go for profit and growth - siemens.com · profit driven by restructuring in 03 and new products!...

Go for profit and growthHeinz-Joachim Neubürger, CFO

MAY-04

2MAY-04

Key figures – Second quarter

Group profit from Operations

New orders

Sales

Net income

EPS (in euros)

in billions of euros

Q203

Net cashfrom operating and investing activities

19.1

18.2

1.073

0.568

0.64

1.398

Q204

19.7

17.8

1.076

1.210

1.36

3.565

3MAY-04

Key figures – First six months


New orders

Sales

Net income

EPS (in euros)



HY03

39.2

37.1

2.170

1.089

1.22

0.261

HY04

40.2

36.1

2.437

1.936

2.17

2.374

4MAY-04

Key features HY04

Growth achieved! In line with expectations, reflecting “flat” - tish

global market for turnkey systems! Stronger growth in the product business, notably

Medical and A&D on comparable basis, indicating market share gaining in certain sectors

Strong cash flow! Proceeds from sale of Infineon shares cover special

contribution to pension plans! Ongoing tight control of Capex relative to Depreciation

indicating underline changes within the value added structure

Transportation Systems! Frustrating and embarrassing development

5MAY-04

Ongoing improvement in the I&C segment

ICN – Information and Communication Networks

! Profit driven by restructuring in 03 and new products

! Carrier and Enterprise business in the black

! Demand situation “flat” - tish

ICM – Information and Communication Mobile

! Solid performance on mobile networks

! Unit volume of handsets sharply up on YoY comparison, however marginally down over seasonally strong Christmas quarter

! ASP challenging - improvement expected with 65 series

6MAY-04

Sustainable success

PG – Power Generation! Service business drives earnings development! Positive contribution from acquired Alstom business! Potential for sustainable higher margin level

Med – Medical Solutions ! World class innovation supports growth push! Next major Soarian Modules to be completed in 2004

Osram! Leading world market position in lighting technologies

A&D – Automation and Drives! Market share gain in all businesses across the globe! Better performance in the U.S. and in China

SV – Siemens VDO Automotive! Huntsville acquisition adds to further solid profitable growth! Diesel systems break even

7MAY-04

Challenges

TS – Transportation Systems

! Significant charges in the rolling stock business, primarily resulting out of technical issues of Combino railcars

! Established special task force, drawing on technical expertise of the whole company

SD – Siemens Dematic

! Profitability is expected to improve from here on

! Goodwill impairment reflects lasting changes in ‘Distribution and Industry’ and ‘Airport Logistics' markets

8MAY-04

Global presence

Americas

Asia-Pacific

Middle East,Africa, C.I.S.

Europe(excl.Germany)

Germany

Employees by region (in thousands)

250

300

150

Germany

200

International

FY1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20042003

9MAY-04

Tackling German cost base

Successful first agreement on adjusting employment terms in Germany.

Achievement at Plant Bocholt: ! Results into aggregate cost savings of ~30 %

Achieved by:! No changes to existing valid tariffs, however agreed switch

to 40h week instead of 35h week without compensatory wage increases

! Implementation of key points of a service tariff contract! Reduction of bonus system

10MAY-04

Outlook FY 04

Current US $ strength considered temporarily only

Remaining overcapacities and pricing pressure

Profit and growth

Cost reduction, productivity programs and faster innovation

Our objectives

Environment

“We remain committed to our full year targets,though the charges at TS make it more challenging.”

