Updated: Siemens Spinning Off Gas And Power Division

Editor’s note: The story has been updated with more information about the new company’s headquarters.

Siemens will spin off its Gas and Power division in the hopes of meeting medium-term growth and profit targets by clearly focusing its portfolio on dynamic growth markets and efficiency gains.

Siemens’ Gas and Power – comprising the company’s oil and gas, conventional power generation, power transmission and related services businesses – is to be given complete independence and entrepreneurial freedom through a carveout and a subsequent public listing (spinoff). In addition, Siemens AG plans to contribute its majority stake in the market-leading renewable energies company SGRE – currently 59% – to GP. Plans call for the stock exchange listing to take place by September 2020. Siemens will also give up its majority stake in GP.

With the Gas and Power spinoff, Siemens said it will remain a strong anchor shareholder in the new company, with a stake that is to be initially somewhat less than 50% and, for the foreseeable future, above the level of a blocking minority holding. Siemens said it will continue to support the new company, for example, through the professional services of Siemens’ Financial Services, the sales network of the Siemens Regions and the licensing of the powerful Siemens brand. A decision regarding the spinoff and subsequent public listing is to be made at an extraordinary shareholders’ meeting, probably in June 2020. Siemens will then deconsolidate both the new GP and SGRE.

“This move will create a powerful pure play 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,” said Joe Kaeser, president and CEO of Siemens AG. “Combining our portfolio for conventional power generation with power supply from renewable energies will enable us to fully meet customer demand. It will also allow us to provide an optimized and, when necessary, combined range of offerings from a single source. We’re convinced that this strategic decision will be positive for all participants and enable long-term value creation for customers, employees and shareholders – as can also be seen in recent market successes such as those in Iraq, which we’ll jointly continue to pursue,” added Kaeser.

“Being independent will enable us to more effectively leverage our position of strength to further support our customers in rapidly changing energy markets,” said Lisa Davis, CEO of Siemens’ Gas and Power. “Global electrification continues to be vital to economic and environmental progress around the world, and as the only company with a leading portfolio along the entire energy value chain – in both conventional and renewable energy – we are uniquely able to help both public- and private-sector customers benefit from these developments. We’ll now have more freedom and agility to be able to concentrate fully on the highly specific and quickly changing requirements of our markets and customers. In addition, we’ll be able to more directly control our costs and ensure that our stakeholders benefit directly from every euro we spend,” explained Davis.

The company’s moves “are laying the foundation for sustainable economic success in growth markets that will be attractive over the long term. We’re also creating solid perspectives for those businesses that have to prove themselves in the structural transformation now underway and address new growth fields,” Kaeser said. “The success of Siemens’ businesses of the next generation will be determined by new factors. Breadth, size and a ‘one size fits all’ approach will be replaced by focus, speed and adaptability. That’s how we’ll ensure sustainable success of our businesses in the age of the digital Fourth Industrial Revolution, in which these new factors are crucial to compete.”

Kaeser emphasized that Siemens was setting the course for the future from a position of strength and was excellently positioned. In the growth markets of automation, industrial digitalization and smart infrastructure, Siemens wants to grow significantly and further expand its leading position.

In April, Siemens announced it had been chosen as the main partner in the first phase of four planned to develop power generation projects in. Siemens and GE had been vying for the lucrative deal, which could be worth up to US$15 billion. Trump administration officials actively lobbied Iraqi officials on GE’s behalf.

The first phase, worth U.S.$1 billion, is “signed, sealed and delivered,” Kaeser said. “Now that of course is only 1 out of 14, but 0 out of 14 is much worse.”

Kaeser said the second phase is worth US$2.5 to US$3 billion and that Siemens has a “significant head start” on other competitors.

The process has been an “astounding mix of geopolitical and national and economic interests that don’t necessarily foster innovativeness, competitiveness or profitability,” said Kaeser, who noted that U.S. Secretary of State Mike Pompeo had cancelled a planned visit to Germany and instead travelled to Iraq for discussions about Iran.

“I would assume he had his reasons,” Kaeser said. “Now of course you could start interpreting quite interesting things into that…”

From the discussion of the Iraqi project, Kaeser segued into a discussion about where the new company will be headquartered. Although the company, which is expected to have 80,000 employees globally, will be listed in Germany, that doesn’t mean that’s where the headquarters will be, Kaeser said. The current division is now headquartered in Houston, Texas, but Siemens will look factors including location and talent supply, and such things as political involvement and other influences, Kaeser said.

“At the same time, in these sorts of businesses you also have political involvement and influences and the question is who supports this business best?” Kaeser said. “We will have to simply clear and clarify certain things.

“I guess a lot of locations will apply for the HQ location for this new company, and I think there’s going to be a lot of opportunities for work.”

Siemens’ future

The Digital Industries (DI) and Smart Infrastructure (SI) Operating companies will comprise Siemens’ future industrial core. This core will be supplemented by company-wide technology and service units and the company’s strategic majority stake in Siemens Healthineers, the company said. Siemens Mobility is also to be further strengthened as a growth business, the company said.

Kaeser emphasized that Siemens was setting the course for the future from a position of strength and was excellently positioned. In the growth markets of automation, industrial digitalization and smart infrastructure, Siemens wants to grow significantly and further expand its leading position.

“The success of Siemens’ businesses of the next generation will be determined by new factors,” Kaeser said. “Breadth, size and a ‘one size fits all’ approach will be replaced by focus, speed and adaptability. That’s how we’ll ensure sustainable success of our businesses in the age of the digital Fourth Industrial Revolution, in which these new factors are crucial to compete.”

The Supervisory Board unanimously supported the realignment measures. The employee representatives on the Supervisory Board also approve the plan.

Siemens said it will significantly improve its cost effectiveness across all areas of the company. The goal is to strengthen competitiveness and productivity and thus increase both the annual revenue growth rate and the profit margin of the company’s Industrial Business by two percentage points over the medium term. Basic earnings per share are to grow faster than revenue over the medium term. Over the long term, the profit margin of the industrial core business (adjusted EBITA margin) is to reach 14 to 18%.

Kaeser stressed that Siemens has many options and plenty of time available for its rail unit, Siemens Mobility.

Siemens tried to combine Mobility with Alstom, but scrapped the deal earlier this year as antitrust concerns mounted.

The Digital Industries (DI) and Smart Infrastructure (SI) Operating Companies will comprise Siemens’ future industrial core. This core will be supplemented by company-wide technology and service units and the company’s strategic majority stake in Siemens Healthineers. Siemens Mobility is also to be further strengthened as a growth business.

Siemens said it will significantly improve its cost effectiveness across all areas of the company. The goal is to strengthen competitiveness and productivity and thus increase both the annual revenue growth rate and the profit margin of the company’s Industrial Business by two percentage points over the medium term. Basic earnings per share are to grow faster than revenue over the medium term. Over the long term, the profit margin of the industrial core business (adjusted EBITA margin) is to reach 14 to 18%.

Siemens previously tried to combine its train unit with French rival Alstom The rail deal was blocked by European antitrust regulators.