Siemens defends $7.6bn Dresser-Rand deal

Siemens, the German engineering group, has defended its $7.6bn acquisition of US oilfield equipment company Dresser-Rand, saying the long-term rationale remained intact even as slumping oil prices threaten oil-related investments in the the near term.

Chief executive Joe Kaeser is set to face criticism from investors over the timing and cost of the Dresser-Rand deal at Siemens' annual meeting in Munich later on Tuesday.

But Mr Kaeser said he anticipated that the oil price would recover in the medium term because he believes the current slump is output-driven, not structural.

However, he acknowledged oilfield project delays were already visible and there could be a knock-on impact for broader investment by oil exporting countries. 

On the positive side, he said countries such as India that import lots of oil might increase infrastructure spending due to the lower cost, while the car industry - a big customer for Siemens' factory automation equipment - might also benefit. 

Mr Kaeser insisted on Tuesday that the company made acquisitions for the "long term", service-related oil activities would cushion the impact of the oil price slump and synergies with Dresser-Rand could be higher than anticipated.

He said in December that Siemens was not thinking of walking away from Dresser-Rand - a move that would cost the company $400m in break fees. 

Siemens plans to pay for the deal via a US entity with existing dollar reserves, so it does not expect the bill for the deal to increase due to the stronger US dollar.

Elsewhere, Siemens is enjoying a tailwind from the weaker euro which makes its exports more competitive compared with rivals such as General Electric. 

However, its building technologies division is set to suffer an "adverse impact" linked to the appreciation of the Swiss franc.

Total revenues rose 5 per cent in the first quarter, compared with a year ago, thanks in part to positive currency effects. However, orders - an indication of future revenues - declined 11 per cent. They were down sharply in the wind division and in transport, which booked a large order in Saudi Arabia a year ago. 

Shares in Siemens fell 2 per cent in early trading in Frankfurt on Tuesday. 

The group reported a 4 per cent fall in first-quarter operating profit to €1.8bn, in line with analysts' forecasts as compiled by Bloomberg. 

The decline was due in part to difficulties in the power and gas division, where Siemens' large turbines face margin pressure and production overcapacity. Margins in healthcare were also lower than a year ago due to "an unfavourable revenue mix and higher R&D expenses". 

"While some divisions provided excellent performance, healthcare needs to step up its efforts to quickly resume its outstanding performance, and power and gas will need a more comprehensive concept to return to historical margins longer term," Mr Kaeser said. 

Net income declined 25 per cent to €1.1bn, which Siemens attributed mainly to non-operational factors linked to the low interest rate environment. 

The underfunding of Siemens' pension plans widened from €8.5bn at the end of September to €9.6bn. 

Mr Kaeser, chief executive since August 2013, also announced another reshuffle of his senior leadership team on Monday night. Hermann Requardt, board member for healthcare, is stepping down. As previously announced, healthcare is being run as a separate company within Siemens - in preparation, some analysts believe, for a possible sale or spin-off.

Mr Requardt's departure would "enable a generation change at the launch of the new healthcare company," Siemens said. Bernd Montag, head of imaging and therapy systems, will take over as chief executive of the healthcare division. 

Janina Kugel, Siemens' chief diversity officer, is elevated to the board where she will lead human resources, becoming the second female member alongside Lisa Davis, energy chief. Roland Fischer, head of the struggling power and gas division, is leaving. 

Siemens confirmed its full-year outlook, issued in November, that revenues would be flat in fiscal 2015. The company plans to lift earnings per share by at least 15 per cent in the new fiscal year, largely due to gains from divestments. 

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