No major stimulus yet from turnkey projects

MAY-04

Appendix

12MAY-04

Key figures – Fiscal Year


New orders

Sales

Net income

EPS (in euros)


2003


75.1

74.2

4.295

2.445

2.75

1.773

2002

86.2

84.0

3.756

1.661*

1.87**

4.754

* excl. EUR 936 million gain on sales of Infineon shares

** excl. EUR 1.05 gain on sales of Infineon shares

13MAY-04

Target margins remain unchanged

Q104ICN

ICM

SBS

A&D

I&S

SD

SBT

PG

PTD

TS

SV

Med

Osram

Information and Communication Networks

Information and Communication Mobile

Siemens Business Services

Automation and Drives

Industrial Solutions and Services

Siemens Dematic

Siemens Building Technologies

Power Generation

Power Transmission and Distribution

Transportation Systems

Siemens VDO Automotive

Medical Solutions

3.8

(6.8)

1.5

10.8

3.6

4.2

3.0

3.1

4.9

19.8

6.2

12.9

10.2

SFS 22.5 1)

7 - 9

7 - 9

11 - 13

5 - 6

8 - 11

8 - 11

5 - 6

5 - 7

11 - 13

5 - 7

10 - 13

10 - 11

4 - 6

18 - 221)Siemens Financial Services

1) Return on Equity before taxes

in percenttargetmarginQ204

1.6

(6.0)

2.6

11.2

2.3

4.1

2.3

(28.4)

5.9

13.3

7.9

16.0

10.7

24.3 1)

14MAY-04

Key figures – pension

Projected benefit obligation (PBO) 1)

Accumulated benefit obligation (ABO) 1)

Discount rate 2)

Fair Value of plan assets

Funded status 1)

Additional contribution

Regular funding

Non allocated pension related income 3)

Expected return on plan assets (EROPA) 4)

Asset allocation of pension assets

Equities

– therein Infineon shares

Fixed income

Real estate

Cash

18.5

16.8

6.2%

14.8

(3.8)

4.4

0.3

19.5

17.8

6.0%

14.5

(5.0)

1.8

0.2

61%

9%

31%

6%

2%

33%

3%

46%

8%

13%

(0.250)

8.0%

(0.828)

6.7%

0.279

8.8%

FY01 FY02 FY03

20.9

19.8

5.4%

15.9

(5.0)

1.6

0.2

31%

-

50%

10%

9%1) As of September, 30; FY04: status for end of Q2 as of March, 312) Basis for calculation for PBO and ABO as of September, 303) Net periodic benefit costs for pension plans and other postretirement benefits excluding service cost component of

foreign pension costs which are allocated to Groups (HY04 also excl. service cost for the Siemens German Pension Trust)

4) Basis for calculation of net periodic benefit costs of the corresponding year

(0.364)

6.7%

HY04in billions of euros

21.2

20.1

5.4%

18.1

(3.1)

1.3

0.3

36%

-

49%

9%

6%

15MAY-04

11.3

FY 2000 2001

(6.7%)

2002

9.6

(7.2%)

target2003

7.1

(5.1%)

Successful implementation of programContinuation with focus on process optimization

" Size the business- Monitor capacities, considering market conditions

" Manage assets- Maintain world-class turnover ratio- Reduced working capital by 2.1 bn by end of FY03

" Reduce costs - Achieved target of 1.7 bn cost reduction

in FY03 and 1.8 bn in FY02- Reduced workforce to 33,000 by the end of FY03- Launch initiative for productivity enhancement

through process optimization in FY04

" Maximize synergies of carrier and enterprise - Offer enterprise services to carrier customers

" Leverage expertise through enhanced services

" Optimize customer orientation and enter into growth phase- Win new customers, generate new business,

and increase market share- Focus on profitable business and growth fields

" Lead in innovation- 90% of R&D in Next Generation Networks

! Leading market positions in 2003- No.1 in Enterprise Switching- No.1 in Carrier Switching - No.2 in Broadband Access

- Leading in Real Time Communications- Leading in Next Generation Networks (Carrier

Convergence, Metro and Long Haul Transport)! Goals for 2005

- Maintain and expand leading positions- Drive growth in application and service business

End-to-end solution provider for NextGeneration Networks (NGN)

Information and CommunicationNetworks (ICN)

Partner for profitable networksSalesin billions of euros

6.1%

8-11%

Group profitmargin Performance drivers

12.9

16MAY-04

Information and Communication Mobile (ICM)

Performance driversTargets

" Increase market share and be profitable

" Position ICM as the leading provider ininnovative solutions: end-to-end, EDGE, 3G, M2M, IMS, WiMAX

