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Siemens to spin off oil and gas unit, cut 10,000 jobs in massive overhaul
[BERLIN] German industrial conglomerate Siemens said Tuesday it plans to spin off its struggling gas and power unit to prepare it for a potential stock market listing next year. Meanwhile, Siemens will also cut more than 10,000 jobs at its core divisions in a sweeping overhaul.
The division to be carved out comprises its oil and gas, conventional power generation, power transmission and related services businesses.
Siemens' Gas and Power (GP) unit is to be "given complete independence and entrepreneurial freedom through a carve-out and a subsequent public listing", Siemens said in a statement.
The GP unit with 44,000 employees in 2018 booked sales worth 12.4 billion euros (S$18.9 billion) and 377 million euros in profit.
The unit will be spun off into a separately managed company and listed by September 2020, according to a statement Tuesday. Siemens will retain “somewhat less than 50 per cent” of the new entity, which will include its 59 per cent stake in Siemens Gamesa Renewable Energy, creating a company with 30 billion euros ($33.5 billion) in business volume.
Siemens aims to keep “significant influence” in what it called a “powerful pure play” in energy and electricity. The division has operations spanning oil and gas as well as conventional power generation and transmission, while Siemens Gamesa develops wind farms and makes renewable energy equipment.
But its profitability is declining year on year, due to falling demand for power plant equipment as a result of the global shift from fossil fuels to renewable energy.
The Munich-based parent company said it plans to give up its majority stake in GP and is preparing for a stock listing by September 2020.
A union representative confirmed there was debate between unions and executives on whether to sell or list the GP business.
“In a joint venture with, for example, a Japanese competitor, we would have seen too great a risk,” said Birgit Steinborn, chief employee representative on the supervisory board, adding that labor groups “achieved” a plan for a spinoff in Germany.
Bloomberg News reported in March that Mitsubishi Heavy Industries was in talks with Siemens on a possible combination of the gas turbine business with its own operations, and that the German company also had discussions with other firms on a full or partial sale of the division.
GE was the top producer of gas turbines last year, with about 33 per cent of global orders by capacity, according to Barclays Plc. Mitsubishi Hitachi Power Systems followed with 30 per cent, while Siemens was third with 26 per cent.
GP was once an earnings driver for Siemens before a collapse in orders. The Munich-based company in 2017 announced more than 6,000 job cuts at the unit and closed several sites. Siemens CEO Joe Kaeser has said repeatedly that more needs to be done to secure a future for the business.
Siemens would increasingly focus on digital industries and smart infrastructure as well as its health and mobility units under its Vision 2020+ strategy.
Mr Kaeser said the goal was "further sharpening Siemens' focus and making our businesses faster and more flexible".
Key growth areas would include electric mobility infrastructure, distributed energy systems, smart buildings and energy storage, the company said.
Siemens AG said it also plans to contribute its majority stake in the renewable energies company SGRE, currently at 59 per cent, to GP.
However, the parent company plans to "remain a strong anchor shareholder in the new company".
Its stake would be "initially somewhat less than 50 per cent and, for the foreseeable future, above the level of a blocking minority holding".
Mr Kaeser said the move will create a player 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".
"Combining our portfolio for conventional power generation with power supply from renewable energies will enable us to fully meet customer demand," he said.
"It will also allow us to provide an optimised and, when necessary, combined range of offerings from a single source."
In separating out the GP unit, Mr Kaeser is further chipping away at Siemens’s conglomerate structure. The executive previously brought the health-care division to market, merged the wind power unit with a Spanish competitor, and tried - and failed - to merge its train unit with French rival Alstom SA. The rail deal was blocked by European antitrust regulators.
The gas and power unit has been among the weakest of Siemens’s divisions, reporting lower orders and profitability as utilities buy fewer large turbines amid a global shift to renewable energy.
Its separation and planned listing is expected to form the bulk of Siemens’s presentation to shareholders and analysts at a capital markets day on Wednesday, when the company also reports second-quarter earnings.
"The decision on the carve-out of gas and power was anything but easy,” said Juergen Kerner, who represents the IG Metall labor union on Siemens’s supervisory board. “The division is one of Siemens’s core businesses, but a growth strategy under Siemens is still not feasible.”
In addition to the structural revamp, Mr Kaeser also unveiled job reductions at its core divisions to save about 2.2 billion euros by 2023. These include 4,900 cuts at digital industries, 3,000 at so-called smart infrastructure and 2,500 jobs at its central corporate unit. At the same time, Siemens plans to hire about 20,500 new employees.