Siemens plans to save €6 billion by 2014 in response to a decline in profitability and orders that has left the German engineering conglomerate trailing rivals such as General Electric.

Announcing better-than-anticipated fourth-quarter results at a gas turbine plant in Berlin yesterday, Siemens promised to achieve a profit margin of at least 12 per cent by fiscal year 2014, compared with 9.5 per cent in 2012. The size of the cost-cutting programme is larger than the up to €4 billion analysts had anticipated.

“We didn’t succeed in significantly boosting our performance vis-a-vis competitors, as we did in recent years . . . We know what we have to do – and we’re doing it,” chief executive Peter Löscher said.

As part of the productivity drive, the Munich-based maker of trains, industrial automation technology and wind turbines plans to acquire LMS International, a test and mechatronic simulation software company, for €680 million.

Meanwhile, Siemens will divest its water processing and treating units that account for around €1 billion in sales. Last month, it announced it would exit its loss-making solar business and further divestments of underperforming businesses are considered likely.

Around €3 billion of cost savings are to come from cuts in the supply chain and a further €2 billion will be saved in capacity utilisation and process improvements.

Mr Löscher is under pressure to cut costs after 18 months in which the company pursued growth but gross margins failed to keep up. Siemens has also incurred a seriesof charges in new businesses such as offshore wind and particle therapy.

New orders have also declined as clients in Europe and China have grown more cautious.

Siemens forecasts income of €4.5 billion to €5 billion from continuing operations in 2013.– Copyright The Financial Times Limited 2012