Bloomberg News

Siemens CEO Kaeser Unravels Loescher Distribution Structure (1)

October 18, 2013

Siemens AG (SIE) Chief Executive Officer Joe Kaeser is dismantling a sales structure set up under his predecessor Peter Loescher to enable Europe’s largest engineering company to react more quickly to market demands.

Sales functions will be returned to country managers from so-called clusters that pooled distribution across several nations, Kaeser yesterday told 600 top managers in Berlin, according to a statement by Siemens.

“Eliminating the clusters will make Siemens more streamlined and closer to the markets,” the CEO said. “We’re substantially strengthening our regions, whose heads are our customers’ most important contacts.”

The main challenge for Kaeser, who took over in August, is to close the profitability gap with competitors General Electric Co. (GE:US) and ABB Ltd. (ABBN) In Loescher’s six-year tenure, margins lagged behind and the stock fell 22 percent as the Munich-based company had to cut profit targets five times. Since the Austrian’s departure as CEO was announced, the shares have gained 12 percent.

Country managers for the biggest markets will report directly to the leaders of Siemens’s four sectors, according to Kaeser. Energy head Michael Suess will take responsibility for North America and the Middle East while healthcare unit CEO Hermann Requardt will oversee South America and Japan. Industry division chief Siegfried Russwurm will be responsible for Europe, Africa, and the former Soviet bloc. Infrastructure and cities CEO Roland Busch will oversee Asia, excluding Japan, and Australia.

Structural Revamp

The shares gained as much as 0.8 percent, or 0.59 euros, today in Frankfurt, and traded 0.7 percent higher at 89.75 euros as of 9:06 a.m. The stock has risen 13 percent this year, valuing Siemens at 79 billion euros ($108 billion).

Siemens may also disband the least profitable of the four segments, infrastructure and cities, as soon as next October as Kaeser plots a new management structure, Manager Magazin reported earlier, citing an unidentified person. The company declined to comment on the report.

The cluster sales structure was set up by Loescher in 2008, with the sharing of functions intended to reduce costs.

Kaeser’s Role

In addition to his current remit, Kaeser will take on responsibility for mergers and acquisitions as well as governance and capital markets themes, Siemens said yesterday. Project and quality management topics will be handled by Chief Technology Officer Klaus Helmrich as the company seeks to avoid the project charges which burdened earnings in recent years. Helmrich has already taken over personnel management from the departed Brigitte Ederer.

Kaeser is also widening job cuts. Siemens will eliminate 15,000 posts, representing 4 percent of its 370,000 workers worldwide, and a third of the reduction will come in the German home market, the company said last month. Siemens had first projected some 8,000 job cuts globally, a person familiar with the program told Bloomberg in October 2012.

The company has 60 sub-units that make products including trains, gas turbines, medical scanners and factory-automation gear. The manufacturer raised its forecast in July for charges associated with the Siemens 2014 efficiency program to 1 billion euros for this fiscal year from an earlier prediction of 900 million euros. The costs may increase by a further 100 million euros, Kaeser told analysts at the time.

Profit Margin

Siemens had a profit margin of 9.5 percent in fiscal 2012, while ABB and General Electric had margins of 10.3 percent and 15 percent, respectively. The German company’s reorganization costs in the third quarter ended June 30 totaled 436 million euros, with the infrastructure and cities business accounting for 41 percent of that amount and the industry unit for 32 percent.

In August, Siemens’s debt was downgraded by Fitch Ratings, which cited an accelerating decline in the manufacturer’s margins in the most recent quarter and “insufficient progress” on restructuring measures. The appointment of Kaeser as CEO is a “positive development,” it said.

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

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net


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