Siemens AG (NYSE:SI) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Mark Troman – Bank of America Merrill Lynch: Mark Troman from Bank of America Merrill Lynch. Three questions, please, Peter and Joe. First one on cost savings. It’s, obviously, a critical issue, I guess, for the equity. Could you outline what process incentives framework, what is the process that you are going through to ensure this EUR6.3 billion of cumulative savings is delivered? Secondly, on short-cycle, I just want to be – could you provide bit more color what’s going on in your short-cycle businesses in terms of are there any areas which are still decelerating or is it just the case that you are signaling stability, no real improvements. Are there any areas of deceleration or was it more stability? Finally on charges, what visibility do you have in terms of how these might evolve? You talked about challenges on the installation of the offshore platforms. Are the worst of these charges behind or should we – also the run rate should we expect going forward for charges, project charges?
Peter Loscher – President and CEO: Mark let me start with your last question first. Obviously there is no prediction for charges. I mean we have taken all the charges, which we believe are – which the Company has to take based on everything what we know. So having said this, we just have to pay and might, a, number one there is a tremendous visibility in the organization to really focus on this project. I can assure you this one. We have made multiple efforts to really beef up support, competence and we talked about over the last quarters. Having said this we just have to bear in mind that the margins of now of this four of the projects, 4.1 in the North Sea where we basically have a completion rate overall in the vicinity of 55%. The projects which we are now starting to install this year two of them are above 70 and then it goes down to the others who we will do next year. As well as the two rail projects, Velaro D and the Eurostar are now based on zero margin. So whatever small thing happens is as we know will obviously find its way immediately into the P&L. This is just one other reason where we do everything what we can to ensure successful completion, but we have to – bear in mind these are – quite frankly, before this huge monsters of steel are not pulled out of the water, 120 kilometer of the shoreline of Germany, you simply don’t know what will happen, so maximum attention for all projects but this is just come in – we just have to face it. These are risk projects which have absolutely highest visibility, support and encouragement from us.
Joe Kaeser – CFO: Mark on the cost savings and the short-cycle environment, the projects on the cost saving is pretty straightforward. We do meet with our divisions every month in a so-called monthly operating review, and at monthly operating review, we discuss the obviously the business and what to expect for a coming quarters and how the performance has been for the months which just ended and we also too talk about the progress of the actions we have agreed upon with the business. Remember, we said this program is planned bottom-up in terms of buy-in and granularity of actions, but it’s being forced top-down. So that is a very rigid process about validation of the real savings and as you can actually see first half was not all that bad in terms of productivity. (At least) we can find them in the P&L and unfortunately they are being wrapped out for the most part in areas like project charges and some weakness in the short-cycle environment, but we do know clearly about the actions who is it, who is responsible, when does it take place and what is the outcome in terms of the impact on the P&L and (that’s the structure) we are going to maintain, we are a bit slow in getting our restructuring matters fully together, which did not really catch us by a surprise because of – this is a very sensitive matter which we take very seriously also with the discussions on the workers representatives, (indiscernible). There is reason to believe that the final agreements now are just about to be finalized in order for us to consider the restructuring charges and then move on with the incremental savings. So that’s this part, as you can see, we have also been already acting and reacting on the missing part of growth that was supposed to be 2013, remember in our bridge on the assumptions on how to get to those 12% is that we would have modest growth of revenues in 2013 and 2014 on leverage, obviously 2013 there is not going to be any growth, actually we expect a moderate decline in revenues in order to catch up this missing moderate decline, we have again discussed the (indiscernible) set of actions on the cost side to increase the productivity to make up for the perceived loss of revenues in 2013. So that’s pretty tightly managed, of course we do have our setbacks, but we also have our opportunities to get it out and there is no reason to believe that we could not do it at this point in time. On the short-cycle environment, I mean that’s obviously the big question which is not only material for the whole industry, but also material for our P&L. Since the short-cycle environment in industrial automation, in drive technologies and in parts also on the low mid voltage environment that has a significant impact on the P&L, if it goes up and if it goes down. So the question is, did we see the bottom or are we going to see the bottom in Q3? We really truly have to say that we assume that we will be seeing the bottom in Q3. We are just about revenue levels in industry, which is just about the same as Q2. So sequentially just about flattish but that jury is out. The jury is out on whether there will be some rebound in Q4. Reason being is that whatever market, end market we look at, be it semiconductors, be it chemical process industries, be it housing and the likes, or be it regions China and the likes, we do not see a coherent picture that end markets are picking up. We’ve seen some encouraging factory output in April, but that’s not necessarily meaning that the sell-through will be intact. So we do see some technical reactions between POP and POS on a distribution side, which suggests that inventory levels are lower, which would also suggest that in times of the end markets accelerating, there should be some rigid upturn. But as I said, the jury is out on this one, but our current assumption is Q3, just about bottoming out as flattish as we’ve seen in Q2. Then there is some (plant) life coming back in Q4. So that’s the outlook on our side, but again no coherent picture on the point-of-sale, but reason to believe that the channel is pretty empty and that the people are not holding too much inventories in the chain…
Fredric Stahl – UBS: Hi, it’s Fredric Stahl, UBS. Can I ask you about the offshore wind market, if you can update us on the tender activity right now, how you see competition and profitability developing in that marketplace? That’s the first question. The second question similar but on healthcare, if you can tell us what you see and talk a bit about what you see in Europe and in the U.S. over the next few quarters?
