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Voting Advisory

20 January 2014 Siemens Limited |P a g e

Siemens Limited Company Profile BSE: 500550 | NSE: SIEMENS ISIN: INE003A01024 Industry: ELECTRIC EQUIPMENT Index: BSE 100 / Nifty Face Value: Rs. 2 Mkt Price: Rs. 606.5 (14 Jan 2014) Fiscal Year End: September

Promoter: Siemens AG

Financials Particulars FY13 (Rs bn) Total Income 113.9

Net Worth 40.3

Equity Capital 0.71

Market Cap. 216.7 Overview (Rs.) 52 week H/L 682.0 -

414.1

Current P/E (x) 111.3

Current P/B (x) 5.4 Source: IiAS Research, Market sources

Write to us Institutional Investor Advisory Services 15th Floor, West Wing, PJ Tower Dalal Street, Mumbai -400 001 Email: [email protected] www.IiAS.in

Annual General Meeting (AGM) Meeting Date: 30 January 2014, 03:00 PM

Proxy Deadline: 28 January 2014, 03:00 PM

Notice Date: 22 November 2013

Meeting Venue: Yashwantrao Chavan Pratishthan Auditorium, Nariman Point, Mumbai 21

Company Overview: Siemens has been operating in India since March 1957. Siemens’s operations are divided into four verticals: industry, energy, healthcare, and city and infrastructure. Siemens is a ‘complete solution provider’ to clients engaged in the power generation, transmission and distribution, transportation, healthcare and diagnostics sectors.

Agenda Items

# Type Description of resolution IiAS Reco Indicators See legend

1 O Adoption of financial statements for FY13 Analysis

2 O Declaration of dividend FOR

3 O Re-appointment of Deepak S. Parekh as director AGAINST G M R S T V

4 O Re-appointment of Keki B. Dadiseth as director FOR 5 O Re-appointment of Pradip V. Nayak as director FOR

6 O Re-appointment of S. R. Batliboi & Associates as statutory auditors and to fix their remuneration

FOR

7 O Appointment of Mariel von Drathen as Director FOR

8 O Appointment of Johannes Apitzsch as a Director FOR

9 O Re-appointment of Sunil Mathur as ED and CFO and revision in his remuneration

AGAINST G M R S T V

10 O Appointment of Sunil Mathur as MD and CEO and payment of remuneration to him

AGAINST G M R S T V

0 / S – Ordinary / Special Resolution

75.0%

8.6%

3.6% 12.9%

Promoter DII FII Others

http://www.moneycontrol.com/stocks/company_info/sector_info.php?sub_sector=Electric+Equipment

http://www.iias.in/

Voting Advisory

24 March 2014 Siemens Ltd. |P a g e

Executive Summary Accounts The total income of the company decreased by 12% to Rs. 113.9 bn in FY13 from Rs. 129.8 bn in

FY12. The lower income resulted in a sharp margin decline at both EBIDTA levels and at PAT levels. PAT was lower at Rs 1.9 bn (1.67% margin) in FY13 compared to Rs 3.4 bn (2.62%) in FY12. Moreover, the unexecuted order book at Rs.129.6 bn on September 30, 2013 is 5% lower than September 30, 2012 levels.

Board Appointments

Siemens Limited’s board has one executive director, four directors representing the parent company Siemens AG, and another six directors that the company classifies as independent. IiAS believes that 4 of these 6 directors are not independent given their long association with the company – each of them having spent over 10 years on the board. Since the Chairman (Deepak Parekh) is non-executive and not a promoter, 33% of the board must comprise independent directors. IiAS believes Siemens Limited is not compliant, in spirit, with requirements of the impending Companies Act 2013 and SEBI’s clause 49 of the Listing Agreement: the board comprises only 18% of independent directors which is lower than the stated requirement of 33%.

Auditor S R Batliboi & Associates have been the auditors of Siemens for the last five years; the audit partner also remains the same for this duration. We recommend voting FOR their re-appointment. IiAS expects Siemens Limited to follow strong governance practices and expects a change in the audit partner next year, which will also be in keeping with the requirements of the Companies Act 2013.

