Annual Report 2019 siemens.com Table of contents A B C Combined Consolidated Additional Information Management Report Financial Statements A.1 p 2 B.1 p 76 C.1 p 150 Organization of the Siemens Group Consolidated Statements Responsibility Statement and basis of presentation of Income C.2 p 151 A.2 p 3 B.2 p 77 Independent Auditor ʼs Report Financial performance system Consolidated Statements of Comprehensive Income C.3 p 157 A.3 p 5 Report of the Supervisory Board Segment information B.3 p 78 Consolidated Statements C.4 p 162 A.4 p 16 of Financial Position Corporate Governance Results of operations B.4 p 79 C.5 p 174 A.5 p 19 Consolidated Statements Notes and forward- looking Net assets position of Cash Flows statements B.5 p 80 A.6 p 20 Financial position Consolidated Statements of Changes in Equity A.7 p 24 B.6 p 82 Overall assessment of the economic position Notes to Consolidated Financial ­Statements A.8 p 26 Report on expected developments and associated material opportunities and risks A.9 p 38 Siemens AG A.10 p 40 Compensation Report A.11 p 71 Takeover-relevant information Combined Management Report Pages 1 – 74 A.1 Organization of the Siemens Group and basis of pr esentation Siemens is a technology company that is active in nearly all coun- Non-financial matters of the Group tries of the world, focusing on the areas of automation and digi- and Siemens AG talization in the process and manufacturing industries, intelligent Siemens has policies for environmental, employee and social infrastructure for buildings and distributed energy systems, con- matters, for the respect of human rights, and anti-corruption and ventional and renewable power generation and power distribu- bribery matters, among others. Our business model is described tion, smart mobility solutions for rail and road and medical tech- in chapters A.1 and A.3 of this Combined Management Report. nology and digital healthcare services. Reportable information that is necessary for an understanding of the development, performance, position and the impact of our Siemens comprises Siemens AG, a stock corporation under the activities on these matters is included in this Combined Manage- Federal laws of Germany, as the parent company and its subsid- ment Report, in particular in chapters A.3 through A.7. For- iaries. Our Company is incorporated in Germany, with our corpo- ward-looking information, including risk disclosures, is presented rate headquarters situated in Munich. As of September 30, 2019, in chapter A.8. Chapter A.9 includes additional informa- Siemens had around 385,000 employees. tion that is required to be reported in the Combined Manage- ment Report related to the parent company Siemens AG. As sup- At the end of fiscal 2018, Siemens announced its “Vision 2020+” plementary information, amounts reported in the Consolidated company strategy. The main aim of “Vision 2020+” is to give Financial Statements and the Annual Financial Statements of Siemens’ individual businesses significantly more entrepreneurial Siemens AG related to such non-financial matters, and additional freedom under the strong Siemens brand in order to sharpen explanations thereto, are included in B.6 NOTES TO CONSOLI- their focus on their respective markets. As a result, we imple- DATED FINANCIAL STATEMENTS, NOTES 17, 18, 22, 26 and 27, and in the mented a new organizational structure in fiscal 2019 consisting NOTES TO THE ANNUAL FINANCIAL STATEMENTS OF SIEMENS AG FOR of the three Operating Companies Digital Industries, Smart In- THE FISCAL YEAR ENDED SEPTEMBER 30, 2019, NOTES 16, 17, 20, 21 and 25. frastructure and Gas and Power, and the three Strategic Com- These disclosures are not subject to a specific framework in panies Mobility, Siemens Healthineers and Siemens Gamesa order to inform the users of the financial reports in a focused Renewable Energy. These six industrial businesses are reportable manner – in contrast to the disclosures in our separately segments, which together are reported as “Industrial Businesses”. available “Sustainability Information 2019” document, which are Financial Services (SFS), which supports the activities of our in- based on the standards developed by the Global Reporting dustrial businesses and also conducts its own business with exter- Ini tiative (GRI). nal customers, continues to be a reportable segment outside our Industrial Businesses. Furthermore, we report Portfolio Compa- nies, which comprises businesses that are managed separately to improve their performance. For further information on the reorga- nization of our businesses, see A.3 SEGMENT INFORMATION. In this Annual Report, we report financial results for fiscal 2019 according to the new company structure on a full year basis. Prior-period amounts are presented on a comparable basis. Our reportable segments and Portfolio Companies may do busi- ness with each other, leading to corresponding orders and reve- nue. Such orders and revenue are eliminated on the Group level. 