Go for profit and growth
Heinz-Joachim Neubürger, CFO
Deutsche Bank – German Corporate Conference March 31, 2004 Key figures – Fiscal Year
in billions of euros FY 03 FY 02 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 millon gain on sales of Infineon shares ** excl. EUR 1,05 gain on sales of Infineon shares
MAR-04 2 Successful Operation 2003
Reached Margin Targets
Restore profitability in I&C
Integrate Atecs
Asset management
U.S. Business Initiative
Reduce central costs
MAR-04 3 Key figures – First quarter
in billions of euros Q1-04 Q1-03 New orders 20.5 20.1
Sales 18.3 18.8
Group profit from Operations 1.361 1.097
Net income 0.726 0.521
EPS (in euros) 0.82 0.59
Net cash from operating and investing activities (1.191) (1.137)
MAR-04 4 Major efforts in the I&C segment in Q1-04
ICN – Information and Communication Networks
! Profit improvement as a result of restructuring in FY 03 ! Carrier and Enterprise business in the black ! Demand situation “flat” - tish
ICM – Information and Communication Mobile
! More than doubled Q1-04 Group profit y-o-y ! Gaining market share – new record with 15.2 million sold handsets ! Well positioned with 29 contracts for 3G-Networks – more than 30.000 node B-stations installed
MAR-04 5 Sustainable success
A&D – Automation and Drives ! Market share gain in all businesses
PG – Power Generation ! Performing within margin range; benefit from service
Med – Medical Solutions ! World class innovation supports growth push
Osram ! Leading position in lighting technologies
MAR-04 6 Challenges
TS – Transportation Systems
! Technical issues in Light Rail business require additional provisions
! Project revisions will be essentially completed in Q2
MAR-04 7 Pension management
Net periodic pension costs will increase slightly in FY 04 ! Due to adjusted discount rate from 6.0% to 5.4% ! Partly compensated by higher expected return resulting out of additional funding
Cash contribution of service costs going forward ! Changing to Defined Contribution pension plan in Germany as of Oct. 1, 2004; impact on funding status is being analyzed ! Comprehensive review of liability structure may influence future asset allocation
Pension accounting rules are being revised by FASB and IASB – impact currently not quantifiable
MAR-04 8 Development of prices and salary
Index (1995=100) 125 Wages and salary development within the electrical industry 120
115 CPI
110
105
100 PPI electrical industry 95
90 1995 1996 1997 1998 1999 2000 2001 2002 2003 MAR-04 9 Outlook for FY 04
Environment
Weak global economy
Ongoing strength of Euro relative to US $
Overcapacities and pricing pressure
Our objectives
Cost reduction and productivity programs
Profit and growth
Double digit percentage growth in earnings
MAR-04 10 Appendix
MAR-04 Target margins remain unchanged
in percent Q1-04 target margin ICN Information and Communication Networks 3.0 8 - 11 ICM Information and Communication Mobile 4.2 8 - 11 SBS Siemens Business Services 3.6 5 - 6 A&D Automation and Drives 10.8 11 - 13 I&S Industrial Solutions and Services 1.5 4 - 6 SD Siemens Dematic (6.8) 7 - 9 SBT Siemens Building Technologies 3.8 7 - 9 PG Power Generation 12.9 10 - 13 PTD Power Transmission and Distribution 6.2 5 - 7
TS Transportation Systems 3.1 5 - 7 SV Siemens VDO Automotive 4.9 5 - 6 Med Medical Solutions 19.8 11 - 13
Osram 10.2 10 - 11 SFS Siemens Financial Services 22.5 1) 18 - 221)
MAR-04 1) Return on Equity before taxes 12 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 (6.7%) (7.2%) - 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 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
MAR-04 13 Information and Communication Mobile (ICM)
Innovating the mobile world Sales Group profit in billions of euros Performance drivers 11.0 margin 10.0 Targets 8.9 11.3 8-11% " Increase market share 8.1% " Become the leading provider in innovative solutions like end-to-end, EDGE, 3G, M2M, WLAN 1.8% 0.9% " Further adjustment to market conditions
FY 2000 2001 2002 2003 target Strategic orientation (2.7%) 1. Drive innovation in processes, Mobile technology and business models Infrastructure Mobile Phones 2. Expand into high-margin services ! Significant profit ! Highest volume and products increase despite increase in Q4 FY03 volume decrease among top vendors 3. Benchmark in quality excellence for our customers ! GSM: growth in ! Market share > 9 % emerging markets ! Full year growth 4. Continue to develop ! EDGE: market again above market the Siemens mobile brand leadership ! 26 new products ! UMTS: technology announced in FY 03 leadership; 7 of 12 commercial networks
MAR-04 14 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 BPO (Business Process Out- FY 2000 2001 2002 2003 target sourcing) business
