Dec. 5 (Bloomberg) -- Siemens AG said an overhaul of its infrastructure and cities segment will lift margins at the business to 7 percent in 2014 as it concentrates on the most profitable contracts and seeks to reduce project charges.
The division will focus on those areas still attracting government funds, 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, adding that risks are being reduced and margins improved at Siemens’ rail division.
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 Europe’s largest engineering company’s 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 tendering for contracts.
Siemens declined as much as 0.7 percent to 93.49 euros and was 0.2 percent down as of 3:47 p.m. in Frankfurt, giving the company a market value of 82.7 billion euros.
A unit making baggage- and package-handling equipment which is up for sale, will be divested in the first half, Siemens said in a presentation. Divestments will save the sector 1.4 billion euros, Busch said today.
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. The project would put pressure on capacity and has a “challenging” timeline, it said.
Under CEO Loescher, Siemens was less circumspect in picking projects as he strove to reach a 100 billion-euro revenue target for the company. Sales reached 75.9 billion euros last fiscal year.
The sector’s earnings were weighed down by 270 million euros in project charges last year following further delays in deliveries of high-speed trains to Deutsche Bahn AG. Two of the 16 trains ordered have now been delivered for training purposes.
The infrastructure and cities unit will seek to limit annual charges to 50 million euros each year, Hannes Apitzsch, its finance chief, said today.
“One third of our backlog will be turned into revenue in the current fiscal year,” 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.”
Siemens said the final fee paid for Invensys Plc’s rail signalling division was 270 million euros less than the 2.2 billion euros first announced, helped by currency developments and post-closing adjustments.
The infrastructure and cities unit will account for 5,000 of the previously announced 15,000 total job cuts across Siemens globally. The company had already said that 1,400 jobs at the sector would be scrapped in Germany.
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