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Abu Dhabi, UAEThursday 20 September 2018

Exclusive: German Siemens and French Alstom to complete rail merger this year

The two companies announced the creation of a €15.3bn 'European champion' post-merger

Roland Busch, Siemens' chief technology officer at the Dubai Opera. The industrial giant announced plans for $500m in digital investments in the Middle East over the next three years. / Satish Kumar for The National
Roland Busch, Siemens' chief technology officer at the Dubai Opera. The industrial giant announced plans for $500m in digital investments in the Middle East over the next three years. / Satish Kumar for The National

Siemens, Europe's largest industrial conglomerate, is set to complete the merger of its rail entity with Alstom by the close of the year and will look to ramp up its presence in the sector in Saudi Arabia and the UAE, according to Roland Busch, the chairman of the joint venture.

“We are now in the process of issuing a file in the commission in Europe and in many other countries," the newly appointed chairman of Siemens Alstom told The National in an interview in Dubai. "The expectation is closing [will happen] by the end of the year. Until then, our mobility business is doing very well, we’re growing, we have a very good conversion rate also from growth into profitability so everything is in order here and we’re looking for approval from authorities [so] that we can go ahead,”

Siemens, Germany’s largest company, and French Alstom announced a merger of their rail operations in September to create a “European champion” with combined revenues of €15.3 billion and the former retaining 50 per cent of shares of the new entity. The merger is expected to generate annual synergies of €470 million as the firms consolidate against competition from China’s state-owned rail developer China Railway Construction Corporation, which has been snapping up contracts in key growth markets.

The market is in a “consolidation mode”, and mergers of Siemens' entities with Spain's Gamesa and Alstom will help drive greater profitability and strengthen the competitive advantage of the company, said Mr Busch.

“If you take Siemens Alstom, we see competitors from China and elsewhere are consolidating. Since we have very strong business here, we're growing fast, we have good profitability in mobility. We're now playing to the strengths, now we can consolidate and drive this consolidation in the market and [we] found a partner in Alstom, which is one of the leaders in mobility,” said Mr Busch, who is also Siemens chief technology officer and member of its managing board.

However he said, the trend was unlikely to find resonance in the power sector, which has seen massive restructuring of majors such as Siemens and rival GE due to heavy losses.

“In that case, we see de-consolidation. The energy space is an interesting one, it’s suffering from lower demand and then we have to see how that goes,” he said.

Mr Busch, who was in the UAE to announce the launch of $500m in digital investments in the Middle East over the next three years, is eyeing opportunities for the company to grow its business portfolio in the region’s nascent rail industry.

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“The whole transport mobility area in Saudi Arabia, which is the largest construction site for a metro line in the world currently,” was a hot spot for investment he added.

"There are six lines being developed in parallel in Riyadh and also in other areas. We think there’s a lot of potential for public transport. Dubai is also continuously investing, and Abu Dhabi with the land bridge and so on,” he said. Siemens is the turnkey supplier for two driverless metro lines in the Saudi capital.

The region, however, needed to localise manufacturing of rail transport parts rather than import units at a high cost.

“Once you have a certain volume that allows a manufacturer to localise, to allow a certain assembly line to localise the supply chain, and that’s something we also proposed; to come up with a combined volume for more than one line and I want them to say this is enough volume to justify localised investment,” said Mr Busch.

Elsewhere in the region, Siemens is seeking opportunities to meet automation and digitisation requirements in the multibillion dollar downstream sector as countries such as Saudi Arabia look to develop massive refining and chemicals complexes over the next five years.

In its traditional power sector, Siemens remained upbeat on growth prospects from the region’s largest market Saudi Arabia and also Egypt.

Responding to rumours that Saudi Arabia had been reluctant to sign contracts with German companies following comments made by a minister on the kingdom’s politics last year, Mr Busch admitted that the situation was purely “political” and was hopeful that it would resolve quickly.

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