German industrial group Siemens AG will soon track profitability using an increasingly popular method known as EVA, a company spokesman said yesterday. Siemens would begin applying enterprise value added standards on October 1 as part of its broad strategy to increase profitability.
It is an important step, the spokesman said. EVA is a way of measuring your cost of capital. It creates a clearer transparency in your investments and the capital allocation inside the company. Siemens planned to put EVA methods in place and after a year would link EVA results to managers incentives, the spokesman said.
Financial analysts welcomed the change, but did not expect it to have immediate impact. Eventually the company will sensitise managers to setting the targets and returns each business should meet, said Andreas Wahl at Credit Lyonnais in London.
Earlier this summer CS First Boston analyst Kevin Brau kept a hold rating on Siemens shares, in part due to concerns over how long divisions will take to buy into the process, and whether they will adopt the spirit or the letter of EVA.
In its drive to achieve a group-wide 15 per cent return on equity by the year 2000, Siemens was planning to sell off a range of less-profitable businesses, while aiming to boost productivity and target growth markets.
It said it was talking to potential buyers for its AXS Analytical X-Ray Systems GmbH and Siemens Communications Tests Equipment GmbH, and sought a partner for a 400 million mark electrical power-supply unit.
Siemens would begin applying enterprise value added standards on Oct 1 as a part of its broad strategy to increase profitability.
