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Profits drop sharply after a report that corruption at the German engineering giant was widespread, but the CEO remains upbeat on growth
German engineering giant Siemens has been going through a pretty torrid time recently. It has had to deal with a number of investigations into its huge corruption scandal while also restructuring its core business.
On Wednesday, the group announced a 67-percent slump in second quarter net profits, just one day after it emerged that the system of bribery was endemic throughout the company.
At a press conference in Munich Wednesday, the company announced that its profits in the quarter ending March fell to €412 million ($640 million), compared to €1.26 billion for the same quarter last year. But it was not all bad news. The company sales had actually edged up by 1 percent on last year to €18.09 billion. And the company says it was maintaining its outlook for high growth.
CEO Peter Löscher, who was brought in to the company to act as a new broom last year, said on Wednesday: "We have now concluded our project reviews in the conventional power generation business and, in total, we have a clear picture of the relevant risks." He added that the company had "demonstrated its commitment to "increasing transparency and accountability."
Last month Siemens had said that it would take a charge of €900 million due to problems with a range of major projects. The engineering colossus, whose products range from light bulbs to trains, said it had been unable to keep up with contracts it signed over the past few years.
Löscher told reporters on Wednesday that Siemens was planning to slash administrative costs by €1.2 billion over the next two years and said he expected the company to be affected by the consequences of the global financial crisis. "We already see first signs of greater cautiousness on the part of customers in our standard products business here in Germany."
Meanwhile the company has had to deal with the fallout from the ongoing corruption scandal. On Tuesday Debevoise & Plimpton, the US law firm hired by Siemens to look into the affair, released its report on the company's business practices between 1999 and 2006. Debevoise & Plimpton found evidence of compliance violations "in each of the examined groups and in various countries."
The Siemens affair centers on an estimated €1.3 billion ($2.1 billion) in dubious payments—mostly bribes to secure business for the company.
On Wednesday Löscher said that he had been surprised by the "size and range" of the corruption. He said, however, that the scandal had not affected business. "We have not lost the trust of our customers," he said, pointing to an increase in contracts in recent months.
Peter Solmssen, the Siemens board member charged with tackling corruption, told the press conference on Wednesday that the discussions with the US Department of Justice and the Securities and Exchange Commission (SEC) would continue for "many months." In October, the company agreed to pay a fine of €201 million to put an end to German legal proceedings.