go for profit and growth - siemens.com · profit driven by restructuring in 03 and new products!...
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Go for profit and growthHeinz-Joachim Neubürger, CFO
MAY-04
2MAY-04
Key figures – Second quarter
Group profit from Operations
New orders
Sales
Net income
EPS (in euros)
in billions of euros
Q203
Net cashfrom operating and investing activities
19.1
18.2
1.073
0.568
0.64
1.398
Q204
19.7
17.8
1.076
1.210
1.36
3.565
3MAY-04
Key figures – First six months
Group profit from Operations
New orders
Sales
Net income
EPS (in euros)
in billions of euros
Net cashfrom operating and investing activities
HY03
39.2
37.1
2.170
1.089
1.22
0.261
HY04
40.2
36.1
2.437
1.936
2.17
2.374
4MAY-04
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
5MAY-04
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
6MAY-04
Sustainable success
PG – Power Generation! Service business drives earnings development! Positive contribution from acquired Alstom business! Potential for sustainable higher margin level
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
A&D – Automation and Drives! Market share gain in all businesses across the globe! Better performance in the U.S. and in China
SV – Siemens VDO Automotive! Huntsville acquisition adds to further solid profitable growth! Diesel systems break even
7MAY-04
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
8MAY-04
Global presence
Americas
Asia-Pacific
Middle East,Africa, C.I.S.
Europe(excl.Germany)
Germany
Employees by region (in thousands)
250
300
150
Germany
200
International
FY1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20042003
9MAY-04
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
10MAY-04
Outlook FY 04
Current US $ strength considered temporarily only
Remaining overcapacities and pricing pressure
Profit and growth
Cost reduction, productivity programs and faster innovation
Our objectives
Environment
“We remain committed to our full year targets,though the charges at TS make it more challenging.”
No major stimulus yet from turnkey projects
MAY-04
Appendix
12MAY-04
Key figures – Fiscal Year
Group profit from Operations
New orders
Sales
Net income
EPS (in euros)
in billions of euros
2003
Net cashfrom operating and investing activities
75.1
74.2
4.295
2.445
2.75
1.773
2002
86.2
84.0
3.756
1.661*
1.87**
4.754
* excl. EUR 936 million gain on sales of Infineon shares
** excl. EUR 1.05 gain on sales of Infineon shares
13MAY-04
Target margins remain unchanged
Q104ICN
ICM
SBS
A&D
I&S
SD
SBT
PG
PTD
TS
SV
Med
Osram
Information and Communication Networks
Information and Communication Mobile
Siemens Business Services
Automation and Drives
Industrial Solutions and Services
Siemens Dematic
Siemens Building Technologies
Power Generation
Power Transmission and Distribution
Transportation Systems
Siemens VDO Automotive
Medical Solutions
3.8
(6.8)
1.5
10.8
3.6
4.2
3.0
3.1
4.9
19.8
6.2
12.9
10.2
SFS 22.5 1)
7 - 9
7 - 9
11 - 13
5 - 6
8 - 11
8 - 11
5 - 6
5 - 7
11 - 13
5 - 7
10 - 13
10 - 11
4 - 6
18 - 221)Siemens Financial Services
1) Return on Equity before taxes
in percenttargetmarginQ204
1.6
(6.0)
2.6
11.2
2.3
4.1
2.3
(28.4)
5.9
13.3
7.9
16.0
10.7
24.3 1)
14MAY-04
Key figures – pension
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
18.5
16.8
6.2%
14.8
(3.8)
4.4
0.3
19.5
17.8
6.0%
14.5
(5.0)
1.8
0.2
61%
9%
31%
6%
2%
33%
3%
46%
8%
13%
(0.250)
8.0%
(0.828)
6.7%
0.279
8.8%
FY01 FY02 FY03
20.9
19.8
5.4%
15.9
(5.0)
1.6
0.2
31%
-
50%
10%
9%1) As of September, 30; FY04: status for end of Q2 as of March, 312) 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 (HY04 also excl. service cost for the Siemens German Pension Trust)
4) Basis for calculation of net periodic benefit costs of the corresponding year
(0.364)
6.7%
HY04in billions of euros
21.2
20.1
5.4%
18.1
(3.1)
1.3
0.3
36%
-
49%
9%
6%
15MAY-04
11.3
FY 2000 2001
(6.7%)
2002
9.6
(7.2%)
target2003
7.1
(5.1%)
Successful implementation of programContinuation with focus on process optimization
" Size the business- Monitor capacities, considering market conditions
" Manage assets- Maintain world-class turnover ratio- Reduced working capital by 2.1 bn by end of FY03
" Reduce costs - 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- Launch initiative for productivity enhancement
through process optimization in FY04
" Maximize synergies of carrier and enterprise - Offer enterprise services to carrier customers
" Leverage expertise through enhanced services
" Optimize customer orientation and enter into growth phase- Win new customers, generate new business,
