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Siemens says 1st-quarter profit fell 16 percent due to EU fine

Siemens says 1st-quarter profit fell 16 percent due to EU fine

Industrial conglomerate Siemens AG saw net profit fall 16 percent in its most recent quarter due to a European Union fine for price-fixing, but the stock rose Thursday as earnings otherwise improved and investors responded to the acquisition of a U.S. software company.
Net profit in the three months through Dec. 31, the company's fiscal first quarter, fell to euro788 million (US$1.02 billion) from euro939 million in the same period the year before, due to a euro423 million (US$550 million) charge for the EU fine.
First-quarter sales gained 6 percent to euro19.07 billion (US$24.8 billion), and operating earnings _ which exclude one-time expenses such as the fine _ jumped 51 percent to euro1.63 billion (US$2.1 billion). Company shares rose 5.9 percent to euro82.60 (US$107.38) in afternoon trading in Frankfurt.
Investors were also responding to overnight word that Siemens had agreed to buy U.S. business software maker UGS for US$2.1 billion (euro1.6 billion) and planned an IPO for a minority stake in its Siemens VDO Automotive auto parts maker.
The positive market response was a bright spot on a difficult day for management as it sought to reassure 13,000 shareholders at the annual meeting that Siemens was on track despite the fine and a corruption investigation into alleged illegal payments to win telecommunications business overseas.
Six current and former employees, including top executives, were detained in November. They have been released, but the investigation continues and the company says it has identified euro420 million (US$546 million) in suspect payments.
A number of investors voted not to approve the work of Kleinfield and board chairman Heinrich von Pierer. The vote is mostly a formality but gives unhappy investors a chance to vent their anger, and some did: Kleinfield got 71.4 percent and von Pierer 65.9 percent, according to company spokesman Marc Langendorf.
"The business year 2005-2006 had two faces, one beaming and the other gloomy" CEO Klaus Kleinfeld said in a speech to the subdued crowd in Munich's Olympia Hall.
"I suspect you feel the same way I do when you open the newspaper _ dumbfounded," he said. "Dumbfounded because Siemens is associated with something else _ integrity, honesty and exemplary behavior."
"I would like to say once again ... there is no place for unclean business practices in our company, and that principle is nonnegotiable," he said to applause.
Later, shareholders were to vote on approving the work of the board of directors and the top management team. Though a formality, it gives them a chance to register displeasure by voting no.
Excluding the EU fine, Siemens' net profit was above the euro962 million (US$1.3 billion) forecast by analysts polled by Dow Jones Newswires. The fine arose from a European Commission antitrust investigation, which penalized Siemens for price-fixing among providers of a gas-insulated switchgear in the power transmission and distribution industry.
The company's stronger performance was helped by improved earnings from its information technology services, medical equipment and transportation systems divisions. Siemens makes a wide range of equipment and machines _ industrial lighting, power turbines, railway and streetcar equipment, diagnostic machines, and auto parts.
"In terms of the underlying performance of our business, the first quarter got the fiscal year off to a strong start," Kleinfeld said in a statement on the earnings. "Order growth was particularly satisfying, considering that the prior-year basis of comparison was already quite high."
Standard & Poor's credit rating agency said Siemens' rating would not drop despite the agreement to buy UGS, a deal amounting to US$3.5 billion including the UGS debt Siemens would take over. The company's "financial risk profile will not materially deteriorate," the agency said, thanks to revenue from the anticipated automotive IPO.