Siemens India (SIEMENS) Q4 07/08 earnings summary

Executive summary

• FY08 orders rose 11% to €93.5bn and revenue increased 7% to €77.3bn; adjusted for currency and portfolio effects, growth was 13% and 9%, respectively.

• Transformation and project costs, plus a roughly €1bn legal provision, weighed on continuing operations; net income grew on the gain from the VDO divestment.

• A broad reorganization into Industry, Energy and Healthcare was completed; management expected FY09 growth to flatten as the global downturn intensified.

Financial highlights

• Total Sectors profit was €6.520bn, down 2% YoY; it included more than €1bn in Fossil Power Generation and Mobility project charges and €325m of Healthcare and Mobility transformation costs.

• Continuing-operations income fell 52% to €1.859bn; basic EPS from continuing operations declined to €1.91 from €4.13.

• Net income rose 46% to €5.886bn and basic EPS was €6.41, chiefly reflecting approximately €5.5bn from VDO operating results and sale gain in discontinued operations.

• Gross profit increased 1% to €21.043bn, below revenue growth; gross margin fell to 27.2% from 28.8%, partly due to project charges and Mobility restructuring.

• FY08 included €1.741bn of transformation charges, a roughly €1bn legal-settlement provision and a €390m foundation endowment.

Outlook and guidance

• FY09 revenue target remained at least twice global GDP growth; expected global GDP growth was 1.1%, with order and revenue growth anticipated to flatten.

• FY09 Total Sectors profit target: €8.0–8.5bn, excluding restructuring and legal or regulatory impacts; continuing-operations income growth was expected to exceed Total Sectors profit growth.

• FY09 cash conversion was expected below the mid-term target due to €1.1bn of severance outflows and cash payments related to the €1bn legal provision expensed in FY08.

• ROCE was expected to improve in FY09; environmental portfolio revenue target was ~€25bn by FY11, from ~€19bn in FY08.

• SG&A reduction target: €1.2bn by FY10 versus FY07; Other Operations were to be integrated, divested, moved to joint ventures or closed by FY09-end.