By Sabine Wollrab, Maria Sheahan and Christoph Steitz
FRANKFURT/BERLIN (Reuters) -Siemens Energy warned quality problems at its wind turbine unit would take years to fix, wiping a third off its market value and dealing a heavy blow to one of the biggest suppliers to the world's expanding renewables business.
The group scrapped its 2023 profit outlook late on Thursday after a review of its Siemens Gamesa wind turbine division exposed deeper-than-expected problems affecting up to 15-30% of the more than 132 gigawatt worth of turbines worldwide. Its total wind capacity is equivalent to around 132 nuclear plants.
Dealing with issues could cost more than 1 billion euros ($1.09 billion), it said, having to fix flaws in rotor blades and bearings that could cause damage ranging from small cracks to component failures that would need to be replaced.
"This is a disappointing and severe setback," Siemens Gamesa CEO Jochen Eickholt, a Siemens veteran, told journalists on a call.
"I have said several times that there is actually nothing visible at Siemens Gamesa that I have not seen elsewhere. But I have to tell you that I would not say that again today."
Siemens Energy shares closed down 37.3%, their biggest price plunge since the group was spun off from Siemens and separately listed in 2020.
Traders and analysts said the extent of the company's latest problems was still uncertain. As shareholders urged Siemens Energy to get a grip on the situation, the company said it would only be able to deliver a clearer picture in August.
"Even though it should be clear to everyone, I would like to emphasise again how bitter this is for all of us," Siemens Energy CEO Christian Bruch told journalists in a call.
Finance chief Maria Ferraro earlier told analysts that the majority of the hit would be over the next five years.
RAPID DEVELOPMENT
The latest issue with Siemens-installed turbines has further hurt confidence in an industry that has faced major challenges in recent years, with turbine manufacturers dealing with rising costs for raw materials such as steel and fierce competition.
Shares in European wind turbine producers Nordex and Vestas fell along with Siemens Energy on Friday as its troubles raised concerns about sector-wide issues.
Governments across the world are setting ever more ambitious climate targets which require the rapid development of renewables, including wind power, that may be difficult to attain within the prescribed timelines.
Many wind developers have already seen delays in projects due to the availability of components and rising costs.
"Given the history and nature of the wind industry, the profit warning was not a complete surprise, but what surprised us was the magnitude," analysts at JPMorgan (NYSE:JPM) said.
Issues at Siemens Gamesa have been a drag on its parent for a long time, prompting Siemens Energy to take full control of the business earlier this month after owning it only partially during a string of loss-making years. It had raised 1.259 billion euros by selling new shares at a discounted price in March to fund the takeover.
Deka Investment, a top-20 shareholder, said Siemens Energy would have to work hard to regain market confidence. "The renewed profit warning is a bitter setback," Deka Investment's Ingo Speich told Reuters.
Fellow shareholder Union Investment called it a dark day for investors, worrying that Siemens had not yet got a handle on the extent of the fallout.
"It looks like the cat isn't quite out of the bag yet," said Felix Schroeder of Union Investment. "Part of the shocking news is that management itself has acknowledged that they can't pinpoint exactly what it will all cost."
The situation meant Siemens Energy would have to focus more on fixing existing problems than focusing on growth, he added, at a time when the company's order book has otherwise swelled to a record high.
Its deepening troubles could also weigh on efforts by Siemens AG (ETR:SIEGn), which still owns nearly a third of Siemens Energy and remains its largest shareholder, to divest its stake at an attractive price and exit the company.
Siemens AG declined to comment on Friday. Its shares closed down 2.2%.
PROBLEMS 'SWEPT UNDER CARPET'
The discovery of faulty components at Siemens Gamesa in January had already caused a charge of nearly half a billion euros.
Eickholt said while rotor blades and bearings were partly to blame for the onshore turbine problems, it could not be ruled out that design issues also played a role.
Bruch also blamed the corporate culture at Siemens Gamesa, the result of a merger of the wind turbine division of Siemens and Spain's Gamesa, saying: "Too much has been swept under the carpet".
He said the setback from the quality problems was "more severe than I thought possible", but at the same time, that he did not see the full takeover of Siemens Gamesa as a mistake.
Bruch said the company would be able to provide a more accurate estimate of the costs from the latest problems when it publishes its third-quarter results on Aug. 7.
"If the problem is serious, you have to remove the turbine and repair it onshore by sending in a massive ship. That can be done only in summer for safety reasons. All in all, it can be very costly," said an industry expert who declined to be named.