Siemens carves out energy unit, cuts 10,000 jobs in massive overhaul

The unit will be spun off into a separately managed company and listed by September 2020, according to a statement on May 7, 2019.
The unit will be spun off into a separately managed company and listed by September 2020, according to a statement on May 7, 2019. PHOTO: REUTERS

MUNICH (BLOOMBERG) - Siemens is carving out and listing its flagging gas and power division and cutting more than 10,000 jobs in a sweeping overhaul of the German engineering giant.

The unit will be spun off into a separately managed company and listed by September 2020, according to a statement on Tuesday (May 7). Siemens will retain "somewhat less than 50 per cent" of the new entity, which will include its 59 per cent stake in Siemens Gamesa Renewable Energy, creating a company with 30 billion euros (S$45.76 billion) in business volume.

Siemens aims to keep "significant influence" in what it called a "powerful pure play" in energy and electricity. The division has operations spanning oil and gas as well as conventional power generation and transmission, while Siemens Gamesa develops wind farms and makes renewable energy equipment.

In separating out the unit, chief executive officer Joe Kaeser is further chipping away at Siemens's conglomerate structure. The executive previously brought the health-care division to market, merged the wind power unit with a Spanish competitor, and tried - and failed - to merge its train unit with French rival Alstom SA. The rail deal was blocked by European antitrust regulators.

In addition to the structural revamp, Kaeser also unveiled job reductions at its core divisions to save about 2.2 billion euros by 2023. These include 4,900 cuts at digital industries, 3,000 at so-called smart infrastructure and 2,500 jobs at its central corporate unit. At the same time, Siemens plans to hire about 20,500 new employees.

The gas and power unit has been among the weakest of Siemens's divisions, reporting lower orders and profitability as utilities buy fewer large turbines amid a global shift to renewable energy.

The division had the lowest profit margin last year, according to figures that were revised to reflect the four wholly-owned units Siemens created in an April 1 reorganization. A global collapse in turbine orders has also hit rival General Electric, contributing to the U.S. company's deep slump.

"Being independent will enable us to more effectively leverage our position of strength to further support our customers in rapidly changing energy markets," Lisa Davis, head of Siemens's gas and power, said in the statement about the need for a carve-out.

The separation and planned listing is expected to form the bulk of Siemens's presentation to shareholders and analysts at a capital markets day on Wednesday, when the company also reports second-quarter earnings.

"The decision on the carve-out of gas and power was anything but easy," said Juergen Kerner, who represents the IG Metall labor union on Siemens's supervisory board. "The division is one of Siemens's core businesses, but a growth strategy under Siemens is still not feasible."

SPARKED DEBATE

Another union representative confirmed there was debate between unions and executives on whether to sell or list the gas and power business.

"In a joint venture with, for example, a Japanese competitor, we would have seen too great a risk," said Birgit Steinborn, chief employee representative on the supervisory board, adding that labor groups "achieved" a plan for a spinoff in Germany.

Bloomberg News reported in March that Mitsubishi Heavy Industries Ltd was in talks with Siemens on a possible combination of the gas turbine business with its own operations, and that the German company also had discussions with other firms on a full or partial sale of the division.

GE was the top producer of gas turbines last year, with about 33 per cent of global orders by capacity, according to Barclays. Mitsubishi Hitachi Power Systems followed with 30 per cent, while Siemens was third with 26 per cent.

Gas and power was once an earnings driver for Siemens before a collapse in orders. The Munich-based company in 2017 announced more than 6,000 job cuts at the unit and closed several sites. Kaeser has said repeatedly more needs to be done to secure a future for the business.