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Siemens Warns of 'Painful' Power Unit Revamp as Orders Sink

Nov. 9, 2017
The company is preparing to unveil as early as next week a wave of job cuts at the division.

Siemens AG Chief Executive Officer Joe Kaeser said he’s planning sweeping cuts at the German engineering company’s power-and-gas business, setting the stage for a turnaround plan aimed at tackling weak orders and a sharp drop in profit.

The unit, which is suffering from a steady decline in demand for large turbines used in power plants, will be “reshaped and redone,” the CEO said in an interview Thursday on Bloomberg TV. “We know what needs to be done. We already have a plan we want to execute on.”

The company is preparing to unveil as early as next week a wave of job cuts at the division, which also includes the Dresser-Rand oil services arm, as well as at the process industries and drives division. Kaeser declined to provide details on how may positions will be affected, although he warned there would be “painful cuts.”

Germany’s largest union, IG Metall, protested in front of the headquarters in Munich, criticizing Siemens for generating billions in profits and wanting to “lay off thousands of employees in an uncertain future.” The union has seats on the company’s board and has been in talks with management for months on the redundancies.

The revamp at the power-and-gas division comes as Kaeser pushes ahead with a broader transformation of Siemens’s sprawling conglomerate structure to one resembling more of a holding company. The anticipated job cuts would follow an announcement Monday that the wind-power spinoff, Siemens Gamesa Renewable Energy SA, plans to shed almost a quarter of its staff. U.S. rival General Electric Co. is also grappling with lower power-plant turbine sales.

“We’ve understood that old-fashioned conglomerates no longer have a future,” Kaeser said Thursday. “We’ll be looking for a company structure that unites our brand’s powerful ability to integrate and one that’s backed by flexible governance processes.”

Siemens reported industrial business profit slid 10% to 2.2 billion euros (US$2.6 billion), missing an average estimate of analysts surveyed by the company of 2.45 billion euros. Profit at the power-and-gas division declined by 40% while orders for new equipment dropped. The process industries and drives division was criticized by Janina Kugel, head of human resources, who said the company is “not happy with the business as it’s currently running.”

The coming financial year will be a “mixed picture,” ranging from strong markets in the short-cycle businesses to “unfavorable dynamics” for energy generation, the company said.

“Even in the context of well-flagged conditions” the fourth-quarter earnings report “is likely to be taken poorly,” Morgan Stanley analysts said in a note, adding that profit and sales missed consensus estimates.

The shares fell 1.6% to 121.35 euros at 11:05 a.m. in Frankfurt.

The company set the same forecasts for the 2018 fiscal year as it had for the one just ended, projecting an industrial business profit margin of 11% to 12%, and basic earnings per share of 7.20 euros to 7.70 euros. The company is also expecting modest revenue growth and a book-to-bill ratio above 1.

Separately, Siemens said preparations for an initial public offering of its health care division, called Healthineers, are on schedule and named Jochen Schmitz as chief financial officer of the unit. The company is also planning to merge its rail business with French rival Alstom SA.

By Oliver Sachgau

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