Siemens Unveils $7.6 Billion Cost-cutting

Nov. 8, 2012
Net profit had dropped 27% in the 12 months to September.

After losing ground to competitors, Siemens (IW 1000/34) announced on Thursday a program to slash costs by 6.0 billion euros (US$7.6 billion) over the next two years.

Siemens's net profit tumbled 27% in the 12 months to September "as we didn't fully succeed in significantly boosting our performance vis-a-vis competitors," chief executive Peter Loescher said.

In a bid to rectify this, Siemens planned to "reduce its costs by 6.0 billion euros, increase its competitiveness, and become faster and less bureaucratic," it said.

"This includes both reinforcements through acquisitions as well as the divestment of businesses whose profits remain below company's expectations over a longer period."

Last month, for example, Siemens said it would sell its solar business and concentrate fully on the renewables of wind and water.

On Thursday, Siemens announced the acquisition of LMS International, a Belgian company that offers software for modeling, simulating and testing mechatronic systems in vehicles and airplanes. The purchase price was set at 680 million euros. LMS employs a workforce of 1,200 employees and booked revenue of more than 140 million euros for the first nine months of 2012. It supplies around 5,000 companies in the automobile, aerospace and other industries, Siemens said.

Siemens, which operates its business year from October to September, said it booked a net profit of 4.59 billion euros in the year ended September 30, down from 6.32 billion euros a year earlier."

The decline was partially attributable to costs related to power transmission platforms being installed in the North Sea for wind farms, Siemens explained.

Of the group's four main divisions, only the healthcare sector was able to report an increase in profit. Profit at the energy sector tumbled 47 billion to 2.2 billion euros.

Siemens also booked a 327-million-euro charge in the energy division stemming from a credit risk assessment in Iran.

Underlying or operating profit fell by 9% to 9.788 billion euros as new orders were down 10% at 76.913 billion euros while revenues rose 7% to 78.296 billion euros, Siemens said.

CEO Loescher insisted that fourth-quarter business had been strong and "enabled us to fulfill our expectations for fiscal 2012."

Nevertheless, of the group's four main divisions, only the healthcare sector was able to report an increase in profit.  Profit at the energy sector tumbled 47 billion to 2.2 billion euros.

Siemens said the new cost-cutting program would boost its overall profit margin from 9.5 percent in the year just ended to "at least 12% by 2014."

For the program's first year, Siemens was penciling in "moderate order growth and revenue approaching the level of fiscal 2012," it said.

Operating profit would "come in the range from 4.5-5.0 billion euros."

Investors took heart from the cost-cutting program and Siemens shares were the biggest gainers on the Frankfurt stock exchange on Thursday, shooting up 4.15% in an only slightly firmer market.

Copyright Agence France-Presse, 2012

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