profit and growth - siemens and growth heinrich v. pierer, ceo heinz-joachim neubürger, cfo analyst...
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Profit and Growth
Heinrich v. Pierer, CEOHeinz-Joachim Neubürger, CFO
Analyst conferenceNovember 12, 2004
s
2
sSafe Harbor Statement
This presentation contains forward-looking statements and information – that is, statements related to future, not past, events. These statements may be identified either orally or in writing by words as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “will” or words of similar meaning. Such statements are based on our current expectations and certain assumptions, and are, therefore, subject to certain risks and uncertainties. A variety of factors, many of which are beyond Siemens’ control, affect its operations, performance, business strategy and results and could cause the actual results, performance or achievements of Siemens worldwide to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For us, particular uncertainties arise, among others, from changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products or technologies by other companies, lack of acceptance of new products or services by customers targeted by Siemens worldwide, changes in business strategy and various other factors. More detailed information about certain of these factors is contained in Siemens’ filings with the SEC, which are available on the Siemens website, www.siemens.com and on the SEC’s website, www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement as anticipated, believed, estimated, expected,intended, planned or projected. Siemens does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.
s
3
sKey figures – FY04
Group profit from Operations
New orders
Sales
Net income
EPS (in euros)
in billions of euros FY
Net cashfrom operating and investing activities
Q4
21.6
20.8
1.322
0.654
0.73
0.609
80.8
75.2
4.998
3.405
3.82
3.262
Dividend (proposed; in euros) 1.25--
s
4
sPerformance – FY04
Success stories: A&D, Med, PG, Osram, SFS, SV, PTD
Turnaround at SBT, I&S, L&AWell on track
I&C groups in the blackOutstanding results at ICM NChallenges for ICM MP
TS results affected by high provisions and charges
s
5
sStepping forward within the Siemens Management System
Innovation:Outstanding examples in FY04:
Med: Magnetom Espree with Total Image Matrix (TIM)
SV: Tire Guard II; Gasoline Fuel Injection
ICM: IP Multimedia System (IMS)
International R&D competence network and rigorous patent strategy
Customer Focus:Siemens ONE – setting up worldwide coordinating unit and expanding the approach to more than 40 countries
Increasing market share in Germany through reshaping of sales and service forces – enhanced cross selling activities and a boosted campaign for medium-sized business customers
Global Competitiveness: Tackling German cost base
Ongoing build up of capacities in growth regions
s
6
sGlobal presence
Americas
Asia-Pacific
Middle East,Africa, C.I.S.
Europe(excl.Germany)
Germany
Employees by region (in thousands)
250
300
150
200
FY 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20042003 2005
Germany
International
s
7
sTwelve Points for Profit and Growth in China
CHINAFY04: btb ratio >1
Expansion of China‘s role in the Global Network of Innovation:
10) Expansion of R&D activities11) Further build-up of software
developing capabilities12) Use China as global sourcing base
Market penetration:
1) Increase of regional officesfrom 28 to 60
2) "One Siemens" concept for market clusters
9) Use of China‘s talent potential
Siemens as a preferred employer90 percent of Siemens managers in the country are Chinese nationals1,000 new engineers at SLC alone
Growth strategies for all business areas:
3) I&C with focus on ICN and ICM4) A&C5) Power6) Transportation7) Medical8) Lighting
s
8
sStrategic goals of M&A activities …
Complement existing business portfolio adjacencies
Create growth platforms by broadening the existing portfolio
Enhance regional presence fitting to worldwide strategy
Speed up consolidation / market penetration
Gain selected specific R&D competence
… support our profitable growth strategy
s
9
sTrack record of major M&A activities
Transactions have been proven to be successful !
