German engineering group Siemens has again raised its full-year earnings forecast after most of its business beat expectations in the third quarter. The Power & Gas division saw double-digit growth which raised the order backlog to €116 billion. “We did well – compared to our industry rivals actually very well,” CEO Joe Kaeser said, stressing company’s continued drive to cut costs.
“We delivered what we’ve promised and we will continue to drive performance, try to capture opportunities and implement our cost-cutting programme,” he said. The German OEM aims to deliver nearly 1 billion overhead efficiency gains by the end of this year.
The Power & Gas (PG) division exceeded analysts’ expectations as it achieved a double-digit growth which results in an all-time high order backlog of €116 billion and a book-to-bill ratio at 1.06x.
Asked about the future earnings, Siemens elaborated that around a third of order backlog is typically converted into revenues in the next quarter. Most recent order-wins also have a strong service element and revenues on this part of the deal only kicks in after the actual project has been executed.
Tougher competition
Rivalry is getting tougher in the Power & Gas business, Kaeser conceded: “P&G continues to operate in a market environment with significant overcapacity – yet we managed to secure large orders from US and Bolivia.
“The intensity of competition is very high in this sector, so pitching for projects now tends to also include the financing aspect.”
“It’s now all about operational efficiency, so design-to-market and design-to-cost are vital is what you do to win new customers,” he added. Outsourcing manufacturing is no longer of great help as “Chinese engineers are now not as cheap as they used to be.”
Converting the Egypt order
Asked about how much of the €8 billion power generation deal with Egypt has already materialised, Kaeser stressed the order is being swiftly executed. Siemens shipped 16 gas turbines in the third quarter and 11 turbines are already arrived onsite.
“We are starting to convert all our three projects out there [in Egypt] and have a frequent flow of revenues coming in. At the end of fiscal 2016, we will get close to first fire on a unit in December and we will see a strong revenue flow in the coming year.”
Commenting on the integration of DresserRand, he said that “although the market environment didn’t change for the better, we achieved a book-to-bill 0.8 in Q3 and expect things to improve slightly next year. “