German Management

A Year On, Siemens CEO Kaeser, Riding Reforms, Promises Faster Change

Siemens chief executive Joe Kaeser followed on from Peter Löscher one year ago. Source: Reuters.
Siemens chief executive Joe Kaeser followed his predecessor Peter Löscher one year ago.
  • Why it matters

    Why it matters

    Siemens, one of Germany’s largest private employers, has been struggling to keep relevant and profitable as digital technology innovation threatens some of its mainstay businesses.

  • Facts

    Facts

    • Joe Kaeser, a longtime Siemens veteran, was named the company’s third CEO in seven years in July 2013.
    • In early 2014, Mr. Kaeser announced a plan to remove bureaucratic barriers within the organization.
    • Since taking the job, the Siemens share price has risen 14 percent in the last year.
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    Audio

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A year into one of Germany’s toughest corporate management jobs, Joe Kaeser, the chief executive of Siemens, said he acted too slowly in turning around the struggling electronics company, which is working under its third boss in seven years.

In an interview with Handelsblatt, Mr. Kaeser, a 34-year Siemens veteran, said he could have done a better job managing Siemens since taking over last July 31, following the departure of his predecessor, Peter Löscher, who left after a series of unplanned profit warnings.

“Looking back, I would have wanted to be faster in implementing the reorientation plan of this organization,” Mr. Kaeser said in an interview with Handelsblatt on Thursday.

 

Siemens orders are estimated to be decreasing in Q3. Source: Reuters.
Siemens orders are estimated to be decreasing in Q3. Source: Reuters.
Siemens orders are estimated to be decreasing in Q3. Source: Reuters.

 

The company, which is based in Munich, has had mixed results in the year under Mr. Kaeser, a Bavarian who has been credited with strengthening ties with Siemens’ 362,000 employees unsettled by the firm’s financial troubles.

 

“Looking back, I would have wanted to be faster in implementing the reorientation plan of this organization.”

Joe Kaeser , Siemens chief executive

For the fiscal year 2013, Siemens’ net profit rose by 0.2 percent to €4.4 billion ($5.9 billion) from €4.3 billion a year ago. Sales fell 1 percent to €75.9 billion.

In the second quarter of this year, net profit rose by 12 percent to €1.2 billion from €980 million in the same period last year. At the same time, sales fell 2 percent to €17.4 billion from €18 billion a year before.

Despite the company’s flagging results, investors so far have welcomed the changes introduced by Mr. Kaeser, who has vowed to streamline Siemens’ vast portfolio of businesses with a sharper eye to overall profitability.

Shares of Siemens, one of Germany’s largest private employers, have risen by 14 percent since Mr. Kaeser took over.

“Generally, the perception about him has been positive,’’ said Andreas Willi, an analyst at JP Morgan in London. “He has taken steps quickly and decisively. To the market, it is clear that there is a more capable person in charge than before.’’

When Mr. Kaeser began the job in July 2013, he made efforts to calm the mood at Siemens and lead with a steady hand – maybe too steady, he said in the interview.

“But in the end, the company will be better and bigger than ever before,” Mr. Kaeser said, saying that Siemens has to grow. But his first expansion attempt, a bid for the power businesses of French rival Alstom, failed.

Siemens lost out in the bidding to General Electric, but managed to drive up the price its U.S. rival had to pay to $17 billion.

Siemens is said to still be interested in acquiring new businesses, as well as selling some of its own underperforming units active in healthcare technology.

Industry sources have recently said that Siemens may bid for a U.S. maker of compressors and turbines for the oil and chemical industry, Dresser Rand. Mr. Kaeser plans to expand the company’s oil- and gas-business in the United States, according to industry sources.

“We expect a focus on portfolio transition given announced and speculated disposals and speculation on acquisitions,” the JP Morgan analyst, Mr. Willi, wrote in a report on July 21.

But analysts are wary of further M&A activity by Siemens.

“While we generally see a focus on core activities and monetization of peripheral assets as a positive, we carefully monitor the valuation impact,” according to the JP Morgan report. “Our view remains that value creation through portfolio moves is more difficult to achieve for conglomerates than by improving operating performance.”

Siemens has not commented on the speculation of a Dresser Rand acquisition or any other, and industry sources said there have not been official talks yet. “We will continue to avoid battles between gladiators on the M&A field,” Mr. Kaeser said.

 

 

Siemens has not commented on the speculation of a Dresser Rand acquisition or any other, and industry sources said there have not been official talks yet. “We will continue to avoid battles between gladiators on the M&A field,” Mr. Kaeser said.

Mr. Kaeser outlined strategic changes for Siemens in his “Vision 2020” plan in May, including dismantling some of the administrative barriers between the company’s four main operations in energy, infrastructure, industry and medical technology.

The divisions will no longer exist after October 1. Whether that leads to true reform and downsizing, remains to be seen.

“Many future projects were addressed as big headlines. But now there must be some content following,” said a member of the Siemens supervisory board, who helped appoint Mr. Kaeser last year and declined to be identified.

Siemens rival ABB, a Swiss engineering company, presented mixed financial results last week, with new orders gaining pace as overall sales stagnated. Siemens is expected on July 31 to publish third quarter results for its business year, which begins on October 1.

JP Morgan expects no major changes at Siemens during the quarter in profit or sales, but anticipates a series of financial charges from old projects such as offshore construction.

“Further large charges could start to put the guidance at risk,” said Mr. Willi in his report, “unless offset by other upside/gains.”

Mr. Kaeser knows what his challenges are, Mr. Willi said. At Siemens, a huge employer, it simply took the new Bavarian chief executive some time to get everyone on the same frequency.

 

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