Go for profit and growth Heinz-Joachim Neubürger, CFO
MAY-04 Key figures – Second quarter
in billions of euros Q204 Q203 New orders 19.7 19.1
Sales 17.8 18.2
Group profit from Operations 1.076 1.073
Net income 1.210 0.568
EPS (in euros) 1.36 0.64
Net cash from operating and investing activities 3.565 1.398
MAY-04 2 Key figures – First six months
in billions of euros HY04 HY03 New orders 40.2 39.2
Sales 36.1 37.1
Group profit from Operations 2.437 2.170
Net income 1.936 1.089
EPS (in euros) 2.17 1.22
Net cash from operating and investing activities 2.374 0.261
MAY-04 3 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
MAY-04 4 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
MAY-04 5 Sustainable success
A&D – Automation and Drives ! Market share gain in all businesses across the globe ! Better performance in the U.S. and in China
PG – Power Generation ! Service business drives earnings development ! Positive contribution from acquired Alstom business ! Potential for sustainable higher margin level
SV – Siemens VDO Automotive ! Huntsville acquisition adds to further solid profitable growth ! Diesel systems break even
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
MAY-04 6 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
MAY-04 7 Global presence
Germany
Europe (excl. Asia- Germany) Pacific Americas Middle East, Africa, C.I.S.
Employees by region (in thousands) 300
Germany 250
200 International 150 FY1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20022003 2004 MAY-04 8 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
MAY-04 9 Outlook FY 04
Environment
No major stimulus yet from turnkey projects
Current US $ strength considered temporarily only
Remaining overcapacities and pricing pressure
Our objectives
Cost reduction, productivity programs and faster innovation
Profit and growth
“We remain committed to our full year targets, though the charges at TS make it more challenging.”
MAY-04 10 Appendix
MAY-04 Key figures – Fiscal Year
in billions of euros 2003 2002 New orders 75.1 86.2
Sales 74.2 84.0
Group profit from Operations 4.295 3.756
Net income 2.445 1.661*
EPS (in euros) 2.75 1.87**
Net cash from operating and investing activities 1.773 4.754
* excl. EUR 936 million gain on sales of Infineon shares ** excl. EUR 1.05 gain on sales of Infineon shares
MAY-04 12 Target margins remain unchanged
target in percent Q104 Q204 margin ICN Information and Communication Networks 3.0 2.3 8 - 11 ICM Information and Communication Mobile 4.2 4.1 8 - 11 SBS Siemens Business Services 3.6 2.3 5 - 6
A&D Automation and Drives 10.8 11.2 11 - 13 I&S Industrial Solutions and Services 1.5 2.6 4 - 6 SD Siemens Dematic (6.8) (6.0) 7 - 9 SBT Siemens Building Technologies 3.8 1.6 7 - 9 PG Power Generation 12.9 16.0 10 - 13 PTD Power Transmission and Distribution 6.2 7.9 5 - 7
TS Transportation Systems 3.1 (28.4) 5 - 7 SV Siemens VDO Automotive 4.9 5.9 5 - 6 Med Medical Solutions 19.8 13.3 11 - 13
Osram 10.2 10.7 10 - 11
SFS Siemens Financial Services 22.5 1) 24.3 1) 18 - 221)
MAY-04 1) Return on Equity before taxes 13 Key figures – pension
in billions of euros FY01 FY02 FY03 HY04
Projected benefit obligation (PBO) 1) 18.5 19.5 20.9 21.2 Accumulated benefit obligation (ABO) 1) 16.8 17.8 19.8 20.1 Discount rate 2) 6.2% 6.0% 5.4% 5.4% Fair Value of plan assets 14.8 14.5 15.9 18.1 Funded status 1) (3.8) (5.0) (5.0) (3.1) Additional contribution 4.4 1.8 1.6 1.3 Regular funding 0.3 0.2 0.2 0.3
Non allocated pension related income 3) 0.279 (0.250) (0.828) (0.364) Expected return on plan assets (EROPA) 4) 8.8% 8.0% 6.7% 6.7%
Asset allocation of pension assets Equities 61% 33% 31% 36% –thereinInfineonshares 9% 3% - - Fixed income 31% 46% 50% 49% Real estate 6% 8% 10% 9% Cash 2% 13% 9% 6% 1) As of September, 30; FY04: status for end of Q2 as of March, 31 2) Basis for calculation for PBO and ABO as of September, 30 3) 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) MAY-04 4) Basis for calculation of net periodic benefit costs of the corresponding year 14 Information and Communication Networks (ICN)
