SIE: Siemens AG: Half-yearly Report
UK Regulatory Announcement
Earnings Release Q2 2013
January 1 to March 31, 2013
MIXED PICTURE, FOCUS ON EXECUTION
Lower Revenue & Total Sectors profit
Double-digit order growth, EPS up 17%
Peter Löscher, President and Chief Executive Officer of Siemens AG
“Results for the second quarter show a mixed picture. While we were able to
clearly increase orders, we still have challenges regarding revenue and
profit. Even more we’re focusing on the factors that lie in our own hands:
we’re rigorously executing our company-wide Siemens 2014 program.”
*Orders for the second quarter rose 20% year-over-year, to €21.451 billion,
due primarily to large orders. The book-to-bill ratio was 1.19, and
Siemens’ order backlog increased to €101 billion at the end of the
*Revenue for the second quarter was €18.011 billion, 7% below the
*Total Sectors Profit declined to €1.374 billion due primarily to lower
profit in Industry and Infrastructure & Cities.
*Income from continuing operations increased slightly to €982 million. For
comparison, the prior-year period included an equity investment loss of
€640 million related to NSN.
*Net income improved to €1.030 billion, including a positive contribution
from discontinued operations. Corresponding basic EPS was €1.20, up from
€1.03 in the prior-year period, benefiting from share buybacks between the
periods under review.
*Free cash flow from continuing operations improved to €1.375 billion from
€532 million in the second quarter a year ago.
* At the end of the second quarter Siemens’ solar business no longer fulfilled
the conditions to be classified as discontinued operations according to IFRS.
It was therefore reclassified to continuing operations and its results are
reported within the Energy Sector. Results for prior periods are presented on
a comparable basis. Siemens still intends to exit the solar business.
ORDERS AND REVENUE
Double-digit order growth, book to bill above 1
While macroeconomic conditions remained challenging in the second quarter,
Siemens won major long-cycle contracts for wind power and trains that drove a
20% increase in orders year-over-year. In contrast, revenue came in 7% lower
compared to the prior-year period. On a comparable basis, excluding currency
translation and portfolio effects, revenue was 6% lower. The book-to-bill
ratio for Siemens was 1.19, the order backlog (defined as the sum of the order
backlogs of the Sectors) increased to €101 billion.
Broad-based revenue decline
Weaker investment sentiment in recent quarters was evident in second-quarter
revenue, which declined in all Sectors and reporting regions. On a regional
basis, revenue declined significantly in the Americas and moderately in the
region comprising Europe, the Commonwealth of Independent States, Africa and
the Middle East (Europe/CAME) and in the Asia, Australia region. Emerging
markets on a global basis declined 4% year-over-year, and accounted for €5.938
billion, or 33%, of total revenue for the second quarter.
Orders climb on large contract wins in Europe
The Energy and Infrastructure & Cities Sectors both won a pair of major orders
in Europe/CAME that drove their double-digit order increases compared to the
prior-year period. Healthcare showed moderate order growth year-over-year,
while orders fell at Industry on weaker demand for its short-cycle businesses
and renewable energy offerings. On a geographic basis, Europe/CAME and the
Americas showed double-digit increases due to higher volumes from large
orders. Emerging markets on a global basis grew faster than orders overall, at
24% year-over-year, and accounted for €6.795 billion, or 32%, of total orders
for the quarter.
INCOME AND PROFIT
Profit declines at Industry, Infrastructure & Cities
Total Sectors profit declined to €1.374 billion from €1.929 billion in the
second quarter a year earlier. Industry profit declined to €350 million from
€662 million a year earlier, due mainly to more challenging market conditions
for its short-cycle businesses. Profit in Infrastructure & Cities fell to €27
million from €270 million a year earlier, due largely to charges of €161
million related to high-speed rail projects. Energy delivered €551 million in
profit, down 4% compared to the prior-year period. Charges related to grid
connection projects totaled €84 million in the second quarter compared to €278
million a year earlier. Healthcare contributed €445 million in profit, up 5%
Total Sectors profit included charges of €104 million for the “Siemens 2014”
productivity improvement program: €49 million in Industry, €23 million in
Infrastructure & Cities, €20 million in Energy, and €13 million in Healthcare.
