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German-Spanish wind turbine maker Siemens Gamesa is confident it will increase its profit margins in the mid to long term, but its short-term results disappointed the markets on Thursday.
The renewable energy company which has gained traction on stock markets as a popular ESG investment projects an operating margin of 3-5% in the financial year ending September 2021 and 8-10% in the financial year 2023 according to Reuters.
Current operating margins are far from these levels. The company reported a negative 6.7% margin for the third quarter of the financial year.
Siemens Gamesa shares immediately tanked 5% upon release of the report. And by 11:53 AM ET on Thursday, the stock continued to trade down 4.19% at $26.30.
The environment for renewable energy infrastructure companies is increasingly challenging as wind farm developers can no longer rely on big subsidies. As a result, auctions are becoming increasingly competitive (something we have seen in the solar PV business too), forcing turbine suppliers to offer deeper discounts.
Next to tougher competition, the COVID-19 pandemic has wreaked havoc on energy markets, and offshore energy projects in particular. While renewable energy has made it to the top of the post-pandemic economic priorities list for many developed economies, the impact during the first eight months of the year has been significant. According to Reuters, Siemens Gamesa last month reported a net loss of 466 million euros ($548.25 million) for its third quarter, April-June, versus a 21 million euro profit a year earlier.
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Confronted with the poor results, CEO Andreas Nauen, which took over the helm in June, said that the long term outlook for the wind power industry in general, and for Siemens Gamesa, in particular, remains very favorable.
According to a May 2020 sector report by Wood Mackenzie, global investments in offshore wind are expected to total US$211 billion between 2020 and 2025, and the offshore wind market will become more attractive to oil and gas companies. While the expected growth in investment is good news, the sector itself could become a lot more competitive as big oil companies are looking for new avenues of growth.
For Siemens Gamesa, this means another long-term challenge in a very fast-growing, but increasingly competitive market.
By Tom Kool of Oilprice.com
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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations