Ladies and gentlemen, the Siemens Gamesa conference call has started. I will now give the floor to Mr. Jochen Eickholt.
Well, thank you very much. Thank you very much. Good morning to everyone. Thank you very much for joining us at short notice and also at such early times, specifically for those in the U.K. The purpose of this call is to address some of the questions on our preliminary earnings release published yesterday evening. As stated in our communication, we will disclose our Q1 results in February 2nd with a follow-up call. This call is supposed to last for some 30 minutes, and investor relation, of course, will be as always available for further question if needed after the call. For us in Siemens Gamesa, our Q1 results have been negatively impacted by charges amounting to EUR 472 million at EBIT level.
EUR 472 at EBIT level, affecting mainly our service activity. The charge reflects the outcome of the evaluation of the installed fleet. Such evaluation has shown a negative development of the failure rates. The incident rates, if you wish, for the specific failures went up for specific components, and that as such then resulting in higher warranty and service maintenance costs, higher than previously estimated. Costs as such also were impacted by inflation. The cash flow impact of this charge is expected to happen over a timeline of up to 8 years, and we are working on mitigation plans now to of course optimize that impact. As a result, our Q1 revenues amounted to EUR 2 billion.
Our EBIT pre PPA and before I&R costs went to -EUR 760 million. We ended the quarter with a net debt of EUR 1.9 billion. We signed new orders with a value of EUR 1.6 billion. This is sometimes the specific element of the discussion. Our onshore order intake, the ASP there, the average sales price amounted to EUR 0.95 million per MW. This is a 24% year-on-year increase. In spite of these results, I would like to highlight that during the quarter we've also made good progress in the stabilization of the business and in our plans to return to profitability in the midterm. Progress is driven mostly by the Mistral program then.
For the first time, the manufactured and installed volumes of our Siemens Gamesa 5.X turbine, the onshore turbine, those values have surpassed those in our planning, and we've accelerated project delivery times. On the commercial side for new order intake, we've introduced further measures to reduce or to optimize our risk profile. In that sense, we see a better risk protection in place for the new contracts. One major pillar of our Mistral program also was the introduction of a new organization, which is fully operational as of January the first. We've also made good progress in advancing the negotiations with the labor side on the structuring. We already have announced the agreement in Spain.
All these factors give me confidence that our long-term potential in the market, is clearly there, and we continue to see strong growth prospects. With that, let's open the lines for questions.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star five on your telephone keypad. We kindly request that due to time limitations, you limit your questions to one per turn. Please be informed that in order to assure audio quality, we recommend that all questions be asked from landlines. Thank you. First, question comes from Supriya Subramanian from UBS. Please go ahead.
I'm sorry. At least I don't hear a question.
Next. Next, please. First question comes from Nicholas Green from Bernstein. Please go ahead.
Good morning. Can you hear me?
Yes, we can.
Yes.
Thank you. Good morning, Jochen. Thanks for taking the time to talk us through this. For my first question, can you just talk through operationally then? Can you give us further color on the failure rates that you're referring to? You mentioned specific components. Just help us understand how the installed base and the work you intended to do as part of the O&M contracts, which bit of that has basically led to more service work, which bit of it has led you to have a slightly lower revenue number I think you referred to in the press release. That normally implies some change to-
Effective uptime, on the, on the installation, maybe something along those lines. Just can you give us more color operationally, what is it that actually you found that's gone wrong or would need to be fixed? Thank you.
Yeah, thank you very much for that question. It's a broader mix of components and effects on a variety of platforms, so there is no specific highlight or lowlight, if you wish. Indeed, it's around those components where we are in charge of. We either are in warranty phases or we are in maintenance phases, or we have the obligation to stand up for the quality of that very component. That then leads to these combined effects. This needs to be discussed at project level, which probably would go a little bit beyond the scope here today. Of course, then, one of the effects is that due to different downtime patterns also the revenue figures are impacted.
In total, it's a really a broad mix of things. We've given a lot of emphasis on analyzing also with the help of statistics, how the developments can be, can be measured and foreseen here, that's what we did. It is a broader set of things. It is affecting all the or a variety of different platforms, and it's also affecting a variety of different components.
Thank you. I'll turn over. Thank you.
