Corporate Strategy and Proposed Acquisition

March 2015

Baessato L. , Cecchi L. , Colombo F. , Fumagalli F. , Granvillani M. , Iseppato B.

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History• 1847-1865: BEGINNING AND INITIAL EXPANSION

• Foundation 1st. October 1847, Berlin , by W. Von Siemens

• Production and long distance telegraph networks in Europe and Asia

• 1865-1890: HEAVY CURRENT ENGINEERING AND INTERNATIONALIZATION• Electric trains and light bulbs

• 1890-1918: GROWTH THROUGH CONSOLIDATION AND PARTNERSHIPS • 1903 Siemens & Halske merged with Schuckert & Co —>

SIEMENS-SCHUCKERT

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History• 1918-1933: RETURN TO THE WORLD MARKET AND UNITY WITHIN THE

“HOUSE OF SIEMENS”• 1930 Started manufacturing radios, television sets and electron

microscopes

• 1945-1966: RECONSTRUCTION AND EMERGENCE AS A GLOBAL PLAYER• Computers, semiconductor devices, washing machines and pace makers

• 1966-1989: NEW MARKET AREAS OF BUSINESS• 1987 Overseeing nuclear power business

• 1989-2011: DEREGULATION AND GLOBALIZATION• 2000 Development of Siemens Medical solutions • 2004 Siemens wind power division

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Siemens Today• Siemens is global powerhouse positioned along the electrification

value chain, as well as in the areas of medical imaging and in-vitro diagnostics.

• Siemens is one of the world’s largest technology companies. • Our name stands for: engineering excellence, innovation and good

corporate citizenship.

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Vision 2020Electrification, Automation and Digitalization are the long-term growth fields of Siemens.

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Businesses• From Four Industries:

1. Energy (35%)2. Industry (24%)3. Infrastructure and Cities (23%)4. Healthcare (18%)

(% of total revenues)

• To Nine-plus-one Divisions: 1. Power and Gas2. Wind Power and Renewables3. Power Generation Services4. Energy Management 5. Building Technologies6. Mobility7. Digital Factory8. Process Industries and Drives9. Financial Services*10.Healthcare**

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vRevenues by Business

Total Revenues € 71,920 million (+1% FY 2013)

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Global PositioningGermany: the main technology partner for the country.

China: a local partner.

Middle East:technology partner.

Africa: Siemens is helping upgrade Africa’s rail infrastructure.

India: Siemens offers integrated solutions for a sustainable progress.

Russia: modern technologies for the world’s largest country.US: sustainable

solutions for the world’s largest economy.

Brazil: Reliable infrastructure partner.

Europe: Siemens automation systems improve efficiency at factories throughout the Old Continent.

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Revenues by Area

Total Revenues of € 71,920 million (+1% FY 2013)

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Siemens MissionWe make real what matters, by setting the benchmark in the way we electrify, automate and digitalize the world around us. Ingenuity drives us and what we create is yours. Together we deliver engineering excellence, taking personal ownership until we jointly succeed.

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Siemens VisionWe have a clear vision of what we stand for and what our goals are. Answering the world’s toughest questions helped us become a pioneer in energy efficiency, industrial productivity, affordable and personalized healthcare and intelligent infrastructure solutions. This success story would not have been possible without our firm believe in our core values. This is what Siemens is all about.

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ValuesRESPONSIBILITYOur responsibility is to conduct all businesses according to the highest professional and ethical standards and practices: there must be no tolerance for non-compliant behaviours.

EXCELLENCEExcellence means attracting the best talents in the marketplace and giving them the skills and opportunities they need to become high-achievers.

INNOVATIONOur goal is to be a trendsetter in all of our businesses. We unlock the energy and creativity of our employees, embracing the new and different.

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StrategyOur positioning and our strategic direction are closely linked to define milestones. We have to take all the right steps to create value.

Drive Performance: boost our performance. Make all our businesses reach their full potential.

Strengthen core: focus on the things that make you strong and put other things aside.

Scale up: we will intensify our efforts to seize further growth opportunities and tap new fields.

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Goals & ObjectivesGOALS OBJECTIVES

IMPLEMENT CORPORATE GOVERNANCE 2016 - Reduce costs by € 1 billion

CREATE VALUE SUSTAINABILITY Capital efficiency target: 15-20% of ROCE

EXPAND GLOBAL MANAGEMENT More than 30% of international (outside Germany) employees by 2020

BE A PARTNER OF CHOICE FOR OUR CUSTOMERS

Improve our Net Promoter Score by 20%

BE AN EMPLOYER OF CHOICE Approval rating over 75% on a sustainable basis

FOSTER AN OWNERSHIP CULTURE Increase by 50% the number of employee shareholders

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ResourcesRESOURCE CHARACTERISTICS INDICATORS