Partner for profitable networks Sales Group profit in billions of euros margin Performance drivers 11.3 12.9 9.6 8-11% Successful implementation of program 7.1 Continuation with focus on process optimization " Size the business 6.1% - Monitor capacities, considering market conditions " Manage assets - Maintain world-class turnover ratio FY 2000 2001 2002 2003 target - Reduced working capital by 2.1 bn by end of FY03 (5.1%) " Reduce costs (7.2%) - Achieved target of 1.7 bn cost reduction (6.7%) in FY03 and 1.8 bn in FY02 - Reduced workforce to 33,000 by the end of FY03 End-to-end solution provider for Next - Launch initiative for productivity enhancement Generation Networks (NGN) through process optimization in FY04 ! Leading market positions in 2003 " Maximize synergies of carrier and enterprise - No.1 in Enterprise Switching - Offer enterprise services to carrier customers - No.1 in Carrier Switching " Leverage expertise through enhanced services - No.2 in Broadband Access " Optimize customer orientation and enter into - Leading in Real Time Communications growth phase - Leading in Next Generation Networks (Carrier - Win new customers, generate new business, Convergence, Metro and Long Haul Transport) and increase market share ! Goals for 2005 - Focus on profitable business and growth fields - Maintain and expand leading positions " Lead in innovation - Drive growth in application and service business - 90% of R&D in Next Generation Networks
MAY-04 15 Information and Communication Mobile (ICM)
Innovating the mobile world Sales Group profit Performance drivers in billions of euros 11.0 margin 10.0 Targets 8.9 11.3 8-11% " Increase market share and be profitable 8.1% " Position ICM as the leading provider in innovative solutions: end-to-end, EDGE, 3G, M2M, IMS, WiMAX 1.8% 0.9% " Continuously adjust to market conditions
FY 2000 2001 2002 2003 target Strategic orientation (2.7%) 1. Drive innovation in processes, Mobile Mobile Phones technology and business models Infrastructure 2. Expand into high-margin services ! 9% quarterly revenue ! 60% sell-in increase yoy and products increase yoy, notable ! Quarterly market share 3. Benchmark in quality excellence stabilization, profit up above 9 % for ICM’s customers 73% yoy ! 43% profit increase ! GSM: good order yoy in HY04 4. Continue to develop inflow, better than ! 9 models announced in the Siemens mobile brand expected stability Q204, thereof 7 with ! EDGE: 10 orders, in all built-in cameras continents ! 17 models announced ! UMTS: 29 contracts, in HY04 >30,000 Node B
MAY-04 16 Siemens Business Services (SBS)
Moving Siemens Business Services forward Sales Group profit in billions of euros margin Performance drivers 5-6% " Growth 5.9 6.0 5.8 5.2 - International expansion of the portfolio - Europe: Improve market presence 1.7% - USA: Strong growth focused on IT 1.2% 0.2% outsourcing - Expand Business Process Outsourcing FY 2000 2001 2002 2003 target (BPO) business with focus on Human Resources and Financial Services
(4.3%) " Productivity improvement - Cost optimization, e.g. Sales breakdown - Purchasing initiative FY03 - Global sourcing ... by services ... by region " Customer focus Solution 28% - Intensify account management services Germany 49% - Increase share of wallet with existing Operation-related customers 47% services Europe - Industries: manufacturing, financial 39% services, government Americas Product-related 8% services 25% Asia-Pacific, Africa & M.E. 4%
MAY-04 17 Automation & Drives (A&D)
World leader in automation Sales Group profit in billions of euros margin Performance drivers 10.9% 11.0% 11-13% 8.4% 9.6% " Build on clear global No. 1 position 8.9 7.9 8.6 8.4 " Technology Leadership - Trendsetter in innovation " Leading supplier for discrete, hybrid and continuous process automation " Increase market shares with new FY 2000 2001 2002 2003 target Simotion systems, Sinamics drive platform and MES (Manufacturing Sales within Market Position Execution Systems) business " Gain market share and new customers 1998 # 1 # 2 > # 3 (use key account management, cross selling channels) " Extend regional coverage: Asia, USA " Continue selective acquisition strategy > # 2003 # 1 # 2 3 " Strong earnings and cash generator
