Siemens Lending Division Poised to Meet Target Early on Asia
Siemens AG (SIE)’s project-financing unit is on track to meet its growth target ahead of schedule, helped by demand from Asian customers for credits to support infrastructure investments.
Siemens Financial Services, providing financing for products such as trains, power turbines and medical scanners, may get close to achieving its 2016 target for 20 billion euros ($26 billion) in financed assets already this year, said division head Roland Chalons-Browne.
“The share of our business in Asia will grow disproportionately,” he said from the unit’s headquarters on the outskirts of Munich. “We are selectively hiring key people with the right skill sets in those regions. We’re thinking of putting a few more people into places like Singapore.”
Sales of Europe’s biggest engineering company in Asia grew faster in the last fiscal year than at competitors General Electric Co. (GE) and ABB Ltd. (ABBN) as Siemens Chief Executive Officer Peter Loescher needs to make up for sluggish demand in the company’s home region. Chalons-Browne is focusing SFS on helping clients secure funding for infrastructure investments to benefit from longer-term projects, shifting away from the unit’s product-leasing origins.
“The industry unit is very dependent on what’s going on in China and the energy business relies on emerging markets in general,” Paris-based Societe Generale analyst Gael de Bray said by phone. “They have to expand in this area, but it will not happen overnight. It will happen over 10 or 15 years before they start seeing a far bigger exposure to this region.”
While the Asian operations of SFS are growing, the company’s European business is still significantly bigger. Assets of the project-financing arm in Europe totaled 9.1 billion euros at the end of the last financial year, compared with 7.6 billion euros in the Americas and 700 million euros in the Asia and Australasia region.
The company set up a unit in China in March to participate in renminbi venture capital deals, funding start-up companies in the region. Financing now accounts for about 60 percent of SFS’s new business, with that proportion likely to increase, according to the executive.
“As Siemens engages more in large infrastructure and energy projects, structured and project financing has a disproportionate growth,” said Chalons-Browne, who took over at SFS three years ago. “The share of standardized leasing contracts in our portfolio has declined.”
Siemens bundled products such as trains, airport services, power grids and building technologies into a new fourth division called ‘Infrastructure and Cities’ in 2011 as it sought to create a one-stop shop for municipalities’ needs.
Loescher is under pressure to show his strategy is working. He cut the company’s profit forecast on May 2 for the fourth time in his six-year tenure amid rising charges for a failed push into solar energy and delayed train deliveries, leaving investors questioning whether he’ll be able to reach a target for matching profitability at GE and ABB.
Before today, Siemens had risen 1.4 percent in Frankfurt trading since the start of the year, valuing the company at 73 billion euros and underperforming the 19 percent gain of ABB and GE’s 12 percent increase. Siemens today dropped 0.6 percent to 82.84 euros as of 10:30 a.m.
GE is also expanding its Asian financing business following the March 21 acquisition of Allianz SE (ALV)’s Australian commercial lending subsidiary.
At the same time, the U.S. rival is considering spinning off parts of its GE Capital finance unit through an initial public offering as it seeks to reduce its dependency on the division. Dividends from GE Capital will this year account for 30 percent, or about $2 billion of total profit and it will also pay a $4.5 billion special dividend.
Siemens’s revenue from Asia and Australasia grew 8.1 percent to 15.5 billion euros in the 12 months through September. GE’s sales in the region climbed 5.6 percent to $24.5 billion in 2012, while ABB’s increased 6.1 percent to $10.8 billion.
SFS’s profit topped 479 million euros in last fiscal year and will probably remain at between 6 percent and 8 percent of Siemens’ total earnings “for the near term,” according to Chalons-Browne. Asked about the company’s 2016 target for 20 billion euros in financed assets, he said “we potentially will not be too far off at the end of this year.”
Siemens’s financial arm had 17.4 billion euros in assets at the end of 2012, compared with 14.6 billion euros a year earlier. Its new business grew 15 percent to 7.4 billion euros last year.
The amount the unit directly invests in projects has also increased under Chalons-Browne, with the company’s equity stakes jumping 12 percent to 1.8 billion euros last year.
Such investments in large projects and public-private partnerships not only help them get off the ground, they also demonstrate Siemens’ trust in the competitiveness of its own technologies, said Chalons-Browne.
“We typically invest just a minority share, enough to retain some influence, signal commitment to the market and make the project go,” he said. After reaching the 20 billion-euro equity target, SFS may bundle several investments to sell to institutional investors, he added.
The unit has holdings in developments including a $1.8 billion coal-fired power plant in Indonesia, a $2 billion 738-bed hospital in Australia and a $1.8 billion offshore wind power plant in northern England.
“The reason we have not really sold many projects so far is because we intend to grow a profitable average earning asset base,” Chalons-Browne said. It should be “robust against any fluctuations.”
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