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Executives

Mariel Von Drathen - Additional Director

Josef Kaeser - Chief Executive Officer, President, Member of the Managing Board and Member of Equity & Employee Stock Committee

Ralf P. Thomas - Chief Financial Officer and Corporate Vice President

Analysts

Peter Reilly - Deutsche Bank AG, Research Division

Ben Uglow - Morgan Stanley, Research Division

Daniela Costa - Goldman Sachs Group Inc., Research Division

Andreas P. Willi - JP Morgan Chase & Co, Research Division

Gael de-Bray - Societe Generale Cross Asset Research

Fredric Stahl - UBS Investment Bank, Research Division

Olivier Esnou - Exane BNP Paribas, Research Division

James Moore - Redburn Partners LLP, Research Division

Michael Hagmann - HSBC, Research Division

Timm Schulze-Melander - JP Morgan Chase & Co, Research Division

Siemens Aktiengesellschaft (SI) Q4 2013 Earnings Call November 7, 2013 9:30 AM ET

Mariel Von Drathen

Good afternoon, ladies and gentlemen, and welcome to Siemens' Fourth Quarter Fiscal 2013 Analyst Conference here in London. This conference is also being webcast. So good morning, good afternoon to the ones watching us through the webcast. We've posted all necessary documentation this morning and this afternoon on the Siemens IR Internet site. You can download these documents from the site.

I would like to draw your attention to the Safe Harbor statement that you will find in those documents. Please have a careful look at the information we have posted on Page #2 of the presentation. After the presentation, we will have enough time for Q&A.

I'd like to start immediately and ask Joe Kaeser, the CEO of Siemens, to start presenting the past quarter. We will have then our new CFO, Ralf Thomas, who will go through some additional numbers and then have Joe Kaeser finishing the presentation talking about the guidance and his thoughts about 2014.

And with that, Joe, I'd like to pass it on to you.

Josef Kaeser

Thank you, Mariel. Welcome, everyone, to our Fourth Quarter Analyst Conference here in London and elsewhere in the world. We've got a full agenda today. We'll talk a bit about the key financials of fiscal Q4 2013. There has been a few ongoing portfolio matters, which we are going to give you an update on. Then, obviously, shareholder return, I would assume, is a key area to focus on. And of course, also the priorities the company has and the management team has as it comes to fiscal 2014, as well as the outlook for the year and what Siemens is all about beyond 2014.

I'll quickly run through the guidance of last year and how we have been doing in achieving our revised guidance, which we changed last time in July 2014 [ph]. All in all, we've been making good in all aspects. Even though, obviously, I do acknowledge that this has been a revised one. So we ended the fiscal year at EUR 4.2 billion profit from continued operations after tax, including a gain of about EUR 400 million through the disposal of NSN and about a reclassification of the Solar business, which accounts to about EUR 300 million. So all in all, this is also a sort of a like-for-like guidance.

As far as orders have been concerned [indiscernible] decent. Order development, up 10% like-for-like over 2012, obviously, due to the fact that we booked a lot of long-term orders, which are great to have, however, of course, also somewhat dilutive to the order backlog margins since these have been orders which have predominantly been booked in the area of rail, as well as in part, wind.

If we do a wrap-up of our One Siemens cockpit and how we've been doing on the key elements of that cockpit, we can see that as far as growth on the upper left is concerned, we've been trailing our competitors' basket by 360 basis points. First and foremost, due to the fact that most of our competitors have been reasonably active in M&A, whereas, Siemens has been focusing more on the organic area of the market. Obviously, also, if we see this 3.6% gap between our competitive basket and ourself, it goes without saying that the market proximity, which we are going to strengthen by the change of our customer interface, is the right thing to go after that, and you'll hear more about it when we talk about 2014.

Capital efficiency has been down to 13.8%. You see that here on the lower left. And obviously, one of the key focus areas is to bring that back up in 2014 to, I would say, into areas which we have seen already in 2012. The EBITDA margins have, obviously, been affected by the transformatory charges, which we booked about EUR 1.3 billion in fiscal 2013, and Ralf will go into that -- into more detail later on why that was and what that will also do for 2014. We've seen quite a strong Healthcare performance, which is on the top end of the EBITDA margin band. We like what we see in both growth, as well as profitability. Other areas have some work to do. That goes -- that is true for Energy, as well as for Industry and predominantly, for the Infrastructure & City Sector. I would expect all those sectors to get significantly closer to where they should be in terms of their margin bands in 2014.

Capital structure has been -- still below our own target of 0.5 to 1.0x industrial net debt over the EBITDA. That also we'll see some impact based on the magnitude and the timing of our share buyback program, which we have announced this morning and which you have certainly already heard about.

If we go quickly on the regional aspects of our business as it comes to fiscal Q4, as what I said, fiscal 2013 later on, you can clearly see that the Americas have been quite, quite active in terms of order growth. That's, of course, due to the fact that we have seen a resurgence of the tax benefits associated with wind. So we've been booking a lot of orders in both wind, as well as the associated areas if it comes to gearboxes and the likes. You also do see decent order behavior in Fossil in the United States, and we expect that to continue also into the year of 2014.

China has been a mixed basket. We have to say, we do see continued strength in Healthcare, and we would like to see more quicker if you count the short cycle and industrial environment. Even though China has been considerably weak. We still have seen our emerging markets up 21% for the quarter, accounting for 37% of the total volume.

And if you go by the year, we obviously -- or by revenues, we clearly can see that Europe has been up on mostly wind in the northern part of Europe and some bottoming out in the peripheral parts of Europe. So we might have seen the worst if it comes to Southern Europe, and there are some signs of a bottom cycle if it comes to 2014. Emerging markets also have been up 8%, accounting for 36% of our [indiscernible].

We go sector-by-sector now and I'll do that quickly because it's not that much news here on the slides, and I'm sure you folks are all interested in asking your questions as well as hearing more about 2014. Energy, it's been a decent development in 2013, given the aspects of transformatory charges, as well as our challenges, which we have in the transmission -- Power Transmission. That's been the area that there is a lot of work to do. As we continue to execute on our turnaround program, it will take time. And there are, of course, uncertainties if it comes to legacy projects such as the access offshore at Olkiluoto and minor other things. So those aspects are also -- uncertainties are also considered to play a role in the 2014 outlook. Other than that, we will also combine the Fossil products together with the Oil & Gas products in order to make sure that we see the full range of turbines from the lower end all the way up to 560, 580 megawatts on our H-frame 8000. So we do expect synergies coming from that combination by the year 2015. So we continue to accelerate and use all our opportunities, which we still do see in a, last but not least, attractive energy sector going forward.

If we look at the numbers, Wind Power has been weak in terms of orders, but that's project-based, so that does not mean there is underlying weakness. We've seen quite the strengths for the quarters which we had in 2013, thanks to the renewed tax credits in the United States. And that will also play, as you can see, a major role in our revenue development going forward. We've been seeing quite a decent revenue development on Wind. That will slow down in the current fiscal quarter due to seasonal aspects, but there's no reason to -- not to believe on the growth stories in wind going forward.

If we go to Healthcare, I mean, there's not -- not much to say except that this ought to continue quite a decent performance. The Agenda 2013 has played a very positive role if it comes to productivity and also conversion of growth into profitability. The task of the sector is to keep it that way. Sector will roll out a so-called Healthcare operating model, which follows along the lines of what we have been seeing as part of the Agenda 2013.