Remuneration The company seeks shareholder approval to re-appoint Sunil Mathur as ED & CFO till 31 Dec 2013 and set his remuneration. While IiAS approves of this reappointment as ED and CFO, we believe an increase in his remuneration given the weak performance of Siemens Ltd. in FY13, has not been explained (why has the performance incentive increased when profits have declined – two years in a row). IiAS recommends voting AGAINST the resolution. The company also seeks shareholder approval to appoint Sunil Mathur as MD & CEO from 1 Jan 2014 and payment of remuneration to him. While we approve his appointment, we observe that the proposal for remuneration lacks clarity: based on the language, it is not possible to ascertain the total remuneration proposed to be paid in FY14. We recommend voting AGAINST the resolution. However in case the company confirms that the proposed remuneration will be in line with that paid to the outgoing MD & CEO (Armin Bruck), Rs. 97.9 mn, the shareholders may vote FOR the resolution.

Voting Advisory


Public shareholders with > 1% holding

Sl. No. Name of the Shareholder No. of Shares

held (millions) Shares as % of Total

No. of Shares 1 Life Insurance Corporation of India 19.0 5.4

Total 19.0 5.6

Source: BSE

Change in Shareholding Pattern (%)

Year Promoter DII FII Others

Sep-13 75.0 8.6 3.6 12.9

Mar-13 75.0 8.0 3.6 13.4

Mar-12 75.0 8.4 3.2 13.4

Dec-11 75.0 8.5 3.1 13.4

Mar-11 55.3 20.8 6.3 17.6

Mar-10 55.2 23.2 3.6 18.0

Mar-09 55.2 22.1 2.3 20.4

Mar-08 55.2 18.3 5.9 20.6

Mar-07 55.2 18.1 8.7 18.0

Source: BSE

Price performance

Period ending 14 Jan 2014 Source: IiAS Research

Financial performance (standalone) (Rs bn) Breakup of total income Particulars FY11 FY12 FY13

Total Income 122.4 129.8 113.9

EBITDA 13.9 9.48 4.6

EBITDA Margin (%) 11.4% 7.3% 4.0%

PBT (before exceptions) 12.7 7.2 1.9

PBT (after exceptions) 12.7 5.2 2.2

PBT margin (%) 10.4% 4.0% 1.9%

PAT 8.5 3.4 1.9

PAT Margin (%) 6.90% 2.60% 1.7%

New orders received 122.9 102.4 109.6

Unexecuted order book 139.2 136.6 129.6

EPS (Rs per share) 24.8 9.75 5.45

Book Value (Rs per share) 112.1 116.7 113.2

ROANW (%) 23.3% 8.7% 4.8%

ROACE (%) 23.3% 8.7% 4.8%

Debt/EBITDA (x) 0.0 0.0 0.0

Source: Company Filings, IiAS Research

Inner ring represents FY12 data Outer ring represents FY13 data

-19%

189%

9%

132%

10%

128%

-50%

0%

50%

100%

150%

200%

3 YR 5 YR

Siemens BSE 100 Nifty

21%

41%

30%

8% 25%

35%

30%

10% Infrastructureand Cities

Energy

Industry

Healthcare

Voting Advisory


Category: Accounts

Financial Performance:

Risk Indicators

Parameter FY11 FY12 FY13

Other income as % of total income 0.5% 0.8% 0.3%

Exceptional items as % of total income

0.0% (0.9)% 0.3%

Misc. expenses as % of total expenses 0.7% 0.8% 0.8%

Contingent liabilities as % of networth

10.4% 9.7% 7.6%

Secured loans as % of net block 0.0% 0.0% 0.0%

% of pledged shares 0.0% 0.0% 0.0%

Leverage Profile Siemens has no outstanding debt as on September 30, 2013. The company’s Rs. 50.2 bn bank loan limits are rated CRISIL AAA/Stable/CRISIL A1+.

Related Party Transactions Parameter (Rs.bn) FY12 FY13 Details

Inter Corporate Deposits taken 8.7 17.0 Taken from Siemens Technology and Services Pvt. Ltd., Siemens Industry Software (India) Pvt. Ltd Repaid before 31 Sept 2013.

Inter Corporate Deposits given 20.0 5.0 Mainly given to Siemens Financial Services Pvt. Ltd. Total purchases 39.5 28.5

All transactions are with Siemens AG and fellow subsidiaries of the parent company

Total sales 6.6 11.1 Reimbursement of expenses 3.1 3.6 Sale of business - 1.3 Siemens Postal Parcel & Airport Logistics Pvt. Ltd Outstanding Balances Payables 9.3 7.8 Siemens AG and fellow subsidiaries of the parent company ICDs given outstanding 0.5 0.4 Siemens Financial Services Pvt. Ltd.