(4.3%) " Productivity improvement - Cost optimization Sales breakdown FY 2003 - Capacity adjustments (reduction in working hours, insourcing) ... by services ... by region " Customer focus Solution 28% - Intensify account management services Germany 49% - Existing customers: increase share of Operation-related wallet services 47% Europe - Industries: manufacturing, financial 39% services, government Americas Product-related 8% services 25% Asia-Pacific, Africa & M.E. 4%
MAR-04 15 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 " Technology trendsetter in innovation 7.9 8.6 8.4 " Leading company active in manufacturing and process automation; expand Simatic into process automation " Increase market shares with new Simotion systems, Sinamics drive FY 2000 2001 2002 2003 target platform and MES (Manufacturing Execution Systems) business Gaining market share " Manufacturing Automation Low Voltage Control and Gain market share and new customers Installation Technologies (key account management, increase FY 2003 FY 2003 effectiveness and efficiency in sales) FY 2002 14% FY 2002 9% " Extend regional coverage: Asia, USA FY 2001 13% FY 2001 9% " Optimize headquarters, processes and Motion Control Process Automation asset management FY 2003 FY 2003 FY 2002 11% FY 2002 6% " Strong earnings and cash generator FY 2001 10% FY 2001 5%
MAR-04 16 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 (1.0%) (4.4%) competitiveness as a supplier of industrial systems, maintenance services and sector-specific IT solutions with a joint Restructuring achievements marketing and sales force
!Workforce reduced by 2,200 employees worldwide in FY03 " Development of standardized solutions !Transfer of 2,600 employees into three new and service packages for global service units of Siemens AG customers !Productivity improvement and cost reduction through “ target” and regional performance dialogues
MAR-04 17 Siemens Dematic (SD)
We supply the perfect material flow Sales 11.0% Group profit in billions Restructuring measures of euros margin 7-9% " Convert regionally structured Material Handling Automation business into 2.5 3.0 2.6 three global divisions: Distribution & 1.8 1.5% Industry Logistics, Airport Logistics and Customer Service FY 20002001 2002 2003 target " Shift of “Courier, Express and Parcel”- business to Postal Automation division (2.3%) to ensure one-face-to-the-customers " Set up a global manufacturing network (8.4%) to leverage synergy potential " Setup global R&D structures to Performance impacts in FY03 synchronize innovation efforts Three major one-time-effects: " Refocus of program with special " High risk provisions for two big projects emphasis on quality, project (Airport Logistics, Postal/Parcel Logistics) management & execution and asset stemming out of the pre-merger phase management " Weak markets primarily in Material Handling " Enhance targets for Power STEP to Automation 252 million euros in fiscal 2003 " Restructuring costs " Integrate Siemens Dematic subsidiaries The operational business was positive. into Siemens regional units
MAR-04 18 Siemens Building Technologies (SBT)
Turning market position into profitability Sales Group profit in billions of euros margin Performance drivers 7-9% " Exploit market leadership in fire safety 6.0 % and building automation " 5.5 5.6 Build position in security systems and fire 5.0 & security products businesses to become 4.9 market leader 2.4% 3.5% 2.0% " Increase sales to third parties and OEMs in heating, ventilation & air conditioning products business FY2000 2001 2002 2003 target " Profitably grow the installed base in all solutions businesses Sales by region " Grow service business with innovative FY 2003 service offerings 4% Asia-Pacific " Continue to optimize portfolio 28% Germany " Rigorously apply -program in all business areas Americas 31% " Exploit market opportunities through leveraging of synergies with other Siemens Groups and Regional Companies 37% Europe
MAR-04 19 Power Generation (PG)
Meeting the market challenges Sales Group profit in billions of euros margin Performance drivers 10-13% " Portfolio optimization 9.4 8.6 16.8% - Realize strategic benefits of Alstom 7.8 Industrial Turbine acquisition 16.7% 7.0 - Strong No. 2 in all served segments
" Service growth - Our strategy is based 0.9% 7.4% on three primary thrusts: -Improving the base FY 2000 2001 2002 2003 target - Organic growth - Accelerated growth Strategic benefits of Alstom Industrial Turbine acquisition " Global market & customer diversity ! Completion of PG’s product portfolio with small " Innovation leadership to increase and medium gas turbines customer value ! Installed fleet of 3,500 gas and 4,100 steam turbines creates additional service opportunities " Business excellence programs to drive ! PG enters Oil & Gas market with full portfolio of substantial cost optimization are in place rotating equipment ! Excellent track record for smooth and successful integrations as evidenced by both the Westinghouse and Demag Delaval acquisitions
