Siemens Benefits from Weak Euro in Fiscal 2015, as Orders See 15% Jump in Fourth Quarter

Researched by Industrial Info Resources (Sugar Land, Texas)--Industrial equipment-manufacturing juggernaut Siemens AG (NYSE:SI) (Munich, Germany) incurred a heavy impairment charge in fourth-quarter 2015, which took a chunk out of profits and obscured a success story: the company saw a solid 15% jump in orders, as customers took advantage of a weak euro. Industrial Info is tracking $147.69 billion in active projects involving Siemens.

Among the projects tracked are three offshore windfarms in the U.K.: the $2.01 billion, 402-megawatt (MW) Dudgeon windfarm near Cromer, England, which is under construction; the $2.28 billion, 336-MW Galloper windfarm near Leiston, England, now in the engineering phase; and the $2.25 billion, 450-MW Neart na Gaoithe windfarm near St Andrews, Scotland, also in the engineering phase. The project owners, respectively, are Statoil ASA (NYSE:STO) (Stavanger, Norway), RWE Innogy UK (Swindon, England) and Mainstream Renewable Power (Dublin, Ireland).

Siemens also booked a 1.2 billion-euro ($1.3 billion) order for an offshore windfarm in Germany during the quarter. The Industrial Business segments now have a 110 billion-euro ($118.89 billion) order backlog.

Total profits fell to 959 million euros ($1.03 billion) in the third quarter, a 33.68% decrease from fiscal fourth-quarter 2014; however, revenues totaled 21.33 billion euros ($23.05 billion), a 4.35% increase from the same period last year. Currency effects, which have been largely negative for U.S. exporters as the dollar has strengthened, proved beneficial for Siemens as the euro weakened against other major currencies, leading to a 15% boost in orders for the quarter. Among the segments that saw solid order growth were Power & Gas, Wind Power & Renewables, Energy Management, Building Technologies, and Digital Factory.

The decline in profits is attributed, in part, to two factors: a 138 million-euro ($149.15 million) impairment charge related Siemens's stake in Primetals Technologies Limited, an EPC company in the metals industry that Siemens co-owns with Mitsubishi Heavy Industries (Tokyo, Japan), and a 72 million-euro ($77.82 million) gain in fourth-quarter 2014 from the VAI Metals Technologies business, a majority stake in which has since been sold to Mitsubishi Heavy Industries. Siemens also acknowledged that the Digital Factory segment faced challenges from "industrial deceleration" (or slower growth) in China.

"China's 'new normal' is a reality that we all have to adjust to," said Joe Kaeser, the president and chief executive officer of Siemens, in an earnings presentation. "Double-digit growth rates are a thing of the past. The country is facing major structural changes and social challenges. This will have effects on business with China, and also on imports into the country."

The book-to-bill ratio remained strong, at 1.1 for the fourth quarter and 1.09 for the full year; a ratio of more than 1 indicates a company has a demand for orders that exceeds what it can immediately supply.

Although Siemens expects the global economic environment to remain tough through 2016, it expects its high-margin short-cycle businesses to pick up in the second half of the year. Overall revenue growth in fiscal 2016 is expected to be moderate, with a book-to-bill ratio above 1. The company has high expectations for its Industrial Business segments in particular, where it expects profits margins of 10% to 11%.

Kaeser said the company hopes to invest about 1 billion euros ($1.08 billion) more in operative research and development, sales, property, plant and equipment, and intangible assets than in fiscal 2015, not including any restructuring costs.

"Current plans earmark around 17 billion euros ($18.38 billion) for this purpose in fiscal 2016, an increase of 7% over the prior year," he said.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.