Dear Shareholders,
Looking back, fiscal 2007 was one of the most turbulent years in Siemens’ recent history, a year of unforeseen challenges, profound changes and major business successes. The beginning of fiscal 2008 marked the 160th anniversary of our Company’s founding. No other major company in our industry boasts such a long and distinguished history. All of us – employees, shareholders, customers and partners – can be proud of this achievement over many generations and grateful for the trust our Company has enjoyed since Werner von Siemens’ day. Now we’re working relentlessly to justify this trust and ensure Siemens’ continued success.
It’s been five months now since I assumed the position of President and CEO of Siemens. This is more than just another job for me. It’s a challenge that involves a tremendous amount of responsibility, and one that I’m pleased to accept. I’m proud to be part of this great company, working with our roughly 400,000 employees in nearly 190 countries to lead Siemens into a bright future.
During my first weeks and months at Siemens, I worked hard to familiarize myself with our Company and the expectations of our various stakeholders. I met with many employees from the Regions and Groups. I talked with lots of our customers, with business and political leaders in Germany and abroad, and with you – our investors. And I learned a great deal.
The conclusion I’ve drawn from all these encounters and personal impressions is that Siemens stands for technological excellence, innovation, high quality and reliability. And we’re proving this to our customers every single day. With our trailblazing products, systems and solutions, we’re setting standards that apply even to our competitors. Siemens is also synonymous with worldwide presence, global scope and innovative strength. This is the tradition in which our Company is rooted – a tradition that continues to thrive today and on which we’ll build in the future.
A hundred and sixty years of success
On October 12, 1847, Werner von Siemens and his partner Johann Georg Halske founded Telegraphen-Bauanstalt von Siemens & Halske in Berlin, laying the cornerstone for a unique success story. From the very beginning, Werner von Siemens aspired to market his innovations beyond Germany’s borders. Envisioning a global enterprise, he opened the company’s first representative office in London in 1850. Just three years later, he expanded his business eastward to begin the construction of the Russian telegraph network. Further international activities followed.
In 160 years, Siemens has grown from its two founders to some 400,000 employees all around the world, from a backyard workshop in Berlin to a global player with a worldwide business volume of approximately €80 billion – a truly unparalleled success story.
Werner von Siemens’ personal characteristics – a drive to innovate, an international focus and, above all, a keen sense of responsibility – continue to shape our Company today. Responsible, excellent, innovative – these are the values that define Siemens.
A successful fiscal 2007
Despite the challenges confronting us, we generated outstanding income from continuing operations in fiscal 2007 – 48 percent above the already impressive prior-year figure. New orders rose 12 percent to €83.9 billion, and sales climbed nine percent to €72.4 billion, with double-digit organic growth in both of these areas.
We‘re growing profitably – in all our businesses and in all the regions in which we operate. The following Groups achieved particularly outstanding growth in orders:
- At Power Generation, new orders surged 44 percent to roughly €18 billion.
- Power Transmission and Distribution delivered a 23 percent increase in orders, reaching nearly €10 billion.
- Automation and Drives reported new orders worth €16.8 billion, a year-over-year increase of 17 percent.
- At Industrial Solutions and Services, new orders rose 13 percent to €10.2 billion.
Turning to sales, our strongest growth was a 17 percent increase in Africa, the Middle East and the C.I.S., followed by robust gains in Asia-Pacific and the Americas. We’re especially pleased to report sales growth in Germany, our home market, as well.
Fit4More targets reached
Profitable growth was the key focus of our Company-wide Fit4More program. We’ve achieved the targets we set when we launched the program in April 2005. And while we’re very proud of this accomplishment, we’re not resting on our laurels. Now we’ve defined ambitious new targets for ourselves as part of our new Fit4 2010 program (From Fit4More to Fit4 2010). We want to continue to grow at least twice as fast as the world economy while enabling all our Groups to achieve – and exceed – their new, higher target margin ranges over the long term.
Another goal we’ve set for 2010 is to generate a 14 - 16% return on capital employed throughout the Company. At the same time, we intend to substantially increase our liquidity. To achieve the aims of our Fit4 2010 program, we’re implementing the proven methods of our top+ initiative while taking immediate steps to optimize our entire organization.
