Siemens : Presentation: "Q4 – Strong finish for fiscal 2015" (Q4 Analyst Call)

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Q4 - Strong finish for fiscal 2015

Analyst Call | Berlin, November 12, 2015

Joe Kaeser, President and CEO Ralf P. Thomas, CFO

© Siemens AG 2015

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 'expect,' 'look forward to,' 'anticipate' 'intend,' 'plan,' 'believe,' 'seek,' 'estimate,' 'will,' 'project' or words of similar meaning. We may also make forward-looking statements in other reports, in presentations, in material delivered to shareholders 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, of which many are beyond Siemens' control. These are subject to a number of risks, uncertainties and factors, including, but not limited to those described in disclosures, in particular in the chapter Risks in the Annual Report.

Should one or more of these risks or uncertainties materialize, or should underlying expectations not occur or assumptions prove incorrect, actual results, performance or achievements of Siemens may (negatively or positively) vary materially from those described explicitly or implicitly in the relevant forward-looking statement. Siemens neither intends, nor assumes any obligation, to update or revise these forward-looking statements in light of developments which differ from those anticipated.

This document includes - in IFRS not clearly defined - supplemental financial measures that are or may be non-GAAP financial measures. These supplemental financial measures should not be viewed in isolation or as alternatives to measures of Siemens' net assets and financial positions or results of operations 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.

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.

Guidance delivered - key financials Q4 Fiscal 2015

Driving value for shareholders

Execution of 'Siemens Vision 2020' on track

Priorities for Fiscal 2016 and beyond

FY 2015 Outlook

FY 2015 Actual Performance

Orders (€bn) Revenue (€bn)

• We believe that our business environment will be complex in fiscal 2015, among other things due to geopolitical tensions.

• We expect revenue on an organic basis to remain flat year-over-year, and orders to exceed revenue for a book-to-bill ratio above 1.

• Furthermore, we expect that gains from divestments will enable us to increase

  
  

  77.7

  
  

  FY 2014

  
  

  comp.

  -1%

  
  

  +4.7 82.3

  
  

  FY 2015

  
  

  Book-to-bill 1.09

  
  

  comp.

  -1%

  
  

  71.2 +4.4

  
  

  FY 2014

  
  

  75.6

  
  

  FY 2015

  basic earnings per share (EPS) from net

  Profit Industrial Business

  Basic Earnings per Share (€)

  income by at least 15% from €6.37 in fiscal 2014.

• For our Industrial Business, we expect a profit margin of 10-11%.

This outlook excludes impacts from legal and regulatory matters.

(€bn)

10.6%

7.7

10.8%

10.1%

7.8

6.37

+39%

8.84

+15%

© Siemens AG 2015

FY 2014 FY 2015

Landmark wins in energy businesses drive orders

Orders Q4 FY 15 y-o-y1) Revenues

Europe/C.I.S./Africa/ME

+13%

-1%

-4%

(therein Germany) +24%

Americas

(therein U.S.) -1%

+8% 0%

+3%

Asia/Australia

-12%

-10%

(therein China) +7%

1) Change is adjusted for currency translation and portfolio effects

-10%

Q4 - Key developments

Europe, - Large energy related orders (Offshore Wind, Power & Gas, HVDC link)

MEA, CIS: - Stable conditions in a low growth environment; rev. in Germany down in short cycle

Americas: - Significant increase in energy orders bridge softer Mobility and Healthcare

- Strong revenue growth in Mexico and Brazil; US strength broad based

Asia, - Strong Order intake (India, Japan, China) offset by tough comps in Korea business Australia: - Broad based revenue decline on the back of past order weakness

Power and Gas (PG)

Orders Revenue

€bn

Wind Power and Renewables (WP)

Orders Revenue

€bn

+13%1)

3.7

5.3

3.7

-17%1)

4.0

1.8

+45%1)

2.7

1.6

-10%1)

1.5

Q4 FY 14

Q4 FY 15

Q4 FY 14

Q4 FY 15

Q4 FY 14

Q4 FY 15

Q4 FY 14

Q4 FY 15

Profit & Margin

€m 543

420

Target €m

margin

Profit & Margin

72

+5.0%

Target margin

14.8%

Q4 FY 14

13.1%

10.4%

Q4 FY 15

11-15%

-3.7%

-60

Q4 FY 14

+4.8%

Q4 FY 15

5-8%

• Market wins with ten Large Gas Turbines

• Positive project settlement and strong service on weaker project mix & lower LGT- margins

• Dresser-Rand (D-R) with solid contribution

1) Comparable, i.e. adjusted for currency translation and portfolio effects

• Order strength in onshore and service

• Onshore revenues down, services up

• Increased competition in offshore

Below Industrial Business - Q4 FY 2015 Expectations for FY 2016

in €m

2,455

144

-342

9

Therein:

-€138m Primetals impairment

-472

-168

-80

-544

1,001 -1

1,000

• SFS: Operationally in line with FY 2015

• CMPA: includes other portfolio elements (e. g. Postal & Baggage Handling, Metals-JV, Solar, post closing topics); negative profit impact and volatility during the year

• SRE: Lower than PY, dependent on disposal gains

• Corporate Items: ~€100 - €150m per quarter; H2>H1

• Pension: ~€125m per quarter

  
  

  Therein:

  -€105m

  Pensions

  -€367m

  Corp. Items

  Tax rate

  @35%

  • PPA: Q4 FY 15 level as new quarterly run rate

  • Elimination, Corporate Treasury, Other: overall in line with prior year, including higher interest expenses

IB SFS CMPA SRE

Corp.

PPA

Elim.

Tax

Inc.

Disc.

Net

Items

Corp.

Cont. Ops.Income

• Tax: Expect 26 - 30% - Higher end is safe

  &

  Pen.

  Treas.,

  Other

  Ops

  all in

  • Discont. Operations: Limited impact

    
    

    Quarterly free cash flow ('all-in') Key drivers free cash flow

    
    

    
    

    €m

    Ʃ FY 2015 4,674

    Free cash flow effect from change in Operating Net Working Capital Q4 FY15

    +€2.2bn

    4,375

    
    

    1,112 66

    611

    373

    
    

    
    

    -144

    
    

    -241

    
    

    684

    +27%

    y-o-y

    
    

    Δ

    Inventories

    
    

    Δ

    Receivables

    
    

    Δ

    Payables

    
    

    Δ

    Advan. / BiE

    • Significant net operating working

      capital improvement at PG, EM and WP

      
      

    • Improvements mainly driven by

      Q1

      Q2

      Q3

      Q4

      inventory reductions

      
      

    • Project orders resulting in higher advances

Attractive dividend yield

• Dividend increase to €3.50 resulting in an attractive 4.4% dividend yield2)

  Share buyback finalized

• €4bn from May 2014 until October 2015

• 43m shares repurchased

• Average purchase price: €92.733)

48%

57%

50%

€101

42% 38%

€5.401)

+6%

€97

389

413

€3.00

€3.00

€3.30

€3.50

199206

€83

€3.00

€86

85

FY 11

FY 12

FY 13

FY 14

FY 15

Dividend per share

Dividend payout ratio

May

Jul

Sep

Nov

Jan

Mar

May

Jul

Sep

2014 2015

Share buyback volume (in €m)

Average share price

First endowment to Siemens Profit Sharing Pool of €200m New share buyback of up to €3.0bn over up to 36 months

1. Effect of OSRAM stock distribution to shareholders of €2.40 per share; not reflected in dividend payout ratio; 2) Assumes 808m shares outstanding at AGM, Share price Sept. 30, 2015 of €79.94; 3) Rounded average price per share including a final payment financially to be treated as purchase price adjustment

   
   

   Cumulated effects of savings

   
   

   €700m -

   €900m

   €800m -

   €900m

   €1bn

   €1bn

   
   

   
   

   €150m -

   €200m

   €400m

   
   

   FY 2015 FY 2016e FY 2017e

   
   

   View on distribution of savings as of Q2 FY 2015

   
   

   Underperforming businesses

   
   

   Unconsolidated Revenue FY 2015 in €bn

   
   

   ~15

   ~1.2

   ~14

   
   

   
   

   Siemens Compressors

   Fiscal

   Year 2013 2014 2015 2017e 2020e

   
   

   Margin -4% -3% +1% ~6% >8%

   
   

   
   

   Underperforming businesses as of Q2 FY 2015

   
   

   Reverse integration into Dresser-Rand

   
   

   Remaining underperforming businesses

   • Tight monitoring of business plans

   • Footprint optimization

   • Sharpening business scope

   • Partnering and divestitures an option

Dresser-Rand Business (combined Dresser-Rand & Siemens compressor business)

Q4 FY 2015 comparable
Orders	€ 0.8bn
Revenues	€ 0.9bn
Service share	~40%
Profit margin all-in	6.5%
Integration cost	€ 19m
PPA	€ 44m

Strategy works

Synergies confirmed

Performance improving

18 year service contract awarded by Dolphin Energy (Abu Dhabi):

