Siemens Gamesa barely avoids junk rating

Even though Moody's is still lukewarm about the OEM, the rating bureau estimates that the bottom has already been reached. On the other hand, positive surprises are not on the bureau's outlook for the coming years.


As the saying goes, it's the thought that counts.

On the day Siemens Energy celebrated its initial public offering, credit rating bureau Moody's presented one of the best gifts the newly formed group could have wished for: nothing.

More precisely, Moody's reiterates its Baa3 rating for Siemens Gamesa, which now files under Siemens Energy. Even though that's not exactly the best of ratings, the German-Spanish wind turbine manufacturer thereby does avoid the downgrade that has loomed ever since the lackluster quarter and the dismissal of then-Chief Executive Markus Tacke – a downgrade that would have turned the rating into junk, which makes credit more difficult and costly to secure.

The rating bureau is, among other things, convinced of the merits of the cost-cutting program, Leap, Tacke's successor, Andreas Nauen, launched upon his appointment. In recent months, Siemens Gamesa has downsized its business in several countries.

"During Moody's review it became evident that the impact of the coronavirus outbreak was only a minor contributor to the negative performance in FY2020 which added to the cost of reverting strategic decisions and weak project management. In the meantime the new management team initiated LEAP, a company-wide program, which extends the scope of L3AD2020," Moody's writes in reference to the group's preceding savings plan, adding:

"On top of that, the new program covers the enhanced product portfolio, productivity measures, a selective sales approach and strengthened project execution."

Moody's notes that it therefore expects that it "currently expects that Siemens Gamesa passed the low point of its revenue in its third quarter of fiscal year 2020," which ended in June. However, all things taken into consideration, this doesn't mean the rating bureau takes a more positive view of the OEM. Baa3 remains a thumbs down, just as it was before Moody's reevaluated the group's creditworthiness.

Siemens Gamesa might indeed have succeeded in convincing Moody's of the market-share solidity for its onshore and and especially for offshore wind turbines, with an order book worth EUR 16.3 billion – and that the purchase of Senvion's service business and intellectual property rights will work out well in the profitable operations and maintenance market. That, however, doesn't mean there's no room for improvement.

"The negative outlook reflects the currently weak credit metrics which do not allow for any further extraordinary financial burden. While Moody's understands that 2021 will be a year of transition, the rating agency expects Siemens Gamesa to meet the thresholds set for the Baa3 rating category in FY2022 with a clear trajectory to this target until then," Moody's writes and continues:

"Accordingly, any further negative developments could cause a downgrade."

Conversely, the rating bureau notes that it doesn't "anticipate any short term positive rating pressure". If the rating is going to get an upgrade, it will require that Siemens Gamesa accumulates a track record of profitable projects without forfeiting market share. In such a case, that entail an earnings margin before interest, taxes and amortizations consistently above 8 percent.

On its capital markets day in August, Siemens Gamesa announced its onshore wind business turnaround that, along with expense reductions and increased growth in offshore wind sales and service, is meant to result in a EBIT margin before extraordinary items of 8-10 percent for FY2023.

English Edit: Daniel Frank Christensen

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