Executing Our TAP Agenda

Transcription

1 Executing Our TAP Agenda Joe Kaeser, CFO 2008 EPG Conference Longboat Key, Florida May 20, 2008

2 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, and on the SEC's website, 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 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'. Page 2 May 20 th, EPG Conference

3 Focused on three Sectors with strong end markets High BUSINESS QUALITY in #1 or #2 positions Attractive markets with tailwind from MEGATRENDS Crosssectoral Megatrends Demographic Change Urbanization Increasing scarcity of natural resources Growing need for environmental care Growing demand for health- and elder care Increasing mobility Growing demand for safety and security Regional shift of economic gravity Three SECTORS Energy Businesses from ~ 20bn 1) Power Generation Power Transmission & Distribution Industry Businesses from ~ 40bn 1) Automation & Drives Industrial Solutions & Services Transportation Systems Building Technologies Osram Healthcare Businesses from Medical Solutions ~ 11bn 2) Siemens IT Solutions and Services Siemens Financial Services 1) Combined revenues of businesses 2) Combined revenues of businesses including 1.4 bn Dade Behring pro-forma Page 3 May 20 th, EPG Conference

4 Priorities are clearly defined Our Principles Main Topics Increase TRANSPARENCY Enforce ACCOUNTABILITY Drive PERFORMANCE Portfolio priorities Leadership structure Capital allocation Target margins SG&A reduction Clear focus on organic growth New structure as of Jan 08 1) Continued commitment to SBB 2) New targets for 2010 defined 3) Implementation ongoing 4) 1) see page 19 for new Sector setup 2) see page 22 for execution of 2 bn first tranche of share buyback 3) see page 18 for new target margins on Sector and Division levels 4) see pages 9-12 and for details on SG&A cost reduction Equity culture First outline in Q Page 4 May 20 th, EPG Conference

5 Reporting dates November 2007 Supervisory Board December 2007 January 2008 AGM April 2008 Q2 analyst conference July 2008 Q3 conference call October 2008 October 2009 October 2010 Milestones (deliverables) New organization approved Managing Board incl. Sector CEO approved Sector CFO named Division CEO and CFO named New target margins for Energy and Industry Sector Target margins for Divisions Update on SG&A project Start pro forma reporting in new structure Outline new management compensation scheme Guidance on EPS range for 2009 New management compensation scheme in place Streamlining Other Operations completed Share buyback completed Capital structure target achieved SG&A project completed Target margins achieved Organic growth is clear portfolio priority 1 Organic Growth Exploit global growth opportunities 1) Exploit potential from past acquisitions (> EUR 20 billion over last 5 years) Earnings conversion 2) 2 Streamlining Three sectors: Energy, Industry and Healthcare 3) Less complex, more competitive 4) 3 Selective investment Value creation Strict financial hurdle rates M&A deal book 1) see page 17 for strong order growth in Q ) see page 7 for strong earnings conversion of key value drivers in Q ) see page 19 for new Sector setup 4) see page 10 for new regional cluster setup Page 5 May 20 th, EPG Conference

6 Q key figures and financial highlights Q Q % Change nominal adjusted 1) New orders (Cont. Op.) 20,850 m 23,371 m 12% 15% Sales (Cont. Op.) 18,001 m 18,094 m 1% 2% Group profit from Operations 1,781 m 1,203 m Income from Cont. Op. 1,286 m 565 m Net income (''all-in'') 1,259 m 412 m Free Cash Flow (Cont. Op.) 2,619 m 1,623 m -32% -56% -67% -38% Very strong y-o-y organic order growth 1) of 15% across all regions No slowdown for market leader A&D Group Profit from Operations affected by 857m project charges, but: very good underlying margins Income from Continuing Operations affected by increased expenses for compliance investigations and costs related to Siemens transformation programs 1) Adjusted for portfolio and currency translation effects Page 6 May 20 th, EPG Conference

