Siemens Cities Unit Sets 7% Margin Goal to Regain Investor Trust

Siemens AG (SIE) said an overhaul of its infrastructure and cities segment will lift margins at the business to 7 percent in 2014 as it focuses on the most profitable contracts.

The division will focus on those areas still attracting government funds, said Roland Busch, who oversees the business, said in a webcast investor conference. Efficiency improvements will lead to 1 billion euros ($1.34 billion) in savings in 2014, with 150 million euros of those stemming from a new sales structure, he said.

“There is a misperception that cities aren’t spending money; this isn’t true,” Busch said.

Busch needs to restore faith in the infrastructure and cities unit as Chief Executive Officer Joe Kaeser prepares to unveil a strategic plan in May. Margins at the unit, whose products range from trains to power grids, have lagged behind those of Siemens’ other three sectors. The division’s profit slipped to 306 million euros, or 1.7 percent of its sales, in the fiscal year ended Sept. 30, burdened by restructuring costs. That made it the least profitable of Siemens’s four sectors.

Kaeser, who took over as CEO in August after predecessor Peter Loescher announced a fifth forecast cut in six years, said the company must better allocate its resources, and the board will review all proposals for projects in which Siemens has limited prior experience before accepting contracts.

Siemens advanced 0.2 percent to 94.38 euros as of 11:08 a.m. in Frankfurt.

Contract Filtering

A cities unit making baggage-handling equipment will be “deconsolidated” from the main business in the first half, Siemens said in a presentation.

Siemens declined to bid for some 5 billion euros in contracts last year as it sought to reduce project charges, including a 2 billion-pound ($3.3 billion) order to supply trains for London’s Crossrail project. London’s 15 billion-pound Crossrail project would put pressure on capacity and has a “challenging” timeline.

“One third of our backlog will be turned into revenue in the current fiscal year,” divisional Chief Financial Officer Hannes Apitzsch said. “We are working on getting our major project charges down. It’s a question now of the sector overall and division-by-division, that we are working on major efforts to improve the quality of our margin.”

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