Siemens in the second quarter 2007 (ended March 31, 2007)

Effective with the first quarter of fiscal 2007, Siemens prepares its primary financial reporting according to International Financial Reporting Standards (IFRS) on a retroactive basis.

• Siemens successfully concluded its Fit4More program by achieving the profitability, growth and portfolio goals planned for April 2007.
• All Groups reached or exceeded their target earnings margins.
• Group profit from Operations rose 49% year-over-year, to €1.964 billion.
• Income from continuing operations climbed 56%, to €1.396 billion.
• Net income rose 36%, to €1.259 billion.
• Revenue rose 10% to €20.626 billion, and orders increased 9% to €23.469 billion. Excluding currency translation and portfolio effects, revenue rose 13% and orders increased 11%.
• On a continuing basis, operating and investing activities used net cash of €901 million in the second quarter, including a €3.8 billion cash payment for the diagnostics division of Bayer AG. A year earlier, operating and investing activities provided net cash of €538 million.

“Our financial performance in the second quarter is the result of great teamwork in successfully executing our Fit4More program,” said Siemens CEO Klaus Kleinfeld. “We significantly strengthened our strongest businesses, better aligned the company to take full advantage of global demographic and urbanization trends, and reached or exceeded our margin targets at all Groups. Together these accomplishments are enabling us to outgrow the economy at a higher level of profitability.”

“Going forward, we believe we can do even better. So we are introducing a new program, ‘Fit for 2010,’ with ambitious targets for growth, capital efficiency, and cash conversion at the corporate level, and with higher margin ranges at a majority of our Groups. We look forward to maintaining the operating momentum we have built up in the first half of the fiscal year.”

In the second quarter of fiscal 2007, ended March 31, 2007, Siemens’ net income rose to €1.259 billion, an increase of 36% compared to €923 million in the second quarter a year earlier. Basic earnings per share rose to €1.34 from €0.98 in the prior-year quarter, and diluted earnings per share increased to €1.28 from €0.98 a year earlier. Income from continuing operations was €1.396 billion, an increase of 56% compared to €897 million in the same period a year earlier. Basic earnings per share on a continuing basis rose to €1.50 from €0.95 in the prior-year quarter, and diluted earnings per share increased to €1.44 from €0.95 a year earlier. Discontinued operations reduced net income by €137 million in the second quarter, due primarily to an impairment at the enterprise networks business formerly included in Communications (Com). A year earlier, discontinued operations contributed €26 million to net income in the second quarter.

The dominant driver of income growth was Group profit from Operations, which rose 49% year-over-year, to €1.964 billion. Every Group in Operations reached or exceeded its target Group profit margin in the second quarter and a majority delivered strong double-digit profit growth compared to the same period a year earlier. Automation and Drives (A&D) and Power Transmission and Distribution (PTD) hit new highs in quarterly Group profit on an absolute basis. Other leading earnings contributors included Medical Solutions (Med), Power Generation (PG), Siemens VDO Automotive (SV) and Osram. Improvement in Group profit from Operations year-over-year also included a positive result at Siemens Business Services (SBS), which posted a significant loss in the prior-year period primarily due to substantial severance charges.

Net income growth also benefited from the other two components of Siemens. Financing and Real Estate activities earned €179 million in income before income tax compared to €71 million in the second quarter a year earlier. Corporate Treasury activities contributed €31 million, compared to a negative €230 million a year ago. The difference relates primarily to a cash settlement option on a convertible bond, which resulted in a €257 million negative effect in the prior-year quarter.

In a favorable macroeconomic environment, Siemens’ strengthened business portfolio generated substantial volume growth compared to the prior-year quarter. Revenue increased 10% year-over-year, to €20.626 billion, and orders of €23.469 billion were up 9% compared to the prior-year quarter. Excluding currency translation and portfolio effects, second-quarter revenue rose 13% and orders climbed 11%. Europe excluding Germany was the primary driver of revenue growth, with a 16% increase. Germany expanded by 6%. Order growth was more balanced regionally, with double-digit increases in Europe, Asia-Pacific and the Americas. A&D, Med, PG and PTD all delivered strong revenue and order growth to go along with their margin strength and substantial contributions to Group profit.

On a continuing basis, operating and investing activities within Operations in the second quarter used €1.921 billion in cash compared to cash provided of €269 million in the same period a year earlier. The current period included an approximately €3.8 billion cash payment for the diagnostics division of Bayer AG. Within Financing and Real Estate and Corporate Treasury activities, net cash provided by operating and investing activities in the second quarter was €1.020 billion compared to €269 million in the prior-year quarter. The difference was due primarily to lower receivables at Siemens Financial Services (SFS), including substantial receivables related to telecommunications carrier activities. For Siemens on a continuing basis, operating and investing activities used net cash of €901 million compared to net cash provided of €538 million in the same period a year earlier.

As planned, Siemens brought its Fit4More strategic program to a successful close in the second quarter. In addition to reaching or exceeding target margins throughout Operations and at SFS, Siemens also achieved Fit4More’s April 2007 growth and portfolio goals. To deliver top-line growth at twice the rate of global expansion in gross domestic product (“2X global GDP”), Siemens continued to invest for organic growth while making major acquisitions at its largest and most profitable Groups. For example, A&D increased its capabilities in large drives, gears, and software, PG added wind power and other clean energy offerings, and Med acquired a world-class in vitro diagnostics business.

Fit4More further focused Siemens’ business portfolio goal by reorienting the Information and Communications (I&C) businesses and Logistics and Assembly Systems Group (L&A). Among the notable results is a telecommunications infrastructure joint venture with Nokia, called Nokia Siemens Networks (NSN). This joint venture launched its operations on April 1, 2007. Other businesses were divested or discontinued, including the enterprise networks business which is held for sale.