Siemens 2014 Annual Report Download - page 231

247 D. Consolidated Financial Statements
337 E. Additional Information
213 C. Overall assessment of the economic position
214 C. Subsequent events
215 C. Sustainability and citizenship
225 C. Report on expected developments and
associated material opportunities and risks
242 C. Compensation Report and legal disclosures
242 C. Siemens AG (Discussion on basis
of German Commercial Code)
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C... STRATEGIC RISKS
We operate in highly competitive markets, which are sub-
ject to price pressures and rapid changes: The worldwide
markets for our products and solutions are highly competitive
in terms of pricing, product and service quality, product devel-
opment and introduction time, customer service and financ-
ing terms. In many of our businesses, we face downward price
pressure and we are or could be exposed to market downturns
or slower growth, which may increase in times of declining
investment activities and consumer demand. We face strong
competitors, some of which are larger and may have greater
resources in a given business area, and also competitors from
emerging markets, which may have a better cost structure.
Some industries in which we operate are undergoing con-
solidation, which may result in stronger competition and a
change in our relative market position. Certain competitors
may be more effective and faster in capturing available market
opportunities, such as through heavy investments or new
entrance of IT companies into emerging service fields (e.g.
data- driven services). These factors alone or in combination
may negatively impact our business, financial condition, and
results of operations.
Furthermore, we see a risk that suppliers (and to some extent
even smaller customers), especially from emerging countries
(e.g. China), could develop into serious competitors for
Siemens resulting in even more competition and thus in re-
duced volume, loss of market share, and / or lower profit margin.
Our business, financial condition and results of operations
may be affected by the uncertainties of economic and polit-
ical conditions, particularly in the current macroeconomic
environment, which is characterized by a high degree of un-
certainty and modest recovery as well as the continuing risk
of resurgence of crisis in financial markets and / or renewed
global economic downturn: Our business environment is in-
fluenced by both domestic and global demand, which in turn is
influenced by economic conditions. These conditions and, in
consequence, the speed of economic growth and the sustain-
ability of our market environment are dependent upon the evo-
lution of a number of global and local factors. We still see a
high level of uncertainty regarding the global economic out-
look, primarily as a result of the anemic economic recovery in
the Euro zone, sluggish growth in various emerging countries,
and ongoing geopolitical tensions. The main downside risks
stem from these political tensions. A severe escalation of the
conflict in Eastern Europe would strongly affect the European
and world economy and lead to a steep decline in investment
activity. Similarly, an escalation of the conflicts in the Middle
East could disrupt global oil markets and hit the global econ-
omy. Additional risks for our market environment include such
possibilities as a prolonged decline in investment sentiment,
a renewed crisis in financial and credit markets, a renewed
banking crisis in Europe, a hard landing of the Chinese econ-
omy, a supra-regional spread of the Ebola epidemic, fluctuating
commodity prices, bankruptcies, natural disasters, political
crises including further independence debates, social unrest
and other challenges.
In general, due to the significant proportion of long-cycle busi-
nesses in our former Sectors and the importance of long-term
contracts for Siemens, there is usually a time lag between the
development of macroeconomic conditions and their impact on
our financial results. Important exceptions include our short-
cycle businesses in the former Industry Sector, particularly
those in the former Industry Automation Division and parts of
the former Drive Technologies Division as well as parts of the
former Power Grid Solutions & Products Business within the for-
mer Infrastructure & Cities Sector, which are highly sensitive to
volatility in market demand. If the moderate recovery of macro-
economic growth stalls again and if we are not successful in
adapting our production and cost structure to subsequent
changes to conditions in the markets in which we operate,
there can be no assurance that we will not experience adverse
effects (e.g. underutilization of manufacturing and engineer-
ing capacities) that may be material to our business, financial
condition and results of operations. For example, it may be-
come more difficult for our customers to obtain financing and
as a result they may modify, delay or cancel plans to purchase
our products and services or to follow through on purchases or
contracts already executed. Furthermore, prices may decline as
a result of adverse market conditions to a greater extent than
currently anticipated. In addition, contracted payment terms,
especially regarding the level of advance payments by our cus-
tomers relating to long-term projects, may become less favor-
able, which could negatively impact our cash flows. Addition-
ally, if customers are not successful in generating sufficient
revenue or securing access to the capital markets, they may not
be able to pay, or may delay payment of, the amounts they owe
us, which may adversely affect our business, financial condi-
tion and results of operations.
Numerous other headwinds continue to constrain the world
economy, such as the increasing popular support for anti-EU and
anti-business parties, ongoing high public debt, and significant
fluctuations in exchange rates, energy prices and raw material
prices. These and other factors could impact macroeconomic
parameters and the international capital and credit markets, and
the resulting uncertainty could have an adverse impact on our
business, financial condition and results of operations.
Our business is affected by a variety of market conditions and
regulations. For example, our former Energy Sector is exposed
to the development of global demand for energy and strongly