Peter Loscher – President and CEO: Yeah, Fredric. Let’s start with the healthcare environment. I would say, is no surprise. First of all, we have done extremely well. When you look into the quarter in terms of growth and particularly equipment growth of 7%, this compare to what other companies have reported, we have done very well. So we see basically a pattern continue that we see already since a couple of quarters, A, China becoming more important; second thing is, healthcare market as we speak doubling over the next five years, we are growing solid – solidly double-digit. So therefore, our strategy what we have initiated already numerous quarters or years ago, I would say, in terms of entry-level products, what we call SMART Products is really paying off, and this will continue. So the emerging market agenda for healthcare continues to become much more important and that’s an issue of footprint, of product portfolio, so that’s – this is continue. The U.S., the excess tax obviously has a short-term impact. I would say, a very important profit pool, very important – continues to be a very important market, but from a growth perspective, it will be a low growth environment. Europe and any public healthcare system in Europe is, as all of us know, is part of the fiscal consolidation initiatives, budget consolidation what is happening around Europe, and therefore, I would anticipate that Europe will continue to be very difficult, tough. We see more and more decisions being also made, being either no longer just high-end, being really focused on what is right product and what can I afford in terms of impact to the healthcare delivery what I’m responsible for. So continue to be and – this will also continue for the years. So we have done well, right strategy, and continue to drive this agenda and the healthcare is just – I mean, the healthcare strategy is – you can see it in the number. When it comes to wind offshore, wind offshore for us is obviously a very important one. We continue to see this also from a margin quality being holding up, despite the fact that this also becomes more competitive. We have now more companies trying to enter, and then you have to talk about which projects behind which customers. Obviously, in France you have a slightly different environment than we have it with a company like DONG. But here we are really benefiting from the over 20 years’ of experience from the innovation leadership what we have there. This is for us very important and we continue to be quite active in – we see an active activity in this area is shifting a little bit towards East. China is becoming much more difficult in terms of the overall wind environment, because you see consolidation in China, you see the clear intention that companies like Goldwind and others trying to position themselves, but despite all of this, we have, I think, a good footprint there, we have a good position there, but from a penetration perspective, it will be an environment where Chinese players will go global and continue to go global. Profit pool in Europe is good. We have very solid positions with key customers, with lead customers helping us to innovate in this area. The BTC now what we see in the U.S. should help. I’m not talking more so onshore, not just offshore. So we continue to see a growth environment in this area, but the importance to keep longstanding strategic relationship with core customers with whom you innovate. Example (putting across a good one) where we’ll say we’ll bring out technology expertise, the equity participation and the experience to customers and this is a differentiator what other companies in this context don’t have.
Michael Hagmann – HSBC: This is Michael Hagmann of HSBC. Two follow-ons on healthcare and one further on the cost savings. On healthcare, we’ve heard different stories from GE and Philips as to their (fortunes), how they are doing in Japan. Obviously, with the weak yen it would be quite interesting to hear if you’ve actually been able to raise revenues in Japan in healthcare and if so how you cope with the lower currency. Second, you’ve been mentioning ultrasound and saying that’s now much more fun to look at than it used to be. Has it reached its equilibrium margin and are there other ailing businesses within healthcare where you see progress? Last on the cost savings. EUR6 billion or EUR6.3 billion is still a big gap to bridge from the EUR900 million. So far you’ve taken relatively little charges; so I assume the EUR900 million savings that you have achieved so far is more like ongoing regular productivity gains. Can you give us a little bit more steer on the remaining cost savings that you want to achieve and how they will be faced. That will be great.
Peter Loscher – President and CEO: Mike, I understand in terms of the question what you asked is not just a market of Japan, but also how Japanese competitors are, for example, benefitting from a lower yen, right and also the other way how we’re doing in the Japanese market.
Michael Hagmann – HSBC: Yeah, because like I think that’s one of the few areas where you actually export into Japan and so the question is also like if you’ve been selling a lot into Japan, how do you cope with the weaker currency? So what’s happening to the margin here?
