Siemens (NYSE:SI) unveiled a massive reorganization today that could be the 1st step toward a spinout for its healthcare business, which posted 19% profit growth during Siemens’ fiscal 2nd quarter.
The restructuring will see the German industrial giant flatten is business, eliminating a layer of management at the sector level and consolidating its 16 divisions into 9. Siemens also said it plans to spin out its 4,000-employee hearing aid business into a public company as part of the move, dubbed "Vision 2020."
The streamlining, aimed at generating annual savings of €1 billion, or roughly $1.4 billion, is also slated to include a consolidation of support functions such as human resources and communications, Siemens said. The changes are expected to be fully in place by the close of fiscal 2016, according to a press release.
"Our Vision 2020 addresses our company’s long-term perspectives along the modern electrification and automation value chains. By expanding share-based employee participation in our company’s success, we’re creating a sustainable ownership culture at Siemens," president & CEO Joe Kaeser, who took over last year after the surprise ouster of Peter Loescher, said in prepared remarks. "The 2nd quarter showed that we still have a lot to do to improve our operating performance. Nevertheless we are on course to reach our targets for the fiscal year."
The announcement may have signaled Siemens’ spinout intentions regarding Siemens Healthcare, which reported profits of €531 million ($739.6 million), on sales of €3.26 billion during the 3 months ended March 31, for profit growth of 19.3% on a sales decline of -0.7%.
"In the future, Siemens AG will position itself along electrification, automation and digitalization, where it has identified growth fields in which it sees its maximum long-term potential," the company said. "In addition, the healthcare business will be separately managed in the future. This will give Healthcare greater flexibility on the medical engineering market, which is characterized by fundamental changes and paradigm shifts. … Healthcare will remain under the leadership of Hermann Requardt, member of the managing board of Siemens AG, who will manage this unit as a separate business within Siemens AG in the future."
Siemens said healthcare’s profit gains were largely due to a €66 million ($91.3 million) gain on the expected sale of a particle therapy installation. The company put Siemens Healthcare’s top-line drop down to "declines in the Americas region for both revenue and orders and in the Asia, Australia region for orders." Adjusted to account for foreign currency translation, revenues rose 5%, according to the release.
Siemens reported overall profits of €1.15 billion ($1.61 billion), or €1.32 per share ($1.84), on sales of €17.45 billion ($24.30 billion), for a bottom-line gain of 11.9% on a -1.9% sales slide. The company said it expects to report adjusted EPS growth of "at least" 15% for fiscal 2014
"We expect our markets to remain challenging in fiscal 2014. Our short-cycle businesses are not anticipating a sustainable recovery until late in the fiscal year," according to the release.
