Siemens Healthcare – Financial Performance · Diagnostics PPA/OTC Diagnostics 13.2% 1,475...

Copyright © Siemens AG 2008. All rights reserved.Copyright © Siemens AG 2008. All rights reserved.

Capital Market Day Siemens Healthcare Munich, February 28, 2008

Siemens Healthcare – Financial PerformanceKlaus P. Stegemann, CFO Healthcare

February 28, 2008 Capital Market Day Siemens HealthcareCopyright © Siemens AG 2008. All rights reserved.

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 orimplied 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 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.

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 Relationswebsite 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'.

Safe Harbour Statement

http://www.siemens.com/

http://www.sec.gov/

http://www.siemens.com/ir


Financial overview1

Driving financial performance2

Discussion items


Profit margin(IFRS):

11.7%

2005

Sales €bn

20072006

8.2

12.0% Profit margins increased despite dollar weakness and competitive environment

Headline revenue progression held back by dollar depreciation

Significant acquisition effects from 2007 with Diagnostics:

PPAOne-time costs

Comments13.2%*

15.0%**

*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)

7.6

11.7

9.9

8.3

With Diagnostics pro-rata

With Diagnostics pro-forma

Healthcare delivering profitable growth

+5%+6%

Sales growth (currency and org adjusted)

Healthcare sales and profit margin (reported)


USA41%

Europe34%

Others10%Asia

15%Asia 11%

Others 7% Europe

39%

USA 43%

Sales by destination Sales by origin

Status: 2007 Status: 2007

We are driving a more balanced regional portfolio


1,10

1,15

1,20

1,25

1,30

1,35

1,40

1,45

1,50

1,55

€/$

2005 2007 20082006

Euro to Dollar development 30 Sept 2004 to 31 Jan 2008

+3% -8% -9%-4%Change in averageDollar rate vs. Euro (PY)

Dollar has shown progressive depreciation vs. Euro …


2005 2006 2007Organic Currency

9,851

7,626

8,227+5% +2% +1%

+6%

+19%

-5%

+8% +20%

Organic Currency

7,072+9% -2% +1%

+8%

2004Organic Currency Acquisitions

Sales development 2004 to 2007 (all amounts €m)

… while underlying revenue growth has been solid

Acquisitions Acquisitions


Healthcare profit margin development

Momentum in business driving improvements in profitability

2005 2006 2007* Q1 2008 Target2010

11.7%

15.0%17.0%

12.2%

15.7%

12.0% 12.5%13.2%

14.0%

Basis for target margin

Excluding Diagnostics PPA and one-time costs

*Excluding gain on sale of 10% stake in Dräger Medical (23)

Both reported and underlying profitabilitycontinues to increase …


11.7%

Operational improvement

2005IFRS

+20 BPS

Dräger Medical 10% disposal

15.2%+70 BPS

Acquisitions 2007IFRS

14.3%+260 BPS

+330 BPS

15.0%

Profit development FY 2005 to FY 2007 (excluding Diagnostics PPA and one-time costs)

… driven mainly by operating profitability improvements despite USD headwinds


Baseline 2007 revenue analysis (all amounts €m)

2007 Estimated 2008 currency effect vs. 2007

9,851

Bayer Diagnostics

Q1 2007

+5%

11,100+13%

Baseline 2007

Dade Behring11 months

ca. -4%to -5%

Positive organicsales growth in 2008 and gainmarket share

Basis for organic growth

11,600

Baselineexcluding currency effects

Pro-forma 2007 revenue breakdown


1,300

175

86180 BPS

320 BPS

2007PPA and one-time costs (OTC) Bayer Diagnostics and DPC68 PPA and 107 OTC (including 23 inventory step-up PPA)

Q1 2008Dade Behring from 1 Nov 200738 PPA and 48 OTC (including 13 inventory step-up PPA)Dade Behring PPA preliminary

Group profit*

PPA/OTC Diagnostics

PPA/OTC Diagnostics

13.2%

1,475

Operating profit*

15.0%

418

Operating profit

332

Group profit

12.5%15.7%

All amounts €m

PPA and one-time costs currently impact our operating margins significantly

*Excluding gain on sale of 10% stake in Dräger Medical (23)


175

370

230

180

2007 2008E 2009E 2010E

Preliminary assessment

180170

68

107

200

50

PPA effects (non-cash)

one-time costs*

PPA and one-time costs (all amounts €m)

Better transparency: PPA and acquisition-relatedone-time costs from Diagnostics

* one-time costs include 23 in 2007 and 20 in 2008 (estimate) relating to inventory step-up PPA (non-cash)


