Siemens to sharpen its game with 6 billion euros of savings

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Published November 08, 2012

| Reuters

Siemens AG aims to save 6 billion euros ($7.7 billion) by the end of its 2014 fiscal year, more than expected, as the German engineering conglomerate fights to stay competitive in a weak global economy.

An industrial bellwether and Germany's most valuable company, Siemens has come under pressure to cut costs and focus on its most profitable businesses as the global economy takes longer to recover than it initially expected.

"We know what we have to do, and we're doing it," Chief Executive Peter Loescher said in a statement on Thursday as the company reported declining quarterly profits that were still slightly above consensus.

Analysts had been expecting the company, which makes products ranging from fast trains to hearing aids, to cut between 2 billion euros and 4 billion in costs through the next two years. It has not yet said how many jobs might go as part of the productivity drive.

CEO Loescher set Siemens on an ambitious growth path last year, targeting an increase in annual sales of about a third to 100 billion euros within a few years.

But growth has failed to keep up with the pace of investments and rivals such as ABB and Philips got a head-start in terms of cost-cutting.

ABB made $1.1 billion of cost cuts in 2011 and said it planned a further $1 billion of cuts this year, while Philips said last month it planned to cut 1.1 billion euros in overheads.

IMPROVED MARGIN

In Siemens' fiscal fourth quarter, net profit eased by 2 percent to 1.48 billion euros, weighed down partly by a 327 million euro hit at its oil and gas business in Iran due to new trade sanctions imposed on the country.

That is still higher than the 1.34 billion euros analysts had on average expected, partly because the loss-making solar units put up for sale after the end of the quarter were already booked as "discontinued operations".

Higher healthcare profits in Asia and the Americas also helped support the results.

Munich-based Siemens said it aims to improve its margin on operating profit from its four core businesses to at least 12 percent from 9.5 percent last year, through measures including acquisitions and asset disposals.

As part of its plan to improve profitability, Siemens said it will buy Belgian industry software maker LMS International for about 680 million euros and sell water businesses with annual sales of about 1 billion.

The company has already said it will sell its solar businesses and exit the Desertec renewable power program.

The outlook for Siemens and its peers is uncertain, with a survey showing this week that the world economy slowed in October, dragged back mainly by a shrinking manufacturing sector.

Siemens said it expects its net profit from continuing operations to decline to between 4.5 billion euros and 5.0 billion in its fiscal year through September 2013, from 5.18 billion last year, due to about 1 billion of costs from the new savings program and the impact of a change in accounting standards.

(Editing by Christiaan Hetzner and David Holmes)

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