Dear Shareholders,
In fiscal 2009, the financial markets and the entire global economy plummeted, hit by the worst crisis of the post-war era. Confidence in the markets was profoundly shaken, and the fallout has been dramatic. Although there are now signs that the situation is gradually stabilizing, it’s still too early to say when the global economy will be back on its feet.
One thing is clear: the current crisis has transformed the world and the environment in which we do business. The role of the state, in particular, has changed. I have great admiration for the decisiveness that governments and parliaments all over the world exhibited in preventing the situation from worsening. The stimulus programs they launched worldwide kept markets from collapsing. Applying the lessons learned from the crisis, governments have now begun to revise the regulatory framework in which markets operate. However, there is a real danger that the enhanced role of the state will open the door to isolationism and protectionism. We don’t yet know to what extent policymakers will be able to avoid this pitfall.
One thing we’ve learned from the crisis is that a quick fix is no substitute for sustainable action. This apparently simple truth was ignored too often by too many players. Today, it’s obvious: when sustainability is disregarded, responsibility falls by the wayside, trust is destroyed, economies are weakened and people suffer.
Siemens stands for sustainability. Long before sustainability became a household word, our company’s founder, Werner von Siemens, announced: “I won’t sell the future of my company for a quick profit.” This has been the guiding principle at our Company ever since its founding. And it’s a legacy we feel bound to uphold. The success of our long-term approach has also gained recognition outside the Company. We’re very pleased to have captured the No. 1 position in the Diversified Industrials sector of the Dow Jones Sustainability Index – the most widely used yardstick for sustainable business activity.
We’re relieved that the German and U.S. authorities investigating the allegations of bribery against Siemens have concluded their proceedings, and we’re proud that the Company is now an international benchmark in the area of compliance. For us, these developments are both a confirmation of our efforts and an incentive to remain vigilant, professional and highly focused in all our activities.
Business development in fiscal 2009
In fiscal 2009, new orders were 16 percent below the record level of fiscal 2008. Revenue, at €76.7 billion, declined by only one percent, remaining near the fiscal 2008 level. Total Sectors profit, at € 7.5 billion, substantially exceeded the fiscal 2008 figure. At €2.5 billion, net income from continuing activities was 32 percent higher than for fiscal 2008, while undiluted earnings per share climbed 36 percent, to €2.60. A large part of this success is attributable to reductions in our sales, general and administrative (SG&A) costs. A year earlier than planned, we’ve already reached our target of slashing these costs by €1.2 billion compared to fiscal 2007.
Poised for the challenges ahead
As we embark on fiscal 2010, we’re well-equipped to master the challenges that lie ahead. First of all, we’ll have to continue proving our mettle in an environment that remains difficult. As a company geared primarily to the later stages of the business cycle, we’ve been hit relatively late by the recession. This, in turn, means that some of our long-cycle businesses are not likely to feel the repercussions of the crisis until fiscal 2010. Nevertheless, we’re convinced that government stimulus programs will help offset a decline in business with our private-sector customers.
New global economic parameters
The financial crisis has not only brought to light some undesirable developments; it’s also accelerating the ongoing structural transformation of the global economic order – in two key respects:
First, we’re experiencing a shift in the global balance of economic power. The world’s emerging countries will be the growth regions of the future, even more so than in the past. This applies particularly to the BRIC countries – Brazil, Russia, India and China – and the countries of the Middle East. Experts are predicting that these countries will account for half of all global economic growth in the years to come. At the same time, it’s unclear when Europe’s economies will again be able to match the strong growth rates of the pre-crisis years.
Second, governments worldwide are strongly committed to achieving a balance among the three key components of sustainability: environmental stewardship, economic development and social responsibility. This commitment is articulated in the statements signed by the leaders of the industrialized countries at this year’s G20 summits in London and Pittsburgh. Acting on their resolve, heads of state and government leaders have now initiated investments in environmentally compatible, energy-efficient green infrastructures.
The crisis as an opportunity
The crisis and the measures taken to overcome it are bringing us not only tremendous challenges but also major opportunities. As an integrated technology company with outstanding infrastructure knowhow, we’re a highly regarded partner worldwide when it comes to enhancing the energy efficiency and environmental compatibility of infrastructures. Enormous long-term growth prospects are also opening up for us in these fields. Energy-efficient, ecofriendly products and solutions that help mitigate climate change are the growth drivers in our markets. Today, we’re already the world’s leading provider of green technologies. In fiscal 2009, we sold ecofriendly products and solutions worth €23 billion – more than any other company in the world. For 2011, our target is to generate €25 billion in this segment with our Environmental Portfolio.
We also have excellent business prospects in the emerging countries. Our Company has been doing business in most of these countries for many decades and in the BRIC countries for over 100 years. We’re a well-respected business partner in these regions. We know the people, and we’re familiar with their cultures. We understand the challenges facing our local customers, and we have the solutions they need.
The fast-growing middle-market segments in the BRIC countries also offer tremendous business potential for us. However, to realize this potential, we’ll have to redouble our efforts to drive the development of products and solutions tailored to these segments. And this means sharpening our focus on core functionalities and on products that are extremely robust, user-friendly and reasonably priced. The challenges involved in penetrating such markets are considerable. But we’re meeting them with the same perseverance and commitment to reliability and quality that have already made our Company a leading player in high-end markets.
Siemens in fiscal 2010
Against the backdrop of a relentlessly challenging market environment, we anticipate a downturn in revenue in fiscal 2010 in the mid-single-digit range – a considerably smaller decline than the double-digit drop posted in fiscal 2009. We aim to generate a total Sectors profit of between €6 billion and €6.5 billion and expect profit from continuing operations to increase some 20 percent compared to fiscal 2009. Despite the global economic challenges, we intend to continue investing heavily in research and development in order to further expand our leading market and technology positions and strengthen the foundation for our profitable, long-term post-crisis growth.
Having left the burdens of the past behind, we’re now looking ahead to fiscal 2010 and the years beyond with determination and self-confidence. Thanks to our outstanding innovative strength, our global presence and, above all, our highly committed and motivated people, we have everything on board that we need to be a leader in the infrastructure markets of tomorrow.
Peter Löscher
President and Chief Executive Officer
Siemens AG
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