DadeBehring

160

Productivity

Productivity

500

260

240

TargetDiagnostics

2010

Q1 2008 Diagnostics operating margin21.5% excludingPPA and one-time costs

Realizationof synergiesahead of plan

Synergies

BayerDPC

100

240

Diagnostics synergy bridge (all amounts €m)

Driving Diagnostics productivityand synergy realization


Final year of integration costs Further positive margin impact

2010

2009

Dade Behring EPS accretive to SiemensImproved quality of earningsSector EVA higher than level before Diagnostics acquisitions

Positive impact on underlying margins2008

Summary of Diagnostics financial deliverables

2013 Diagnostics EVA positive


Program Healthcare

14–17%

Workflow & Solutions

11–14%

Diagnostics

16–19%

Imaging & IT

14–17%

15% 10% 6%/13%*

2007 Performance – unaudited preliminary numbers

Strongly committed to achieving target margins

*13% excluding one-time costs but including ongoing PPA charges

FY 2007

Q2 2007

13-15%

11-13%Fit4More

FY 2007

Q2 2007

Date

13-15%

11-13%Fit4

Fit42010

Marginranges


Pro-forma sales by division (2007)

Pro-forma operating profit by division (2007)

Imaging & IT56%

Diagnostics35%


9%

Imaging & IT60%

Diagnostics28%


12%

Note: 2007 pro-forma figures including 12 months Dade Behring and Bayer Diagnostics. Operating profit excluding PPA and one-time costs Diagnostics.

Acquisitions in Diagnostics gives Healthcare a powerful sales and profit profile


Siemens1)

GE

Philips

15%

14-17%

Market pos.20061)

Margin20073)

Target2007-10

1) Market position excluding service2) Constant currency basis

Market growth2007-082) +2-3%

Strong position to outgrow market and perform at top end of margin range in 2010

13.2%5)

14-17%

Siemens1)

GE

Philips

+3-4%

Sector Healthcare

Imaging& IT

Siemens

Varian

Sonova

+5-6%

10%

11-14%

Workflow& Solutions

Siemens

Roche

Abbott

+5-6%

6% / 13%4)

16-19%

Diagnostics

#1

#2

#3

3) Division margin 2007 using unaudited preliminary numbers4) 2007 margin Diagnostics 13% excluding one-time costs but including ongoing PPA charges5) 2007 Sector margin excluding gain on sale of 10% stake in Dräger Medical (23’)

Siemens1)

GE

Philips

Market pos.1) Siemens1)

GE

Philips

Sector Healthcare

Imaging& IT

Siemens

Varian

Sonova

Workflow& Solutions

Siemens

Roche

Abbott

Diagnostics

#1

#2

#3


Financial overview1

Driving financial performance2

Discussion items


Organic growth

Innovations & workflow: exploit strong product pipeline

New markets / customers: world-class CRM process

Lever installed base: realize potential from Diagnostics acquisitions

1 Increase profit conversion

2

Continue successful productivity program

Rigorous control on spending

Reduce fixed costs

Exploit SG&A potential

Increase shared service

Unlock more cash3

Improve quality of earnings

Reduce capex spend

Optimize working capital

Focus of ENTIREorganization

Focus organization on performance

Driving financial performance


30%41%

35%42%

6.3 2’’56

USA

Europe

10

8.3 1’’5 14Asia Pacific

0’’5Sales employees (in thsd.)

External sales (in €bn)

€

€

1) Customer Relationship ManagementStatus: 2007 including Dade Behring pro-forma

€

18% 14%

€

Others

10% 10%

Improving CRM1) process and gain market share:Leverage customer opportunity imaging and diagnosticsDrive training programs across sales forceIncrease market transparencyLeverage revenue from installed base

