Siemens CEO sees political upheaval threatening orders

19th August 2016

By: Bloomberg

  

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Fresh from raising the earnings outlook for a second time this year, Siemens AG CEO Joe Kaeser struck a more cautionary tone for the German engineering company, saying rising political uncertainty in countries like the UK and Turkey is clouding prospects for keeping the order books full.

“Uncertainties will create restraint and restraint will weaken the investment climate,” the CEO said at a August 4 press conference in Munich about third-quarter earnings. “At the end of the day, this will mean that we will receive fewer orders.”

Kaeser’s worries about the future came as the company with employees in 200 countries painted a rosier picture of operations in the latest quarter, when it raised its full-year outlook after a 20% jump in profit. Yet, just as the reporting period was ending, the UK voted to leave the European Union (EU), Turkey had a failed military coup and France and Germany were rocked by deadly terrorist attacks.

The resulting unpredictability arising from these events will be taken into consideration when Siemens provides an outlook in November for the next fiscal year, Kaeser said.

While he did not provide clues about that future guidance, contracts for heavy equipment like trains and electricity-generating gas and wind turbines are key to future growth and profitability.

At the end of June, Kaeser had in hand the company’s largest-ever order backlog at €116-billion. For the eleventh straight quarter, Siemens’ book-to-bill ratio was above one, meaning it was taking orders for more products and services than it delivered.

“The prioritisation of order generation is now higher with him being at the helm,” said MainFirst analyst Daniel Gleim. “This is clearly bearing fruit and in my opinion this is going to continue.”

To allow the pipeline to grow, Siemens will need to bag more contracts like an $800-million agreement to supply turbines and generators for a gas-fuelled power plant in Ohio, the US, and another for wind turbines for the East Anglia ONE offshore wind farm off the English east coast.

Siemens, which has some 14 000 employees in the UK, warned against the consequences of Britain leaving the EU ahead of the June 23 Brexit referendum. In an interview with Bloomberg TV, Kaeser said he and other senior company managers went to the country two days after the vote to urge politicians for “clarity” on the plans.

“We made it very clear that we are there for our customers, we are there to stay and there is no change in plans for the current projects,” the CEO said. Once the conditions for a British exit from the EU are known, “we’ll look at it, and may or may not reconsider, but we need to have clarity”.

Kaeser also warned about the situation in Turkey, another hot spot for the company, where a failed attempt last month to overthrow President Recep Tayyip Erdogan led to hundreds of deaths and sparked a purge of thousands of teachers, judges, police and military personnel.

“Turkey is an important market for Siemens,” Kaeser said. “After the current events, we can no longer reliably assess how the country will develop in the long term.”

Edited by Bloomberg

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