Siemens Plans to Save 6 Billion Euros as 2013 Profit to Drop

Siemens AG (SIE), Europe’s largest engineering company, plans to save 6 billion euros ($7.7 billion) in two years as it braces for lower profit in 2013.

Siemens will slash costs by 5 billion euros, with an additional 1 billion euros coming from improving marketing and less complexity, the company said today. The program will cost 1 billion euros in 2013, and profit will decline to as little as 4.5 billion euros next year from 5.18 billion euros in 2012.

Chief Executive Officer Peter Loescher is embarking on his most sweeping cost purge yet at the Munich-based manufacturer after he was forced to reduce his profit goal earlier this year and charges mount at the energy businesses. The savings plan includes the disposal of parts of a water business with about 1 billion euros in sales, and the acquisition of LMS International, a closely held maker of product life cycle management software, for 680 million euros.

“We didn’t fully succeed in significantly boosting our performance vis-a-vis competitors,” Loescher said in a statement. “We know what we have to do, and we are doing it.”

Net income from continuing operations fell 2 percent to 1.48 billion euros in the quarter ended Sept. 30. That brought profit for the fiscal year to 5.18 billion euros, within reach of a company forecast for at least 5.2 billion euros. Sales rose 7 percent to 21.7 billion euros, the 10th consecutive gain. Order intake rose 2 percent to 21.5 billion euros.

Siemens shares jumped 3.3 percent to 81.4 euros at the open of trading in Frankfurt.

Beating Estimates

Net income beat the mean estimate of 1.41 billion euros in a Bloomberg survey of analysts, and sales came in ahead of an estimate of 21.3 billion euros.

’’Six billion euros in savings is a catchy number, but the margin outlook shows Siemens will be able to retain only a small part of that,’’ Michael Hagmann, an analyst at HSBC in London said. Hagmann said he was disappointed over the lack of details on potential portfolio changes beyond the water unit.

Siemens aims to raise operating profit as a percentage of sales to 12 percent in its four main businesses by 2014, from 9.5 percent in 2012. The company proposed to pay a dividend of 3 euros a share for 2012, unchanged from the prior year.

The decline in profit next year is partly due to adopting new rules for accounting of pension costs, Siemens said. Sales will come close to the level of 2012 next year, while order intake will rise moderately.

Siemens booked 566 million euros in charges at its energy operations, including a writedown of 327 million euros due to stricter European Union rules for trade with Iran, 133 million euros to reduce capacity in some power transmission operations, and 106 million euros for a nuclear power project in Finland.

Additional Costs

The company in the quarter had a loss of 173 million euros in the solar power business it plans to sell. Loescher declined to say how many jobs may be cut with the new program, or what other parts of the portfolio may be put up for sale.

Charges attached to the savings program will total as much as 1.5 billion euros through 2014, Loescher said in a speech. Siemens will reorganize a building technology business to save 100 million euros and productivity improvements at fossil power will generate a benefit of 250 million euros.

’’Where structural changes in the market are happening, you will see an impact’’ on jobs, Loescher said in a televised interview with Bloomberg. ’’We are taking decisive action in our portfolio. We have to roll up our sleeves.’’

LMS, based in Leuven, Belgium, had sales of about 140 million euros in the nine months through September, and employs 1,200 people.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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