Siemens Energy – Controlling the
Business, Achieving the Targets
Ralf Guntermann, CFO Energy
Capital Market Days “Energy”
Munich, July 1, 2008
Copyright © Siemens AG 2008. All rights reserved.
Safe Harbour Statement
This document contains forward-looking statements and information – that is, statements related to future, not past, events. These
statements may be identified by words such as “expects,” “looks forward to,” “anticipates,” “intends,” “plans,” “believes,” “seeks,”
“estimates,” “will,” “project” 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 our operations, performance, business strategy and results and could cause the actual results, performance or
achievements of Siemens 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 (including margin developments in major business areas); the challenges of integrating major acquisitions
and implementing joint ventures and other significant portfolio measures; 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; changes in business strategy; the outcome of pending investigations and legal proceedings,
especially the corruption investigations we are currently subject to in Germany, the United States and elsewhere; the potential impact
of such investigations and proceedings on our ongoing business including our relationships with governments and other customers;
the potential impact of such matters on our financial statements; as well as various other factors. More detailed information about
certain of these factors is contained throughout this report and in our other 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 forwardlooking statement as expected, anticipated, intended, planned, believed, sought, estimated 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.
This document presents other financial measures, “Profit Total Sectors,” “Return on capital employed” (ROCE), “Free cash flow” and
“Cash conversion rate.” These measures are or may be “non-GAAP financial measures” as defined in relevant rules of the U.S.
Securities and Exchange Commission. Our management takes these measures, among others, into account in its management of
our business, and for this reason we believe that investors may find it useful to consider these measures in their evaluation of our
performance. Neither Profit Total Sectors nor ROCE should be viewed in isolation as an alternative to IFRS net income for purposes
of evaluating our results of operations; and CCR and Free cash flow should not be viewed in isolation as alternatives to measures
reported in our IFRS cash flow statement for purposes of evaluating our cash flows. For definitions of Profit Total Sectors, ROCE,
CCR and Free cash flow, please refer to “Reconciliation and Definitions for Non-GAAP Financial Measures” on our Investor
Relations website, www.siemens.com/ir.
Page 2
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
My priorities as the CFO of the Energy Sector
Enable Siemens Energy to drive profitable growth
Drive productivity and efficiency gains
throughout our Sector
Ensure CAPEX discipline and Working Capital
efficiency to improve Cash generation
Page 3
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Focus on growth, profitability and cash generation
Business growth
Productivity and efficiency
Cash generation
ƒ Leverage tailwinds from
favorable market
ƒ Enhance productivity
programs
ƒ Maintain high level of
cash flow
ƒ Drive organic growth
ƒ Rigorous spending control
ƒ Convert high backlog
ƒ Exploit SG&A cost reduction
potential
ƒ Focus CAPEX on areas
with highest growth and
profitability expectations
ƒ Leverage position as
integrated supplier
ƒ Capitalize on installed
base
ƒ Increase global shared
services
ƒ Only selective M&A
ƒ Optimize Working Capital
ƒ Reduce number of legal
entities
ƒ Enhance global footprint
Integrated Risk
Management:
Page 4
July 2008
New Enterprise Risk Management System (ERM), reinforced Limits of
Authority process, selective engagement in Solution business
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
The Energy Sector combines two groups with strong
top-line growth
Revenue
Order intake
€ bn
€ bn
+39%
28.5
+27%
+22%
+35%
16.6
20.6
20.3
8.1
2.5
Renewable
4.7
Oil & Gas
6.7
Transmission
3.3
Distribution
12.5
10.1
8.1
PTD
Fossil
16.2
Fossil
12.3
PG
11.7
1.4
Renewable
3.4
Oil & Gas
4.9
Transmission
6.5
4.3
2.9
FY 2005 1)
FY 2006 1)
Distribution
FY 2007
11.0
PG
PTD
8.0
5.3
FY 2005 1)
FY 2006 1)
FY 2007
1) Aggregated figures w/o I&S Oil and Gas business.
