Siemens to spin-off power division; plans to cut 10,000 jobs in big overhaul

Bloomberg | Updated on May 08, 2019 Published on May 08, 2019

Siemens focuses on the areas of electrification, automation and digitalisation.   -  File photo

Siemens AG posted strong second-quarter profit and outlined a plan to list its struggling power and gas division, a defining moment in Chief Executive Officer Joe Kaesers drive to dismantle the company’s complex corporate structure.

The shares surged the most in a year after the German company said adjusted earnings before interest, taxes and amortization from its main industrial business rose 7 per cent to 2.41 billion euros ($2.7 billion). Order growth at the healthcare Healthineers unit and strong returns at the digital factory division, which supplies plant-automation services, helped to push profits.

The proposal announced last Tuesday , a cornerstone of Kaesers strategic push to position Siemens for the future, would be the company’s biggest spin-off in its history. It also includes a decision to cut more than 10,000 jobs. Siemens rose as much as 4.7 per cent, and was up 3.9 per cent at 106.44 euros at 9:18 a.m today. .

Kaeser told reporters in Munich that the top priority is the stabilisation of the business .

The plan to list the energy division next year will be the latest in a series of de-consolidation moves by Kaeser after previously bringing the health-care division to market and merging the wind power unit with a Spanish competitor.

He also tried -- and failed -- to combine its train unit with French rival Alstom SA. The rail deal was blocked by European antitrust regulators. Revamping the company from a position of strength may help to stave off the type of investor agitation that has plagued companies such as General Electric Co. and Koninklijke Philips NV.

Job Cuts

Siemens will retain somewhat less than 50 per cent of the new entity, which will include its 59 per cent stake in Siemens Gamesa Renewable Energy, to create a company with 30 billion euros in business volume.

The division has operations spanning oil and gas as well as conventional power generation and transmission, while Siemens Gamesa develops wind farms and makes renewable energy equipment.

In addition to the structural revamp, Kaeser also unveiled job reductions at its core divisions to save about 2.2 billion euros by 2023. These include 4,900 cuts at digital industries, 3,000 at smart infrastructure and 2,500 at its central corporate unit. At the same time, Siemens plans to hire about 20,500 new employees.

Gas and Power had the lowest profit margin of all divisions last year, according to figures that were revised to reflect the four wholly-owned units Siemens created in an April 1 reorganisation. A global collapse in turbine orders has also hit rival General Electric Co., contributing to the US company’s deep slump.

Siemens had been looking at other options for the business. In March Mitsubishi Heavy Industries Ltd. was in talks with Siemens on a possible combination of the gas turbine business with its own operations, and that the German company also had discussions with other firms on a full or partial sale of the division.

In a statement, union representatives confirmed the options, saying the carve-out made the most sense for the labour representatives that make up half the supervisory board.

Published on May 08, 2019
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