Siemens Energy, a world leader in energy infrastructure, has laid out its post-spin-off strategy, aiming for accelerated profitable growth and targeting an adjusted EBITA margin before Special Items of 6.5% to 8.5% for fiscal 2023.

The Executive Board is committed to drive operational excellence, portfolio adjustments to meet market demand and gradually shift the focus of innovation and R&D to sustainability and service, a Siemens Energy statement said.

“The separation of the energy business is a key milestone in implementing our Vision 2020+ strategic concept. We create an independent leader in the energy business with a strong brand and the most comprehensive offering in the energy sector,” said Joe Kaeser, CEO of Siemens AG.

“With this, Siemens Energy is best equipped to lead the global energy transformation in a sustainable and economically feasible way. The new Siemens AG in turn will become a transparent and significantly de-risked company. With its core businesses Digital Industries, Smart Infrastructure and Mobility, it will play a significant role in shaping the industrial digitalization, called Industry 4.0.”

Siemens Energy will become independent at a time characterized by energy systems around the world undergoing fundamental change. The balance of fossil fuels and renewable energy sources is shifting. At the same time around 850 million people are still living without access to electricity. According to studies, global demand for electricity generation will increase by more than 50 percent by 2040.

Christian Bruch, President and CEO of Siemens Energy, said: “Siemens Energy is a mirror of today’s energy world. Our comprehensive and diversified products, solutions and services enable us to meet the world’s increasing energy demand while at the same time supporting efforts to reduce greenhouse gases. This puts us in an ideal position to support our customers with the energy transition.”

 “The challenge our customers face is to convert their installations to 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 bridge into an affordable, reliable and sustainable power supply.

“What we therefore need, is the courage to find interim solutions that make us better today, based on available technologies, such as increased efficiency or the use of clean fuels. At the same time, we must continue to use innovative technologies to ensure that we do not get stuck in intermediate solutions. Siemens Energy is the right partner to address all of these challenges,” Bruch added.

In the first strategy phase, the focus for Siemens Energy's Gas and Power segment is on increasing profitability and cash flow until fiscal year 2023. Among the most important levers for operational excellence the company is evaluating a leaner cost structure, optimized logistics, centralized purchasing and the reduction of non-conformance costs.

As an example, Siemens Energy recently streamlined its offering of aeroderivative gas turbines. Furthermore, Siemens Energy is currently reviewing a potential phase out of its business with CO2-intensive coal-fired power generation.

Another lever in the Gas and Power segment will be a rigorous focus on project selection and better execution. Projects with a negative lifecycle margin will be constantly phased out, bidding processes will be more selective to improve the margin in the project business.

The organization is currently evaluating operational excellence initiatives targeting more than €300 million additional annual gross global cost savings on top of the already announced €1 billion savings target until fiscal year 2023, when compared to the cost base of fiscal year 2018.

At the core of the future value creation of Siemens Energy is its service business with high conversion rates of up to 100% (the latter in high efficiency large gas turbines). Siemens Energy’s service business is highly resilient and based on its large installed fleet and long-dated service contracts generated revenues of €9.5 billion in fiscal year 2019.

In fiscal year 2019, 51% of revenue of the Generation division is linked to service, in Industrial Applications revenue contribution was even higher at around 60%. In Transmission, service comes from a low base but is growing, similarly to Siemens Gamesa Renewable Energy (SGRE). All in all, the service backlog of the Siemens Energy Group's segments was equal to €48 billion as of June 30, 2020.

Siemens Energy will shift its R&D spending under strict return criteria towards service and sustainability, the two key value drivers in the ongoing energy transformation. A yearly spend of €1 billion in R&D as well as 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 shows the importance of R&D for Siemens Energy.- TradeArabia News Service