Diagnostics is on its way to recover to what we have been expecting from the division for quite some time. We've seen quite a decent growth in Asia. And also, tight OpEx control on the division will help us to achieve margins, which we have also been announcing and targeting for during our Agenda 2013.

Industry, obviously, that's an area which certainly is not only for the markets but also for us a very, very important topic since this is predominantly a short-cycle environment, Industrial Automation, as well as the Drive Technology if it comes to motion control. There is definitely a sign of the market bottoming. On the other hand, I would be cautious about getting overly excited about rapid growth any time soon, especially if it comes to discrete manufacturing and especially if it comes to China. So this will take time. In our view, we obviously are aware of the fact that many of our peers believe it's going to be quicker and faster, but at the end, time will tell. Maybe it's just that the night is darkest before dawn. But then, again, there's a lot of aspects in the end markets which are not quite as compelling that we would feel compelled to see already rapid growth earlier than at the end of our fiscal 2014. Other than that, the underlying margin in the industry has been coming down to 12.5%, mostly due to the fact that at this point in time, there is just lack -- temporary lack of growth in that environment, and we expect that to change not earlier than what I said late this year.

Metals business, it's been a disappointment. It's been a disappointment for a while not just in terms of growth, [indiscernible] which are quite clear [ph] that the steel industry is not in an environment which calls for growth, but it also needs to have some structural changes as we move along and get some type of focus of what we've been doing there. And we will continue to closely monitor the recovery of our metals business as we move along.

Industry -- or Infrastructure & Cities, obviously, if we go by the top line numbers, this is quite a decent development. Orders are up 10%, revenues are up 5%. This sector is not so much about the question whether it needs a change in terms of the sectoral organization. This sector is about the content and improving the content of each in a division in terms of profitability and also reliability on project execution. This is what the focus is all about, and then we'll take it from there. There has been decent revenue conversion, underlying margin is 8.9%. Unfortunately, the reported margin is 3.2%, and you can see the potential if we talk about conversion and excellence in order execution.

Building Technologies, I want to mention that predominantly because it's been a story where continued focus on certain markets assigned was a tight cost control, and productivity has brought up the margin now to 10.5%, underlying 12.3%. And obviously, Q4 has always been a strong quarter in that space. But then, again, Building Technologies in the area of 10% is a business we like to have.

If we go to the area of -- below total sectors, it's always been an area which has been calling for volatility, one of the most volatile aspects from the recent quarters and recent years, we've been solving by the sale of our NSN stake. So we are basically left with some areas there like Bosch Siemens appliances, as well as some parts of the enterprise PBX business. So if you expect EUR 100 million contribution per year in 2014, that should actually carry your model in a meaningful way. Siemens Financial Services and central managed portfolio assets should just be about what we had in 2013.

Siemens Real Estate is, obviously, dependent on disposal gains. There should be some volatility going forward over quarters. But if someone expects a similar or maybe a bit less profit in 2014, it shouldn't be too far off. That also goes on corporate items and pensions which we have been flagging with about EUR 250 million per quarter with a seasonal component in it. First half is usually less than the second half, and you've seen that again in 2013. And Corporate Treasury, obviously, that is always volatile due to the fact of the market changing, not qualified hedging. So that's got some volatility but it's not that material as it would change any material matters going forward.

Discontinued operations, there's been some remains on disposals from the formal communication, as well as other smaller aspects. So someone expects EUR 100 million negative there, should be on the safe side. And it is also true for the tax rate, which can be considered to be just about 30%. People may think this is conservative if it comes to tax rates, I want to caution you on this because the profits are rising in areas and regions, which have higher tax rates and leverage in the company, so there might also be some regional aspects to that.

This concludes the comments on our 2013 operational things. Now why don't we move to the update on our portfolio management matters. We have been acquiring 2 companies during the course of 2013, Invensys Rail, as well as LMS International to expand our PLM portfolio. The integration goes well especially I'm very satisfied with the progress on LMS. It's been a small company. There have been some concerns about the integration of a small company into a big one. I just have been visiting in Belgium and I really like what I see. So that's been -- that's turned out to be [indiscernible] positive and we've kept all the people we need. And obviously, in smaller areas, people are crucial not just there but predominantly there.

Invensys Rail goes well. There has been some slowness in top line growth. But as far as the cost synergies are concerned, we are well underway to deliver what we have been anticipating when we've been acquiring the business. As far as the quite remarkable amount of disposal has been concerned, we've been completing TurboCare by selling it to the Wood Group. TLT is sold. Oncology ramp-down has been completed. Water, we just announced as late as yesterday. And what's open there -- we talked about Nokia Siemens Networks and OSRAM. What's open there is postal and package handling. There is a certain complexity there, obviously, because we need to make sure that it's a sustainable concept going forward. So it may take some time till we get that one done. But the M&A activity there and the folks we have are in meaningful stages.

So now, with that one, Ralf, why don't we hand it over to you and talk a bit more about financials till I come back on the outlook of 2014.

Ralf P. Thomas

So thank you, Joe, and welcome, and good afternoon to everyone here. It's a pleasure for me to discuss with you for the first time as Siemens' CFO our financials. Last time I talked to the market, it's not that long ago. It was at the Hannover Fair in April this year, still as industry CFO. It's an exciting time to take on this new challenge and to continue to closely working together with Jo as a proven team. Looking forward to talking to you all in the coming months and how we move Siemens forward, as well as hearing your perspectives on our company.

You can be rest assured that I will have a clear focus on managing costs tightly, getting project charges under control and delivering good results for our shareholders. Two particular aspects have always been high on my agenda and will continue to have top priority in my new role.

First, capital efficiency to get sufficient returns on the money we invest and to harvest the full savings potential from our Siemens 2014 measures. Second, to strike the right balance in taking risks and manage them well. This is certainly an area where we have to improve.

As a first step, we will introduce an internal expert team, which is independent from the operational business. The team is part of our corporate technology organization because we want to make sure that we use all existing experience of the entire organization, our so-called corporate memory. This team will evaluate critical projects, in particular, in the field of new technologies and new market entries. In addition, we will intensify the continuous monitoring of our largest projects on management board level.

Having said this, I would like to come back to our cash performance in the fourth quarter. The good news is that we once again saw a strong finish in our fourth quarter, with an outstanding free cash flow of EUR 4.4 billion from continuing operations. It was driven by substantial conversion of income into cash. Yet, I will have a close eye on how to improve the steadiness of the cash flow development over the course of the year. This quarter included also inflows of EUR 1.7 billion from a significant decrease in operating networking capital with lower inventories and improved cash collection from outstanding customer payments. Nevertheless, we saw a deterioration of operating working capital turns to 7.7 for the full fiscal year 2013 and well below the prior year level of 9.0. We have already flagged a key reason for this development for quite some time. Our customers, particularly in the project business of IC and energy sector, have changed their payment behavior, which led to a significantly lower level of advanced payments and billings in excess. In addition, we have actively shifted the mix in several businesses towards higher product and service content. Furthermore, we were more selective in taking solution and turnkey orders, which also has led to a structural lower inflow of advances. In total, the negative impact year-over-year was around EUR 1.2 billion for 2013 despite rising order intake. So far, we don't see any reversal of this trend.

