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Shareholders of German engineering conglomerate Siemens AG arrive for the company’s annual shareholder meeting in Munich Jan. 23, 2013. Siemens warned that demand for products such as industrial automation and drive technologies was weakening as it posted a decline in new orders for its fiscal first quarter. (MICHAEL DALDER/REUTERS)
Shareholders of German engineering conglomerate Siemens AG arrive for the company’s annual shareholder meeting in Munich Jan. 23, 2013. Siemens warned that demand for products such as industrial automation and drive technologies was weakening as it posted a decline in new orders for its fiscal first quarter. (MICHAEL DALDER/REUTERS)

Siemens focuses on cost cuts to combat gloomy economy Add to ...

German industrial bellwether Siemens AG said it would stick with its focus on cost cuts to catch up with peers such as General Electric Co. as a weak global economy saps demand for factory equipment.

With China’s economy growing at its slowest pace in 13 years in 2012, the euro zone in recession and recovery in the United States still cautious, companies have curbed investment in new machinery and software.

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“We do not expect the global economy to provide any tailwinds,” chief executive Peter Loescher told thousands of shareholders at an annual meeting on Wednesday.

The engineering group, which makes products ranging from fast trains and gas turbines to hearing aids, reported a 3-per-cent fall in new orders to €19.1-billion ($25.4-billion U.S.) for its financial first quarter.

Weakness in China weighed on orders for drive technology and industrial automation, and the company said demand in its home market was also on the decline.

Mr. Loescher, at the helm for almost six years, has been criticized for being too slow to react to a downturn in the global economy and is now struggling to get the company back on track to compete with rivals.

He put on the back burner a plan to increase annual sales by about a third to €100-billion and late last year launched a massive push to save €6-billion over two years.

Ingo Speich, a portfolio manager at Union Investment, which holds about 6.5 million Siemens shares according to Reuters data, said cost cuts were not enough.

“Investors expect management to set a clear strategic course for the future to bring the lumbering tanker that is Siemens back on track,” he told the shareholders’ meeting.

Quarterly net profit from Siemens’ continuing operations – which have 370,000 employees around the world – eased by 1 per cent to €1.3-billion, hit by a one-time charge related to a delayed high-speed train project.

It sees annual profit declining to between €4.5-billion and €5-billion, from €5.18-billion last year, partly because of a £1-billion euro hit from its savings program.

Mr. Loescher aims to push up the margin on Siemens’ core operating profit to at least 12 per cent from 9.5 per cent last year by cutting costs and focusing on the company’s most profitable businesses.

“What seems ambitious at first glance, since Siemens has never reached that margin target in past year, turns out to be not so ambitious at all at second glance,” said Henning Gebhardt of asset manager DWS, which holds more than three million shares in Siemens according to Reuters data.

“Competitors reach that target margin on a regular basis,” he said.

GE, for instance, posted an operating margin of 15.1 per cent last year and aims to further boost profitability this year. Switzerland’s ABB Asea Brown Boveri Ltd., a major competitor to Siemens in power systems and industry automation, is due to publish 2012 results on Feb. 14.

Siemens’ order intake in its first quarter exceeded revenues for the first time in a year, indicating its top line could grow further.

The company said that it still expects new orders to grow moderately in its financial year to Sept. 30, after a 10-per-cent drop last year, and revenue to be lower.

“The question is, when will China recover?” finance chief Joe Kaeser said, adding he expects industrial demand from China to pick up again in the second half of 2013 at the earliest.

Siemens’s rivals in industrial automation – including Rockwell Automation Inc. and Emerson Electric Co. – have already warned that customers were putting off investments.

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