Siemens AG (



F1Q 2012 Earnings Call

January 24, 2012 2:30 AM ET


Mariel von Drathen – Head, IR

Peter Löscher – President and CEO

Josef Käser – Head, Corporate Finance and Controlling


Ben Uglow – Morgan Stanley

Andreas Willi – JP Morgan

Simon Smith – Credit Suisse

Peter Reilly – Deutsche Bank

Martin Prozesky – Sanford Bernstein

Olivier Esnou – Exane BNP Paribas

Gaël De Bray – Société Générale



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Good day, ladies and gentlemen, and welcome to the Siemens 2012 First Quarter Conference Call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor statement on page two of Siemens’ presentation. This conference call may include forward-looking statements. These statements are based on the company’s current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties.

At this time, I would like to turn the call over to your host today, Mrs. Mariel von Drathen, Head of Investor Relations. Please go ahead, madam.

Mariel von Drathen

Thank you very much. Good morning, ladies and gentlemen, and welcome to our First Quarter Fiscal Year 2012 Conference Call. The earnings release, the FLASHLIGHT and all other documents were published this morning at 7 AM. You can download all the files from our website. This morning’s presentation is also online and this morning’s call is being webcasted via the IR website.

Siemens’ President and CEO, Peter Löscher, and Siemens’ Chief Financial Officer, Joe Käser, are here this morning to review Q1 numbers with you. After the presentation, unfortunately, Peter will have to leave for the Annual Shareholder Meeting. We will then have time for Q&A with Joe.

And with that, I would like to hand over to you, Peter.

Peter Löscher

Thank you, Mariel. Welcome and good morning to everyone. Thank you for joining us to discuss the first quarter results of fiscal 2012, and this also a premier for the new four sector structure. In a nutshell, our start into the new fiscal year was somewhat mixed in an uncertain macroeconomic environment. Uncertainties of the ongoing debt crisis have left a mark on the real economy, particularly in Europe. Public budgets are under pressure in many countries due to austerity measures and concerns about the availability of financing limit, in some cases, investments. After strong growth rates in 2011, the economists predict softening growth rates of the global economy in the first half of 2012 before they see some improvement towards the second half of 2012 and into 2013.

In this uncertain environment, our order intake decreased moderately by 4%, mainly due to a significantly lower number of large orders in Energy and Infrastructure & Cities. Our short-cycle businesses held up well in a robust market where growth rates further normalized. We expect an uptick in industrial demand towards the second half of this year. Moderate revenue growth of 3% was driven by a continued backlog conversion in Energy and above average growth in emerging markets, which account now for 32% of total revenue.

Profitability was substantially weaker due to project delays in some businesses, such as power transmission and rail systems, and these led to significant charges, which I will touch upon later. In addition, we increased as previously indicated, functional costs in sales and marketing as well as research and development associated with growth opportunities. Despite these headwinds, we achieved a very solid return on capital employed of 19%, well within the targeted range.

From a strategic perspective, we made in the first quarter significant progress in further developing partnerships to better address important growth markets in the emerging markets. First, we will adequately access the large wind market in China through joint ventures with our long-standing partner Shanghai Electric, and second, we will extend our global gas turbine manufacturing network with a set-up of a majority joint venture with Power Machines in Russia.

Let me briefly comment on the key figures of the first quarter. Our book-to-bill of 1.11 was clearly in line with our expectations, despite moderate order decrease. Combined with favorable currency effects of EUR2 billion, this lifted our backlog to a new record-high of EUR102 billion. As indicated, profit from total sectors decreased significantly, by 23%, and this led also to a 27% decline in income from continuing operations.

Basic earnings per share went down from EUR2.07 to EUR1.53. After a very strong cash flow performance in the fourth quarter of fiscal 2011, we saw a partial reversal in net working capital and some spillover effects, such as the payout related to particle therapy of around EUR300 million. These effects led to a negative free cash flow of EUR1.1 billion.

Let’s have a look at some key developments in each of the sectors. The first sector, Energy. Orders in Energy declined substantially, by 11%, mainly due to a much lower number of large solution projects in Fossil and Transmission. Orders in Fossil were driven by product business, in particular, gas turbines, and had to compare with very strong solution orders from the prior year. The overall decline was only partially offset by a jump in orders in Renewable Energy due to a series of onshore wind orders in the Americas. The book-to-bill ratio was again at a very healthy 1.16.

First quarter revenue rose by 8% on the conversion of Energy’s strong order backlog, with rapid growth in Asia, Australia and strong growth of 16% in the Oil & Gas business. However, profitability in Energy delivered a very mixed picture. Fossil continued its excellent project execution in the Solution business and also achieved a higher earnings contribution from the Service business. Profitability was also supported by a net positive effect of EUR36 million from the divestment gain of the sale of Power Machines’ stake, more than offsetting further project charges from the Olkiluoto project.

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