The program is expected to generate substantially higher charges in the second
half of the fiscal year.
Stable income from continuing operations
Income from continuing operations of €982 million was slightly above the
prior-year level, as lower Total Sectors profit was offset by improvements
outside the Sectors. Above all, Equity Investments posted a profit of €8
million in the current quarter compared to a loss of €594 million a year
earlier. Basic EPS from continuing operations rose to €1.14 from €1.08 a year
earlier, benefiting from share buybacks between the periods under review.
Discontinued operations turns positive
Second-quarter net income was up 10%, at €1.030 billion. Corresponding EPS
rose 17%, to €1.20 from €1.03 in the prior-year period, due to share buybacks
as mentioned above. The increase in net income was due primarily to
discontinued operations, which contributed €48 million in the current period.
A year earlier, discontinued operations posted a loss of €41 million, due
mainly to a burden of €142 million (pretax) from a settlement related to
Greece. Income from discontinued operations related to Siemens IT Solutions
and Services in the current period was a negative €9 million compared to a
positive €42 million a year earlier. Income from discontinued operations
related to OSRAM rose to €57 million, up from €25 million a year ago. OSRAM
reported a 3% decline in revenue compared to the second quarter a year ago (0%
decline on an organic basis). Additional information regarding OSRAM is on
CASH, RETURN ON CAPITAL EMPLOYED (ROCE), PENSION FUNDED STATUS
Strong improvement in Free cash flow
Free cash flow from continuing operations was €1.375 billion, up strongly from
€532 million in the same period a year ago, due primarily to an improved cash
performance at the Sector level. The main component of Free cash flow from
continuing operations in the second quarter was Income from continuing
operations. Cash inflows related to the decrease in operating net working
capital were €0.4 billion, including customer payments received particularly
Siemens again took advantage of extraordinarily favorable conditions to raise
new long-term debt. The total amount raised was €3.5 billion, denominated in
both euros and the U.S. dollar, with maturities ranging from 2018 to 2028. The
new debt raised was partly offset by the redemption of bonds totaling €2
billion. Another major cash outflow during the second quarter was €2.5 billion
for dividend payments. All these cash flows were financing activities and
therefore not part of Free cash flow.
Pension plan underfunding remains largely unchanged
The estimated underfunding of Siemens’ pension plans as of March 31, 2013
amounted to €9.0 billion, compared to an underfunding of €8.9 billion at the
end of the first quarter.
Profit near prior-year level, double-digit order growth
Energy reported second-quarter profit of €551 million, down 4% year-over-year
due mainly to lower revenue. Power Transmission narrowed its loss due largely
to substantially reduced project charges. Fossil Power Generation contributed
lower earnings than a year earlier, but still accounted for most of the
Sector’s profit and was the highest profit performer among all Siemens
Divisions. Profit at Wind Power fell compared to the strong second quarter a
year ago, while earnings at Oil & Gas came in close to the prior-year level.
Siemens’ solar business was reclassified from discontinued operations during
the second quarter, and its results are reported within Energy. The business
posted a loss of €21 million, nearly unchanged from the second quarter a year
earlier. Additional information regarding the solar business is on page 13.
Energy recorded €20 million in charges under the “Siemens 2014” productivity
Second-quarter revenue declined 9%, including lower revenue at Fossil Power
Generation and Wind Power. On a geographic basis, lower revenue in the current
period was due primarily to the Americas region, where Wind Power orders were
strongly influenced in the second half of calendar 2012 by uncertainties in
the U.S. market. Orders for the quarter jumped 46% year-over-year, due mainly
to two large offshore wind-farm orders at Wind Power. Order intake remained
close to prior-year levels at Fossil Power Generation and Oil & Gas, while
lower orders at Power Transmission were influenced by more selective order
intake. On a regional basis, orders rose sharply in Europe/CAME and the
Americas but fell in Asia, Australia. The book-to-bill ratio for Energy was
1.35, and its order backlog was €58 billion at the end of the quarter.