and increase market share- Focus on profitable business and growth fields
" Lead in innovation- 90% of R&D in Next Generation Networks
! Leading market positions in 2003- No.1 in Enterprise Switching- No.1 in Carrier Switching - No.2 in Broadband Access
- Leading in Real Time Communications- Leading in Next Generation Networks (Carrier
Convergence, Metro and Long Haul Transport)! Goals for 2005
- Maintain and expand leading positions- Drive growth in application and service business
End-to-end solution provider for NextGeneration Networks (NGN)
Information and CommunicationNetworks (ICN)
Partner for profitable networksSalesin billions of euros
6.1%
8-11%
Group profitmargin Performance drivers
12.9
16MAY-04
Information and Communication Mobile (ICM)
Performance driversTargets
" Increase market share and be profitable
" Position ICM as the leading provider ininnovative solutions: end-to-end, EDGE, 3G, M2M, IMS, WiMAX
" Continuously adjust to market conditions
Strategic orientation
1. Drive innovation in processes, technology and business models
2. Expand into high-margin servicesand products
3. Benchmark in quality excellence for ICM’s customers
4. Continue to develop the Siemens mobile brand
! 60% sell-in increase yoy! Quarterly market share
above 9 %! 43% profit increase
yoy in HY04! 9 models announced in
Q204, thereof 7 with built-in cameras
! 17 models announced in HY04
MobileInfrastructure
Mobile Phones
! 9% quarterly revenue increase yoy, notable stabilization, profit up 73% yoy
! GSM: good order inflow, better than expected stability
! EDGE: 10 orders, in all continents
! UMTS: 29 contracts, >30,000 Node B
8.9
FY 2000 2001
(2.7%)2002
11.0
target2003
Innovating the mobile worldSalesin billions of euros
8.1%
8-11%
Group profitmargin
11.3
0.9%
10.0
1.8%
17MAY-04
Siemens Business Services (SBS)
FY 2000 2001 2002 target2003
Moving Siemens Business Services forward
Performance drivers
6.0 5.8
(4.3%)
1.7%
5.9
1.2%
5.2
0.2%
Salesin billions of euros
5-6%
Group profitmargin
Sales breakdownFY03
... by region
Solutionservices
Operation-related services Europe
Germany
Product-related services
... by services
Asia-Pacific,Africa & M.E. 4%
Americas8%
39%
49%28%
47%
25%
" Growth- International expansion of the portfolio
- Europe: Improve market presence - USA: Strong growth focused on IT
outsourcing- Expand Business Process Outsourcing
(BPO) business with focus on Human Resources and Financial Services
" Productivity improvement- Cost optimization, e.g.
- Purchasing initiative- Global sourcing
" Customer focus- Intensify account management- Increase share of wallet with existing
customers- Industries: manufacturing, financial
services, government
18MAY-04
World leader in automation
Performance drivers
7.9
10.9%
8.9
11.0%
8.6
8.4%
8.4
9.6%
Salesin billions of euros
Group profitmargin
FY 2000 2001 2002 target2003
" Build on clear global No. 1 position
" Technology Leadership - Trendsetter in innovation
" Leading supplier for discrete, hybrid and continuous process automation
" Increase market shares with new Simotion systems, Sinamics drive platform and MES (Manufacturing Execution Systems) business
" Gain market share and new customers (use key account management, cross selling channels)
" Extend regional coverage: Asia, USA
" Continue selective acquisition strategy
" Strong earnings and cash generator
Automation & Drives (A&D)
11-13%
Sales within Market Position
2003
1998 # 1 # 2
# 1 # 2
> # 3
> # 3
19MAY-04
Performance drivers
4.24.6
2.1%2.6%
4.5
(4.4%)
4.0
(1.0%)
Improving customer productivitySalesin billions of euros
4-6%
Group profitmargin
FY 2000 2001 2002 target2003
Restructuring achievements
!HY04 profitable
!Workforce reduced by 2,200 employees worldwide in FY03
! Transfer of 2,600 employees into three new service units of Siemens AG
! Productivity improvement and cost reduction through ‘ target’ and regional performance dialogues
" Impacts in FY2003 - restructuring charges for portfolio
adjustments and reorganization- difficult market conditions- profit oriented order selection
" Reorganization to strengthen competitiveness as a supplier of industrial systems, maintenance services and sector-specific IT solutions with a joint marketing and sales force
" Development of “Completely Integrated Solutions”(CIS), based on product families for the industry sectors paper, metals, mining, oil&gas, water and marines. The product families comprise integrated and modular standards for plant engineering, IT solutions and maintenance services and close the gap between the auto-mation world and customer specific plants.