MAR-04 20 Power Transmission and Distribution (PTD)
Sustainable improvement Sales Group profit in billions of euros margin Performance drivers 5-7% " Clear No. 2 in T&D with well-balanced 6.1% global set-up, as reliable partner for our 4.1 4.2 utility and industry customers 3.2 3.4 " Consistent improvement of Group profit margin and customer satisfaction through - portfolio optimization 2.4% 2.6% 1.4% - PM@PTD (professional project management) FY 2000 2001 2002 2003 target - Logistics.excellence@PTD (top logistics performance) Sales by region FY 2003 - increased value-added service offerings Others Germany - early adjustment of resources to changing market demands 13% 15% " Technological top-performer through Asia- focused R&D on platform concepts and IT- 27% 27% based solutions Pacific Europe " Solid asset management to support 18% strategy implementation by acquisitions and investment in production technology Americas
MAR-04 21 Transportations System (TS)
Profitable growth with efficient rail solutions Sales Group profit in billions of euros margin Performance drivers 5-7% " Technological trendsetter in innovation " New TSwins productivity program 6.0% to generate additional profit and expand market position 4.7 4.4 4.0 " Clear focus on quality - rigorous quality 3.7 management and test centers for rolling 5.7% stock and rail automation 4.6% 2.0% " Focus on standardization with modular systems and platform technologies FY 2000 2001 2002 2003 " Strong project and risk management - 80 project reviews scheduled for 2003 Significant new orders in 2003 in millions of euros " Rigorous asset and cash management " Focus on profitable growth in a favorable Trans-Pennine Network (GBR) 500 markets Desiro trains and service Swiss Railways (SWZ) 320 Double-deck trains " Our goals AS Oslo Sporveier (NOR) 183 " Maintain No. 1 position in the rail Metro trains automation and turnkey markets " Become No. 2 in the rolling stock market, Total new orders 4.7 based on technological leadership Order backlog (Sept. 30, 2003) 11.2 in billions of euros
MAR-04 22 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 " Streamline product portfolio: 0.8% 5.0% 2.3% - Develop products with high end- customer benefit and fast pay-back FY 20002001 2002 2003 target - Offer regionally adapted product portfolio for growth areas (Asia and (4.6%) Americas/NAFTA) - Secure number 1 and 2 position in all Leverage growth potential business segments Cost structure for passenger cars - Prune product portfolio and exit non- Source: McKinsey/VDA core businesses €11,000 CAGR €12,000 " Discipline in processes, software, 0.7 % quality and design-to-cost " Global Key Account Management - Share of “total customer satisfaction” approach 6.2 % electrics / 20% 40% electronics 2002 2015 Today 50% of Siemens VDO’s sales are generated from automotive electronics business. The group aims at a 65% share by 2006
MAR-04 23 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 diagnostic equipment 4.9 " 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 FY2002 " One message 100% Proven outcomes to the market " One world FY1999 Ideal regional business mix 82%
MAR-04 24 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 (Southeast 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 slower markets 53% General " Cost leadership through asset manage- Lighting ment with focus on working capital
MAR-04 25 Siemens Financial Services (SFS)
Profitable growth through balanced portfolio of capital and fee business Total assets ROE in billions of euros 24.9% (before taxes) Future performance drivers 23.2% 18-22% 18.2% " Focus on growth while sustaining 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 and insurance brokerage SFS Divisions " Sophisticated risk management - Liquid and diversified credit portfolio " Equipment & Sales Financing - equipment lease financing - Monitor portfolio credit and - receivables management concentration risk " Equity investments in 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 (industrial and personal) - Streamline processes " Treasury & Financing Services - Siemens in-house bank - Expand shared services among business units = capital business = fee business MAR-04 26 Financial Calendar 2004 / 2005
April 28 April Interim report for the second quarter – conference call –
July 29 July Interim report for the third quarter – conference call –
November 11 November 12 November Press conference Analyst conference
January 27 January Annual General Meeting
MAR-04 27 Disclaimer
MAR-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 1 / 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
MAR-04 29 Siemens Investor Relations Team
Marcus Desimoni +49-89-636-32445
Dr. Constantin Birnstiel +49-89-636-36165
Christina Schmöe +49-89-636-32677
Claudia Wagner +49-89-636-33693
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. MAR-04 30