Siemens : Q2 FY2016 Earnings Release and Financial Results

Earnings Release Q2 FY 2016: Continuing growth in orders, revenue and profitability Munich, Germany, May 4, 2016 Earnings Release Q2 FY 2016 January 1 to March 31, 2016

Continuing growth in orders, revenue and profitability

»We delivered another convincing performance in the second quarter, compared to both the prior year and our industry sector. Despite ongoing challenges in the market environment, we will continue to focus rigorously on profitable growth,« said Joe Kaeser, President and Chief Executive Officer of Siemens AG.

• Major orders in Egypt and the U.K. drive second-quarter orders up 7% year-over-year, to €22.3 billion; revenue 5% higher at €19.0 billion, for a book-to-bill ratio of 1.17

• Excluding currency translation effects, orders 10% higher and revenue up 7%

• Industrial Business profit climbs 28% year-over-year, to €2.1 billion, including significant margin expansion, with most industrial businesses contributing to the increase - profit margin Industrial Business at 10.9%

• Net income of €1.5 billion came in below the €3.9 billion in Q2 FY 2015 which included €3.0 billion in divestment gains from the sale of the hearing aid business and Siemens' stake in BSH Bosch und Siemens Hausgeräte GmbH (BSH); basic earnings per share (EPS) of €1.78 compared to €4.70 in Q2 FY 2015

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Siemens

Q2			% Change
(in millions of €)	FY 2016	FY 2015	Actual	Comp.
Orders	22,294	20,754	7%	7%
Revenue	18,996	18,049	5%	5%
Profit Industrial Business	2,115	1,655	28%
therein: severance	(87)	(98)
Profit margin Industrial Business	10.9%	9.0%
excl. severance	11.4%	9.6%
Income from continuing operations	1,394	1,997	(30)%
therein: severance	(106)	(140)
Net income	1,480	3,908	(62)%
Basic earnings per share (in €)	1.78	4.70	(62)%
Free cash flow (continuing and discontinued operations)	812	(241)	n/a
ROCE (continuing and discontinued operations)	14.9%	45.5%

• Negative currency translation effects took two percentage points from both order and revenue development; portfolio effects added two percentage points to both order and revenue growth

• Large orders continued to drive order growth. Power and Gas with orders totaling €3.1 billion for power plants, including service, in Egypt; Wind Power and Renewables with a €1.2 billion order for an offshore wind-farm, including service, in the U.K.

• Industrial Business order backlog with new high at €115 billion

• Due to ending or easing of sanctions on Iran, Power and Gas was able to recognize revenue of €174 million and profit of

  €130 million which together added 2.8 percentage points to the Division's profit margin and 0.6 percentage points to Industrial Business profit margin

• Revenue increase driven by double-digit growth in Power and Gas and in Wind Power and Renewables

• Profit Industrial Business: strong improvement in Wind Power and Renewables, increases in the majority of the industrial businesses, particularly Power and Gas and Energy Management; weak demand in commodity-related industries continues to weigh on Process Industries and Drives

• Profit development benefited from currency hedging effects, most strongly in Healthcare and Process Industries and Drives

• Income from continuing operations included €226 million in profit from Financial Services; Q2 FY 2015 benefited from a gain of €1.4 billion from the sale of Siemens' stake in BSH, only partly offset by a loss of €0.2 billion related to Siemens' stake in Unify Holdings B.V. (Unify) and negative effects related to Corporate Treasury hedging instruments

• Net income: sale of remaining financial assets in hearing aid business resulted in a gain of €60 million within discontinued operations; Q2 FY 2015 included gains from the sale of the hearing aid (€1.6 billion) and hospital information (€0.2 billion) businesses within discontinued operations

• Increase in Free cash flow from Industrial Business, to €1.477 billion from €749 million in Q2 FY 2015, driven by Wind Power and Renewables, Mobility and Healthcare mainly due to positive effects from working capital management; Q2 FY 2015 was burdened by negative effects related to Corporate Treasury hedging activities

• ROCE of 14.9% due to strong Net income, even with substantial increase in average capital employed resulting from acquisition of Dresser-Rand between the periods under review; Q2 FY 2015 included the substantial divestment gains mentioned above

• Underfunding of Siemens' pension benefit plans as of March 31, 2016: €10.9 billion (December 31, 2015: €9.3 billion); increased due mainly to a lower discount rate assumption partly offset by a positive return on plan assets

   Sharply higher order intake driven by large orders totaling

  Q2			% Change
  (in millions of €)	FY 2016	FY 2015	Actual	Comp.
  Orders	6,188	3,108	99%	86%
  Revenue	3,926	3,103	27%	15%
  Profit	535	382	40%
  therein: severance	(33)	(57)
  therein: integration costs Dresser-Rand	(18)	−
  Profit margin	13.6%	12.3%
  excl. severance and integration costs	14.9%	14.1%