TANGIBLE

FINANCIAL -INTERNAL FUNDS GENERATION

-Free Cash Flow 2014: € 1,72 billion-Debt/Equity Ratio 2014: 73.45 %

RESOURCES PHYSICAL -PLANT AND EQUIPMENT

-SIZE

-TECHNOLOGY FLEXIBILITY

-Market Value of Fixed Assets -Scale of Plants-Alternative Uses for Fixed Assets

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ResourcesRESOURCE CHARACTERISTICS INDICATORS

INTANGIBLE RESOURCES

TECHNOLOGY -PATENTS

-KNOW HOW

-R&D FACILITIES

-TECHNICAL AND SCIENTIFIC EMPLOYEES

-56100 Patents -R&D Expenditures: € 4,1billion-R&D Staff: 28800 (17500 Software Developers there of about 4200 S.D. at Corporate Technology)

REPUTATION -BRAND

-COMPANY REPUTATION

-Brand Equity-Cooperations with Top Universities, Research Institutes, Industrial Partners

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Resources

RESOURCE CHARACTERISTICS INDICATORS

HUMAN RESOURCES

-MECHANICAL, INDUSTRIAL, ENERGETIC, BIOMEDICAL ENGINEERS

-LOYALTY OF EMPLOYEES

-EMPLOYEES’ TRAINING AND SKILLS

-Number of Employees: 343,000

-Employees Turnover Rate: 9.1%

-Expenditures for continuing education: € 276 million

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Functions & CapabilitiesFUNCTION CAPABILITIES EXAMPLESR&D -RESEARCH AND INNOVATIVE NEW

PRODUCTS DEVELOPMENT-20 Patents per day + 38 Inventions per day-Focus on creating next generation products

CORPORATE FUNCTION

-STRATEGIC INNOVATION -MULTIDIVISIONAL COORDINATION-ACQUISITION MANAGEMENT-INTERNATIONAL MANAGEMENT

-Last 4 years 9 acquisitions in different industries-Business Units autonomy + corporate management coordination

MANAGEMENT INFORMATION

-INTEGRATED MANAGEMENT: INFORMATION SYSTEM NETWORK SUPPORTING MANAGERIAL DECISION MAKING

-Corporate Technology: centralized corporate-based innovation organisation across BUs

OPERATIONS -CONTINUOUS IMPROVEMENT IN OPERATIONS

-Capacity to align the operations and processes with the new developed products

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Adjacency Map

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Horizontal Integration

INFRASTRUCTURES & CITIES:• Transportation & Logistic• Cities• Municipalities & DSOs

HEALTHCARE:• X-rays• Pacemakers• Dentists• Pharmaceuticals

ENERGY:• Electric streets lightining• Bulbs• Semi-conductors• Oil & Gas• Hydropower stations• Windpower• Solar pannels

INDUSTRY:• Automotive• Marine & Ship buildings • Mining & Cement• Paper machinaries• Food & Beverage Machinaries• Data Centers

ELECTRIFICATION AUTOMATION

DIGITALIZATION

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Reasons of Diversification1. Enhance the profitability by becoming integrated in

new markets and gain market power

2. Exploit economies of scope which help to maintain adequate margins and set attractive prices

3. Minimize expenses by capitalizing on economies of scale

4. Full utilization of existing resources and capabilities

5. Ensure an efficient capital allocation

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Matrix of Parenting Adv

Industry

Energy

Healthcare

Financial Services

Infrastructure& Cities

High

Low

Low HighFit between parenting characteristics and parenting opportunities

Fit between KDFs and parenting

characteristics

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Vertical Integration

PowerGeneration

Imaging and in-vitro

diagnostics

PowerTransmission,

Power Distribution and Smart Grid

Energy Application

9.Healthcare 10.Financial Services

1.Power and Gas

2.Wind Power and Renewables

3.Power GenerationServices

4.EnergyManagement

5.Building Technologies

6.Mobility

7.Digital Factory

8.Process Industries and Drives

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Reasons of V. Integration1. Achieve maximum value added along the

entire process chain

2. Support customers with its integrated approach through its communication-based, automation and drive systems

3. Lower costs of transaction by removing mark-ups

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Organizational Structure

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Parenting Style

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How Parent Creates Value

CENTRAL FUNCTIONS & SERVICES • Incentive the sharing of both resources

and activities between the different business units.

• The only business unit that is managed separately is Healthcare.

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International StrategiesAutomation

Electrification

Digitalization

Healthcare

TRANSNATIONAL STRATEGY• Achieve both Global Efficiency and Local

Responsiveness

GLOBALLY MANAGED• Products are standardized across

national markets

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Corporate Social Responsibility“For us, sustainability means acting in the best interest of coming generations with respect to the economy, the environment and the society”

TRIPLE BOTTOM LINE1. PROFIT

• Offering distinctive products • Providing our customers a competitive advantage • Strengthening our profitability over the long-term

2. PLANET• Using responsibly our planet limited resources

3. PEOPLE• Increase our employees’ sense of responsibilty in executing their

activities• Contribute to the sustainable development of society

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Mirvis & Googins’s Framework

