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Author: Katharina Grimme
As part of the Siemens Group, Siemens Business Services (SBS) reported full year 2006 (ending 30 September) results yesterday. SBS revenue declined from €5.4bn to €5.16bn. SBS narrowed its losses year-over-year to €549m (€690 in 2005), of which €393m are severance charges.
Comment: The revenue decline is (at least partly) due to the sale of the PRS division midway through the fiscal year. However, orders are also down by 16% (adjusted) to €5.01bn, which SBS claims is due to the PRS divestment as well as more selective order intake and a reduction in large deals. With a margin of -10.6% (for comparison: -12.8% in 2005), SBS is still far from the margin target of 5-6%, which Siemens CEO Kleinfeld expects SBS to achieve by April 2007.
The longer SBS remains well adrift of this target, the more its long-term sustainability is questioned, at least in its current incarnation. And that in turn will eventually (if uchecked) have knock-on effects on customer confidence. For now, however, Siemens management is backing SBS and has dismissed suggestions of a sell-off. We think this wholehearted backing, combined with tough measures to bring the subsidiary to sustained financial health - is the right solution, and is good for both SBS and for its customers.
It has been a very turbulent and painful year for SBS. All is not over, and there are signs of improvement: in Q4 2006, losses only amounted to €27m, compared to €427m in Q4 2005. Profit margin stood at -2.1%, compared to -28.4% in Q4 2005. SBS has seen slow but continuous improvements over the past three quarters. With significant restructuring and strategic reorientation (see EuroView Daily, 16 Oct 2006) well underway, we expect a much better performance during 2007. The question remains, as before: can SBS can recover fast enough to fulfil the ambitious margin targets?
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