Industrial Solutions and Services (I&S)
20MAY-04
Restructuring measures
We supply the perfect material flow
Three major effects:
" Extraordinary project and quality costs –mostly stemming out of the pre-merger phase
" Weak markets primarily in Material Handling Automation
" Forming new Group structure
Performance impacts in HY04
" Integrate SD into Siemens AG as GroupLogistics & Assembly Systems (L&A)
" Convert regionally structured Material Handling Automation business into global units: Distribution & Industry Logistics, Airport Logistics and Customer Service
" Enhance program towards the SMS with a ten point plan to go for profit and growth:
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, ‘VMRs’ & 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
Siemens Dematic (SD)
FY 2000 2002 2003
2.5
(2.3%)
11.0%
1.8
2001
1.5%3.0 2.6
(8.4%)
7-9%
Group profitmargin
Salesin billions of euros
target
21MAY-04
Salesin billions of euros
7-9%
Group profitmargin
Performance drivers
Turning market position into profitability
Germany
Europe
Americas
Asia-Pacific
Sales by regionFY 2003
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
" Complete restructuring of electro-installation business in Germany and sale of facility management business
" Continue streamlining product/system portfolio
" Co-locate all global headquarter functions to drive synergies
" Rigorously apply -program in all business areas
Siemens Building Technologies (SBT)
4%
4.9
6.0 %
2000 target
22MAY-04
8.6
7.4%0.9%
7.8
16.7%
9.4
7.0
16.8%
Our offerings to the Oil & Gas industry increase significantly due to the completion of our product portfolio with small/medium gas turbines and compressors
Full portfolio of rotating equipment:- compressor stations- gas and steam turbine packages- power plants, and- related services
Salesin billions of euros
10-13%
Group profitmargin
Siemens Management System at PG
Meeting the market challenges
Winning new customers: PG enters attractive Oil & Gas businessto tap new revenue streams
FY 2000 2001 2002 target2003
" 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
" Cross program initiatives:!Service initiative:
- Steam Turbine mods 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)
23MAY-04
FY 2000 2001 2002 target
5-7%
Salesin billions of euros
Group profitmargin
3.2*4.1*
1.4%*2.4%*
4.2*
2.6%*
6.1%
2003
Sustainable improvement
Germany
Europe
Americas
Asia-Pacific
Sales by regionFY 2003
Others
16%
27%
18%
27%
12%
" Clear No. 2 in T&D with well-balanced global set-up, as reliable partner for our utility and industry customers
" Consistent improvement of Group profitmargin and customer satisfaction through - portfolio optimization- Key account initiatives for customer
segment ‘utility’ & ‘industry’- PM@PTD (professional projectmanagement)
- Logistics.excellence@PTD(top logistics performance)
- increased value-added service offerings- early adjustment of resources tochanging market demands
" Technological top-performer through focused R&D on platform concepts and IT-based solutions
" Solid asset management to support strategy implementation by acquisitions and investment in production technology
Performance drivers
3.4
Power Transmission and Distribution (PTD)
* incl. Metering
24MAY-04
4.7
SNCF (FKR) 366Diesel-electric freight locomotives
Ukraine 116Electrical equipment for locomotives
Profitable growth with efficient rail solutions
Significant new orders YTD 2004in millions of euros
3.7 4.0
4.6%2.0%
FY 2000 2001 2002
4.4
5.7%
2003
5-7%
Group profitmargin
Salesin billions of euros
Performance drivers" Consequent continuation and
implementation of SMS@TS and TSwinsproductivity program
" Clear focus on quality - rigorous quality management (technical and commercial), quality gate system, centers of competence
" Rolling Stock and Rail Academy to expand competency and to improve the standard of quality
" Strong project and risk management" Massive build up of technical engineering
competence" Establishment of cross-divisional expert
circles and Limits of Authority process
Our goals" Return to and continue successful course
while intensifying the focus on top quality" Maintain No. 1 position in the rail automation
and turnkey markets" Build the rolling stock and service business up
to a stable and profitable No. 2 position
Transportations System (TS)
Other successes in YTD 2004" Commissioning 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
6.0%
25MAY-04
Performance drivers
