Siemens AG (SIE) outlined an efficiency plan focused on cost cuts and weeding out laggard businesses, as Chief Executive Officer Peter Loescher seeks to turn around the engineering company after goals for this year slipped.
The program will review Siemens’s marketing approach, simplify processes, eliminate redundant functions and examine units not meeting profit expectations, the Munich-based company said today. The plan will run for two years, and Loescher will provide an update next month when Siemens reports earnings.
“We expect to see one of the best operational results in our company’s history,” in the fiscal year ended Sept. 30, Loescher said in an interview to be published in the company’s employee magazine. “Despite this, we aren’t satisfied since we didn’t reach our goal of being better than the market and competitors. So we drew our conclusions.”
While Loescher said redundancies are not the main focus, Siemens has identified about 8,000 potential cuts globally, and the number that may reach 10,000 by year-end, a person familiar with the plan said. The reductions are the result of a global effort by regional managers to comb through operations and find overlaps in administration worldwide, said the person, who asked not to be identified because the plans are private.
Many of the layoffs may not be made public because they are part of a sweeping push to streamline operations rather than targeted reductions at specific operations, the person said.
Loescher is taking his message to about 600 top managers in Berlin this week to kick off the next fiscal year. He was forced to lower earnings targets in April, and in July said that new goals are still a stretch, as orders for industrial gear waned and projects charges mounted.
Siemens, which makes high-speed trains, turbines and medical gear, is already negotiating job losses at units including transformers and gearboxes in response to slowing economic growth. The company announced 615 job cuts at the U.S. wind power business on Sept. 18, on top of 500 jobs at six German factories making mechanical drives.
Transformer sites in South America and the Middle East have also faced cutbacks, and Siemens is in the process of eliminating as many as 1,600 jobs in health care, as well as 1,050 at the lighting unit, bringing total reductions announced in the past year to about 5,000.
Loescher today said Siemens failed to reach financial goals as defined by the company’s “One Siemens´´ target system in the fiscal year ended Sept. 30, as the year proved more difficult than expected. The plan aims for sales growth exceeding peers including General Electric Co. (GE) and ABB Ltd. (ABBN) as well as profitability targets for operating units.
Siemens has gained 4.5 percent this year, lagging behind the performance of peers such as Schneider Electric Co., which is up 17 percent in Paris, and Alstom SA (ALO), which has advanced 16 percent. Royal Philips Electronics NV, which competes with Siemens in areas such as lighting and medical equipment and is also cutting jobs., has gained 15 percent this year.
The meeting of executives at the Intercontinental Hotel (IHG) in Berlin seeks to align top management with company goals for the new fiscal year and features workshops on the four main businesses: energy, industry, health care and infrastructure. Siemens had about 370,000 employees at businesses from continuing operations as of June 30.
Loescher aims to slash costs after a bet on an economic recovery in the second half proved wrong, depressing profitability at the Munich-based company as higher operating expenses and marketing costs were met by declining orders.
‘‘We didn’t succeed in adjusting to this development fast enough,´´ the employee magazine cites Loescher as saying. ‘‘Our costs are too high and we must be faster to better respond to changes.´´
The 55-year-old Austrian will on Nov. 8 present concrete figures and milestones to lift profitability back toward 2011 levels. The effort may require cuts of as much as 4 billion euros ($5.1 billion) in order to meet estimates for profit in the next couple of years, Andreas Willi, an analyst at JPMorgan, has said.
Net income before extraordinary items at Siemens topped 7 billion euros in 2011, a number that won’t be reached until 2015, according to analyst estimates collected by Bloomberg.
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