Siemens Healthcare – Financial Performance Klaus P. Stegemann, CFO Healthcare
Capital Market Day Siemens Healthcare Munich, February 28, 2008 Copyright © Siemens AG 2008. All rights reserved.
Safe Harbour Statement
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 our current expectations and certain assumptions, and are, therefore, subject to certain risks and uncertainties. A variety of factors, many of which are beyond Siemens’ control, affect our 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 us, particular uncertainties arise, among others, from changes in general economic and business conditions (including margin developments in major business areas); the challenges of integrating major acquisitions and implementing joint ventures and other significant portfolio measures; changes in currency exchange rates and interest rates; introduction of competing products or technologies by other companies; 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, especially the corruption investigation we are currently subject to in Germany, the United States and elsewhere; the potential impact of such investigations and proceedings on our ongoing business including our relationships with governments and other customers; the potential impact of such matters on our financial statements; as well as various other factors. More detailed information about certain of these factors is contained throughout this report and in our 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 forwardlooking 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. EBITDA (adjusted), Return on capital employed, Free cash flow, Cash conversion and Net debt are Non-GAAP financial measures. A reconciliation of these amounts to the most directly comparable IFRS financial measures is available on our Investor Relations website under www.siemens.com/ir, Financial Publications, Quarterly Reports. 'Group profit from operations' is reconciled to 'Income before income taxes' of Operations under 'Reconciliation to financial statements' in the table 'Segment Information'.
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Discussion items
1
Financial overview
2
Driving financial performance
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February 28, 2008
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Healthcare delivering profitable growth
Healthcare sales and profit margin (reported) Profit margin (IFRS):
11.7%
12.0%
With Diagnostics pro-forma
Profit margins increased despite
15.0%**
dollar weakness and competitive environment
9.9 8.3
8.2
Sales €bn 7.6 Sales growth
13.2%*
11.7
With Diagnostics pro-rata
+5%
held back by dollar depreciation
Significant acquisition effects PPA One-time costs
2006
2007
*Excluding gain on sale of 10% stake in Dräger Medical (23) **Excluding PPA and one-time costs (OTCs) Diagnostics and gain on sale of 10% stake in Dräger Medical (23)
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Headline revenue progression
from 2007 with Diagnostics:
+6%
(currency and org adjusted)
2005
Comments
February 28, 2008
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We are driving a more balanced regional portfolio
Sales by destination
Asia 15%
Others 10%
Others 7% Europe 34%
USA 41% Status: 2007
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Sales by origin
Asia 11%
Europe 39%
USA 43%
Status: 2007
February 28, 2008
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Dollar has shown progressive depreciation vs. Euro …
Euro to Dollar development 30 Sept 2004 to 31 Jan 2008 €/$ Change in average Dollar rate vs. Euro (PY)
1,10 1,15
-4%
+3%
2005
2006
-8%
-9%
1,20 1,25 1,30 1,35 1,40 1,45 1,50 1,55
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February 28, 2008
2007
2008
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… while underlying revenue growth has been solid
Sales development 2004 to 2007 (all amounts €m) +8%
+8%
+20%
+19%
+9%
-2%
Organic
Currency
+1%
7,626
+5%
+2%
+1%
+6%
-5%
Organic
Currency
9,851
8,227
7,072
Acquisitions
2004 Page 7
Organic
2005 February 28, 2008
Currency
Acquisitions
Acquisitions
