PG Sales & Customer Operations

Webcast
Karim Amin (CEO) - Emma Roennmark (CFO)
April, 2018
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Integrity Moment: Ethical blindness

Factors than can lead to … and how we can prevent it:

People with every intention of
ethical blindness
doing things by the book can
unintentionally end up in a
tangle of inappropriate behavior. Authority Ethical leadership
They may make an unethical or
illegal decision, but may not Integrity as a benchmark for targets and
Performance pressures
remuneration
actually realize this at the time.
They develop a kind of tunnel Time pressures Take time to consider your actions
vision on reality.
Clear and broadly defined role expectations
Role expectations
Always be careful and watch out which include ethical responsibility
for potential factors that might
lead to ethical blindness. Group pressures Dare to have a different opinion - speak up!

Loss of control Reinforce individual responsibility

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 PG SC - Highlights / Lowlights

Highlights Lowlights
 Expand - Market penetration in new markets  Changing market dynamics & weak gas turbine
Jamaica (Jamalco), Dominican Rep.(Seaboard), Division PG (w/o DR BU)
market (e.g. UK capacity auctions)
Panama (Martano, Floating application),
Signing ceremony for financing & EPC  HL and A-45 order entry behind expectations
agreement for Maisan (Iraq)
 Profit & Cash deterioration
 Q2 order entry in line with Budget;
NKHM, Jamalco, Zengcheng, Grozny,  Unfavorable development of USD FX rate
Martano, Interpipeline booked  Naantali (IST), heat treatment not successful,
 Punjab (LGT): significant acceleration of package new rotor ordered
scope
 Turnaround on Egypt, Beni Suef incident
 15% cost down in China through supply chain and
localization

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Lower demand and price drop in renewables: Gas demand still
growing, but 2030 ~20% less than expected 5 years ago

World Power Generation Outlook Installed Capacity

In TWh, IHS In TW, without storage/demand response
2012 2017 ∆2030 9.5 9.8 9.6
6.6
40
34 -14% ∑ Generation
30 9 27
21 7 11 +15% Renewable +1-2% p.a.
21 8 1.7 2.2 2.0 1.9
4
16 13 15 -25% Conventional
13 2016 IHS IHS BNEF
5 7 10 6 8 -18% Gas Rivalry Autonomy
2010 2020 2030 2020 2030
External Studies 2030

Price development of renewable LCOE and batteries LGT market in GW

First PV plants in the Middle East below 25 USD/MWh Outlook 2020 ff. based on IHS Rivalry/Autonomy
LCoE in USD/MWh (BNEF, global averages) 540 Battery price
JPN USD/kWh (BNEF)
149 64
Solar 48
-65% -80% 41 45
82
109
Onshore 52
KSA 50
2015 2020 2025 2015 2020 2025 2014 2017 2020 2025 2030

Source: Strategy Planning 2017

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Structural decline in all PG markets

Market development Changes in Power Generation environment

Large Gas Market Small Gas Market
(# of turbines) (# of turbines, incl. PG in O&G, MD)
• Weak market dynamics (e.g. UK auctions, Mexico, Vietnam)
#201 #808
• Delay in development/ financing projects
#120 #478
• Strong backlog and less retirements (IHS Rivalry 2017 vs. 2016)

• Decentral Power Generation mainly growing in renewables so

2014 2017 2018 2019 2020 2014 2017 2018 2019 2020 far

• Large Steam under pressure due to Environmental protection

Steam Market Oil & Gas Market*
in Asia
(EUR) (EUR)
6″0 13″0 • LNG market not materialized

7″4 • Slight growth in O&G due to investment decisions mainly in

2″8
offshore & pipeline segment

2014 2017 2018 2019 2020 2014 2017 2018 2019 2020

Sources: PG SC GO data CMM-2018-Q2 * O&G market: compression & PG O&G (w/o engines)
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 Turbulent market conditions impacting all players in the market –
strong competitive pressure in shrinking markets

GE MHI
 Power Div. opting to cut 2b$ in cost, Solar  MHPS accelerating development of air-
reducing headcount by ~12.000 and  Tough competition from uprated Titan 130, and cooled JAC at „64%“ efficiency
potentially selling Jenbacher new uprate of Titan 250  Successfully introduced 701JAC 8 GTs in
 Claim new efficiency world record in Thailand
Japan (63,08% gross)
 PW Power Systems merged into MHPS
 Keep to invest in the < 20 MW market by
extending the NovaLT family
 6F.01 - Improved performance and first Ansald
units achieved commercial operation  Targeting Russia market via Joint Ventures Steam
(China).
 Extremely aggressive performance
 Aggressively pushing to sell first LM9000 offerings of AE94.3A together with low  WEG acquisition of TGM approved –
pricing to regain market share strengthening TGM as a global competitor
 Triveni is successful with the strategy to
increase order intake outside of India
Wärt  Doosan/Skoda currently bidding projects
 Heavily competing in projects up to 300MW, at extremely low prices to fill order books
eating up market share

