Siemens Sees Gains, Shakes Off Asian Woes

Siemens AG, shaking off shareholder complaints, said yesterday it was on track to make profit gains and downplayed the impact of Asias financial crisis on its business.

The German electronics giant stood by earlier forecasts that net income would rise about 15 per cent to three billion marks ($1.6 billion) and sales climb as much as seven per cent to around 15 billion.

Some shareholders criticised the company for failing to lift profits as quickly as sales and for its decision to leave the 1996/97 dividend unchanged at 1.50 marks per share. But Siemens gave a generally upbeat assessment of its prospects. The company, which got 11 per cent of sales from Asia in 1996/97, said a slowdown in orders this year would be offset by growth elsewhere in the world.

 

This year we want to post another strong increase in earnings, net income (growth) should outpace sales, chief executive Heinrich von Pierer told the AGM.

We are holding to (our) targets and assume that the easing of business activities in Asia will be compensated by increased opportunities in other regions.

The company said Asias problems should not damage its forecast that sales would reach 150 billion marks shortly after 2000, with Asia generating 20 per cent of the total.

Germany, the rest of Europe and the Americas would each generate 25 percent of sales with another five per cent coming from the remainder of the world.

We do not believe that present difficulties will lead to a permanent stagnation of business in the Asia-Pacific region. Following a phase of consolidation, growth will again resume. And it will be in dimensions that lie above growth curves in Europe or the Americas, von Pierer said.

Michael Schatzschneider, analyst at BHF Bank, said Siemens was likely to reach its goal.

Siemens is always very reliable with revenue targets so I take it very seriously, he said.

Siemens told shareholders the rise would be driven both by internal growth and acquisitions, and asked them to authorise the management board to issue shares with a nominal value worth up to 150 million marks to finance purchases.

The authorised capital would give us the chance to act quickly and take advantage of favourable opportunities to acquire companies or equity interests, though such acquisitions are not specifically planned at this time, von Pierer said.

Dieter Kauffmann, a representative of Germanys association of small shareholders, called on Siemens shareholders to reject the capital measure.

Explaining the companys dividend policy, chief financial officer Karl-Hermann Baumann said the payout was based on profit development and noted that semi-conductor pretax profit fell to 109 million marks last year from 603 million the year before.

When profit goes up, the dividend will also rise, he said, adding that the capital measure would make future acquisitions less expensive because share swaps are taxed differently.

Schatzschneider said he was still pretty optimistic on Siemens and rated its shares a buy with a six month target of 130 marks. By 1525 GMT, Siemens shares were last 60 pfennigs weaker at 115.25 marks after touching a days high of 116.95.

Acquisitions were necessary for Siemens to push sales to 150 billion marks, but major deals probably would not come until 1999 or later, he said.

Siemens sales in 1996/97 rose 14 percent, with four percentage points of growth coming from the weak German market and two points from acquisition and divestments.

Sales growth showed a 22 percent jump in foreign sales to 70.6 billion marks. The share of domestic business fell to 34 from 39 percent for a total of 36.3 billion marks.

Business in Europe, excluding Germany, rose to 29 percent from 27 percent to 30.8 billion marks. Sales in the Americas rose to 20 percent from 17 percent, or 21.6 billion marks.

Von Pierer defended the overseas expansion but said it would be easier to add domestic jobs if unions were more flexible with contracts.

Siemens is currently negotiating with the IG Metall union to lower costs in its technical services and maintenance units, where Siemens faces smaller competitors with lower wage pacts.

($ = 1.820 German Marks)