Bloomberg News

Siemens’s Debt Is Downgraded by Fitch as Margin Falls Faster (2)

August 02, 2013

Siemens AG (SIE)’s credit rating was downgraded by Fitch Ratings, which cited an accelerating decline in the company’s margins in the most recent quarter and “insufficient progress” on restructuring measures.

The long-term debt of Europe’s largest engineering company was cut to A from A+ with a stable outlook, Fitch said today in a statement. That’s the sixth-highest investment grade. Munich-based Siemens’s appointment of Joe Kaeser as Chief Executive Officer is a “positive development,” it said.

Shortly after announcing the appointment of former finance chief Kaeser on July 31, Siemens reported profit for the three months through June 30 fell 31 percent, led by declines at the energy unit. The company ousted CEO Peter Loescher after the Austrian executive said Siemens wouldn’t meet a goal for profit representing 12 percent of sales in 2014, his fifth forecast cut in his six-year tenure.

Fitch has “greater scepticism about the speed and ultimate success with which targeted change can be made in an organisation of Siemens’ size and complexity,” it said in the statement. Siemens is midway through a program to cut costs by 6.3 billion euros by the 2014 fiscal year, which starts in October.

“Of course this has some impact, but ‘A’ is still a solid rating,” Frankfurt-based Commerzbank analyst Ingo-Martin Schachel, who has an add recommendation on the shares, said by telephone. “With a big financial services business the rating is important, so it’s not positive. But the ranking is still much better than most of Siemens’s peers.”

Financing Infrastructure

Siemens’s financial services arm is moving away from the leasing business, which was its mainstay, and towards financing infrastructure and energy projects as the parent company grows in that sphere, unit head Roland Chalons-Browne told Bloomberg on May 29. The division aims to provide enough funding to “make a project go,” he said.

Siemens has 20 billion euros of outstanding debt, according to data compiled by Bloomberg. The 166-year-old company sold $3.3 billion of bonds in pounds and euros in August 2012 to fund a buyback of the same amount of stock.

The stock fell as much as 1.1 percent and was trading 0.9 percent lower at 83.72 euros as of 3:52 p.m. in Frankfurt. The stock had climbed 6 percent this year before today, valuing the company at 74.3 billion euros.

The 2014 forecast was cut after a majority of units said in their internal predictions that they will probably miss their goals, two people familiar with the matter said. The gap in so-called sector profit between the forecast and the actual numbers is currently 1.5 billion euros, one person said.

Siemens had a profit margin of 9.5 percent in 2012 when competitors ABB Ltd. (ABBN) and General Electric Co. (GE:US) had margins of 10.3 percent and 15 percent, respectively.

To contact the reporter on this story: Alex Webb in Munich at awebb25@bloomberg.net


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