Profit Margin Siemens' Tough Target

Siemens, Germany’s leading industrial conglomerate, needs to sell more power converters, gas turbines and trains or sell them more profitably in the July-to-September period or it is at risk of missing its profit margin for its full fiscal year, Handelsblatt has learned.
So far, Joe Kaeser is still laughing, but come September 30, it's delivery time.

It is not yet certain whether Joe Kaeser, Siemens’ chief executive, will achieve all his objectives for the current fiscal year, which ends on September 30.

To achieve his prospective return on revenue of 10 to 11 percent in the industrial business, which covers all of Siemens’ operations excluding financial services, a last-minute push will be required in the final quarter of the current fiscal year, people familiar with the matter, who declined to be named, told Handelsblatt.

Mr. Kaeser has done a great deal of restructuring since his promotion to chairman of the board from chief financial officer in August 2013. He has announced a string of acquisitions and divestments, moved the company's energy operations to Houston, Texas, and is implementing a program to slash 12,000 jobs to save €1 billion in costs by 2016.

Mr. Kaeser’s predecessor, Peter Löscher, resigned unexpectedly in 2013 because he kept lowering his profit forecasts and was unable to turn the tide at Siemens, which has been hit by a change in energy demand in Europe.

For the final fiscal quarter, Siemens is hoping for good business in the service sector and a revival of short-cycle industry activities.

The changes instigated by Mr. Kaeser have not yet been reflected in the figures. The capital markets are also in waiting modus: While the German blue-chip index DAX has increased by a good 15 percent since the beginning of the year, Siemens stock has fallen slightly.

For the current fiscal year, Mr. Kaeser had predicted stable revenues, comparable with the previous year. But Siemens predicted an increase in profits of at least 15 percent on last year's €5.5 billion. Sources close to the company have emphasized that this increase in net profits - achievable due to disposal proceeds - is the central profit forecast.

But Mr. Kaeser also promised the 10 to 11 percent return on revenues from industrial business. Early in the year he already warned that it would likely be the lower figure. From January to March, the company’s fiscal second quarter, Siemens only achieved returns on revenues of 9 percent.

The prognosis is still in place, according to company sources. For the final fiscal quarter, which started on July 1, Siemens is hoping for good business in the service sector and a revival of short-cycle industry activities. The Munich-based corporation traditionally has a stronger fourth quarter.

“There cannot be an obsession with margins which ignores market conditions,” one person familiar with Siemens’ operations said.

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Axel Höpner is the head of Handelsblatt's Munich office, focusing in particular on Allianz and Siemens. To contact the author: [email protected]