MUNICH (Reuters) - Siemens (SIEGn.DE) unveiled its new Vision 2020+ strategy on Wednesday - a move designed to boost the German engineering group’s profitability in an era where sprawling conglomerates are increasingly unloved by investors.
The overhaul - which sees its five industrial divisions combined into three operating companies - is designed to simplify the trains to turbine company and make its structure leaner.
Under the changes, Siemens, which is due to report its latest earnings on Thursday, said it expects to increase the annual growth rate and profit margin of its industrial business by two percent over the medium term - defined as the next three to five years.
It also aims to increase its basic earnings per share at a faster rate.
Siemens said it would ramp up its investment in the internet of things, electric mobility and digitalization. An early sign of this came on Wednesday when it also announced it was buying U.S industrial software company mendix for 600 million euros ($700 million).
The changes come as large conglomerates have become increasingly unfashionable with investors who favor pure-play companies which have had better share price and sales growth over the last five years, Goldman Sachs noted in a recent report. Siemens’ rivals like ABB (ABBN.S) have come under pressure from activist investors to spin off weaker performing units, while General Electric (GE.N) is reported to be seeking a buyer for its digital assets. Siemens’s share price has gained 2.9 percent in the year to August 1, one third of the gain made by the Stoxx 600 Industrial Goods & Services Index .SXNP
Under the changes, Siemens will reorganize into three operating companies - “Gas and Power”, “Smart Infrastructure” and “Digital Industries” – to give its individual businesses “more entrepreneurial freedom,” the company said.
The new units would work alongside Siemens’ so-called “Strategic Companies” - Siemens Healthineers, Siemens Gamesa and the planned Siemens Alstom train unit, where it has already reduced its ownership.
Under the new strategy, which replaces Siemens’ Vision 2020 plan unveiled in 2014, the Munich-based company is targeting a higher profit from the current range of 11 to 12 percent.
“It would be irresponsible to rest on our laurels now. The speed and power of global changes are increasing, and it’s our obligation to anticipate them. We’re convinced that this is the right time to sustainably shape our future,” Chief Executive Joe Kaeser said in a statement.
The changes are designed to meet the digital revolution transforming industry and is Kaeser’s last chance to significantly change the company before he steps down in 2021.
The plan will go into effect from the start of Siemens’ new financial year on Oct. 1 and aims to be completed by the end of March 2019.
Siemens said its corporate headquarters functions would be leaner as a result of tasks being outsourced, but gave no details of job losses.
Workers at Siemens warned that staff must not bear the brunt of the revamp and should be offered reliable future employment prospects, Siemens labor boss Birgit Steinborn said in remarks emailed to Reuters.
Juergen Kerner, a member of IG Metall union’s executive board and Siemens’ controlling panel, said workers will continue to resist any moves by Siemens to adopt a holding structure.
“For the workers at Siemens, it’s important that the realignment will occur under the roof of Siemens AG,” Kerner said. “The filleting of companies with a broad portfolio is currently a popular game of the so-called financial markets but a company like Siemens can act by its own strength.”
Reporting by John Revill; additional reporting by Alexander Huebner; Editing by Andreas Cremer and Adrian Croft