" Continuously adjust to market conditions

Strategic orientation

1. Drive innovation in processes, technology and business models

2. Expand into high-margin servicesand products

3. Benchmark in quality excellence for ICM’s customers

4. Continue to develop the Siemens mobile brand

! 60% sell-in increase yoy! Quarterly market share

above 9 %! 43% profit increase

yoy in HY04! 9 models announced in

Q204, thereof 7 with built-in cameras

! 17 models announced in HY04

MobileInfrastructure

Mobile Phones

! 9% quarterly revenue increase yoy, notable stabilization, profit up 73% yoy

! GSM: good order inflow, better than expected stability

! EDGE: 10 orders, in all continents

! UMTS: 29 contracts, >30,000 Node B

8.9

FY 2000 2001

(2.7%)2002

11.0

target2003

Innovating the mobile worldSalesin billions of euros

8.1%

8-11%

Group profitmargin

11.3

0.9%

10.0

1.8%

17MAY-04

Siemens Business Services (SBS)

FY 2000 2001 2002 target2003

Moving Siemens Business Services forward

Performance drivers

6.0 5.8

(4.3%)

1.7%

5.9

1.2%

5.2

0.2%

Salesin billions of euros

5-6%

Group profitmargin

Sales breakdownFY03

... by region

Solutionservices

Operation-related services Europe

Germany

Product-related services

... by services

Asia-Pacific,Africa & M.E. 4%

Americas8%

39%

49%28%

47%

25%

" Growth- International expansion of the portfolio

- Europe: Improve market presence - USA: Strong growth focused on IT

outsourcing- Expand Business Process Outsourcing

(BPO) business with focus on Human Resources and Financial Services

" Productivity improvement- Cost optimization, e.g.

- Purchasing initiative- Global sourcing

" Customer focus- Intensify account management- Increase share of wallet with existing

customers- Industries: manufacturing, financial

services, government

18MAY-04

World leader in automation

Performance drivers

7.9

10.9%

8.9

11.0%

8.6

8.4%

8.4

9.6%


Group profitmargin

FY 2000 2001 2002 target2003

" Build on clear global No. 1 position

" Technology Leadership - Trendsetter in innovation

" Leading supplier for discrete, hybrid and continuous process automation

" Increase market shares with new Simotion systems, Sinamics drive platform and MES (Manufacturing Execution Systems) business

" Gain market share and new customers (use key account management, cross selling channels)

" Extend regional coverage: Asia, USA

" Continue selective acquisition strategy

" Strong earnings and cash generator

Automation & Drives (A&D)

11-13%

Sales within Market Position

2003

1998 # 1 # 2

# 1 # 2

> # 3

> # 3

19MAY-04

Performance drivers

4.24.6

2.1%2.6%

4.5

(4.4%)

4.0

(1.0%)

Improving customer productivitySalesin billions of euros

4-6%

Group profitmargin

FY 2000 2001 2002 target2003

Restructuring achievements

!HY04 profitable

!Workforce reduced by 2,200 employees worldwide in FY03

! Transfer of 2,600 employees into three new service units of Siemens AG

! Productivity improvement and cost reduction through ‘ target’ and regional performance dialogues

" Impacts in FY2003 - restructuring charges for portfolio

adjustments and reorganization- difficult market conditions- profit oriented order selection

" Reorganization to strengthen competitiveness as a supplier of industrial systems, maintenance services and sector-specific IT solutions with a joint marketing and sales force

" Development of “Completely Integrated Solutions”(CIS), based on product families for the industry sectors paper, metals, mining, oil&gas, water and marines. The product families comprise integrated and modular standards for plant engineering, IT solutions and maintenance services and close the gap between the auto-mation world and customer specific plants.

