Siemens : Q4 FY2017 Earnings Release and Financial Results

Munich, Germany, November 9, 2017

Targets achieved - another outstanding year for Siemens

»Our global team delivered excellent results in fiscal 2017, surpassing even the historic success of last year. Most businesses are stronger than ever and well equipped for the digital age. Nevertheless, we have to tackle structural issues in some individual businesses. There is a lot of work ahead of us in fiscal 2018. We will take advantage of our opportunities in the market and handle challenges carefully, responsibly and rigorously,« said Joe Kaeser, President and Chief Executive Officer of Siemens AG.

Fiscal 2017

• Revenue rose 4%, to €83.0 billion; orders were strong at €85.7 billion, just 1% below the high level a year ago despite substantial, ongoing contraction in markets for the Power and Gas Division which recorded large orders in Egypt totaling

  €4.7 billion in the prior year; the book-to-bill ratio was 1.03

• On a comparable basis, excluding currency translation and portfolio effects, revenue rose 3% and orders declined 2%

• Industrial Business profit rose 8%, to €9.5 billion, with double-digit increases at Building Technologies, Digital Factory, Mobility and Process Industries and Drives more than offsetting declines at Power and Gas and Siemens Gamesa Renewable Energy (SGRE)

• Industrial Business profit margin reached 11.2%, with a majority of businesses within or above their target ranges

• Net income up 11%, to €6.2 billion, driven by the strong operating performance; basic earnings per share (EPS) of €7.44, well within the guidance range

• Siemens proposes to raise the dividend €0.10 per share, to €3.70 per share

  Q4 Fiscal 2017

• Fourth-quarter orders climbed 16% year-over-year, to €23.7 billion, driven by a higher volume from large orders, and revenue rose 2%, to €22.3 billion, for a book-to-bill ratio of 1.06

• Excluding currency translation and portfolio effects, orders increased 16% and revenue was up 1%

• Industrial Business profit declined to €2.2 billion due primarily to a sharp drop in profit at Power and Gas and a loss at SGRE

• Net income and basic EPS rose 10%, to €1.3 billion and €1.57, respectively

• Higher orders in all industrial businesses; overall growth driven mainly by higher volume from large orders at SGRE, Energy Management and Power and Gas

• Order backlog for the Siemens Group at €126 billion, reported in accordance with IFRS 15

• Revenue up in the majority of industrial businesses, including sharp growth at SGRE due to portfolio effects, double-digit growth in Digital Factory and clear growth in Mobility; as expected, continuing significant decline in Power and Gas in contracting markets

• Portfolio transactions added four percentage points each to order and revenue growth; negative foreign currency translation effects took four percentage points from order growth and three percentage points from revenue growth

• Profit Industrial Business: improvements at the majority of the industrial businesses more than offset by a sharp profit decline at Power and Gas in a highly competitive market environment and by a loss at SGRE due mainly to a write-down of inventories; Healthineers exceeded the high profit it achieved in the prior- year quarter, while Digital Factory's strong profit contribution included excellent performance in its short-cycle businesses

• Income from continuing operations and Net income rose as lower Industrial Business profit was more than offset by positive factors outside Industrial Business, particularly including Corporate items, Siemens Real Estate and income tax expenses

• Decrease in Free cash flow from Industrial Business, to €2.837 billion from the high level of €4.034 billion in Q4 FY 2016; decline in Free cash flow was due mainly to Power and Gas, driven by lower customer project payments

• ROCE declined as higher net income was more than offset by a substantial increase in average capital employed, primarily resulting from the acquisition of Mentor Graphics and the SGRE merger

• Provisions for pensions and similar obligations as of September 30, 2017: €9.6 billion (June 30, 2017: €9.8 billion)

  Q4			% Change
  (in millions of €)	FY 2017	FY 2016	Actual	Comp.
  Orders	3,584	3,218	11%	17%
  Revenue	3,649	4,545	(20)%	(17)%
  Profit	303	509	(40)%
  therein: severance	11	(23)
  therein: integration costs Dresser-Rand	(6)	(14)
  Profit margin	8.3%	11.2%
  excl. severance and integration costs	8.2%	12.0%

  • Order growth due to a higher volume from large orders in the service business, partly offset by a decline in new-unit business

  • In contracting markets, revenue down in all reporting regions, most notably in the region representing Europe, C.I.S., Africa, Middle East (Europe/CAME); declines particularly in the solutions and large gas turbine businesses which in Q4 FY 2016 executed large orders from Egypt

