Germany: Siemens Q2 Revenue Increases in All Sectors

Revenue grew 9% in the second quarter, including increases in all Sectors and in all three regions supported by Siemens’ strong order backlog. Orders came in 13% lower, due primarily to significantly lower volume from large orders compared to the prior-year period. On an organic basis, excluding currency translation and portfolio effects, revenue rose 7% and orders declined 16%. The backlog (defined as the sum of the order backlogs of the Sectors) was €100 billion at the end of the quarter.

Peter Löscher, President and Chief Executive Officer of Siemens AG says: “As expected, the second quarter was not easy. While we achieved clear growth in revenue, orders came in below the prior year due to lower volume from large orders. For fiscal 2012, we are on course to achieve our goals for revenue and orders. Profit for the quarter was below our expectation due to charges at power transmission projects in Germany. We are addressing the problems systematically.”

Revenue rises in all Sectors and regions

All Sectors delivered revenue growth in the second quarter. Energy led with double-digit growth, supported by its strong order backlog. Industry and Healthcare generated clear increases on broad-based growth across their businesses, and Infrastructure & Cities contributed a solid increase.

On a geographic basis, revenue rose in all three reporting regions led by the Americas. The region comprising Europe, the Commonwealth of Independent States, Africa and the Middle East (Europe/CAME) and Asia, Australia both posted solid increases. Emerging markets on a global basis grew faster than revenue overall, at 11% year-over-year, and accounted for €6.168 billion, or 32%, of total revenue for the quarter.

Lower volume from large orders in Energy

At the Sector level, the decline in orders was due primarily to Energy, which had a significantly lower volume from large orders in Germany. Infrastructure & Cities also recorded lower orders, while orders rose in Healthcare and Industry.

On a geographic basis, lower order intake was most evident in Germany and emerging markets. Notable examples included a sharp drop in India and a less severe decline in China. Globally, orders in emerging markets accounted for €5.483 billion, or 31%, of total orders for the quarter.

Strong revenue growth, additional burdens on profit

Energy Sector profit was €573 million in the second quarter, including another strong earnings performance from Fossil Power Generation. Sector profit was held back by project charges totaling €278 million in the transmission business. In addition, Energy increased its expenses for R&D, marketing and selling associated with business expansion. For comparison, profit of €2.369 billion in the prior-year period benefited from the €1.520 billion Areva gain mentioned earlier.

Second-quarter revenue was up 13% year-over-year, as the Sector continued to convert its large order backlog into current business. Revenue rose in all three reporting regions, including a substantial increase in Asia, Australia. Orders came in 32% lower compared to the prior-year period, when the Sector recorded a much larger volume from major orders. This comparison effect was particularly notable in Europe/CAME, where the prior-year period included a particularly large contract for a combined-cycle power plant in Saudi Arabia and orders for three offshore wind-farms in Germany.

Due to significantly lower volume from large orders in the current quarter, the book-to-bill ratio was 0.84 and the Sector’s order backlog was €56 billion at the end of the quarter. While Energy expects its market environment to remain highly competitive, the Sector expects a book-to-bill ratio above one for the full fiscal year.

Continued revenue growth, strong profit contribution

The Renewable Energy business, which includes Siemens’ Wind Power and Solar & Hydro Divisions, took its profit up sharply compared to the prior-year period, to €112 million.

Volume-driven earnings growth more than offset higher expenses for R&D, marketing and selling associated with expansion. The wind business also drove revenue and order development for Renewable Energy. Revenue rose sharply, due to conversion of large orders from prior periods into current business. The current quarter included a lower volume from large orders, while the prior-year period included the three large wind-farm orders mentioned above in Europe/CAME. As a result, second-quarter orders overall were down sharply year-over-year. Challenging market conditions in renewable energy, including pricing pressure, are expected to continue in coming quarters.

Increased profit contribution

Second-quarter profit at Oil & Gas was up year-over-year, at €131 million, despite higher marketing and selling expenses associated with growth. Revenue rose 14% due primarily to increases in Asia, Australia. Orders declined 15%, with lower orders in Asia, Australia and the Americas offsetting growth in Europe/CAME.

Project charges and pricing pressure lead to loss

Power Transmission experienced continuing challenges in the second quarter and reported a loss of €169 million. The Division took additional charges of €278 million related primarily to grid connections to offshore wind-farms in Germany, resulting from revised estimates of required resources and personnel as well as delays associated with the projects’ complex marine and regulatory environment. The revenue mix for the quarter was clearly less favorable year-over-year, due in part to low-margin orders booked during prior periods with significant pricing pressure.

These factors were only partly offset by the release of a provision of €64 million related to a successful project completion. For comparison, second-quarter profit a year ago included charges of €41 million associated with optimizing the Division’s global manufacturing footprint. Revenue for the current quarter was down 5% and orders came in 24% lower compared to the prior-year period, which included a higher volume from large orders. Power Transmission expects continuing challenges in coming quarters including the grid-connection projects mentioned above and structural issues in certain businesses.

[mappress]

Offshore WIND staff, May 11, 2012; Image: Siemens