Resolution 1: Adoption of Accounts

Siemens Ltd.’s FY13 performance has been weak. The company’s total income of Rs. 113.9 bn in FY13 was lower by 12% from FY12 levels. Cost overruns in certain projects resulting in delayed customer offtake affected revenues. The consequent impact on margins was harsh, as EDBITA halved from FY12 levels. FY13 PAT margins declined to 1.67% (Rs. 1.9 bn) from 2.62% in FY12. . Siemens Ltd. recorded one-time gains of Rs 0.3 bn in FY 13 largely on account of sale of its Postal and Parcel Logistics Technologies and Airport Logistics Technologies (LAS) businesses to Siemens AG (for which IiAS recommended shareholders vote FOR the resolution – see detailed report here) and a one-time loss of Rs. 12 bn in FY12 on impairment of its wind energy business’ assets. Adjusting for these one-time items, the decline in Siemens Ltd.’s FY13 performance is sharper. Moreover, the unexecuted order book at Rs.129.6bn on September 30, 2013 is 5% lower than September 30, 2012 levels In FY13, Siemens Ltd. issued 15.8 mn equity shares following the amalgamation of the following companies of Siemens A.G.: 1. Siemens VAI Metals Technologies Pvt. Ltd. (SVAI) and Morgan Construction Company India Pvt. Ltd.: IiAS

recommended that shareholders seek additional information. IiAS report is available here. 2. Siemens Power Engineering Pvt. Ltd. (SPEL): IiAS recommended that shareholders vote AGAINST the resolution. The

detailed IiAS report is available here 3. Winergy Drive Systems India Pvt. Ltd. (Winergy): IiAS recommended that shareholders vote FOR the resolution. IiAS

report is available here

http://www.iias.in/FileDetails.aspx?iiasno=1601&IsApp=0

http://www.iias.in/downloads/IIASreports/Siemens%20Ltd-IIAS%20Voting%20Recommendations-13Feb12.pdf

http://www.iias.in/downloads/IIASreports/Siemens%20CCM%20April%202012_20120904143726.pdf

Voting Advisory


Liquidity Position Parameter (Rs. Bn)

Result

Marketable securities

Nil

Operating cash 1.0

Cash balance 6.0

Audit Integrity

Parameter Result

Head of audit committee [1] Non-

Independent % of independent directors in audit committee

20%

Tenure of auditor 5

Tenure of audit partner 5

Accounting Policies

Policies FY12 FY13

Inventory Weighted

Avg Weighted

Avg

Depreciation Straight

Line Straight

Line

ESOP NA NA

No change in the last five years

Voting Advisory


Category: Dividends

IiAS Evaluation Parameters for Dividend Payout

Parameters Analysis Risk Level Details

Has the payout ratio decreased in the last three/five years? No - Refer table 1

Is the growth in dividend commensurate with the growth in profit? No - Refer table 1 Has the company generated enough cash to pay the proposed dividend? No Medium Refer table 1

Does the company have a stated dividend policy? No Low

IiAS Recommendation FOR Discussion Given the weak performance in FY13, Siemens Ltd. has pared dividend payout to Rs. 5 per share from the previous year’s Rs. 6 per share. This will result in a cash outflow of Rs. Rs. 2.08 bn (including dividend tax), which is 107% of its FY13 PAT. This means that the dividend payout will deplete the company’s reserves to a marginal extent - by Rs. 0.2 bn. IiAS believes that Siemens Ltd.’s liquidity is sufficient to meet the dividend payout requirements. Table 1: Key ratios

Particulars in Rs. mn Sept 11 Sept 12 Sept 13

Cash flow from operations 107 433 1,018

Profit after tax 8,454 3,432 1,940

Final proposed dividend 2,042 2,112 1,781

Total outflow on account of dividend (incl. tax) 2,368 2,451 2,084

Payout Ratio 28% 71% 107% Source: IiAS Research, Reuters We recommend voting FOR the resolution.