2007 2006 Copyright © Siemens AG 2008. All rights reserved. Capital Market Day Siemens Healthcare
Both reported and underlying profitability continues to increase …
Healthcare profit margin development Excluding Diagnostics PPA and one-time costs 15.0%
15.7%
12.2% 13.2% 11.7%
12.0%
17.0%
14.0% 12.5%
Momentum in business driving improvements in profitability
Basis for target margin
2005
2006
2007*
Q1 2008
*Excluding gain on sale of 10% stake in Dräger Medical (23) Page 8
February 28, 2008
Target 2010 Copyright © Siemens AG 2008. All rights reserved. Capital Market Day Siemens Healthcare
… driven mainly by operating profitability improvements despite USD headwinds
Profit development FY 2005 to FY 2007 (excluding Diagnostics PPA and one-time costs) +330 BPS
+70 BPS +260 BPS
15.0%
+20 BPS
15.2%
Dräger Medical 10% disposal
2007 IFRS
14.3%
11.7%
2005 IFRS Page 9
Operational improvement
February 28, 2008
Acquisitions
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Pro-forma 2007 revenue breakdown
Baseline 2007 revenue analysis (all amounts €m) Basis for organic growth
+13%
11,600
ca. -4% to -5% 11,100
Positive organic sales growth in 2008 and gain market share
+5% 9,851
2007
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Bayer Diagnostics Q1 2007
Dade Behring 11 months
February 28, 2008
Baseline excluding currency effects
Estimated 2008 currency effect vs. 2007
Baseline 2007
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PPA and one-time costs currently impact our operating margins significantly 1,475
All amounts €m
175 1,300 418
86
180 BPS
15.0%
Operating profit*
PPA/OTC Diagnostics
332
13.2%
15.7%
Group profit*
Operating profit
320 BPS
PPA/OTC Diagnostics
12.5%
Group profit
*Excluding gain on sale of 10% stake in Dräger Medical (23)
2007 PPA and one-time costs (OTC) Bayer
Diagnostics and DPC 68 PPA and 107 OTC (including 23 inventory step-up PPA)
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February 28, 2008
Q1 2008 Dade Behring from 1 Nov 2007 38 PPA and 48 OTC (including 13 inventory
step-up PPA) Dade Behring PPA preliminary
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Better transparency: PPA and acquisition-related one-time costs from Diagnostics
PPA and one-time costs (all amounts €m) PPA effects (non-cash)
370
one-time costs* 200 175
230 50
107 170 68 2007
2008E
180
180
2009E
2010E
* one-time costs include 23 in 2007 and 20 in 2008 (estimate) relating to inventory step-up PPA (non-cash)
Preliminary assessment Page 12
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Driving Diagnostics productivity and synergy realization
Diagnostics synergy bridge (all amounts €m) Realization of synergies ahead of plan
500
Productivity
240
240 160
Synergies
260
Target Diagnostics 2010
Page 13
100
Productivity
February 28, 2008
Dade Behring
Bayer DPC
Q1 2008 Diagnostics operating margin 21.5% excluding PPA and onetime costs
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Summary of Diagnostics financial deliverables
2008
Positive impact on underlying margins
2009
Final year of integration costs Further positive margin impact
2010
Dade Behring EPS accretive to Siemens Improved quality of earnings Sector EVA higher than level before Diagnostics acquisitions
2013
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Diagnostics EVA positive
February 28, 2008
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Strongly committed to achieving target margins
Program
Margin ranges
Date
Fit4More Fit4
11-13%
Q2 2007
Fit42010
13-15%
FY 2007
Healthcare 14–17%
Imaging & IT
Workflow & Solutions
Diagnostics
14–17%
11–14%
16–19%
15%
10%
6%/13%*
2007 Performance – unaudited preliminary numbers *13% excluding one-time costs but including ongoing PPA charges
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Acquisitions in Diagnostics gives Healthcare a powerful sales and profit profile Pro-forma sales by division (2007) Imaging & IT 60%
Diagnostics 28%
Diagnostics 35%
Imaging & IT 56%
Workflow & Solutions 9%
Workflow & Solutions 12% Note: 2007 pro-forma figures including 12 months Dade Behring and Bayer Diagnostics. Operating profit excluding PPA and one-time costs Diagnostics.
