Peter Löscher
President and Chief Executive Officer
of Siemens AG
Letter to our shareholders
Dear shareholders,
"Business is based on trust," said Carl Friedrich von Siemens, the son of our founder. As head of the Company in the 1930s, he guided Siemens through one of the worst economic crises in modern times. Some 80 years later, governments, economies and societies worldwide are again facing major challenges. It's especially in difficult times that trusted, reliable partners prove their value. And we've been that kind of partner for over 160 years now.
As a technology partner, we leverage our power of innovation to turn structural challenges into opportunities. As an entrepreneurial partner to businesses, governments and the general public, we pursue excellence, ensure stability and generate sustainable, profitable growth. As an ambitious partner of unflagging determination, we’re inspired by the challenges we face. As a responsible partner imbued with true team spirit, we provide valuable support to decision-makers worldwide. We’re a partner of trust for our shareholders, customers, suppliers and employees as well as for the business community, the public sector and society as a whole. And this trust pays off – as fiscal 2011 has shown.
Our pioneering spirit: Innovation is creating new opportunities
Even in uncertain times, our forward-looking financial strategy gives us the resources we need to continue investing in the future. In fiscal 2011, we spent €3.9 billion – or 5.3% of our total revenue from continuing operations – on research and development activities. This investment – coupled with the efforts of 27,800 R&D employees at 160 Siemens research centers around the globe – has made us a world leader in the patent statistics. In patent applications, we’re No. 1 in Europe and No. 3 in Germany. In patents granted, we’ve advanced to No. 9 in the U.S.
To be a pioneer of our time – we’re making this vision a reality with trailblazing innovations. For example, our new Biograph mMR – the world’s first whole-body scanner to fully integrate magnetic resonance imaging (MRI) and positron emission tomography (PET) in a single system – marks a major breakthrough in medical imaging. The scanner enables clinicians to simultaneously display organ position, function and metabolic activity in a single image. Opening up new horizons in diagnostics and therapeutics, the Biograph mMR will be an important weapon in the battle against diseases like cancer and dementia.
Our Totally Integrated Automation Portal is another groundbreaking accomplishment. An investment in the future of industry automation, the portal makes it possible to design planning and production processes along the entire value chain from a single user interface. Our industry customers benefit from enhanced efficiency, increased productivity and new competitive advantages.
Customers in the energy field are also profiting from our power of innovation. For example, we’ve developed a new generation of wind turbines. Due to their gearless drives and low weight, the six-megawatt turbines not only outperform their conventional counterparts; they’re also easier to maintain and cheaper to operate. Deployed in offshore wind farms, the systems will make wind power more economical and renewable energies more competitive.
Our innovative solutions for electric mobility are closely tied to our activities in the energy field. As a systems partner, we’re forging links between the car and energy industries. For instance, we’re helping Volvo develop electric drives technology, charging systems and control electronics for its new C30 model. At the end of 2012, we’ll start testing our own fleet of up to 200 electric vehicles on city streets – yet another milestone on the road to integrated electric mobility.
As a pioneer, we know we have to generate the financial resources today that we’ll need to create the innovations of tomorrow. For us, pioneering spirit and entrepreneurial spirit go hand-in-hand. We also know that success requires long-term commitment and the courage to take calculated risks. As fiscal 2011 showed, the time has not yet come for our highly innovative particle therapy projects. We’ll also have to gear our solar activities more closely to the market. And we haven’t yet realized the full potential of our medical diagnostics business. But challenges spur us on to ever greater accomplishments. And we’re proud that – true to this maxim – we’ve been achieving business success and helping master the major challenges of our day for 164 years.
Our latest efforts have also been a source of pride. You may have seen the press reports about our new gas turbines. In combined-cycle operation at the Irsching 4 power plant in southern Germany, the turbines made technology history in fiscal 2011 by reaching an efficiency of 60.75% at an output of 578 megawatts. The power produced by the Irsching plant is sufficient to meet the electricity needs of Berlin – a city of 3.4 million.
