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Siemens Notches 10% Q3 Revenue Increase, Confirms Action Against Former Execs Sign Up to receive Daily News Alerts in your E-mail Inbox
Posted on Wednesday, July 30, 2008 2:59:00 PM |
Underscoring the volatility of the world economy, energy and automation conglomerate Siemens reported surprise growth in revenue and profit from continuing operations for the third quarter, but cautioned against a slowdown in 2009. Revenue jumped 10% to €19.2 billion, while net income on continuing operations surged 143% to €1.5 billion.
Overall net income for the quarter ended June 30, 2008, declined 31% to €1.4 billion. The company attributed the drop to a one-time gain realized in the year-earlier quarter when it transferred its telecommunications equipment business into the Nokia Siemens joint venture.
The positive revenue and profit figures are in stark contrast to one quarter ago, when the company reported virtually flat sales and a 67% profit plunge. The company also cited strong order growth, especially in the Industry and Energy sectors, where orders grew 26% and 23%, respectively, as businesses and regions sought greater efficiencies and reliable electric supplies, including everything from variable speed drives, to wind turbines, to coal-fired power plants from Siemens. Overall new order growth registered 21%.
“We shifted Siemens into a higher gear in the third quarter, reaching important milestones on our reorganization path,” CEO Peter Löscher said in a statement. “We are becoming faster, more efficient, and more focused.”
But on a conference call with journalists, Löscher today cautioned that orders will slow in fiscal 2009, when, he said, “we expect a flattening growth dynamism.” CFO Joe Kaeser said that a strong backlog of orders will help Siemens meet its expectations through fiscal 2008. But, he cautioned analysts on a separate conference call, “we monitor the economic situation carefully. It’s getting more uncertain, not less.” Thus, he said, “We do expect an ease-up of orders growth in 2009.”
Nevertheless, the company maintained its usual prediction that it will grow at twice global GDP rates, even as orders slow in 2009. Siemens forecasts 2009 profits from its three main business units of €8 billion to €8.5 billion, not including any regulatory, legal, or SG&A reduction costs.
Merrill Lynch analyst Mark Troman said on the conference call that the third-quarter gains were a “big surprise” and “much better than expected.”
The results were the first that Siemens reported under the new organizational structure that it put into place in the beginning of the year. That restructuring simplified Siemens into three main sectors, Industry, Energy, and Healthcare, and was one of the first initiatives undertaken by CEO Löscher when he joined the company from pharmaceuticals stalwart Merck.
In the third quarter, revenue for the Industry sector, which includes automation and drives operations, gained 8% to €9.4 billion, and EBIT profit gained 39% to €1.1 billion, including a €113 million gain from the sale of the wireless business module to Cinterion. Siemens attributed Industry’s gains largely to the Industry Automation division, which contributed €467 million in profit, and Drive Technologies, which contributed €344 million. Sales in both divisions increased 15%, and the profit rise in Drive Technologies reached 40%. Siemens said that its Industry Solutions unit was also a solid contributor to Industry’s profit growth. Profits in the Industry sector’s Osram, Building Technologies, and Mobility in Motion (trains) divisions were relatively flat.
Kaeser told analysts that a lot of the Industry sector gains came from “long-term investments in emerging markets, like China.”
Revenue in the Energy sector grew 19% to €5.8 billion, while EBIT gained 39% to €615 million. Healthcare revenue grew 10% to €2.7 billion, while EBIT profit nudged up 6% to €326 million.
The results come amid layoffs that include a targeted €1.2 billion worth of SG&A reductions. Löscher made clear to journalists that Siemens wants to bring its costs more in line with those of its competitors. “Our top competitors are clearly ahead of us,” Löscher said. “It is a disadvantage that could threaten our existence.” His strong statement came as Siemens enters advanced negotiations with labor unions over staff reductions.
Siemens last week specified the first 1,800 jobs that will go as part of its plan to cut 16,750 positions. The first job cuts are coming from the “mobility in motion,” the train-making unit within the Industry sector. Löscher on the analysts call said Siemens has “had very productive talks” with its works council and unions.
Also on the analysts call, Kaeser said the sales of groups such as Siemens Enterprise Communications will help pay for the restructuring. Yesterday, Siemens sold a 51% share in the unit, which specializes in networking and communications, to the Gores Group, a California private equity interest.
Bribery Action
Siemens is also incurring significant costs as it tries to overcome a bribery scandal. Yesterday, Siemens confirmed earlier reports that it is taking action against former CEOs Klaus Kleinfeld and Heinrich von Pierer for their alleged connections to the scandals in which Siemens is accused of bribing foreign companies for contracts. Siemens hired Löscher in July 2007 from outside the company, in part, to distance itself from the scandal.
The company said in a press release that is taking action against 11 former executives — earlier reports claimed 10 — including the two ex-CEOS, based on alleged “breaches of their organizational and supervisory duties in view of the accusations of illegal business practices and extensive bribery that occurred in the course of international business transactions in the years 2003 to 2006 and the resulting financial burdens to the company.”
According to a Siemens spokesman, the scandal has, thus far, cost Siemens €1.4 billion in fines and professional fees. The company will give the 11 former executives a chance to comment, and then will either seek out-of-court settlements or take them to court, the spokesman said, without providing concrete details on the time frame involved. Any out–of-court settlement would have to be approved at an annual shareholders’ meeting, the next of which is scheduled for January, he said.
On Monday, Löscher’s predecessor in the top spot, Kleinfeld, issued a statement in conjunction with Alcoa, the company he now heads, that said, "I have great faith in the German judicial system, and that is why I am not concerned about this development."
Löscher declined to elaborate on the action today, noting that it is a matter brought by the supervisory board, of which he is not a member. Asked whether the actions were splitting Siemens current executives, some of whom have loyalties to the former board members, Löscher said, “It is not my job to comment.”
In other news, Siemens named Jens Michael Wegmann as CEO of the Industry Solutions Division, replacing Jørgen-Ole Haslestad, who left recently. Wegmann was running the security solutions unit of Siemens Building Technologies.
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