Industrial goods manufacturer Siemens AG (SI) recently dismissed speculations of a likely divestment of its Infrastructure & Cities (I&C) business due to low profitability in fiscal 2013 owing to project delays and restructuring initiatives. On the contrary, Siemens expects the beleaguered segment to return to optimal profitability levels in the current fiscal and hit the low end of its profit target as well.
In fiscal 2013, I&C segment recorded earnings before interest, tax, depreciation and amortization (:EBITDA) margin of 3.7%, which was well below the set target range of 8%-12%, thereby becoming the least profitable business among all its operating segments. This fueled talks of a probable divestiture of the segment – in tune with its “Siemens 2014” program targeted at sustainable value creation.
Through this program, Siemens aimed to raise its Total Sectors profit to at least 12% by fiscal 2014. During the first year of implementation, the company expects moderate order growth and revenues almost at the level of fiscal 2012, both on organic basis. Income from continuing operations during the first year of implementation is expected to be in the range from €4.5 billion to €5.0 billion, including the effect of retrospective adoption of IAS 19R. This also includes charges of about €1.0 billion for program-related productivity measures in the Sectors, with the productivity gains that are expected to be generated in fiscal 2014.
The just-published annual report made it clear that Siemens has no intention to divest the I&C segment. Instead, the company emphasized that it expected all the operating segments to be in their respective margin corridors in fiscal 2014.
The I&C segment comprises various technologies and businesses under one roof in order to offer cities and customers innovative and sustainable solutions. The business portfolio includes transportation, logistics, building, and smart grid technologies to improve energy efficiency, infrastructure productivity and quality of life. Cities are among the most important customers, representing an area where Siemens expects strong growth potential. Sustainable urban infrastructures are just as important for rapidly growing mega cities as they are for large and medium-sized cities all over the world. As an integrated technology organization, the I&C Sector builds on a large portfolio of green infrastructure technologies to meet the needs of its customers.
Siemens currently has a Zacks Rank #3 (Hold). Other players in the industry worth reckoning include Garmin Ltd. (GRMN), Control4 Corp. (CTRL) and Mistras Group, Inc. (MG), each carrying a Zacks Rank #2 (Buy).
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