Siemens Annual Report 2017

1 Annual Report .1 p 2 Business and economic p 9 Financial performance p 11 Results of p 17 Net assets p 18 Financial p 22 Overall assessment of the economic p 23 Non-financial p 24 Report on expected developments and associated material opportunities and p 36 Siemens AGA .10 p 39 Compensation ReportA .11 p 53 Takeover-relevant information Management Report Financial Statements InformationB .1 p 58 Consolidated Statements of p 59 Consolidated Statements of Comprehensive p 60 Consolidated Statements of Financial p 61 Consolidated Statements of Cash p 62 Consolidated Statements of Changes in p 64 Notes to Consolidated Financial StatementsC .1 p 126 Responsibility p 127 Independent Auditor s p 133 Report of the Supervisory p 137 Corporate p 147 Notes and forward- looking statementsTable of contents A.

2 Combined Management ReportCombined Management Report2A . The Siemens ORGANIZATION AND BASIS OF PRESENTATIONWe are a technology company with core activities in the fields of electrification, automation and digitalization, and activities in nearly all countries of the world. Siemens comprises Siemens AG, a stock corporation under the Federal laws of Germany, as the parent company and its subsidiaries. Our Company is incorpo-rated in Germany, with our corporate headquarters situated in Munich. As of September 30, 2017 , Siemens had around 372,000 employees (part time employees are included proportionally). Siemens has the following reportable segments: the Divisions Power and Gas; Energy Management; Building Technologies; Mobility; Digital Factory and Process Industries and Drives; as well as the Strategic Units Healthineers and Siemens Gamesa Renewable Energy, which together form our Industrial Business.

3 The Division Financial Services (SFS) supports the activities of our Industrial Business and also conducts its own business with external customers. As global entrepreneurs our Divisions and Strategic Units carry business responsibility worldwide, including with regard to their operating results. Our reportable segments may do business with each other, lead-ing to corresponding orders and revenue. Such orders and reve-nue are eliminated on the Group BUSINESS DESCRIPTIONThe Power and Gas Division offers a broad spectrum of products and solutions for generating electricity from fossil fuels and for producing and transporting oil and gas. The portfolio includes gas turbines, steam turbines, generators to be applied to gas or steam power plants, compressor trains, integrated power plant solutions, and instrumentation and control systems for power generation.

4 Customers include public utilities and independent power producers; companies in engineering, procurement and construction that serve utilities and power producers; sovereign and multinational oil companies; and industrial customers that generate power for their own consumption (prosumers). Due to the broad range of its offerings, the Division s revenue mix may vary from reporting period to reporting period depending on the share of revenue attributable to products, solutions and services. Because typical profitability levels differ among these three rev-enue sources, the revenue mix in a reporting period accordingly affects Division profit for that period. Several trends are affecting the Division s businesses. The ongoing strong growth in demand for renewable power generation and the associated volatility in power generation shift market demand from fossil baseload generation to highly flexible, highly efficient and affordable gas power plants with low emissions, in particularly in Europe, China, and the U.

5 S. A second trend is that the development and execution of large projects increasingly requires financing by the original equipment manufacturer (OEM), including equity partic-ipation, particularly in Latin America, the Middle East and Africa. For the Division, this role is fulfilled by Financial Services, which can offer customers a range of financing and equity options backed by domain know-how. In addition, the markets of the Division are strongly affected by changes in national energy reg-ulations, such as support of renewable energy, the security of supply through capacity markets or strategic reserve capacity, carbon pricing and climate change targets, and energy and elec-tricity market design. After years of strong public sector support for renewable energy, the cost of energy and electricity as a com-petitive factor is gaining more relevance in investment decisions involving choices between renewable and fossil Power Generation Services Division offers a comprehensive set of services for products, solutions and technologies of the Power and Gas Division, covering performance enhancements, maintenance services, customer training and professional con-sulting.

6 Financial results of the Power and Gas Division include the financial results of the Power Generation Services Division, which itself is not a reportable segment. Based on this business model, all discussions of the services business for Power and Gas concern the Power Generation Services Energy Management Division offers a wide spectrum of software, products, systems, solutions, and services for transmit-ting, distributing and managing electrical power and for provid-ing intelligent power infrastructure. The Division s customers encompass a wide range of direct customers and channel part-ners including power providers, transmission and distribution system operators, industrial companies, infrastructure develop-ers, construction companies, distributors and OEMs. Its activities across many regional and vertical markets as well as its participa-tion in long-cycle and short-cycle businesses provide a balanced and resilient business mix.

7 The Division s revenue and portfolio mix may vary across reporting periods. In particular, orders, rev-enue and profit development can be influenced by the relative contribution from its transmission solutions business. End cus-tomers and OEMs use the Division s offerings to process, transmit and manage electrical power from the source down to various load points along multiple voltage levels. The Division s distrib-uted, intelligent solutions for smart grids enable a bidirectional flow of energy and information, which, among other things, is required for integrating fluctuating renewable energy sources, electrical storage or manageable loads. Energy Management generally benefits from major trends and changes in global elec-trical power systems, in particular decarbonization, decentraliza-tion and digitalization.

8 Decarbonization involves the buildup of generation capacities from renewable sources and the electrifi-cation of heat and transport sectors. Another trend is decentral-ization the integration of wind power, photovoltaics, biomass, A .1 Business and economic environmentCombined Management Report3storage and other intermittent or distributed energy resources into highly efficient and reliable power networks. The digitaliza-tion trend involves providing intelligent solutions for connectiv-ity, the management of complex energy networks, and services that are enabled by digital Building Technologies Division is a leading provider of au-tomation technologies and digital services for safe, secure and efficient buildings and infrastructures throughout their lifecycles. The Division offers products, solutions, services and software for fire safety, security, building automation, heating, ventilation, air conditioning and energy management.

9 The large customer base is widely dispersed. It includes owners, operators and tenants for both public and commercial buildings; building construction gen-eral contractors; and system houses. Changes in the overall eco-nomic environment generally have a delayed effect on the Divi-sion s business activities. Particularly in the solutions and service businesses, Building Technologies is affected by changes in the non-residential construction markets with a time lag of two to four Mobility Division combines all Siemens businesses in the area of passenger and freight transportation, including rail vehi-cles, rail automation systems, rail electrification systems, road traffic technology, digital solutions and related services. The Di-vision also provides its customers with consulting, planning, fi-nancing, construction, service and operation of turnkey mobility systems.

10 Moreover, Mobility offers integrated mobility solutions for networking of different types of traffic systems. The principal customers of the Mobility Division are public and state-owned companies in the transportation and logistics sectors. Markets served by Mobility are driven primarily by public spending. Cus-tomers usually have multi-year planning and implementation horizons, and their contract tenders therefore tend to be inde-pendent of short-term economic September 2017 , Siemens and Alstom SA, France (Alstom) signed a memorandum of understanding to combine Siemens mobility business including the rail traction drives business, which is included in the Process Industries and Drives Division, with the publicly listed company Alstom. The two businesses are largely complementary in terms of activities and geographies.