Alex Webb Munich
SIEMENS health-care and energy-generation divisions, once the prized assets at Europe’s largest engineering company, risk jeopardising chief executive Joe Kaeser’s turnaround plan.
Profit at the two units fell a combined 27 percent, dragging overall first-quarter profit down 4.1 percent to e1.8 billion (R23bn). That was a far cry from 15 months ago, when those businesses helped offset declines elsewhere at Siemens. The stock dropped as much as 3.7 percent.
“While some divisions provided excellent performance, health care needs to step up its efforts,” Kaeser said at a press conference in Munich. “Power and gas will need a more comprehensive concept to return to historical margins longer term.” Kaeser revealed a flurry of management changes to reinvigorate both divisions.
The executive has been building Siemens around equipment for energy extraction, generation and transmission since he took over as chief executive in August 2013. At the same time he has given the health-care division, which traditionally had less in common with other parts of Siemens and the highest profitability, more operational freedom, heightening the possibility of a spin-off or divestment.
The energy push was supported last year by agreements to buy Rolls-Royce’s energy unit and oil and gas equipment maker Dresser-Rand for a combined e6.8bn. Both deals were intended to boost Siemens’ offering for the extraction of shale gas.
The decline in the price of oil has led some analysts and investors to question the wisdom of the Dresser-Rand deal, which was priced at 14.1 times the average expectation for 2015 earnings before interest, taxes, depreciation and amortisation.
Integration of the Rolls-Royce unit last month further reduced profitability at a power and gas division already suffering from declining sales and prices of its marquee large gas turbines. Still, Kaeser defended the Dresser deal, saying that underlying demand for oil, and therefore oil and gas equipment, remained
The health-care unit has now lost its crown as Siemens’ biggest profit driver to the new digital factory division, one of nine divisions Kaeser created out of the four sectors under which Siemens had previously operated its businesses.
– Bloomberg