Munich Roland Busch chose big words when he presented his first balance sheet as Siemens boss. “It was an outstanding, historic year for Siemens – and not just because of the great result,” said the 56-year-old on Thursday
In a difficult environment, Germany’s largest technology group once again exceeded the profit forecast, which had been raised several times in the 2020/21 financial year (September 30), and increased sales and earnings by a double-digit percentage. In the current year, despite Covid and bottlenecks in the supply chains, things should continue to rise from the high level, albeit at a somewhat slower pace.
Of course, Busch praised the teamwork. But he also made his mark on the company in his first year at the helm. There is a “completely new spirit” under the engineer Busch, says a Siemens manager – with an even stronger focus on technology and innovations.
Predecessor Joe Kaeser had radically rebuilt the traditional group together with his Chief Technology Officer and Vice Busch. Medical technology was listed on the stock exchange as Siemens Healthineers, followed by the split-off energy technology as Siemens Energy.
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The remaining Siemens AG has since focused on industrial automation and software, on intelligent infrastructure with building technology and the rail sector mobility. In addition, there is the majority stake in the Healthineers.
Busch does not feel pressured by the decision of the former arch rival General Electric to split up. GE boss Lawrence Culp announced a few days ago that the aviation, energy and health sectors would each be listed independently on the stock exchange. The stock exchange responded enthusiastically.
Could that increase the pressure on Siemens to split up further and, for example, separate rail technology? “We’re actually two steps ahead,” said Busch. Years ago, from a position of strength, Siemens took the steps that GE is now taking. “I don’t see any need to change anything in our strategy.” Siemens is now a focused technology company.
So while Kaeser split up, his successor Busch now wants to hold the remaining core areas together and create synergies. Small portfolio roundings will of course continue. Busch confirmed information from the Handelsblatt that the business with large drives will be made independent.
Less delivery problems
So far, the course has also paid off. In fiscal year 2020/21 (September 30), Siemens increased sales by a comparable eleven percent to 62.3 billion euros. The net profit improved by 59 percent to 6.7 billion euros. The dividend is to be increased from EUR 3.50 to EUR 4.00.
Siemens did better than many of its competitors. Rockwell Automation, a focused competitor that they are looking closely at in Munich, was able to increase sales in fiscal year 2020/21 (September 30) on a comparable basis by only around seven percent to almost seven billion dollars. The operating margin was just under 20 percent.
A few weeks ago, competitor ABB even lowered its forecast for the year as a whole, which it had only raised in the summer. The Swiss now expect a comparable increase in sales of six to eight percent for 2021 instead of just under ten percent previously. “The scarcity of supply chains goes beyond individual components. It hits us harder than we expected, ”said ABB boss Björn Rosengren.
Siemens obviously has less to contend with delivery problems. “We will continue with this momentum in fiscal year 2022,” said Busch. Siemens could benefit “from the major growth drivers of digitization and sustainability”.
In the current financial year, sales are expected to increase further by around five percent. Earnings after taxes per share, before effects from the purchase price allocation, are expected to rise from EUR 8.32 to EUR 8.70 to EUR 9.10.
It is not surprising that Siemens is now preparing for somewhat more moderate growth rates. On the one hand, some customers may have topped up their stocks to be on the safe side. In addition, the risks are growing. The forecast is based on the assumption that “the challenges for our businesses from Covid-19 and bottlenecks in the supply chains will subside in the course of the 2022 financial year,” it said.
In the fourth quarter of 2020/21, revenues grew by a comparable ten percent to 17.4 billion euros. The operating result fell by 14 percent to 2.3 billion euros, also due to a one-off effect in the same period of the previous year.
Kaeser laid the foundations for the current success, says Andreas Föller, founder of the personnel consultancy Comites. He was also one of the few top executives “who took the social dimensions of this task very seriously”.
But the successor has to find his own style. “The factual, rather reserved, the focus on the professional tasks, that is absolutely correct in the complementarity.”
In fact, for example, Busch is much more cautious about political issues than his predecessor Kaeser. In the first few months as boss, he attached great importance to internal management issues: for example, he enforced flatter hierarchies and tried to break down internal company silos.
The mood in the group is good overall, says a supervisory board. Busch’s new style is well received; he is serious about teamwork and error culture. However, there is currently a run – and that is always good for the mood.
Busch’s big issue is speed. Siemens must react more flexibly to the disruptive changes in the markets. “We have to become even more agile and faster,” he said recently at an internal management conference.
Growth spurt also through the separation of energy technology
A few months ago he raised the medium-term targets accordingly. The group is now expected to grow by an average of five to seven percent per year over the business cycles. The software and digital solutions business is expected to grow in double digits.
At least in the past fiscal year, the acceleration was successful. The flagship division Digital Industries, which is active in particularly short-cycle markets, was able to increase sales by a comparable 13 percent to 16.5 billion euros. The margin was an impressive 20.4 percent.
Internally, one of the biggest concerns is that the organization could now rest on the good numbers. “The starting level is now very high,” says a Siemens manager. Now it is crucial to keep the tension.
With all the growth figures that Busch presented on Thursday, one thing should not be forgotten: The fact that things are going so well at the newly established Siemens Group is also due to the fact that energy technology, a low-margin area, was spun off last year. The new Siemens Energy suffered heavy losses in the past fiscal year.
Freed from this burden, Siemens was able to increase its operating profit in 2020/21 by 17 percent to EUR 8.8 billion. The adjusted operating margin rose from 14.3 to 15.0 percent – a value that could not have been achieved with the energy technology in the portfolio.
Kaeser’s and Busch’s calculation: The higher margins in the group should lead to a reassessment by the capital markets as an IT and software group. So far, the bill has only partially paid off.
The Siemens share has gained around 20 percent this year and thus developed slightly better than the Dax. But a real reassessment cannot yet be deduced from this. On Thursday, the price rose by almost two percent to 149 euros. Above all, the free cash flow was “super strong” with a record value of 8.2 billion euros, praised JPMorgan analyst Andreas Willi.
The decisive factor for the investors will be how well Siemens manages the switch to “Software as a Service”. This step stabilizes sales, but for a short time they are lower because a license fee is not posted in one fell swoop. In addition, customers have to be willing to participate.
“The changeover is an opportunity for Siemens to expand the addressable market and, in particular, to win new customers in the medium-sized and small business sector,” said fund manager Vera Diehl from Union Investment. Siemens shareholders would “need a lot of patience and will probably have to wait another three to four years for significantly higher sales and the associated increase in margins”.
Personnel consultant Föller is also convinced: “Naturally, the assessment of the major decisions will only be able to be made in a few years.” Busch positions himself as someone “who delivers more than he promises”. But that builds up expectations for the future.
More: Siemens boss Busch swears his managers to a faster pace.