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WIKI ANALYSIS
Siemens AG (Siemens) is a diversified group, with its businesses built on leadership in electronics and electrical engineering. Siemens’ operations include designing, manufacturing, marketing, selling and servicing products and systems, and helping customers use and manage those products and systems. Siemens has undergone significant restructuring in recent years, involving divestments, acquisitions, and reorganization of divisions. The group primarily operates in Europe and the Americas. Business lines of Siemens include Information and Communications, Automation and Control, Power, Transportation, Medical, and Lighting. Siemens is active in many business areas, and benefits from globalization and booming economies in Asia, particularly China, and eastern Europe, where Siemens provides infrastructures in communication, IT, transportation, and power, including wind turbines. Siemens is also experiencing an improvement in its productivity, reflected by its decision to separate its under-performing telecoms handset business into a joint venture with Nokia. Along with General Electric Company (GE), Siemens dominates the world market in production of the large turbines, which utilities use to power cities and large factories. Emerging Markets such as China, Russia, and India are experiencing strong growth in power consumption and the lack of competition for product sales in these markets will help to ensure growing sales for years to come.
Segment Split FY07 (09/30/2007): Siemens operates through ten business segments: 1) Siemens IT Solutions and Services (SIS) (7% of revenue; 4% of net income): designs, builds, and operates discrete and large-scale information and communications-systems; 2) Automation and Drives (A&D) (20%; 32%): offers automation systems, motion control and drive systems, low voltage controllers and installation systems, process automation systems and instrument products, and electronic assembly systems; 3) Industrial Solutions and Services (I&S) (12%; 6%): develops solutions for industrial and infrastructure facilities; 4) Siemens Building Technologies (SBT) (6%; 5%): provides products, systems, and services for monitoring and regulating the temperature and ventilation, fire safety, security, and energy efficiency of commercial and industrial property; 5) Power Generation (PG) (16%; 17%): includes development and manufacture of components; planning, engineering, and construction of coal and gas fired power plants; and servicing, retrofitting, and modernizing of existing facilities; 6) Power Transmission and distribution (PTD) (10%; 10%): supplies equipment, systems, and services to process and transmit electrical power from the source; 7) Transportation Systems (TS) (6%; 3%): provides signaling and control systems, railway electrification systems, heavy rail systems, locomotives, light rail systems, and other rail vehicles; 8) Medical Solutions (Med) (13%; 20%): offers diagnostic and therapeutic systems, devices, and consumables; and information technology systems; 9) Osram (6%; 8%): offers lighting products for general lighting and automotive, photo-optic, and opto-semiconductor lighting applications; and 10) Others (4%; -5%): includes financial service business and real estate business.
Geo-split: 1) Germany (17% of sales); 2) Europe (other than Germany) (32%); 3) Americas (27%); 4) Asia-Pacific (15%); and 5) Africa, Near and Middle East, Commonwealth of Independent States (CIS) (9%).
Recent Events: 1) In Jul 2008, Siemens (though its subsidiary Siemens Building Technologies, Inc.) completed the acquisition of MAC Systems, Inc, one of England's leading security systems integrators (transaction details not available). The acquisition strengthens Siemens ability to serve current and prospective customers in England; 2) In Feb 2008, Siemens and Nokia Oyj’s joint venture, Nokia Siemens Networks, completed the €140mn acquisition of Apertio Ltd, a leading provider of open real-time subscriber data platforms and applications built specifically for mobile, fixed, and converged telecommunications operators. Apertio provides a strategic platform in the next-generation architecture for Nokia Siemens Networks’ portfolio, strengthening its ability to help customers simplify their networks and manage their key asset – subscriber data; 3) In Jan 2008, Nokia Siemens Networks completed its acquisition of Carrier Ethernet Specialist Atrica, Inc., a provider of carrier Ethernet solutions for Metropolitan Area Networks (transaction details not available). The acquisition strengthens Nokia Siemens Networks’ Carrier Ethernet expertise and gives the company a comprehensive and end-to-end Carrier Ethernet product portfolio; and 4) In Dec 2007, Siemens sold its VDO auto parts unit, Siemens VDO Automotive AG, to Continental AG for €11.4bn. This transaction was part of Siemens’ strategy to focus on its core strengths by divesting non-core operations.
Strategy: Siemens focuses on creating long-term value for its shareholders and customers, while acting responsibly and with excellence and innovation. In order to achieve this vision, Siemens has devised a strategy of leveraging the potential of an integrated technology company while delivering performance at the highest level. Siemens’ growth strategy includes divesting interests in non-core businesses and strengthening other areas through portfolio measures, including acquisitions. The components of the company’s strategy are: 1) People excellence (high performance and leadership culture); 2) Portfolio management (focus on three sectors- industry, energy and healthcare, with stringent resource allocation); 3) Operational excellence (innovation leadership and global footprint); and 4) Corporate responsibility (benchmark in corporate responsibility and compliance). Concerns & Mitigants: 1) Aggressive shareholder friendly measures and acquisitions-led growth strategy resulting in increased reliance on debt for other business needs; 2) Increasing legal and regulatory charges affect not only the profit margins, but also the reputation and confidence among customers and shareholders; and 3) Integrating acquired products and services and to realize financial and strategic goals from the acquired entities. However, the company has demonstrated its ability to integrate and derive synergies from acquisitions in the past.