As we have laid out in our One Siemens framework, we are committed to return 40% to 60% payout to our shareholders by a dividend payment and share buyback. [indiscernible] 2013, we had dividend continuity and will once again propose a EUR 3 dividend. This equals a payout ratio of 57% of net income. As you all know, we have used a year ago the favorable financing conditions to do an equity to debt swap and thus increase the payout ratio to 84%, well above the target corridor. In addition, our shareholders further benefited from the spinoff of OSRAM back in July. The initial OSRAM share price was EUR 24 or EUR 2.40 per share if adjusted for the 1:10 split ratio. This spin-off model has unlocked significant value to our shareholders, in particular, if you take the extremely favorable share price development of OSRAM into consideration.

In the morning, we have announced the next step for further optimizing our capital structure where we are currently still well below our targeted level of 0.5 to 1.0x for adjusted industrial net debt over EBITDA. The planned buyback volume of up to EUR 4 billion over a time period of up to 2 years gives us flexibility to act on management views to frame conditions as an opportunity.

We have a strong cash position of EUR 9.2 billion at the end of fiscal 2013, fueled also by the payment for our NSN stake. We received this quarter not only the EUR 1.2 billion payment from Nokia but also the remaining EUR 500 million that were originally planned to be paid 1 year later. In addition, we expect further proceeds from the recently signed Water Technology transaction. Therefore, we see an opportunity to deliver again shareholder return while maintaining sufficient financial flexibility.

With that, hand over back to you, Joe.

Josef Kaeser

Yes, thank you. Thank you, Ralf. We now come to the outlook for our fiscal 2014, which we are in the middle of the first quarter. You may have noticed, we have been changing the level of the outlook to total company all-in earnings per share. And obviously, there are a lot of opportunities and options to give guidance. But at the end of the day, this company and this management team is responsible for everything which happens in the company. So that's why we take that responsibility also into the outlook. So we will guide on all-in earnings per share from now onwards. This also will eliminate some sort of confusion or complicated explanations about which item is in which line and why and for how long. So from now on, it's EPS all-in and that's what we're going to do. Second comment before we go into the content is that we want to achieve at least 15% of EPS growth year-over-year and the at least is meant to be a floor.

So now, what are the assumptions which got us to the final outcome of the guidance? So first of all, we do expect markets to be still not coherently up. If it comes to energy, we do see some weakness in Fossil. In the European environment, this is true for both new orders, new project, as well as service -- the service part of it due to the fact that utilization is somewhat volatile, talking about Europe. There is work to do in the transmission area to fix our division which is important to us, as well as getting it back to where it belongs to be.

Wind should be fine in terms of delivering steady margins. We do see the markets to be slow in terms of short-cycle environments if it comes to discrete manufacturing. There could be some sort of earlier recovery on the motion control part of Drive Technology.

And obviously, as I said, this is an assumption and if assumptions change, so that's the outlook. We do expect orders to exceed revenues. So we actually are planning for a solid book-to-bill above 1, and we have reasons to believe that this will be the case. The focus clearly in 2014 is about operational improvements of our margins. We do expect the outcome of our transformatory program to at least improve [ph] margin by 200 to 300 basis points. We also do expect that revenue on a like-for-like base remain at about the level of 2014 -- '13, excuse me. And obviously, also, the EPS are being calculated on the shares outstanding as of September 2013, which has been 843 million shares. With all included, except legal and regulatory matters if there were any during the course of 2014. So in that way, this also includes M&A-related matters as we move along. And that's obviously true for both sides of the M&A spectrum.

Now before we open the floor to Q&A, I would like to give you some sort of flavor of how are we operating this company, what are the priorities if it comes to the roles and responsibilities and how do we set a valued [ph] culture going forward as we move along. Now obviously, we do have the management team, there's a CEO, CFO, there's Chief Technology Officer and the Sector CEOs. Those are the carrying bodies of the company. And there are 4 priorities I want this company to execute on.

For the CEO and CFO, this is about the management model and this is about, first and foremost, how are we allocating our resources to the business. That's the prime time of the CEO and the CFO going forward. And this is also about accountability to execute on what we have been promising. Those are the core areas we are focusing on when it comes to the management model, and the implementation of a stringent and powerful corporate core will help us to enforce resource allocation and the accountability going forward.

If it comes to the area of CFO, CTO, they work together most. This is about operational excellence. And I'm not talking about operational excellence in terms of executing. This is about the business, talking about how do we make sure that all the tools of excellence which we have in the company are available for anyone and applicable for anyone in the company. And this is about risk management. This is about capital efficiency, like return on capital employed and asset management. And you heard our new CFO saying that he likes the cash flow to be more constant over time. That, obviously, has got to do with asset management as we move along. This is about optimizing the processes and not only if it comes to executing on projects, but also optimizing the process if it comes to how are we going to accept orders.

How are we going to go into new markets, such as particular therapy in the past, such as crude access in the North Sea. This is not about project management. This is about entering into new markets, and that's got to improve. And this is what we have. This is the set of tools the CFO and the CTO will be taking care of. This is about benchmarking. This is about managing productivity, and that's also about optimizing the processes as we move along. Those are the priorities, and that's what Ralf will take care of, together with Klaus Helmrich as the CTO.

Now obviously, if it comes to sector CEOs and the corporate CEO and if it comes to markets, and you've seen that earlier. We've been trailing behind in terms of growth. And there is no reason to basically excuse that with the way others have been acquiring companies more than we have. We have got to be closer to our customers. We've got to make sure that every sort of demand creation will be effective, it gives us opportunities along the way, left and right, of the current organization as we have our divisions. And that's why we have been changing the customer interface, been abandoning the sectors which have been doing a good part of productivity improvement in the past by bundling the back-office function. But now, the topic is about market proximity, about demand creation. So we have been dissolving the sectors and instead, we have been developing the go-to-market further.

There are 30 lead countries. Those 30 lead countries account for 85% of the total business in Siemens. And those 30 lead countries will show the way for the rest of the 105 countries they are managing and they are allocating resources to as we move along. And they are responsible for market proximity [ph] and demand creation. We'll measure those areas not just by revenue growth or order growth. We will also be measuring that by Net Promoter Score for 3 accounts. We are going to ask the customers what they believe we can improve. And this is about the CEO and the sector CEO's responsibility if we go-to-market and if we successfully execute and access the potential, which we have by approaching the customers of Siemens as a multiple of divisions as we go into the regions.

Now obviously, innovation management, this is about the business. That's about technology and innovation management is about joint software architecture. Innovation management is about an innovation brought in the company where all the CTOs of the businesses will report to the Chief Technology Officer of the company, making sure that they share the platforms and they share everything which we know around the company and not keep it to ourselves in the sectors. And that also means that we go much more into partner models with the universities, with venture capital. This is not about investing money at high risk to get high returns. This about managing innovation. Think about, hear about what's going on in the markets, but also give inputs to the market. What Siemens will support if it comes to manufacturing automation, what Siemens supports if it comes to software architecture like PLM and what Siemens supports if it goes into the next generation of imaging.