Industrial Solutions and Services (I&S)

20MAY-04

Restructuring measures

We supply the perfect material flow

Three major effects:

" Extraordinary project and quality costs –mostly stemming out of the pre-merger phase

" Weak markets primarily in Material Handling Automation

" Forming new Group structure

Performance impacts in HY04

" Integrate SD into Siemens AG as GroupLogistics & Assembly Systems (L&A)

" Convert regionally structured Material Handling Automation business into global units: Distribution & Industry Logistics, Airport Logistics and Customer Service

" Enhance program towards the SMS with a ten point plan to go for profit and growth:

1. Creation of standardized Mechatronic Products based on A&D control architecture

2. Development of a common SW architecture, Standardized & Modular Functionality

3. Creation of Leading Edge and Modular Industry Segment Solutions

4. Sales Enforcement: Key Account Management, ‘VMRs’ & Cross Selling

5. Service Initiative 6. Asia Initiative 7. Sizing of Capacities 8. Optimized Value Add Structures and Increased

Flexibility of Capacities 9. Project Management and

Zero-Tolerance for Defects 10. Establish Product Business for

Material Handling

Siemens Dematic (SD)

FY 2000 2002 2003

2.5

(2.3%)

11.0%

1.8

2001

1.5%3.0 2.6

(8.4%)

7-9%

Group profitmargin


target

21MAY-04


7-9%

Group profitmargin

Performance drivers

Turning market position into profitability

Germany

Europe

Americas

Asia-Pacific

Sales by regionFY 2003

28%

37%

31%

FY 2001 2002 2003

5.0

2.4% 3.5%2.0%

5.65.5

" Exploit market leadership in fire safety and building automation by focusing on growing the installed base

" Grow service business with innovative service offerings

" Build position in security systems focusing on high value solutions and services to become market leader

" Strengthen sales channels for Fire & Security Products to drive growth

" Increase sales to third parties and OEMs in heating, ventilation & air conditioning products business

" Complete restructuring of electro-installation business in Germany and sale of facility management business

" Continue streamlining product/system portfolio

" Co-locate all global headquarter functions to drive synergies

" Rigorously apply -program in all business areas

Siemens Building Technologies (SBT)

4%

4.9

6.0 %

2000 target

22MAY-04

8.6

7.4%0.9%

7.8

16.7%

9.4

7.0

16.8%

Our offerings to the Oil & Gas industry increase significantly due to the completion of our product portfolio with small/medium gas turbines and compressors

Full portfolio of rotating equipment:- compressor stations- gas and steam turbine packages- power plants, and- related services


10-13%

Group profitmargin

Siemens Management System at PG

Meeting the market challenges

Winning new customers: PG enters attractive Oil & Gas businessto tap new revenue streams

FY 2000 2001 2002 target2003

" Innovation:!Harmonize GT product line!New large GT family!Optimize steam turbine family

" Customer focus: !Partnering + Architect Engineers as

customers!Oil & Gas

" Global competitiveness:!Low cost manufacturing

" Cross program initiatives:!Service initiative:

- Steam Turbine mods and upgrades- Total plant maintenance and

diagnostics- GT-LTP’s with risk/gain sharing

!Quality and process initiative:- Customer site back quality program

Power Generation (PG)

23MAY-04

FY 2000 2001 2002 target

5-7%


Group profitmargin

3.2*4.1*

1.4%*2.4%*

4.2*

2.6%*

6.1%

2003

Sustainable improvement

Germany

Europe

Americas

Asia-Pacific

Sales by regionFY 2003

Others

16%

27%

18%

27%

12%

" Clear No. 2 in T&D with well-balanced global set-up, as reliable partner for our utility and industry customers

" Consistent improvement of Group profitmargin and customer satisfaction through - portfolio optimization- Key account initiatives for customer

segment ‘utility’ & ‘industry’- PM@PTD (professional projectmanagement)

- Logistics.excellence@PTD(top logistics performance)

- increased value-added service offerings- early adjustment of resources tochanging market demands

" Technological top-performer through focused R&D on platform concepts and IT-based solutions

" Solid asset management to support strategy implementation by acquisitions and investment in production technology

Performance drivers

3.4

Power Transmission and Distribution (PTD)