Lower revenue reduces profit contribution
Second-quarter profit at Fossil Power Generation came in at €431 million,
including a strong contribution from the service business. The main factor in
the Division’s profit decline year-over-year was significantly lower revenue,
resulting mainly from declining order intake for turnkey projects in prior
quarters. Orders for the current period were up 4% year-over-year, with
increases in the Americas and Europe/CAME more than offsetting lower orders in
Sharp order growth, revenue and profit down
Second-quarter profit at Wind Power was €53 million, down from €130 million in
a particularly strong quarter for revenue-driven profit a year earlier. Key
factors in the change included lower revenue and a less favorable revenue mix.
Revenue declined 19% due to the onshore wind farm business, where the U.S is
the largest national market for Wind Power. New projects in the U.S. were
halted or postponed in late 2012 due to uncertainty regarding continuation of
production tax incentives. The resulting order gap led to a steep drop in
second-quarter revenue in the Americas region compared to a year earlier. In
contrast, orders in the current period climbed sharply due mainly to the
off-shore wind farm business, which typically has longer lead times between
orders and revenue recognition. The Europe/CAME region posted the two large
orders mentioned above as well as a major service contract in Germany, and led
strong order growth for all three reporting regions.
Stable profit contribution
Second-quarter profit at Oil & Gas was €125 million, compared to €131 million
in the same period a year earlier. Revenue and orders for the Division were
close to prior-year levels.
Grid connection charges fall, though challenges remain
Power Transmission reported a loss of €49 million, compared to a loss of €169
million in the same quarter a year earlier. The improvement is due primarily
to substantially lower charges related mainly to grid connections to
offshore-wind farms, totaling €84 million in the current period. A year
earlier, these charges totaled €278 million, partly offset by the release of a
provision of €64 million related to a successful project completion.
Second-quarter revenue for the Division was close to the prior-year level,
while orders came in 9% lower in part due to more selective order intake in
Europe/CAME. The Division expects continuing challenges in coming quarters,
including the transport and installation of platforms for grid connections to
certain offshore wind farms.
Order growth, continued strong profit performance
Second-quarter profit in the Healthcare Sector rose to €445 million, due to
improvements in cost position resulting from the Sector’s ongoing Agenda 2013
initiative as well as lower charges associated with this initiative. These
charges totaled €13 million in the current period compared to €38 million in
the prior-year period. Profit development improved despite lower revenue and
an excise tax on medical devices sold in the U.S., which was introduced on
January 1, 2013 and affected most businesses in the Sector.
Profit at Diagnostics rose to €84 million from €67 million in the prior-year
period. The increase was due in part to Agenda 2013, including both
improve-ments in cost position and lower charges associated with the
initiative compared to the prior-year period. These charges declined to €8
million from €20 million a year ago. Purchase price allocation (PPA) effects
related to past acquisitions at Diagnostics were €42 million in the second
quarter. A year earlier, Diagnostics recorded €43 million in PPA effects.
Second-quarter revenue for Healthcare was down 2% year-over-year, on declines
at most businesses. Orders were up 3%, driven by the Sector’s imaging
businesses. On a regional basis, slight growth in Asia, Australia did not
offset lower revenue in Europe/CAME and the Americas. Significant order growth
in the region Asia, Australia was highlighted by double-digit increases in
China. The book-to-bill ratio for the Sector was 1.02, and Healthcare's order
backlog was €7 billion at the end of the second quarter.
The Diagnostics business saw a slight revenue decline to €963 million from
€976 million a year earlier. On a regional basis, Diagnostics revenue followed
the same pattern as the Sector.