Page 5
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Positive productivity development
Revenue per Employee
€k
Profit per Employee
€k
26
290
260
17
FY 2006
Page 6
July 2008
FY 2007
FY 2006
Capital Market Days “Energy”
FY 2007
Copyright © Siemens AG 2008. All rights reserved.
High capital efficiency and further improvement
ROCE
Increase of ROCE driven by:
ƒ Margin improvement
ƒ Strict discipline on working capital
48%
ƒ Selective capital spending
in all Divisions of Siemens Energy
31%
Calculation of ROCE
FY 2006
Page 7
FY 2007
July 2008
ROCE =
Capital Market Days “Energy”
Sector Profit before tax
Average Net Capital Employed
Copyright © Siemens AG 2008. All rights reserved.
A better, sharper, more agile organization
Energy Solutions
Old
New
Energy
Sector
Products
Fossil Service
PG
PG
Instrumentation and Electrical
Oil & Gas business
High Voltage
Fossil Power Generation
Speed
Oil & Gas and Industrial
Applications
Customer Focus
Wind Power
I&S
Oil & Gas
(Externally reported in
Fossil/ Oil & Gas)
Renewable Energy
Power Transmission
Transformers
PTD
Service
Medium Voltage
Energy Automation
Power Distribution
Services
Page 8
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Key figures
€m
Q2
FY 2007
Order Intake
(Δ adjusted1) )
Revenue
Δ in %
+19%
7,605
(+26%)
+1%
4,921
(Δ adjusted1) )
Sector Profit
478
Profit Margin
9.7%
Free Cash Flow
ROCE2)
(+6%)
-99%
762
-1%
46.7%
Q2
FY 2008
1st half
FY 2007
9,026
15,921
+14%
4,964
9,457
+6%
6
782
0.1%
8.3%
754
826
0.8%
39.5%
Δ in %
(+19%)
(+9%)
-55%
1st half
FY 2008
18,105
9,999
353
3.5%
+32%
1,087
22.3%
Strong organic growth in order intake
Profit in 1st half of FY 2008 affected by project charges (Fossil)
High level of cash flow
1) Adjusted for currency and portfolio effects
2) Sector Profit/ Average Net Capital Employed, before tax
Page 9
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Key Data by Divisions Q2 FY 2008
€m
Order Intake
Revenue
Profit & Margin
Margin
Q2
FY 2008
Q2
FY 2008
Q2
FY 2008
Q2
FY 2007
Oil&Gas
1,096
981
78
8.0%
4.2%
Fossil Power Generation
4,192
1,732
-328
-18.9%
12.5%
961
417
35
8.4%
12.1%
1,993
1,256
144
11.5%
6.4%
917
699
77
11.0%
10.5%
9,026
4,964
6
0.1%
9.7%
Renewable Energy
Power Transmission
Power Distribution
Energy
Page 10
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Key Data by Divisions 1st half FY 2008
€m
Order Intake
Revenue
Profit & Margin
Margin
1st half
FY 2008
1st half
FY 2008
1st half
FY 2008
1st half
FY 2007
Oil&Gas
2,943
1,808
144
8.0%
5.0%
Fossil Power Generation
7,632
3,633
-303
-8.3%
9.5%
Renewable Energy
1,993
834
87
10.4%
9.5%
Power Transmission
3,917
2,500
269
10.8%
6.4%
Power Distribution
1,837
1,431
155
10.8%
10.1%
18,105
9,999
353
3.5%
8.3%
Energy
Page 11
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
The Energy Sector capitalizes on high order backlog
Order backlog Energy Solutions
€ bn (unconsolidated)1)
40.3
11.3
34.1
15.3
Service
(therein
LTP2) and
O&M3) Fossil
Power Gen.)
