Siemens to buckle down costs in economic headwinds

MUNICH Wed Jan 23, 2013 7:19am EST

Peter Loescher, chief executive of German engineering conglomerate Siemens AG addresses the media ahead of the company's annual shareholder meeting in Munich January 23, 2013. REUTERS/Michael Dalder

Peter Loescher, chief executive of German engineering conglomerate Siemens AG addresses the media ahead of the company's annual shareholder meeting in Munich January 23, 2013.

Credit: Reuters/Michael Dalder

MUNICH (Reuters) - German industrial bellwether Siemens (SIEGn.DE) underlined the need for it to keep cutting costs to keep pace with its peers, warning that demand for factory equipment is unlikely to pick up until late this year.

With China's economy growing at its slowest pace in 13 years in 2012, the euro zone in recession and recovery in the United States still cautious, companies have curbed investment in new equipment for factories.

"For the rest of the year, we do not expect any tailwinds from the global economy to help us reach our ambitious goals," Siemens Chief Executive Peter Loescher said on Wednesday after reporting a 1 percent profit fall in its financial first quarter.

The engineering group, which makes products ranging from fast trains and gas turbines to hearing aids, posted a 3 percent decline in new orders to 19.1 billion euros ($25.4 billion), especially on weaker demand for software that makes factories run more smoothly.

Faced with the tough economic environment, CEO Loescher launched a new 6 billion euro savings program last year to help it to close a profitability gap with competitors such as ABB (ABBN.VX) and General Electric (GE.N).

It still has a long way to go, however. GE last month reported quarterly results that topped estimates and said it aimed to increase profit this year, while Siemens is expected to see its profit decline because of the cost of its savings program.

"We believe Siemens is late in reacting to the economic slowdown," Espirito Santo analyst Rob Virdee said.

Shares in Siemens eased by 0.9 percent to 82.97 euros by 1048 GMT, underperforming Germany's blue-chip index .GDAXI, which was up 0.2 percent.

NO QUICK RECOVERY

Loescher aims to increase his company's annual sales by about a third to 100 billion euros within a few years, but a faltering economy has pushed down prices and eroded margins, with little prospect of improvement any time soon.

Now the company is making heavy cuts to push up the margin on operating profit from its four core businesses - Industry, Energy, Healthcare and Infrastructure & Cities - to at least 12 percent from 9.5 percent last year.

In a move to focus on its most profitable businesses, it is also divesting its solar and water businesses and plans to spin off lighting subsidiary Osram this year. It is also adding a rail business it bought from Invensys ISYS.L, as well as industrial software companies such as Belgium's LMS.

"The question is, when will China recover?" finance chief Joe Kaeser said, adding that he expects industrial demand from China to pick up again in the second half of 2013 at the earliest.

The only bright spot for Siemens in China was demand for hospital equipment used in the diagnosis of diseases, helping to stabilize quarterly new orders at its healthcare business.

The company said that it still expects group order intake to grow moderately in its financial year to September 30, after a 10 percent drop last year, and revenue to be lower.

It echoed gloomy comments from rivals in industrial automation. U.S.-based Rockwell Automation (ROK.N) said late last year that its customers had been delaying purchases, while Emerson Electric (EMR.N) said that it expected order rates to remain "slow and choppy".

Siemens sees annual net profit from its continuing businesses - which have 370,000 employees around the world - declining to between 4.5 billion and 5 billion euros, from 5.18 billion last year, partly because of a 1 billion euro hit from its savings program and the impact of a change in accounting standards.

First-quarter profit eased 1 percent to about 1.3 billion euros, slightly beating a consensus forecast of 1.1 billion euros in a Reuters poll. [ID:nL6N0ANDL8] ($1 = 0.7526 euro)

(Reporting by Maria Sheahan; Editing by Victoria Bryan and David Goodman)

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