Resolution 2: Declare a final dividend on equity shares Declare final dividend of Rs. 5 per share (FV Rs. 2) IiAS Recommendation: FOR

Voting Advisory


Category: Board Appointments

IiAS evaluation parameters for board composition

Parameters Result Risk Level

Details

Is the chairman of the board an independent director? [1] No High Table 2

Proportion of independent directors on the board [2] 18% High Table 2

Proportion of non-executive directors on the board 80% Low Table 2

Is there at-least one woman director on the board? Yes Low

Does the company have a policy on the retirement age of directors? No Medium

Does the company have a policy on the tenure of directors? No Medium

Do all the board committees have at least one independent director? Yes Low

Is there any whistleblower policy for the independent directors? Yes Low Proportion of promoter and promoter relatives on board 36% Medium

Overall High [1] As per IiAS classification [2] 55% as per company classification

Table 2: Board composition

Sl. No

Name of director Occupation Age Tenure

(yrs) %

attendance Other

Affiliations [2] Compensation

(Rs.mn)

Executive

1 Armin Bruck Managing Director 51 N.A. 100% 1 97.9

2 Sunil D. Mathur Finance Director 51 6 100% - 67.3

Non-executive & Non - Independent

3 Roland Busch CFO – Siemens AG 49 3 80% - Nil

4 Johannes Apitzsch Whole-time employee of Siemens AG, Germany

56 - 100% - Nil

5 Joe Kaeser Chief strategy officer – Siemens AG 56 7 60% - Nil

6 Ms. Mariel von Drathen

Head of Investor Relations – Siemens AG

42 - 100% - Nil

7 Darius C. Shroff [1] Partner, Crawford Bailey & Co. 69 17 100% 10 2.1

8 Yezdi H. Malegam [1] Chartered Accountant 80 16 100% 6 3.3

9 Narendra Jhaveri [1] Ex DMD – ICICI Ltd. 78 13 100% 8 2.1

10 Deepak S. Parekh [1] Executive Chairman – HDFC Ltd. 69 10 100% 9 4.1

Independent

11 Keki B. Dadiseth Ex-Chairman – Hindustan Unilever 68 8 80% 9 2.1

12 Pradip V. Nayak Ex-executive director GlaxoSmithKline Pharma India

70 8 100% 3 2.1

Source: Company filings, IiAS Research [1] Classified as non-independent by IiAS, given their long association with Siemens Ltd. [2] includes public and private Ltd. Indian cos, excluding Siemens Ltd.

Resolution 3: Re-appointment of Deepak S. Parekh as director IiAS Recommendation: AGAINST

Resolution 4: Re-appointment of Keki B. Dadiseth as director IiAS Recommendation: FOR

Resolution 5: Re-appointment of Pradip V. Nayak as director IiAS Recommendation: FOR

Resolution 7: Appointment of Ms. Mariel von Drathen as Director IiAS Recommendation: FOR

Resolution 8: Appointment of Johannes Apitzsch as a Director IiAS Recommendation: FOR

Resolution 9: Re-appointment of Sunil Mathur as ED and CFO (till 31 Dec 2012) IiAS Recommendation: FOR

Resolution 10: Appointment of Sunil Mathur as MD and CEO (from 01 Jan 2014) IiAS Recommendation: FOR

Voting Advisory


Table 3: Proposed Appointments – IiAS Checklist

IiAS Director Checklist Deepak Parekh

Keki B. Dadiseth

Pradip V. Nayak

Johannes Apitzsch

Mariel von Drathen

Sunil Mathur

Executive/Non-Executive Non-

Executive Non-

Executive Non-

Executive Non-

Executive Non-

Executive Executive

Category of Appointment Independent Independent Independent Promoter Nominee

Promoter Nominee

Executive

IiAS Director Classification Non-

Independent Independent Independent

Promoter Nominee

Promoter Nominee

Executive

Independence & Tenure X N. A. N. A. N. A.

Attendance

Other Affiliations

Shares Held 9,000 Nil Nil Nil Nil Nil Compensation

ESOPs Nil Nil Nil Nil Nil Nil

Qualification[1]

IiAS Recommendation AGAINST FOR FOR FOR FOR FOR [1] Refer Director Profile section

Director Profiles Deepak Parekh

Qualification B. Com.

Fellow Member - The Institute of Chartered Accountants of India / England and Wales

Work experience Chairman - Housing Development Finance Corporation Ltd.

Committee memberships

Member, Audit Committee

Member, Remuneration Committee

Member, Corporate Governance Committee

Chairman, Investment / Divestment Committee

Other directorships (Public Companies):

1. Housing Development Finance Corporation Ltd. 2. GlaxoSmithKline Pharmaceuticals Ltd. 3. HDFC Asset Management Company Ltd. 4. HDFC Ergo General Insurance Company Ltd. 5. HDFC Standard Life Insurance Company Ltd. 6. Mahindra & Mahindra Ltd. 7. The Indian Hotels Company Ltd. 8. Zodiac Clothing Company Ltd. (Alternate Director) 9. Exide Industries Ltd. (Alternate Director)

Pradip V. Nayak

Qualification Economics and Politics - University of York, England

Law - Gray’s Inn, London

Work experience Senior Executive Director of GlaxoSmithKline Pharmaceuticals Ltd


Member, Investors Grievance Committee

Member, Remuneration Committee

Member, Investment / Divestment Committee


1. GlaxoSmithKline Pharmaceuticals Ltd

Seeking re-appointment Seeking appointment Seeking retirement

Voting Advisory


Keki B. Dadiseth

Qualification B.Com.

