At its annual shareholders' meeting in Munich today, Siemens AG reported a strong start to fiscal 2008, saying that first-quarter revenue grew 10% and profit from operations rose 16%, even as a worldwide bribery scandal that has engulfed the company since last year continues to play out.
Gerhard Cromme, chairman of Siemens' Supervisory Board, said that U.S. authorities have agreed to begin discussions with Siemens to reach a "comprehensive and fair settlement" of the bribery crisis. Cromme said the agreement follows a meeting with the U.S. Justice Department and the Securities and Exchange Commission held on Dec. 17, 2007, and attended by himself and Siemens CEO Peter Loscher.
The disclosure of the agreement to move discussions forward with the United States, however, doesn't mean that the bribery affair is near a conclusion. The crisis, which has involved charges of bribery of public officials in numerous countries, embezzlement, money laundering, and tax evasion, resulted in the resignations of Klaus Kleinfeld, the former CEO, and Heinrich von Pierer, the former Supervisory Board chairman, last year.
In a speech to shareholders today, Loscher, who was named CEO in July 2007, said it may take years before the crisis is completely over. Meanwhile, the cost so far from investigating the bribery cases has amounted to €1.1 billion, plus another €520 million in tax liabilities and sanctions.
"First assessments held that it was just a few individuals who violated the law," Loscher said in prepared remarks. "Today we know this is not the case. This behavior led our company into the most serious crisis of the past decades. And it will take years for us to completely overcome this crisis." In the future, he added, Siemens will publish annually the number of employees dismissed and disciplined for compliance violations. In 2007, there were 470 such cases, with 130 people having to leave the company, he said.
The irony of the bribery scandal has been that even as it plays out, Siemens' financial performance has continued to improve. In addition, Loscher has initiated a broad restructuring of the 160-year-old company to improve accountability, decision-making, and market speed.
In its first-quarter 2008 report released today, Siemens said that revenue grew 10% to €18.4 billion, from €16.7 billion in the first quarter of 2007. Orders increased 9% to €24.2 billion. Due to the sale of its automotive business, called Siemens VDO Automotive, net income soared to €6.4 billion, and earnings per share reached €7.04, compared with €0.83.
Income from continuing operations jumped 74% to €1.07 billion, from €621 million, and what Siemens calls group profit from operations rose 16% to €1.7 billion.
The company's Automation & Drives unit — despite its recent reorganization, Siemens will continue to report financials under its old structure until the third quarter — grew revenue 21% to €4 billion, from €3.3 billion in last year's first quarter, and group profit jumped 46% to €655 million, from €450 million. Under the reorganization announced by Loscher last year, the A&D unit has been broken up into two business units, Industry Automation and Drive Technologies.
Siemens confirmed its previous outlook for the full fiscal year, saying its plan is to grow revenue at least twice as fast as global GDP, which was 3.8% last year, and group profit from operations at least twice as fast as revenue.
In his remarks today, Loscher made a point of saying that Siemens was sticking with its guidance despite concern that the U.S. is heading into a recession. He said Siemens was looking very carefully at developments in the United States, but that he did not expect any "tangible effects" from the credit and real-estate situation to affect Siemens at this time. He did note, however, that if a slowdown carried over to the world economy, it could affect Siemens.
In other news at the shareholders' meeting, Siemens said that on Jan. 28 it will launch the €2 billion share buyback program it announced in November and intends to lower SG&A costs by 10% to 20% in the next three years.
The company also noted that Peter von Siemens, the great-great grandson of founder Werner von Siemens, retired today from the company's Supervisory and Managing Boards after a 21-year tenure. Another Siemens family member, Gerd von Brandenstein, is currently standing for election to the Supervisory Board.