Group with a leap in profit: Siemens is more valuable today than ever

After splitting off and restructuring, Siemens now presents itself as a “focused technology company”. Why is the company currently worth more than it was before the break-up and its current earnings exceeding expectations?

In June, Siemens had predicted a profit after tax of between 5.7 and 6.2 billion euros for the current fiscal year. The group clearly exceeded this forecast with 6.7 billion euros, as the figures published in the morning show. Sales rose to EUR 62.3 billion in the 2020/21 financial year, which ended in September. The dividend is to be increased by 50 cents to the record value of 4.00 euros per share.

Comparatively little has remained of the former conglomerate, which produced almost everything from light bulbs to power plants that was somehow powered by electricity. Industry, infrastructure and mobility are essentially the areas in which Siemens is active today. “This means that we are active in sectors that form the backbone of the global economy and offer great potential for digital transformation and more sustainability – the great challenges of our time,” the company praised itself to investors.

Roland Busch has been the new CEO since February

Company boss Roland Busch, who has been in office since February, praises Siemens for his “unique abilities” to combine real and digital worlds. “Customers benefited from this like no other company,” argues the manager. Busch rated the current annual figures as a successful start for Siemens as a “focused technology company” after the spin-off of the energy technology group Siemens Energy. “Growth across all four industrial businesses and all regions” was recorded.

For the shareholders of Siemens Energy, however, the most recent and, for the time being, last spin-off from the parent company has not paid off. The shares of the company that went public a year ago and employs around 91,000 people is worth less today than it was when it was first listed. In fact, Siemens Energy was in the red in its first year as an independent company because of the ailing Spanish wind turbine subsidiary Gamesa. The net loss amounts to 560 million euros.

Clear improvement sought

Still, the company appears to be on the mend. In the previous year, the losses were more than three times as high. CEO Christian Bruch also hopes for a turnaround at Gamsa, the biggest problem child. “We have swapped the entire management over the last twelve months,” said the manager yesterday when presenting the figures. But it will take some time to solve the problems. Siemens Gamesa is struggling with high raw material and transport costs as well as delays in the supply chain. In the past financial year, therefore, a loss of 627 million euros was incurred. Siemens Energy holds two thirds of the shares in the company.

In the new fiscal year, which began at the beginning of October, the situation is also expected to improve for the entire Siemens Energy Group. The bottom line is that management expects a further reduction in losses. Even a return to the black cannot be ruled out. In the meantime, things are looking better in the production of gas turbines too, now that material and personnel costs have been reduced and production has been streamlined. This also includes job cuts in Germany, especially in Berlin, where 600 jobs have been lost.

Siemens Healthineers success story

The other spin-offs from Siemens have developed significantly better. In the past fiscal year 2021, the medical technology group Siemens Healthineers achieved record sales of around 18 billion euros, thanks in part to the proceeds from the sale of rapid antigen tests. In terms of earnings, Healthineers had reached the upper end of its own forecast at EUR 2.03 per share.

Osram also asserted itself better than it would have been possible at Siemens, claims the former Siemens boss Joe Kaeser, architect and main initiator of the corporate restructuring. The subsidiary Osram, which was spun off from Siemens in 2013 and a former manufacturer of light bulbs, was taken over by the Austrian sensor manufacturer ams AG last year.

Worth more than before it was broken up

In connection with the restructuring of the group, Kaeser preferred to speak of creating new perspectives rather than breaking it up. “Smashing is the negative description of an issue that can also be seen as a positive creation of new perspectives,” he said. General Electric boss Larry Culp also seems to see it that way. The head of the world’s most valuable company 20 years ago decided to split it up into the three divisions of aviation, health and energy – in the hope of opening up new perspectives for General Electric after years of decline.

Siemens also wants to grow again after the spin-off of its energy and health divisions, albeit in the digital area. Digital sales of 5.3 billion euros in the 2020 financial year are expected to grow by around ten percent annually until 2025, because the digital offerings and the core business of industry, mobility and infrastructure will be increasingly interwoven in the future. Both the end of the conglomerate and the new growth prospects have been welcomed by investors. At 117 billion euros, Siemens is worth more today than it was before it was broken up.