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 Booked and awarded market in the last 4 Quarters
Major Projects per Region CN
Project #GT Awards
CHD Zengcheng 2 SIEMENS
Pre-awarded (undisclosed) 2 Siemens
Project #GT Awards LANGFANG 11 2 GE
NKNH CCPP 2 SIEMENS
EUC Grozny SCPP 2 SIEMENS
Datang Lishui
SPIC Shijiazhuang 3
2
2
GE
MHPS
NAM Pre-awarded (undisclosed)
GARDABANI MKTVARI 2
4
2
Siemens
GE
RONGCHENG 1 2 ANSALDO
Shenzhen Energy Zhangyang II 2xF 2 ANSALDO
Takhiatash 1 2 GE
Project #GT Awards
Duke - SCTK Lincoln County 1 SIEMENS PANCEVO CC 11 2 ANSALDO
Hickory Run 11 2 SIEMENS
Pre-awarded (undisclosed) 7 Siemens
Alamitos CC 11 2 GE
DANIA BEACH 11 2 GE
Huntington Beach 1 2 GE
Big Bend 2 GE
Coke Boiler 2 GE
Seminole Palatka 2 GE
Montgomery 2 MHPS Project #GT Awards ASP
(TPPH-2) Bandar Abbas CCPP 1 2 SIEMENS
MENA Sabiya Extension 3 11 2 SIEMENS
Project #GT Awards
Misratah Fast Track 1 2 SIEMENS
Pre-awarded (undisclosed) 7 Siemens
Tripoli West Fast Track 1 4 SIEMENS
UNIQUE 1 2 GE
Punjab re-bid 11 2 SIEMENS
KWANG YANG CC 11 replacement 2 GE
JEBEL ALI K SC 1 2 SIEMENS
Alor Gajah Tuah 1 3 GE
Pre-awarded (undisclosed) 9 Siemens
BINTULU TANJUNG KIDURONG 1 2 GE
SABZEVAR 2 OFOGH KHORASAN 2 TUGA
PASIR GUDANG CC 3 Track 4a 2 GE
ZARAND 21 2 TUGA
Riau 2 GE
LAM UNDISCLOSED 2017 #11 Japex Soma
Gulf Sriracha
2
4
MHPS
MHPS
Gulf Pluak Daeng 4 MHPS
Project #GT Awards
Pre-awarded (undisclosed) 6 Siemens
45 CC Topolobampo 31 2 GE
EVM Valle de Mexico 21 2 GE
LAS RAMONES 1 2 GE
Tierra Mojada 11 2 GE Project #GT Awards
Humay 1 MHPS Pre-awarded (undisclosed) 2 Siemens
Vale Azul A-6 BR Energy Auction 1 MHPS AFR OKPAI LOT 21 2 GE
Qua Iboe 3 GE
Red marked – pre awarded projects

Note: Pre-awarded projects to be booked in future after Notice to Proceed (NTP)

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Development of PG markets by main product lines

Large Gas

Market
25% 29% 24% • PG targets strong share in a declining and highly competitive market
Share
FY15 FY16 FY17 • Efficiency race for H/J class in NAM, ASP, LAM
Market #186 #181 #120 • Localization requirements limits growth in China
Act. #46 #52 #29

Industrial Gas

12% 22% 21% • PG gaining share in a declining market

Market
Share
FY15 FY16 FY17
• Continue to strengthen performance edge on SGT-800
Market 250# 296# 217# • Improve cost position especially for Aeros (A65/A45/A35)
Act. 30# 64# 46#

Industrial Steam

• Continue improving cost position and technical leadership

26% 24% 24%
Market
Share
• Expand penetration of verticals
FY15 FY16 FY17

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Achievements in Hubs + first 180 days

• Foster leadership position in EMEA region and

further expand proposal and execution capabilities
• Localization Cost Out Program (Large Gas
• Supporting the global SC organization such as
CCPP for F & H) achieved 15% Direct Cost
China and ASP for Large Gas and PM capabilities
reduction
• Strengthen local capabilities in MENA, clear
Russia roadmap • Extending cost out success to ISP and
MGT/SGT Localization Cost Out initiatives
• Ramp-up of local PM expertise /engineering
competency & reduction of Proposal time

• Successful role out of A45 product

including packaging partnership
• Continuity with strong focus on • „ASP HQ“ successfully moved to Asia
execution of Araucaria projects in • Experiencing the advantage of empowered
Argentina regional structure in existing projects (e.g.
• Exploring synergies in combining key Indonesia Mobile Power Plants, Lockyer Australia)
functions in Solutions and SC • Regional alignment and country review process
established (jointly with REs)