YearSignificant
strategic goalPurchase price (EV) Assessment
write-off1,6Strengthening position in DSL broadband access market
2001Efficient
on-track0,8Strengthening position in ultrasound2000Acuson
success6,8 Strengthening position in Automotive, Logistics and industrial turbines
2000Atecs
success1,0Strengthening position in fossil-fired power plants, equipment and services worldwide
1998Westinghouse
on-track2,1Expansion into healthcare IT2000Shared Medical
on-track1,6Strengthening position in the Building Systems Division
1998Electrowatt
success0,75Strengthening position in the US-market
1993Sylvania
success0,9Strengthening position in industrial turbines
2003Alstom
in billions of euros
s
10
sRecent M&A activities hit all goals (I)
Trench:Important step to add new High Voltage products to PTD’s portfolioImproved regional positioning, e.g. China, NAFTA and South America
Huntsville:Increasing NAFTA sales for SV by some 50 percent – joining the group of first tier supplierRegional sales split much more balanced Boosting the interior & infotainment business
US Filter:Investing into the fast growing water market, I&S growth platformTechnical round-up of our industry process solution portfolioLeveraging synergy potential by expanding the US market leader’sbusiness through our global network
s
11
sRecent M&A activities hit all goals (II)
Bonus Energy: Round-up of PG’s portfolio by entering the growth market of wind generationCombining turnkey know-how and financial strength with market leadership for offshore wind parksFocus on traditional customers’ new strategic approach – wind business changes from smaller projects to big offshore farms
VA Tech:First step done by becoming the company’s biggest shareholderFurther Roadmap set and under executionStarting the consolidation of T&D business in EuropeTechnological enhancement of PTD and I&SRegional strengthening of the portfolio in Eastern Europe, Middle East and Asia
Power Machines:First step via JV for power generation with Russian market leaderNext steps defined Penetrating the regional market with interesting growth potential
s
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sBack on growth track
48.245.4
9796 98
54.760.2
68.6
87.0
78.4
02 03
84.0
FY95
6%11%
10%6%
15%6%
0% (4)% 3%
74.2
Organic growth rates before currency and consolidation effects
04
75.2
target
0599 00 01
CAGR: ~6%
Sales as reported in billions of euros
s
13
s
Gross Margin from Operations
27
28
2001 2002 2003 2004
Portfolio changes effect profits positively
Gross margin improvements:
Rigorous cost reductions
Volume increase
Revenue split by market position
28% 22%
20%13%
52%65%
1998 2004
strongmediumweak
Improvements due to:
Innovation drives
Portfolio activities
+150 bps%
s
14
sAdjusted WACC due to changesin the economic environment
Parameters have changed (interest rates, equity risk premium, betas, tax rate and capital structure)
After more than six years of stability adjustmentsare appropriate
Material changes in Groups' product / businessportfolio and improved overall performance have improved risk profiles
s
15
sChanges in EVA WACC, however margin targets remain unchanged
WACC
until 2004 from 2005 onwards
WACCFlat tax rate 35%
ICNICMSBS
A&DI&SL&ASBT
PGPTD
TSSV
Med
Osram
SFS1)
SRE1)
10%10%10%
9%9%9%8%
9%9%
9%9%
9%
8%
9.75%8%
8.5%
7.5%6.5%7.0%7.0%7.0%
7.0%7.0%
7.0%7.0%
7.0%
6.5%
7.5%6.5%
Siemens 9% 7,1%
1) Cost of Equity
Flat tax rate 30%
COM
s
16
sOther considerations
M&A market: competitive environment
Investment criteria faced: • Private Equity – Treasury bond +500 bps or pay-back• EPS• EVA
Conclusion:
Siemens will continue its disciplined M&A approach but has to consider changed market environment.
