Siemens: robot woes
Why German group’s chief is inspired by the fate of the dinosaurs
Big was once beautiful at Siemens. No longer. Boss Joe Kaeser has scrapped ambitious sales targets in favour of slimming down the unwieldy conglomerate. On Thursday, the German group reported the first set of earnings under its new structure. Net profits fell 6 per cent in the third quarter. Shares dropped by nearly as much on the worse than expected results. A svelte Siemens might not prove as resilient as hoped.
As one of Europe’s largest manufacturing companies, it is inevitably buffeted by geopolitical woes. The problem is that its glamorous digital business — destined to account for the majority of the group’s value after next year’s separation of the gas and power division — was the main cause of the earnings miss. The impressive profitability of the business, a leader in the automation of industrial operations, is under pressure. Adjusted ebita margins declined to 14.8 per cent from 19.5 per cent a year earlier.
They should recover, the company says. It reckons margins will be on target — between 17 per cent and 23 per cent — for the full year, partly as a result of cost cutting. Some protection comes from diversification. Pharma, chemical, food and drinks customers account for a fifth of the division’s sales between them. Yet they are overshadowed by the car and machine tools industry, which currently represent 20 and 15 per cent of the division’s sales. Those sources of demand will not pick up any time soon.
Mr Kaeser is inspired by the fate of the dinosaurs. Their inability to adapt to changing conditions is a guide to the fate of unreformed conglomerates, he reckons. That explains the vigour with which he is restructuring and spinning off businesses. Investors have not yet given full credit. The shares are trading at over a quarter less than its sum-of-the-parts value, which Morgan Stanley calculates to be €128. Erosion of that discount will depend on how well Siemens copes with economic pressures. In most past downturns the shares underperformed their industrial peers.