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Pro-forma operating profit by division (2007)
February 28, 2008
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Strong position to outgrow market and perform at top end of margin range in 2010
Market pos.1) #1 20061) #2 #3 Market growth 2007-082)
Margin 20073) Target 2007-10
Imaging & IT
Workflow & Solutions
Diagnostics
Sector Healthcare
Siemens1)
Siemens
Siemens
Siemens1)
GE
Varian
Roche
GE
Philips
Sonova
Abbott
Philips
+2-3%
+5-6%
+5-6%
+3-4%
15%
10%
6% / 13%4)
13.2%5)
14-17%
11-14%
16-19%
14-17%
1) Market position excluding service 2) Constant currency basis 3) Division margin 2007 using unaudited preliminary numbers 4) 2007 margin Diagnostics 13% excluding one-time costs but including ongoing PPA charges 5) 2007 Sector margin excluding gain on sale of 10% stake in Dräger Medical (23’)
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Discussion items
1
Financial overview
2
Driving financial performance
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Driving financial performance
1 Organic growth Innovations & workflow: exploit strong product pipeline
New markets / customers: world-class CRM process
Lever installed base: realize potential from Diagnostics acquisitions
2 Increase profit conversion
Continue successful productivity program
Rigorous control on spending
Improve quality of earnings
Reduce capex spend Optimize working
Reduce fixed costs Exploit SG&A potential Increase shared service
3 Unlock more cash
capital
Focus of ENTIRE organization
Focus organization on performance Page 19
February 28, 2008
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Sales organization of over 13,000 driving organic sales growth Goals
Improving CRM1) process and gain market share: Leverage customer opportunity imaging and diagnostics Drive training programs across sales force Increase market transparency Leverage revenue from installed base USA
Europe 42%
35%
10
41%
30%
6.3
2’’5 6
v
Others
v Sales employees (in thsd.) € External sales (in €bn) 1) Customer Relationship Management Status: 2007 including Dade Behring pro-forma
February 28, 2008
€ Asia Pacific 8.3 1’’5 18% 14%
€ 10%
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v
10%
14
0’’5
v
€
Copyright © Siemens AG 2008. All rights reserved. Capital Market Day Siemens Healthcare
Tight R&D project management and controls
Mai 08
Apr 08
Mar 08
Feb 08
Jan 08
Dez 07
Nov 07
Okt 07
Sep 07
Aug 07
Jul 07
Jun 07
Mai 07
Apr 07
Mrz 07
Feb 07
Jan 07
Dez 06
Nov 06
Okt 06
9 More than 7,000 people employed in
Strict project management Sep 06
Executing on control
Mai. 08
Plan total
Apr. 08
act total
Mrz. 08 Feb. 08
R&D
Jan. 08 Dez. 07 Nov. 07
9 Over €1 billion spend each year 9 Commercial viability and target costs set at start of project
Okt. 07 T
and time: “Go No Go”
9 Strategic projects reviewed at Sector
T
Gantry Mechanic Cabeling
C Q
Adjust Self Tests Service Functions
Q
System Integration
C
T C
Q
T
Cardio Respiratory
C Q
T
Intervention Care Vision
C Q
T
Tilt
C Q
T
and Division level
T 1 Aug. Jul 07 Aug C
0
Jul. 07 Q 07 1 07
1 2 SepFWOkt Nov Dez Jan Feb Mrz Apr C C IRS-SW 0 0 Q 07 07 07 08 08 08Q 1 08 1 07 T
T
T
DMS
C Q
2 1 1
Jun. 07
T
9 Milestone analysis performed on cost
Sep. 07
+17%
2 Dez JanP46Feb Mrz Apr Mai Jun C SW-VA20A 2 06 07 07 07Q 2 07 07 07
MEP
C Q
2 1 1
CPT
T 1 Mai. 07
1 0 1
Logistics
1 0 2
Test
1 0 1
Installation Configuration
2 0 2
Reliability Serviceability
1 0 1
SLC Cooling
2 0 1
Mobile
2 Apr. 07 C
Q
T
CDT
1
C Q
Mrz. 07 T 07 Feb. 2 C 0 Jan. 07 Q
T
Physics
2
C Q
Dez. 06 T 06 Nov. 1 C 1 Okt. 06
T
Approvals
Q
1
T
1 0 1
Zig Zag Perfusion
1 0 1
IEC/EMV
2 0 1
Power 100 kW
Sep. 06 C Q
T C Q
T C Q
T C Q
C Q
T C Q
T C Q
T C Q
2 1 1
PHS
1 0 1
XTR
3 0 1
Target Costs
1 0 1
Dynamic Collimation
C
2 0 1
User Doc
C
1 1 2
Electronics
T C Q
T C Q
T C Q
T
Q
T
Q
T C Q
2 2 2
ICS IES
2 3 3
IRS
1 0 1
EHR
2 1 1
Accessories Phantoms
1 0 1
Service (CS)
2 2 1
Sliding gantry PET support
T C Q
T C Q
T C Q
T C Q
T C Q
T C Q
1 2 1 1 1 1 2 0 1 1 2 1 1 0 1 2 0 1
1 0 1
Time to market is of essence Page 21
February 28, 2008
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Benchmarking drives best-in-class performance
Frequency
Benchmarking (1-3 years) - Cost - Innovation