We’re also proud of our Environmental Portfolio. Generating revenue of €29.9 billion in fiscal 2011, it was once again one of the world’s most successful green portfolios and a growth driver for our business. By the end of fiscal 2011, our ecofriendly technologies had enabled customers to cut their greenhouse gas emissions by about 317 million tons – an amount equal to the total annual CO2 emissions of Berlin, Delhi, Istanbul, Hong Kong, New York, Singapore and Tokyo.
Our ranking in the prestigious Dow Jones Sustainability Indexes is an example of the recognition we’ve received for our commitment to sustainable technologies. In fiscal 2011, we again outscored our key competitors to capture first place in the Diversified Industries sector.
These achievements make one thing clear: our investments and the trust in our power of innovation are paying off – as our business success attests.
Our entrepreneurial spirit: Business excellence and stability
Despite the economic uncertainties, we made excellent progress in our drive to generate sustainable, profitable growth in fiscal 2011. At roughly €74 billion, revenue for the year was 7% above the level achieved in fiscal 2010. New orders rose 16% to about €86 billion. Our order backlog was slightly more than €96 billion, a new record. At €9.1 billion, Total Sectors profit was 36% above the prior-year level. And income from continuing operations was €7.0 billion, a 65% increase year-over-year.
In fiscal 2011, we won the largest single order in our history: a commission to build up to 300 new ICx long-distance trains in Germany for railway operator Deutsche Bahn. We’d previously signed a contract to supply Eurostar with ten new trains for its rail link between London and the European continent. We also received major orders in the area of renewable energies from customers in countries such as Denmark, the UK, Brazil and the U.S., while in China – the world’s largest wind power market – we landed our first order for an offshore wind park.
These successes prove that – when it comes to large-scale projects – trust in our experience, reliability and expertise is worldwide. They also show that – as a responsible global partner – we’re outpacing competitors everywhere.
We’re on course with One Siemens, our target system for driving sustainable company development. The One Siemens framework comprises metrics for revenue growth, capital efficiency and profitability as well as the optimization of our capital structure. And the results of the first year have been gratifying: One Siemens has enabled us to make good progress toward achieving our ambitious goals in all these areas.
Despite the difficult market environment, Siemens stock performed relatively well in fiscal 2011. Although our share price declined year-over-year, we outperformed the DAX, Germany’s leading stock index.
We want you, our shareholders, to benefit from our success – in the form of another substantially increased dividend. That’s why the Supervisory Board and Managing Board will propose to the Annual Shareholders’ Meeting in January 2012 a dividend of €3.00 for every share entitled to a dividend – an increase of 11% over the previous year. This corresponds to a payout ratio of 41%. With this proposal, we’re continuing our tradition of attractive dividend payments.
Due to ongoing market volatility, we’ve decided to postpone the IPO of our OSRAM subsidiary until conditions are more favorable. However, we still intend to publicly list the business, and planning is continuing. Independence will provide our lighting activities with the capital and flexibility they need to succeed in a fast-changing market.
Our ambitious target: Revenue of €100 billion
The economic environment will remain challenging even beyond the current fiscal year – also for Siemens. Economies, governments and societies still have a long way to go. To drive growth and competitiveness, we’ll all have to join forces. Siemens is moving forward with optimism and self-confidence. The future holds major opportunities for growth – and we intend to seize them. In particular, we plan to generate revenue of over €100 billion in the medium term. Strategic planning at our business units indicates that this goal is realistic – despite the macroeconomic environment in many parts of the western world. Why? Because we know that some regions are less impacted by risks than others. This is clearly the case in Europe, for example, where Germany is leading the way, as well as in the emerging countries, where the economic boom is continuing. With our long-term global presence and widely acclaimed customer proximity, we’re benefiting from this growth worldwide.
Our €100-billion goal also takes account of sectoral differences. For the real economy, which is considerably more stable than the financial sector, experts continue to forecast moderate growth. There’s no global crisis in the real economy. On the contrary, demand for real products and solutions will continue to rise in the current business environment.
