Profitable Growth in Challenging Times Klaus Voges, Group President Power Generation Financial Market Day, February 17, 2004
My topics today: We are achieving strong results in challenging times Continuous execution of our strategies leads to profitable growth Siemens Management System at PG Structured programs and initiatives We will deliver continuous strong performance 2
PG business results in millions of euros Q1 FY04 Q1 FY03 FY03 Orders 2,676 2,270 7,302 Sales 1,902 1,785 6,967 Group profit as % of sales 245 12.9% 409 22.9% 1,171 16.8% Net cash 40 (46) (448) Employees 30,300 3
Continuous execution of our strategies... Portfolio optimization Service growth Global market and customer diversity Innovation leadership Optimization of business mix... leads to profitable growth for our businesses 4
Continuous optimization of PG business portfolio Acquisitions PG F PG I PG L Joint ventures Divestiture Parsons Westinghouse 1997 1998 Framatome ANP 2) 34% (formerly KWU's Nuclear Div.) Ceramics (CE) Redwitz Demag Delaval Alstom Ind. Turbines 2001 2003 Voith Siemens Hydro (VSH) 35% (formerly KWU Hydro) ICIS 1) New Energy Associates 2003 2002 2002 Turbo Service Network (TSN) (joint venture with Chromalloy managed by PG) 1) Industrial Control and Information Systems 2) Framatome Advanced Nuclear Power F = Fossil Power Generation I = Industrial Applications L = Instrumentation & Control 5
Business model of PG Industrial Applications PG I as One-Stop Shop and System Integrator for Rotating Equipment Profit Machine (and growth) CUSTOMER Competence Machine (fuel) Growth Machine (and future profit) Low Total Cost of Ownership Speed/Customer Intimacy Service Quality Costs/Reliability Products Integrated Systems/Risk Mgmt. Systems/ Solution Subdiv.: Ind. Steam Turbines Subdiv.: Ind. Gas Turbines Subdiv.: Compressors Subdiv.: Service Subdiv.: Oil & Gas Subdiv.: Power Plants 6
Alstom Industrial Turbines integration is progressing as planned Measures and Status: Organization Sales Network Service Network Manufacturing Supply Management Newly integrated PG I already in operation 2 months after closing (since October 2003) Optimized customer approach through global PG I sales management and key account management to fully exploit all market opportunities Organization of service activities in regional hubs to support service growth strategy Design of integrated manufacturing network, including best practice sharing Introduction of central supply management organization and launch of major savings initiatives 7
Siemens Management System at PG company programs Innovation Platform strategies Harmonize GT product line New large GT family Optimized steam turbine family Customer focus Winning new customers Partnering + AEs 1) as customers Oil & Gas Cross selling initiative Pilot customer engagement Complementor strategy Global competitiveness Software initiative Projectmanagement@Siemens worldwide manufacturing concept Low cost manufacturing Shared services Asset management Service initiative Steam turbine mods and upgrades; Total plant maintenance and diagnostics; GT-LTP s with risk / gain sharing Quality and process initiative Customer site back quality program Clear responsibilities, goals and incentives on project level 1) Architect Engineers 8
Winning new customers: PG enters attractive Oil & Gas business Rotating equipment market within Oil & Gas EUR 15 bn p.a. Midstream Upstream Downstream Service New Equipment Our offerings to the Oil & Gas industry increase significantly due to the completion of our product portfolio with small / medium gas turbines and compressors Full portfolio of rotating equipment: - compressor stations - gas and steam turbine packages - power plants, and - related services Opportunities within growth areas, e.g. LNG (Liquified Natural Gas) plants, subsea applications Strong position within rotating equipment 9