Thank you.
Thank you. The next question comes from Akash Gupta from J.P. Morgan. Please go ahead.
Yes. Hi, good morning, Jochen and Beatriz. My question is on ASP in favorable terms that you have mentioned. I mean, 0.95 is kind of flat-ish sequentially. We see that some material costs coming down in the market and freight costs coming down. How do you see this ASP with respect to the cost development that is going on? And when you say favorable terms, can you please elaborate what do you mean by those favorable terms? Thank you.
First of all, onshore business 0.95, this indeed is a continuation of the activities. In some areas we see a relaxation of the cost position, but in some other areas, we continue to not observe that, but in overall, it's contributing to the positive trend. When it comes to risk protection, yes, indeed, we have introduced further clauses around the effect of inflation. That's also true for the longer term projects. So the longer lasting projects, so the new discussions around offshore. In principle, with this, we are at a better profile, when it comes to specifically the effects of inflation.
Thank you. The next question comes from Sebastian Growe from BNP Paribas. Please go ahead.
Hi, good morning. Thanks for taking my questions. It also goes back to the charges that you have taken in the quarter. Can you be more specific as to whether the mentioned component failures are related to the onshore offshore business, what time frame are we looking at to fix the respective component exchanges? Related to it, can you talk also about the related cash outflows and the profile for getting all these fixings done? If I may quickly a follow-up on the order side, obviously the price is up, but the volume is down quite materially by about 20% on my calculations. Can you just give us a sense of what you are sort of eyeing at in terms of eventually for the full year, where you think that would be an appropriate volume for the business?
Thank you.
Thank you very much. First of all, on the service charges, it indeed is a broader range of components for a broad range of the platforms, and that is impacting both onshore and offshore. There is no single pattern as such, which perhaps can be disclosed here, and that is leading to those effects. Since the mechanics behind this is that there's also then the foreseeable failure of components, we reckon the impact of that to happen over 8 years. If you would like to have further discussion on cash flow, perhaps I can refer to Beatriz here.
Yes, thank you for the question, Sebastian. Regarding of cash flow, as we explained, this is expected over a timeline of up to 8 years. That, of course, is pretty aligned with the average life of the projects that are impacted. We expect for 2023, roughly a mid double digit impact in 2023.
Thanks. On the on the order intake, please remember that we are in project business and sometimes the projects are rather big. Any one delay of any one project can easily lead to a different profile over the year. As far as the year-end figures are concerned, please forgive me, we cannot give the guidance.
Fair enough. Thanks.
Thank you. The next question comes from Lucas Ferhani from Jefferies. Please go ahead.
Good morning. My question is on the issues you found. Can you confirm whether this is really the end of it, that you've been through kind of all the issues and you identified everything and you're no longer going to see, you know, further, let's say additional charges either on EBIT or revenue, that the contracts you have now reflected all those issue? Or is there a possibility that we see more problems? Following that, is this really SGRE specific and therefore is there a risk that
You lose market share potentially, yeah, see an impact on your business from these issues versus your competitor who might not have gone through the same thing. Thank you.
Well, thank you very much. First of all, I think the one million dollar question. I think the answer to that is that we look at everything we are aware of, and we are going through it with all the needed diligence. And step-by-step we're moving forward here. And from that perspective, I think the security or the safety is increasing that going forward, we will find less. However we continue to look at whatever we find, and that's also true. I have to say, though, that in my view, in principle, our view on the business as such and on the business climate does not really change.
I would see that, those assumptions we've had over the past and also our judgments on the market possibilities, those remain intact. We just have to cope with what we found.
Thank you. The next question comes from Supriya Subramanian from UBS. Please go ahead.
Yes. Good morning. I hope I'm audible right now.
Yes, you are.
Yeah. Okay, great. Thank you. 2 questions from my end. 1 is on the, just as a follow-up of the previous question in terms of chances of, incremental provisions. Do you think at least for the components that you have identified, the provisioning is done and we will not see recurring provisions through the coming quarters? Sort of a follow-up, to this, you've also said that, you know, provisioning levels for future contracts would have to be higher on the back of this analysis. Does that have an impact on potential for sort of future long-term margins for the service business?
