Canadian Manufacturing

Siemens pays $US1.3B for Rolls Royce energy assets amid sweeping changes

After "mixed" Q2 results, Munich-based Siemens has announced massive organizational changes to improve productivity by an estimated US$1.4 billion per year



FRANKFURT, Germany—German industrial giant Siemens AG announced a radical reorganization in an effort to boost profits and revenue.

The restructuring starts with the $1.32-billion acquisition of Rolls-Royce’s aero-derivative gas turbine and compressor business, honing in on the oil and gas industry and decentralized power generation. The transaction is expected to close before the end of 2014.

As part of the deal, Siemens will for 25 years get exclusive access to future Rolls-Royce aero-turbine technology developments in the four to 85 megawatt power output range, as well as preferred access to supply and engineering services. This side deal is worth about $334 million.

Siemens is also forming a joint venture with Mitsubishi Heavy Industries to build plants, products and services for the iron, steel and aluminum industries.

Siemens will now focus on electrification, automation and digitalization, growth fields in which it sees the greatest long-term potential.

To this end, CEO Joe Kaeser is “flattening” the sprawling company’s bureaucracy. As of October, the “Sector level” of the business will be eliminated and Siemens’ 16 divisions will be bundled into just nine.

This will cut costs and accelerate decision-making, as well as streamline support functions such as human resources and communications.

Kaeser says these measures will productivity by about $US1.4 billion a year and will be fully implemented by the end of 2016.

The restructuring comes after a second quarter of mediocre performance and missed fiscal targets.

Second-quarter revenue was two per cent lower year-over-year while orders declined 10 per cent compared to the prior-year period, which included a substantially higher volume from large orders.

However, the book-to-bill ratio was 1.06 for the quarter, and Siemens’ order backlog—a key metric for the company that handles huge projects with long lead times—reached a new high at $143 billion.

Total Sectors profit rose 16 per cent, to $2.18 billion, highlighted by a strong profit increase in Infrastructure & Cities, and income from continuing operations climbed 19 per cent.

“The second quarter showed that we still have a lot to do to improve our operating performance. Nevertheless we are on course to reach our targets for the fiscal year,” said Kaeser during the conference call.

Breakdown of Siemens new nine division structure (Healthcare will be managed as a separate business within Siemens AG):

Power and Gas Division will include large gas and steam turbines, compressors and gas turbines for distributed power generation. 2013 revenue estimate: $19 billion. The division will be headed by Roland Fischer, currently CEO of the Power Generation.

Wind Power and Renewables Division:onshore and offshore wind power generation. Revenue: about $7 billion. Division CEO: Markus Tacke, currently CEO of Wind Power.

Power Generation Services Division:service business for the installed base of Siemens’ power generation products. Division CEO: Randy Zwirn, presently CEO of the Energy Service Division. Its business figures will be included in the reporting of the two divisions named above.

Energy Management Division:power transmission and distribution bundles and smart grid technology. Revenue: aprox. $16.6 billion. Division CEO: Ralf Christian and Jan Mrosik, who are currently responsible for the Low and Medium Voltage Division and the Smart Grid Division, respectively.

Building Technologies Division: integrated automation solutions and intelligent technologies for buildings. Division CEO: Johannes Milde. Revenue: approx $8.3 billion.

Mobility Division: train and rail products. Revenue: $9.7 billion. Division CEO: Jochen Eickholt, who currently heads the Rail Systems Division.

Digital Factory Division: will bundle specialized solutions and technologies for automation systems, industrial switchgear and industry software (PLM). Revenue: about $12.5 billion. Division CEO: Anton Huber, presently CEO of the Industry Automation Division.

Process Industries and Drives Division: makes products, systems, applications and solutions for integrated drive technologies and systems. Siemens expects growth impulses by focusing on booming core industries like oil and gas, food and beverages, chemicals and pharmaceuticals. Revenue: aprox. $15.3 billion. Division CEO: Peter Herweck, currently responsible for process industries.

Financial Services (SFS): financial solutions for Siemens and outside companies, will continue to be headed by Roland Chalons-Browne.

Healthcare: will remain under the leadership of Hermann Requardt, member of the Managing Board of Siemens AG, who will manage this unit as a separate business within Siemens AG in the future.

Corporate Services: Information Technology, Corporate Supply Chain Management, Global Shared Services and Siemens Real Estate will be bundled under the management of Hannes Apitzsch, currently CFO of the Infrastructure and Cities Sector.

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