* incl. Metering

24MAY-04

4.7

SNCF (FKR) 366Diesel-electric freight locomotives

Ukraine 116Electrical equipment for locomotives

Profitable growth with efficient rail solutions

Significant new orders YTD 2004in millions of euros

3.7 4.0

4.6%2.0%

FY 2000 2001 2002

4.4

5.7%

2003

5-7%

Group profitmargin


Performance drivers" Consequent continuation and

implementation of SMS@TS and TSwinsproductivity program

" Clear focus on quality - rigorous quality management (technical and commercial), quality gate system, centers of competence

" Rolling Stock and Rail Academy to expand competency and to improve the standard of quality

" Strong project and risk management" Massive build up of technical engineering

competence" Establishment of cross-divisional expert

circles and Limits of Authority process

Our goals" Return to and continue successful course

while intensifying the focus on top quality" Maintain No. 1 position in the rail automation

and turnkey markets" Build the rolling stock and service business up

to a stable and profitable No. 2 position

Transportations System (TS)

Other successes in YTD 2004" Commissioning of Siemens’ largest ever

interlocking project in Magdeburg

" Rolling Stock Excellence Award in UK for the new Desiro UK services

" Bavarian Quality Award for locomotive plant in Munich-Allach

6.0%

25MAY-04

Performance drivers

Cost structure for passenger carsSource: McKinsey/VDA

2002 2015Today 50% of Siemens VDO’s sales are generated from automotive electronics business. The group aims at a 65% share by 2006

€11,000 €12,000

20%

CAGR

40%

0.7 %

6.2 %

Leverage growth potential

3.85.7

2.3%

8.5

0.8%

8.4

5.0%

5-6%

Group profitmargin


FY 2000 2002 target2001

(4.6%)

2003

" Rigorous implementation of WIP results into cost saving of over 2 bn EUR for 2002-2004

- Better performance by initiatives forquality, software, project manage-ment, design-to-cost

- Improve R+D and manufacturing footprint for global competitiveness

- Enforce asset management

" Streamline product portfolio:

- Boost innovation process by tech-nology board and enforcement of standardization

- Develop products with high-endcustomer benefit and fast pay-back

- Secure number 1 and 2 position in allbusiness segments

" Improve market position in NAFTA by integration of Huntsville Electronics

" Global Key Account Management with “total customer satisfaction” approach

First-tier supplier of applied automotive electronics & mechatronics

Siemens VDO Automotive (SV)

Share ofelectrics /electronics

26MAY-04

Performance drivers

4.9

9.4%7.2

11.2%

FY1999

FY2003

7.6

13.4%

7.4

15.1%11-13%

Group profitmargin


Profitable growth path

targetFY 2000 2001 2002 2003

Share of sales in No. 1 and No. 2 market positions(incl. JV Dräger Medical)

82%

100%

" One partner

Most complete portfolio from IT to diagnostic equipment

" One company

Integration of Acuson and Shared Medical Systems completed

" One platform

Syngo/Soarian

" One focus

Increasing efficiency in healthcare

" One message

Proven outcomes to the market

" One world

Ideal regional business mix

Medical Solutions (Med)

27MAY-04

AutomotiveLighting

OptoSemiconductors

Precision Materials

4.3

9.0%

4.5

10.2%

Ballasts and Luminaires

4.4

8.4%

4.2

9.8% 10-11%

Group profitmargin


targetFY 2000 2001 2002 2003

Sales by DivisionFY2003

6%

9%11%

17%

4%

General Lighting

53%

Photo/Optic Lighting

Performance drivers

" Growth by innovation- Drive systems business

lamps and electronic ballasts)- Expand leading position in opto semi-

conductor business

" Growth by globalization- Extend regional sales network

(Asia, Eastern Europe) - Implement e-business worldwide

" Cost leadership by optimizing structures and processes- Expand production in low-cost countries- Ongoing productivity gains through

design-to-cost, benchmarking, supplychain management and total plant maintenance

- Quick and consistent reaction to marketdevelopments

" Cost leadership through asset manage-ment with focus on working capital

Leading world market position through new technology

Osram

28MAY-04

Profitable growth through balanced portfolio of capital and fee business

Future performance drivers

SFS Divisions

" Focus on growth while sustaining profitability- Anticipated turnaround in asset growth- Profitability expected within target

range- Sustain and advance position as

preferred financial services provider within Siemens

- Focus on third party business in sales financing, investment management (Manager of Manager approach)and insurance brokerage