So it will be a two-way street, and that will also foster innovation going forward at a very early stage. And then, obviously, everything at the end is also about operational execution in the Sector business, making good on what we have been promising, not just to the markets, but first and foremost, ladies and gentlemen, to ourselves. And that brings me back, last but not least, into this centerpiece of ownership culture. I was talking to a lot of people in the company when I was elected the CEO of the company. I was talking to customers and to many others, of course, to the markets also. But I asked people are you in for this? Is this what you like to do? And they said, "Yes, we are in. We like to work for this company. We are proud to work for this company" But they asked me, "What should we do? What is it that we can do to help you to get this company back to where it belongs?" It is obviously hard to find one common meaning for 370,000 people. What is the one common platform? And that is that this company, the people in this company should act as if it was their own company. And if you do that, you get it 80% right at least and the remaining 20%, we're going to take care of as the management team. So this is what I mean with ownership culture. This is what we drive, and this is how we make sure that we're closely aligned in what we are doing going forward.

So how will that now go over time? What is the roadmap to shape Siemens beyond 2014? Obviously, when I started the job as CEO, I said I want to calm down the company. I want to make sure that everyone knows what we need to be doing. That's been working reasonably well. Item #2 is to make good on our operational performance out of Siemens 2014. That's what we have been discussing, and you got a glimpse on what we expect there as an outcome -- at least as an outcome in 2014. But obviously Siemens will also exist after 9/30/2014, the questions is, how are we going to shape this? And this is the plan.

So we've been combining the sector and the regional responsibility, every Sector CEO is now also responsible for a big region. Michael Suess for Middle East and Americas. And obviously, if you talk energy, we talk Middle East. And if you talk energy, we talk the United States, Canada, as well as Mexico. Siegfried Russwurm will take care of Africa and Europe, together with his industrial responsibility. If Europe is about something, it's about automation, it's about industrialization, and that's why Siegfried will take care of the regions.

Roland Busch will continue to be responsible for Asia, because if you talk infrastructure, this is about emerging economies. As we move along in Healthcare, no big change. Hermann Requardt will take responsibility for Japan where the medical business is quite successful and also for Latin America region. So we managed the matrix within the board. So in other words, we take it personal, and managing the matrix is what business excellence at the end is all about.

So that's what we've done, streamlining the management but obviously goes by math already anyway. And we continue to focus on the responsibility [indiscernible] we showed you earlier as we go into 2014 and beyond. Accountability and alignment in the incentive model. That's also something we have been changing. I, obviously, needed the Supervisory Board to be doing that. As of for 2014, the Managing Board will not only have responsibility and incentive items for the company on its own, but also individual targets if it comes to accountability and making good on the improvements by sector, as well as, of course, goes into the regions.

Then you'll see the regional organization, secure and optimize the customer interface. If you want to improve the company operations. So the first thing you want to do is secure your customer interface, make sure there's stabilization and we keep our complexity to our insight and solve it as we go into 2014.

With a set of corporate priorities, you can read them here the delivery and productivity program 2014 and obviously, predominately take care of this one so that we are not losing anything along the way. I want my corporate core to be strong. This is about governance, this is about guiding. This is about the tools of excellence, which we will be applying all our operations. But corporate core has got to be strong in terms of governance, guidance and controls in the operational environment.

And last but not least, we obviously have been seeing that for quite some time, that process industries is an attractive area to be at. You also know that Siemens got a bunch of very, very good products to serve that market. And that's why we have been announcing a corporate project, which will be led by Mr. Herweck, who used to be the Strategy Officer of Siemens, on how to better penetrate the process industries market. We believe this is important. We believe we've got opportunities, and the project will reveal those opportunities on how we are going to access that environment, among other things, in the industry space.

By focusing on all those areas as we move along into 2014, we will also do a strategic assessment of the portfolio of the company, and this is about the Managing Board. The Managing Board will be doing it. This is not something which we delegate to someone else in the company. We'll do it ourselves. It will be done by May 2014. As of today, at least May 2014 is the date. And then, we will be implementing the structure and the result of the resource allocation by the time we start the new fiscal year October 2014. That's the plan. And if we know more or if we feel compelled to announce more, then we will talk about it and we'll move it from there.

With that, I will give it back to you, and we move into the Q&A. Thank you for your attention.

Mariel Von Drathen

Thank you, Joe, thank you, Ralf. Before we actually move into the Q&A, just want to draw your attention once more on Slide #17, just to make sure that this is not misleading. I think Joe was meaning that he's dissolving the clusters. He actually said dissolving the sectors. So I just want to make clear here what he was really talking about was the clusters...

Josef Kaeser

Thank you, that's important. I'm not spreading a rumor here. But it's about the cluster, of course. Thank you, Mariel.

Mariel Von Drathen

Okay, very good.

Question-and-Answer Session

Mariel Von Drathen

So why don't we start right here to the second row with Peter, please?

Peter Reilly - Deutsche Bank AG, Research Division

It's Peter Reilly from Deutsche Bank. Three questions please and firstly, an easy one. Can you tell us, is the EUR 100 billion revenue target now formally [ph] debt? Secondly, you've taken about EUR 2 billion of charges this year. To my knowledge, there are no charges yet for the ICx train contract, which is your single-biggest contract. I know it's a low-margin contract as you have been hinting there's a Capital Markets Day coming in December. Can you talk about the risk in that contract and whether you see a possibility of major charges? And then lastly, you talked about the portfolio of you completing next May execution from October. Does that mean large M&A in both acquisitions and divestments is off the agenda for the next 6 to 9 months, or would you act earlier if you think the timing is right either to acquire or to divest?

Josef Kaeser

Okay. Thank you, Peter. While I'm focusing on question #1, #3, Ralf, in the meantime, can remember his -- refresh his memory about ICx because he's been in the industry at that time, so he knows pretty well what this is all about. If it helps the market, if it helps the market on confidence, then I declare the EUR 100 billion goal formally to be dissolved, okay? But I believe that has already been anticipated for quite some time. Growth is important because growth provides visions and motivation and value going forward. But growth is only be good if it comes with value, profitability and especially with content. So we are not abandoning the fact that growth is important and that we strive for growth. But obviously, it takes more than a number to get there. On the portfolio, look, this is an assessment about the value of chain of electrification. There's an assessment about what digitization does to certain areas of that value chain. Think about smart grid in energy. Think about PLM and supply chain moving closer together in industrial automation. Today, manufacturing plants are being designed, including the manufacturing processes where you don't have even gotten the groundbreaking yet. So those are changes over time which have paradigm character and we hope [ph] to get that right. So those are the areas we are looking into. If we to Infrastructure & Cities, what is mobility management all about? It is about software. It's about digital information and get a meaningful outcome and make customer pay for it. That's another area which needs to be understood what that means for the company. Think about Healthcare. Healthcare at some point in time is about mass data, analytics. Because if you want to move from experience to knowledge-based health care, this is about data analytics. About mass data, Siemens is going to build a database. I guess [indiscernible] certainly not, definitely not. But the point is how are we going to get that in line over time. What does biotech mean for decoding the human DNA in terms of molecular diagnostic. What does that mean for our company. Those are areas, for example, just to give you a few of those examples where we are going to look at. And what are adjacent fields? What are adjacent fields along that value chain which creates synergies for us by moving into that space? Synergies by growing, synergies by value, by go-to-market, by technology by IPR [ph]. So that's the kind of thinking which we do. And at the end, there might be a handful of really great businesses which we want to preserve going forward and there might be another handful or 2 of businesses which we either fix or improve or find something else. Because this is what resource allocation is all about in the end. And selling or buying is not a value on its own. I'm not going to sell businesses just because they are not doing well. That would then be too late. And that's what we need to think if you hear resource allocation and if you'll hear portfolio assessment. This is not about reinventing this company. It's only about to use the resources which we have abundantly to make it more effective to the P&L. That's what this is all about. Now Ralf, I hope you had saved enough time to get the other topic.

