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Germany: Power Transmission Issues with North Sea Wind Farms Burden Siemens

November 8, 2012

Germany: Power Transmission Issues with North Sea Wind Farms Burden Siemens

In fiscal 2012, Siemens achieved a seven percent gain in revenue and a strong profit. Income from continuing operations was €5.2 billion and thus in line with expectations. New orders declined ten percent year-over-year.

“A strong fourth quarter enabled us to fulfill our expectations for fiscal 2012 and achieve one of our best years ever,” said Peter Löscher, President and CEO of Siemens AG. “Even so, we didn’t fully succeed in significantly boosting our performance vis-à-vis competitors, as we did in recent years. To get back to reaching our own goals, we’ve launched ‘Siemens 2014,’ a company-wide program aimed at raising our Total Sectors profit margin to at least 12 percent. We know what we have to do – and we’re doing it.”

In fiscal 2012, ended on September 30, 2012, new orders declined year-over-year by ten percent from €85.2 billion to €76.9 billion while revenue, in contrast, rose seven percent company-wide, thanks to the sustained strong order backlog and positive currency translation effects in all Sectors, from €73.3 billion to €78.3 billion. The book-to-bill ratio was 0.98. The order backlog reached €98 billion.

In the Energy Sector, new orders declined year-over-year by 14 percent to €26.9 billion, due in part to a lower volume of major orders than in the prior year. Sector revenue, on the contrary, climbed 12 percent to €27.5 billion. The Healthcare Sector showed a positive development, with both new orders and revenue above prior-year levels. While new orders grew five percent from €13.1 billion in the previous year to €13.8 billion, revenue climbed nine percent from €12.5 billion to €13.6 billion.

The Industry Sector posted new orders worth €20.0 billion following a total of €20.2 billion in the previous year. Revenue rose five percent to €20.5 billion. At the Infrastructure & Cities Sector, new orders dropped 20 percent to €17.2 billion, primarily due to the major rail business orders booked in the prior year, such as for the ICx – the biggest order in the company’s history. All other Divisions in the Sector showed higher order volumes than in the previous year.

Earnings development

Despite positive revenue trends in all Sectors, Total Sectors profit declined from €9.4 billion in the prior year to €7.5 billion. Income from continuing operations dropped year-over-year from €7.4 billion to €5.2 billion, and net income fell 27 percent to €4.6 billion.

While Healthcare Sector profit rose more than one-third to €1.8 billion, the other three Sectors posted declining profits. Profit at the Energy Sector dropped from €4.2 billion in the prior year to €2.2 billion. The burdens here included costs related to the power transmission platforms being installed in the North Sea for wind farms. In accordance with project accounting principles, the Sector also recorded €327 million in profit impacts stemming from a fourth-quarter change in credit risk assessment for Iran. The Industry Sector showed a profit of €2.5 billion for fiscal 2012, following €2.7 billion in the previous year. Profit at Infrastructure & Cities was €1.1 billion, only slightly below the prior-year level.

Company program

Although Siemens achieved one of the best results in the company’s history in fiscal 2012, the company lagged behind its own high objectives defined in the One Siemens target system. With its two-year “Siemens 2014” program, the company is aiming to reduce costs by €6 billion, increase its competitiveness, and become faster and less bureaucratic. The goal is to increase the Total Sectors profit margin from 9.5 percent in fiscal 2012 to at least 12 percent by fiscal 2014.

Dividend

The targets communicated mid-year for fiscal 2012 were reached. On this basis, the Supervisory Board and the Managing Board will propose, as last year, a dividend of €3.00 to shareholders at the Annual Shareholders’ Meeting in January 2013. In addition, Siemens shareholders have also profited from the company’s share buyback program totaling around €2.9 billion of recent months that ended yesterday. For the future, Siemens is striving for a payout ratio of 40 to 60 percent from dividends and possible share buyback programs.

Outlook

In fiscal 2013, Siemens begins implementation of “Siemens 2014,” a company-wide program supporting its One Siemens framework for sustainable value creation. The goal of the program is to raise its Total Sectors profit margin to at least 12 percent by fiscal 2014.

In the first year of the program, the company expects moderate order growth and revenue approaching the level of fiscal 2012, both on an organic basis. Siemens expects income from continuing operations in the range from €4.5 to €5.0 billion, including the effect of retrospective adoption of IAS 19R. This includes charges totaling approximately €1.0 billion for program-related productivity measures in the Sectors, with the productivity gains realized in our results for fiscal 2014.

This outlook is based on a number of conditions, notably that revenue develops as expected particularly for businesses that are sensitive to short-term changes in the economic environment. Furthermore, it excludes impacts related to legal and regulatory matters and significant portfolio effects.

[mappress]

Press release, November 8, 2012; Image: Siemens