Peter Loscher – President and CEO: The Japanese market is good market for us, so I would not – but it’s also a competitive market. So, obviously, this is impacting local – this is favoring local competition, so let’s not fool ourselves. But we still continue to have good activity there and the margin in Japan is actually a solid margin for us going forward. The yen issue is the other way, also an important one – I mean we also have to bear in mind if you compare the yen, how it has appreciated over the last five year and what is now happening, I think when you take it over the longer term, I would not say, I would not come to the conclusion there is a massive competitive shift now happening which is favoring one or the other. So at the end, it comes always down to right products, performance of products versus any given customer base and there we are. We will continue to be benefitting from the broad portfolio what we have because we have the chance to offer a broad mix. I mean we can offer the Magnetom sensor out of China for any kind of global customers who have a broader product mix. So this is helping us in this regard as well. Ultrasound, I would – what I’ve tried to highlight is that we have obviously passed the inflection point of pain in this area. Is it fun to be in ultrasound for us? Not yet in terms of margin, but it starts with – well, the new product generation is clearly driving and holding up from a performance perspective, the quality issues are to a very large extent being resolved and we are now seeing a light at the end of the tunnel of a painful experience of a decade of Siemens in ultrasound. So it is turning in the right direction and we are having now for the first time a good product generation, but having fun. There are others who are leading this segment, it’s not us and you know them who they are…
Joe Kaeser – CFO: Yes, Michael, on the cost savings, obviously we will expect about one-third of the EUR6.3 billion in 2013 and two-thirds in ’14. That already signals that there is also a subsequent backend loaded process on the headcount-driven savings, so we will be somewhat backend loaded in the restructuring which obviously naturally suggests that there is some backend load also in the value-add savings of the Company. That goes along with design-to-cost, also since design-to-cost is nothing which happens just next quarter, that’s something which needs to deliberately planned between engineering, manufacturing, supply chain and purchasing so that will also be mostly coming in 2014 and the non-reoccurrence of project charges is a significant matter for ’14 since (it was) ’13, it’s gotten already off to a bumpy start. So, one-third in ’13, which is about EUR2 billion and two-thirds in ’14 which is EUR4.3 billion; about EUR1 billion of that are non-reoccurrence of charges; about EUR800 million roundabout from the savings of value-add related topics which is mostly, of course, headcount, about EUR200 million you can expect this year and the design-to-cost also in the same range, one-third to two-third for 2014. The good news about the design-to-cost matters is once they are designed to a product, they will eventually also materialize in the design-in of the customer space. (I mean obviously) to one topic to Japan, it is not only new business which obviously is not that greatly doing with regards to fix but there is also installed base. One should not underestimate the power of an installed base in a certain country.
Andreas Willi – JPMorgan: It’s Andrea from JPMorgan. I have two questions on the energy business, particularly in fossil. You had a good performance in the profitability despite the top line that cane down quite a bit. Your U.S. competitor noted a very weak service business in Europe and had a big hit on earnings because of that. Maybe you could comment a bit what you’re seeing in that business in terms of the good margin resilience in the quarter but then the weaker top line, was it also due to a step down in service by European utilities? How you see that developing in the next couple of quarters, also in terms of the profitability? The second question on the underlying margin in mobility, you mentioned lower margin contracts coming through. Also historically the message has always been, if a division needs to focus on margin improvement it shouldn’t do M&A, this one is an exception, I guess with Invensys. But what else is not going right in that division in terms of having an underlying margin of effectively near breakeven?
Peter Loscher – President and CEO: Andreas, let me start with your fossil question in terms of profitability, a, number one, we see a solid service development in this area. We have a mix issue in terms of – I try to highlight it in terms of more solution business last year versus this year. The markets are solid. Obviously, what we see aggressive pricing behavior in some projects from some competitor, I would not say it is – is an overriding industry behind all projects, but you can clearly see that certain projects are highly contended. The environment is actually, I would say, continues to be – regionally no change what we have always discussed over the last couple of quarters, 2015 we expect an uptick probably in the U.S., but this is what we have highlighted versus others we are sometimes talking about 2014. So the reserve margin is still high enough, but it will be a good gas market in United States for sure. In Europe, basically the activity has basically come to standstill, I would say. I mean we have singular projects which are happening and this is simply due to the fact that there is the uncertainty, the German situation is a specific one, but there is also no really capacity build out. In Europe, the emerging markets are very solid. Middle East is solid, but highly contended in some markets. So I would say a solid environment, we have a good mix. We are benefiting from the fact that we have now leveled our industrial footprint, tailoring much more different market environments, so we can be very competitive and we are in good position from a product lineup footprint perspective and the market continues to be a solid market for us going forward as well. The underlying margin in mobility, you were highlighting, Andreas, this is the same division, it’s actually not. We have – within, as you know, we have the mall division which is really acquiring and the issues what we have behind trains is internally in a separate division. This is, I mean, any doubts we have a couple of issues. One, we have the regulatory uncertainty in terms of how trains are certified in some markets. You are well aware about the German situation and also European situation. So we have an external rather less predictable environment, and then we have also productivity issues. To make it very clear, we are spending too much engineering hours for the train. There is a specific program for this division. It is called Rail on Track with clear productivity measures, much closer (interaction), bringing down engineering hours, linking manufacturing footprint much better in terms of also linking it back into supply chains. We must become here much more competitive from the standpoint, also footprint development, because the projects which are currently happening are happening now in our historic markets, so we talk about Russia for example where we have already good footprint project there. We have now projects in the Middle East. We are not talking about tender activities going forward. So we have to have a smart footprint policy. We have to ensure that we leverage much more platform and design development, so this is a clear productivity program in itself, which the division has focused on.