1)
13.9
12.5
(8.9)
(9.6)
Backlog
09/2007
Backlog
03/2008
Aggregated figures w/o I&S Oil and Gas business.
Page 12
July 2008
4.6
9.1
(8.0)
Revenue
2nd half 2008
2)
Revenue
2009
Long Term Programs
Capital Market Days “Energy”
Revenue
2010
3)
Revenue
beyond 2010
Operation and Maintenance
Copyright © Siemens AG 2008. All rights reserved.
The Energy Sector is committed to achieve
2010 target margins
Energy
11 – 15%
Oil & Gas
Fossil Power
Generation
Renewable
Energy
Power
Transmission
Power
Distribution
10 – 14%
11 – 15%
12 – 16%
10 – 14%
11 – 15%
10%
10%
8%
10%
7%
2007 Performance
Page 13
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Key levers for target achievement in FY 2010 implemented
15%
Target Margin
11%
Range of
potential
performance
depending
on economic
scenarios
Personnel
Material
FC Profit
FY 2008
Implemented
levers:
Page 14
Growth
ƒ Selective
bidding
(projects &
regions)
ƒ Focus on
product &
service
businesses
ƒ Scale effect
realization
July 2008
Factor costs
ƒ Risk
management for
key
materials
(e.g. steel)
Pricing
Productivity
ƒ Value pricing
(Performance, life
cycle costs)
ƒ Indexed
pricing
(pass-through
of cost
increases)
ƒ Reduce
COGS
ƒ Global
Footprint
ƒ SG&A cost
reduction
ƒ Reduction of
quality costs
Capital Market Days “Energy”
Target Profit
FY 2010
Copyright © Siemens AG 2008. All rights reserved.
Our new productivity program
Costs down
Division CEOs
Productivity
Sustain improvements
Rene Umlauft
Ralf Christian
Footprint / Manuf.
Ralf Guntermann
SG&A costs
Sales up
Michael Süß
Innovation and R&D
Project
Management
Division CEOs
Working capital
Division CEOs
Randy Zwirn
Resource
Management/HR
CAPEX
Udo Niehage
Frank Stieler
Quality costs
Page 15
July 2008
Wolfgang Dehen
Business Portfolio
Procurement
and Supply Chain
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Selective Capital Spending: Boosting profitable
organic growth and backlog conversion capabilities
Efficient Capital allocation in areas with
highest growth & profitability expectations
Capital Efficiency (ROCE)
high
Profiteer
Divisions
ƒ Enhance Wind Power
manufacturing capacities
(Speed@Wind)
Top
Divisions
ƒ Ramp up of gas turbine
capacity
Average
Substance Keeper
Divisions
High Growth
Divisions
low
1x GDP
Growth
ƒ Localized production
in China
(low-cost transformer)
2x GDP
Growth
Organic Growth
(Sales, adjusted for portfolio effects and currency translation effects)
Stringent investment management and controlling
Page 16
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Getting the best people
We have a clear strategy in the competition
for competencies & talents
ƒ Strategic personnel planning process
ƒ Standardized global recruiting strategy
ƒ Focus on retention of new hires
ƒ Specific development measures for mature workforce
and high potentials
Our Focus
Activities
ƒ Increased employee mobility and project delegations
ƒ Increase workforce and number of skilled experts in
emerging markets
ƒ Finance Excellence Program
We ensure our goals are achieved efficiently,
without sacrificing our quality standards
Page 17
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Simultaneously exploit SG&A cost reduction potential
Ambitious targets set
ƒ Initiatives running in Divisions, Regional Clusters and Headquarter
ƒ Selling expenses nearly flat in spite of tremendous volume increase
ƒ G&A will be reduced in absolute figures
Levers from changes in structures and processes
ƒ Worldwide Review of Sales Setup (elimination of overlaps in activities; bundling of
resources, setting focus on key products / key regions)
ƒ Headquarter Functions: Consolidation and bundling of Services; >20% cost
reduction target
ƒ Reduction in number of legal entities by approx. 40%
ƒ Several specific Sector initiatives such as reduction of consultant costs
Worldwide approach (>50% SG&A costs outside Germany)
Î Targets for Divisions, Clusters and Headquarter
Page 18
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Less complexity: Reduce number of legal entities
Planned reduction of number of legal entities –
Energy Sector
214
ƒ Reduced complexity
by lower number of
reporting units
ƒ Increase of
transparency
ƒ Improvement of
effectiveness of
corporate governance
21
Number of legal entities
ƒ SG&A reduction by
cutting overhead
expenses and fees
11
Status
09/2007
Page 19
July 2008
46
FY 2008
Capital Market Days “Energy”
FY 2009
FY 2010
136
Forecast
FY 2010
Copyright © Siemens AG 2008. All rights reserved.
