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Siemens infrastructure arm tightens project criteria to lift profit

The company logo of Siemens is pictured after an annual news conference in Berlin November 7, 2013. REUTERS/Tobias Schwarz
The company logo of Siemens is pictured after an annual news conference in Berlin November 7, 2013. REUTERS/Tobias Schwarz

FRANKFURT (Reuters) - Siemens' troubled Infrastructure & Cities (I&C) business will take a more selective approach to new projects to boost profitability, the head of the division said on Thursday.

The stricter policy comes after speculation, brushed off by new Siemens Chief Executive Joe Kaeser, that the German engineering group might dismantle I&C after its performance fell well short of expectations, hit by restructuring costs and charges related to the delayed delivery of high-speed trains.

I&C generated about 17 billion euros of revenue in 2012, accounting for 23 percent of group sales but only 5 percent of group profit.

In the financial year to September 30 its margin on earnings before interest, tax, depreciation and amortization (EBITDA) was 3.7 percent, making it the least profitable of Siemens' four main businesses, behind Industry, Energy and Healthcare.

In the current financial year, however, I&C is expected to reach the low end of its 8-12 percent target margin, I&C chief Roland Busch told investors at a capital markets day on Thursday.

Busch said that profitability would be driven by large projects in Britain and Germany, along with a tighter management review process for critical projects.

Last year the division turned down more than 5 billion euros ($6.8 billion) in orders because they were considered too risky, I&C finance chief Hannes Apitzsch said.

Total order intake for the year was 21.9 billion euros, up from 17.1 billion euros in 2012.

The I&C operation was set up by Kaeser's predecessor Peter Loescher in 2011, grouping businesses making products from security systems to high-speed trains and power distribution systems to benefit from rapid global urbanization.

(Reporting by Harro ten Wolde and Maria Sheahan; Editing by David Goodman)

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