7 Key value drivers show strong earnings conversion A&D Med PTD +310 bp +100 bp 14.4% 14.2% 17.5% 16.7% 15.3% 13.4% 16.3% 12.5% 8.1% +350 bp 11.6% Q PPA - 10m Q PPA - 35m OTC - 2m Q Q PPA - 37m OTC - 9m PPA - 50m OTC - 52m Q Q Margin improvement driven by economies of scale as a result of high capacity utilization Increasing underlying profitability despite challenges in market conditions Favorable product mix and economies of scale associated with higher revenue As reported Adjusted for PPA, one time costs (OTC) Page 7 May 20 th, EPG Conference

8 Update on Fit comprehensive target system Cash conversion 1 growth rate Capital structure Adj. industrial net debt / EBITDA 0.8x 1.0x Cash Capital structure ) 0.04 FY 2006 FY 2007 Q YTD FY 2006 FY 2007 Q YTD Growth Capital efficiency 10% >2x GDP ROCE 14-16% Growth Profitability 10% 12.7% 9.6% 8.6% 4% FY 2006 FY 2007 Q YTD FY 2006 FY 2007 Q YTD 1) FY 2007 adjusted for VDO proceeds 11.4 bn and Dade Behring purchase price 5.2 bn Page 8 May 20 th, EPG Conference

9 Reporting dates November 2007 Supervisory Board December 2007 January 2008 AGM April 2008 Q2 analyst conference July 2008 Q3 conference call October 2008 October 2009 October 2010 Milestones (deliverables) New organization approved Managing Board incl. Sector CEO approved Sector CFO named Division CEO and CFO named New target margins for Energy and Industry Sector Target margins for Divisions Update on SG&A project Start pro forma reporting in new structure Outline new management compensation scheme Guidance on EPS range for 2009 New management compensation scheme in place Streamlining Other Operations completed Share buyback completed Capital structure target achieved SG&A project completed Target margins achieved SG&A cost reduction plan for 1.2 bn in place Main drivers SG&A cost reduction Eliminating duplicate functions on all levels by new accountability principles Reducing number of legal entities and reporting units Cutting overhead by new Sector setup 2) and Regional clusters bn, as reported 1) Sales & Marketing % ~ Target breakdown -6% Driving cost efficiency through streamlined go-to-market G&A FY 06 ~3.2 FY FY 10-22% 1) Continuing operations (i.e., without Siemens VDO) 2) see page 19 for new Sector setup Page 9 May 20 th, EPG Conference

10 Reporting dates November 2007 Supervisory Board December 2007 January 2008 AGM April 2008 Q2 analyst conference July 2008 Q3 conference call October 2008 October 2009 October 2010 Milestones (deliverables) New organization approved Managing Board incl. Sector CEO approved Sector CFO named Division CEO and CFO named New target margins for Energy and Industry Sector Target margins for Divisions Update on SG&A project Start pro forma reporting in new structure Outline new management compensation scheme Guidance on EPS range for 2009 New management compensation scheme in place Streamlining Other Operations completed Share buyback completed Capital structure target achieved SG&A project completed Target margins achieved Regional clusters: more transparent, faster and closer to the customers ~190 Countries ~70 Regional Companies 20 Clusters Expected benefits Increased sales efficiency across countries Bundling of central functions within clusters Optimized span of control for Sectors and Regions Page 10 May 20 th, EPG Conference

11 KPI for SG&A cost reduction Consultancy costs, in EUR 1) IT costs, in EUR -50% -25% Costs element < ~1 0 Actual 2007 YTD Q E Actual E Number of legal entities Number of reporting units -40% -40% Complexity drivers 1,800 ~1,700 <1, ~ Q Target 2010 Actual 2007 Q Target ) External and internal consultancy costs, w/o compliance costs and discontinued operations, including non-sg&a consultancy costs Page 11 May 20 th, EPG Conference

12 Cutting and growing SG&A reduction (absolute) SG&A reduction with growth at 2x GDP SG&A in EUR billions, as reported 1) -10% 12,1 10,9 SG&A in terms of sales (%) 2) GDP growth = 2% p.a. 16,7% 16,7% 330 bp 410 bp 13,4% 12,6% GDP growth = 3% p.a. GDP growth = 4% p.a. 16,7% 480 bp 11,9% Margin effect is substantially larger than the 10% face value suggests 1) Continuing operations (i.e., without Siemens VDO) 2) Sales bn (Continuing Operations) Page 12 May 20 th, EPG Conference