s
17
sSiemens will adopt IFRS by end of FY06
Our US-GAAP financial statements are compatible with most IFRS standards
The effect on earnings is expected to be positive
Areas requiring adjustments are few (e.g. pension, R&D)
s
18
s
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
19.5
17.8
6.0%
14.5
(5.0)
1.8
0.2
33%
3%
46%
8%
13%
(0.250)
8.0%
(0.828)
6.7%
20.9
19.8
5.4%
15.9
(5.0)
1.6
0.2
31%
–
50%
10%
9%
6.7%
1.5
0.6
Key figures – pension
FY02 FY03
1) As of September, 302) 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 until FY03; beginning FY04 service cost component of allpension plans is allocated to the groups
4) Basis for calculation of net periodic benefit costs of the corresponding year
FY04 FY05in billions of euros
20.8
20.0
5.5%
17.7
(3.1)
1.3
0.5
26%
–
56%
9%
9%
(0.730)
6.7%
s
19
sPension – BSAV effect 1)
1) BSAV = Betriebliche Siemens Alterversorgung = new, defined contribution pension scheme
Curtailment gain amortized over 15 years
Defined contributions initially higher than past year service cost (about €50 mill.); breakeven expected from 2012 onward, ceteris paribus
NPPC carried centrally reduced to about €630 mill. in fiscal 2005 from €730 mill. in 2004
s
20
sRaw Material:Impacts on Siemens Groups
Raw Material
ICNICMSBS
A&DI&SL&ASBT
PGPTDTSSVMedOsram
5-7%5-7%
-
> 10%-
> 10%< 40%
10%< 40%
1%5-7%
< 40%
~ 15%
PlasticsPlastics
-Steel
-Steel
Copper
SteelCopper
AluminumPlastics
Copper
Wolfram
Impacton Group costs
Price Change*
oooooooooooo
o
*Market Prices o negligible– negative+ positive
COM
s
21
sFinancial assumptions for FY05
Cash flow of Financial Services in line with growth opportunities
Tax rate: ~ 25 percent
Ongoing adjustments to pension asset allocation
Capex: ~ 100 percent ball-park
Cash flow from Operations lower
s
22
sOutlook 2005
Challenges:
TS: resolving technical issues
SBS: tackling earnings weakness
COM: preparing budget; we want to put COM on a profitable growth trajectory
Business Environment:
Weakening USD (€ > 1,35)
Rising commodity prices create challenge
Geopolitical uncertainties
Pursuing further operational improvements at our Groups
s
23
sGo for Profit and Growth –directive in 2005
Growth in regions likeGermany, U.S., China, Russia, India as well as Central and Eastern Europe
Leverage of top+ programs: Innovation, CustomerFocus and Global Competitiveness
More specific outlook with Q1-FY05 release
NOV-04
Appendix
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sKey figures – 2004
Group profit from Operations
New orders
Sales
Net income
EPS (basic; in euros)
in billions of euros
Net cashfrom operating and investing activities
Q1
20.5
18.3
1.361
0.726
0.82
(1.191)
Q2 Q3 Q4 FY
19.7
17.8
1.076
1.210
1.36
3.565
19.1
18.2
1.239
0.815
0.91
0.279
21.6
20.8
1.322
0.654
0.73
0.609
80.8
75.2
4.998
3.405
3.82
3.262
s
26
s
Customer Focus- End to end solution provider for pure play as
well as converged play- Cross selling initiatives within COM and Siemens- Enhancing sales channels- Global presence in over 160 countries
Lead in Innovation- Enhancing feature rich and multifunctional
devices- NGN carrier control based on IMS architecture- Leading mobile infrastructure technologies
(Edge, UMTS, HSDPA)- Siemens Home Entertainment Solutions- Leading in Access solutions such as Carrier
grade Ethernet and OFDM based air interfaces- Innovative Enterprise solutions such as HiPath
and Openscape- Innovative service offerings for Enterprises and
Service Providers
Global Competitiveness- Increasing investments in low cost countries
(40% of R&D employees)- Reducing working capital- Leverage €10 bn buying power globally- Maximize synergies of Devices, Carrier and
Enterprise
Siemens Communications (COM)
End2End powerhouse
Performance and growth drivers
Enterprise Communications # 2
Digital Cordless Phones # 1
Mobile Phones # 4
Wireless Modules # 1
Enter-prise
Leading market positions in 2004
*) in Q4/04: # 2
Salesin billions of euros, not consolidated
Group profitmargin
24.220.7
17.1 18.0
Fixed Networks # 3
Mobile Networks # 3 *)
8-11%
targetFY 2001
(4.8%)
2002
(2.9%)
2003
(1.1%)
2004
3.2
Devices
Carrier
s
27
sSiemens Business Services (SBS)
6.0 5.8
1.7%
5.2
5-6%
Group profit margin
Sales breakdownFY04
... by region
Solutionservices
Operation-related services Europe
Germany
Product-related services
... by services
Asia-Pacific,Africa & M.E. 4%
Americas9%
39%
48%28%
46%
26%
Growth- Europe: Improve market presence - USA: Growth focused on IT outsourcing- Portfolio: Expand Business Process
Outsourcing (BPO) with an initial focus on Human Resources and Financial Services in Germany and UK
Customer focus- Intensify international account
management- Improve share of wallet with
existing customers- Leverage "One Siemens" market
approach- Focus industries: manufacturing,
financial services, public sector
Global competitiveness- Operational excellence - Further cost optimization, e.g.