MAY-04 18 Industrial Solutions and Services (I&S)
Improving customer productivity Sales Group profit in billions of euros margin Performance drivers 4-6% " Impacts in FY2003 - restructuring charges for portfolio 4.6 4.5 adjustments and reorganization 4.2 4.0 - difficult market conditions 2.6% 2.1% - profit oriented order selection
" FY 2000 2001 2002 2003 target Reorganization to strengthen competitiveness as a supplier of industrial (4.4%) (1.0%) systems, maintenance services and sector-specific IT solutions with a joint marketing and sales force Restructuring achievements " Development of “Completely Integrated ! HY04 profitable Solutions”(CIS), based on product families ! Workforce reduced by 2,200 employees for the industry sectors paper, metals, worldwide in FY03 mining, oil&gas, water and marines. The product families comprise integrated and ! Transfer of 2,600 employees into three new modular standards for plant engineering, service units of Siemens AG IT solutions and maintenance services ! Productivity improvement and cost and close the gap between the auto- reduction through ‘ target’ and regional mation world and customer specific performance dialogues plants.
MAY-04 19 Siemens Dematic (SD)
We supply the perfect material flow Sales 11.0% Group profit Restructuring measures in billions margin of euros " Integrate SD into Siemens AG as Group 7-9% Logistics & Assembly Systems (L&A) " Convert regionally structured Material 3.0 2.6 Handling Automation business into global 1.8 2.5 units: Distribution & Industry Logistics, 1.5% Airport Logistics and Customer Service " Enhance program towards the SMS with a FY 20002001 2002 2003 target ten point plan to go for profit and growth: 1. Creation of standardized Mechatronic Products (2.3%) based on A&D control architecture 2. Development of a common SW architecture, (8.4%) Standardized & Modular Functionality 3. Creation of Leading Edge and Modular Industry Segment Solutions Performance impacts in HY04 4. Sales Enforcement: Key Account Management, Three major effects: ‘VMRs’ & Cross Selling " Extraordinary project and quality costs – 5. Service Initiative mostly stemming out of the pre-merger phase 6. Asia Initiative 7. Sizing of Capacities " Weak markets primarily in Material Handling 8. Optimized Value Add Structures and Increased Automation Flexibility of Capacities " Forming new Group structure 9. Project Management and Zero-Tolerance for Defects 10. Establish Product Business for Material Handling
MAY-04 20 Siemens Building Technologies (SBT)
Turning market position into profitability Sales Group profit Performance drivers in billions of euros margin " Exploit market leadership in fire safety 6.0 % 7-9% and building automation by focusing on growing the installed base 5.5 5.6 " Grow service business with innovative 4.9 5.0 service offerings 2.4% 3.5% " Build position in security systems 2.0% focusing on high value solutions and services to become market leader " Strengthen sales channels for Fire & FY2000 2001 2002 2003 target Security Products to drive growth " Increase sales to third parties and OEMs Sales by region in heating, ventilation & air conditioning FY 2003 products business 4% Asia-Pacific " Complete restructuring of electro- installation business in Germany and sale 28% Germany of facility management business Americas 31% " Continue streamlining product/system portfolio " Co-locate all global headquarter functions to drive synergies 37% Europe " Rigorously apply -program in all business areas MAY-04 21 Power Generation (PG)
Meeting the market challenges Sales Group profit Siemens Management System at PG in billions of euros margin 10-13% " Innovation: 9.4 16.8% 8.6 !Harmonize GT product line 7.8 !New large GT family 16.7% 7.0 !Optimize steam turbine family
" Customer focus: 0.9% 7.4% !Partnering + Architect Engineers as customers FY 2000 2001 2002 2003 target !Oil & Gas
