Siemens reveals 6.0-bn-euro cost-cutting strategy

German engineering giant Siemens launched on Thursday a massive strategic effort to slash costs by 6.0 billion euros ($7.6 billion) over the next two years after losing ground to competitors.

Siemens's net profit tumbled 27 percent 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.

Siemens did not clarify exactly what the cost-cutting would entail.

But "it will have an impact on the workforce even if I can't say much about that at this point," Loescher told a news conference, declining to say how many jobs would be on the line.

The reorganisation would include "both reinforcements through acquisitions as well as the divestment of businesses whose profits remain below company's expectations over a longer period," the company said.

Last month, for example, Siemens announced the sale of its solar business and concentrate fully on the renewables of wind and water.

On Thursday, Siemens said it would acquire 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 9.0 percent to 9.788 billion euros as new orders were down 10 percent at 76.913 billion euros while revenues rose 7.0 percent 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 programme would boost its overall profit margin from 9.5 percent in the year just ended to "at least 12 percent by 2014."

For the programme's first year, Siemens was pencilling 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 programme and Siemens shares were the biggest gainers on the Frankfurt stock exchange on Thursday, shooting up 4.15 percent in an only slightly firmer market.

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9327-0.0005-0.05%
    AUDUSD=X
    0.5555-0.0003-0.05%
    AUDGBP=X
    0.6753-0.0003-0.05%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg