INTRO: Siemens Verkehrstechnik is mid-way through a programme of restructuring and divestments designed to return the business to profitability. Chris Jackson spoke to SVT President Dr Wolfram Martinsen in Sacramento last month

’THERE IS no shortcut or painless way to address the challenges we are facing ... the railway business is continuing to change, with liberalisation, privatisation and restructuring amongst our customers. And change ain’t easy.’

Thus did Siemens Verkehrstechnik President Wolfram Martinsen set the background to the firm’s DM177m loss for 1996-97, announced by the parent group last December. With orders up 10% to DM7·1bn, sales fell slightly to DM4·1bn with the divestment of brake component subsidiary Ringfeder and air-conditioning supplier Alex Friedmann.

Presenting the SVT results in Sacramento on February 2, Martinsen underlined that Siemens and its principal rivals Adtranz and GEC Alsthom had all been faced with the need to reduce overcapacity in the European market. ’In some ways’, he mused, ’we have been a victim of our own success - since 1989 we have come from nowhere to rank as an international industry leader.’ After that rapid growth there is now a need for a period of consolidation; VT is forecasting a loss of around DM70m next year, with the business breaking even in 1998-99.

German legal accounting procedures, which prevent revenue from being reported until a sale is completed, are one complication for Siemens; a month’s delay on a large multi-year contract could swing revenues of DM200m or more from one financial year to the next. And the gap between orders booked and sales completed requires working finance; Martinsen estimated that every DM1bn of this ’gap’ involves covering at least DM60m in up-front costs .

Finance Director Siegfried Franke said the company was looking at contracts with staged payments to reflect the cost outflows more realistically. Martinsen suggested SVT must be more selective in taking orders, declining to bid on projects where the return is too small, or phased too far into the future.

Strong order book

Despite the financial performance, Siemens’ order book continues to grow; at present the company has contracts worth around DM15bn, with several other letters of intent to be confirmed. And German Railway must decide in the next few months whether to exercise its options under the large rolling stock contracts awarded in 1994-95.

Of the DM7·1bn of business placed in the 1996-97 financial year, around DM2·4bn came from Germany, including DM700m from DB and the rest from urban and regional operators. Major contributors to the DM4·7bn export element included DM900m for the Bangkok Transit System (Tanayong), DM725m for København S-bane stock, DM380m for Austrian Federal Railways’ ’Europaloks’, DM248m worth of diesel locos for SNCB in Belgium, infrastructure and electrification work totalling DM200m in Hungary, and DM60m for work on the Lisboa metro.

Refining the structure

In the past year, SVT has completed its transition to ’centres of competence’ for different product lines, splitting its signalling business into mass transit and main line business units, and spinning off parts of its non-rail power supply work to Siemens Energieversorgung and a management buy-out. Internal interfaces have been simplified, and benchmarking practices introduced.

New business units have also been launched in the rolling stock sector, with mass transit being split into heavy metro and light rail, and main line into locos and multiple units/high-speed trains.

Martinsen indicated that restructuring is likely to be an ongoing process: ’we will continue to look at our portfolio to ensure that everything is a good fit. If we can’t do something better and more cost-effectively than buying in, we shouldn’t have it in our group.’

But he was clear that VT has a long-term future within the Siemens AG organisation. Whereas Adtranz is increasingly operating at arms length from ABB and Daimler Benz, and GEC Alsthom is to be floated by its parents, the German group has no such strategy. ’We continue to see a good fit with our core competences’, insisted Martinsen. ’There is a good interaction between Transportation and other sectors of the Siemens portfolio.’ o

CAPTION: Siemens Verkehrstechnik President Dr Wolfram O Martinsen inspects the last Portland SD600 low-floor LRVs at Sacramento, accompanied by STS Inc President & Chief Executive Jimmy D Morrison (left) and Vice President & Works Manager Rolf Meissner (right)