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Cost out: We in SC are all part of the Productivity Community

Our Scope:
SC Intelligence and 4EPC GPL line
define the market price, choose the • Project Management, COE
right products to channel our • Outbound Logistics
resources and be profitable • On-Shore scope (commission/installation)

Cost out via product cost reduction We all are part of Productivity Mgt.
(ProMT) and via implementing the • Bring in new ideas
PG2020 Targets to meet the market
requirements. • Take ownership
• Learn from others (best practice)
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Cost out best practice

Though SC Scope represents up to a max of 10% of the overall products cost, we have the urgent need for Productivity
measures to make the difference between positive and negative Gross Margin!

Best Practice Example for SC Cost reduction:

Localization China Value Stream mapping COE

Challenge: Reach 15% direct cost reduction for the newly awarded 2 units Challenge: Different processes at 50/60Hz COE departments
of SGT-8000H Fuxin Zengcheng project and 2 units of
Actions: Value Stream Analysis performed. Process harmonized.
SGT-4000F
Interfaces reduced. Reduction of internal meetings.
Actions: Increase the Local Sourcing, adapt to local codes and
Results: 4 main measures reducing the COE hours with an
standards, localize PM competence, reduce SCM cost, TFA
estimated significant cost impact over all LGT
competence localization
packages in scope
Results: Cheaper Local resources COE hours on AUX: 15% cost
reduction achieved!

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Reduce Travel Costs

Efficient
Travelling

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Increased customer focus through strengthening
regional proposal and project execution capabilities

Field & Hub Sales Regional Hubs 4 EPC Global Operations

• are close to the Customers • are close to the Customers • covers Field Sales for global • provide insights on markets,
EPC customers and planning & competition
• identify and develop business • cover Proposals, Project
opportunities for Siemens PG Management and Customer • Hub Sales for Large Gas in • provides transactional support
Order Engineering parallel bidding on pricing & winning strategies
• lead acquisition process and
negotiations • provide regionally tailored • is the Hub Sales for Large & • ensures governance for
solutions and concepts Small Steam Package Business processes & tools in PG SC
• ensure order intake in close and 3rd party Geno Business
cooperation with their regional • closely work together with Sales • Runs Marketing/ Promotion
Hubs and the Service in the Region • ensures focus on all products within PG SC and drives training
organization and interface to PR through & people excellence
• operationally manage CDL/CDC Global Product Lines

• are P&L responsible

Regional Sales PM Global insights,

Execution Proposal COE support & governance
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After 180 days of the new organization -
SC already well under way

From ... To ...

• Product focus through separate execution, • Strengthening the competencies in

order handling the Regions
and COE in the three Product Business Units. • Dedicated
integration • Greater customer proximity, project
Our customers expect greater consideration of focus, and locally adjusted/tailored
regional needs and requirements. project with 6
work streams solutions and concepts
Competitors have a stronger regional focus

• Integration
activities within
• Coordination and agreement effort between & among the • Faster decision channels by combining
Division Sales and the Business Units with hubs the functions into one unit with profit and
profit and loss responsibility loss responsibility near to the customer
• Central
harmonization
efforts
• Limited possibilities to move resources • Greater flexibility since the regional
between technologies/across BU borders on alignment increases the ability to move
short notice resources between technologies

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SC implementing PG2020 measures to adapt
to the “new market normal”

Current challenges Restructuring levers

• Continued decline in demand and price pressure Adaptation of organization

in the market leads to a decline in business volume to declining business volume

• Grown location structure and organization not yet Implementation of the global PG location
adjusted to the new market level, resulting in concept and consolidation of competencies
underutilization of existing capacities

• Planned PG Footprint concept leads to closure of Maintaining of core competencies

sites; proximity of PG SC to production necessary and expertise

• Critical competencies strongly distributed across

Reduction of complexity in
a historical network of locations
organization and processes

Source: PG2020 project team, PG SC

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To be successful in the future, we have to act now

Focus on core revenue carriers

a. Differentiate approach per product line incl. consolidation and partnering
to support service business
b. Adjust portfolio and R&D spending to new energy market requirements, Right-size &
driven by decentral and renewables Strengthen the
Core
Restructuring and operational efficiency
a. Restructure to adjust capacities and footprint to new market normal
b. Fix operational deficiencies in project execution (NCC reduction)

Balanced approach for Project Development & Financing to secure better Gross Expand
Margins & Market Penetration (Gas-to-Power, LNG, BOOT etc.)

Explore new business fields beyond traditional core to participate in growing markets Enter new
(e.g., Project Development (G2P), Power-to-X , Repositioning towards Renewables) business fields

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