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Slow Siemens is stretching investors’ patience

Slow Siemens is stretching investors’ patience

LONDON: Reinventing Siemens is getting to be like restoring Cologne Cathedral: a project that never seems to be finished. For the sixth quarter in a row, operating profit at the German engineering giant has undershot consensus expectations. And Chief Executive Joe Kaeser now says the group is likely to reach only the lower end of its full-year operating profit margin target of 10 to 11 per cent.

Siemens’ response has an air of stale familiarity about it too. Around 4,500 people, employed mainly in the group’s underperforming power and gas division, will be made redundant. In February, 7,800 white collar jobs went the same way. In a previous round of cost-cutting, kicked off by Kaeser’s predecessor in late 2012, the headcount was reduced by 15,000.

Yet four of the group’s eight industrial business units still failed to meet their respective margin targets in the second quarter. True, Siemens is hobbled by pricing pressures as well as restructuring costs. But it is disappointing in the light of strong sales and sound order volumes.

Moreover, it is likely to get harder to reap the financial benefits of cost-cutting. Underperforming businesses accounting for 3.7 billion euros in annual revenue have been sold or transferred into joint ventures since 2014. Problem businesses with another 17.8bn euros in sales, Siemens says, will be fixed internally. Yet by Siemens’ own account, the turnaround effort is making good progress in only one-sixth of these cases.

Investors’ patience is being stretched and 2015 is starting to look like it could be another lost year. The stock price reflects the lacklustre performance. Siemens shares are up just 1pc since January, while the wider German market has gained 15pc.

Siemens shares are valued around one-fifth less than those of rivals ABB and General Electric but they trade 18pc above their five-year median and at a small premium to the European industrial conglomerates peer group, Thomson Reuters data shows. At current levels the shares are worth 14.4 times estimates of the next 12 months’ earnings. The downside fears are larger than the upside hopes.

Published in Dawn, May 8th, 2015

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