Siemens 2014 Annual Report Download - page 228

108 A. To our Shareholders 131 B. Corporate Governance 171 C. Combined Management Report
172 C. Business and economic environment
187 C. Financial performance system
193 C. Results of operations
205 C. Financial position
210 C. Net assets position
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Additionally, we assume pricing pressure on our offerings of
around . % in fiscal , with the Wind Power and Renew-
ables Division, the Power and Gas Division and Healthcare
being affected the most. Furthermore, we expect upward pres-
sure on costs from wage inflation of around  % to  %.
Beginning with fiscal , we defined profit margin ranges for
our Industrial Business and SFS, which are based on the profit
margins of the respective relevant competitors. The profit mar-
gin ranges for our Industrial Business and for SFS are as follows:
Profit margin ranges
Margin range
Power and Gas 11 – 15%
Wind Power and Renewables 5 – 8%
Energy Management 7 – 10%
Building Technologies 8 – 11%
Mobility 6 – 9%
Digital Factory 14 – 20%
Process Industries and Drives 8 – 12%
Healthcare 15 – 19%
SFS (ROE (after taxes)) 15 – 20%
We expect that nearly all of our Divisions and Healthcare will
reach their margin ranges in fiscal . Our Energy Manage-
ment Division and our Wind Power and Renewables Division,
whose profit margins were below their respective ranges in fis-
cal , are expected to significantly improve their profitability
in fiscal . While we expect the profit margin for our Power
and Gas Division to be in the target range in fiscal , we ex-
pect it will come in significantly below the margin of . %
achieved in fiscal . Besides the above-mentioned market
conditions, the reasons for this development are targeted
expense increases for growth and innovation as well as consol-
idation early in fiscal  of our acquisition of the aero-deriva-
tive turbine and compressor business of Rolls-Royce, among
other factors. Overall, we expect an aggregate profit margin for
our Industrial Business of  % to  %, compared to . % in
fiscal . We expect profit for SFS, which is outside our Indus-
trial Business, to be near the prior-year level.
Within our Reconciliation to Consolidated Financial State-
ments, profit from Centrally managed portfolio activities is
expected to rise sharply year-over-year, benefiting from a gain
on the sale of our stake in BSH. This positive effect is expected
to be partly offset by burdens that may arise from remaining
Centrally managed portfolio activities. While we anticipate
that SRE will continue with real estate disposals depending on
market conditions, we expect gains from disposals to be lower
in fiscal  than in fiscal . Corporate items are expected
to cost approx imately € . billion in fiscal , with costs in
the second half-year higher than in the first half. Among other
factors, results from Corporate items are dependent on
changes in the fair value of warrants we issued together with
US$  billion in bonds in fiscal . Centrally carried pen-
sion expenses are expected to total approximately € . billion
in fiscal . Because our enhanced profit definition now
excludes expenses from amortization of intangible assets
acquired in business combinations, we report these expenses
separately within our Reconciliation to Consolidated Financial
Statements. In fiscal , these expenses were a negative
€ . billion and we expect them to be on a similar level in
fiscal .
Income from discontinued operations in fiscal  is expected
to rise sharply year-over-year, benefiting particularly from a
substantial gain on the sale of our hearing aid business.
Capital efficiency
Our primary measure for managing and controlling our capital
efficiency is return on capital employed from continuing and dis-
continued operations (ROCE). Due mainly to our expec tations
regarding the development of net income, we expect to achieve
ROCE clearly in our target range of  % to  % in fiscal .
Capital structure
To measure our capital structure we use the ratio of industrial
net debt to EBITDA, and seek to achieve a ratio of up to .. We
expect to achieve a ratio below . in fiscal , but clearly
above the fiscal  level of ., due to portfolio measures
that we initiated in fiscal  and our share buyback program,
which are expected to result in significant net cash outflows
in fiscal .
Dividend
We intend to continue providing an attractive return to share-
holders. Therefore in the years ahead we intend to propose a
dividend payout of  % to  % of net income, which for this
purpose we may adjust to exclude selected exceptional non-
cash effects. As in the past, we intend to fund the dividend pay-
out from Free cash flow.
C... OVERALL ASSESSMENT
We believe that our business environment will be complex in
fiscal , among other things due to geopolitical tensions. We
expect revenue on an organic basis to remain flat year-over-year,
and orders to exceed revenue for a book-to-bill ratio above . Fur-
thermore, we expect that gains from divestments will enable us
to increase basic EPS from net income by at least  % from € .
in fiscal . For our Industrial Business, we expect a profit
margin of  % to  %. This outlook excludes impacts from legal
and regulatory matters.