ago and 26.6 gigawatts higher compared to expectations at the end of last year. To the end of the decade, the U.S., India and Germany are forecasted to be the biggest markets. And as you know, our Siemens Gamesa 3.4 turbine serves really as a workhorse in India. And we will introduce a new product at the American Clean Power Exhibition in May. While we are ramping up our manufacturing capacity in the U.S. and in Germany, we are gaining traction with the 5X. In offshore, we are seeing a bit of a push out in expectation towards the outer years. However, demand increase is still expected to be strong with installations rising by a factor of five to the end of the decade and 23 and 24 will be a big auction years as I said for these installation. However, towards the end of the decade and we expect the corresponding orders to be placed over the next three years. During quarter two and so far in quarter three, we have signed three preferred supplier agreements, which reflects our competitive strengths. Let me, like always, highlight a couple of projects as an example for each of the business areas. And the good thing is that all projects really represent the type of projects which we see more than once and really shows that the portfolio is well positioned. The first project is yet another. proof point for the coal-to-gas shift, which we see happening. It's a high-efficient gas turbine targeting a thermal efficiency of more than 64% in Mintia, in Romania. It will be one of the most efficient combined cycle power plants in Europe with a capacity of 1.7 gigawatts and replace several coal-fired power plants cutting CO2 emissions. Siemens Gamesa secured, as I said, the first order for the new Flagship. 14-236 direct drive turbine. This is the project East Anglia. It's the second largest offshore wind project in the world, featuring 95 turbines for a total capacity of 1.4 gigawatt, which is enough to supply more than 1 million households. East Anglia 3 is the second of four projects planned as part of the Scottish Power Renewables 2.9 Gigawatt East Anglia Hub development in the North Sea. Obviously, if you produce so much more electricity, we have to connect it to the grid. And for grid technologies, the Tyrrhenian link is a great example of what additions to the grid can do. The HVDC link will allow the flexible exchange of up to one gigawatt of electricity between Sardinia, Sicily and Italy mainland, covering a distance of 970 kilometers. This means HVDC link will enable more efficient use of renewable energy, increase stability of the power grids, and allow for the closure of coal-fired power plants on the two islands to reduce CO2 emissions. On the right-hand side, you see from transformation of industry, the supply for four Sealyzer 300s, the electrification, as well as the automation for Ørsted's flagship one project. With 50,000 tons of annual production capacity, the plant has Europe's largest green methanol capacity and as such is also Europe's largest facility for green marine fuels. ERCET has outlined its ambitions to become a key player in the Northern Hemisphere, which means more projects will come, such as Project STAR on the Gulf Coast, the Green Fuels Project for Denmark. So there's more things to come in this regard. And with this, let me hand over to Maria for the numbers.