Goals

Sales organization of over 13,000 driving organic sales growth


+17%

Strict project management

T 2 T 1 T 1 T 2 T 2C 2 C 0 C 0 C 0 C 1Q 2 Q 1 Q 1 Q 1 Q 1







T 2 T 1C 0 C 0Q 1 Q 1

InstallationConfiguration

Test

Logistics

MEP

System Integration

CardioRespiratory

InterventionCare Vision

Tilt

Mobile

SLCCooling

CDT

FW

AdjustSelf Tests

Service Functions

IRS-SW

Physics

Gantry MechanicCabeling

P46 SW-VA20A

CPT

DMS

ICSIESPHS

XTR IRS

Sliding gantryPET supportElectronicsPower

100 kW

EHR

AccessoriesPhantoms

Target CostsApprovals

DynamicCollimation

Zig ZagPerfusion

ReliabilityServiceability IEC/EMV Service (CS)User Doc

Dez06

Jan07

Feb07

Mrz07

Apr07

Mai07

Jun07

Jul07

Aug07

Sep07

Okt07

Nov07

Dez07

Jan08

Feb08

Mrz08

Apr08

Plan total

act total

Tight R&D project management and controls

Time to market is of essence

Sep. 06Okt. 06Nov. 06Dez. 06

Jan. 07Feb. 07Mrz. 07Apr. 07Mai. 07Jun. 07Jul. 07

Aug. 07Sep. 07Okt. 07Nov. 07Dez. 07Jan. 08Feb. 08

Mrz. 08Apr. 08Mai. 08

Sep

06O

kt 0

6N

ov 0

6D

ez 0

6Ja

n 07

Feb

07M

rz 0

7Ap

r 07

Mai

07

Jun

07Ju

l 07

Aug

07Se

p 07

Okt

07

Nov

07

Dez

07

Jan

08Fe

b 08

Mar

08

Apr 0

8M

ai 0

8

More than 7,000 people employed in R&D

Over €1 billion spend each year

Commercial viability and target costs set at start of project

Milestone analysis performed on cost and time: “Go No Go”

Strategic projects reviewed at Sector and Division level

Executing on control


Implement findings

Benchmarking drives best-in-class performance

Execute to ensure best-in-class

Frequency

Act immediately on results

Commitment to addressgaps

Follow-up acrossorganization

Benchmarking (1-3 years)- Cost- Innovation

Quality & Regulatory (ongoing)

World-class purchasing(ongoing)


Delivering productivity(all amounts €bn)

Rigorous productivity program in place

Achieving best cost position

Execute on productivity road map

Established 10+ years

All BU have same methodology

2,000+ measures implemented annually

Special focus on fixed cost

Implementation measured by degree of implementation

*Excluding Diagnostics

0.65

2005 2007*2006

0.750.80

11% p.a.


Efficiency in purchasing is driving down cost

Standardization Reduced costs

Number of suppliersGlobal purchasing

Increase share of LCC purchasing

Standardize supplier terms

Synergies in Diagnostic

Strategic partnership with key suppliers

2007 2008

-15%

25,000

21,250


Delivering savings out of SG&A program

Less complex, faster, and more flexible

Key activitiesCurrent status

Leverage progress made via productivity program

Key synergy lever with Diagnostics

Cross-sector synergies in Shared Services

Base liningBenchmarkingTarget setting

DetailingImplement

December January February March … September October


PayablesReduce number of suppliersStandardize payment terms

Improve installation times at customer sites Better customer satisfaction reduces debtor days

Increase standard parts Better scheduling in supply chain

Operating working capital turns*

Receivables

Inventory

*Excluding Diagnostics

6.7x

6.0x 6.1x

5.0x

6.0x

7.0x

2005 2006 2007

Improving cash conversion

Driving organic cash generation out of working capital


Group profit target margin

Cash Conversion Rate

Organic growth gaining market share

1) Excluding PPA and one-time costs related to DPC, Bayer acquisition and gain on 10% stake in Dräger Medical (23’)

We do what we promise

2006 2007

5%6%

Profit margin: 14-17% 1 – growth rate

2006 2007

12.0%

2006 2007

0.901.04

15.0%1)

Market growth


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

+

Deliver target margin

+

Convert to cash


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 thetable 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, definedas 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:




Reconciliation and Definitions for Non-GAAP Measures (II)

• 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.

Average calculation for CE*: Year-to-DateQ1 2 Point average: (CE ending Q4 Prior year + CE ending Q1) / 2Q2 3 Point average: (CE ending Q4 Prior year + CE ending Q1 + CE ending Q2) / 3Q3 4 Point average: (CE ending Q4 Prior year + CE ending Q1 + CE ending Q2 + CE ending Q3) / 4Quarter-to-DateQ1 2 Point average: (CE ending Q4 Prior year + CE ending Q1) / 2Q2 2 Point average: (CE ending Q1 + CE ending Q2) / 2Q3 2 Point average: (CE ending Q2 + CE ending Q3) / 2Q4 2 Point average: (CE ending Q3 + CE ending Q4) / 2



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; andadd (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 inflationand 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.


Siemens Investor Relations Team

Webpage: http://www.siemens.com/investorrelations

e-mail: [email protected]

Telephone: +49-89-636-32474

Fax: +49-89-636-32830

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

Siemens Healthcare – Financial Performance · Diagnostics PPA/OTC Diagnostics 13.2% 1,475...

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