Quality & Regulatory (ongoing)
World-class purchasing
Implement findings
9 Act immediately on results 9 Commitment to address gaps
9 Follow-up across organization
(ongoing)
Execute to ensure best-in-class Page 22
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Rigorous productivity program in place Execute on productivity road map
9 Established 10+ years 9 All BU have same methodology 9 2,000+ measures implemented
Delivering productivity (all amounts €bn)
0.80 0.75 0.65 11% p.a.
annually
9 Special focus on fixed cost 9 Implementation measured by degree of implementation
2005
2006
2007* *Excluding Diagnostics
Achieving best cost position Page 23
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Efficiency in purchasing is driving down cost
Global purchasing
Number of suppliers
9 Increase share of LCC
-15%
purchasing
9 Standardize supplier terms 9 Synergies in Diagnostic 9 Strategic partnership with key suppliers
25,000 21,250
2007
2008
Standardization Æ Reduced costs Page 24
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Delivering savings out of SG&A program
Current status
Key activities
Leverage progress made via productivity program December January
February
March
…
September October
Key synergy lever with Base lining Benchmarking Target setting
Detailing Implement
Diagnostics
Cross-sector synergies in Shared Services
Less complex, faster, and more flexible Page 25
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Driving organic cash generation out of working capital
Inventory
Increase standard parts Better scheduling in supply chain
Operating working capital turns* 7.0x
Improve installation
6.0x
times at customer sites
Receivables Better customer
6.7x
6.1x
6.0x
satisfaction reduces debtor days
Reduce number of Payables
suppliers
5.0x
Standardize payment
2005
terms
2006
2007
*Excluding Diagnostics
Improving cash conversion Page 26
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We do what we promise
Organic growth gaining market share
Group profit target margin Profit margin: 14-17%
Cash Conversion Rate 1 – growth rate 1.04 0.90
5%
2006
6%
2007
12.0%
2006
15.0%1)
2007
2006
2007
Market growth
1) Excluding PPA and one-time costs related to DPC, Bayer acquisition and gain on 10% stake in Dräger Medical (23’)
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Focus and deliver
Driving profitable growth and cash returns Getting the most out of the integrated diagnostics company Achieving best-in-class cost position incl. SG&A reduction Innovating for fast growth and competitiveness
+
+
Drive organic growth above market growth Page 28
February 28, 2008
+
Deliver target margin
Convert to cash
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Reconciliation and Definitions for Non-GAAP Measures (I)
Group profit from Operations is reconciled to Income before income taxes of Operations under Reconciliation to financial statements on the table Segment Information. See our Financial Publications at our Investor Relations website under www.siemens.com/ir. Earnings before interest and taxes (EBIT) (adjusted) is Income from continuing operations before income taxes less Financial income (expense), net and Income (loss) from investments accounted for using the equity method, net. Earnings before interest, taxes, depreciation and amortization (EBITDA) (adjusted) is EBIT before Depreciation and Amortization, defined as amortization and impairments of intangible assets depreciation and impairments of property, plant and equipment. Group profit is reconciled to EBIT and EBITDA on the table Segment Information Analysis (II). See our Financial Publications at our Investor Relations website under www.siemens.com/ir. Return on Capital Employed (ROCE) is a measure of how capital invested in the Company or the Group yields competitive returns. For the Company, ROCE is calculated as Net income (before interest) divided by average Capital employed (CE). Net income (before interest) is defined as Net income excluding Other interest income (expense), net and excluding taxes on Other interest income (expense), net. Taxes on Other interest income (expense), net are calculated in simplified form by applying the current tax rate which can