Siemens to spin off power and gas businesses

9 May 2019

Global energy giant Siemens is to undergo a fundamental transformation by spinning off its gas and power divisions into a new entity. The new company would have an anticipated value of $30 bn and consist of conventional generation, transmission, oil and gas, together with Siemens’ 59% stake in Siemens Gamesa Renewable Energy.

Siemens intends to meet its medium-term growth and profit targets by focusing on dynamic growth markets and efficiency gains. To this end, the company’s Supervisory Board has unanimously approved the next steps in the company's Vision 2020+ strategy concept. "With Vision 2020+, we're further sharpening Siemens' focus and making our businesses faster and more flexible. … We're also creating solid perspectives for those businesses that have to prove themselves in the structural transformation now underway and address new growth fields," said Joe Kaeser, president and CEO of Siemens AG.

"The success of Siemens' businesses of the next generation will be determined by new factors. Breadth, size and a 'one size fits all' approach will be replaced by focus, speed and adaptability. That's how we'll ensure sustainable success of our businesses in the age of the digital Fourth Industrial Revolution, in which these new factors are a crucial to compete," said Kaeser. He emphasised that Siemens was setting the course for the future from a position of strength and was excellently positioned. In the growth markets of automation, industrial digitalization and smart infrastructure, Siemens wants to grow significantly and further expand its leading position.

The Digital Industries (DI) and Smart Infrastructure (SI) operating companies will comprise Siemens' future industrial core. This core will be supplemented by company-wide technology and service units and the company's strategic majority stake in Siemens Healthineers. Siemens Mobility is also to be further strengthened as a growth business.

 

Siemens' Gas and Power (GP) – consisting of the company's oil and gas, conventional power generation, power transmission and related services businesses – is to be given complete independence and entrepreneurial freedom through a carveout and a subsequent public listing (spinoff). In addition, Siemens AG plans to contribute its majority stake in the renewable energies company SGRE – currently 59 % – to GP. Plans call for the stock exchange listing to take place by September 2020. Siemens will also give up its majority stake in GP. However, it will remain a strong anchor shareholder in the new company, with a stake that is to be initially somewhat less than 50 % and, for the foreseeable future, above the level of a blocking minority holding. Siemens will continue to support the new company, for example, through the professional services of Siemens' Financial Services,. A decision regarding the spinoff and subsequent public listing is to be made at an extraordinary shareholders' meeting, probably in June 2020.

"This move will create a powerful pure play in the energy and electricity sector with a unique, integrated setup – an enterprise that encompasses the entire scope of the energy market like no other company," explained Kaeser. "Combining our portfolio for conventional power generation with power supply from renewable energies will enable us to fully meet customer demand. It will also allow us to provide an optimised and, when necessary, combined range of offerings from a single source. We're convinced that this strategic decision will be positive for all participants and enable long-term value creation for customers, employees and shareholders – as can also be seen in recent market successes such as those in Iraq, which we'll jointly continue to pursue”.

 

In addition to strengthening its portfolio structures, Siemens intends to significantly improve its cost effectiveness across all areas of the company. The goal is to strengthen competitiveness and productivity and thus increase both the annual revenue growth rate and the profit margin of the company's Industrial Business by two percentage points over the medium term. Basic earnings per share are to grow faster than revenue over the medium term. Over the long term, the profit margin of the industrial core business (adjusted EBITA margin) is to reach 14 to 18 %. 

 

Smart Infrastructure has a clear plan to boost growth. First, SI intends to strengthen its product business, particularly in Asia. Second, its attractive service business is to be expanded. Third, SI intends to intensify its activities in future-oriented fields such as electric mobility infrastructure, distributed energy systems, smart buildings and energy storage – also by leveraging the increased use of digitalization solutions. These steps are expected to generate annual revenue growth of four to 5% across SI's entire portfolio. As a result, SI wants to hire up to 6000 new employees by 2023 – above all, in services, research and development, and sales.

Digital Industries intends to strengthen its businesses in industrial digitalisation. The goal is to grow 25 % faster than the market. As a result, up to 12 000 new employees are to be hired worldwide, primarily in production, research and development, and sales. Profitability will be optimised, for example, through the integration of two former Divisions, the improvement of internal processes in areas such as logistics, simplified controlling and the increased use of the company's own industrial software portfolio. These measures will also have a structural impact on jobs since different qualifications will be required in some cases. Up to 4900 jobs worldwide will be affected by the measures. DI's management expects to incur restructuring charges of €300 million by 2023. All in all, DI expects additional growth to generate about 7000 jobs by 2023.

 



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