Ralf P. Thomas

I mean, that is not that difficult. I mean, we probably completely understand that you are concerned about these major contracts that we have with Deutsche Bahn with the next generation of high-speed trains, and it is a very complex and long-reaching project, of course. And you may also be rest assured that we -- there are only a few documents in our company that get so much attention than the order intake calculation of this project. There was no need for any adjustment at the moment and to correct, so there is no charge in it that was the bottom of your question, I guess. But we will also not only look into the order entry calculation and make sure that we get all the values permanently reviewed in here as we go. We also want to learn from the delay of the Velaro D, the current high-speed trains awaiting from being delivered. And we also learned from our problems with the -- in terms of cooperating with the authorities to get the permit to get them delivered and on work. So in a nutshell, there are no charges. We carefully look into that and we will keep you updated, of course. But I'm very positive that [indiscernible] project ICx a success in the long term, not only for us but also for Deutsche Bahn.

Mariel Von Drathen

Okay. Then we'll continue in the same row with Ben Uglow, please?

Ben Uglow - Morgan Stanley, Research Division

Ben Uglow, Morgan Stanley. I have 3 questions. The first 2 are really about the guidance. Joe, I wanted to understand really exactly what you are saying about the short cycle when you talk about aspects of the end markets are not working. We've had ABB in the last week screaming from the rooftops that the short cycle is inflecting. Rockwell have just talked about 6% organic growth at the upper end of the range. What I'd like to know is what is it about Siemens' portfolio? What do you see that would prevent a turnaround? And again, also, when we look at the margins, both in IA and DC, they seem to sequentially be moving in the right direction. So that was question #1. Question #2 is on the sales guidance of no growth. Is that a general comment, i.e., you're worried about just the, how shall I put it, the global macro? Or do you have something more specific in mind and in particular, I'm thinking about the Fossil Power division? Is there something that you see coming up in Fossil already one division that would take the group down? So that was number two. Number three was the management, the governance issue on large projects. In the past, when things have gone wrong like Power Transmission, for example, nobody actually -- no single individual appears actually accountable. So we've had this conversation with Peter, et cetera, in the past. What I'd like to know is, are you and Ralf, as CEO and CFO, prepared to say that large projects at Siemens are ultimately our responsibility as opposed to those of the sector head?

Josef Kaeser

All right. Thanks, Ben, on the look on the guidance. I mean, we've obviously seen the 2% to 6%, by the way, this afternoon on the -- one of our U.S. competitors. We obviously don't know whether that's got some currency impacts, whether it was like-for-like or maybe just being helped by a somewhat weak greenback. Look, I mean, it's not so much that we look to our competitors. What we usually do is we talk to our customers. And what we see there is that, obviously, the channels are empty. There's more than 1/3 less of stock in the channel. Also in China, it is considered to be normal. And we do know if the end markets start recovering, there will be quite a quick ramp-up. And that's also the reason why we have been somewhat cautious about letting resources go in the manufacturing space because we do believe it's temporary in nature. On the other hand, if you look at the positioning of our company in this space, this is about discrete manufacturing. And if you look at the global growth in industrial PMI, growth is between 1% to 2%. If you assume a productivity of 3%, it takes some time to see the CapEx flow inflecting. Now at the end, the good news is, we are conservative about market growth. We still feel strong about the competitiveness of our products, which we do, especially industry. And I'm pretty relaxed about getting caught flat-footed on a quicker ramp-up than we anticipate on our own. I just want to make sure all our people in the company understand that markets can not to be impacted not by ourselves, but productivity and costs can. So I'd rather focus on the area of influence than the area of concern. And if there is some positive surprise on motion control, industrial automation, I will take it. I will be ready to take advantage out of it. But then I'm going to be careful. I mean, United States is not going to be a great place for discrete manufacturing in 2014. It might be for some Oil & Gas-related automation, but not necessarily for manufacturing. China has got potential. But if the Chinese government talks about reforms, and they mean restructuring. And if someone means restructuring in areas which could cost millions and millions of jobs, it's going to be slow. It's going to be slow because the last thing the Chinese government needs is hundreds or thousands of people in Beijing to demonstrate because they just lost a job. So there's got to be some international improvement again in the global manufacturing environment, and then we [indiscernible] areas. The German and European tool-making environment, as well as the Chinese, is a bit more optimistic. So I would actually see this area to be the quickest one to recover. But as the Germans say, one dork [ph] doesn't make a summer yet. So we are just cautious because the markets still have quite a reserve margin on capacities. The management governance, you heard Ralf talk about his risk management approach and the way he goes about the project. So I think there's nothing else to add to this. Secondly, I talked about the topic of accountability. Remember the chart on Page #17, and I meant it that way. So that was not a Freudian error, that was meant to be. This is -- the CEO and the CFO are accountable, first and foremost, to allocate the resources and making good on what they promised. So this is a responsibility we take very seriously. So on the other hand, if I really analyze the root causes of the acceleration of charges, again, in the last 2 to 3 years, then I see 2 things. First, out of good intentions, the company has been trying to do too much too quickly, maybe also due to the fact that time is of the essence to get closer to EUR 100 billion, but maybe not. Doesn't matter because this is the past and we better leave it alone. Since you cannot change it anymore anyway. Secondly, and that's more important topic because this is something to learn strategically and technically going forward. If I look at those areas, like a particular therapy or the wind issues in the North Sea as it comes to connecting the grid to land, this is not so much about project management, this is about market entry of new applications. And this is what we have been reacting on and this is now by corporate technology, the so-called corporate memory gets involved -- if the first question on an order or on a bid is have you done it before? And the answer is no. Then we do not leave it up anymore to the divisions or whether or not this sounds attractive, then this is a corporate matter. And it goes to Corporate Technology, to corporate experts who've been there and done that before. And that's a significant change in the way we basically go about projects and is also a significant change on how we make sure that the company applies what it knows.

Mariel Von Drathen

Okay. Then will continue first row with Daniela, and then the second row with Andreas Willi.

Daniela Costa - Goldman Sachs Group Inc., Research Division

Three questions. The a first one on now that -- so the -- the sector heads are going to be responsible for regions as well? What compensation -- how does the compensation structure change in terms of the various weights of the One Siemens metrics but as well of the regions' impact? And second, you mentioned process industries, where some of the key areas that you will look into over the future, what areas within process industries do you consider your stronger versus weaker? And the final one, more on the technical side, with all the charges for Siemens 2014 now done, how is the cash out from here?

Josef Kaeser

The compensation structure of the board and subsequently cascaded down to the senior management will be as such that the board members who have sector and regional responsibility will have a split incentive which is based on the total company since they are still responsible under the German corporate law for the whole company, will be based on the sector they are responsible at, as well as based on the regions they cover. And the aspects of the regional coverage is about Net Promoter Score on our key accounts. It is about demand creation which is market penetration. So there will be a combined set of models there for the board. And we, obviously, will be cascading that down into the organization subsequently. Now on process industries, please bear with me at this point. We've been setting up that project. So once we have the solutions, we'll be certainly also let the market know on where we believe we are stronger -- or got stronger than we were before.

