FRANKFURT (Reuters) - German engineer Siemens (SIEGn.DE) expects its Infrastructure & Cities (I&C) business, which has been hit by project delays and restructuring, to reach its profitability target this financial year, it said on Wednesday.
There has been speculation, brushed off by Siemens’ new chief executive Joe Kaeser, that the group might dismantle the I&C business after its performance fell well short of expectations.
In the financial year ended September 30, the business posted a margin on earnings before interest, tax, depreciation and amortization (EBITDA) of 3.7 percent, well below a target range of 8-12 percent.
That made it the least profitable of Siemens’ four main businesses, behind Industry, Energy and Healthcare.
“We expect that all sectors will be in their respective margin corridors in fiscal 2014, with Infrastructure & Cities reaching the low end of its target range,” Siemens said in its annual financial report, published on Wednesday.
The I&C division was set up by Kaeser’s predecessor Peter Loescher in 2011, grouping businesses making products from security systems to high-speed trains and power distribution systems, which the former CEO saw benefiting from rapid global urbanization.
I&C generates about 17 billion euros ($23.1 billion) of annual revenue - or 23 percent of group sales - but accounted for only about 5 percent of group profit last year, hit by restructuring costs and charges related to the delayed delivery of high-speed trains.
Some analysts have said Siemens should exit some of the lower-margin parts of the business, such as Building Technologies, and either find a partner for its train building business or sell it.
But Kaeser, a 33-year company veteran appointed to the helm at the end of July, has said changing I&C’s structure was not a priority for him.
His focus for now is returning the group to calmer waters after profit warnings and a boardroom bust-up led to his predecessor’s departure, and overseeing a 6 billion euro savings program meant to close the gap with more profitable rivals such as Switzerland’s ABB ABBN.VX and U.S.-based General Electric (GE.N).
Siemens has said Kaeser would hold off presenting his new strategy for the group until May, but investors hope management will give a first glimpse of its plans for I&C at an investor day for the division on December 5.
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Reporting by Maria Sheahan; Editing by Mark Potter