Siemens : Q2 FY2017 Earnings Release and Financial Results

Munich, Germany, May 4, 2017

Another strong quarter - profitable growth continuing

»We delivered another strong team performance and continue to outperform the markets. In the second half of the fiscal year, we will focus on duly integrating Mentor Graphics and on a successful start of Siemens Gamesa Renewable Energy, while keeping a close eye on our operational performance. And there is more work to do,« said Joe Kaeser, President and Chief Executive Officer of Siemens AG.

• Revenue rose 6% compared to Q2 FY 2016, to €20.2 billion, including a strong performance by short-cycle businesses, and orders were €22.6 billion, up 2% despite a high basis of comparison including orders totaling €3.1 billion in Q2 FY 2016 in Egypt; the book-to-bill ratio was 1.12

• On a comparable basis, excluding currency translation and portfolio effects, revenue rose 5% and orders increased 1%

• Strong margin expansion in nearly all industrial businesses due to strong operational execution, and a €138 million positive effect from pension plan amendments, took Industrial Business profit margin up to 12.1%

• Industrial Business profit climbed 18% year-over-year, to €2.5 billion

• Net income was level at €1.5 billion, despite a higher income tax rate and a lower contribution to net income from discontinued operations; basic earnings per share (EPS) of €1.79 compared to €1.78 in Q2 FY 2016

• At the end of Q2 FY 2017, Siemens acquired all shares of Mentor Graphics Corporation (Mentor Graphics) and, at the beginning of Q3 FY 2017, closed the merger of Siemens' wind power business with Gamesa Corporación Tecnológica S.A. (Gamesa)

• Order growth in nearly all industrial businesses, with the strongest contributions from Wind Power and Renewables and Energy Management, both with large contract wins; substantial decline in Power and Gas relative to the high basis of comparison in Q2 FY 2016, which included orders totaling €3.1 billion in Egypt

• Industrial Business order backlog with new high at €117 billion

• Revenue increased in all industrial businesses, with double-digit growth in Digital Factory, Building Technologies and Energy Management

• Currency translation effects added one percentage point to both order and revenue development; portfolio effects had a minimal effect on volume development year-over-year

• Profit Industrial Business: up in all but one industrial business; highest profit from Healthineers, from Digital Factory with very strong contributions from its short-cycle businesses, and from Power and Gas; largest profit increase from Building Technologies due to strong operating performance and a €94 million positive effect related to amendments of pension plans (total effect for Industrial Business: €138 million); Q2 FY 2016 benefited from positive €130 million effects resulting from revised estimates related to contracts in Iran in Power and Gas

• Income from continuing operations: Centrally managed portfolio activities (CMPA) included a positive result related to a major asset retirement obligation, but was burdened by a non- tax-deductible impairment of an at-equity investment

• Net income: Lower income from discontinued operations compared to Q2 FY 2016, which included a €60 million gain related to the sale of the hearing aid business

• Industrial Business generated strong Free cash flow in the first half of fiscal 2017, totaling €3.2 billion, up sharply from € 1.5 billion in the prior-year period. Free cash flow from Industrial Business for the current quarter increased to €1.951 billion from €1.477 billion in Q2 FY 2016 due mainly to Power and Gas; this improvement was more than offset by cash outflows outside Industrial Business mainly due to higher income tax payments

• ROCE declined due to a clear increase in average capital employed, mainly resulting from the acquisition of Mentor Graphics at the end of Q2 FY 2017

• Provisions for pensions and similar obligations as of March 31, 2017: €10.5 billion (December 31, 2016: €11.1 billion)

  Q2			% Change
  (in millions of €)	FY 2017	FY 2016	Actual	Comp.
  Orders	3,855	6,188	(38)%	(38)%
  Revenue	4,104	3,926	5%	4%
  Profit	461	535	(14)%
  therein: severance	(4)	(33)
  therein: integration costs Dresser-Rand	(9)	(18)
  Profit margin	11.2%	13.6%
  excl. severance and integration costs	11.5%	14.9%

  • Sharply lower volume from large orders compared to Q2 FY 2016, which included orders totaling €3.1 billion for combined- cycle power plants, including service, in Egypt

  • Revenue growth driven by strong and rapid execution from the backlog, particularly including large orders in Egypt and Argentina; Q2 FY 2016 included positive effects on revenue totaling €174 million resulting from revised estimates related to contracts in Iran