Challenging market conditions continue
Industry continued to face more challenging market conditions compared to the
prior year, affecting results for both short-cycle businesses and renewable
energy offerings. Due mainly to lower capacity utilization and a less
favorable business mix, profit at Industry declined to €350 million in the
second quarter, well below €662 million a year earlier. Profit was also
burdened by €49 million in charges under the “Siemens 2014” productivity
program, with the majority of the charges coming at Drive Technologies.
Revenue and orders were down 9% and 10% respectively on declines in both
Divisions and in the metals technologies business. On a geographic basis,
revenue was lower in all three regions including double-digit declines in
Asia, Australia and the Americas. The decline in orders was spread more evenly
among the regions but was particularly evident in the important Chinese and
German markets. The Sector’s book-to-bill ratio was 1.00 and its order backlog
at the end of the quarter was €11 billion.
Lower revenue, M&A and mix effects take profit lower
Profit at Industry Automation declined sharply year-over-year, to €201
million, as lower sales reduced capacity utilization and resulted in a less
favorable revenue mix compared to the prior-year period. Profit also included
PPA effects associated with the integration of LMS International NV (LMS)
beginning in the current quarter. Revenue and orders both fell 7% including
declines in most of the Division’s businesses. A notable exception was the
Division’s industrial IT and software business, which benefited from recent
acquisitions including LMS. PPA effects related to the acquisition of UGS
Corp. in fiscal 2007 were €38 million in the current quarter, compared to €36
million a year earlier. PPA effects related to long-lived assets from the
acquisition of LMS were €11 million in the current quarter. Effects from
deferred revenue adjustments and inventory step-ups related to LMS totaled an
additional €14 million. Based on current assumptions, similar amounts are
expected in the final two quarters of fiscal 2013.
Short-cycle businesses burden profit
Second-quarter profit at Drive Technologies fell to €147 million, due mainly
to profit declines in the Division’s higher-margin short-cycle businesses and
offerings for renewable energy. Both saw double-digit declines in revenue
year-over-year. For the Division overall, second-quarter revenue was down 10%
from the prior-year level, including double-digit declines in the Americas and
Asia, Australia. Orders came in 11% lower, due mainly to weaker demand in
INFRASTRUCTURE & CITIES SECTOR
Profit falls on project charges, weaker revenue
Profit at Infrastructure & Cities declined to €27 million in the second
quarter from €270 million in the same period a year earlier. The Sector
recorded project charges of €161 million related to high-speed trains, and
took charges of €23 million related to the “Siemens 2014” productivity
program. Profit development was held back also by a 5% decline in revenue
compared to the prior-year period. Both Europe/CAME and the Americas posted
lower revenue year-over-year, more than offsetting higher sales in the Asia,
Australia region. In contrast, orders rose substantially year-over-year,
driven by major orders in Europe/CAME. The Sector’s book-to-bill ratio was
1.28 and its order backlog at the end of the quarter was €25 billion.
Rolling stock charges burden profitability
Transportation & Logistics posted a loss of €156 million compared to profit of
€75 million a year earlier. This decline was due mainly to the €161 million in
charges mentioned above, which primarily involve delays related to receiving
certification for new trains. In addition, Transportation & Logistics’
business mix was less favorable due to lower margins associated with large
long-term contracts from prior periods and revenue declined 7% year-over-year.
Order intake in the current period rose sharply, benefiting from two major
rolling stock orders in Europe/CAME. The Transportation & Logistics business
expects continuing challenges in coming quarters, related to fulfillment of
contracts for high-speed rail projects.
After the end of the second quarter of fiscal 2013, the European Commission
authorized Siemens’ acquisition of Invensys Rail.The transaction is expected
to close in the third quarter, at the beginning of May.
Stable profit and revenue
Power Grid Solutions & Products posted €98 million in second-quarter profit,
near the prior-year level. While earnings from the smart grid solutions
business rose on a more favorable business mix, profit from the low and medium
voltage business declined compared to the prior-year period. Revenue came in
slightly below the prior-year level, with revenue growth in the Americas
partly offsetting a decline in Europe/CAME. Orders were down 6%
year-over-year, including lower demand in the Americas and Europe/CAME.
