Siemens Energy Ag

Good morning, ladies and gentlemen, and welcome to Siemens Energy's 2023 Third 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 2 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. After the presentation, there will be a question and answer session. If you would like to ask a question, you may press star followed by one on your telephone keypad. If you wish to remove yourself from the question queue, you may press star followed by two. And at this time, I would like to turn the call over to your host today, Michael. Head of Investor Relations, please go ahead.

Thank you very much, Natalie. Good morning and a warm welcome to our Q3 conference call. As always, all documents were released at 7 a.m. on our website. Our president and CEO, Christian Buch, our CFO, Maria Ferraro, as well as our CEO of Siemens Gamesa, Jochen Eichold, are here with me. Christian, Jochen and Maria will take you through the major developments of the last quarter. This should take approximately 45 minutes. And thereafter, we will, as Natalie said, have a Q&A session. We did allow one and a half hour break. for the entire conference call in order to answer as many questions as possible. I see already a lot of questions. So please limit yourself later to one question if possible. And with that, I hand over to Christian. Christian, over to you.

Yeah, good morning, everybody, also from my side. And thank you very much for joining Maria, Jochen and myself on our quarter three conference call. I hope that you and your families are well and safe. This quarter has been an extremely demanding quarter for Siemens Energy. While the former gas and power businesses delivered an outstanding performance, we suffered a severe setback at Siemens Gamesa. As we have highlighted during our ad hoc communication on June 22nd, in particular, two elements contributed to the unexpected charges at Siemens Gamesa. First, we have identified increased failure rates after a certain runtime for specific components of the onshore products 4X and 5X. And second, the productivity increases which were targeted for quarter three were not coming particular in relation to the ramp up of the offshore business. We have initiated a series of remediation actions and had to take substantial charges in this quarter. Jochen will explain within this call more details of the problems and the challenges at Siemens Gamesa, as well as the actions we are taking. They said, I'm very impressed with the entire Siemens Energy team and how they are supporting the Siemens Gamesa colleagues, finding solutions, addressing the challenges and really implementing now the measures. This is also for all the colleagues at Siemens Gamesa a very demanding situation, and I'm convinced that together we will overcome the current challenges. The market environment for the former gas and power businesses continues to develop favorably, and we also see strong demand in the wind business with rising awareness of our customers that the economics need to work out across the value chain. Maria will, as usual, take you through the financials, so I go straight to the expected impact for the full fiscal year 2023. The aforementioned issues at Siemens Gamesa have a strong bearing on our guidance, particularly on profit before special items and net income resulting from the charges we have taken in quarter three. We continue to expect strong growth for Siemens Energy Group. However, it touched lower than before. Because of the charges at Siemens Gamesa, we expect to see a negative profit margin before special items of minus eight to minus 10%. And because we also have changes to valuation allowances related to deferred tax asset, we expect a net loss of around 4.5 billion euro for fiscal year 2023. Because of Siemens Gamesa, we now expect a cash outflow up to low triple digit million euro amount. Before I hand over to Jochen to provide more details on the development at Siemens Gamesa, I want to address the performance of the former gas and power businesses year to date. And as you know, it accounts for two thirds of our revenue and the current performance is an excellent example how to turn around troubled businesses. During the third quarter, we have seen the same pattern as in quarter one and quarter two. Strong order growth, reflecting the strong demand in the market, strong revenue growth as we execute through the backlog, and a strong margin improvement. Also because of the selectivity over the past two to three years with regard to project, the cost of measures, and lower demand. non-conformity costs and strong cash flow because of the high level of orders. This means the former gas and power businesses had an excellent performance during the first nine months of the year. Most impressive is that these businesses generated 1.4 billion euro in EBIT with a cash conversion of more than one so far this year. Capitalizing on the quality of our products, our global reach and the opportunities created by the energy transition, we booked orders of 27.3 billion euros and this reflects a run rate of 9.1 billion euro per quarter, nearly doubling the quarterly run rates compared to 2020. During the first nine months, we have grown revenue in the former gas and power business by 22% on a comparable basis to 16.1 billion euro, And the €1.4 billion in profit before special items, which I mentioned above, reflects a margin of 8.7%. This marks an improvement of more than 7 percentage points compared to where we started in 2020. Gas services, grid technologies and transformation of industry are therefore all on track to reach all the assumptions that we have laid out at the beginning of the year and they are well on track to reach the mid-term targets we have set at the Capital Market Day in May last year. Our focus on selective bidding, cost and operational excellence gives us confidence that these businesses will continue to develop even more favorably given the positive market development. Like always, let me give you some examples of our highlight projects in the last quarter. The first project is a great example for our ability to help customers to facilitate the energy transition by improving security of supply as a plant will act as a backup during periods of lower renewable generations. Castle Lost, the company in Ireland, awarded us a contract for 275 open cycle gas turbines. We are providing five SGT800 turbines and the control system for the plant. They choose us because our solution offers flexibility, reliability and redundancy. And furthermore, the technology is future-proof. as the plant has the potential to be converted to run on hydrogen with zero carbon emissions. The second project is underlining our leadership position in offshore wind. RWE signed an agreement with Siemens Gamesa to build their one gigawatt tour offshore wind project in Denmark. The offshore wind park with 72 14 megawatt turbines, of which 40 are equipped with recyclable blades, will provide green energy to more than one million Danish households. The offshore installation is expected in 2026 and will be fully operational no later than 2027. The project with Conrad Energy is another example of how we can stabilize the grids. Conrad Energy awarded us an order for three synchronous condensers for two projects in the UK. These synchronous condensers will help to stabilize the grid in case of volatility in electricity generation. The last project demonstrates our ability to reduce carbon emissions in the process industry. The Xe Elysium LNG project in Canada has awarded Siemens Energy a contract to assist with the design of the project electrification, compression, and associated electrical systems. Designed to connect with British Columbia's renewable hydroelectric power supply, Xelizim's LNG emissions will be over 90% lower than a conventional LNG facility powered with gas turbines, resulting in one of the lowest carbon intensities of any LNG export terminal in the world. And that makes us obviously very proud. And with this, let me now hand over to Jochen, who will you provide more details on the current Siemens Gamesa situation?