Fellow Member - The Institute of Chartered Accountants of England and Wales

Work experience

Member of Executive Board at Indian School of Business

International Adviser at The Goldman Sachs Group

Ex-Chairman – Hindustan Unilever Ltd.


Committee memberships Member, Audit Committee


1. Britannia Industries Ltd. 2. ICICI Prudential Life Insurance Company Ltd. 3. Piramal Enterprise Ltd. 4. ICICI Prudential Trust Ltd. 5. The Indian Hotels Company Ltd. 6. Godrej Properties Ltd. 7. JM Financial Ltd. 8. JM Financial Services Ltd.

Johannes Apitzsch

Qualification Master of Economics and Business Administration

Work experience

22 years with Siemens AG CFO of Infrastructure & Cities Sector of Siemens AG Prior to his appointment as Additional Director, he was an Alternate Director to Dr.

Ronald Busch on the Board of Directors of Siemens Limited since April 2012.


Member, Audit Committee

Member, Corporate Governance Committee


Other directorships Nil

Mariel von Drathen

Qualification Masters - Economics and Management

Work experience 15 years with Siemens AG

Currently: Senior Vice President – Head of Investor Relations

Committee memberships Member, Remuneration Committee


Sunil Mathur

Qualification B Sc

Chartered Accountant

Work experience 25 years with the Siemens Group Joined Siemens Limited in 2008. Was ED and CFO of Siemens Limited since then.

Committee memberships Member, Investment / Divestment Committee


Source: Company filings and IiAS research

Voting Advisory


Discussion Siemens Limited’s board has one executive director, four directors representing the parent company Siemens AG, and another six directors that the company classifies as independent. Although Siemens Ltd. classifies the remaining six directors as independent, IiAS categorizes only two of them as independent. Companies Act 2013 and clause 49 of SEBI’s Listing Agreement require the company to have 33% independent directors (given that Siemens Limited has a non-promoter non-executive Chairman): based on IiAS’ classification only 18% of the directors on the board are independent. Darius Shroff, Yezdi Malegam, Narendra Jhaveri and Chairman – Deepak Parekh, independent directors as per Siemens Ltd., have been on the board of the company over the last 17, 16, 13, 10 years respectively and hence IiAS does not classify them as independent directors (refer Box 2 below) given their long association with the company. Box 1: IiAS policy snapshot – minimum number of independent directors Box 2: IiAS policy snapshot – maximum tenure for independent directors

Box 3: IiAS policy snapshot – maximum number of other directorships for independent directors.

Clause 1.B.2, Corporate Governance Voluntary Guidelines, MCA - An individual may not remain as an Independent Director in a company for more than six years Annexure 1D, Clause 49 of the listing agreement (voluntary recommendation) - Independent Directors may have a tenure not exceeding, in the aggregate, a period of nine years, on the Board of a company. Clause 149 (9) and (10), of the Companies Act 2013 - An independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company. No independent director shall hold office for more than two consecutive terms. IiAS concurs with the Companies Act 2013 and is of the opinion that a tenure over ten years is inversely proportional to independence of a director.

Clause 49 of the listing agreement states that for a company with an executive chairman; at least 50% of the board should comprise independent directors. In the case of a company with a non-executive chairman, at least one-third of the board should be independent. However, if non-executive chairman is a promoter, 50% of the directors have to be independent. Clause 149 (3), The Companies Act 2013 - Every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies.

The MCA Corporate Governance Guidelines, 2009 stipulate that maximum number of public companies in which an individual may serve as an independent director should be restricted to seven. The Companies Act 2013 sets a maximum limit on total number of directorships at 20 companies including a sub limit of 10 for public companies. Directorships in holding/ subsidiary companies of a public company will be treated as public company directorship, even if the holding company/subsidiary is a private company. IiAS recommends that independent directors should not be on the board of more than 10 public companies (with a maximum of seven listed companies).