Profit falls on lower revenue
Second-quarter profit at Building Technologies declined to €59 million from
€77 million a year earlier, driven mainly by a 5% decline in revenue. Orders
for the second quarter were nearly level year-over-year. On a geographic
basis, revenue was lower in all three reporting regions. Orders in the
Americas region rose, including a large order for an energy efficiency project
in the U.S. while orders in Asia, Australia were lower year-over-year.
EQUITY INVESTMENTS AND FINANCIAL SERVICES
Loss from NSN sharply reduced
Profit from Equity Investments in the second quarter was €8 million compared
to a loss of €594 million a year earlier. This improvement was due mainly to a
substantially smaller loss related to Siemens’ share in Nokia Siemens Networks
B.V. (NSN). The loss was €62 million in the current quarter compared to a loss
of €640 million in the prior-year quarter. NSN reported to Siemens that in the
current quarter it took €129 million in restructuring charges and other
associated items, including net charges related to country and contract exits.
Restructuring charges and other associated items totaled €772 million in the
second quarter a year earlier. Results from equity investments are expected to
be volatile in coming quarters.
Sharp profit increase at Financial Services
Financial Services (SFS) continued to execute its growth strategy. Higher
total assets year-over-year helped generate a higher interest result compared
to the second quarter a year ago. For comparison, the prior-year period
included burdens on profit related to certain activities in the U.S.
As a result, profit (defined as income before income taxes) rose to €113
million from €74 million in the prior-year period. Total assets rose to
€17.872 billion, a moderate increase from the level at the beginning of the
CORPORATE ITEMS AND PENSIONS
Corporate items and pensions reported a loss of €153 million in the second
quarter compared to a positive €12 million in the same period a year earlier.
The loss at Corporate items was €46 million, compared to a positive €101
million in the same quarter a year earlier. The prior-year period included
positive effects totaling €95 million related to legal and regulatory matters.
Centrally carried pension expense totaled €106 million in the second quarter,
compared to €89 million in the prior- year period.
SOLAR BUSINESS RECLASSIFIED AS CONTINUING OPERATIONS
At the end of the second quarter of fiscal 2013, Siemens’ solar business no
longer fulfilled the conditions to be classified as discontinued operations
according to IFRS. The business therefore was reclassified to continuing
operations and is reported within the Energy Sector. Prior-period results are
presented on a comparable basis.
In fiscal 2012, orders and revenue of the business were €50 million and €199
million, respectively; it posted a pre-tax loss of €259 million. In the first
quarter of fiscal 2013, the business recorded a pre-tax loss of €157 million,
which included an impairment charge of €115 million. In the second quarter of
fiscal 2013, the pre-tax loss amounted to €21 million.
Siemens still intends to exit the solar business, and expects a total negative
impact on income from continuing operations of approximately €0.3 billion from
this portfolio matter in fiscal 2013.
At the Annual Shareholders’ Meeting of Siemens AG on January 23, 2013,
Siemens’ shareholders approved the previously proposed spin-off of OSRAM.
Siemens plans to retain a 17.0% stake in OSRAM after the spin-off and will
additionally contribute a 2.5% stake to the Siemens Pension Trust e.V. Based
on the shareholders’ approval Siemens recognized a spin-off liability
amounting to €2.6 billion. The spin-off liability reflects 80.5% of the fair
value of OSRAM and reduces retained earnings at the same amount.
During the second quarter of fiscal 2013, an action for annulment and voidance
was brought against the OSRAM spin-off resolution of the Annual Shareholders’
Meeting, blocking its registration into the German Commercial registers in
Berlin and Munich. As part of a so-called judicial release procedure, Siemens
filed a motion with the Munich Higher Regional Court to remove the blocking.
After the end of the second quarter, the Court approved Siemens’ motion. The
Company is continuing to take appropriate steps to complete the spin-off as
approved and expects a public listing of OSRAM Licht AG in July 2013.
