Siemens Annual Report 2020

1 Annual Report 2020 Table of contents Management Report A .1 Organization of the Siemens Group and basis of presentation Financial performance system Segment information Results of operations Net assets position Financial position Overall assessment of the economic position Report on expected developments and associated material opportunities and risks Siemens AG Compensation Report Takeover-relevant information Financial StatementsB .1 Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Financial Position Consolidated Statements of Cash Flows Consolidated Statements of Changes in Equity Notes to Consolidated Financial Statements 96 InformationC .1 Responsibility Statement Independent Auditor s Report Report of the Supervisory Board Corporate Governance Notes and forward- looking statements 199 PAGES 1 86 A.

2 Combined Management ReportANNUAL Report 2020 2 Combined Management Report Organization of the Siemens Group and basis of presentation Siemens is a technology company that is active in nearly all countries of the world, focusing on the areas of automation and digitalization in the process and manufacturing indus-tries, intelligent infrastructure for buildings and distributed energy systems, smart mobility solutions for rail and road and medical technology and digital healthcare comprises Siemens Aktiengesellschaft ( Siemens AG), a stock corporation under the Federal laws of Germany, as the parent company and its subsidiaries. Our Company is incorporated in Germany, with our cor-porate headquarters situated in Munich. As of Septem-ber 30, 2020, Siemens had around 293,000 of September 30, 2020, Siemens has the following re-portable segments: Digital Industries, Smart Infrastruc-ture, Mobility and Siemens Healthineers, which together form our industrial Businesses and Siemens Financial Services (SFS), which supports the activities of our indus-trial businesses and also conducts its own business with external customers.

3 Furthermore, we Report results for Portfolio Companies, which comprises businesses that are managed separately to improve their performance. During fiscal 2020, the energy business, consisting of the former reportable segment Gas and Power and the approximately 67 % stake held by Siemens in Siemens Gamesa Renewable Energy, S. A. (SGRE) also a former reportable segment was classified as held for disposal and discontinued operations. Siemens transferred the energy business into a new company, Siemens Energy AG, and in September 2020 listed it on the stock market via a spin-off. Siemens allocated % of its ownership inter-est in Siemens Energy AG to its shareholders and a further % were transferred to Siemens Pension-Trust e. V. The remaining % of shares in Siemens Energy AG are held by Siemens and reported within Reconciliation to Consol-idated Financial Statements as Siemens Energy Invest-ment.

4 For further information, see NOTES 3 and 4 in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Also part of Reconciliation to Consolidated Financial Statements is Siemens Advanta, formerly Siemens IoT Services, a stra-tegic advisor and implementation partner in digital trans-formation and industrial internet of things (IIoT).Our reportable segments and Portfolio Companies may do business with each other, leading to corresponding orders and revenue. Such orders and revenue are elimi-nated on the Group MATTERS OF THE GROUP AND Siemens AGSiemens has policies for environmental, employee and social matters, for the respect of human rights, and anti- corruption and bribery matters, among others. Our busi-ness model is described in chapters and of this Combined Management Report . Reportable information that is necessary for an understanding of the develop-ment, performance, position and the impact of our ac-tivities on these matters is included in this Combined Management Report , in particular in chapters through Forward-looking information, including risk disclosures, is presented in chapter Chapter includes additional information that is required to be reported in the Combined Management Report related to the parent company Siemens AG.

5 As supplementary infor-mation, amounts reported in the Consolidated Financial Statements and the Annual Financial Statements of Siemens AG related to such non-financial matters, and ad-ditional explanations thereto, are included in NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, NOTES 17, 18, 22, 26 and 27, and in the NOTES TO THE Annual FINANCIAL STATEMENTS OF Siemens AG FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2020, NOTES 16, 17, 20, 21 and 25. In order to inform the users of the finan-cial reports in a focused manner, these disclosures are not subject to a specific non-financial framework in contrast to the disclosures in our separate Sustainability Information 2020 document, which are based on the standards devel-oped by the Global Reporting Initiative (GRI).A .1 Organization of the Siemens Group and basis of presentationANNUAL Report 2020 3 Combined Management Report Financial performance system A.

