Siemens’ profit from operations up substantially in first quarter despite declining revenue
Löscher: “Our actions early on are cushioning us from the ongoing repercussions of the recession.”
Munich, Germany, Siemens was again profitable in the first quarter of the new fiscal year. Despite declining revenue, nearly all the company’s businesses reached their defined margin targets. Although the order situation stabilized, new orders remained at a significantly lower level than before the crisis due to continued weak demand worldwide. “Earnings for the first quarter provide a gratifying snapshot of our current situation. The actions we took at a very early stage are now cushioning us from the ongoing repercussions of the global recession,” said Siemens President and CEO Peter Löscher. “We will continue to tackle all challenges decisively and in a responsible manner. Only such an approach can ensure Siemens’ long-term success,” he stated.
In the first quarter of fiscal 2010, which ended on December 31, 2009, Siemens generated revenue of €17.4 billion. Excluding currency translation and portfolio effects, this was an eight percent decline compared to revenue in the comparable prior-year period of €19.6 billion. Ongoing weak customer demand also impacted new orders, which fell 11 percent on an organic basis, from €22.2 billion in the prior-year period to €19.0 billion, but were slightly above the level of the immediately preceding fourth quarter of 2009. At the end of December, the order backlog was slightly above €83 billion, compared to some €81 billion at the end of September 2009.
Demand stabilization to date only in short-cycle business
The picture at Siemens’ individual Sectors was mixed. While there were signs that demand was at least stabilizing in short-cycle businesses, other areas confronted ongoing challenges. The Industry Solutions and Drive Technologies Divisions reported the steepest declines. In the Industry Sector, organic revenue fell 11 percent overall in the first quarter and new orders 14 percent on an organic basis. In the Energy Sector, organic revenue was down seven percent and new orders 16 percent on an organic basis. In the Healthcare Sector, organic revenue remained broadly stable, rising one percent. Excluding currency translation and portfolio effects, new orders increased four percent.
Profitability in operations
Despite declining revenue, Siemens proved the profitability of its operations. Total Sectors profit, the key indicator of the development in company operations, climbed 11 percent, from €2.0 billion in the prior-year period to €2.3 billion. The main drivers were good cost management and a favorable revenue mix with, for example, an increase in the proportion of service activities. At the same time, there was a substantial reduction primarily in sales and administrative costs. While Industry reported a profit decline of two percent, Energy increased its profit nine percent and Healthcare 53 percent.
Income from Siemens’ continuing operations totaled €1.5 billion in the first quarter, a 21 percent increase over the prior-year period. At €1.5 billion, net income was nearly 25 percent above the prior-year figure of €1.3 billion.
Sustainable recovery in the world economy will not take hold for some time
Siemens anticipates that conditions in the manufacturing sector and world financial markets will remain challenging in fiscal 2010. Following a double-digit percentage decline in orders in fiscal 2009, the company expects only a mid-single-digit percentage decline in organic revenue in fiscal 2010 due to the stabilizing effect of its strong order backlog. Siemens expects Total Sectors profit between €6.0 billion and €6.5 billion in fiscal 2010, and an increase of approximately 20% in income from continuing operations compared to some €2.5 billion in the prior year. This outlook is conditional on no material deterioration in the company’s pricing power during the fiscal year and on improving market conditions in the second half, particularly for shorter-cycle businesses. Furthermore, this outlook excludes major impacts that may arise during the fiscal year from restructuring, portfolio transactions, impairments, and legal and regulatory matters.
Siemens AG (Berlin and Munich) is a global powerhouse in electronics and electrical engineering, operating in the industry, energy and healthcare sectors. For over 160 years, Siemens has stood for technological excellence, innovation, quality, reliability and internationality. The company is the world’s largest provider of environmental technologies, generating €23 billion – nearly one-third of its total revenue – from green products and solutions. In fiscal 2009, which ended on September 30, 2009, revenue totaled €76.7 billion and net income €2.5 billion. At the end of September 2009, Siemens had around 405,000 employees worldwide. Further information is available on the Internet at: www.siemens.com.
This document contains forward-looking statements and information – that is, statements related to future, not past, events. These statements may be identified by words such as “expects,” “looks forward to,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “project” or words of similar meaning. Such statements are based on the current expectations and certain assumptions of Siemens’ management, and are, therefore, subject to certain risks and uncertainties. A variety of factors, many of which are beyond Siemens’ control, affect Siemens’ operations, performance, business strategy and results and could cause the actual results, performance or achievements of Siemens to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For Siemens, particular uncertainties arise, among others, from changes in general economic and business conditions (including margin developments in major business areas and recessionary trends); the possibility that customers may delay the conversion of booked orders into revenue or that prices will decline as a result of continued adverse market conditions to a greater extent than currently anticipated by Siemens’ management; developments in the financial markets, including fluctuations in interest and exchange rates, commodity and equity prices, debt prices (credit spreads) and financial assets generally; continued volatility and a further deterioration of the capital markets; a worsening in the conditions of the credit business and, in particular, additional uncertainties arising out of the subprime, financial market and liquidity crises; future financial performance of major industries that Siemens serves, including, without limitation, the Sectors Industry, Energy and Healthcare; the challenges of integrating major acquisitions and implementing joint ventures and other significant portfolio measures; the introduction of competing products or technologies by other companies; a lack of acceptance of new products or services by customers targeted by Siemens; changes in business strategy; the outcome of pending investigations and legal proceedings and actions resulting from the findings of these investigations; the potential impact of such investigations and proceedings on Siemens’ ongoing business including its relationships with governments and other customers; the potential impact of such matters on Siemens’ financial statements; as well as various other factors. More detailed information about certain of the risk factors affecting Siemens is contained throughout this report and in Siemens’ other filings with the SEC, which are available on the Siemens website, www.siemens.com, and on the SEC’s website, www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement as expected, anticipated, intended, planned, believed, sought, estimated or projected. Siemens does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.
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