Siemens profits fall as Velaro delays hit results

The Transportation and Logistics business unit posted a loss of €156m, largely due to the additional €161m cost incurred through delays in approving both the Velaro-D (class 407) high-speed trains for German Rail (DB) and the Velaro e320 (class 374) sets for Eurostar.

During the first quarter Transportation and Logistics business reported a profit of €75m but incurred a €116m in additional costs for delayed rail projects, the bulk of which was also due to the Velaro contracts.

In an interview with German daily newspaper the Süddeutsche Zeitung last month Siemens Board Director Mr Roland Busch said that the company had "...underestimated the complexity of the contract" for the Eurostar trains. Busch added that due to the complexity of the approval process for the trains, which involves safety authorities in four countries, Siemens was unable to give a clear date for when they will be delivered to Eurostar and available for operation.

Siemens said when presenting its half year results that additional costs or provisions resulting from the Velaro projects are likely to be charged to future quarterly accounts.

Originally due to enter service by December 2011 but still awaiting Federal Railway Authority (EBA) approval for operation in multiple (they are approved for single unit operation), the DB class 407s are to be retrofitted with new braking software and a new approval process will begin in July. Siemens has told the German media that this process, which is largely in the hands of the EBA, could take anything between four and 18 months to complete, meaning the trains would finally be available for commercial service sometime between November 2013 and January 2015.

These delays are now having a direct impact on the Eurostar order. As the DB trains have yet achieve TSI compliance, approvals for France, Belgium, Britain and elsewhere on the basis of the TSI cannot begin properly.

According to the original schedule, the DB trains were due to enter service in both France and Belgium by 2012. Siemens had clearly planned to use the TSI for two DB eight-car trains working in multiple to obtain certification for the 16-car Eurostar trains. If Siemens has to go through separate approvals for the Eurostar trains in France and Belgium before the DB trains are approved, the costs are likely to exceed the amounts already set aside for costs and provisions for future compensation to the customers.