Purchasing initiativeGlobal sourcing
Performance drivers
2004 target
0.8%
(4.3%)
0.2%
FY 2001 2002 2003
Salesin billions of euros
Moving SBS forward
4.7
s
28
s
> # 3
8.9
11.0%
8.6
8.4%
8.4
9.6%
8.8
12.2%
FY 2001 2002 2003 target2004
Automation & Drives (A&D)
11-13%
Sales within Market Position
FY04
FY99 # 1 # 2
# 1 # 2
> # 3
World leader in Factory Automation
Leading supplier for discrete, hybrid and continuous process automation and electrical equipment for buildings
Focus on high margin portfolio
Global Competitiveness – Launch ofGlobal Manufacturing Concept
Customer focus – Strengthen the established Sector Development Board approach by extending it to additional sectors (e.g. semiconductors)
Innovation – Increase market shareswith new Simotion systems, Sinamicsdrive platform and MES business(Manufacturing Execution Systems)
Strengthen regional coverage in Asia, USA, India and Russia
Performance and growth driversSalesin billions of euros
Group profit margin
World leader in automation
s
29
s
4.6
2.1%
4.5 4.3
2.2%
4-6%
Mission StatementI&S develops, builds, and upgrades plants for industry and infrastructure facilities. I&S combines various drive-, automation-, IT-, and maintenance-solutions from other Siemens Groups to form an integrated complete offering for the life cycle of a plant. I&S thus optimises the production and operational processes of our customers in the sectors water, metals, traffic control, marine solutions, oil and gas, paper and mining.
Impacts in FY04 - portfolio adjustments (SEAR, FEAG) - profit oriented order selection
Development of product families for the industry sectors which comprise integrated and modular standards for plant engineering, IT solutions and maintenance services and close the gap between automation standards and customer specific needs
Water Technologies was established as a new division in August 2004 with the acquisition of USFilter Corporation, a leading supplier of products and services with a broad customer base for municipal and industrial water treatment in North America. With the acquisition, we expect to position ourselves as a leader in the growing global water and wastewater market
Industrial Solutions and Services (I&S)
4.0
Performance drivers
target
(4.4%)
FY 2001 2002 2004
(1.0%)
2003
Salesin billions of euros
Group profit margin
Improving customer productivity
s
30
s
1st half of FY:Extraordinary project and quality costs –mostly stemming out of the pre-merger phase
Weak markets primarily in Logistics-Automation for Distribution and Industry
Forming new divisional Group structure
2nd half of FY:Turnaround in 2nd Half Year – crisis projects and quality problems mainly solved
Recovery of market for electronics assembly
Performance impacts in FY04
Implement the SMS with a ten point program to go for profit and growth and enhance :
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, Value Managed Relationship & 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
Logistics and Assembly Systems (L&A)
2.51.5%3.0 2.6
7-9%
target
2.3
0.1
Restructuring measures
FY 2002 2003
(2.3%)
2001
(8.4%)
2004
Salesin billions of euros
Group profit margin
Worldwide leader in logistics and assembly
s
31
s
7-9%
Germany
Europe
Americas
Asia-Pacific
Sales by regionFY03
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
Continue streamlining product/system portfolio
Extend portfolio for Total BuildingSolutions
Co-locate all global headquarter functions to drive synergies
Rigorously apply -program in all business areas
Siemens Building Technologies (SBT)
4%
target
Performance driversSalesin billions of euros
2004
4.3
2.5%
Group profit margin
Turning market position into profitability
s
32
s
Salesin billions of euros
More than 5000 turbines with >3GW capacity installed
Full-scope product portfolio of reliable wind turbines
Extensive offshore know-how
References:- World’s largest offshore wind farm: Nysted (166 MW)
