Siemens Energy

The stable outlook on Siemens Energy reflects our expectation that the group will significantly improve its profitability over the next 12-24 months. It also reflects our view that Siemens Energy has sufficient financial resources and liquidity to execute the ongoing transition. We expect the group will maintain low-to-zero leverage and generate positive FOCF over the next two years, posting adjusted debt to EBITDA below 1.5x and funds from operations (FFO) to debt above 60%, while gradually improving its operating performance. We could lower the rating if: The group does not increase operating margins and absolute EBITDA as projected; Further significant asset impairments or project losses emerge; The company cannot generate sustainable positive FOCF; Restructuring costs are higher than expected; The

...We expect Siemens Energy's revenue to decline by up to 1% in FY2022, but rebound is likely in FY2023. Siemens Energy's revenue recovered by 3.5% in FY2021 following COVID-19 pandemic-related setbacks. However, due to the weak expected performance of Siemens Gamesa Renewable Energy (SGRE), with revenue decreasing by 6.0%-8.0%, the group's revenue is likely to decline by about 1% in FY2022. We note solid growth of 2.5%-3.0% of the group's gas and power segment, which accounts for about 65% of the revenue and benefits from a dynamic macroeconomic environment and strong demand in the transmission business. However, this does not fully offset the weak performance of the renewable sector. For FY2023, we expect a rebound of growth, with the group's revenue rising by 4.0%-5.0%, mainly thanks to a significant recovery in revenue for SGRE and continued stable growth of the gas and power segment. We continue to anticipate improving profitability and positive free operating cash flows (FOCF) in FY2022-FY2023...

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