  €3.1 billion for combined-cycle power plants, including service, in Egypt

  • Higher revenue in the large gas turbine and steam turbine businesses, due mainly to the ramp-up for execution of orders from Egypt

  • Portfolio effects added 16 percentage points to order and 13 percentage points to revenue growth

  • Positive effects from revised estimates related to resumption of long-term construction and service contracts in Iran following the ending or easing of EU and U.S. sanctions: revenue increases totaling €174 million and profit increases totaling €130 million, which together added 2.8 percentage points to the Division's profit margin

  • Continuing strong profit contribution from the service business

  • Overcapacities and continuing challenges resulting in increased price pressure in most regional markets

    Wind Power and Renewables

    Q2			% Change
    (in millions of €)	FY 2016	FY 2015	Actual	Comp.
    Orders	2,140	1,410	52%	60%
    Revenue	1,460	1,263	16%	18%
    Profit	137	(44)	n/a
    therein: severance	(3)	(1)
    Profit margin	9.4%	(3.5)%
    excl. severance	9.6%	(3.4)%

    Q2			% Change
    (in millions of €)	FY 2016	FY 2015	Actual	Comp.
    Orders	2,985	3,100	(4)%	0%
    Revenue	2,709	2,810	(4)%	(1)%
    Profit	172	93	86%
    therein: severance	(13)	(3)
    Profit margin	6.3%	3.3%
    excl. severance	6.8%	3.4%

    Energy Management

• Higher volume from large orders, including a €1.2 billion order for an offshore wind-farm, including service, in the U.K.

• Revenue up in all businesses due to strong conversion from the backlog

• Strong profitability includes lower production and installation costs, positive effects from project execution and completion, and a positive effect related to main bearings; loss in Q2 FY 2015 included burdens related to main bearings and ramp-up expenses for commercial-scale production of a new turbine offering

• Order growth in the region comprising Europe, C.I.S., Africa, Middle East (Europe/CAME) and Asia, Australia; decline in the Americas compared to the prior-year period which included a large high-voltage direct current (HVDC) order for the solutions and transformer businesses

• Lower revenue contribution from the solutions business in Europe/CAME

• Continuing profitability improvements mainly in the solutions, transformer and high voltage products businesses; Q2 FY 2015 included a higher proportion of projects with low profit margins

  Q2			% Change
  (in millions of €)	FY 2016	FY 2015	Actual	Comp.
  Orders	1,460	1,464	0%	1%
  Revenue	1,443	1,446	0%	1%
  Profit	111	95	17%
  therein: severance	(3)	(3)
  Profit margin	7.7%	6.6%
  excl. severance	7.9%	6.8%

   Order growth particularly in Germany, but weaker demand from China

  • Higher revenue in the Americas, particularly within the product and service businesses, offset by a revenue decline in Europe/CAME

  • Profit rises significantly on a larger share from the high- margin product and service businesses

    Q2			% Change
    (in millions of €)	FY 2016	FY 2015	Actual	Comp.
    Orders	1,825	3,782	(52)%	(50)%
    Revenue	1,915	1,836	4%	6%
    Profit	153	157	(3)%
    therein: severance	(3)	(3)
    Profit margin	8.0%	8.6%
    excl. severance	8.2%	8.7%

    Mobility

• While the current period included a number of large contract wins in Europe/CAME, volume from large orders in the prior year was sharply higher, including a €1.7 billion order for regional trains and maintenance and an extension order worth €0.7 billion for high-speed trains and service

• Revenue increased as the Division successfully executes large projects from its high order backlog

• Profit near the prior-year level, which benefited from a net positive effect related to certain high-speed train projects

  Q2			% Change
  (in millions of €)	FY 2016	FY 2015	Actual	Comp.
  Orders	2,576	2,575	0%	1%
  Revenue	2,400	2,426	(1)%	0%
  Profit	363	343	6%
  therein: severance	(8)	(8)
  Profit margin	15.1%	14.1%
  excl. severance	15.5%	14.5%

  Digital Factory

• Continued order and revenue growth in the product lifecycle management (PLM) software business compared to the prior- year period while the short-cycle businesses recorded market- driven declines

• Order and revenue growth in the U.S. more than offset by lower volume in China and Germany

• Profit rose due mainly to the factory automation business compared to a weak Q2 FY 2015

• After the end of the quarter, Digital Factory further strengthened and expanded its PLM software business by closing the acquisition of CD-adapco, a U.S.-based provider of simulation software; preliminary purchase price amounts to US$970 million (€852 million)