2 Combined Management Report A.2 Financial performance system A.2.1 Overview We have set the following margin ranges in our Siemens Financial Framework: The Siemens Financial Framework includes targets that we aim to achieve over the cycle of the business activities. Margin ranges Margin range A.2.2 Revenue growth Digital Industries 17 – 23 % Smart Infrastructure 10 – 15 % In the Siemens Financial Framework we aim to achieve a revenue Gas and Power 8 – 12 % growth range of 4 % to 5 % per year on a comparable basis. Our Mobility 9 – 12 % primary measure for managing and controlling our revenue Siemens Healthineers 17 – 21 % growth is comparable growth, because it shows the development Siemens Gamesa Renewable Energy 7 – 11 % in our business net of currency translation effects, which arise Industrial Businesses 11 – 15 % from the external environment outside of our control, and port- folio effects, which involve business activities which are either Financial Services (ROE after tax) 17 – 22 % new to or no longer a part of the respective business. Currency translation effects are the difference between revenue Margin ranges for Siemens Healthineers and Siemens Gamesa for the current period calculated using the exchange rates of the Renewable Energy reflect our expectations as a majority share- current period and revenue for the current period calculated us- holder. ing the exchange rates of the comparison period. For calculating the percentage change year-over-year, this absolute difference is In line with common practice in the financial services business, divided by revenue for the comparison period. A portfolio effect our financial indicator for measuring capital efficiency at Finan- arises in the case of an acquisition or a disposition and is calcu- cial Services is return on equity after tax, or ROE after tax. ROE is lated as the change year-over-year in revenue of the relevant defined as inancialF Services’ profit after tax, divided by its aver- business resulting specifically from the acquisition or disposition. age allocated equity. For calculating the percentage change, this absolute change is divided by revenue for the comparison period. For orders, we For purposes of managing and controlling profitability at the apply the same calculations for currency translation and portfolio Group level, we use net income as our primary measure. This mea- effects as described above. sure is the main driver of basic earnings per share (EPS) from net income, which we use in communication to the capital markets. A.2.3 Profitability We seek to work profitably and as efficiently as possible with the and ­capital ­efficiency capital provided by our shareholders and lenders. For purposes of managing and controlling our capital efficiency, we use return Within the Siemens Financial Framework, we aim to achieve mar- on capital employed, or ROCE, as our primary measure in our gins that are comparable to those of our relevant competitors. Siemens Financial Framework. Our long-term goal is to achieve Therefore, we have defined profit margin ranges for our indus- ROCE within a range of 15 % to 20 %. trial businesses which are based on the profit margins of their respective relevant competitors. Profit margin is defined as profit of the respective business divided by its revenue. For our indus- trial businesses, profit represents EBITA adjusted for operating financial income (expenses), net, and amortization of intangible assets not acquired in business combinations (Adjusted EBITA). Combined Management Report 3 A.2.4 Capital structure A.2.6 Calculation of return on capital employed Sustainable revenue and profit development is supported by a healthy capital structure. Accordingly, a key consideration within the Siemens Financial Framework is to maintain ready access to Calculation of ROCE the capital markets through various debt products and preserve Fiscal year our ability to repay and service our debt obligations over time. (in millions of €) 2019 2018 Our primary measure for managing and controlling our capital Net income 5,648 6,120 structure is the ratio of Industrial net debt to EBITDA (continuing Less: Other interest expenses / income, net 1 (529) (482) operations). This financial measure indicates the approximate Plus: SFS Other interest expenses / income 763 721 amount of time in years that would be needed to cover Industrial Plus: Net interest expenses related net debt through income from continuing operations, without to provisions for pensions and similar taking into account interest, taxes, depreciation and amortiza- obligations