(Bloomberg) — Siemens AG gained on expectations for higher margins from factory automation equipment and software products next year as order books rose to a record.
The shares jumped as much as 8.9% in Frankfurt trading, the most since March, and were up 6.6% at 11:03 a.m. Orders during fiscal 2022 climbed 17%, taking the backlog to a record €102 billion ($106 billion), Siemens said Thursday.
“The order backlog gives us great visibility in the next year,” Chief Executive Officer Roland Busch said on a call with reporters. “We see an extremely strong pull from the market regarding our portfolio of automation, digitalization, sustainability and energy efficiency.”
The return on sales at its main Digital Industries division is forecast to rise to as much as 22% next fiscal year, up from 20% in the annual period just ended, Siemens said. The group also reported net income more than doubling to €2.7 billion for the financial fourth quarter that runs through September.
The guidance is “very encouraging and confirms the group’s resilience capabilities and strong strategic positioning,” Deutsche Bank analyst Gael De-Bray said in a note.
All its industrial businesses saw order intake and revenue rise last year, even as sanctions on Russia, high inflation and supply-chain problems weighed, Siemens said. The German company earlier this year abandoned its business in Russia, ending a 170 year presence in the country that led to impairments of €1.2 billion.
Manufacturers like Siemens have held up remarkably well despite a dimming global outlook marked by record inflation and unresolved supply-chain problems. The crunch on components has resulted in significant order backlogs that will take months to work down. Siemens has said in August that it expects a normalization of new orders in the coming months.
The pace of new orders is now partly leveling off, Busch said, especially in regions like China that last year saw especially strong growth.
“This isn’t unsettling, it is a normal development after a massive surge,” Busch said. The normalization helps to reduce delivery times which have as much as tripled in some divisions, he added.
After raising prices by about 3% last year, Siemens plans only slight increases to pass on rising material and labor costs. “We do this moderately and keep the competitiveness of our customers in mind”, Busch said.
The engineering giant proposed increasing its dividend to €4.25 from €4.00, and sees basic earnings per share in a range between €8.70 to €9.20. That’s up from €8.84 in the previous year, excluding an impairment on the company’s stake in Siemens Energy AG.
Siemens is nearing the end of a major revamp of its business from heavy-duty equipment like industrial robots and trains toward higher-margin, software-driven product lines to catch up to the profitability levels of rivals. It has offloaded most of the smaller divisions destined for divestment, alongside spinoffs of businesses like gas turbine maker Siemens Energy and healthcare equipment maker Siemens Healthineers AG.
For its last significant divestment, Siemens plans to carve out its Large Drive Applications unit, which makes heavy-duty electric motors for ships and mining equipment. On Thursday, the company said it will merge the division with its metal-technology Sykatec unit in fiscal 2023 to form a business with around €3 billion in joint revenue and 14,000 employees.
The company is exploring several potential options for the business, including a spinoff or sale, Chief Financial Officer Ralf Thomas said.
In the key Digital Industries division, which makes factory automation software, Siemens sees a profit margin in the range of 19% to 22%.
For the Smart infrastructure unit, Siemens forecast returns between 13% to 14%. In the Mobility division, returns are expected to range at 8% to 10%.
–With assistance from Tom Mackenzie.
(Updates with CEO comment in third, detail on carveout in 13th paragraph)
©2022 Bloomberg L.P.