13 CFO's take on our industries Energy Strong cycle to continue with some supply/demand volatility en route Current backlog of 1-3 years Pricing exists on both sides of the equation suppliers also with strong pricing power New capacities are coming online > could impact pricing and fix costs Industry Continued momentum in A&D Different cycles for discrete and process automation Visibility of 4-6 months Front end of industrial value chain (consumer demand) displays first signs of easing growth dynamics Healthcare Long-term structural growth trend intact Impact of cost containment (e.g. US DRA) on imaging expected well into 2009 Players to increasingly focus on the non-dra piece of the pie Page 13 May 20 th, EPG Conference

14 Outlook 2008 Organic revenue growth for the fiscal year will be twice the rate of GDP growth Group Profit from Operations will match prior year s level Income from Continuing Operations will match prior year s level This outlook excludes earnings impacts that may arise from legal and regulatory matters, which are not yet quantifiable, and from measures that may be taken as part of Siemens transformation programs, including SG&A reduction. Within discontinued operations, divestment of the enterprise networking business is expected to result in a substantial loss. Page 14 May 20 th, EPG Conference

15 TAP consistent execution against plan Reporting dates November 2007 Supervisory Board December 2007 January 2008 AGM April 2008 Q2 analyst conference July 2008 Q3 conference call October 2008 October 2009 October 2010 Milestones (deliverables) New organization approved Managing Board incl. Sector CEO approved Sector CFO named Division CEO and CFO named New target margins for Energy and Industry Sector Target margins for Divisions Update on SG&A project Start pro forma reporting in new structure Outline new management compensation scheme Guidance on EPS range for 2009 New management compensation scheme in place Streamlining Other Operations completed Share buyback completed Capital structure target achieved SG&A project completed Target margins achieved Page 15 May 20 th, EPG Conference

16 Backup Page 16 May 20 th, EPG Conference

17 Order growth confirms strong position in attractive end markets Regional order growth 1) Continued strong order growth 2 x GDP (regional) Africa/NME/GUS 54% Germany 21% Asia / Pacific Americas Rest of Europe Order growth per group 1) A&D I&S SBT Osram TS PG PTD Med 10% 6% 19% 14% 12% 2% 6% 19% 29% 23% 1% 2 x GDP (global) Russia: +119% China: +23% USA: +8% 1) Q y-o-y on a comparable basis excluding currency translation and portfolio effects Source GDP 08 Forecast: Global Insight China and Germany main growth drivers Continuing organic growth in USA despite economic slowdown Industry: Particular strength at A&D and I&S Energy: Strong order intake at PG and PTD capitalizing on strong global energy demand Page 17 May 20 th, EPG Conference

18 Reporting dates November 2007 Supervisory Board December 2007 January 2008 AGM April 2008 Q2 analyst conference July 2008 Q3 conference call October 2008 October 2009 October 2010 Milestones (deliverables) New organization approved Managing Board incl. Sector CEO approved Sector CFO named Division CEO and CFO named New target margins for Energy and Industry Sector Target margins for Divisions Update on SG&A project Start pro forma reporting in new structure Outline new management compensation scheme Guidance on EPS range for 2009 New management compensation scheme in place Streamlining Other Operations completed Share buyback completed Capital structure target achieved SG&A project completed Target margins achieved Profitability targets close the gap to best competitors Sector Division New 2010 target margin Change Target margin of former Group 1) Main competitors Industry Automation Drive Technologies 12-17% 11-16% 12-15% A&D Industry 9-13% Building Technologies Industry Solutions 7-10% 5-7% 7-9% SBT 5-7% I&S Mobility 5-7% 5-7% TS Osram 10-12% 10-12% Osram Energy 11-15% Fossil Power Generation Renewable Energy Oil & Gas Power Transmission Power Distribution 11-15% 12-16% 10-14% 10-14% 11-15% 10-14% PG 10-14% PG 5-7% I&S 7-10% PTD Healthcare 14-17% Imaging & IT Workflow & Solutions Diagnostics 14-17% 11-14% 16-19% 13-15% Med 1) Best possible comparison with Groups of former organization (blurred due to selective movement of businesses) Page 18 May 20 th, EPG Conference