In fiscal 2013, Siemens is implementing “Siemens 2014,” a company-wide program
supporting our One Siemens framework for sustainable value creation. The goal
of the program is to raise our Total Sectors profit margin to at least 12% by
For fiscal 2013, we confirm our expectations of moderate organic order growth.
With continuing challenges for our businesses whose results react strongly to
short-term changes in the economic environment, we now anticipate a moderate
decline in revenue on an organic basis compared to the prior year. Charges
associated with the Siemens 2014 program in the Sectors are expected to total
up to €0.9 billion for the full fiscal year. Given these developments and
financial results for the first half, we expect income from continuing
operations in fiscal 2013 to approach the low end of our original expectation,
€4.5 billion, before impacts related to legal and regulatory matters and
significant portfolio effects which we expect to burden income by up to €0.5
billion due primarily to the solar business.
NOTES AND FORWARD-LOOKING STATEMENTS
All figures are preliminary and unaudited.
Financial Publications are available for download at:
www.siemens.com/ir -> Publications & Events.
This document includes supplemental financial measures that are or may be
non-GAAP financial measures. Orders and order backlog; adjusted or organic
growth rates of revenue and orders; book-to-bill ratio; Total Sectors profit;
return on equity (after tax), or ROE (after tax); return on capital employed
(adjusted), or ROCE (adjusted); Free cash flow, or FCF; cash conversion rate,
or CCR; adjusted EBITDA; adjusted EBIT; adjusted EBITDA margins, earnings
effects from purchase price allocation, or PPA effects; net debt and adjusted
industrial net debt are or may be such non-GAAP financial measures. These
supplemental financial measures should not be viewed in isolation as
alternatives to measures of Siemens’ financial condition, results of
operations or cash flows as presented in accordance with IFRS in its
Consolidated Financial Statements.
Other companies that report or describe similarly titled financial measures
may calculate them differently. Definitions of these supplemental financial
measures, a discussion of the most directly comparable IFRS financial
measures, information regarding the usefulness of Siemens’ supplemental
financial measures, the limitations associated with these measures and
reconciliations to the most comparable IFRS financial measures are available
on Siemens’ Investor Relations website at www.siemens.com/nonGAAP. For
additional information, see supplemental financial measures and the related
discussion in Siemens’ most recent annual report on Form 20-F, which can be
found on our Investor Relations website or via the EDGAR system on the website
of the United States Securities and Exchange Commission.
This document contains statements related to our future business and financial
performance and future events or developments involving Siemens that may
constitute forward-looking statements. 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. We may also make forward-looking statements in other reports,
in presentations, in material delivered to stockholders and in press releases.
In addition, our representatives may from time to time make oral
forward-looking statements. Such statements are based on the current
expectations and certain assumptions of Siemens’ management, and are,
therefore, subject to certain risks and uncertainties. A variety of factors,
many of which are beyond Siemens’ control, affect Siemens’ 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 or anticipated on the basis of historical
trends. These factors include in particular, but are not limited to, the
matters described in Item 3: Key information—Risk factors of our most recent
annual report on Form 20-F filed with the SEC, in the chapter “Risks” of our
most recent annual report prepared in accordance with the German Commercial
Code, and in the chapter “Report on risks and opportunities” of our most
recent interim report.
Further information about risks and uncertainties affecting Siemens is
included throughout our most recent annual and interim reports, as well as our
most recent earnings release, which are available on the Siemens website,
www.siemens.com, and throughout our most recent annual report on Form 20-F 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, performance or achievements of Siemens may
vary materially from those described in the relevant forward-looking statement
as being expected, anticipated, intended, planned, believed, sought, estimated
or projected. Siemens neither intends, nor assumes any obligation, to update
or revise these forward-looking statements in light of developments which
differ from those anticipated.
Due to rounding, numbers presented throughout this and other documents may not
add up precisely to the totals provided and percentages may not precisely
reflect the absolute figures.
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