Siemens: Second-wave production largely unaffected: Sunil Mathur, Siemens

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Our production has hardly seen any serious damage and our employees have got used to working from home. That really helped keep business going through the second quarter, said Sunil Mathur, MD and CEO, to ET now. Processed excerpts:

How did the second Covid-19 lockdown affect Siemens operations?
There were a number of experiences during the lockdown period. The first wave wasn’t that intense and we were all home and it was a time of getting used to working from home. But then that went on for a short while where we thought this was behind us and things started to open up. We carefully opened our factory and offices. But that was only for a short period of about two months, and then the second wave really came into play.

Now, as we all know, the second wave was much more intense. It initially affected operations, but it started in mid-March and continued into April and May. So, I think we retired to the offices. However, our factories continued to operate. We had sporadic cases of COVID in it, but the management of the factory was able to juggle with this capacity and managed to put the health and safety of the employees first and still keep the production activities going.

So our production has hardly experienced any serious damage and our employees have got used to working from home. That really helped keep business up and running in the second quarter; January-March quarter. From April onwards, it got even more intense with regard to COVID and we became even more cautious.

If we now switch to the business approach, we saw a real need to catch up from July, which lasted until December. But we were very pleasantly surprised by the speed of the turnaround. After December, the quarters from January to March were also very good, with both private and government investment getting off to a good start. That was very encouraging and we aroused great interest in digital projects and automation.

Government spending started in the January-March quarter. The final quarter, April up to where we are today, today I want the scarce products and our scarce items to keep the demand for them. Long-term projects have slowed down; mainly infrastructure projects in our transmission generation and distribution side. These are primarily government-related, as the states are fighting with COVID on the one hand, but are also dealing with demand requirements. Some of the old investments haven’t really paid off so wait for that to happen before re-ordering. So things have actually slowed down in the states and in government spending.

What do you see on the export market? Do you see good traction?
Yes, I think the export market continued during the crisis. In fact, we were one of the few countries, probably the only one, that had a lockdown and our manufacturing operations were affected in terms of exports. International customers were therefore very concerned about whether we would be able to meet our export obligations. I think the last few months have really helped and export demand is continuing there.

We are hopeful given the rising demand and recent announcements of incentives from the US and some other countries. We therefore believe that this is the right time to focus on exporting as well.

How do you see the margins? Most recently, we saw a sharp rise in raw material costs, but this was offset by strong realizations.
Well, raw material prices have increased and transportation costs have increased significantly. We’re talking between 20 and 40%. It is therefore very difficult to really offset these prices or cost increases with other cost-saving measures. Of course, the fact that there will be some currency gains will help offset this, but in large part I think commodity prices will remain high. I can’t predict when they’ll come down; whether or not they will fall in the short term. But this is really a problem area and that is holding back the demand from our customers here too, because many customers are waiting for the raw material prices and transportation costs to go down because it has an impact on their business cases.

We are cautious about this and while we are cutting our costs to make up for some of these things, you cannot fully compensate for the huge increase there. The shortage of semiconductors has greatly exacerbated the impact here, and I think this will continue for much longer. This has an impact on both the demand side as it really affects automotive companies, as well as FMCG companies. That really slows the market down. I think that there will be general pressure on margins in the next few months. It remains to be seen how long raw material prices will remain at the current level.



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