Asset Management @ Energy –
Working Capital optimization
Operating Working Capital1) Turnover
Ongoing activities for
Working Capital optimization:
ƒ
ƒ
ƒ
ƒ
ƒ
35
30
Inventory management
initiatives
Ongoing optimization of
payment terms
Focus on claim
management
Proactive receivable
management
Regionalized approach
25
18
20
15
10
9
7
Continued
upward
progress
through
1st half FY 2008
5
0
FY 2005
FY 2006
FY 2007
1) Trade Receivables and Inventories less Prepayments and Trade Payables
Page 20
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Delivering our targets
Growth above market growth
Boosting Backlog Conversion
Recruitment initiative
Reinforced LoA process
Business growth and
earnings conversion
ƒ
ƒ
ƒ
ƒ
Driving productivity and
efficiency to reach our
margin targets
ƒ Energy productivity program
ƒ Exploitation of SG&A cost reduction
potential
ƒ Reduction of number of legal entities
CAPEX efficiency and
Cash generation
ƒ Continued focus on cash conversion
ƒ Selective, profit-oriented CAPEX
activities, e.g. Speed@Wind
ƒ World-wide Asset Management focus
Page 21
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Reconciliation and Definitions for Non-GAAP
Measures (I)
Profit Total Sectors is defined as the sum of the profits of each of the three new Sectors that Siemens uses for purposes of reporting IFRS
segment results commencing with the third quarter of fiscal 2007. For a reconciliation of Profit Total Sectors to the most directly comparable IFRS
financial measure (Income from continuing operations before income taxes), see Exhibits 99 (b, c, d) to the Siemens Report on Form 6-K furnished
to the U.S. Securities and Exchange Commission (SEC) on June 24, 2008, which is available on our Investor Relations website under
www.siemens.com/ir.
Return on Capital Employed (ROCE) is a measure of how capital invested in the Company or the Sectors yields competitive returns.
For the Company, ROCE is calculated as Net income (before interest) divided by average Capital employed (CE). Net income (before interest) is
defined as Net income excluding Other interest income (expense), net and excluding taxes on Other interest income (expense), net. Taxes on
Other interest income (expense), net are calculated in simplified form by applying the current tax rate which can be derived from the Consolidated
Statements of Income, to Other interest income (expense), net. CE is defined as Total equity plus Long-term debt plus Short-term debt and current
maturities of long-term debt minus Cash and cash equivalents.
Because Siemens reports discontinued operations, Siemens also calculates ROCE on a continuing operations basis, using Income from continuing
operations rather than Net income. For purposes of this calculation, CE is adjusted by the net figure for Assets classified as held for disposal
included in discontinued operations less Liabilities associated with assets classified as held for disposal included in discontinued operations.
For the Sectors, ROCE is calculated as Profit divided by average Net capital employed (NCE). Profit for the Sectors is principally defined as
earnings before financing interest, certain pension costs and income taxes, whereas certain other items not considered performance indicative by
Management may be excluded. NCE for the Sectors is defined as total assets less income tax assets, less non-interest bearing liabilities/provisions
other than tax liabilities.