- World’s largest onshore wind farm: King Mountain (278 MW)
Entering the growing wind energy business to expand PG’s product portfolio
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- Shared services
Cross program initiatives:- Service initiative:
• Steam Turbine modifications 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)
9.4
7.0 7.5
7.4%
16.7%
16.8%
12.8%
10-13%
Siemens Management System at PG
FY 2001 2002 2003 target2004
8.6
Group profit margin
Meeting the market challenges
s
33
s
Salesin billions of euros
FY 2001 2002 2003 target
5-7%
4.1*
2.4%*
4.2*
2.6%*
6.1%
2004
Germany
Europe
Americas
Asia-Pacific
Sales by regionFY04
Others
12%
27%
18%
25%
18%
Clear No. 2 in T&D with well-balanced global set-up; reliable partner for our customers through utilizing the SMS:
Innovation
- Technological top-performer through focusing R&D on platform concepts and trendsetting technologies
- Continuous portfolio optimization via innovating our technology and supple-menting new products by acquisitions
Customer Focus
- sales channel optimization by consequently applying Key Account Mgmt., Cross Sellingand Customer Relationship Mgmt.
- MI@PTD (market intelligence community)
- Increasing value-added service offerings
Global competitiveness
- PM@PTD (Professional Project Mgmt.)
- Logistics.excellence@PTD
- Early adjustment of global manufacturing and resources e.g. by adding andextending new factories in China
3.4
Power Transmission and Distribution (PTD)
* incl. Metering
3.6
6.6%
Performance driversGroup profit margin
Sustainable improvement
s
34
s
Salesin billions of euros
Consequent continuation and implementation of TS programIntensification of quality initiative with focus on “fire fighting”, rigorous quality management (technical and commercial), quality gates and Centers of CompetenceMassive build up of technical engineering competenceFurther improvement of competency level through Rolling Stock Academy and five additional Centers of CompetenceFurther enhancement of strong project and risk managementImprovement of bid quality and project start upEstablishment of cross-divisional expert circles, Limits of Authority process and Financial Excellence program
Our goalsReturn to and continue successful course while intensifying the focus on top qualityReach a sustainable and profitable No. 2 position by means of technological leadership, growth and internationalizationMaintain No. 1 position in the rail automation and turnkey markets
SNCF (FKR) 366diesel-electric freight locomotives
Wiener Linien (OES) 255ultra-low-floor (ULF) trams
Significant new orders FY04Siemens order value in millions of euros
5-7%
Transportations System (TS)
Other successes in FY04Commissioning 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
-10.1%
Performance drivers
4.74.0
4.6%
FY 2001 2002
4.4
5.7%
2003
6.0%
4.3
Group profit margin
2004 target
Profitable growth with efficient rail solutions
s
35
s
Salesin billions of euros
Cost structure for passenger carsSource: McKinsey/VDA
Today 50% of Siemens VDO’s sales are generated from automotive electronics business. The group aims to achieve a 65% share by 2006
Leverage growth potential
5.7
8.5
0.8%
8.4
5.0%
5-6% Rigorous implementation of WIP lead to further cost savings of almost 1 bn EUR in 2004
- Improve quality and processmanagement
- Improve R+D and manufacturing footprint for global competitiveness
- Enforce asset management
Focus product portfolio
- Enforce standardization and function orientation
- Increase commercial vehicle business by 50 % until end of decade
- Foster strategic acquisitions in systems for Advanced Driver Assistance
Extend business in Asia with focus on Japan and China
Develop new methodology for Global Key Account Management to reach “total customer satisfaction”
Siemens VDO Automotive (SV)
2002 2015
€11,000 €12,000
20%
CAGR
40%
0.7 %
6.2 %Share ofelectrics /electronics
Performance drivers
6.2%
9.0
FY 2002 target2001
(4.6%)
2003 2004