Reducing complexity, strengthening responsibility, gaining speed
Our Managing Board and Supervisory Board have jointly approved the most extensive restructuring of our Company since 1989. This reorganization will be implemented at the beginning of January. The new structure will make us faster, more focused, more transparent and closer to our customers. In our new organization, we intend, of course, to maintain and expand our setup as an integrated technology company.
We’re strengthening transparency and personal responsibility at the Company by introducing a new executive leadership model. The new Siemens Managing Board will have full responsibility for leading the Company worldwide. The Corporate Executive Committee of the Managing Board will be eliminated. The members of the new Managing Board will have responsibility for operational profit and loss, and the coaching system now in use will no longer be applied.
Each member of the Managing Board will head a clearly defined chain of command with unambiguous escalation paths. This structure will increase the Company’s transparency, reduce its complexity and accelerate decision-making.
Focused structure – Clear responsibilities
We’re grouping our operations into three Sectors: Industry, Energy and Healthcare. The Industry Sector will comprise the businesses of the Groups Automation and Drives (A&D), Industrial Solutions and Services (I&S), Transportation Systems (TS), Siemens Building Technologies (SBT) and OSRAM. The Energy Sector will comprise the businesses of the Power Generation Group (PG) and the Power Transmission and Distribution Group (PTD). And the Healthcare Sector will comprise the businesses of the Medical Solutions Group (Med). The Sectors will be subdivided into Division, which, in turn, will be subdivided into Business Units. Each Division and Business Unit will be headed by a CEO, who has worldwide responsibility for its business activities.
All three Sectors are already leading suppliers to their markets. Leveraging innovative products, technologies and solutions, we’ll enable them to continue expanding their market positions worldwide. Continuing to operate on a cross-unit basis, the Siemens IT Solutions and Services Group (SIS) and the Siemens Financial Services Group (SFS) will support every Sector while also serving their non-Siemens customers. Individual members of the Managing Board will have direct responsibility for the three Sectors, for Siemens’ strategic equity investments and for our cross-Sector units Global Shared Services (GSS) and Siemens Real Estate (SRE).
Our proven matrix organization – consisting of global businesses, which have profit-and-loss responsibility, and Regional Companies, which provide optimal customer support on a local basis – will be retained. As in the past, the global businesses, which make decisions regarding the nature and location of our business activities worldwide, will have a clear “right of way” within the matrix.
With regard to our regional organization, there’ll still be one individual – a Mr. or Ms. Siemens – representing the Company as a whole in each of the countries in which we’re active. In the new structure, we’re strengthening the sales responsibility of our Regional Companies and giving them additional leeway for the benefit of our customers – for example, by relieving them of a number of administrative functions, particularly in the areas of finance and controlling. We’re also bundling more of our international businesses into cross-border organizations in which larger Regional Companies will support smaller ones – an approach that has already proven its worth in Latin America and southeastern and northern Europe.
Portfolio policies – Ambition coupled with vision and discipline
Active portfolio management is a key pillar of our success. In fiscal 2007, we worked intensively to focus our portfolio on profitable, high-growth fields. In every case, our overriding strategic objective was to capture and maintain No. 1 or No. 2 positions in all our markets. Through our acquisitions, we’re developing our portfolio with prudence, vision and financial discipline.
Three measures in fiscal 2007 were of major significance for the optimization of our portfolio: the sale of Siemens VDO Automotive (SV) to Continental AG, the acquisition of Dade Behring Inc. of Deerfield, Illinois (U.S.) and the acquisition of UGS Corp. of Plano, Texas (U.S.).
Continental AG is the ideal partner to safeguard the future of our former SV business. Of all the options that were available to us, this solution was clearly the most profitable – also for you, our shareholders. In addition, it was a major step – and one much appreciated by our customers – toward strengthening Germany – and all of Europe – as a center of the worldwide automotive industry.
