Siemens Gamesa is being merged with its sister firm in gas and power and pushed into a separate public listing next year, so that it no longer acts as a drag on the share price of siemens AG. In the current climate the gas and power business has little future further out than ten years, and this will be a tough juggling act, thinning traditional power business while inflating the renewables business.
At Rethink Energy are really uncomfortable with the headlines which suggest that Siemens is building an “energy powerhouse” by merging its Gas and Power business with renewables specialist Siemens Gamesa. It is closer to tying a brick to a float, throwing it into the water and seeing which one wins out, the weight of the brick of the buoyancy of the float.
The truth is that Siemens can spin this any way it wants but it plans to spin it off, so that it has a separate share price and a minority will only be held by Siemens, so it does not have to include it in its figures, except as an asset.
This is Siemens “copping out” (definition; avoid, shirk, skip, dodge, sidestep, skirt round, bypass, steer clear of, evade, escape, run away from, shrink from, slide out of, back out of, pull out of, turn one’s back on) on the future energy conundrum, which sees renewables replacing oil, coal and gas, and washing its hands of what it sees as a difficult business.
Our guess is that the idea of selling an €11 billion plus business in the form of the existing Power and Gas, at a time when both revenues and profits are falling, would have meant a huge dent in the company’s balance sheet. Instead by merging it with the promise of renewables, which can counteract power and gas revenue falls, it can gain a stock market asset that it can slowly allow to slip into cash, in the process slipping out of energy markets and effectively de-risking. But Siemens clearly still believes that the future of the merged business lies in Gas and Power, because it has eliminated all mention of renewables in the merged entity name.
One of the clues here is the fact that the CEO of the shrinking Gas and Power business, Lisa Davis has been put in charge of the merged entity, and has zero experience with renewables. The press release describes the future business of what’s left of Siemens as being in Digital Industries and Smart Infrastructure, but the freshly freed business has no mention of renewables or wind in its name. Siemens Gamesa is 3rd globally in the wind turbines market.
“Being independent will enable us to more effectively leverage our position of
strength to further support our customers in rapidly changing energy markets,” said Lisa Davis, CEO of Siemens’ Gas and Power.
Chances are that Siemens Gamesa CEO Markus Tacke, could be on his bike in short order after being passed over the for the top job, which is now clearly going to be based in the US, where Davis lives, where clearly there are renewables opportunities, but not as many as there are traditional oil services. We have reached out to her for a comment, but so far not received anything.
The release claims the creation of a new player on the energy market with business volume of €30 billion and over 80,000 employees, but mostly focuses on the outcome to Siemens as a whole, talking about “savings of €2.2 billion by 2023. Siemens is suggesting that it expects the creation of some 20,500 new jobs by 2023 and the cutting of 10,400 efficiency-related workforce adjustments, so that there will be a net increase of 10,000 jobs worldwide across the remaining segments. As for the renewables segment, we have no idea, as that will not be floated until next year.
Revenues to the two sides of the business are roughly level, with Power and Gas down 4% to €2,815 million in the quarter and a profit of €156 million, and Siemens Gamesa on revenues up 7% €2,389 million, and a profit of €146 million. We’re not sure of where the €30 billion business volume comes from, but its likely annual revenue is closer to €22 billion, if it does not shrink further.
This has to be interpreted as Siemens eliminating the two largest negative cashflows in what is close to an €84 billion group – making the performance of the parts left behind look far better and cutting back to $60 billion in revenues initially.
If we are being charitable, Siemens Gas and Power could keep its renewables engine going, and Davis’ oil know-how might help her sell off poorer performing parts, and tidy up the balance sheet further and shrink the traditional business, and then hand off to another CEO and go back to the oil industry she clearly loves.
At a time when many major power groups are emphasizing renewables and downplaying oil and gas, Siemens seems to be going in the opposite direction.
“This move will create a powerful pure play in the energy and electricity sector with a unique, integrated setup – an enterprise that encompasses the entire scope of the energy market like no other company,” said Joe Kaeser, President and CEO of Siemens AG. “Combining our portfolio for conventional power generation with power supply from renewable energies will enable us to fully meet customer demand.” We don’t think so.
Saying this is suggesting that there is an increasing need for Gas and oil and renewables to be sold together. With the possible exception of Virtual Power Plants, which mostly team solar, wind and batteries, but which can often include an element of gas turbines for grid stability, this is largely untrue and no-one is a one stop shop for all energy supplies. A single renewable deal might include upwards of 35 separate suppliers.
But Kaeser has to say this as he is about to unload all of this stock for the new company onto his existing shareholders.
Siemens has total revenues of €20.9 billion for Q2, up 2% on this time last year, and a profit of €1.9 billion, 5% down on last year.