Daniela Costa - Goldman Sachs Group Inc., Research Division

On cash out?

Ralf P. Thomas

With regard to the cash outflow of the charges for [indiscernible] you may expect they're in the area of EUR 700 million in 2014, after some EUR 400 million in 2013.

Mariel Von Drathen

Okay. And we'll continue in the second row with Andreas Willi, please?

Andreas P. Willi - JP Morgan Chase & Co, Research Division

Andreas Willi from JPMorgan. First question, I wanted to follow up on this topic of accountability project management and all of that because I'm a little bit confused now in terms of where the accountability really is going to be in the future. Because at least, over the last 4 or 5 years, we had a CEO principal, a sector head principal, and so it was pretty clear when something went wrong. But maybe that resulted in too much silo thinking. You try to go back to more collaborative model. But if there is a new technology, let's say in transmission, the division would like to do it, then corporate technology says it's fine and then it doesn't work, at what point -- like how does it then work between you 2 as CEO and CFO? Somebody does a technical audit in corporate -- in the corporate area but is actually not going to execute the project. The guy in the division who has the technology knowledge and then sector head that actually pushes the project because it's his region, it looks a bit like Siemens in pre-2007 in terms of accountability mismatch or uncertainty. And the second question, if you look at the earnings bridge for 2014, in the past, you gave us some pointers on pricing and kind of how to model that, maybe you could provide a similar bridge for '14 as we used to get in the past as well.

Josef Kaeser

Thanks, Andreas. Thanks for the question again on accountability because it seems maybe I'll try it a second time. So if I say that the CEO and the CFO of the company are responsible in terms of accountability, this doesn't mean that now it's all on us if something goes wrong. What I meant to say is that we make sure that accountability happens and gets executed. That's what I meant to say, and the accountability stays with the person who is responsible for the business. On the other hand side, I can't afford. I don't just let people go because you execute well and I'm sitting on another bunch of EUR 701 billion charges every year, so there's got to be a systemic topic on how we make sure that this is going to go down significantly. And that's what we mean in the management model. So we make sure that accountability will be in place. And if I say that if a project has not been done yet by a business and this goes to corporate to make sure that there's an incremental opinion to that expertise and this does not mean that the responsibility goes away from the ones who execute it, I just want to know beforehand what the risks are rather than later on hear from my CFO that this is a charge which needs to be booked because IFRS sees it that way. So that's what I meant on that topic. And obviously, earnings bridge, Ralf, you heard Andreas say that when I was CFO, I was providing this earnings bridge. I don't know how you feel about it.

Ralf P. Thomas

[indiscernible] I'm sure we can supply -- we can provide that again.

Josef Kaeser

Why don't we -- maybe to give a little kind of guidance on this one. If we go flattish on volume, revenues year-over-year, that obviously, means that pricing matters. We expect pricing to be about similar as to what we have been guiding the markets for 2014 in the Siemens 2014 program. So around about 2.5 percentage points. And please always bear in mind that if we talk about pricing, this is not about old product versus new product. This is about all product in one year versus the same product in the next year. So if we add bells and whistles to it, we get better pricing, because we do this add to cost, this will be productivity and not positive pricing. That's important because we believe that if you compare that with the comments about the companies in the Sector, you may as well compare apples and oranges. But in our view, pricing could be about a 2.5 percentage points less than the year before on a like-for-like product base or like-for-like [indiscernible] base if you build big projects in energy. So [indiscernible] and we need to ship more product, and that will actually be about EUR 300 million to EUR 400 million incremental margin on that product. The labor inflation in Germany is about 3%. All across the world, it should be another 4% to 5%. So if you take 4% on labor inflation globally, that should be healthy on that matter. You can also assume that pricing will be mostly covered by the base productivity. So what you see as a fallout on flat revenues is basically that incremental productivity, which we gain from the Siemens 2014 program, just about -- is in the same level of what we are not spending again on transformatory charges. So that's why you get the guidance on the certain assumptions as what you have got, okay?

Mariel Von Drathen

Okay. Then we'll continue on my right with James [ph].

Unknown Analyst

Two questions, please. First of all, on charges, I mean, what do you see being a normal restructuring charge going forward? And I guess it's hard to say what you think contract charges could be, but sort of, over the cycle what would you see as being normal? And then in terms of the large project business, obviously, downpayments are getting tougher. Is that a competitive advantage for you having a good balance sheet? Or given that maybe Asians are waiting to finance more, is it going to become a less attractive business, so going forward, you think you're going to try to do less projects? And indeed, can you talk a bit again about the role of SFS and how aggressive you want to be in funding part of those?

Josef Kaeser

[indiscernible]

Ralf P. Thomas

So with regard to the large projects and financing them, of course, we are using our ability to finance very selectively. But in those cases where we see a real advantage, a competitive advantage, we definitely a step in completely then, and that also has been very much contributing, securing businesses like the huge order that we received for templates, for example. This definitely would have been, by far, more difficult for us to achieve if we wouldn't bring that strong balance sheet that you mentioned into the game. But we do that selectively and not across the board.

Mariel Von Drathen

]

Charges.

Josef Kaeser

Sorry, charges. And obviously, if you talk about a company like us, there is always something which needs to be structurally changed. It could be about product life cycle. This can be about regional aspects, that growth potentials shift from one place to the next. So there will always be some sort of restructuring. It's never over. So that's why I would think that if a model needs to be filled, I would take a EUR 200 million to EUR 300 million amount, which I will consider to be a normal amount of continuously improving the company's competitiveness going forward, okay? It's got nothing to do with Siemens 2014. It's got to do with constant changes, constant access to productivity and constant renewable of the competitive edge one needs to have to be sustainable over time. Now we're on the project matter, maybe I'll just add a little bit to what Ralf has already been saying. We are not taking projects because we've got money. And we are not at taking projects because there is a decent balance sheet. We take projects because we believe we can make money. And that's even more important, secure an installed base. If you look at the models like energy for some [ph], this is all about building a power plant for the service to come. So one needs to always consistently look into the project, be it the greenfield project and the adjacent service, which you get out of the installed base. And that's why this is important to see. And obviously, if you talk rail or even wind, the service component becomes an ever more important topic. The reason why we were, I wouldn't say adamant, but highly interested in the [indiscernible] project was not about building so many 1,200 trains. This was about doing the spare part management, the [indiscernible] because that's consistent revenue flow. That's consistent cash flow, which comes in through your installed base. That's something which is not volatile because trains obviously move every day. So this is what the model is all about. It's got to have a service component. We're not spending money on something which we build, go away and kiss it goodbye forever. So that's the motivation and entrepreneurial aspect of doing larger projects, that's the installed base and the benefits you get out of it.

Unknown Analyst

I'll just ask as a follow-on. If you look at the group in total, how much is service today as a percentage of sales and where could that go in 5 years?

Josef Kaeser

Not enough, not enough. That also holds true for the mix between discrete manufacturing and process industries, which you know, also, is a matter of cyclicality. If you want to build a portfolio with all aspects of competency and technology and go-to-market aspects, you want to build a portfolio which is stable on its own over the cycles rather than go up and down with the cycle like in manufacturing, discrete manufacturing. So that's exactly what we are after, building a higher component on reoccurring revenues from the installed base. That was the reason -- one of the reasons why we've been bidding into the Invensys matter on Rail Automation. It's all about installed base. It's all about stickiness. It's all about high entry barriers for others to go into. And this would also be the leading aspect as to which projects we are going to take in order to exactly secure that installed base. Today, I would guess it's about 25% but not much more. And it could be more and it should be more.