Average (Net) Capital employed for the fiscal year is calculated as a “five-point average” obtained by averaging the (Net) Capital employed at the
beginning of the first quarter plus the final figures for all four quarters of the fiscal year. For the calculation of the average for the quarters, see
below:
Page 22
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Reconciliation and Definitions for Non-GAAP
Measures (II)
Average calculation for CE*:
Year-to-Date
Q1
2 Point average: (CE ending Q4 Prior year + CE ending Q1) / 2
Q2
3 Point average: (CE ending Q4 Prior year + CE ending Q1 + CE ending Q2) / 3
Q3
4 Point average: (CE ending Q4 Prior year + CE ending Q1 + CE ending Q2 + CE ending Q3) / 4
Quarter-to-Date
Q1
2 Point average: (CE ending Q4 Prior year + CE ending Q1) / 2
Q2
2 Point average: (CE ending Q1 + CE ending Q2) / 2
Q3
2 Point average: (CE ending Q2 + CE ending Q3) / 2
Q4
2 Point average: (CE ending Q3 + CE ending Q4) / 2
* NCE for Sectors
Our cash target is based on the Cash Conversion Rate (CCR), which serves as a target indicator for the Company’s or the Sectors’ cash flow.
For the Company, CCR is defined as the ratio of Free cash flow to Net income, where Free cash flow equals the Net cash provided by (used in)
operating activities less Additions to intangible assets and property, plant and equipment.
Because Siemens reports discontinued operations, this measure is also shown on a continuing operations basis, using Income from continuing
operations, Net cash provided by (used in) operating activities – continuing operations and Additions to intangible assets and property, plant and
equipment for continuing operations for the calculation.
For the Sectors, CCR is defined as Free cash flow divided by Profit.
All values needed for the calculation of ROCE and CCR can be obtained from the Consolidated Financial Statements and Notes to Consolidated
Financial Statements.
Profit, Net capital employed (under the column named Assets) and Free cash flow for the Company and the Sectors can be found on the Exhibits
99 (b,c,d) to the Siemens Report furnished on Form 6-K to the SEC on June 24, 2008, which is available on our Investor Relations website under
www.siemens.com/ir.
To measure Siemens’ achievement of the goal to grow at twice the rate of global GDP, we use GDP on real basis (i.e. excluding inflation and
currency translation effects) with data provided by Global Insight Inc. and compare those growth rates with growth rates of our revenue (under
IFRS). In accordance with IFRS, our revenue numbers are not adjusted by inflation and currency translation effects.
Profit Total Sectors, ROCE, CCR and Free cash flow are or may be Non-GAAP financial measures as defined in relevant rules of the U.S.
Securities and Exchange Commission. Our management takes these measures, among others, into account in its management of our business,
and for this reason we believe that investors may find it useful to consider these measures in their evaluation of our performance. None of Profit
Total Sectors and ROCE should be viewed in isolation as an alternative to IFRS net income for purposes of evaluating our results of operations;
CCR and Free cash flow should not be viewed in isolation as an alternative to measures reported in our IFRS cash flow statement for purposes of
evaluating our cash flows.
Page 23
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.
Siemens Investor Relations Team
Michael Sen
+49-89-636-33780
Gerald Brady
+1-408-492-4439
Florian Flossmann
+49-89-636-34095
Sabine Groß
+49-89-636-35755
Dr. Martin Meyer
+49-89-636-33693
Christof Schwab
+49-89-636-32677
Dr. Gerd Venzl
+49-89-636-44144
Webpage:
http://www.siemens.com/investorrelations
e-mail:
investorrelations@siemens.com
Telephone:
+49-89-636-32474
Fax:
+49-89-636-32830
Page 24
July 2008
Capital Market Days “Energy”
Copyright © Siemens AG 2008. All rights reserved.