MUNICH: German engineering group Siemens posted a 14 per cent decline in quarterly industrial profit, dragged down by continued weak demand from the power and gas sector while it ramps up investments in factory software.

Industrial profit at the trains-to-turbines group came to 2.21 billion euros ($2.75 billion) in the fiscal first quarter to end-December, taking a hit from a near halving of profits at the Power and Gas division.

That compares with a consensus for 2.19 billion euros in a Reuters poll of analysts.

Large gas turbines are increasingly unloved in a world moving to renewable energy and Siemens has turned more of its focus to industrial automation, where it is market leader.

“The declining market for fossil power generation is not a temporary slump. Instead it reveals the expected dramatic development that we’ll only be able to address and we must address by taking strategic measures,” Chief Executive Joe Kaeser said as the group published results on Wednesday.

The profit margin from industrial business shrank to 11 per cent from 13.2 per cent in the year-earlier period. The group is in talks with labour representatives about where to cut 6,900 positions as part of a restructuring programme announced last year.

Siemens expects to book reserves for severances in fiscal 2018, and for cost reductions to filter through in fiscal 2019, CEO Kaeser told analysts. Negotiations for job cuts in Germany will likely be completed by summer, Kaeser said.

Siemens Chief Financial Officer Ralf Thomas, Chief Human Resources Officer Janina Kugel and CEO Joe Kaeser announced this during a news conference ahead of the company’s annual shareholders meeting in Munich, Germany.

Arch-rival General Electric, which is struggling to reverse steep declines in some of its units and is looking to sell $20 billion of assets, reported an industrial margin of 11.2 per cent for the December quarter. Both conglomerates are slimming down — US based GE faster than Siemens. In the last year the German group has hived off its wind-power unit into a joint venture and agreed to do the same with its trains and signalling unit.

It also plans to list its medical imaging and diagnostics division on the stock exchange in the first half of this year, though analysts at Barclays noted on Wednesday that its growth has underperformed that of peers.

The reorganisation has made investors more optimistic, pushing up Siemens shares by more than 5 per cent so far this year, outperforming a 1.4 per cent gain by the STOXX 50 index.

Reuters