FY07 (FYE Sep 31, 2007): Revenue grew by 9% to €72.4bn (FY06: €66.5bn) driven primarily by higher revenues from Europe (outside Germany), especially from A&D, PG and Med segments. The revenue growth was partially offset by the weakening of the U.S. dollar against the Euro. EBITDA margin improved to 12.6% (FY06: 8.3%) attributable to improved cost structure and streamlining of operations. Net margin improved to 5.6% (FY06: 5.0%) due to higher operating income, offset partially by higher interest expenses and lower income from discontinued operations. Profit margins of Siemens’, though growing, remain lower than rivals such as General Electric Co. and ABB Ltd. 9M08 (9ME Jun 30, 2008): Sales grew by 6.6% to €55.7bn (9M07: €52.2bn) mainly due to higher revenues from Europe and Americas, fueled by faster growth in the Energy and Healthcare industry. EBITDA margin declined to 11.0% (9M07: 12.6%) due to marginal increase in operating expenses (higher selling and general expenses). However, net margin increased to 14.9% (9M07: 7.9%) mainly due to higher earnings from discontinued operations.
Siemens generates strong and growing cash flows from operations (OCF) in the range of 8-10% of sales. FY07 (FYE Sep 31, 2007): OCF improved by 29.5% to €7.3bn (10% of sales) compared to €5.7bn (9% of sales) in FY06. The growth in OCF is due to higher earnings/margins and better working capital management. OCF adequately covered CapEx of €3.8bn (1.0x D&A) and dividends of €1.4bn, leaving free cash flow (FCF) of €2.1bn. Acquisitions (€7.4bn), debt repayment (€4.6bn), share repurchase (€101.0mn) and others (€1.5bnmn; mainly interest paid and other investing activities) were funded by FCF, debt (€5.2bn), equity (€969.0mn) and cash (€5.3bn), thereby decreasing the cash and cash equivalents to €4.0bn. 9M08 (9ME Jun 30, 2008): Despite higher working capital requirements, OCF improved by 11.0% to €4.4bn (8% of sales) from $4.0bn in 9M07, due to higher earnings/margins. OCF adequately covered CapEx of €2.3bn (1.1x D&A) and dividends of €1.6bn, leaving free cash flow (FCF) of €583.0mn. Acquisitions (€4.8bn), debt repayment (€4.3bn), share repurchases (€3.3bn) and others (€1.7bn; mainly interest paid and other investing activities) were funded by FCF, debt (€5.0bn), equity (€244.0mn) and proceeds from disposal of business (€11.3bn), thereby increasing the cash and cash equivalents by €3.0bn to €7.7bn. Debt Maturity: As on Jun 30, 2008, Siemens had total debt outstanding of €15.3bn (ST: €2.0bn + LT: €13.3bn). Detailed debt maturity profile is not available. [As on Sep 30, 2007, the company had total debt outstanding of €15.5bn (ST: €5.6bn + LT: €9.9bn) of which €5.6bn is due in 2008; €778.0mn in 2009; €70.0mn in 2010, €2.2bn in 2011; €962.0mn in 2012 and the remaining balance of €5.9bn thereafter].
FY07 (As on Sep 30, 2007): Liquidity remained adequate, though declined due to dependence on cash and cash equivalents for business needs. Siemens’ net working capital (NWC) declined by 63.5% to €4.0bn (09/07: €11.1bn) mainly due to reduction of cash and cash equivalents (down 60.8% to €4.0bn). Current ratio and quick ratio deteriorated to 1.1x and 0.8x, respectively (09/07: 1.3x and 1.0x, respectively). Siemens derives its liquidity from its cash and cash equivalents of €4.0bn and unused lines of credit totaling €6.1bn (as on Sep 30, 2007).
9M08 (As on Jun 30, 2008): Siemens’ liquidity improved as reflected by its net working capital (NWC) of €6.5bn (06/07: €379.0mn), current ratio of 1.2x (06/07: 1.0x) and quick ratio of 0.8x (06/07: 0.7x). Liquidity improved mainly due to reduction of short-term borrowings (commercial paper and medium-term notes) to €2.0bn, down 74.2%, from €7.7bn as on 06/07. Siemens derives adequate liquidity from its cash and cash equivalents of €7.7bn, which are sufficient to meet its short term operating and business needs
FY07 (As on Sep 30, 2007): Siemens has high debt due to debt-funded acquisitions in the past. However, leverage ratios remained at moderate levels due to relatively high operating income and a strong equity base (due to retained earnings). The Tangible Net Worth (TNW) of the company declined by 2.4% to €12.5bn due to acquisitions related goodwill and intangible assets. Debt/EBITDA improved to 1.7x (09/06: 2.8x) due to higher EBITDA (up 65.6% to €9.1bn). Debt/Equity ratio improved to 52.3% (09/06: 59.1x) due to growth in equity base, and remained at moderate levels. However, interest coverage remained flat at 10.2x (09/06: 10.5x) as the effect of higher EBITDA was offset by higher interest expense (up 70.9% to €897mn).
