Siemens Green Products Range Won’t Escape Profitability Tests
Siemens AG (SIE) will subject its range of so-called green products that are central to its growth to the same profitability tests as older businesses as it looks to improve returns, the manager leading the cost cuts said.
Siemens is reviewing units to identify any that lag profitability or prospects, and its operations contributing to the 33 billion euros ($43 billion) in environmentally friendly products are part of the same process, Barbara Kux, board member responsible for procurement and sustainability, said in an interview.
“There is an end to romance when it comes to profitability,´´ said Kux, who is scheduled to leave the Munich- based company in November. ‘‘We apply the same criteria for profitability and returns to our green products as we do to all others.´´
Siemens is in the midst of its largest cost-cutting program ever, aiming to reduce expenses by 6 billion euros by 2014. While several of the company’s products, such as high-speed trains or energy-saving technology for office buildings, help customers save energy, their returns have prompted investors’ demands for Siemens to consider exiting them.
Siemens is now implementing proposals put forward by managers to raise efficiency, including plans by infrastructure division head Roland Busch. The company’s wind business is aiming to return to a typical level for Siemens.
Green Goals Intact
There is no bonus just because a business is green, Kux said. Investors got a taste for the company’s renewed focus in October when Chief Executive Officer Peter Loescher said he would sell the company’s solar power operations, just three years after creating the business.
On Nov. 8, Siemens said it will dispose of parts of its water business, another unit contributing to the company’s green portfolio.
While the announced disposals reduce the amount of sales with environmentally friendly products, Kux said Siemens is still well-positioned to reach a goal for generating 40 billion euros in revenue with such solutions by 2014. Reaching its goal will be a challenge, the company has said.
‘‘The goal seems ambitious,´´ said Christoph Niesel, a fund manager at Union Investment in Frankfurt. ‘‘Aiming for size should not be the sole stipulation; returns must be kept in sight.´´
Siemens has an auditor performing annual checks to ensure the green label is more than marketing. The majority of green products the company sells is related to energy efficiency, where criteria demand an improvement of at least 20 percent over rival technology to qualify.
Kux say the size and growth of the market means Siemens will succeed.
‘‘The market for green technologies worldwide is 2 trillion euros today, and set to grow above 4 trillion by 2025,´´ she said. ‘‘It’s a gigantic business with lots of potential.´
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