" Winning new customers: Global competitiveness: PG enters attractive Oil & Gas business !Low cost manufacturing to tap new revenue streams " Cross program initiatives: Our offerings to the Oil & Gas industry increase significantly due to the completion of !Service initiative: our product portfolio with small/medium gas - Steam Turbine mods and upgrades turbines and compressors - Total plant maintenance and diagnostics Full portfolio of rotating equipment: - GT-LTP’s with risk/gain sharing - compressor stations - gas and steam turbine packages - power plants, and !Quality and process initiative: - related services - Customer site back quality program
MAY-04 22 Power Transmission and Distribution (PTD)
Sustainable improvement Sales Group profit Performance drivers in billions of euros margin " Clear No. 2 in T&D with well-balanced 5-7% global set-up, as reliable partner for our 6.1% utility and industry customers 4.1* 4.2* 3.2* 3.4 " Consistent improvement of Group profit margin and customer satisfaction through - portfolio optimization 2.4%* 2.6%* - Key account initiatives for customer 1.4%* segment ‘utility’ & ‘industry’ FY 2000 2001 2002 2003 target - PM@PTD (professional project management) - Logistics.excellence@PTD Sales by region FY 2003 (top logistics performance) Others Germany - increased value-added service offerings 12% 16% - early adjustment of resources to changing market demands
Asia- " Technological top-performer through 27% 27% focused R&D on platform concepts and IT- Pacific Europe based solutions 18% " Solid asset management to support strategy implementation by acquisitions and Americas investment in production technology * incl. Metering MAY-04 23 Transportations System (TS)
Profitable growth with efficient rail solutions Sales Group profit Performance drivers in billions of euros margin " Consequent continuation and 5-7% implementation of SMS@TS and TSwins productivity program " Clear focus on quality - rigorous quality management (technical and commercial), 4.4 4.7 quality gate system, centers of competence 3.7 4.0 " Rolling Stock and Rail Academy to expand 5.7% 6.0% competency and to improve the standard of 4.6% quality 2.0% " Strong project and risk management FY 2000 2001 2002 2003 " Massive build up of technical engineering competence Significant new orders YTD 2004 " Establishment of cross-divisional expert in millions of euros circles and Limits of Authority process SNCF (FKR) 366 Diesel-electric freight locomotives Ukraine 116 Our goals Electrical equipment for locomotives " Return to and continue successful course Other successes in YTD 2004 while intensifying the focus on top quality " " Commissioning of Siemens’ largest ever Maintain No. 1 position in the rail automation interlocking project in Magdeburg and turnkey markets " Rolling Stock Excellence Award in UK for the " Build the rolling stock and service business up new Desiro UK services to a stable and profitable No. 2 position " Bavarian Quality Award for locomotive plant in Munich-Allach MAY-04 24 Siemens VDO Automotive (SV)
First-tier supplier of applied automotive electronics & mechatronics Sales Group profit in billions of euros margin Performance drivers 8.5 8.4 5-6% " Rigorous implementation of WIP 5.7 results into cost saving of over 2 bn EUR for 2002-2004 3.8 5.0% - Better performance by initiatives for 2.3% 0.8% quality, software, project manage- ment, design-to-cost FY 20002001 2002 2003 target - Improve R+D and manufacturing footprint for global competitiveness (4.6%) - Enforce asset management " Streamline product portfolio: Leverage growth potential - Boost innovation process by tech- Cost structure for passenger cars nology board and enforcement of Source: McKinsey/VDA standardization €11,000 CAGR €12,000 - Develop products with high-end 0.7 % customer benefit and fast pay-back - Secure number 1 and 2 position in all Share of business segments 6.2 % electrics / 20% 40% electronics " Improve market position in NAFTA by 2002 2015 integration of Huntsville Electronics Today 50% of Siemens VDO’s sales are generated " Global Key Account Management with from automotive electronics business. The group aims at a 65% share by 2006 “total customer satisfaction” approach