Recent events like the devastating earthquake in Japan are greatly intensifying the demand for sustainable infrastructures. Fukushima has made the residual risk of nuclear power clear to everyone and affirmed our decision to fully withdraw from the nuclear power business. I’m convinced that Fukushima will strengthen worldwide resolve to create a new age of energy – an era in which we’ll not only meet our energy needs but also conserve natural resources, protect our climate, raise living standards and keep costs at competitive levels.
The transition to this new age of energy is Germany’s project of the century – a hugely challenging, cost-intensive project replete with risks and rewards. Managed correctly, this endeavor also harbors outstanding opportunities for Germany’s innovative, export-led economy. With rigorous monitoring, intensive vigilance and the right milestones, the energy transition will boost long-term value creation by German industry and serve the world’s growing demand for green products.
And we’re ideally positioned to meet this demand. As an integrated technology company, we offer customers around the globe a virtually unparalleled portfolio of sustainable technologies. With our new four-Sector setup, we’re also poised to exploit new business opportunities in cities. Urban areas are a major growth market. Home to more than half the world’s seven billion people, cities are now facing enormous challenges that are increasing worldwide demand for investment in advanced infrastructure solutions. Our addressable market for urban solutions now totals some €300 billion a year. To systematically leverage this potential, we’re blazing new trails. For example, we’re establishing a number of urban sustainability centers to bundle our expertise in infrastructure for metropolitan areas and develop new products and solutions tailored to the needs of municipal planners and administrators. Our first center, the Crystal, will open its doors in London in the summer of 2012.
Our financial service offerings are another of our strengths. In times of tight public budgets, innovative financing models can help cut costs. For example, urban toll systems can provide cities with an additional source of income. And now that Financial Services, our in-house financing provider, has acquired a banking license, we’re very well prepared to meet the growing demand for new financing solutions and partnerships, particularly in the area of large-scale project implementation.
Our €100-billion target is an ambitious goal. Some people say we’ve set the bar too high. But we say it’s an ambitious goal for an ambitious company. For 164 years, we’ve been rising to the challenges of our time and developing solutions that foster the progress and prosperity of the communities of which we’re a part.
Our team spirit: A responsible local partner worldwide
Our success is made possible by the outstanding commitment of some 360,000 Siemens employees worldwide. With their energy and determination, their solutions orientation, their entrepreneurial daring and their pioneering spirit, they’ve helped make fiscal 2011 a successful year for Siemens. For this contribution, they deserve our sincere thanks and our ongoing support.
Thanks to our employees' expertise, we're increasing the power of Siemens. In fiscal 2011, we hired more than 74,000 new employees, of whom roughly 12,000 are in Germany. We also invested €251 million in employee training. In Germany alone, we committed €177 million to the education of about 10,000 young people. And we again provided 250 training positions for disadvantaged youth.
In this period of economic turbulence, we’re strengthening the values on which our corporate culture rests. Our top score for compliance in the 2011 Dow Jones Sustainability Indexes is just one sign that we’re on the right track. As our recent actions in Brazil and Kuwait testify, we have no tolerance for compliance violations. Clean business everywhere and at all times – this is and will remain the clear and unambiguous requirement for our employees and managers.
What’s more, we’re intensively fostering employee collaboration and team spirit. We want to be a model of global cooperation – across all our business units and regions. Here, too, our new organizational setup is helping us. We’re one Siemens. We’re one team. Everywhere in the world.
In an environment of uncertainty, we’re doing everything in our power to be an innovative, excellent and responsible partner – a partner of trust – to our employees, customers and shareholders as well as to governments and society as a whole.
In economically difficult times, one thing is clear: to exploit business opportunities and win market share – despite the unknowns – you have to create real value, act sustainably and provide reliable support for your partners. Growth is possible. And we’re excellently positioned to achieve it – thanks to our innovative portfolio, our multi-local anchoring, our strong roots in our home market and, last but not least, the responsible behavior of our employees and the stability of our businesses.
Peter Löscher
President and CEO of Siemens AG