be derived from the Consolidated Statements of Income, to Other interest income (expense), net. CE is defined as Total equity plus Long-term debt plus Short-term debt and current maturities of long-term debt minus Cash and cash equivalents. Because Siemens reports discontinued operations, Siemens also calculates ROCE on a continuing operations basis, using Income from continuing operations rather than Net income. For purposes of this calculation, CE is adjusted by the net figure for Assets classified as held for disposal included in discontinued operations less Liabilities associated with assets classified as held for disposal included in discontinued operations. For the Operations Groups, ROCE is calculated as Group profit divided by average Net capital employed (NCE). Group profit for the Operations Groups is principally defined as earnings before financing interest, certain pension costs and income taxes. Group profit excludes various categories of items which are not allocated to the Groups since the Managing Board does not regard such items as indicative of the Groups’ performance. NCE for the Operations Groups is defined as total assets less tax assets, provisions and non-interest bearing liabilities other than tax liabilities. Average (Net) Capital employed for the fiscal year is calculated as a 'five-point average' obtained by averaging the (Net) Capital employed at the beginning of the first quarter plus the final figures for all four quarters of the fiscal year. For the calculation of the average during for the quarters, see below:
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Reconciliation and Definitions for Non-GAAP Measures (II)
Average calculation for CE*:
Year-to-Date Q1 Q2 Q3 Quarter-to-Date Q1 Q2 Q3 Q4
2 Point average: (CE ending Q4 Prior year + CE ending Q1) / 2 3 Point average: (CE ending Q4 Prior year + CE ending Q1 + CE ending Q2) / 3 4 Point average: (CE ending Q4 Prior year + CE ending Q1 + CE ending Q2 + CE ending Q3) / 4 2 Point average: (CE ending Q4 Prior year + CE ending Q1) / 2 2 Point average: (CE ending Q1 + CE ending Q2) / 2 2 Point average: (CE ending Q2 + CE ending Q3) / 2 2 Point average: (CE ending Q3 + CE ending Q4) / 2
• NCE for Operations Groups Our cash target is based on the Cash Conversion Rate (CCR), which serves as a target indicator for the Company’s or the Group’s cash flow. For the Company, CCR is defined as the ratio of Free cash flow to Net income, where Free cash flow equals the Net cash provided by (used in) operating activities less Additions to intangible assets and property, plant and equipment. Because Siemens reports discontinued operations, this measure is also shown on a continuing operations basis, using Income from continuing operations, Net cash provided by (used in) operating activities – continuing operations and Additions to intangible assets and property, plant and equipment for continuing operations for the calculation. For the Groups, CCR is defined as Free cash flow divided by Group profit. All values needed for the calculation of ROCE and CCR can be obtained from the Consolidated Financial Statements and Notes to Consolidated Financial Statements. Group profit, Net capital employed and Free cash flow for the Company and the Groups can be found on the table Segment information. Our Consolidated Financial Statements are available on our Investor Relations website under www.siemens.com/ir. Siemens ties a portion of its executive incentive compensation to achieving economic value added (EVA) targets. EVA measures the profitability of a business (using Group profit for the Operating Groups and Income before income taxes for the Financing and Real estate businesses as a base) against the additional cost of capital used to run a business (using NCE for the Operating Groups and risk-adjusted equity for the Financing and Real estate businesses as a base). A positive EVA indicates that a business has earned more than its cost of capital, and is therefore defined as value-creating. A negative EVA indicates that a business is earning less than its cost of capital and is therefore defined as value-destroying. Other organizations that use EVA may define and calculate EVA differently.
