Streamlining

Restructuring aims to make Siemens more nimble

joe kaeser, restructuring at siemens
A man with a plan. Source: DPA

Industrial group Siemens presented a new strategy called Vision 2020+ Thursday to cut the number of its industrial divisions to three from five and streamline its central management.

The move is expected to reduce the workforce at its Munich head office, currently 1,200 strong, by several hundred as duties are transferred to the group’s operating units. The core operations remaining at Siemens will be given greater independence.

Speaking with Handelsblatt, Siemens CEO Joe Kaeser made clear that he believes classic conglomerates are outdated in the digital age. Mr. Kaeser’s contract runs out in early 2021, and this next chapter of the restructuring will be his legacy.

The Process Industries and Drives business will be integrated into its core Digital Factory division, while its Energy Management division will be divided up between the Building Technologies and Power and Gas divisions.

Siemens’ main focuses in future will be on industrial digital technology and automation as well as on healthcare. Healthineers, which was spun off and taken public, is to remain majority-owned by Siemens.

Vision 2020+ follows on from the Vision 2020 program Mr. Kaeser launched five years ago and which has now been largely implemented with the spin-offs of its health and wind power divisions and the planned merger of the rail businesses of Siemens and French rival Alstom.

The group is gradually moving towards a holding company structure, although Siemens doesn’t like that term.

“Old-style conglomerates have no future. Mediocrity is the target of the industrial Internet,” he told shareholders at the annual meeting in January.

Some employees are worried that the decentralization will make it easier to sell off divisions. But Mr. Kaeser told Handelsblatt that he wants Siemens to retain control of its various units, including its health, wind power and rail operations, to protect them from overly aggressive investors.

“They’ll stay under the Siemens umbrella,” Mr. Kaeser said, adding the company wants to grow the divisions on their own. He acknowledged, however, that the Vision 2020+ strategy “creates the option” for a spin-off, but more importantly, creates optionalities.

That contrasts with archrival General Electric, which is breaking itself up with plans to spin off its healthcare business and divest its stake in oil-services firm Baker Hughes.

The analysts’ view

Mr. Kaeser’s approach has won praise from investors. “The strategy is right and it makes sense to release parts of Siemens into entrepreneurial independence so that they’re freed from the shackles of the parent company,” Christoph Niesel, a fund manager at Union Investment, told Handelsblatt. He said the breakup of an industrial icon like Siemens was unlikely because it would lead to a public and political outcry.

Winfried Mathes, a corporate governance expert at fund manager Deka, said a holding structure with autonomous operating units would make Siemens more nimble and able to respond more quickly to changing market conditions. It would become easier for Siemens “to acquire new promising businesses and to divest mature divisions,” he said.

So far the supervisory board has backed Mr. Kaeser’s restructuring plans. “The individual steps always made sense,” said one board member. European champions like Siemens Gamesa, the wind turbine giant formed through a 2017 merger with Spanish rival Gamesa, and Siemens Alstom were better placed to compete in their tough markets, he said. And by opting for mergers, Mr. Kaeser strengthened the businesses without massive capital outlays.

But Siemens as a whole must remain intact, the supervisor said. Mr. Kaeser wants to keep everyone on board, but he knows investors will only be satisfied if earnings improve as a result of the changes. Mr. Mathes of Deka said the group should be able to boost its operating margin to between 13 and 15 percent from the 11 percent Siemens achieved in its industrial business in the first half of the current business year.

Barclays analyst James Stettler said 13 to 14 percent was a feasible target. The group’s biggest challenge will be to find a solution for its ailing power station business, he said. Industry sources said the division is making big losses in its new business and is being propped up by its higher-margin service activities.

This text was updated August 3, 2018 to reflect Siemens CEO Joe Kaeser’s comments that he does not intend to sell the company’s divisions.

Axel Höpner is head of Handelsblatt’s office in Munich. To contact the author: hoepner@handelsblatt.com

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