19 Reporting dates November 2007 Supervisory Board December 2007 January 2008 AGM April 2008 Q2 analyst conference July 2008 Q3 conference call October 2008 October 2009 October 2010 Milestones (deliverables) New organization approved Managing Board incl. Sector CEO approved Sector CFO named Division CEO and CFO named New target margins for Energy and Industry Sector Target margins for Divisions Update on SG&A project Start pro forma reporting in new structure Outline new management compensation scheme Guidance on EPS range for 2009 New management compensation scheme in place Streamlining Other Operations completed Share buyback completed Capital structure target achieved SG&A project completed Target margins achieved New organizational setup in place leadership, governance and people Supervisory Board 11/20 new 2) Global Function Heads Finance and Controlling Legal and Compliance Human Resources Technology Industry CEO Managing Board Chief Executive Officer Energy CEO Healthcare CEO 6/8 new Industry Energy Healthcare Clear chain of command and escalation path Industry Automation Osram Fossil Power Generation Service Rotating Equipment 1) Imaging & IT Drive Technologies Renewable Energy Workflow & Solutions Building Technologies Oil & Gas Diagnostics Industry Solutions Mobility Power Transmission Power Distribution 6/15 Division CEO new 3) 1) not reported externally because of cross-divisional service character 2) 7/11 for shareholder representatives 3) no members of former Group boards Page 19 May 20 th, EPG Conference

20 Key G&A improvement areas and levers identified Reported G&A cost, bn Baseline FY Key improvement areas Leverage new sector organization Leverage new regional cluster organization Operate with clear accountability Ensure effective corporate governance Capture synergies of scale by appropriate pooling Ensure operational excellence Consolidation of headquarter central functions from 8 Groups into 3 Sectors (e.g., in accounting, controlling, communication) Bundling of infrastructure from ~ 70 regional companies into 20 regional clusters to exploit cost synergies (e.g., in accounting, controlling, IT) No institutionalized 2nd opinion Reduction of profit center structures from 900 to 500 No corporate-driven performance controlling for regions Reduction of consultant support Streamlining Corporate headquarters to governance activities resulting in cost reduction Reduction of number of corporate programs and initiatives by > 50% Reduction in number of legal entities from 1,800 to < 1,000 Centralizing of auditing Bundling of shared services to double Siemens-internal service coverage Consolidation of real-estate management into a single entity Target FY Reduction by 22% Optimize fragmented and oversized IT services by infrastructure standardization and application consolidation Introduction of rolling forecast replacing bottom-up planning Page 20 May 20 th, EPG Conference

21 Levers for sales cost reduction and efficiency gains Reported sales cost, bn Key improvement areas FY 2007 Optimization of infrastructure Optimization of back office Front end FY Efficiency increase Growth related increase Reduction by 6% Bundling of infrastructure in Clusters Integration of legal entities Streamlining of sales mgt. structures Discontinuation of major IT projects Bundling of shared services to double service coverage Centralization of sales back office (e.g. offer preparation, technical consulting, ) in 20 Clusters (instead of 70 countries) or across Clusters Interface optimization between HQ-Regions, no duplicate functions Reduction of HQ back office functions Removal of cross-divisional coordination functions in vertical markets Sales efficiency: Standardization of planning, logistics, pricing, CRM processes across Clusters and selected Divisions Focused market approach (selection of market segments) Leverage e-business Go-to-market / sales channels: Redefining sales representation in smaller countries Restructuring of sales offices Stronger orientation towards verticals like automotive, F&B Leverage channel management with partners Joint wholesale approach Leverage cross-divisional sales Page 21 May 20 th, EPG Conference

