Siemens : Q3 FY2016 Earnings Release and Financial Results

Strong execution drives growth and profitability - earnings outlook raised

»We are making good progress with execution of Vision 2020 and in the third quarter again achieved convincing results, particularly compared to the market. I am proud of my global team which delivered excellent performance, especially with regard to growth, in an increasingly difficult market environment,« said Joe Kaeser, President and Chief Executive Officer of Siemens AG.

• Large orders in Europe and the Americas drive third-quarter orders up 6% year-over-year, to €21.1 billion; revenue 5% higher at €19.8 billion, for a book-to-bill ratio of 1.06

• Excluding currency translation effects, orders rose 10% and revenue was 9% higher

• Industrial Business profit climbs 20% year-over-year, to €2.2 billion; significant margin expansion takes Industrial Business profit margin up to 10.8%

• Net income of €1.4 billion, level with the prior-year quarter which benefited from favorable interest rates within continuing operations and positive tax effects within discontinued operations; basic earnings per share (EPS) of €1.64 compared to €1.65 in Q3 FY 2015

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• Negative currency translation effects took four percentage points from order development and three percentage points from revenue growth; portfolio effects added one percentage point to order growth and two percentage points to revenue development

• Large orders, particularly in Power and Gas and Wind Power and Renewables, continued to drive order growth

• Industrial Business order backlog with new high at €116 billion

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

• Profit Industrial Business: improvements in a majority of the Divisions, particularly in Power and Gas, Energy Management and Wind Power and Renewables; market headwinds still ongoing for Process Industries and Drives

• Income from continuing operations rose on higher Industrial Business profit, partly offset by factors outside Industrial Business. These factors included a negative swing related to a major asset retirement obligation, due primarily to lower interest rates; an increase in interest expenses, resulting from issuance of debt; and higher income tax expenses, due mainly to a low basis of comparison in Q3 FY 2015

• Net income: income from discontinued operations of €35 million compared to €131 million in Q3 FY 2015, which benefited from positive tax effects related to previously divested businesses

• Increase in Free cash flow from Industrial Business, to €1.914 billion from €1.157 billion in Q3 FY 2015, driven by Power and Gas and Energy Management due mainly to positive effects from working capital management

• Cash outflows of €0.9 billion related to the acquisition of CD- adapco; payments are not part of Free cash flow

• ROCE declined due to a clear increase in average capital employed, mainly resulting from the acquisition of Dresser- Rand at the end of Q3 FY 2015

• Underfunding of Siemens' pension plans as of June 30, 2016:

  €12.7 billion (March 31, 2016: €10.9 billion); increased due mainly to lower discount rate assumptions, partly offset by positive returns on plan assets

  Q3			% Change
  (in millions of €)	FY 2016	FY 2015	Actual	Comp.
  Orders	4,512	3,585	26%	23%
  Revenue	4,321	3,279	32%	22%
  Profit	480	285	69%
  therein: severance	9	(41)
  therein: integration costs Dresser-Rand	(14)	−
  Profit margin	11.1%	8.7%
  excl. severance and integration costs	11.2%	9.9%

   Substantially higher order intake driven by large orders particularly in the turnkey business, including orders related to a combined-cycle power plant in the U.S. totaling €0.7 billion, including service, and the expansion of three thermal plants in Bolivia totaling €0.5 billion

  • Revenue growth driven by strong execution from the backlog particularly including recent large orders from Egypt

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

  • Continuing strong profit contribution from the service business, including positive effects from the measurement of inventories; Q3 FY 2015 included charges of €106 million related to a project resulting from higher costs for materials and from customer delays

  • Overcapacities continue to create an aggressive competitive environment, resulting in increased price pressure in most regional markets

    Q3			% Change
    (in millions of €)	FY 2016	FY 2015	Actual	Comp.
    Orders	2,729	693	> 200%	> 200%
    Revenue	1,722	1,416	22%	30%
    Profit	143	51	178%
    therein: severance	1	(2)
    Profit margin	8.3%	3.6%
    excl. severance	8.3%	3.8%

