Siemens 2012 Annual Report Download - page 204

1 A. To our Shareholders
21 B. Corporate Governance 49 C. Combined Management Report
50 C. Business and economic environment
64 C. Financial performance measures
69 C. Results of operations
82 C. Financial position
93 C. Net assets position
95 C. Overall assessment of the economic position
96 C. Subsequent events
97 C. Sustainability
111 C. Report on expected developments and
associated material opportunities and risks

We expect that the revenue growth rate for our Environmental
Portfolio will be higher than for Siemens overall. In fiscal ,
we set ourselves the goal to increase revenue from our Environ-
mental Portfolio to more than € billion in fiscal , up from
€ billion in fiscal . Due to the planned disposals men-
tioned earlier, including OSRAM, the Water Technologies Busi-
ness Unit, and our solar business, we believe it will be much
more challenging to achieve this goal. For further information
see ...  and ... , respectively.
The goal of the “Siemens ” program mentioned above is to
raise our Total Sectors profit margin to at least % by fiscal
. To achieve this goal, we are targeting productivity gains
totaling approximately € billion over the next two fiscal years.
In the area of cost reduction, we intend to derive approximately
€ billion from better integrating engineering, purchasing and
production processes and overall material productivity; approxi-
mately € billion from further improving global capacity utiliza-
tion and presence; and approximately € billion from improving
efficiency and quality in production processes and project exe-
cution. The remaining portion of the productivity gains is spread
over a number of smaller topics, including our go-to-market set-
up, worldwide infrastructure, and governance processes.
To achieve the targeted results, our Sectors are undertaking a
broad range of measures expected to lead to charges totaling
up to €. billion over the next two fiscal years. We anticipate
recording approximately €. billion of these charges in fiscal
 and the balance in fiscal . The Total Sectors profit
margin target of at least % mentioned above takes into con-
sideration a number of expectations for fiscal , including:
moderate revenue growth; all four sectors in their EBITDA mar-
gin ranges, due in part to the productivity gains described
above; pricing pressure in the range of .% to .% per year;
and moderate cost increases including wage developments. In
addition, we expect that influences on profitability from acqui-
sitions and disposals will be broadly offsetting over the next
two fiscal years. We expect acquisitions to be highly accretive
to profitability in the medium term.
For fiscal , we expect income from continuing opera-
tions in the range from €. to €. billion, including the ef-
fect of early adoption of International Accounting Standard 
Revised (IAS R). Based on our above-mentioned goal of a To-
tal Sectors profit margin of at least % by fiscal , we ex-
pect fiscal  income from continuing operations to show
strong improvement compared to fiscal . This forecast ex-
cludes impacts related to legal and regulatory matters and sig-
nificant portfolio effects.
Results of operations in fiscal  will include adoption of IAS
R. We anticipate that IAS R will significantly impact Income
from continuing operations, due primarily to an increase in cen-
trally carried pension expense within Corporate items and
pensions. We adopted IAS R after the close of fiscal , on a
retrospective basis. On a preliminary basis, had IAS R been ap-
plied in fiscal , the impact on Income from continuing op-
erations for fiscal  would have been approximately a
negative €. billion after tax, resulting in Income from continu-
ing operations of approximately €. billion for fiscal . For
fiscal , we expect pension expense on a similar level com-
pared to fiscal , including the effect of IAS R in both years.
We are exposed to currency translation effects, involving the
US$, British £ and currencies of emerging markets such as
China, India and Brazil. We 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 adaptation of our production facil-
ities 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    .   -
  . We expect these steps to help
to limit effects on income related to currency in fiscal .
Our most important financial goal is capital efficiency, which
we measure in terms of adjusted return on capital employed
(ROCE (adjusted)). Due mainly to our expectations regarding
the development of income from continuing operations, we
expect ROCE (adjusted) on a continuing basis around the lower
end of our target range of % to % in fiscal , and in the
upper half of the range in fiscal . This expectation ex-
cludes significant portfolio effects, in particular potential ac-
quisitions, which may substantially increase our capital em-
ployed and therefore reduce ROCE. For further information see
.   .
We intend to continue providing an attractive return to share-
holders. In the years ahead we intend to propose a dividend
payout which, combined with outlays for share buybacks dur-
ing the fiscal year, results in a sum representing % to % of
Net income, which for this purpose we may adjust to exclude
exceptional non-cash effects.
Financial position
We intend to remain conservative with regard to our financial
position, including liquidity, in order to maintain operational
and strategic flexibility. We expect Free cash flow from con-
tinuing operations in fiscal  and  to be burdened by
substantial cash outflows related to the program-related charg-
es included in our “Siemens ” program as discussed above.
For Free cash flow, we anticipate that the recent trend of some-