Group profit margin
First-tier supplier of applied automotive electronics & mechatronics
s
36
s
Salesin billions of euros
11.2%13.4%
15.1%
FY 2001 2002 2003
Our Strategy Increase quality and decrease cost of healthcare delivery improve workflow
Innovation LeadershipContinuing high investment in R&D (9 % of sales)Trendsetter in technology and applications:- Sensation 64 – First 64-slice CT in the
market- Magnetom Espree with TIM – The world’s
first open bore MR with TIM (Total Imaging Matrix) and 1.5T
- Symbia – Integrated solution for SPECT and CT – combines functional and anatomical diagnostics
- World market leader in Healthcare IT –Siemens integrated IT-Platform superior to “best of breed”
Global Competitiveness- P3 – People/Process/Products 3.6 bn. cost productivity since 1998- Platform Strategy – syngo/Soarian - Increased software/hardware value added in
low-cost countries - Continuing process optimization
Medical Solutions (Med)
2004
14.8%
+ 11%points
+ 9%points
+ 9%points
Market shareAX* CT MR
7.2 7.6 7.4
1) excl. gains from portfolio transactions2) comparable basis (currency effects and portfolio transactions)
Examples
*Angiography, Fluoroscopic, Radiographic Systems
7.1
target
Group profit margin
FY98FY04Trendsetter in Technologies
Profitable growth path
11-13%
s
37
s
Salesin billions of euros
AutomotiveLighting
Opto Semi-conductors*
Precision Materials andComponents
4.5
10.2%
Ballasts and Luminaires
4.4
8.4%
4.2
9.8%
10.5%
2004FY 2001 2002 2003
Sales by Division*
Display/Optic**
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
- Achieve ongoing productivity gains through design-to-cost, benchmarking, supply chain management and total plant maintenance
- Maintain quick reaction to market developments
Cost leadership through asset manage-ment with focus on working capital
Osram
* LED business of all divisions: see Opto Semiconductors** till 09/30/2004: Photo-Optic
4.2
Performance drivers
target
FY04
General Lighting
6%
11%
11%
16%
5%
51%
Leading world market position through new technology
10-11%
Group profit margin
s
38
s
Total assetsin billions of euros
ROE (before taxes)
SFS Divisions
Continuing focus on growth while sustaining high level of profitability- Turnaround in asset growth realized in
FY04; further significant growth expected in FY05
- Sustain and advance position as captive financial services provider to realize synergies and increase competitiveness of Siemens
- Focus on external business to strengthen position as financial services provider in its own right
Sophisticated risk management and central credit portfolio management
Continue to increase operational efficiency, e.g. IT platforms
Expand regional presence along Siemens needs
Focus program on growth
Siemens Financial Services (SFS)
= capital business = fee business
Project & Export Finance- advisory & servicesInvestment Management- asset management and pension advisoryInsurance brokerage- industry and employee businessTreasury & Financing Services- Siemens in-house bank, consulting & applications
FY 2002 2003 2004
18-22%
8.7
23.2%
8.4
24.9%
9.1
24.6%
Equipment & Sales Financing- equipment lease financing- receivables financing- asset-based lendingEquity investments, mainly in infrastructure projects
Future performance drivers
target
Boosting profitable growth in internal and external business
s
39
sFinancial Calendar FY05
April
November
January
July
November 11Press conference
November 12Analyst conference
April 27Semiannual results FY05 – conference call
January 27First quarter results FY05 – conference call – and AGM
July 28Third quarter results FY05 – conference call
s
40
sReconciliations 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 4 / 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, 2004 was €1.015 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
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sSiemens 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