9 ADGT's from ex-Rolls- Royce Energy and the related 9 Dresser-Rand compressors

Synergies ~€200m in FY 2019 confirmed; additional savings under review

• ~60% cost / 40% revenue synergies

• ~25% of total in FY 2016

  Outlook FY 2016

• Orders stabilizing, but book-to-bill

• Revenue ~€3.4bn - €3.7bn

• Margin in high single digits,

  excl. transformation cost; focus on cost reduction

• Integration & transformation cost

~€ 120m; PPA ~€200m

Priorities for innovation (Examples) Outcomes

R&D expenses in €bn

% of revenue

~+20%

5.9%

PLM

Teamcenter / NX

MES

SIMATIC IT

TIA

SIMATIC / SINUMERIK

5.6%

4.0

4.5

~4.8

Digital Factory: Integrated software suite for the Digital Enterprise (Hanover fair 2016)

FY 2014

FY 2015

FY 2016e

• Digitalization platforms and analytics

• Digital Enterprise Architecture

• Enhanced Process Control System

• Decentralized energy systems

• Upgrade Gas Turbine portfolio

• Next generation Diagnostics

Energy Management: Step change for offshore grid solutions (30% cost reduction)

Digitalization

Vertical software

~€3.1bn

Revenue FY 2015

Digital services

~€0.6bn

Revenue FY 2015

+~16%

Automation

Profitability ++

Enhanced automation

Profitability

Classic services

+++

• Build on deep

  domain know-how

• Leverage M&A and R&D invest

• Roll-out of cross-

  
  

  Electrifi- cation

  ~€19bn

  Revenue FY 2015

  ~€15bn

  Revenue FY 2015

  divisional analytics platform

• >300k connected

Profitability ++

Profitability

+++

devices; expand common remote

service platform

Enhanced electrification (~€39bn)

+~9%

Note: Figures based on Industrial Business (Growth FY 2015 vs. FY 2014 rebased)

Until Execution steps

Q4 2014 Implementation of new and simplified organization by Oct. 1 Introduction of incentive system 2015

Q2 2015 Stringent portfolio optimization - closing of announced divestments

Measures for structural optimization defined (governance & support functions) Decision on resource allocation for underperforming businesses

Q4 2015 Cost reduction measures on track, €400m savings achieved

Accelerated growth in vertical software and digital services (€3.7bn in 2015) Share buy-back executed (€4bn)

Q4 2016 Update on execution of further portfolio optimization

Progress on cost reduction: Major portion of €1bn savings effective

Q4 2017 Underperforming businesses fixed

© Siemens AG 2015

€1bn cost savings fully effective

Siemens Vision 2020 - Optimization Leadership priorities for fiscal 2016

Value

Drive performance

Strengthen core

• Integration of acquisitions & delivery of synergies

• Stringent capital allocation

  Scale up

  • Tangible results from innovation initiative

  • Roll-out Digitalization platforms and digital services

  • Growth focus on current spectrum and adjacent fields

    • Reap benefits from functional cost reduction measures

    • Strengthen and refine operating model to drive business excellence

    • Ongoing footprint adjustments

    • Thorough execution of business plans for underperforming businesses, all options remain

      
      

      Foster ownership culture and leadership based on common values

      
      

      2015 2016 2017 2018 2019 2020

      
      

      
      

      Strategic direction

      Operational consolidation

      Optimization

      Accelerated growth and outperformance

      
      

      
      

      
      

      Macroeconomic environment

      • Weakening macros for the sector in first half and rebound of short cycles in second half of the year; no worse geopolitics

        
        

        Pricing

        
        

        Personnel cost inflation

        
        

        Productivity

        
        

        Opex

        • Pricing pressure around 2% of revenue • 3 - 4% increase • 3 - 4% of cost base

      • Continued invest in R&D and selling

      • G&A down due to 1by16 savings

        
        

        
        

        Capex

        • Substantial increase in industrial business over FY 2015 levels

        
        

        Foreign exchange

      • Minimal impact on top line in both, orders and revenue

      • Modest positive effect on Industrial Business margin

Rebased EPS1) ('all-in') Guidance

We anticipate further softening in the macroeconomic

in €

8.84

EPS FY15

-2.05

Audiology gain

-1.61

BSH

gain

5.18

Adj. EPS FY15

5.90 - 6.20

EPS FY16e

environment and continuing complexity in the

geopolitical environment in fiscal 2016.

Nevertheless, we expect moderate revenue growth, net of effects from currency translation. We anticipate that orders will materially exceed revenue for a book-to-bill ratio clearly above 1.

For our Industrial Business, we expect a profit margin of 10% to 11%. Furthermore, we expect basic EPS from net income in the range of €5.90 to €6.20 as compared to

€5.18, which we achieved in fiscal 2015 excluding €3.66 per share in portfolio gains from the divestments of the hearing aid business and our stake in BSH.

