Siemens Says Infrastructure Unit Must Improve as Reckoning Looms

Siemens AG Chief Executive Officer Joe Kaeser said the infrastructure division, the least profitable at Europe’s largest engineering company, needs to better identify the markets it wants to target.

“We must work on improving the profitability and strategic focus of the sector’s themes,” Kaeser said in an company newsletter. When asked if he might dissolve the division, which pools a wide range range of businesses including rail technologies, power distribution equipment and building technologies, he said that “changing the IC sector structure is not a priority.”

The company’s four main divisions, called sectors by Siemens, must also start to deliver results from the savings measures implemented over the past year, said Kaeser, who replaced Peter Loescher as CEO at the Munich-based company in August.

The infrastructure and cities division has faced investor criticism since it was carved out by Loescher from existing units in 2011. Its 6.5 percent profit margin last year lagged the 9.5 percent achieved by the company as a whole. Without saying how it got the information, Germany’s Manager Magazin reported Oct. 17 that Kaeser was considering disbanding the sector as soon as next October.

Siemens should sell the division’s transportation unit, adding to already planned divestments of postal and baggage handling businesses, while reshaping the company structure over the next five years, Societe Generale SA analysts including Gael de Bray said in a Sept. 9 note.

Electrification Chain

Spinning off the healthcare sector could also unlock value of six euros per share, the analysts added, questioning whether the division fitted into Kaeser’s attempt to focus Siemens “along the electrification chain”.

“I am especially pleased to have such a profitable and well-managed business,” Kaeser said today of the healthcare sector, the most profitable of the four. “We do not need to reinvent the company.”

Siemens has already agreed a deal to sell its water technologies division to New York-based private equity firm AEA Investors for $800 million, two people familiar with the matter told Bloomberg on Oct. 15.

While Siemens will divest units as soon as possible where it is unable to engineer a turnaround, Kaeser said he will not “give up on businesses just because they are not performing well.”

Kaeser is already reorganizing the company's sales structure, eliminating a cluster organization set up by Loescher which grouped sales functions across several nations. Siemens’s operations at a national level will now bear responsibility for distribution, allowing them to react more quickly to demand, the company said Oct. 18.

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