Planned Siemens spin-off a well-timed move to avoid trouble | Business| Economy and finance news from a German perspective | DW | 08.05.2019
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Planned Siemens spin-off a well-timed move to avoid trouble

German industrial conglomerate Siemens has confirmed it's on its way to spinning off its Gas & Power division by the fall of next year. Slimming down will help it concentrate on more future-oriented segments.

The second-quarter figures that Siemens announced Wednesday reflected the German company's recent restructuring efforts. The firm logged a 5% decrease in net profit between January and March year on year, while analysts had penciled in a much bigger drop.

Revenues were up 2% at €20.9 billion ($23.4 billion), adjusted for currency effects. But more than the bare figures in the earnings report, experts were interested in further hints on the expected long-term impact of the company's decision to spin off its Gas & Power division next year — a measure that was announced on Tuesday.

It cannot really be called a surprise move as Siemens — just like many other German conglomerates such as Thyssenkrupp or Continental — has been slimming down in recent years by getting rid of businesses that no longer match corporate long-term strategies. Last year, Siemens spun off its medical technology business, Healthineers, now listed separately on the MDAX stock exchange.

By September of next year, the Siemens power and gas unit, complete with its oil and gas, gas turbines, power transmission and related services, is also slated to be listed separately on the stock market.

Daniela Bergdolt, vice president of Germany's leading association for private investors, DSW, thinks that the spin-off makes perfect sense. In an interview with DW, she said the remaining "digital industries" would transform Siemens into an entirely new corporation.

"The company is now what [Chief Executive] Joe Kaeser has always wanted it to be. It's become a integrated concern in which all entities are strategically interlinked," Bergdolt said.

No small thing

The restructuring means that Siemens will part with roughly one-third of its current overall revenues and will say goodbye to a quarter of its total workforce of 380,000 globally. The company's 59% stake in Spanish wind power subsidiary Gamesa will also go to the new entity.

Siemens CEO Joe Kaeser

Siemens CEO Joe Kaeser is confident restructuring will lead to a more flexible and profitable company

Given the size of the spin-off and the expected widely spread shareholdings, the separate entity (there's no official name for it yet) may well make it into Germany's DAX-30 blue-chip index. Following a deal with the IG Metall trade union, it will have its headquarters somewhere in Germany.

Employee representatives approved the spin-off after extensive talks with the management. IG Metall's Jürgen Kerner, who sits on the supervisory board, agreed that "at Siemens, the power business would have no future and would starve to death in the long term."

"We're not smashing anything to pieces, but we create new development opportunities," Siemens CEO Joe Kaeser hastened to comment when announcing the spin-off.

The fossil fuel business at Siemens is disliked by an increasing number of shareholders and has been struggling to meet profitability targets as Germany goes ahead with its centrally prescribed energy transition that will see the phasing out of nuclear by 2022 and the withdrawal from coal by 2038.

Siemens high-speed trains in Spain

Selling high-speed trains has been a lucrative business for Siemens globally

In addition, a slowdown in wind energy expansion in Europe's largest economy has made it harder for Siemens to keep up wind turbine sales.

Ensuring sustainable growth elsewhere

Executives argue that a downsized Siemens can be more flexible, with its remaining divisions meant to operate "like a fleet of ships rather than a lumbering oil tanker," according to Kaeser.

Siemens is making it abundantly clear that in the future it wants to push its Digital Industries division (dealing with the factory automation processes) as well as its Smart Infrastructure segment (dealing with digital networking technologies for homes, communities and cities).

Another flagship division, the conglomerate's rail business, reported a staggering 42% surge in orders for the second quarter, with large train orders in the US and Germany helping to boost production.

The company provided no fresh clues about is future strategy for its mobility segment after its planned merger with France's Alstom was blocked by EU regulators.

Watch video 01:30

No Siemens-Alstom merger

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