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- About 1/6 of all electricity generated in the world is based on Siemens Energy technology
- Leading portfolio of conventional to renewable energy
- Clear commitment to accelerate profitability by rigorously driving operational excellence, portfolio adjustments, and gradually shifting the focus of innovation to sustainability and service
- Clear target for adjusted EBITA margin (before Special Items) of 6.5% to 8.5% for the fiscal year 2023
At a virtual Capital Market Day, Siemens Energy, a global leader in energy infrastructure, presented its post-spin-off strategy today. Siemens Energy aims for accelerated profitable growth. Management wants to achieve an adjusted EBITA margin before Special Items of between 6.5% and 8.5% for the fiscal year 2023. The Executive Board is committed to driving operational excellence, adjusting the portfolio to meet market demand, and gradually shifting the focus of innovation and R&D to sustainability and service.
“The separation of the energy business is an important milestone in implementing our strategic concept Vision 2020+. We have created a leading independent energy company with a strong brand and the most comprehensive offering in this segment. With this, Siemens Energy is best equipped to lead the global energy transformation in a sustainable and economically viable way. The new Siemens AG, in turn, will become a transparent company significantly free of risks. With its core businesses Digital Industries, Smart Infrastructure, and Mobility, the company will play a significant role in shaping industrial digitization, referred to as Industry 4.0,” said Joe Kaeser, CEO of Siemens AG.
Relevant Player to Ensure Sustainable Energy Supply in the Future
Siemens Energy will become independent at a time characterized by fundamental changes in energy systems worldwide. The balance between fossil fuels and renewable energy sources is shifting. At the same time, about 850 million people still live without access to electricity. According to studies, global demand for electricity generation will increase by more than 50% by 2040. One of the main challenges for societies, as well as for companies around the world, is to meet the growing energy demand while protecting the climate – and doing so in an economically viable way.
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Due to the richness of its portfolio and cutting-edge technology, Siemens Energy is well positioned to meet different customer and societal requirements. With 91,000 employees in over 90 countries, the company is a global leader in nearly all segments of the energy value chain. It is estimated that 1/6 of all electricity generated is based on Siemens Energy technology, confirming that it is an extremely relevant company to ensure future sustainable energy supplies.
Christian Bruch, President and CEO of Siemens Energy, said: “Siemens Energy is a mirror of the current energy world. Our products, solutions, comprehensive and diverse services enable us to meet the growing global energy demand while also supporting efforts to reduce greenhouse gases. This puts us in an ideal position to serve our customers in the energy transition.”
Courage for Temporary Solutions
The growing demand for energy needs to be met ecologically – sustainably, affordably, and reliably. However, the energy market transformation starts at a wide range of different points and progresses at different speeds. It depends on the economic development and political agendas of individual countries, as well as their access to energy sources.
“The challenge our customers face is to convert their facilities into a more sustainable setup. But we also need to face the fact that this transformation will not happen overnight. There are still over 850 million people worldwide without access to electricity. So, the question is how to turn this gap into an affordable, reliable, and sustainable energy supply,” said Christian Bruch, President and CEO of Siemens Energy. “What we need, therefore, is the courage to find temporary solutions that make us better today, based on available technologies, such as greater efficiency or using clean fuels. At the same time, we need to continue to use innovative technologies to ensure that we do not get stuck with interim solutions. Siemens Energy is the right partner to tackle all these challenges.”
Industry Leader in Decarbonization
When it comes to decarbonization, Siemens Energy is the industry leader: more than 50% of its portfolio is already decarbonized. Its broad portfolio includes products that enable the energy transition, such as hybrid plants and gas turbines that can be operated with hydrogen. Siemens Energy is also an important player in wind energy and invests in the hydrogen economy. Its SF6-free transmission portfolio is market-leading. With the help of products from Siemens Gamesa Renewable Energy (SGRE), customers are already saving more than 260 million metric tons of greenhouse gases per year.
ESG (Environmental, Social, Governance) is a fundamental aspect of Siemens Energy’s strategy. The company is committed to the UN SDGs and aims to achieve climate neutrality in its own operations by 2030, while setting strict goals for employee health and safety. Additionally, inclusion and diversity are key elements of Siemens Energy’s sustainability strategy. In terms of gender diversity, the Executive Board is committed to increasing the number of women in leadership positions in the first two organizational levels below the Executive Board by at least 25% by 2025 and by at least 30% by 2030.
Accelerated Profitability
The Executive Board aims to accelerate profitability globally by vigorously driving operational excellence, making portfolio adjustments to meet market demands, and gradually shifting towards sustainability and services.
Christian Bruch, President and CEO of Siemens Energy, states: “Siemens Energy is a great company to tackle the global challenge of energy supply and transition; however, our performance needs to improve. The goal is to increase our adjusted EBITA margin before Special Items from 6.5% to 8.5% for the fiscal year 2023.”
In the first phase of the strategy, the focus of Siemens Energy’s Gas and Energy segment is on increasing profitability and cash flow by the fiscal year 2023. Among the most important motivating factors for operational excellence, the company is evaluating a leaner cost structure, optimized logistics, centralized purchasing, and reducing non-compliance costs. For example, Siemens Energy has recently streamlined its offering of aeroderivative gas turbines. Additionally, the company is currently analyzing a potential exit from its coal-fired power generation business, which generates substantial CO2.
Another lever in the Gas and Energy segment will be a rigorous focus on project selection and better execution. Projects with a negative lifecycle margin will be continuously eliminated, and bidding processes will be more selective to improve margin in the project business. The organization is currently evaluating operational excellence initiatives aimed at achieving an additional gross annual cost saving of over €300 million, above the already announced savings target of €1 billion by the fiscal year 2023, compared to the cost base of the fiscal year 2018.
Services Segment as a Key Value Driver
At the center of Siemens Energy’s future value creation is the services business, with high conversion rates of up to 100% (the latest in large high-efficiency gas turbines). Siemens Energy’s Services business is highly resilient and is based on its large installed base and long-term service contracts, generating revenues of €9.5 billion in the fiscal year 2019. Still in the fiscal year 2019, 51% of the Division’s Generation revenue was linked to services; in Industrial Applications, the contribution to revenue was even higher, around 60%. In Transmission, Services come from a small base but are growing similarly to SGRE (Siemens Gamesa Renewable Energy). Overall, the service order book for the Siemens Energy Group segments was €48 billion as of June 30, 2020.
Leading Energy Transformation Through Innovation
Siemens Energy will change its R&D spending based on strict return criteria focusing on services and sustainability, the two main value drivers in the ongoing energy transformation. The annual spending of €1 billion on R&D, along with the fact that the Group has a portfolio of over 24,000 patents and utility models, and employs approximately 5,000 people in R&D, highlights the importance of innovation for Siemens Energy.
Strong Financial Base with Significant Growth Potential
Siemens Energy has a solid financial foundation. The Group received liquidity equivalent to about €6.4 billion, resulting in a Siemens Energy net cash position (excluding the SGRE business activities) of around €2.2 billion, and a substantial order book of €82 billion, both as of June 30, 2020. Siemens Energy demonstrated resilience in the fiscal year 2019, with orders amounting to €33.7 billion generated across the group and a total revenue of €28.8 billion, resulting in a solid book-to-bill ratio of 1.2. The main financial KPI in the Group’s earnings release is Adjusted EBITA before Special Items, which increased from €1.46 billion in the fiscal year 2018 to €1.52 billion in the fiscal year 2019, of which €0.8 billion was generated by the Gas and Power segment. For the fiscal year 2023, Siemens Energy aims for an Adjusted EBITA margin before Special Items of between 6.5% and 8.5%.
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