22 Reporting dates November 2007 Supervisory Board December 2007 January 2008 AGM April 2008 Q2 analyst conference July 2008 Q3 conference call October 2008 October 2009 October 2010 Milestones (deliverables) New organization approved Managing Board incl. Sector CEO approved Sector CFO named Division CEO and CFO named New target margins for Energy and Industry Sector Target margins for Divisions Update on SG&A project Start pro forma reporting in new structure Outline new management compensation scheme Guidance on EPS range for 2009 New management compensation scheme in place Streamlining Other Operations completed Share buyback completed Capital structure target achieved SG&A project completed Target margins achieved 2 bn share buyback tranche successfully executed Share price and daily repurchase volume 28 Jan 8 April Number of shares outstanding Volume Share Price ( ) 914.2m 24.9m (2.7% of shares outstanding) 889.3m Jan-08 5-Feb Feb-08 Repurchased Volume 21-Feb Feb Mar Mar Mar-08 Gross Repurchased Price 7-Apr Jan Apr 08 We are fully committed to the share buyback program and will provide continuing updates of next steps Page 22 May 20 th, EPG Conference

23 PG project review completed no additional material impact Volume 1) ( bn) 12.6 (100%) 80% Project Review completed Single cycle Projects close to completion 'Core business' combined cycle Full turnkey Most critical projects Steam power and nuclear power plants Critical consortia partner High risk countries 39 Status March 17 Total charges of 559m; negative margin impact in coming quarters expected 62 # of projects Main actions taken Rigorous Limits of Authority process Selective intake of new turnkey contracts Dedicated partner management Risk transfer to partners and customers Centralization of project management Recruiting, fast integration and training of project management resources Modularization and standardization Renegotiation of selected contracts Expediting with critical suppliers 1) Review of projects in backlog and warranty phase, scope of 12.6 bn, of which Backlog Turnkey business 5.9 billion Page 23 May 20 th, EPG Conference

24 Business mix will drive higher Fossil PG margins Backlog in Fossil Turning turnkey backlog into sales 22.5 bn 08/03/31 Backlog in bn ,5 2,2 1,8 New orders in more profitable than older projects 71% Products & Service 29% Turnkey 4Q 07 Turned into revenue New order intake 3,0 1,3 2Q 08 2H ,5 >2010 Challenges from Olkiluoto - project <50% completed Order intake in Fossil Business mix will change 4.2 bn Q Order intake (%) Turnkey 100% 100% 100% 39% 34% 33% Fossil PG Margin of 7-9% in % Products & Service 30% Turnkey Products & Service 61% % 2010E 67% Long term target Fossil's 2010 target of 11-15% confirmed Page 24 May 20 th, EPG Conference

25 Financial Calendar June June 2008 Post Q2 roadshows with CEO and CFO in Paris (June 3), New York and Boston (June 9-10), London (June 12), Frankfurt (June 13) June 4, 2008 Deutsche Bank German & Austrian Corporate Conference Joe Kaeser, CFO June 12, 2008 JPMorgan Pan-European CEO Conference Peter Löscher, CEO July June 30 July 1, 2008 Capital Market Days of Sector Energy Munich, Germany July 30, 2008 Q3 Financial report and conference call August/ September No events planned so far Page 25 May 20 th, EPG Conference

26 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 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 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: Page 26 May 20 th, EPG Conference

27 Reconciliation and Definitions for Non-GAAP Measures (II) Average calculation for CE*: NCE for Operations Groups Year-to-Date Q1 2 Point average: (CE ending Q4 Prior year + CE ending Q1) / 2 Q2 3 Point average: (CE ending Q4 Prior year + CE ending Q1 + CE ending Q2) / 3 Q3 4 Point average: (CE ending Q4 Prior year + CE ending Q1 + CE ending Q2 + CE ending Q3) / 4 Quarter-to-Date Q1 2 Point average: (CE ending Q4 Prior year + CE ending Q1) / 2 Q2 2 Point average: (CE ending Q1 + CE ending Q2) / 2 Q3 2 Point average: (CE ending Q2 + CE ending Q3) / 2 Q4 2 Point average: (CE ending Q3 + CE ending Q4) / 2 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 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. Page 27 May 20 th, EPG Conference

28 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 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. Page 28 May 20 th, EPG Conference

29 Siemens Investor Relations Team Michael Sen Gerald Brady Florian Flossmann Sabine Groß Dr. Martin Meyer Christof Schwab Dr. Gerd Venzl Webpage: Telephone: Fax: Page 29 May 20 th, EPG Conference