Well, thank you very much for these questions. First of all, regarding those components and those phenomena we identified, my judgment is that, yes, this is it. In that sense, going forward, we have to see that we are increasingly protected, not against these things typically. Please remember that we are also finding ourselves in times of inflation, and therefore inflation protection is one of our highest priorities for basically all the projects and all the contracts, and in that also all the regions. Although in many cases there are different patterns, and there's also differences between onshore and offshore. That is what the protection is about.
Regarding the mid to long-term effects of the findings in the service arena, please forgive me, this is probably still, in my view, a little bit early to have a, to have a final discussion on that. Of course, we are now trying to set up all the plans and mitigation plans and optimization activities, to have the impacts minimized. Going forward, I would reckon us to be really clear about that we want to have these problems solved. The final impact or for any kind of judgment on the final numbers, it's too early.
Okay. Thank you. My next question is on order momentum. You know, in some of your peers, we've seen an uptick in momentum in this quarter, in terms of orders booked. I understand, of course, there could be a timing difference between 1 quarter to the next. Just generally in terms of discussions with customers, et cetera, do you get any subjective feeling that sort of activity levels of momentum in the industry is picking up, over the last two months?
There is, there is a yes and no, and that is regionally distributed, and it's also, I think there's also a difference between onshore and offshore. In principle, please remember, if, I mean, if we now say in Q1 we had EUR 1.6 billion, that is then referring to a timeframe of some 90 days. If we look at, some of the bigger projects, please remember that one order can easily be, up to I mean, one or EUR 1.5 billion. There may be, it's, it's not a thing which is a concern for us these days.
Okay. Got it. Thank you very much. That's it from my end. Thank you.
Thank you. The next question comes from Sean McLoughlin from HSBC. Please go ahead.
Thank you. Good morning. Just to clarify, you mentioned, I think, that the broad mix of components across platforms are components that you developed. I was just checking to see, you know, whether there is maybe any recourse to sub-suppliers in order to effectively get, you know, maybe them to share the cost involved. Is it something that, let's say is a Siemens Gamesa developed product?
Well, it's a mix. I mean, technically speaking, sometimes we did, at least the geometrical development, if you wish. For instance, material compositions are coming from somebody else, so therefore it's a mix. Yes, part of our mitigation measures also is to go back to our suppliers where they are in charge.
Yeah. Thank you. Just to confirm, I mean, regionally, is there any concentration of where these issues are, or is this kind of turbines dotted around globally?
It's the latter. Thank you.
it's about... I mean, there is no specific regional or technological highlight or lowlight, if you wish. Thank you.
Thank you. The next question comes from Gael De-Bray from Deutsche Bank. Please go ahead.
Oh, thanks very much. Good morning, everyone. Can I have two questions, please? The first one is on the free cash flow dynamic. I mean, I think you've just had a EUR 700 million outflow in fiscal Q1. Obviously I'd be interested in any, you know, indication you could provide on the dynamics going forward or rather maybe, you know, how do you see CapEx, how do you see, you know, the expected working capital normalization and the timing of the cash out on all of these provisions you've now booked, both within, you know, the WTG segment and the service segments? That's question number one. Quickly, the second question is about the turnaround process of the business.
I mean, from the outside, I mean, it's pretty difficult to see any progress on the new equipment side, because I mean, the new equipment business probably recorded a loss of more than EUR 300 million in Q1, right? The earnings momentum seems to remain negative. Can you talk a little bit about that, please? Maybe also, making a differentiation between what's going on in onshore and offshore. Thanks.
Thanks very much for those questions. The general thing I can say on spendings, we've put rigorous spending stops or we've put rigorous saving measures on the spending in place. We will continue to follow up on those. On a more specific, on a more CapEx specific questions or cash flow specific questions, perhaps Beatriz.
Yes, thank you, Gael, for the question. As I mentioned, you know, regarding, you know, the provision that we made on the balance sheet, EUR 472 million, the cash out expectations for 2023 will be moderate. As I said, you know, mid-double digit impact. Of course, for the coming years, as also Jochen explained, the replacement or repair of the fleet, stall fleet, will be of course done with close alignment with our customers, and that also, we'll see how the cash flow profile will come in the coming years. As I said, roughly in a timeframe of eight years, of course, we can also do it sooner on a mitigated risk, but it will be done with our alignment with the clients.