    Wind Power and Renewables

• Higher volume from large orders, including a €1.4 billion order for an offshore wind-farm, including service, in the U.K. and a €0.5 billion order for an offshore wind-farm in Germany; order backlog at a new high

• Revenue also reaches a new high on a quarterly basis, on substantial growth including increases in both offshore and onshore new unit businesses as well as in the service business

• Strong profitability includes higher revenue, a more favorable revenue mix, and lower production and installation costs

• In June 2016, Siemens and Gamesa Corporación Tecnológica SA (Gamesa) signed binding agreements to merge the Siemens wind power business, including service, with Gamesa. Siemens will own 59% of the shares of the combined entity. The transaction is subject to approval by Gamesa's shareholders and other customary conditions

  Q3			% Change
  (in millions of €)	FY 2016	FY 2015	Actual	Comp.
  Orders	3,102	3,464	(10)%	(6)%
  Revenue	2,894	2,964	(2)%	2%
  Profit	240	110	119%
  therein: severance	(6)	(30)
  Profit margin	8.3%	3.7%
  excl. severance	8.5%	4.7%

  Energy Management

• Lower orders in the region comprising Europe, C.I.S., Africa and the Middle East (Europe/CAME) due to the Middle East where the solutions business won several large orders in Q3 FY 2015; sharp growth in Asia, Australia including a large order in the ultra high-voltage direct current (UHVDC) transformer business

• Revenue increase in the Americas, declines in the other two reporting regions, including negative effects from currency translation

• Continuing broad-based profitability improvements, mainly in the solutions and high voltage products businesses; Q3 FY 2015 included a higher proportion of projects with low profit margins

  Q3			% Change
  (in millions of €)	FY 2016	FY 2015	Actual	Comp.
  Orders	1,658	1,544	7%	10%
  Revenue	1,536	1,496	3%	5%
  Profit	140	119	18%
  therein: severance	(3)	(11)
  Profit margin	9.1%	8.0%
  excl. severance	9.3%	8.7%

   Order growth in all reporting regions and across the Division's businesses, including significant contract wins for projects in the U.S. and Europe

  • Revenue grew in the Americas and Europe/CAME, while Asia, Australia reported a moderate decline due to currency translation effects

  • Profit rises on higher revenue and improved profitability in the Division's product business

    Q3			% Change
    (in millions of €)	FY 2016	FY 2015	Actual	Comp.
    Orders	1,112	2,821	(61)%	(59)%
    Revenue	1,795	1,817	(1)%	2%
    Profit	158	105	51%
    therein: severance	(4)	(30)
    Profit margin	8.8%	5.8%
    excl. severance	9.1%	7.4%

    Mobility

• Sharply lower volume from large orders; Q3 FY 2015 included a €1.6 billion order from Russia

• Revenue includes growth from execution of large rolling stock projects, offset by lower revenue in the rail infrastructure business

• Increase in profit year-over-year was due to lower severance expenses and positive effects from larger contracts

  Q3			% Change
  (in millions of €)	FY 2016	FY 2015	Actual	Comp.
  Orders	2,563	2,557	0%	1%
  Revenue	2,519	2,507	0%	2%
  Profit	395	423	(7)%
  therein: severance	(13)	(9)
  Profit margin	15.7%	16.9%
  excl. severance	16.2%	17.2%

  Digital Factory

• Continued order and revenue growth in the product lifecycle management (PLM) software business, supported by the acquisition of CD-adapco which closed in April 2016; volume from short-cycle businesses remains near Q3 FY 2015 level despite negative currency translation effects

• On a regional basis, orders grew in Europe/CAME and Asia, Australia while they declined in the Americas; revenue was up in Europe/CAME and declined in Asia, Australia, particularly in China, and in the Americas

• Profitability was held back by deferred revenue adjustments, transaction and integration costs related to the acquisition of CD-adapco totaling €39 million