The acquisition of the U.S. diagnostics company Dade Behring has made us the leading supplier of in-vitro diagnostics and the world’s first integrated diagnostics company. We’re now the only supplier to the healthcare industry offering a complete range of products, services and solutions for the entire clinical value chain.
Regulatory approval by the European Commission in April 2007 was the final step in our acquisition of the Texas-based software company UGS Corp. Combining UGS expertise with our own technologies will enable us to bridge the gap between virtual and real-world production in the world’s first intelligent factory and further expand our position as the world leader in automation systems.
Highest performance with highest ethics
A drive to innovate, an international focus and a sense of responsibility – these are the principles on which our founder built his company 160 years ago, and they remain the basis for our long-term success today. With our leading-edge technologies, we’ve achieved worldwide renown. For many of our competitors, we’re the innovation benchmark.
Now, we’re aiming to be a leader in compliance, too. Restoring confidence in our Company – this, for me personally, is the highest priority.
In fiscal 2007, we made a series of major personnel and organizational changes in the legal, compliance and auditing areas. In each of this fields, we're now integrating our processes into a uniform system worldwide. To support these efforts, we've engaged a number of distinguished experts with international experience.
Effective October 1, 2007, we appointed Peter Y. Solmssen, former Chief Counsel at GE Healthcare, to fill our new Managing Board position for legal and compliance matters. We also appointed Andreas Pohlmann – previously an Executive Vice President at Celanese Corp. – to serve as Chief Compliance Officer. We combined all the auditing operations at Company headquarters in the unit Corporate Finance Audit (CFA) within the Corporate Finance Department (CF). Hans Winters, a former partner at PricewaterhouseCoopers, will head the new unit.
We’ve also made solid progress in implementing compliance-related measures in our operating units. For example, the face-to-face and online compliance training programs that we’ve established for our managers worldwide are now far advanced. With clear rules that apply to every employee, we’re rigorously strengthening awareness of compliance-related issues throughout the Company. We’ve also set up a central helpdesk to which employees anywhere in the world can direct compliance-related questions concerning, for example, the conduct of day-to-day business activities and correct behavior with regard to our external partners.
Munich District Court I has imposed a fine in connection with the investigations of our former Communications Group (Com). In addition, a final settlement has been reached with the German tax authorities. These actions mark the end of the investigation at Com by the Munich Public Prosecutor’s Office and the German tax authorities insofar as it relates to Siemens AG.
Nonetheless, we’re continuing to do everything in our power to uncover any irregularities that may have occurred in the past. Wherever wrongdoing comes to light, we will take immediate action. Ethical conduct at all times and in all places is not just possible; it’s absolutely vital for us. That's our corporate culture. Siemens – our name stands for the highest performance with the highest ethics.
Fiscal 2008 – Opportunities worldwide
In our very successful fiscal year 2007, we set the stage for reinforcing and expanding our leading position on the world market. We restructured our portfolio and augmented it with a number of outstanding acquisitions. For the year ahead, we’ve set clear goals: We want to make Siemens faster, more focused and less complex.
We also intend to cut our costs – in particular, our selling, general and administrative (SG&A) costs. To this end, we’re implementing targeted measures at our Corporate Units, operating units and Regional Companies that will reduce our current SG&A outlays 10 - 20% by fiscal 2010, enabling us to close the gap to our best competitors.
By implementing our new organizational structure, we’re creating a company with three strong pillars: Industry, Energy and Healthcare. In all three Sectors, our power of innovation, our global market presence and our solutions expertise are positioning us to provide answers to the toughest questions of our time – answers that cannot be surpassed by anyone anywhere. Building on our achievements, we’re working with pride and passion to strengthen Siemens – step by step, with great determination and a clear focus on the future.
Peter Löscher
President and Chief Executive Officer
Siemens AG
Overview
- A hundred and sixty years of success
- A successful fiscal 2007
- Fit4More targets reached
- Reducing complexity, strengthening responsibility, gaining speed
- Focused structure – Clear responsibilities
- Portfolio policies – Ambition coupled with vision and discipline
- Highest performance with highest ethics
- Fiscal 2008 – Opportunities worldwide