This outlook assumes that momentum in the market environment for our high-margin short-cycle businesses will pick up in the second half of fiscal 2016. Additionally, it excludes charges related to legal and regulatory matters.

1) FY15 weighted average number of shares of 823m

Orders

Revenue

Profit Industrial Business (IB)

Net Income

in €bn

-1%

(+6%)

Comp.

(nom.)

-1%

(+6%)

in €bn

+1%

in €bn

+34%

77.782.3

71.2

75.6

7.7

7.8

10.8%

5.5

7.4

1.09

6) SFS based on return on equity after tax

Net Debt Bridge as of Q4 FY 2015

€bn

Operating Activities

Q4 ΔQ3

• SFS Debt +21.2 +0.0

• Post emp. Benefits -9.8 -0.1

• Credit guarantees -0.9 +0.0

• Hybrid bond +1.0 -0.0

• Fair value adj. +0.9 -0.1 (hedge accounting)

  
  

  Adj. ind. Net Debt/ EBITDA

  0.7x

  (Q3 FY15: 1.2x)

  
  

  
  

  therein:

  • Δ Inventories +1.1

  • Δ Trade payables +0.6

  • Δ Billings in excess +0.4

  • Δ Trade and other receivables +0.1

    
    

    therein a.o.:

    • Net Income +1.0

    • D&A & Impairments +0.7

    • Income taxes paid -0.6

2.2

therein a.o.:

• CAPEX -0.7

• Change in receivables from financing activities (SFS) -0.4

• Purchase of current available-

  for-sale financial assets -0.3

  
  

  therein a.o.:

  • Share Buyback -0.9

  • Interest paid -0.2

-1.0

-0.9

12.4

-6.1

-21.7

2.9

-18.5

Net Debt Q3 2015

Cash & cash equiv.

€9.31)

Cash flows from op. activities (w/o ∆ working capital)

∆ Working Capital

Cash flows from investing activities

Financing topics

Net Debt Q4 2015

Cash & cash equiv.

€11.11)

Net Debt adj.

Adj. ind. Net Debt Q4 2015

1) Including current available-for-sale financial assets

SFS Key Figures Q4 FY 2015

Key Financial Data SFS

• Assets

• Income before income taxes

• Return on Equity after tax

• Operating and Investing Cash Flow

€25.0bn

€144m 19.3%

- €208m

Assets

Liabilities and Equity

€bn €bn

22.2 1.0

1.5 0.2

25.0

25.0

2.4

21.2

1.4

Leases &	Equity	Other Assets	Cash	Total Assets	Total	Allocated	Total Debt	Accruals
Loans1)	Investments	& Inventory2)	Liabilities	Equity	& Other
& Equity	Liabilities

1. Operating and finance leases, loans, asset-based lending loans, factoring and forfeiting receivables

2. Intercompany receivables, securities, (positive) fair values of derivatives, tax receivables, fixed assets, intangible assets, land and building, prepaid expenses and inventories

Underfunding for Siemens' pension plans remained largely unchanged at €-9.0bn in Q4 FY 2015

Funded status for Siemens' pension plans remained largely unchanged in Q4

in €bn1)	FY 2012	FY 2013	FY 2014	Q1 FY 2015	Q2 FY 2015	Q3 FY 2015	Q4 FY 2015
Defined benefit obligation (DBO) on pension benefit plans	(33.0)	(32.6)	(35.0)	(36.8)	(40.8)	(37.3)	(36.3)
Fair value of plan assets	24.1	24.1	26.5	27.3	29.8	28.4	27.3
Funded status of pension plans	(8.9)	(8.5)	(8.5)	(9.6)	(11.0)	(8.9)	(9.0)
DBO on other post-employment benefit plans (mainly unfunded)	0.7	0.6	0.5	0.6	0.6	0.5	0.5
Discount rate2)	3.2%	3.4%	3.0%	2.6%	2.1%	2.9%	3.0%
Interest Income2)	0.9	0.8	0.8	0.2	0.2	0.2	0.2
Actual return on plan assets2)	3.2	1.3	2.9	0.8	1.6	-1.5	-0.4

1. All figures are reported on a continuing basis and according to IAS 19 (revised 2011).

2. All figures are based on the post-employment benefits in total.

November

November 12, 2015

Q4 Earnings Release / Analyst Call, Roadshow Germany (Frankfurt)

November 13, 2015 Roadshow UK (London) November 17, 2015 Roadshow France (Paris) November 18, 2015

Roadshow U.S. (Boston, New York)

December

December 8, 2015

Innovation at Siemens (Munich)

January

January 12, 2016

Commerzbank German Investment Seminar (New York)

January 26, 2016

Q1 Earnings Release; Annual General Meeting

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Email:	investorrelations@siemens.com
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