9M08 (As on Jun 30, 2008): Despite reduction in debt (down 18.7% to €15.3bn), debt/EBITDA remained flat at 1.9x (06/07: 2.1x) due to lower EBITDA (down 7.5% to €6.1bn). However, debt/equity ratio improved to 47.2% (06/07: 62.5%) due to lower debt and higher equity (due to retained earnings). Interest coverage remained flat at 10.2x (06/07: 9.8x). Overall leverage ratios remained at moderate levels.
Off Balance Sheet Items consist of operating lease obligations totaling €2.5bn, which are well spread over the years and unlikely to pose significant credit risk.
Financials: Siemens AG
Value in € million Annual Nine months
Income Statement Sep-06 Sep-07 % Change Jun-07 Jun-08 % Change
Period (in Months) 12 12 9 9
Revenue 66,487.0 72,448.0 9.0% 52,247.0 55,676.0 6.6%
COGS 49,108.0 51,572.0 5.0% 37,293.0 39,579.0 6.1%
Operating Expenses 14,988.0 15,502.0 3.4% 11,104.0 12,174.0 9.6%
EBITDA 5,509.0 9,125.0 65.6% 6,590.0 6,098.0 -7.5%
Interest Expenses 525.0 897.0 70.9% 672.0 599.0 -10.9%
Net Income 3,345.0 4,038.0 20.7% 4,112.0 8,306.0 102.0%
Balance Sheet
Cash and cash equivalents 10,214.0 4,005.0 -60.8% 5,254.0 7,735.0 47.2%
Inventory + Prepaid expenses 12,790.0 12,930.0 1.1% 14,555.0 14,921.0 2.5%
Accounts Receivable 15,148.0 14,620.0 -3.5% 16,225.0 15,106.0 -6.9%
Total Current Assets 50,014.0 47,932.0 -4.2% 43,981.0 45,385.0 3.2%
Total Assets 87,528.0 91,555.0 4.6% 91,989.0 92,830.0 0.9%
Accounts Payable 8,443.0 8,382.0 -0.7% 8,749.0 8,079.0 -7.7%
Total Current Liabilities 38,964.0 43,894.0 12.7% 43,602.0 38,886.0 -10.8%
Short Term Debt 2,175.0 5,637.0 159.2% 7,741.0 1,998.0 -74.2%
Long Term Debt 13,122.0 9,860.0 -24.9% 11,062.0 13,288.0 20.1%
Total Debt 15,297.0 15,497.0 1.3% 18,803.0 15,286.0 -18.7%
Total Liabilities 61,633.0 61,928.0 0.5% 61,899.0 60,411.0 -2.4%
Retained Earnings (Accumulated Deficit) 16,702.0 20,453.0 22.5% 21,523.0 27,020.0 25.5%
Shareholders Equity 25,895.0 29,627.0 14.4% 30,090.0 32,419.0 7.7%
Profitability
Gross Margin (%) 26.1% 28.8% 28.6% 28.9%
EBITDA Margin (%) 8.3% 12.6% 12.6% 11.0%
Profit Margin (%) 5.0% 5.6% 7.9% 14.9%
ROE (%) 12.9% 13.6% 18.2% 34.2%
Liquidity
Net Working Capital 11,050.0 4,038.0 -63.5% 379.0 6,499.0 1,614.8%
Current Ratio 1.3 1.1 1.0 1.2
Quick Ratio 1.0 0.8 0.7 0.8
Leverage
Debt/EBITDA (times) 2.8 1.7 2.1 1.9
Debt/Equity (%) 59.1% 52.3% 62.5% 47.2%
Debt/Total Capital (%) 31.9% 21.9% 22.6% 27.9%
Total Liabilities/Equity (%) 238.0% 209.0% 205.7% 186.3%
EBITDA/Interest (times) 10.5 10.2 9.8 10.2
FCF/Debt (%) 1.9% 13.8% 0.5% 5.1%
Cash Flow
OCF 5,659.0 7,328.0 29.5% 3,977.0 4,416.0 11.0%
FCF 288.0 2,134.0 641.0% 67.0 583.0 770.1%
FCF/Debt Service (times) 0.1 0.3 0.0 0.2
FCF/Depreciation (times) 0.1 0.6 0.0 0.3
Depreciation 3,118.0 3,751.0 20.3% 2,740.0 2,175.0 -20.6%
Total CapEx 4,052.0 3,751.0 -7.4% 2,499.0 2,278.0 -8.8%
Other Investing Activities (469.0) (907.0) -93.4% (553.0) (1,484.0) -168.4%
Dividends 1,319.0 1,443.0 9.4% 1,411.0 1,555.0 10.2%
Share repurchases 421.0 101.0 -76.0% 101.0 3,264.0 3,131.7%
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