Cross selling initiative: Sell All electric LNG plants in cooperation with other groups Trends within Oil & Gas: Increasing need for gas transportation Increasing relevance of availability Core competencies within Siemens: Power plant (PG) Electric grid / system control (PTD) Compressor trains (PG, A&D) LNG market EUR 3.0 bn 1.0 All electric LNG (incl. Power Plant) 2.0 GT Driven 2.0 LNG 2003 +25% p.a. EUR 5.0 bn 3.0 2008 All electric LNG plant Power Plant (Island operation) (250 MW) G GT G ST G GT Process Plant Electrical Grid Compressor Trains (190 MW) M C M C M C GT = Gas Turbine, ST = Steam Turbine, G = Generator, M = Synchronous Motor, C = Compressor Double digit growth opportunity: All electric LNG 10
Service initiative: Installed fleet provides strong basis for future profitable growth in GW, status of 2002 Americas 484 336 261 Europe 189 Gas Turbines Steam Turbines Nuclear Steam Turbines Asia / Pacific World total: 2900 GW 928 69 22 50 12 AP Siemens GE MHI 110 109 88 60 GE Siemens AP MHI 696 665 Africa / Middle East 445 55 53 52 23 AP GE Siemens MHI 166 GE Siemens AP MHI Others Siemens PG is strong in all regions 11
Service initiative: PG Service a profitable, growing business Service Mix in billions of euros ~ 13% p.a. 3.3 I&C Service 2.3 Ind. Applications Service Fossil Service FY02 FY05e Three key levers: Improved base Organic growth Accelerated growth Follow through: Full integration of AP Industrial Turbines Implementation of teaming agreements between divisions Regional service optimization Balance of plant initiative Total plant solutions Diagnostics implementation 12
Quality and process initiative: Focus of top + Quality @ PG is shifting from internal focus to suppliers and customers Cumulative business benefits ~16 ~14 400 in millions of euros ~45 ~142 ~75 294 FY01 FY02 FY03 FY04e Cumulative numbers: Investment Training is the foundation 7000 6000 5000 4000 3000 2000 1000 0 Participants Goal FY04 Business benefit FY00 FY01 FY02 FY03 ~110 > 6,000 Staff Green & Black Belts Management Current Status Cumulative savings EUR 294 millions More than 6,000 people trained worldwide Outlook Customer Site-Back Quality: Make the customer feel the impact of our quality efforts top + with Six Sigma @ PG Supply Base: We require the same efforts from our suppliers as we demand internally Shift of Six Sigma Project Focus...... from reactive to preventive measures to ensure quality 13
Market development in the power plant market by types and regions Power Plant Types [GW p.a.] 158 12 5 104 16 7 14 Small Generators 1 Nuclear Fossil Market Industrial Market Wind, Solar Hydro 1) Recip. engine, fuel cell, micro gas turbines thereof: China 21 thereof: USA 66 Regions [GW p.a.] 11 138 138 11 4 75 17 10 21 158 thereof: China 28 thereof: USA 16 Ø 98-02 Ø 03-08 Ø 98-02 Ø 03-08 45 3 22 77 18 59 8 22 31 Long term development is positive Africa & Middle East Asia & Australia Eastern Europe/CIS Western Europe Americas 14
Continuous execution of our strategies leads to profit performance in the 10-13 % range Strategies for growth and profitability Portfolio optimization Service growth Global market and customer diversity Innovation leadership Optimization of business mix Others (incl. Ind. Applications, I&C) Service EPC Components Segment profit target FY02 4% 14% 5% 24% Segment profit target FY05e 6-10% 18-22% 4-6% 6-8% Increasing importance of Service and Industrial Application in PG s business mix 15
Siemens Investor Relations Team Marcus Desimoni +49-89-636-32445 Constantin Birnstiel +49-89-636-36165 Christina Schmöe +49-89-636-32677 Claudia Wagner +49-89-636-33693 Webpage: http://www.siemens.com Investor Relations e-mail: Investorrelations@siemens.com Fax: +49-89-636-32830 Disclaimer: This presentation contains forward-looking statements based on beliefs of Siemens' management. Such statements reflect the company's current views with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results to be materially different, including, among others, changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products, lack of acceptance of new products or services and changes in business strategy. Actual results may vary materially from those projected here. Siemens does not intend or assume any obligation to update these forward-looking statements. 16