Siemens battles to close profitability gap as revenues stagnate Scaling down: assembling a gas turbine propeller for a power plant at a Siemens factory in Berlin Siemens is facing an uphill battle to close a sales and profitability gap with rivals as its revenues continue to stagnate, which it blames on geopolitical tensions and shifting customer demand for power generation equipment. Announcing fourth-quarter and full-year results on Thursday in Berlin, the German engineering conglomerate said revenues would again be flat in 2015. In fiscal 2014 revenues fell 2 per cent, which marked a second consecutive year of decline. Siemens" main rivals have on average increased revenues by 4 per cent over the past 12 months. Siemens will instead rely on gains from divestments to help it increase earnings per share in fiscal 2015 by at least 15 per cent compared with €6.37 in fiscal 2014. "We are lagging behind in growth and we must improve here," said Joe Kaeser, chief executive. Siemens described the anticipated business environment as "complex." A variety of international crises have hurt confidence, prompting customers to defer investment decisions. Meanwhile, Siemens is facing lower demand for its large gas turbines as its customers increasingly want smaller, decentralised systems. This has left it with too much production capacity. It has not yet specified the extent of possible job cuts. In the absence of growth Mr Kaeser is using other levers - including portfolio measures, cost-cutting and share buybacks - to close a margin shortfall compared with rivals such as ABB and General Electric. Siemens" hearing aid unit on Thursday joined a growing list of healthcare and consumer-facing businesses that Mr Kaeser has seen fit to divest. The €2.15bn sale of the audiology business to private equity firm EQT and Germany's Struengmann family follow Siemens" exit this year from its home appliance joint venture with Bosch, its $1.3bn sale of a hospital IT business and the sale of its microbiology unit. The new chief executive, who developed a flair for dealmaking in his previous role as chief financial officer, this year agreed to acquire small gas turbine technology from Rolls-Royce for €950m and to pay €5.8bn for oilfield equipment maker Dresser Rand. Meanwhile, Siemens" highly profitable healthcare division is being run as a separate unit within the company ahead of a possible sale, spin-off or initial public offering. Siemens fears technology shifts in healthcare could oblige it to invest heavily in the division in coming years. Siemens" shares rallied when Mr Kaeser first took over, in part due to excitement about a possible healthcare spin-off. But the stock has since fallen back as investors fret about the company's growth prospects and investor concerns that Siemens overpaid to acquire Dresser-Rand. Management has not been able to stem the flow of one-offs every quarter, which we see as disappointing Ben Uglow of Morgan Stanley In the fourth quarter, operating profit rose 28 per cent to €2.2bn, roughly in line with analysts" expectations. The increase was flattered by the €650m in restructuring charges that Siemens booked a year ago. Siemens" fourth-quarter performance was again undermined by large project-related charges, which totalled €900m in fiscal 2014. This time the wind division was to blame: it incurred €223m in charges due to bearings and wind blade repairs. Siemens also booked a €41m charge in power transmission, a perennial problem area. "Despite repeated assurances, management has not been able to stem the flow of one-offs every quarter, which we see as disappointing," Ben Uglow at Morgan Stanley told clients. Still, Siemens reached its guidance of a 10 per cent operating margin in 2014, compared with 7.9 per cent in fiscal 2013. The abandonment of a 12 per cent margin target for 2014 forced the departure of previous chief executive Peter Löscher. "We delivered the results we originally promised for fiscal 2014 and made substantial progress in strengthening our portfolio," Mr Kaeser said. He told Bloomberg television the "first fruits of top-line growth" would come in 2016 and that he did not anticipate a big deterioration of energy sector capex spending due to the falling oil price. In fiscal 2015 Siemens is targeting an operating profit margin of 10-11 per cent, roughly the same as 2014. GE's industrial businesses achieved a 16.3 per cent margin in the most recent quarter, while ABB had a 14.3 per cent ebitda margin. These figures are not directly comparable. Siemens is proposing a €3.30 dividend for fiscal 2014, compared with €3 last year. Mr Kaeser originally planned to list the hearing-aid business but in recent months market volatility made that appear risky. The unit had €693m in sales in fiscal 2014 and has more than 5,000 employees.