November 7, 2013 / 6:16 AM / 6 years ago

Siemens sees cost-cuts paying off in higher 2014 profit

BERLIN (Reuters) - Germany’s Siemens expects to make some headway in its struggle to catch up with more profitable rivals this year, as new Chief Executive Joe Kaeser makes his mark at the engineering group and cost cuts start to bear fruit.

A man enters the office building of Siemens AG in Berlin September 30, 2013. REUTERS/Tobias Schwarz

Siemens, Germany’s second-biggest company by market value, said on Thursday it expected fiscal 2014 earnings per share to rise by at least 15 percent from last year’s 5.08 euros, more than double the 7.2 percent growth rate of fiscal 2013, while organic sales remain flat in challenging markets.

Analysts expect much more than Kaeser’s conservative forecast, however, estimating on average a 31 percent increase in earnings on the back of a 4 percent rise in revenue, according to a Reuters poll.

Kaeser, who was named CEO following a messy boardroom tussle in late July, has yet to lay out his plans for the company, whose products range from gas turbines to fast trains and ultrasound machines, but he has made it clear that his focus for the moment will be on profitability.

The company has fallen behind rivals such as Switzerland’s ABB and U.S.-based General Electric in terms of profitability in recent years, due to a focus on sales growth as well as poor project management that resulted in a series of one-off charges.

At the same time, industrial companies are facing a dearth of large orders as industrial customers delay spending in a weak global economy and many are slashing costs and jobs.

SAVINGS PROGRAMME

Siemens said it does not expect its “short-cycle” business, which includes industrial automation products, to recover until late in its current year through September 2014.

Kaeser’s predecessor Peter Loescher had already launched a 6 billion euro savings programme a year ago including 15,000 job cuts to shrink the company’s bloated cost base and focus on its most profitable businesses.

Due largely to 1.3 billion euros ($1.8 billion) in charges related to that programme, plus some project charges, Siemens’ annual operating profit from its four main businesses - Industry, Energy, Healthcare and Infrastructure & Cities - dropped 20 percent to 5.79 billion euros last year.

As a result, its operating profit margin shrank to 7.5 percent from 9.3 percent the previous year, though Kaeser told television station CNBC on Thursday he aims to boost that figure to around 10 percent in the year to end-September 2014.

The new CEO told Reuters TV he would present his strategy for the German engineering group in the European spring, but indicated it would not include further restructuring. “I don’t think that we need another cost-cutting programme,” he said.

Siemens also said on Thursday it plans to buy back up to 4 billion euros of its own shares and said it would pay its shareholders a dividend of 3 euros per share for last year, less than the 3.11 euros analysts had expected.

Editing by Noah Barkin and David Holmes

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