Siemens Big-Bang Overhaul Puts Off Tough Decisions Until Later

(Bloomberg) -- Siemens AG Chief Executive Officer Joe Kaeser's most sweeping overhaul in years failed to impress investors, who say Europe's biggest engineering company needs to get out of struggling businesses to avoid the fate of its beleaguered rival, General Electric Co.

The Munich-based company detailed a plan Thursday to shrink the number of operating divisions to three from five as it focuses on factory software and energy distribution. It also pledged to boost growth in the medium term.

Yet the shares dropped as much as 5.2 percent, the most in more than two years, as a deteriorating outlook for the once-flagship power and gas division overshadowed pledges by Kaeser to make the company more nimble.

While the revamp creates a leaner structure, “more is needed, in particular divestments of structurally declining businesses,” said Berenberg analyst Simon Toennessen.

Five years into his tenure, the CEO is aiming to leave a lasting imprint on the once-sprawling manufacturer and guard against GE's downward spiral. The flagging U.S. giant has embarked on far-reaching restructuring and a plan to sell a range of assets after coming under pressure from an activist investor and getting kicked out of the Dow Jones Industrial Average. Siemens's blueprint for change doesn't cut as closely to the bone.

“The conglomerate structure is staying intact for now,” Sven Diermeier, an analyst at Independent Research GmbH, said by phone. “It's not like GE, where they already said what divisions they are separating themselves from.”

Kaeser skirted questions on whether the company plans to divest from the struggling turbine business. A collapse in orders that began a couple of years ago has accelerated amid a global shift to renewable energy sources. The company is cutting around 6,900 jobs, mostly at the division and is said to be mulling its sale.

Siemens shares fell 4.7 percent to 114.18 euros at 12:20 p.m. in Frankfurt. That left them 1.6 percent lower over the past year compared with a 48 percent drop for GE.

The decline “is likely due to the further weakening in the power business,” said Toennessen, pointing to expectations of low-to-mid single-digit margins after the overhaul in 2019 compared with a mid single-digit figure this year.

When he took the top post at Siemens in 2013, the German firm had 18 divisions and a byzantine structure. Over the years, Kaeser has been remaking the company and its three new divisions covering power, city infrastructure and digitization are set to be in place in 2019. These will complement the so-called strategic companies Siemens Healthineers, Siemens Gamesa and Siemens Alstom.

With the overhaul, Siemens pledged to raise revenue growth and the return on sales of the industrial business by 2 percentage points in the medium-term, a “massive promise to the markets and our shareholders,” Kaeser said in the interview on Bloomberg TV.

--With assistance from Joe Easton.

To contact the reporter on this story: Oliver Sachgau in Munich at osachgau@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, Phil Serafino

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