MAY-04 25 Medical Solutions (Med)
Profitable growth path Sales Group profit in billions of euros margin Performance drivers 13.4% 11-13% 11.2% 15.1% " One partner 9.4% 7.6 7.2 7.4 Most complete portfolio from IT to 4.9 diagnostic equipment " One company Integration of Acuson and Shared Medical Systems completed FY 2000 2001 2002 2003 target " One platform Syngo/Soarian Share of sales in No. 1 and No. 2 market positions " One focus (incl. JV Dräger Medical) Increasing efficiency in healthcare FY2003 " One message 100% Proven outcomes to the market " One world FY1999 Ideal regional business mix 82%
MAY-04 26 Osram
Leading world market position through new technology Sales Group profit in billions of euros margin Performance drivers 10-11% 10.2% 9.8% " Growth by innovation - Drive systems business lamps and electronic ballasts) 9.0% 8.4% - Expand leading position in opto semi- 4.5 conductor business 4.3 4.4 4.2 " Growth by globalization - Extend regional sales network (Asia, Eastern Europe) FY 2000 2001 2002 2003 target - Implement e-business worldwide
" Cost leadership by optimizing Sales by Division structures and processes FY2003 Ballasts - Expand production in low-cost countries Photo/Optic Lighting and Luminaires - Ongoing productivity gains through 4% Automotive 11% Opto design-to-cost, benchmarking, supply Lighting Semiconductors chain management and total plant 17% 9% Precision maintenance 6% Materials - Quick and consistent reaction to market developments 53% General " Cost leadership through asset manage- Lighting ment with focus on working capital
MAY-04 27 Siemens Financial Services (SFS)
Profitable growth through balanced portfolio of capital and fee business Total assets ROE Future performance drivers in billions of euros 24.9% (before taxes) 23.2% 18-22% " Focus on growth while sustaining 18.2% profitability - Anticipated turnaround in asset growth 9.3 8.7 8.4 - Profitability expected within target range - Sustain and advance position as preferred financial services provider within Siemens - Focus on third party business in sales FY 2001 2002 2003 target financing, investment management (Manager of Manager approach) and insurance brokerage SFS Divisions " Sophistica ted risk management " Equipment & Sales Financing - Liquid and diversified credit portfolio - equipment lease financing - Monitor portfolio credit and - receivables management concentration risk " Equityinvestments in mainly infrastructure projects - Expected defaults part of risk and " Structured Finance pricing model - project & export finance (advisory) " Continue to increase operational " Investment Management efficiency - asset management and pension advisory - cost reduction program " Insurance brokerage (industry and employee business) - Streamline processes " Treasury & Financing Services - Expand shared services among - Siemens in-house bank business units MAY-04 = capital business = fee business 28 Financial Calendar 2004 / 2005
April 28 April Second quarter results FY04 – conference call –
July 29 July Third quarter results FY04 – conference call –
November 11 November 12 November Press conference Analyst conference
January 27 January Annual General Meeting
MAY-04 29 Disclaimer
MAY-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
”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
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.
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
MAY-04 31 Siemens Investor Relations Team
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
Webpage: http://www.siemens.com Investor Relations
e-mail: [email protected] Fax: +49-89-636-32830
Disclaimer: This presentation contains forward-looking statements based on beliefs of Siemens' management. Such statements 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. MAY-04 32