Cost structure for passenger carsSource: McKinsey/VDA
2002 2015Today 50% of Siemens VDO’s sales are generated from automotive electronics business. The group aims at a 65% share by 2006
€11,000 €12,000
20%
CAGR
40%
0.7 %
6.2 %
Leverage growth potential
3.85.7
2.3%
8.5
0.8%
8.4
5.0%
5-6%
Group profitmargin
Salesin billions of euros
FY 2000 2002 target2001
(4.6%)
2003
" Rigorous implementation of WIP results into cost saving of over 2 bn EUR for 2002-2004
- Better performance by initiatives forquality, software, project manage-ment, design-to-cost
- Improve R+D and manufacturing footprint for global competitiveness
- Enforce asset management
" Streamline product portfolio:
- Boost innovation process by tech-nology board and enforcement of standardization
- Develop products with high-endcustomer benefit and fast pay-back
- Secure number 1 and 2 position in allbusiness segments
" Improve market position in NAFTA by integration of Huntsville Electronics
" Global Key Account Management with “total customer satisfaction” approach
First-tier supplier of applied automotive electronics & mechatronics
Siemens VDO Automotive (SV)
Share ofelectrics /electronics
26MAY-04
Performance drivers
4.9
9.4%7.2
11.2%
FY1999
FY2003
7.6
13.4%
7.4
15.1%11-13%
Group profitmargin
Salesin billions of euros
Profitable growth path
targetFY 2000 2001 2002 2003
Share of sales in No. 1 and No. 2 market positions(incl. JV Dräger Medical)
82%
100%
" One partner
Most complete portfolio from IT to diagnostic equipment
" One company
Integration of Acuson and Shared Medical Systems completed
" One platform
Syngo/Soarian
" One focus
Increasing efficiency in healthcare
" One message
Proven outcomes to the market
" One world
Ideal regional business mix
Medical Solutions (Med)
27MAY-04
AutomotiveLighting
OptoSemiconductors
Precision Materials
4.3
9.0%
4.5
10.2%
Ballasts and Luminaires
4.4
8.4%
4.2
9.8% 10-11%
Group profitmargin
Salesin billions of euros
targetFY 2000 2001 2002 2003
Sales by DivisionFY2003
6%
9%11%
17%
4%
General Lighting
53%
Photo/Optic Lighting
Performance drivers
" 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- Ongoing productivity gains through
design-to-cost, benchmarking, supplychain management and total plant maintenance
- Quick and consistent reaction to marketdevelopments
" Cost leadership through asset manage-ment with focus on working capital
Leading world market position through new technology
Osram
28MAY-04
Profitable growth through balanced portfolio of capital and fee business
Future performance drivers
SFS Divisions
" Focus on growth while sustaining profitability- Anticipated turnaround in asset growth- Profitability expected within target
range- Sustain and advance position as
preferred financial services provider within Siemens
- Focus on third party business in sales financing, investment management (Manager of Manager approach)and insurance brokerage
" Sophisticated risk management- Liquid and diversified credit portfolio- Monitor portfolio credit and
concentration risk- Expected defaults part of risk and
pricing model" Continue to increase operational
efficiency- cost reduction program- Streamline processes- Expand shared services among
business units
Siemens Financial Services (SFS)
= capital business = fee business
" Structured Finance- project & export finance (advisory)
" Investment Management- asset management and pension advisory
" Insurance brokerage (industry and employee business)
" Treasury & Financing Services- Siemens in-house bank
" Equipment & Sales Financing- equipment lease financing- receivables management
" Equity investments in mainly infrastructure projects
FY 2001 2002 2003 target
Total assetsin billions of euros
18-22%
ROE (before taxes)
9.3
18.2%
8.7
23.2%
8.4
24.9%
29MAY-04
Financial Calendar 2004 / 2005
July
November
April
November 11Press conference
November 12Analyst conference
April 28Second quarter results FY04 – conference call –
July 29Third quarter results FY04 – conference call –
January January 27Annual General Meeting
MAY-04
Disclaimer
31MAY-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
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, 2003 was €1.080 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
32MAY-04
Siemens 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
Disclaimer:This presentation contains forward-looking statements based on beliefs of Siemens' management. Suchstatements 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.