Siemens Retreats From Old Energy -- WSJ

German conglomerate to cut 6,900 jobs as demand fades from fossil-fuel power plants

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 17, 2017).

BERLIN -- German electrical engineering giant Siemens AG on Thursday became the latest corporate behemoth to bow before sweeping changes to the way electricity is made the world over, as it unveiled a restructuring plan to tackle overcapacity in its core businesses.

The German conglomerate said it would cut 6,900 jobs world-wide, or 2% of its total workforce. The cuts affect three of its oldest units that provide clients that range from electrical utilities to commodities companies to the oil-and-gas industry with gigantic turbines, industrial motors and other heavy equipment.

The restructuring at Siemens comes just days after rival General Electric Co. admitted misjudging demand in its own core power businesses and announced it would halve its dividend and launch a sweeping restructuring. GE is cutting thousands of jobs, and its new chief executive, John Flannery, said 2018 would be a "reset year."

Siemens, like GE, has been caught unprepared for governments' and companies' shift away from large, fossil fuel-powered plants to renewables, which make electricity in a decentralized way and without the need to move massive amounts of steam through one of Siemens's mighty turbines.

Meanwhile, gas-powered plants haven't picked up the slack from embattled coal and nuclear businesses as quickly as both Siemens and GE had anticipated.

"The power-generation industry is experiencing disruption of unprecedented scope and speed," Lisa Davis, a prominent American board member at Siemens with special oversight of the power-and-gas division, said in a statement Thursday. A full 6,100 of the job cuts, or 13% of the 46,800 workforce at the unit, will address overcapacity in the company's manufacturing of turbines for power plants, a Siemens spokesperson said.

Demand for gas turbines that generate more than 100 megawatts has fallen to about 110 turbines a year, Siemens said Thursday, compared with world-wide production capacity for Siemens and its competitors of some 400 of these turbines a year. Meanwhile demand for the large electrical motors the units produce also has fallen across industries from mining to steel and shipbuilding. Siemens said it doesn't expect a near-term recovery in these markets.

In the fiscal year ended Sept. 30, Siemens generated revenue of EUR84.3 billion ($99.4 billion), an increase of 4% from a year ago, and profit of EUR9.4 billion, up 8%. Siemens stock was trading Thursday up 1% at EUR116.16. Year to date, shares are unchanged, underperforming the Stoxx Europe 600 index, which is trading up 6.5%; the shares are down some 13% from EUR132.95 in early May.

But the power-and-gas unit weakened as its profits fell and orders sank 31% to EUR13.4 billion in the fiscal year. Together, the power-and-gas division and the drives unit -- which makes motors and gears on the industrial scale -- contributed nearly 30% of total revenue. The drives unit was its least profitable business area in 2017, earning EUR243 million.

About half of the job cuts will be located in Germany, Siemens's home market, where a green energy revolution and an all-out ban on new nuclear plants have wreaked havoc on utilities, their power plants that turn steam into electricity and their industrial equipment suppliers, like Siemens.

Siemens said it plans to close and combine a handful of factories in Germany, including one with 720 workers in Görlitz, a town rich in brown coal near the Polish border whose livelihood is already under threat from the shift to low-emission technologies.

Siemens Chief Executive Joe Kaeser hinted at the restructuring last week when he presented the company's annual earnings, saying its turbines business has been struggling for some time.

The International Energy Agency this week forecast that renewable systems will account for two-thirds of all investment into power-generation systems from now until 2040. In that year, renewables with make up 40% of all power generation world-wide, the agency said.

To that point, Mr. Kaeser earlier this year said orders for components used in windmills have been a bright spot for the company. Siemens said Thursday it hoped the rising prominence of liquid natural gas, a low-emission fossil fuel, would eventually give its legacy turbines business a boost.

Janina Kugel, the chief human resources officer at Siemens and a member of its managing board, said the company can only "ensure that our expertise in power-plant technology, generators and large electrical motors stays competitive over the long term... if we find answers to the world-wide over-capacities and the resulting price pressure."

As it outfits itself for this future, Siemens faces stiff opposition to any job cuts, which are set to happen in coming years, from the powerful IG Metall union, which has a seat on Siemens's supervisory board, as is the case at many of Germany's biggest industrial companies.

Jürgen Kerner, a senior union official and member of the Siemens board, said this week that workers would begin strategies for "a path of creative resistance" to the company's plans and accused its leadership of taking too long to react to changes in the electricity business.

Write to Zeke Turner at Zeke.Turner@wsj.com and William Boston at william.boston@wsj.com

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November 17, 2017 02:47 ET (07:47 GMT)