* Targets profit margin of at least 12 pct
* To buy Belgian software maker LMS for 680 mln euros
* To sell water businesses with annual sales of 1 bln euros
* Q4 net profit from continuing operations down 2 pct
* Shares up 4 percent as savings goal tops estimates
By Maria Sheahan
BERLIN, Nov 8 Engineering conglomerate Siemens
AG aims to save 6 billion euros ($7.7 billion) over
the next two years as it fights to stay competitive in a weak
Siemens, Germany's most valuable company which makes
products ranging from fast trains and gas turbines to hearing
aids, has come under pressure to cut costs and focus on its most
profitable businesses to close a gap with rivals such as ABB
or General Electric.
"We know what we have to do, and we're doing it," Chief
Executive Peter Loescher said in a statement on Thursday as the
industrial bellwether reported declining quarterly profit that
was still slightly above analysts' forecasts.
The savings target was much higher than the 2-4 billion
euros analysts had expected, sending Siemens' shares up 4
percent - one of the biggest gainers in Europe.
"We see the cost program (at Siemens) as meaningful and
credible. This is much better than many had expected," Morgan
Stanley analyst Ben Uglow said.
Analysts at Citi said Siemens' 2014 earnings per share could
be at least 13 percent higher than was expected before the
savings - a mixture of cost cuts and efficiency gains - were
Loescher said some of the company's 410,000 jobs would go,
but declined to say how many.
He aims to increase annual sales by about one third to 100
billion euros in a few years, but a faltering economy has pushed
prices down and eroded margins with little prospect of a pick-up
any time soon.
"We certainly see a slowing global economy and more
headwinds," Loescher told Reuters Insider TV in an interview,
citing recession in Europe and a mixed picture in emerging
economies such as China.
Siemens expects order intake to grow moderately in the
financial year ended September 2013, following a 10 percent drop
last year, while revenues will be lower.
JOBS WILL GO
Munich-based Siemens aims to improve its margin on operating
profit from its four core businesses to at least 12 percent from
9.5 percent last year, closing a growing profitability gap with
Switzerland's ABB, Netherlands-based Philips and
U.S.-based General Electric.
Siemens trades at 12.2 times 12-month forward earnings, a
discount to those companies, which have multiples of 12.4, 13.1
and 13.0 respectively, according to Thomson Reuters StarMine.
Its shares have gained 6.6 percent so far this year, well
below a 23 percent jump by Germany's blue-chip DAX index
, despite support from a 2.9 billion euro share buyback.
Siemens' energy business in particular has fallen behind
peers, with the annual margin dropping to 7.8 percent from 17.2
percent due to delays in the connection of German offshore wind
farms to power grids and trade sanctions on Iran that hit its
oil and gas business in the fourth quarter.
Siemens said it expects net profit from continuing
operations to decline to between 4.5 billion euros and 5.0
billion this financial year, from 5.18 billion last year, due to
about 1 billion of costs from the savings programme and the
impact of a change in accounting standards.
Overall, the saving drive will cost as much as 1.5 billion
euros. Along with streamlining internal processes and cutting
procurement costs, Siemens plans to boost profitability through
acquisitions and disposals.
It has already announced plans to sell its solar units and
on Thursday said it was selling water businesses with annual
sales of about 1 billion euros and buying Belgian industry
software maker LMS International for about 680 million euros.
LMS will become part of Siemens' bread-and-butter Industry
business, where profit fell 6 percent in the fourth quarter,
weighed down by a slump in income from wind power drives.
Overall, fourth-quarter net profit from continuing
operations fell by 2 percent to 1.48 billion euros, weighed down
by a 327 million euro hit at the oil and gas business in Iran
due to new trade sanctions imposed on the country.
But that was still more than the 1.34 billion euros analysts
had on average expected, partly thanks to higher healthcare
profits in Asia and the Americas.