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German industrial conglomerate Siemens said Thursday it was launching a new cost-cutting program and productivity push aimed at saving €6 billion ($7.7 billion) by 2014 and increasing competitiveness.
The program came as the company reported a 2 percent dip in fourth quarter net profits from continuing operations to €1.479 billion. Profits were dragged down by €327 million in charges related to its oil and gas business in Iran due to new U.S. and European Union trade sanctions.
Still, the result was slightly better than expected and with the announcement of the cost cuts Siemens shares were up 4 percent to €82 in afternoon trading in Frankfurt, the biggest riser on the DAX stock index.
CEO Peter Loescher said the strong quarter had enabled Siemens to meet its 2012 targets, but that the company "didn't fully succeed in significantly boosting our performance vis-a-vis competitors as we did in recent years."
In order to meet those goals, Loescher announced the two-year "Siemens 2014" cost-cutting program, which is aimed at raising profit margins for its four core businesses to 12 percent from 2012's 9.5 percent.
"We know what we have to do, and we're doing it," Loescher said.
The program, which is expected to cost €1 billion in 2013 to be implemented, aims at strengthening the company's core activities.
Loescher said there were no "topdown targets of employment levels" and insisted that the focus would be on cost reductions and increasing productivity, but conceded that there would be jobs lost.
"At the end of the day, naturally there will be effects on positions," he said.
As part of the strategy, Siemens said it was acquiring for around €680 million the Belgium-based LMS International NV, a company that produces simulation software used for testing vehicles, aircraft and other complex products.
It said it would also restructure its water business, to focus on automation and drives while selling units involved in processing and treating water and wastewater.
Already, Siemens announced in October that it would sell its solar business and concentrate on wind and water power in its renewables focus.
Revenue for the fourth quarter was up 7 percent to €21.7 billion, while orders rose 2 percent to €21.5 billion.
For fiscal 2012, orders were down 10 percent at €76.913 billion but revenue was up 7 percent to €78.296 billion, thanks to a strong backlog of orders.
Siemens said it expects net profit from continuing operations to drop to between €4.5 billion and €5 billion for 2013 — including the €1 billion in restructuring costs — from €5.184 billion in 2012.