Mr Kaeser’s job is to get the engineering giant set up by Werner von Siemens more than 170 years ago ready for the digital age. A full break-up may not be necessary. A partial split may be unavoidable.
A closer look at Siemens’ nine divisions reveals a discouraging picture. Net profits fell 46 per cent to €681m in the fourth quarter in November as it booked €301m in severance charges for its troubled power and gas unit. This left full-year group net income flat at €6bn.
Put aside falling sales of large gas turbines, and there were jewels in the dust. Take the digital factory unit. Its software allows designers and manufacturers to work faster and more cheaply. In the fourth quarter alone, profits were up 28 per cent at €616m, with a profit margin of 18.1 per cent. Other gems include Healthineers. Shares in the medical technology group have risen 22 per cent since Siemens spun out a 15 per cent stake this year.
The conglomerate discount for Siemens could be as high as 40 per cent, according to broker Jefferies. It is easy to see how analysts can get to a figure as high as that. Apply the 22 times forward earnings multiple enjoyed by rivals such as Rockwell Automation to the digital factory unit. The enterprise value for that division alone is then nearly €50bn.
Price the other divisions against rivals and the equity of Siemens could be worth about €115bn if broken up. That would mean the current structure is costing shareholders about €30bn.
The downside of a full break-up — aside from political outrage — would be greater volatility of component units. Even so, Mr Kaeser’s plan to slim down to six businesses should be no more than a starting point. Siemens’ home city of Berlin is a magnet for new start-ups. The group needs the same agility. The travails of US peer General Electric stand as a terrible warning.
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