Siemens 2008 Annual Report Download - page 145

Management’s discussion and analysis 49
Total Sector prot was burdened by transformation costs and project charges. Total Sectors prot – a meas-
ure of the combined prot from our three Sectors – was €6.520 billion in scal 2008 compared to €6.662 billion
a year earlier. This represents a decline of 2%, even though the current scal year included more than €1 billion
in project charges at the Fossil Power Generation and Mobility Divisions as well as €325 million in costs related
to transformation programs at the Healthcare Sector and Mobility. The Industry Sector delivered strong prot
growth driven by substantial increases in three of its largest Divisions, Industry Automation, Drive Technologies
and Industry Solutions. Prot declined in the Energy Sector due to the project charges at Fossil Power Genera-
tion. All other Divisions in Energy generated higher prots year-over-year. Healthcare saw strong prot growth
in its Diagnostics Division, beneting from its acquisition of Dade Behring Holdings, Inc. (Dade Behring). Over-
all Healthcare saw a prot decline primarily due to the transformation costs mentioned above. All three Sectors
devoted signicant management attention during the year to realigning our eight former operating Groups into
three Sectors. For information on our new organizational structure, see “Strategic overview” below.
Income from continuing operations was €1.859 billion compared to €3.909 billion in scal 2007. Basic earn-
ings per share (EPS) from continuing operations declined correspondingly, to €1.91 from €4.13 a year earlier.
The largest factor in this decline was the €1.741 billion in pre-tax transformation costs mentioned above. Within
these costs were €1.081 million associated with severance programs aimed at a rapid yet sustainable SG&A
reduction. Also included in transformation costs were €271 million in charges connected to divesting or closing
non-strategic businesses in Other Operations. In addition, continuing operations included the provision of
approximately €1 billion (pre-tax) associated with ongoing settlement negotiations and a one-time endowment
of €390 million (pre-tax) related to the establishment of the Siemens foundation in Germany. The prior year was
burdened by €440 million related to a European antitrust investigation.
Net income rose to €5.886 billion from €4.038 billion in scal 2007. Basic EPS were €6.41 compared to €4.24 in
scal 2007. The decline in income from continuing operations discussed above was outweighed by higher
income from discontinued operations, principally due to the SV divestment mentioned above. The combined
result for SV in scal 2008, including positive operating results, was approximately €5.5 billion. This factor was
partly offset by a loss of approximately €1.0 billion associated with the transfer of 51% of Siemens Enterprise
Communications (SEN) and a €120 million provision related to the expected settlement of a claim by the insol-
vency administrator of BenQ Mobile GmbH & Co. OHG (BenQ) recorded in the fourth quarter. A year earlier, dis-
continued operations beneted from a then preliminary pre-tax non-cash gain of approximately €1.6 billion
resulting from the transfer of our telecommunications carrier business into Nokia Siemens Networks B.V. (NSN).
This positive effect, in addition to positive operating results at SV, was partly offset in the prior-year period by
approximately €1.1 billion in tax expense associated with the carve-out of SV pending the close of its sale; a €567
million in impairments at the SEN business; and a penalty of €201 million imposed by German authorities in
ending their investigation of past misconduct at the former Communications Group (Com).
Free cash ow from continuing operations was €5.739 billion and the Cash conversion rate was above
target. For comparison, free cash ow for continuing operations of €6.755 billion in scal 2007 beneted from
a substantial decrease in receivables of approximately €2.2 billion related to the SV carve-out and the transfer
of carrier activities into NSN, only partly offset by a €431 million penalty payment related to a European Union
antitrust investigation. Our cash conversion rate, dened as free cash ow divided by income, was 3.09 for con-
tinuing operations in scal 2008. This level was above our target for the scal year.