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Reconciliation and Definitions for Non-GAAP Measures (III)
Our capital structure target is based on an Adjusted industrial net debt divided by EBITDA (adjusted). For the calculation of Adjusted industrial net debt, we subtract from Net debt (defined as Long-term debt plus Short-term debt and current maturities of long-term debt less Cash and cash equivalents less Available-for-sale financial assets) (1) SFS debt excluding SFS internally purchased receivables and (2) 50% of the nominal amount of our hybrid bond; and add/subtract (3) Funded status of Pension benefits, (4) Funded status of Other post-employment benefits; and add (5) Credit guarantees. The components of Net debt are available on our Consolidated Balance Sheets, SFS debt less internally purchased receivables is available in our Management Discussion & Analysis under Capital Resources and Requirements. The Funded status of our principle pension plans and Other post-employment benefits, the amount of credit guarantees and the nominal amount of our Hybrid bond is available in the Notes to our Consolidated Financial Statements. To measure Siemens’ achievement of the goal to grow at twice the rate of global GDP, we use GDP on real basis (i.e. excluding inflation and currency translation effects) with data provided by Global Insight Inc. and compare those growth rates with growth rates of our revenue (under IFRS). In accordance with IFRS, our revenue numbers are not adjusted by inflation and currency translation effects. Return on equity (ROE) margin for SFS was calculated as SFS’ Income before income taxes divided by the allocated equity for SFS. Allocated equity for SFS for the financial year 2007 is €1.041 billion. The allocated equity for SFS is determined and influenced by the respective credit ratings of the rating agencies and by the expected size and quality of its portfolio of leasing and factoring assets and equity investments and is determined annually. This allocation is designed to cover the risks of the underlying business and is in line with common credit risk management standards in banking. The actual risk profile of the SFS portfolio is monitored and controlled monthly and is evaluated against the allocated equity. Group profit from Operations, EBIT (adjusted), EBITDA (adjusted), ROCE, CCR, EVA and Adjusted industrial net debt are or may be Non-GAAP financial measures as defined in relevant rules of the U.S. Securities and Exchange Commission. Our management takes these measures, among others, into account in its management of our business, and for this reason we believe that investors may find it useful to consider these measures in their evaluation of our performance. None of Group profit from Operations, EBIT (adjusted), EBITDA (adjusted), ROCE and EVA should be viewed in isolation as an alternative to IFRS net income for purposes of evaluating our results of operations; CCR should not be viewed in isolation as an alternative to measures reported in our IFRS cash flow statement for purposes of evaluating our cash flows; and Adjusted industrial net debt should not be viewed in isolation as an alternative to liabilities reported in our IFRS balance sheet for purposes of evaluating our financial condition.
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Siemens Investor Relations Team
Michael Sen
+49-89-636-33780
Florian Flossmann
+49-89-636-34095
Sabine Groß
+49-89-636-35755
Dr. Martin Meyer
+49-89-636-33693
Christof Schwab
+49-89-636-32677
Dr. Gerd Venzl
+49-89-636-44144
Susanne Wölfinger
+49-89-636-30639
Webpage:
http://www.siemens.com/investorrelations
e-mail:
[email protected]
Telephone:
+49-89-636-32474
Fax:
+49-89-636-32830
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