Siemens 2011 Annual Report Download - page 221

153 D. Consolidated Financial Statements
273 E. Additional information
143 C. Additional information for supplemental
financial measures
145 C. Siemens AG (Discussion on basis of
German Commercial Code)
151 C. Notes and forward-looking statements
140 C. Information required pursuant to Section  ()
and Section  () no.  of the German Commer-
cial Code (HGB) and explanatory report
142 C. Compensation report and Corporate Governance
statement pursuant to Section a of the German
Commercial Code (HGB)

organic growth, our strategy also includes options to strength-
en our core businesses via acquisitions and divestments.
We anticipate continued strong earnings contributions from
our businesses and for Siemens, in part due to the large and
long-cycle order backlogs in a number of our businesses. Our
short-cycle businesses, particularly including industry auto-
mation and parts of our drives technologies businesses which
typically operate with only a small backlog, are highly sensi-
tive to volatility in market demand. We expect particularly
strong earnings contributions from these businesses. Our ex-
pectation for strong earnings performances takes into ac-
count ongoing pricing pressure, higher operating expenses,
and higher capital expenditures in fiscal .
With regard to pricing pressure, we expect a slight easing in
fiscal  due primarily to the Industry Sector. For compari-
son, negative influences from customer price changes in fiscal
 more than offset positive influences from purchasing sav-
ings, resulting in a net burden of approximately €. billion.
We anticipate some improvement in this overall net effect
from pricing pressure and purchasing in fiscal , even
though our wind power and parts of our power transmission
businesses, among others, expect to see continued intense
pricing pressure year-over-year due mainly to increased com-
petition from new market entrants. We intend to achieve this
improvement at least in part by continuing to provide suppli-
ers with financing and opportunities for joint development
and manufacturing of key parts, which can improve purchas-
ing conditions.
With regard to operating expenses, we expect to increase ex-
penses for R&D, for selling and marketing, and for general ad-
ministration by more than €. billion in fiscal . We fur-
ther expect that R&D will be the largest factor in the overall
increase, accounting for approximately € million, followed
by marketing and selling expenses associated with our growth
plans within certain markets and regions.
With regard to capital expenditures of our Sectors in property
plant and equipment and intangible assets, we expect an in-
crease of €. billion to €. billion in the next fiscal year. This
increase will be focused in large part on expanding our capa-
bilities and regional footprint in emerging markets. In particu-
lar, our strong commitment to growth in the BRIC countries of
Brazil, Russia, India and China includes plans for new invest-
ment totaling approximately €. billion in Russia in the next
three years.
We set our goal for fiscal  income from continuing oper-
ations based on the high level we achieved in the prior year,
excluding the net positive effect of €. billion related to Are-
va that lifted income to €. billion in fiscal . Our expecta-
tions for income include anticipated profit impacts related to
repositioning activities at NSN and in the Healthcare Sector.
We expect burdens totaling approximately € million (pre-
tax) in Healthcare associated with programs to improve the
cost position in the diagnostics business and reposition the
radiation therapy business. NSN has indicated that it will de-
fine and implement repositioning measures during fiscal
, and we therefore anticipate that associated charges will
result in substantially higher losses compared to fiscal .
For further information see C. Report on post-balance
sheet date events. We also expect that income from continu-
ing operations will include higher pension expenses in fiscal
 compared to fiscal , primarily due to an expected
increase in interest rates and the corresponding effect on
interest costs.
We are exposed to currency translation effects, involving the
US$, British £ and currencies of emerging markets such as Chi-
na, India and Brazil. We also expect volatility in global currency
markets to continue in fiscal . Given that Siemens is a net
exporter from the Eurozone to the rest of world, a weak Euro is
principally favorable for our business and a strong Euro is prin-
cipally unfavorable. Through optimization of our production fa-
cilities during the recent past, we have improved our natural
hedge on a global basis. In addition, we have already systemati-
cally addressed the remaining currency risk in our export busi-
ness activities for fiscal , see
D. Notes to Consolidated
Financial Statements.
We expect these steps to help to limit
effects on income related to currency in fiscal .
One of our most important goals is capital efficiency, which
we measure in terms of adjusted return on capital employed
(ROCE (adjusted)). Based on our expectation for capital-effi-
cient growth in our businesses and continuous improvement
relative to markets and competitors, we expect ROCE (adjust-
ed) to reach our target range of % to % in fiscal  and
fiscal . This expectation excludes significant portfolio ef-
fects. For additional information see C.. Financial perfor-
mance measures and C. Additional information for sup-
plemental financial measures.
As part of One Siemens, we established a dividend policy of
proposing an annual dividend representing % to % of Net
income which for these purposes we adjust to exclude select-