Siemens: Strong growth and solid earnings for fiscal 2006

Siemens continued on its course of growth in fiscal 2006 and substantially increased its business volume. Orders rose 15% to €96.259 billion and sales 16% to €87.325 billion. The company also achieved solid earnings, with net income growing 38% to €3.106 billion and Group profit from Operations climbing 12% to €5.256 billion. Siemens initiated acquisitions worth roughly €6.6 billion during the year in order to further strengthen its activities in the fields of healthcare, energy and industrial automation. The company sees itself well-positioned for the future.

“We achieved a great deal in an eventful year, particularly in shaping Siemens for profitable growth,” said Siemens CEO Klaus Kleinfeld. In the course of fiscal 2006, Siemens executed a major part of its strategic reorientation of the Information and Communications business area and the former Logistics and Assembly Systems Group. The company continued to build on its strengths with focused acquisitions in energy, industrial automation, and healthcare. “In fiscal 2007, we expect topline growth at double the rate of global gross domestic product growth, adjusted for divestments,” continued Kleinfeld. He was confident that the Groups will reach their margin targets.

Strong international growth
Orders in fiscal 2006 climbed to €96.259 billion, a 15% increase from €83.791 billion in the prior year. Sales of €87.325 billion were up 16% from €75.445 billion a year earlier. Excluding currency translation effects and the net effect of acquisitions and dispositions, orders climbed 6% and sales rose 8%. Growth was driven by international markets, where major orders were both numerous and well-distributed. International orders climbed 18% year-over-year, to €79.736 billion and international sales grew 19%, to €71.080 billion. In Germany, orders increased 1% to €16.523 billion and sales rose 4% to €16.245 billion, primarily due to acquisitions during the fiscal year.

Internationally, the fastest growth on a regional basis came in the Middle East/Africa/CIS, where orders rose 35%, to €10.910 billion, and sales climbed 33%, to €8.191 billion. On an organic basis, excluding acquisitions, divestments and currency effects, Siemens showed 26% growth in orders and 22% growth in sales in this region. Asia-Pacific orders were up 26%, to €15.058 billion, and sales rose 28%, to €12.871 billion. The company also showed strong organic growth in this region. India led the major economies in this region, with orders surging 67%, to €1.962 billion, and sales climbing 47% to €1.202 billion. China continued to grow rapidly as well, from a larger base: Orders of €5.089 billion were up 23% year-over-year, and sales of €4.438 billion were 39% higher than in the prior year. In the Americas, orders and sales grew by 16% and 20%, respectively, benefiting from strong portfolio and currency translation effects. In the U.S., Siemens posted orders of €18.509 billion and sales of €17.388 billion, for increases of 17% and 18%, respectively. In Europe outside Germany, orders and sales each rose 11%, to €29.117 billion and €27.105 billion, respectively, primarily due to acquisitions.

Fourth-quarter sales were €23.923 billion, up 8% year-over-year. Fourth-quarter orders of €22.616 billion came in 4% below the prior-year quarter, which included a higher number of large orders, particularly at PG and TS. Excluding portfolio and currency effects, fourth-quarter sales rose 10% and orders were down 2%.

Solid results
For fiscal 2006, Siemens reported net income of €3.106 billion, up 38% compared to €2.248 billion a year earlier. Group profit from Operations for the year climbed 12% to €5.256 billion, fueled by higher year-over-year profits in a majority of the Groups in Operations. Major earnings contributions came from Automation and Drives (A&D), Medical Solutions (Med), Power Generation (PG), Siemens VDO Automotive (SV), Osram, and Power Transmission and Distribution (PTD). Severance charges at Communications (Com) were higher year-over-year, at €393 million compared to €113 million. This rise was partially offset by higher gains on sales of shares in Juniper Networks, Inc. (Juniper), which increased to €356 million in fiscal 2006 from €208 million a year earlier. Severance charges rose at Siemens Business Services (SBS) as well, totaling €393 million compared to €228 million in the prior year. A year earlier, SBS also took a goodwill impairment of €262 million. R&D expenses increased to €5.685 billion from €5.155 billion a year earlier. As a percentage of sales, R&D expenses were 6.5%, compared to 6.8% a year earlier. In his outlook for fiscal 2007, Kleinfeld said: “2007 will be a good year for Siemens.” The company’s Managing and Supervisory Boards jointly propose a dividend of €1.45 per share for fiscal 2006, compared to €1.35 per share a year earlier.
In the fourth quarter, net income was €614 million, up from €77 million in the same quarter of the prior year, which included a significant loss at the discontinued mobile devices business. Group profit from Operations improved 35% year-over-year, fueled by better results in most of the Groups.

Rigorous implementation of Fit4More
Siemens continued to rigorously implement its Fit4More program to pave the way for reaching the company’s margin targets in fiscal 2007. The strategic reorientation of SBS and the former Logistics and Assembly Systems Group has been completed, and the future course for Com has been set. Subject to approval of the antitrust authorities, the Nokia Siemens Networks joint venture is set to be launched in January 2007. The next steps will now be taken at SBS. By creating a new IT service Group, called Siemens IT Solutions & Services (SIS), Siemens is bundling its worldwide software and IT services competence under a single roof. The new Group is expected to be formed in January 2007 and will have around 43,000 employees and a business volume of over €5 billion.

Company strengths clearly reinforced
With its acquisitions of Diagnostic Products Corp. (DPC) and Bayer Diagnostics, Med has become a leading provider in the field of in-vitro diagnostics and, at the same time, made Siemens the world’s first integrated diagnostics company. By taking over Wheelabrator and the coal gasification business of Sustec in the growth market for environmentally friendly power generation, PG substantially strengthened its market position. A&D further expanded its global market leadership with the integration of Flender and Robicon.