Voting Advisory


Joe Kaeser has not been regular in attending the board meetings in FY11 and FY13 and his attendance over the last 3 years is as below: % of board meetings attended FY11 FY12 FY13 Joe Kaeser 57% 100% 60% The above attendance is computed taking into consideration the attendance of alternate directors that have been appointed together with Joe Kaeser

IiAS expects directors to attend atleast 75% of the board meetings each year and observes attendance over a period of 3-years. Johannes Apitzsch was the alternate director in FY12 and part of FY13 with Joe Kaeser. Johannes Apitzsch is now an additional director on the board of Siemens. We recommend that Joe Kaeser improve his attendance in board meetings and that Siemens Ltd. appoint another alternate director in his stead. We recommend voting AGAINST the appointment of Deepak Parekh We recommend voting FOR the re-appointment of Keki Dadiseth and Pradip Nayak We recommend voting FOR the appointment of Johannes Apitzsch and Mariel von Drathen. We recommend voting FOR the re-appointment of Sunil Mathur as the as ED and CFO till 31 December 2013. We recommend voting FOR the appointment of Sunil Mathur as the as MD and CEO from 01 Jan 2014.

Voting Advisory


Category: Auditors

IiAS Evaluation Parameters for re-appointment of auditor

Parameter Result Risk Level

Details

Is the tenure of the auditor firm more than ten consecutive years? No -

Has the audit partner been rotated in the last five years? No Moderate

Does the company have an auditor rotation policy in place? No Moderate

Are the non-audit to audit fees within acceptable limits? Yes - refer table 4

Have the audit fees increased consistently? Yes Moderate refer table 4

IiAS Recommendation FOR

Discussion S. R. Batliboi & Associates has been the company’s statutory auditors of the company for the last five years (since 2008), with Sudhir Soni as the signing partner since the beginning of their term. IiAS believes that the auditors must be rotated every ten years and the signing partner must be rotated every five years to maintain independence in the audit process. Table 4: Auditor’s remuneration

Particulars (Rs mn) FY11 FY12 FY13

Audit fees

Audit fees 14.8 23.0 29.0

Total audit fees 14.8 23.0 29.0

Tax Audit 4.0 5.0 5.0

Other services 3.5 3.0 2.0

Total Non-audit fees 7.5 8.0 7.0

Total fees 22.3 31.0 36.0

Non-audit to total fees 34% 26% 19%

Source: IiAS Research

Distribution of audit and non-audit fees

Box 4: Guidelines on auditor appointment According to clause 139 of the Companies Act 2013, an auditor will be permitted to hold office for a five year term and can then be reappointed for another five year term. After two consecutive five-year terms, there needs to be a cooling-off period of five years before subsequent reappointments. According to IiAS policy, to maintain the independence of auditors – tenure of audit partner should not exceed five years and audit firm should be rotated every 10 years. A cooling period of five years should elapse before the re-appointment of the same audit firm or the audit partner. IiAS recommends voting FOR the re-appointment of S R Batliboi & Co, but expects the audit partner to be rotated in FY14.

Resolution 6: Re-appoint S. R. Batliboi & Associates as statutory auditors and fix their remuneration To re-appoint S. R. Batliboi & Associates as statutory auditors and fix their remuneration. IiAS Recommendation: AGAINST

0%

20%

40%

60%

80%

100%

2011 2012 2013

7.5 8.0 7.0

14.8 23.0 29.0

Audit

Non-Audit

Threshold

Voting Advisory


Category: Remuneration

IiAS Evaluation Parameters for Managerial Remuneration

Parameter Analysis Risk Level Details

Is the proposed remuneration for a promoter? No Low

What is the percentage hike in remuneration from previous term/year? ~16.7% Moderate

Is the remuneration commensurate with the growth in profits / operations?

No Moderate

Is the proposed resolution open-ended? No Low Table 5

Is there a component of performance-linked pay in the proposed salary? Yes - Table 5 Is the remuneration in line with industry peers? Yes -

Does the person have the requisite qualifications? Yes -

Has the company disclosed a clear remuneration policy to the shareholders?