Mariel Von Drathen

]

Okay. Why don't we continue with Gael. Pass the mic, please.

Gael de-Bray - Societe Generale Cross Asset Research

Gael de-Bray from Societe Generale. The first question is about Healthcare because this is one of the few sectors, obviously, for which the margin is already there at the very high end of the targeted margin range. So does that mean the priority is going to shift to growth over the future? And what can you do to drive faster growth in that business going forward? Also, while we talk about Healthcare, maybe could you clarify how the development of the biotechnology is going to shape or reshape your strategy for Healthcare in the coming years? And the last question is about the guidance. I mean, if I take the EPS guidance for next year and if I use your assumptions for corporate cost, for equity investments, for eliminations and so on and if I go backwards, then I end up with a total Sector's profit of about EUR 8 billion and the corresponding margin of about 10%, 10.5%. So am I reading your guidance correctly at that level?

Josef Kaeser

Maybe let me start with the last one. So if you end up with 10% or 10.5% for the Sector, then the math is consistent with the fact that we said earlier that the aspects of Siemens 2014, which we want to take productivity from, should improve the Sector margin as reported from 7.5% up to 200 to 300 basis points more. So if we only take the average or the upper end, we are already at 10% to 10.5% Sector margins. So the math is consistent. But it's important that we do not forget about the at least, okay? So that takes care of this one. I mean, obviously, we are not only happy but also proud about the development of the Healthcare Sector, not only that we have been making good in our Agenda 2013, which I believe the management of Healthcare has been doing an outstanding job, outstanding job. We are also proud that this Sector is growing. So it's not just about taking cost out. It's also about growing the business going forward. We've been extremely successful in China, and you know how competitive that market is, not because everyone else is there, but also domestic competition is heating up and counting, if you look at the numbers which had just been recently announced if you go to OTC. Now the question is, how can we grow that business further? This is not about not so much about going after market share because we believe this is not truly sustainable. This is not about going into other regions and take the pricing down. This is about a concept that we can access the next layer in the global society, which needs Healthcare as much as the ones need it and have it already today. So this is about how can we get to the next 1 billion people on this planet to receive Healthcare. That's the question. And the answer to that is basically two-fold. First, through localization, develop and engineer those products and solutions according to the local demand. And that also includes, of course, that we do that locally. And it also includes that we make Healthcare mobile. In order to get that 1 billion, Healthcare needs to go to those people. And those people to hospitals. So this is about mobility of Healthcare. And this is what we have been focusing on. This is about Healthcare IT, of course, and this is also, of course, bringing the cost down. And the way you bring the cost down is you move Healthcare from an experience-based approach to a knowledge-based approach. And that will take the cost down much further than just the usual 3% or 4% of productivity going forward. So that's the aspect. It's about localization, developing to what the local demand is and then bring Healthcare to people and not the other way around. And there will be more on this one, definitely May, and what and how exactly we will be setting the growth path on Healthcare. Now biotech, obviously, is very specific to the topic of Diagnostics, which is an important but not a major part of the Healthcare portfolio at this time. So we will closely look at the whole topic of molecular imaging and the like. But so far, we feel good of what we see in the progress of margin improvement in the current Healthcare Diagnostics in Siemens.

Mariel Von Drathen

]

Okay. Then we'll move to the middle. We'll start with Fredric Stahl, second row from the back. And then we'll continue with Olivier Esnou and then with James.

Fredric Stahl - UBS Investment Bank, Research Division

Fredric Stahl from UBS. I remember at the Energy Capital Markets Day, which is I think about a year ago, you flagged pretty clearly then that the mix would shift within Wind to get more on -- more offshore and the higher margins. But I didn't foresee it to be 11%. So my question to you is, is the current mix and the current level of profitability in Wind the new normal for the foreseeable -- or for the next few quarters? That's the first question. And then on the Healthcare side, your orders were up 10%, and you had a big, I think, a big ticket within that. Could you give us a sense for what you think the market did in the quarter?

Josef Kaeser

On Healthcare?

Fredric Stahl - UBS Investment Bank, Research Division

Yes, on Healthcare.

Josef Kaeser

Well, Wind, I mean, obviously, if we look at the last quarter in Wind Power, it's been a decent development. And it's been favorably impacted by a bigger portion on offshore, the reason being that in summer, it's easier to install offshore wind machines than it is, obviously, in the current quarter. So what will be seeing is quite a decent mix effect in fiscal Q4 and quite a seasonal effect in the current fiscal quarter. We are -- obviously, times are tougher to install offshore. That's the first. The other topic, of course, in Wind is also about what would the service model be? How can we install a decent amount of service by installing also wind turbines? Because at the end, this is about installed base. This is about demand response. This is about proactive maintenance, and this is about uptime. So we will very much focus on service models in wind. We've got some decent experience to that, also some decent successes on how to go about it, and that will continue and count going forward that. In general, as you know, the onshore market is actually the market which provides the bigger growth potential, also the bigger installation. So I would not feel compelled to just say offshore wind is our thing and everything else we leave alone. So we focus on the Wind business on its own and get the cost down close to grid parity because the last thing I want in the mid and long term is to make my business dependent on government subsidies because elections change opinions and also people. But I can't just remove my manufacturing to someplace else once we have built it. So therefore, it's got to be an economically feasible case. This is the challenge and the opportunity in Wind to get the costs down to a meaningful way of producing energy in the energy mix in the respective regions. Healthcare, I've looked at statistics about how companies have been doing. Why don't we just leave it up to third parties to judge about how you we've been doing. We feel pretty comfortable about the comparison, and with that, I actually would leave that one alone.

Mariel Von Drathen

]

Olivier?

Olivier Esnou - Exane BNP Paribas, Research Division

Olivier Esnou, Exane. I would like to come back to the productivity program. How should we think about the EUR 6.3 billion productivity program? Is it...

Josef Kaeser

Think about what?

Olivier Esnou - Exane BNP Paribas, Research Division

The EUR 6.3 billion productivity program. Do you -- can you achieve it? If yes, by when now in your new framework and maybe what was achieved this year as a starting point? And because I understand you're guiding specifically for '14 now, so I'd just like to have the rest. And secondly, on the topic of foreign exchange, where does Siemens stand today in terms of exposure, since there's been some move? If you could update us on the U.S. dollar sales cost to euro and maybe the rest, which is obviously the issue at the moment, and maybe if you've seen some competitive change. I know a Japanese player had been an issue. Is there -- is this still going on? Is there more to it?

Josef Kaeser

Okay, thanks, Olivier. On the productivity, the EUR 6.3 billion, obviously, that has been the number, total gross number for 2 years. One year is obviously over, and we are in the starting of the second one. So Q2, also, volume effects have been -- may as well be a bit short of that number. If you take about 5.2, 5.4, that should be a number to compare the EUR 6.3 billion with. So why has it been less? Well, obviously, total volume assumption have come down significantly. You may remember, we've been assuming a modest growth in -- for 2 years in a row, most of which has saved 2% to 3%. So it's been quite a change there in the total -- in the total market in close assumption. And the other topic is, and I really, really, want this to be clear, we have a priority over executing our projects well. We have priority about making sure that the productivity first happens in the way we sold out the work and then let the resources go. So it's been a bit slower in taking out the resources of the organization because we want to make sure that they are not additionally jeopardizing the execution on the projects we have on hand. So the number could be as much as, as I said, 5.2, 5.3 total, comparing that with the 6.3.

