GE GE Aerospace

German conglomerate has been more nimble than its U.S. rival in restructuring

By Ruth Bender 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 9, 2018).

BERLIN -- Siemens AG on Thursday said it would raise its dividend after recording solid full-year results, in the latest example of how the German engineering giant is emerging from the shadow of General Electric Co. and beginning to outshine its U.S. nemesis.

Siemens, whose management for years used the much larger GE as a benchmark, has faced many of the same challenges that have weighed heavily on the U.S. group, notably investor pressure to streamline its operations and slumping demand in its power business. Yet Thursday's report from Siemens show it has generally been faster and more successful at addressing them.

While GE last month slashed its quarterly dividend to a token penny a share as it husbands cash for a restructuring, Siemens said Thursday it would raise its annual dividend by 10 euro cents to EUR3.8 a share and announced a share-buyback program.

Shares of Siemens, which edged higher Thursday, have dropped about 11% this year, while GE shares have lost more than 50%.

The German group has come under pressure to simplify its business and extract more value from its vast array of activities, as investors fall out of love with the once mighty manufacturers of everything. But while GE's turnaround efforts have faltered, Siemens is using early returns from its restructuring efforts to back further transformations.

"We have reached a lot with Vision 2020," Siemens Chief Executive Joe Kaeser said at an annual press conference Thursday, referring to the group's profitability campaign and reminding reporters of a time when Siemens was in a much weaker spot. "We have a clear plan that we are implementing consistently and carefully," he said.

Mr. Kaeser has led an effort to refocus the sprawling conglomerate since he took over as CEO in 2013, shedding underperforming businesses in favor of a narrower selection of more profitable units and slashing costs across the board, including thousands of job cuts.

In August, Siemens said it would combine its five industrial businesses into three -- essentially, power turbines and gas, manufacturing software and automation, and infrastructure. Under the new structure, to take effect at the end of March, Siemens units will get more autonomy to make decisions but also carry more responsibility for meeting financial targets.

Mr. Kaeser also listed the medical technology unit Siemens Healthineers AG and moved Siemens's wind-power business into a joint venture with a Spanish rival to form Siemens Gamesa Renewable Energy SA. The conglomerate is also planning to merge its train activities with France's Alstom SA.

The CEO, whose term runs until 2021, said the decision to float Healthineers had been vindicated by a 36% share-price gain since the new stock started trading.

"This shows that pure plays in today's world have a totally different significance," Mr. Kaeser said. "Medical technology has very impressively used the freedom we gave them."

Analysts say Siemens has been taking steps in the right direction to draw more value out of a conglomerate encompassing a number of businesses with little overlap.

But some have criticized its restructuring announcement in August as low on details, such as estimated savings from head-office cutbacks. Others argue Siemens could go further, for example, by merging or selling its power business, which like GE's has been hit by a sharp fall in demand for large gas turbines.

Jefferies analyst Peter Reilly said Siemens's future "remains more obscure than we would like" after the company Thursday failed to provide more details on its current internal reorganization.

The short-term cost associated with any large-scale restructuring surfaced in Siemens's latest quarterly results. Profit for the fiscal fourth quarter ended Sept. 30 nearly halved to EUR681 million ($780.2 million) from EUR1.25 billion a year earlier because of charges related to job cuts at the power and gas business. Revenue edged up to EUR22.61 billion from EUR22.22 billion, driven by all businesses except the power unit.

For the full fiscal year, the company posted flat profit of EUR6.12 billion.

In addition to raising its dividend, Siemens said it would launch a EUR3 billion share-buyback program that will run until November 2021.

Write to Ruth Bender at Ruth.Bender@wsj.com

(END) Dow Jones Newswires

November 09, 2018 02:47 ET (07:47 GMT)

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