Regarding also your question about cash flow, let's say forecast for the year, we didn't provide any guidance. Let me give you some color on the cash flow and of course, also we'll provide more details with the full year report on the Q1. As you saw, we disclosed net financial debt for the quarter of roughly EUR 1.9 billion, out of which gross debt is EUR 3.1 billion, and out of which bank debt is EUR 2.3 billion, and the rest is IFRS, you know, debt that we report also as net financial debt. Cash wise, we have on the balance sheet roughly EUR 1.1 billion or EUR 1.2 billion of cash and available liquidity on Q1 as we close was roughly EUR 2 billion.
As we always said, also our cash flow this year, it will depend also on the order intake that we have and prepayment from clients, that will have with significant order intake in offshore this year foreseen, and also normalization of the cash flow. Again, also, we foresee to have it in the coming years. Regarding the CapEx is very important that this year also we keep investing on the business, of course, aligned with the net financial situation that we have, but we foresee to have the investments that we explained for offshore to make sure of course that we keep investing in a future that we foresee to have significant value for this company.
The second question on the earnings per product, this may be the case, but it's also a little bit due to the fact of, you know, what the reporting format sometimes is and what we can speak about and the times where we cannot really give guidance. Please remember, we have had announced that we had substantial volumes of on-risk projects, and that we are making progress, although this might not, you know, be too directly visible.
Any specific development that would be worth mentioning in offshore this quarter?
No, not from our perspective.
Okay, thanks very much.
Thank you. Ladies and gentlemen, just a reminder, in order to ask a question, please press star five on your telephone keypad. We would kindly request that due to time limitations, you limit your questions to one per turn. Thank you. The next question comes from Vivek Midha from Citi. Please go ahead.
Thanks very much, everyone. Good morning. A quick follow-up on the previous questions. I think you mentioned both onshore and offshore being involved with this, these charges this quarter. Is there any broad indication you can give as to the relative sizes of the hits in both of those? Is it more onshore? Is it more offshore, et cetera? Thank you.
Let-
Well, I mean, in my view... Beatriz?
Yes. I would say as we disclose, this is related to the stall fleet. As we said, you know, the breakdown that we are going to provide is with the full year report, is impacting the service business. It's true that of course, is onshore and offshore platforms, but as we explained before, it's across different platforms and onshore and offshore. I will say also that you will see the breakdown of the impact, the EUR 472. Also, a significant impact is on the revenue side.
Remember that we follow POC accounting, what you'll see on the quarter is that we are adjusting or decreasing the revenues on the quarter because we are adjusting with the POC accounting status the revenues that we book on our previous on the backlog on the year-to-date impact. Roughly, that figure for you to know, because I think it's important, just, you see the performance of the Q1 X. This impact is roughly EUR 166 million. That's the amount that we are adjusting the revenues with. Thank you.
Thank you. The next question comes from Rajesh Singla from Société Générale. Please go ahead.
Hi. Good morning, guys. Thanks for taking my question. This is regarding the charges. Can you please share, like, what events triggered this evaluation and whether this evaluation will be kind of an annual, kind of event, or it is just a one-off evaluation because of some issues which you faced in some of the turbines?
Well, principally, perhaps to the mechanics of this. Principally, we look at incidence rates, and as soon as incidence rates receive or reach a certain threshold, then they're being looked at more systematically. We typically try to attach it to a root cause analysis, so a technical root cause analysis. Once the root cause analysis is done, then obviously we have solid ground or sufficiently solid grounds for further measures, further optimizations, and sometimes also to go back to our suppliers. That's the technicality of this. It typically describes the best level of knowledge we have, and it's done in a pretty systematic way.
Okay. Maybe a next question on this. With this provision, can we say that we are now end of all the areas which we have already analyzed? All areas of business we have already covered and all the provisions which we have identified so far are now done? I believe last quarter we had heard that now the things are moving in the right direction. We are not seeing any negative surprises. Again, this quarter we have such a big amount of provisions. Can we say that we have now checked each and every area of the business for any potential provisions or losses?
We checked everything which we are aware of, regarding those phenomena we had looked at. This is in our view the judgment, yes.