Ralf P. Thomas

With regard to the foreign exchange exposure, of course, we are very carefully looking into the developments. And we also are permanently striving, allocating of our footprint around the globe in a way that we more and more get into a natural hedge type of scenario. But in particular for 2014, we see an exposure of something between EUR 150 million and EUR 250 million for a EUR 0.10 change on the U.S. dollar.

Mariel Von Drathen

]

Okay. And we head back to James on the third row, please.

James Moore - Redburn Partners LLP, Research Division

It's James Moore, Redburn. I've got 3. You've mentioned about content a lot today, you need to work on the content. Is there something you could add to that and help us about what you're really thinking that means? And then on 2 divisions, Drive Technology margins have come down from 13% to 9% over a couple of years. And you talked about mechanical drives having some structural issues with the shift from geared to gearless. Now that the PTC comes back, do you think that structural shift was overplayed? Or will MC [ph] drives stay low as motion control goes back up? In terms of Transport, margins have been 1% to 3% for the last couple of quarters. Could you just help us understand the rail systems versus the mobility side? Is it the mobility stayed at 10% and rail has gone negative? And could you help us on how that develops in the next couple of years?

Josef Kaeser

All right. On content, what I'm trying to say, using the word content a lot is that we go about substance and work topics -- address topics one after the other, get it done and move on to the next rather than take 3 at a time and don't get anything done. So that's what I mean with content, and that's the way I'd like this company also to operate, take one thing at a time, do it and then move on to the next level. On the drive technology, I mean, obviously, the Mechanical Drives division has seen its challenges. That's predominantly due to the fact that most of the markets have been shifting technology bias. Just think about the gearless box. There has been some resurgence of utilization temporarily through the PTC changes in the United States, but technology and innovation will definitely bring the mechanical drive to a point where we need to realign and restructure the operation based on the expectations going forward. On transport, you might have seen the slides earlier when we talked about IC. Just one that maybe draw that attention. When we talked about IC -- hold on a second. Got it here. It's Page #10 on your handout, if you may. Then you can see Transportation & Logistics. Actually, it's minus 4%, and underlying is 5.9%. So the minus 4% predominantly results from both the mobility logistics but predominantly from the train business that we have been booking some -- several shares on the reality [ph] and the likes. And also of course, the impairment, as we can see here in package handling and post automation of EUR 4 million to EUR 6 million. So those 2 will contribute to the difference in underlying and as reported.

James Moore - Redburn Partners LLP, Research Division

I was just thinking in terms of the outlook for the Rail division going forward on the...

Josef Kaeser

The outlook for 2014 for the Sector is to get as close as it gets to the lower end of the target range. That's the mission, and that's what we will hold them accountable for.

Mariel Von Drathen

]

So we have 2 more questions. We'll start over on my left with Michael and then we'll finish with you, Tim.

Michael Hagmann - HSBC, Research Division

Michael Hagmann of HSBC. Just on the merger between Oil & Gas and Fossil, can you give us a little bit more insights on what triggered this reorganization? And also, if we look back at another big reorganization of the past about Healthcare, it was sold initially as a reorganization which wouldn't lead to any charges. How do we have to look at the potential charges coming out of the merger between Fossil and Oil & Gas?

Josef Kaeser

Okay. The rationale on putting the Oil & Gas Division together with Fossil, name it Fossil products, has come from the fact that about half, if not 60%, of the total of the Oil & Gas Division was industrial turbines, and the other half or about 40% has been the process-related work on Oil & Gas, engineering work. Now obviously, if you look at the industrial turbines, which have a spectrum of 5 to -- up to 65 megawatts and the other turbines in Fossil, which are from 100 up to 580 combined cycle, 8,000, then it goes without saying that there is quite an amount of synergies to take care of the whole spectrum. Think about platforms, processes, manufacturing environment and what have you. That has been the rationale that we put together. We expect savings to be up to EUR 100 million over 2 years. So by 2015, we will have access to those EUR 100 billion -- EUR 100 million, excuse me. And on the way to there, there might be some restructuring matters going on which are included in the guidance, as well as in the numbers for 2014.

Mariel Von Drathen

]

Very good. So we'll to close the Q&A with Tim, please?

Timm Schulze-Melander - JP Morgan Chase & Co, Research Division

Tim Schulze-Melander, JPMorgan. A 2-part question on Healthcare. It's obviously been a standout performer for the group. First question part of the question is maybe before we get too complacent, could you just talk a bit about the puts and takes that you see, the headwinds, tailwinds, maybe, for the Healthcare division for 2014 as we go through the year? And the second part was on Diagnostics. You're talking in the presentation about the profitability being improved by OpEx, but I think historically, you've been very clear that fixing the In Vitro Diagnostics business has been about fixing the productivity of your solution and the throughput, et cetera, just fixing that product suite. Can you maybe just give us an update as to where that is?

Josef Kaeser

Yes. I mean, that was the -- as I said earlier, we are reasonably proud about the performance of the Sector, not just about the competitiveness of the products but also the way that we're executing. And you can clearly see, if you look to those -- that organization, if you talk to them, if you see how they go about challenges, this is a high-performance contract. This is not about a program which comes and goes. This is about excellence. And that's why I'm very confident that this Sector will outperform the markets as we go along, especially when if it comes to the traditional Healthcare, which is, first and foremost, of course, imaging, and also the associated areas with large ticket items on imaging. There is work to do on these smaller ticket items, the clinical products such as ultrasound and the like. We take that very seriously. We've seen quite a number of order intake benefits already from the new machines, the new generations on ultrasound. This is the area where we can catch up. It's an area where we can create value going forward. And this is what we are going to do. And the first set of new businesses which we have there, is actually quite encouraging. However, since the old fleet goes down, the service portion actually will be a challenge over the next couple of quarters. But since new product sales have been going up, there will be revenues and associated benefits as we go into late '14 and '15 and '16 going forward. So that's been a nice turnaround. But we will be seeing the benefits later in '15 and '16. Diagnostics, I mean, it's been a disappointment in -- all along in terms of how we have been accessing the desired synergies and benefits prior to the acquisition. We believe we did the best out of it. There is quite a decent effective management in place, and we will continue to improve our platform. There will be a new platform out in 2015, early 2016, which actually should at least close the gap, what we see in the Sector, if not put us again in the area of leading technology going forward. It will take time because the [indiscernible] model, as you all know, takes first a lot of sale on the [indiscernible] until we benefit from the consumable out of that. But the division is on track as to what we expect it to do.

Mariel Von Drathen

]

Thank you, Joe, thank you, Ralf, for answering the questions. Thank you for your attendance, and thank you for watching us on the webcast. Looking forward to seeing you either on roadshows. We'll be in Europe and in the U.S. in the next couple of days and weeks. And last but not least, looking forward to seeing you and many more at the IC Capital Market Day that will be held in December, on the 5th of December, where Roland Busch and his management team will spend the whole day with you talking about IC. I'm pretty sure you have a lot of questions and you're looking forward to that event and we are looking forward to it, too. So with that, I'd like to close this conference. Thank you very much.

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