  • Despite continuing strong contribution from the service business, profit fell on reduced capacity utilization and price declines; Q4 FY 2016 included positive effects totaling €70 million related to measurement of inventories

  • Global energy trends continue to structurally reduce overall demand in markets for the Division's offerings, resulting in

    declining new-unit business and corresponding price pressure due to current overcapacities

    Energy Management

    Q4			% Change
    (in millions of €)	FY 2017	FY 2016	Actual	Comp.
    Orders	4,050	3,376	20%	23%
    Revenue	3,435	3,573	(4)%	(1)%
    Profit	311	299	4%
    therein: severance	(13)	(52)
    Profit margin	9.1%	8.4%
    excl. severance	9.4%	9.8%

    Q4			% Change
    (in millions of €)	FY 2017	FY 2016	Actual	Comp.
    Orders	1,851	1,770	5%	8%
    Revenue	1,759	1,698	4%	7%
    Profit	213	196	9%
    therein: severance	(8)	(10)
    Profit margin	12.1%	11.5%
    excl. severance	12.6%	12.1%

    Building Technologies

• Substantial increase in orders, primarily due to a large order totaling €0.8 billion for an offshore grid connection project in Germany

• Lower revenue mainly in the Division's transmission businesses, particularly in the solutions business; on a regional basis, an increase in Asia, Australia was more than offset by declines in Europe/CAME and in the Americas

• Profit increase despite lower revenue mainly due to lower severance charges

• Another strong fiscal year-end finish with orders, revenue and profit up

• Order growth included significant project wins in the solutions and service business in the U.S.

• Revenue up in all regions on strength in the service business

• Higher revenue and improvements in productivity drive growth in profit and profitability

  Q4			% Change
  (in millions of €)	FY 2017	FY 2016	Actual	Comp.
  Orders	2,333	2,274	3%	4%
  Revenue	2,233	2,070	8%	11%
  Profit	189	173	9%
  therein: severance	(29)	(5)
  Profit margin	8.4%	8.4%
  excl. severance	9.8%	8.6%

  • Higher volume from large orders, including significant contract wins in Europe and Asia, the largest for a driverless metro in Austria; Q4 FY 2016 included an €0.4 billion order for light rail vehicles from the U.S.

  • Revenue grew on successful execution of large rolling-stock and locomotive orders in Europe and the U.S.

  • Profit rose due to higher revenue and a strong earnings contribution from the Division's digital and automation businesses, more than offsetting higher severance charges year-over-year due to capacity adjustments

     Siemens and Alstom SA, France, signed a memorandum of understanding to combine Siemens' mobility business, including its rail traction drives business, with Alstom SA; the transaction is subject to customary closing conditions and is expected to close at the end of calendar 2018

    Q4			% Change
    (in millions of €)	FY 2017	FY 2016	Actual	Comp.
    Orders	2,949	2,700	9%	6%
    Revenue	3,150	2,787	13%	9%
    Profit	501	515	(3)%
    therein: severance	(86)	(21)
    Profit margin	15.9%	18.5%
    excl. severance	18.6%	19.2%

    Digital Factory

• Strong broad-based volume growth continues; another excellent performance in the short-cycle businesses, which again benefited from a favorable market environment particularly in the automotive and machine building industries; the product lifecycle management software business grew substantially driven by the acquisition of Mentor Graphics

• On a geographic basis, volume increases in all reporting regions, including substantial growth in China

• Strong profit performance in the factory automation business; overall profit and profitability impacted by higher severance charges associated with previously announced efficiency measures, ongoing expenses related to further advancing Siemens' MindSphere platform and burdens associated with the acquisition of Mentor Graphics

  Q4			% Change
  (in millions of €)	FY 2017	FY 2016	Actual	Comp.
  Orders	2,347	2,213	6%	9%
  Revenue	2,389	2,441	(2)%	0%
  Profit	69	(72)	n/a
  therein: severance	(23)	(199)
  Profit margin	2.9%	(3.0)%
  excl. severance	3.8%	5.2%

  Process Industries and Drives

• While oil and gas and other commodity-related markets showed signs of stabilization with increased orders, demand for wind power components fell substantially; on a regional basis, order growth came mainly from China

• Revenue decline due mainly to the large drives and the solutions businesses, only partly offset by moderate growth in the process automation business

• Improving operating performance in the process automation business; overall profit and profitability held back by ongoing operational challenges, particularly in the large drives business, and by charges related to capacity adjustments