Thank you very much. Thank you.
Thank you. The next question comes from William Mackie from Kepler Cheuvreux. Please go ahead.
Hi. Good morning to you all. Thanks for the time. Just a clarification first. Could the provision you've taken, I believe it partly relates to your turbine business and largely relates to service. Is there a split between the two that you could share between the impact on service and the impact on projects? That's the clarification. Then the second question regards perhaps how are you seeing the supply chain evolution at the moment, both within your business and external to the business? With that in mind, could you provide some insight into the ramp up of the 5.X in terms of where you are relative to your previous plans and whether you're still incurring damages to the clients that are still suffering from late delivery or completion on turbines?
Well, thank you very much. On the split, it's a little bit difficult unless you go to very much a detailed level, which perhaps would be going a little bit beyond the scope of today. Of course, indeed, you're right. There is an impact on the service business mostly and to some limited extent also on the turbine business. On the supply chain and specifically on the 5.X. As I said, we're making progress. We in a way in cases are even better than planned. In that sense, the negative effects on customers are being reduced right now, and this is what we continue to drive for. Of course, we're not at the end of the story.
Thank you.
Thank you. The last question comes from Nicholas Green from Bernstein. Please go ahead.
Thank you for taking a second question. This is for Beatriz. You described there you're using a percentage of completion accounting. You've got a just under a EUR 17 billion order book in services in O&M. effectively you've just written down the margin in the entire O&M order book. Can you talk through how much you've written it down? What is the new margin that we should consider to be embedded in this order book? You know, your full year numbers just put something like a 22% margin. What should we think is the scale of the write down you've just taken in terms of being able to assess the embedded margin in the rest of that order book? Thank you. Thank you, Nicholas.
As I said, you know, for POC accounting status as of, we were closing, you know, Q1 books. Based on the impact on the projects that will be impacted by this component. Adjustment on the revenue is EUR 187 million, and of course, this is with POC accounting year to date. What as I referred to Jochen answer as before, is early stage to assess, you know, how this is going to impact the profitability of our backlog on service going forward.
What we can tell you, as we said, is that issues have been identified. There is a specific action plan, where the company is focusing, of course, on continuously improving the quality on our platforms and as far depending on, of course, our future, you know, failure rates, cost estimates, and how the mitigation plans will be in place, it will have or not, you know, an impact on the profitability of the backlog of the service business. Still.
Can you, Sorry to interrupt. Are you able to then quantify, though, the number of basis points reduction in that EUR 17 billion order book as a result of this provision that has been made?
At this stage, you know, of course, you know, we said we are adjusting, you know POC, but we are not going to provide that figure early stage.
Can you instead then provide the amount of the EUR 472 million or EUR 474 million write down that pertain to a specific project or a specific problem, because then the residual amount will be the reduction of the margin you made.
I mean, what we can provide you, and I think it's good because you will, we will give that detail, you know, on Q1 activity report, is that out of the EUR 472 million, roughly close to EUR 350 million are impacting the service segment. The rest will go on the WPG. That's the information that we are going to provide to the market.
Okay. Sorry, just to confirm then. We can take that EUR 350 million, divide that into the EUR 17 billion order book, and that is effectively the margin, the basis points of margin that you've reduced. That would be the appropriate way to deal with this accounting, is that correct?
No. I would say, you know, what is appropriate is what we did, you know, analyzing the trades year to date and analyzing the POC accounting impact, adjusting the revenues. That's what is good. Of course, you don't have the POC accounting status of each of the projects. As I said, you know, that rough calculation that you are doing may not be that accurate.
Okay, understand. Thank you for your responses.
Ladies and gentlemen, I will now give the floor back to our speakers. Thank you.
Well, thank you very much to all of you. Thank you very much once more for being up there at short notice and so early in the day. I continue to say that it's really been a valuable discussion for us. As always, I'd like to express our appreciation for the high level of sophistication of all the questions. From our side, I can assure you that we will continue to do our best to answer your questions best possible. With that, please remember, should there be further questions short notice, don't hesitate to reach out to our investor relations. With that, thank you very much to all of you once more.
Have a great rest of the week, and have a great weekend, perhaps even more. Thank you very much.
Thank you, everyone.