Siemens focuses on cost cuts to combat gloomy economy

MUNICH Wed Jan 23, 2013 11:56pm IST

The logo of Siemens AG company is pictured atop a factory in Berlin October 9, 2012. REUTERS/Fabrizio Bensch

The logo of Siemens AG company is pictured atop a factory in Berlin October 9, 2012.

Credit: Reuters/Fabrizio Bensch

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MUNICH (Reuters) - German industrial bellwether Siemens (SIEGn.DE) said it would stick with its focus on cost cuts to catch up with peers such as General Electric (GE.N) as a weak global economy saps demand for factory equipment.

With China's economy growing at its slowest pace in 13 years in 2012, the euro zone in recession and recovery in the United States still cautious, companies have curbed investment in new machinery and software.

"We do not expect the global economy to provide any tailwinds," chief executive Peter Loescher told thousands of shareholders at an annual meeting on Wednesday.

The engineering group, which makes products ranging from fast trains and gas turbines to hearing aids, reported a 3 percent fall in new orders to 19.1 billion euros for its financial first quarter.

Weakness in China weighed on orders for drive technology and industrial automation, and the company said demand in its home market was also on the decline.

Loescher, at the helm for almost six years, has been criticised for being too slow to react to a downturn in the global economy and is now struggling to get the company back on track to compete with rivals.

He put on the back burner a plan to increase annual sales by about a third to 100 billion euros and late last year launched a massive push to save 6 billion euros over two years.

Ingo Speich, a portfolio manager at Union Investment, which holds about 6.5 million Siemens shares according to Reuters data, said cost cuts were not enough.

"Investors expect management to set a clear strategic course for the future to bring the lumbering tanker that is Siemens back on track," he told the shareholders' meeting.

Quarterly net profit from Siemens' continuing operations - which have 370,000 employees around the world - eased by 1 percent to 1.3 billion euros, hit by a one-time charge related to a delayed high-speed train project.

It sees annual profit declining to between 4.5 billion and 5 billion euros, from 5.18 billion last year, partly because of a 1 billion euro hit from its savings programme.

AMBITIOUS TARGETS

CEO Loescher aims to push up the margin on Siemens' core operating profit to at least 12 percent from 9.5 percent last year by cutting costs and focusing on the company's most profitable businesses.

"What seems ambitious at first glance, since Siemens has never reached that margin target in past year, turns out to be not so ambitious at all at second glance," said Henning Gebhardt of asset manager DWS (DBKGn.DE), which holds more than 3 million shares in Siemens according to Reuters data.

"Competitors reach that target margin on a regular basis," he said.

GE, for instance, posted an operating margin of 15.1 percent last year and aims to further boost profitability this year. Switzerland's ABB (ABBN.VX), a major competitor to Siemens in power systems and industry automation, is due to publish 2012 results on February 14.

Siemens' order intake in its first quarter exceeded revenues for the first time in a year, indicating its top line could grow further.

The company said that it still expects new orders to grow moderately in its financial year to September 30, after a 10 percent drop last year, and revenue to be lower.

"The question is, when will China recover?" finance chief Joe Kaeser said, adding he expects industrial demand from China to pick up again in the second half of 2013 at the earliest.

Siemens' rivals in industrial automation - including Rockwell Automation (ROK.N) and Emerson Electric (EMR.N) - have already warned that customers were putting off investments. (Reporting by Maria Sheahan; Editing by Erica Billingham)

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