" Sophisticated risk management- Liquid and diversified credit portfolio- Monitor portfolio credit and

concentration risk- Expected defaults part of risk and

pricing model" Continue to increase operational

efficiency- cost reduction program- Streamline processes- Expand shared services among

business units

Siemens Financial Services (SFS)

= capital business = fee business

" Structured Finance- project & export finance (advisory)

" Investment Management- asset management and pension advisory

" Insurance brokerage (industry and employee business)

" Treasury & Financing Services- Siemens in-house bank

" Equipment & Sales Financing- equipment lease financing- receivables management

" Equity investments in mainly infrastructure projects

FY 2001 2002 2003 target

Total assetsin billions of euros

18-22%

ROE (before taxes)

9.3

18.2%

8.7

23.2%

8.4

24.9%

29MAY-04

Financial Calendar 2004 / 2005

July

November

April

November 11Press conference

November 12Analyst conference

April 28Second quarter results FY04 – conference call –

July 29Third quarter results FY04 – conference call –

January January 27Annual General Meeting

MAY-04

Disclaimer

31MAY-04

Reconciliations and definitions

”Group profit from Operations” is reconciled to ”Income before income taxes” of Operations under ”Reconciliation to financial statements” on the table ”Segment information.” See ”Financial Reports/Fiscal 2004, Quarter 2 / Financial Statements” at our Investor Relations website under www.siemens.com

The allocated equity for SFS is determined and influenced by the respective credit ratings of the rating agencies and by the expected size and quality of its portfolio of leasing and factoring assets and equity investments and is determined annually. This allocation is designed to cover the risks of the underlying business and is in line with common credit risk management standards in banking. The actual risk profile of the SFS portfolio is monitored and controlled monthly and is evaluated against the allocated equity.

”ROE” (Return on equity) margin for SFS was calculated as SFS’ income before income taxes divided by the allocated equity for SFS. Allocated equity for SFS as of September 30, 2003 was €1.080 billion. See also Siemens’ Form 20-F at our Investor Relations website under www.siemens.com

Siemens ties a portion of its executive incentive compensation to achieving economic value added (EVA) targets. EVA measures the profitability of a business (using Group profit for the Operating Groups and income before income taxes for the Financing and Real estate businesses as a base) against the additional cost of capital used to run a business, (using Net capital employed for the Operating Groups and risk-adjusted equity for the Financing and Real estate businesses as a base). A positive EVA means that a business has earned more than its cost of capital, and is therefore defined as value-creating. A negative EVA means that a business is earning less than its cost of capital and is therefore defined as value-destroying. Other organizations that use EVA may define and calculate EVA differently.

A reconciliation of EVA may be found on our Investor Relations website under www.siemens.com

32MAY-04

Siemens Investor Relations Team

Webpage: http://www.siemens.com Investor Relations

e-mail: [email protected]

Fax: +49-89-636-32830

Marcus Desimoni +49-89-636-32445

Dr. Constantin Birnstiel +49-89-636-36165

Irina Pchelova +49-89-636-33693

Christina Schmöe +49-89-636-32677

Disclaimer:This presentation contains forward-looking statements based on beliefs of Siemens' management. Suchstatements reflect the company's current views with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results to be materially different, including, among others, changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products, lack of acceptance of new products or services and changes in business strategy. Actual results may vary materially from those projected here. Siemens does not intend or assume any obligation to update these forward-looking statements.

go for profit and growth - siemens.com · profit driven by restructuring in 03 and new products!...

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