Elementary IntegratedEngaged Innovative Transforming

• Citizenship concept: Sustainability (People, Profit, Planet)

• Strategic intent: Value Proposition ( Renewable energy)

• Structure: Organizational Alignment (Sustainability Board)

• Issue management: EHS Program

• Transparency: Public Reporting (Vision 2020)

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Key Sustainability Indicators • Economic

• Revenue generated by the environmental portfolio: € 33.2 billion• 42% of total revenues

• Environmental performance improvement• CO2 emissions relative to FY 2010: -12%• Number of suppliers that are part of our energy efficiency program: 916• Energy efficiency relative to FY 2010: +8%

• Employees• Expenditure on continuing education € 283 million• Proportion of women in management positions 15.3 %

• Rankings• Points in Dow Jones Sustainability Index: 92/100

These data belongs to FY 2012

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Concrete Projects1. “ COLLECTIVE ACTION “

• Against corruption• Interest groups, working together• Create fair market conditions • Promote innovation (on the basis of

price, quality and capacity to innovate)

2. CORPORATE CITIZENSHIP PROJECTS AROUND THE GLOBE• Electricity for a better quality of life (India

rural village)• Education as Key Resource: Mandela

School of Science & Technology

3. INNOVATIONS AND PIONEERING TECHNOLOGIES• Vegetable oil transformer for ultra-high

voltages

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Proposed Acquisition:KiteGen

KiteGen KiteGen focus on searching an alternative and more effective way to produce electricity through the exploitation of an untouched, huge and powerful renewable energy source: the High Altitude Wind Energy (HAWE).

Two high-strength cables transmit the traction of the wing and control its direction and orientation through the automatic kite flight control system that maximizes the production of energy.

Relying on 40 mother patents registered worldwide (over 3.500 total patents in the world).

KiteGen

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KiteGen Vision

VISION: KiteGen’s vision is a new type of electric generation plant, based on a renewable source, suitable for any territory, in direct competition with today’s conventional production (coal, oil or nuclear), in the GigaWatt class.

VALUES:• Encourage the production of eco-

sustainable energy• Respect for the environment

KiteGen Vision

KiteGen Advantages1. Financial resources: KiteGen needs a considerable amount of financial resources to

develop its ambitious project

2. Manufactoring capabilities: KiteGen could exploit Siemens capabilities in the manufacturing phase, EOS

3. Reputation: Siemens brand reputation is recognized all over world for the quality of its products

4. New customers: The possibility for KiteGen to have access to Siemens’ portfolio of customers

KiteGen Advantages

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Siemens Advantages1. Innovation: KiteGen can exploit an unexploited, virtually

endless and almost universally available energy power, that is high altitude winds

2. Worldwide Trend: Google, China Vcs and several other companies around the world are investing in the exploitation of the high altitude wind energy

3. Competitive Advantage: The Energy business is considered an hauling sector for Siemens, acquiring KiteGen we may obtain a future competitive advantage over GE

4. Access to Complementary Assets: Relying on 40 mother patents registered worldwide (over 3.500 total patents in the world) which cannot be imitated

Siemens Advantages

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Bid Price

• Due to the fact that the company patrimonial value is mostly determined by the MARKET VALUE OF KITEGEN’S PATENTS , we have based our proposed bid price on this value

• MARCO CICCOLINI, the business plan developer of KiteGen, has provided us this value :

€ 260 million

Bid Price

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Bid Price ATTRACTIVENESS TEST:

• Unexploited, virtually endless and almost universally available energy power

• Coherent with Siemens’ tendency to be a pioneer in new technology development

• A considerable number of companies are investing in this technology

ENTRY COST < EXPECTED PROFITS:• According to our financial statement our Operating Cash

Flow of € 7,670 million allows us to buy it for € 260 million• Kite energy cost, for their last station project named

Carousel, is less 10 €/MWh

BETTER-OFF TEST:• Siemens managing KiteGen could create additional value

In Conclusion

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Bibliographyhttp://www.siemens.com/entry/cc/en/

http://www.siemens.com/annual/14/en/download/pdf/Siemens_AR2014_Vision2020.pdf

http://www.siemens.com/about/en/history.htm

http://www.siemens.com/jobs/en/ataglance/

http://www.siemens.com/about/en/businesses/

https://www.swe.siemens.com/greece/internet/en/Documents/Siemens-company-presentation.pdf

http://www.siemens.com/annual/14/en/company-report/our-path/

http://www.siemens.com/jobs/en/ataglance/values_vision.htm

http://www.siemens.com/about/pool/strategy/siemens-strategy-overview-path.pdf

http://www.siemens.com/about/sustainability/en/index.php

http://www.kitegen.com/en/kiteblog-2/

http://kitegen.com/wp-content/uploads/2010/07/PEN-KGR2010.pdf

http://www.forbes.com/companies/siemens/

Bibliography

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Personal Contacts*Siemens: Conte Elisabetta Corporate Account Manager

*KiteGen: Ciccolini Marco Business Development Manager

Personal Contacts