6 OverviewThe Siemens Financial Framework includes targets that we aim to achieve over the cycle of the business activities. Revenue growthIn the Siemens Financial Framework we aim to achieve a revenue growth range of 4 % to 5 % per year on a compa-rable basis. Our primary measure for managing and con-trolling our revenue growth is comparable growth, be-cause it shows the development in our business net of currency translation effects, which arise from the exter-nal environment outside of our control, and portfolio effects, which involve business activities which are either new to or no longer a part of the respective business. Currency translation effects are the difference between revenue for the current period calculated using the ex-change rates of the current period and revenue for the current period calculated using the exchange rates of the comparison period.

7 For calculating the percentage change year-over-year, this absolute difference is divided by revenue for the comparison period. A portfolio effect arises in the case of an acquisition or a disposition and is calculated as the change year-over-year in revenue result-ing specifically from the transaction. For calculating the percentage change, this absolute change is divided by revenue for the comparison period. For orders, we apply the same calculations for currency translation and port-folio effects as described Profitability and capital efficiencyWithin the Siemens Financial Framework, we aim to achieve margins that are comparable to those of our rel-evant competitors. Therefore, we have defined profit margin ranges for our industrial businesses which are based on the profit margins of their respective relevant competitors. Profit margin is defined as profit of the re-spective business divided by its revenue.

8 For our industrial businesses, profit represents EBITA adjusted for operating financial income (expenses), net, and amortization of intangible assets not acquired in business combinations (Adjusted EBITA). We have set the following margin ranges in our Siemens Financial Framework: Margin rangesMargin rangeDigital Industries17 23 %Smart Infrastructure10 15 %Mobility9 12 % Siemens Healthineers17 21 % industrial Businesses11 15 % Siemens Financial Services (ROE after tax)17 22 %The margin range for Siemens Healthineers reflects our expectation as a majority Financial performance systemANNUAL Report 2020 4 Combined Management Report Financial performance system In line with common practice in the financial services business, our financial indicator for measuring capital efficiency at Siemens Financial Services is return on equity after tax, or ROE after tax.

9 ROE is defined as Siemens Financial Services profit after tax, divided by its average allocated purposes of managing and controlling profitability at the Group level, we use net income as our primary mea-sure. This measure is the main driver of basic earnings per share (EPS) from net income, which we used in com-munication to the capital markets in fiscal seek to work profitably and as efficiently as possible with the capital provided by our shareholders and lend-ers. For purposes of managing and controlling our capital efficiency, we use return on capital employed, or ROCE, as our primary measure in our Siemens Financial Frame-work. Our long-term goal is to achieve ROCE within a range of 15 % to 20 %. Capital structureSustainable revenue and profit development is supported by a healthy capital structure. Accordingly, a key consid-eration within the Siemens Financial Framework is to maintain ready access to the capital markets through various debt products and preserve our ability to repay and service our debt obligations over time.

10 Our primary measure for managing and controlling our capital struc-ture is the ratio of industrial net debt to EBITDA (continu-ing operations). This financial measure indicates the ap-proximate amount of time in years that would be needed to cover industrial net debt through income from con-tinuing operations, without taking into account interest, taxes, depreciation and amortization. We aim to achieve a ratio of up to Liquidity and dividendWe intend to continue providing an attractive return to our shareholders. Under the Siemens Financial Frame-work, our intention is to propose a dividend whose distri-bution volume is within a dividend payout range of 40 % to 60 % of Net income attributable to shareholders of Siemens AG, which we may adjust for this purpose to exclude selected exceptional non-cash effects. As in the past, we intend to fund the dividend payout from Free cash flow.