Siemens announces sweeping overhaul
Firm to adapt to new technologies
MUNICH: Siemens AG announced its most sweeping overhaul in years as Europe’s largest engineering firm tries to adapt to new technologies that are disrupting its core businesses and avoid the fate of General Electric Co (GE) its struggling rival.
The Munich-based company said it will shrink the number of operating divisions to three from five and boost revenue growth and the return on sales of Siemens’s industrial business by two percentage points in the medium-term.
The target is a “massive promise to the markets and our shareholders,” chief executive officer Joe Kaeser said in the interview on Bloomberg TV.
The new structure and third-quarter earnings received a cool reception from investors, who sent shares down as much 3.8%, the most in five months. The company’s so-called industrial business profit missed estimates and showed a deep slump at the division making gas turbines.
With the reorganisation, Kaeser is aiming to leave a lasting imprint on the once-sprawling manufacturer and guard against GE’s downward spiral.
The flagging US giant has embarked on a far-reaching restructuring plan after coming under pressure from an activist investor and getting kicked out of the Dow Jones Industrial Average.
Siemens shares fell 3.4% to 115.72 at 9:17am in Frankfurt.
Siemens’s overhaul foreshadows investments in new fields like energy management and charging networks for electric vehicles.
On Wednesday, it said it’ll pay 600mil to buy Mendix, a coding platform for businesses developing mobile and web apps.
The new plan is a surprise that is both positive and ambitious, Morgan Stanley analyst Ben Uglow said in a note. By making the distinction between strategic companies, in which Siemens has a majority stake, and wholly-owned operating companies, Siemens may be signalling some of the former could be sold, he said.
“It won’t be the biggest companies that survive, but the most adaptable,” Kaeser said in the statement. Under Siemens’s new structure, new units covering power, city infrastructure and digitisation are set to be in place next year.
When company veteran Kaeser took the top post at Siemens in 2013, the German firm had 18 divisions and a byzantine structure. In a swipe at GE last year, Kaeser said “old-fashioned conglomerates no longer have a future”.
The executive has focused on whittling down Siemens’ offering of goods and services by selling, merging or bringing businesses to the stock market. The last moves were an initial public offering of the healthcare division, and a planned merger of the mobility unit with French company Alstom SA. Driving the overhaul is an accelerating move by customers for automated factory equipment and software to run manufacturing.
The changes are also motivated by a sharp downturn in demand for gas turbines, once a flagship operations within the power and gas division. The company is cutting around 6,900 jobs mostly at the division and closing some factories.
Earnings highlights:
Orders rose 16% to 22.8bil while revenue fell 4% to 20.5bil. Industrial business profit rose 2% to 2.21bil.
The 2018 forecast was confirmed: Basic EPS to be between £7.70 and 8. Profit margin from industrial business to be between 11% and 12%.