No Moderate

IiAS Recommendation AGAINST Discussion IiAS recommends ‘for’ the reappointment of Sunil Mathur as ED and CFO, but does not recommend any increase in his compensation. IiAS believes that good corporate governance practices require compensation of senior management be linked to the performance of the company: Siemens’ performance has been weak in FY13 and its unexecuted order book is also lower than previous levels. Given that both appointment and the remuneration approvals are folded into a single resolution, IiAS recommends shareholders vote AGAINST this resolution. At the 51st AGM held on 30 January 2009, the shareholders appointed Sunil Mathur as a Whole time Director for a period of five years w.e.f. 22 July 2008. On 26 April 2013 the Board re-appointed him as Executive Director and Chief Financial Officer (ED & CFO) of the Company for a further period of five years from 22 July 2013 to 21 July 2018. At the 55th AGM on 31 January 2013, the shareholders approved the remuneration payable to him for five years till 2018. On 25 October, 2013, the Board appointed Sunil Mathur as the Managing Director and Chief Executive Officer (MD & CEO) for a period of five years w.e.f 1 January 2014, subject to the approval of shareholders and the Central Government. Accordingly, Sunil Mathur’s tenure as ED & CFO was revised for a period from 22 July 2013 to 31 December 2013. This resolution seeks ratification from the shareholders for his appointment and payment of remuneration as ED & CFO for these ~five months. Table 5: Payment to Sunil Mathur as ED & CFO

Sl. No

Terms & Conditions (Rs. mn) (annual)

Remuneration paid for FYE Sept 12


1 Salary 8.39 9.35

2 Perquisites (incl. contribution to PF and Superannuation Fund) (incl. Overseas allowance and Special allowance)

22.03 21.92

3 Performance linked incentive 19.99 27.62

4 Compensation under stock option plan of Siemens AG / Siemens Limited

7.29 8.41

5 Commission Nil Nil

Total 57.69 67.30

Resolution 9: Re-appointment of Sunil Mathur as ED and CFO and payment of remuneration to him

IiAS Recommendation: AGAINST

Voting Advisory



Chart 2: Performance v/s Pay

Source: IiAS research The above chart shows that Sunil Mathur’s compensation is not linked to company performance: his remuneration has increased while company profits and market capitalization levels have decreased. We observe that the remuneration paid to Dr. Armin Bruck and Sunil Mathur has grown at a faster pace than the falling profits / market cap of the company. Table 6: Payment of remuneration compared to profits and market cap FY2010 FY2011 FY2012 FY2013 PAT (Rs bn) 8.3 8.5 3.4 1.9 Market Cap (Rs bn) 288.1 294.3 249.2 195.2 Remuneration

Armin Bruck 70.4 79.8 81.4 97.9 Sunil Mathur 44.3 43.8 57.7 67.3

Shareholders must note that performance linked initiative paid to Sunil Mathur in FY11 was Rs 19.29 mn, Rs 19.99 mn in FY12 and despite a fall in performance of the company he was paid a much higher Rs 27.62 mn in FY13. We recommend voting AGAINST the resolution.

2010 2011 2012 2013

Pay PAT Mkt Cap

Voting Advisory


IiAS Evaluation Parameters for Managerial Remuneration Parameter Analysis Risk Level Details

Is the proposed remuneration for a promoter? No Low

What is the percentage hike in remuneration from previous term/year? N. A. Moderate

Is the remuneration commensurate with the growth in profits /operations?

No Moderate

Is the proposed resolution open-ended? Yes High Table 6

Is there a component of performance-linked pay in the proposed salary?

Yes - Table 6

Is the remuneration in line with industry peers? Yes -

Does the person have the requisite qualifications? Yes -

Has the company disclosed a clear remuneration policy to the shareholders?

No Moderate

IiAS Recommendation AGAINST Source: Company Filings, IiAS Research

Discussion With the retirement of Dr. Armin Bruck, Sunil Mathur has been appointed as the MD & CEO of the company. IiAS recommends that shareholders vote for his appointment, but we have concerns over the lack of clarity in the disclosure regarding of his remuneration. Given that both appointment and the remuneration approvals are folded into a single resolution, IiAS recommends shareholders vote AGAINST this resolution. IiAS understands that the resolution regarding remunerations are enabling in nature, giving the board of directors the flexibility to set compensation for the CEO. Notwithstanding, shareholders need to have a sense of is the maximum payout expected in order for them to make an informed voting decision. Therefore, IiAS recommends that resolutions on compensation carry a realistic cap on what will be paid to the MD and CEO during the year. If the company confirms that Sunil Mathur’s total compensation as MD and CEO will be around 100 million – which is the compensation of the outgoing MD & CEO – IiAS recommends shareholders vote FOR the resolution. Table 7: Appointment terms of Sunil Mathur as Managing Director and CEO

Sl. No

Terms & Conditions (in Rs.mn) (annual)


to Dr. Armin Bruck


to Dr. Armin Bruck

Proposed remuneration for Sunil

Mathur from Jan 2014

1 Salary 12.28 12.87 11.41

2 Perquisites 29.21 35.87

14.11 + other perquisites

3. Performance linked incentive

30.66 39.69 As decided by the board

4. Compensation under stock option plan of Siemens AG / Siemens Limited

9.28 9.46 As per the policies of

Siemens AG / Siemens Ltd.