  • Improved execution of projects in the solutions business and continuing high contribution from the service business; Q2 FY 2016 included positive effects on profit totaling €130 million resulting from the above-mentioned revised estimates related to contracts in Iran

     Global energy trends continue to depress overall demand in markets for the Division's offerings, resulting in declining new- unit business and corresponding price pressure

    Wind Power and Renewables

    Q2			% Change
    (in millions of €)	FY 2017	FY 2016	Actual	Comp.
    Orders	3,142	2,140	47%	48%
    Revenue	1,516	1,460	4%	4%
    Profit	155	137	13%
    therein: severance	(2)	(3)
    Profit margin	10.3%	9.4%
    excl. severance	10.4%	9.6%

    Q2			% Change
    (in millions of €)	FY 2017	FY 2016	Actual	Comp.
    Orders	3,558	2,985	19%	17%
    Revenue	2,996	2,709	11%	9%
    Profit	225	172	31%
    therein: severance	(6)	(13)
    Profit margin	7.5%	6.3%
    excl. severance	7.7%	6.8%

    Energy Management

• Sharply higher volume from large orders included a €1.4 billion contract win for an offshore wind-farm, including service, in Germany, and several other large orders in each of the three reporting regions; Q2 FY 2016 included a €1.2 billion order for an offshore wind-farm, including service, in the U.K.

• Revenue growth in the onshore and service businesses; on a regional basis, increase mainly in Asia, Australia

• Strong profitability driven by higher productivity, positive effects related to project execution, higher capacity utilization, and a larger contribution from the service business

• Significant order growth, mainly due to a high volume from large orders that included a large order in the solutions business in the Middle East, and a large high-voltage direct current (HVDC) order of €0.4 billion in India

• Revenue up in all businesses and all three reporting regions, driven by increases in the Division's transmission businesses

• Broad-based profitability improvements, led by the high voltage products business

  Q2			% Change
  (in millions of €)	FY 2017	FY 2016	Actual	Comp.
  Orders	1,632	1,460	12%	10%
  Revenue	1,604	1,443	11%	10%
  Profit	235	111	112%
  therein: severance	(2)	(3)
  Profit margin	14.7%	7.7%
  excl. severance	14.8%	7.9%

  • Another excellent quarterly performance

  • Orders and revenue grew across the Division's businesses and in all three reporting regions

  • Higher revenue continued to support profit growth

  • Profit benefited from the €94 million gain related to pension plan amendments

    Mobility

    Q2			% Change
    (in millions of €)	FY 2017	FY 2016	Actual	Comp.
    Orders	2,151	1,825	18%	19%
    Revenue	2,022	1,915	6%	7%
    Profit	213	153	39%
    therein: severance	(6)	(3)
    Profit margin	10.5%	8.0%
    excl. severance	10.8%	8.2%

    Q2			% Change
    (in millions of €)	FY 2017	FY 2016	Actual	Comp.
    Orders	2,864	2,576	11%	9%
    Revenue	2,706	2,400	13%	11%
    Profit	482	363	33%
    therein: severance	(11)	(8)
    Profit margin	17.8%	15.1%
    excl. severance	18.2%	15.5%

    Digital Factory

• Broad-based order growth with strongest contributions from the rolling stock and rail infrastructure businesses; on a geographic basis, orders nearly doubled in the U.S.

• Revenue rose on continued successful project execution

• Profit rose on higher revenue and a more favorable revenue mix including a larger share from the high-margin rail infrastructure business

• Profit benefited from a €28 million gain related to pension plan amendments

• Another very strong quarter, with orders and revenue up in all businesses, most notably in the short-cycle businesses driven by strong demand from the automotive and the machine building industries

• On a regional basis, volume increases in all reporting regions including double-digit growth in Asia, Australia, particularly in China and in the region comprising Europe, C.I.S., Africa, Middle East

• Profit and profitability rose significantly in the high-margin short-cycle businesses; profit in the product lifecycle management software business was held back by expenses related to further advancing Siemens' MindSphere platform and transaction costs related to the acquisition of Mentor Graphics, which closed at the end of the quarter

• Siemens acquired all shares of Mentor Graphics, an electronic design automation software provider, to further strengthen and expand its industrial software portfolio; the purchase price amounts to US$4.4 billion (€4.1 billion as of the acquisition date)