5. Commission Nil Nil As decided by the board

Total 81.42 97.90


Resolution 10: Appointment of Sunil Mathur as MD and CEO and payment of remuneration to him

IiAS Recommendation: AGAINST

Voting Advisory


Sunil Mathur shall be entitled to remuneration by way of Performance Linked Incentive based on the specific targets mutually set and approved by the Board of Directors / Remuneration Committee of Directors, from time to time. He shall be entitled to participate in the equity based compensation programs of Siemens AG, Germany / Siemens Ltd., as applicable from time to time. He shall be entitled to remuneration by way of Commission as may be decided by the board of directors /remuneration committee of directors from time to time. The severance fees shall be payable as per the Rules of the Company If in a given year the company makes inadequate or nil profits the remuneration payable to Sunil Mathur by way of salary, perquisites, and other allowances shall be governed by the limits prescribed under Section I of Part II of schedule XIII of the Companies Act, 1956. We recommend voting AGAINST the resolution on account of inadequate disclosures.

Voting Advisory


Legend IiAS publishes voting recommendations on shareholder resolutions. These recommendations are non-binding in nature. Investors may have their own voting parameters which may, on aspects, differ from those of IiAS. On such occasions, investors should use these recommendations as a guiding tool. The data and regulations reviewed while arriving at a recommendation are disclosed to the investors. This gives the investor clarity regarding the basis for our recommendations. Please note that voting recommendations do not constitute advice to buy, sell or hold securities. Indicator Meaning Description Common

Examples

Governance Issue

This symbol is used for resolutions which indicate poor corporate governance practices or non-compliance with the regulatory provisions. Consequently, they are usually accompanied with an AGAINST recommendation. IiAS may also include measures/best practices which the company can adopt to improve its governance record.

Managerial remuneration, Auditor appointments

Minority shareholder impact

This symbol is used for resolutions which negatively affect the minority shareholders of the company. IiAS usually recommends voting AGAINST such resolutions as they benefit the controlling or a class of shareholders at the expense of others.

Preferential warrants, Differential rights

High Risk

This symbol is used for operating decisions taken by the company management and IiAS will usually recommend voting FOR such resolutions. However, they carry an element of risk which may subsequently have a negative impact on the financials. Investors are therefore advised to review the risk factors highlighted by IiAS in its analysis before voting.

Any resolution

Strategic

Indicates a strategic decision of the company, the long term impact of which cannot be accurately ascertained at the time of proposal. These may be accompanied with a FOR or AGAINST recommendation based on a preliminary review of data provided to investors. IiAS recommendations on such strategic decisions are dependent primarily on short-term indicators like market reaction, analyst opinions, valuation impact, etc. Investors may choose to support a resolution in expectation of higher returns.

Mergers, Amalgamations, Hive-offs, Entering new lines of business

Transparency Issue

Indicates lack of adequate information. Even though IiAS provides both FOR and AGAINST recommendations on such resolutions (based on available data), investors are advised to seek further clarifications from the company. Investors should take into account any additional information received from the company before voting.

Any resolution

Valuation

Refers to a valuation impact on the company’s financials. These resolutions are likely to impact the company’s margins and long term profitability. IiAS typically will recommend voting AGAINST such a resolution. Investors are advised to critically review the company’s proposal in such cases. However, they may choose to support a resolution in expectation of higher returns.

Increase in borrowings. Related party transactions, Excessive dilution

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Voting Advisory


Disclaimer This document has been prepared by Institutional Investor Advisory Services India Limited (IiAS). The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. IiAS shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any Voting or investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of the individual resolutions which may affect their investment in the securities of companies referred to in this document (including the merits and risks involved). The discussions or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IiAS to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. IiAS reserves the right to make modifications and alterations to this statement as may be required from time to time. However, IiAS is under no obligation to update or keep the information current. Nevertheless, IiAS is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither IiAS nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. . The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. The information provided in these reports remains, unless otherwise stated, the copyright of IiAS. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of IiAS and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

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