Siemens Ag Spons Adr

Good morning, ladies and gentlemen, and welcome to the Siemens 2021 First Quarter Conference Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor Statement on page two of the Siemens presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mrs. Eva Reisenhofer, Head of Investor Relations. Please go ahead, Madam.

Good morning, ladies and gentlemen, and welcome to our Q1 conference call. All Q1 documents were released this morning and can be found also on our website. I'm here today with our CEO, Joe Kaeser, who will start with a brief introduction, and with our Deputy CEO, Roland Bush, and CFO, Ralph Thomas, who will review the Q1 results and fiscal year 21 outlook. After the presentation, we will then have time for Q&A. Please be aware that the Siemens AGM starts right after this call, and we have to limit the time of the call to 45 minutes. Since there is a lot on the agenda, with that, I hand over to Joe.

Thank you, Ife. Good morning, everyone, and thank you for joining us to discuss our first quarter results ahead of our virtual AGM. And I'm sure you're all keen to hear what the company has to say about the full fiscal 21 guidance. So I'm not taking too much of your time. I believe it's fair to say that Siemens delivered an outstanding first quarter 2021. It accelerated the trend, which we have seen in 2020, in basically all matrices. And when you look at all the growth of 15%, revenue up 7%, and profit on industrial business up 39% year over year, this company must do something right. Especially if we remind ourselves that we are comparing the actual numbers year over year with a pre-COVID quarter. There are several reasons for this, and Roland and Ralph will dive deeper into the analysis and what it means for full fiscal 2021. I'm particularly pleased with the performance of digital industries, as it seems that this business not only outperformed expectations, but also peers. Being a decisive driver of the company's valuation, I'm deeply respectful of what Klaus Helmrich has put together here while he was CEO of that enterprise. Another reason for performing well is structural in nature. The company's closer focus on its core industrial priorities has also been quite beneficial for the shareholders. After the final decision of the energy spin-off was made at the extraordinary AGM in July 2020, the re-rating started slowly but surely. It accelerated with the listing of Siemens Energy in late September and has continued since then. As you are all aware, We've just got another all-time high yesterday, and we'll see what happens today. I am also pleased with the performance of these Siemens Energy shares since then. The accelerated re-rating of the new Siemens AG has clearly been high up in our wish list, and I'm sure in yours too. And you all know there is much more potential to unlock in this record. Well, folks, ladies and gentlemen, this is also the time to take one last look back to where it all began and what happened since then. There are many ways to do so. If I was a shareholder, which I am, as you can potentially imagine, I want to see what has been in it for me. For example, looking at total shareholder returns. Well, it is not on me to judge, but I hope you agree it could have been worse. Anyway, the question would be, could it have been more? I would say it could have been more. Maybe it should have been by international standards. But in striving for more, I had to realize that there was a balance to strike between the desirable and the doable. So I went for what was doable in Germany. With that, I do thank you for a great time together. Be open and fair to my successors. They deserve it. And with that, I hand it over to Roland. Thank you.

Ladies and gentlemen, a warm welcome from my side as well. Dear Joe, thanks for your trust and support over the past month and the last 15 years. Siemens started a new chapter on October 1st, and I'm happy to say we indeed had a very good start. Our Q1 results show how strong and agile Siemens can be when it comes to grasping market opportunities. I'm very proud of what our teams have achieved all around the world. They did an outstanding job. They handled the risks and the challenges of the pandemic and, despite all this, achieved Excellent performance. When Rolf and I talked to you after Q4, we promised we will not miss out on opportunities. And we delivered. Some of our verticals recovered clearly faster, such as automotive and machinery. Particularly in December, customer demand was much stronger than expected. As a result, capacity utilization in our high-margin, short-cycle product businesses went up. profit conversion was excellent. From a regional perspective, China stood out. The Chinese economy has recovered from the downturn. GDP is now higher than it was before the pandemic. Demand in China is strong, both from the domestic market and from export markets. The country is currently winning global market share in manufacturing, and our customers trust Siemens. to increase their capacity. Trust is built long term. So during this crisis, we benefited from this trust. We helped Chinese customers modernize and expand. But it was not all China. Take Germany, for example. The export industry here also recovered faster than expected. However, markets are still volatile. We remain cautious. The pandemic is not yet over. It is impossible to predict the effects from the second and from the third wave, and we don't know how fast vaccinations will make a difference. But no matter what comes, we will keep empowering our customers. We will deliver innovative and sustainable solutions, and we will support our customers' digital transformations. Here are a couple of recent highlights. Just a few weeks ago, we signed a memorandum of understanding with the Egyptian government to build a high-speed rail system. Over the last couple of years, Siemens had built three huge power plants in the country to supply energy to 14 million Egyptians, a capacity boost of 40%. We delivered them on a very, very tight schedule on time. Next is transportation. We and our partners will help the country build a state-of-the-art railway system, connecting cities, cutting journey times, creating jobs, reducing pollution. The turnkey project includes rolling stock, rail infrastructure, and, of course, systems integration. On top, it comes with an attractive 15-year maintenance contract, in part because we are a leader in digital rail automation and technology. data-based predictive maintenance. We expect first orders to be booked in fiscal 2022, and we will keep you updated on the progress. Let's get back to China for a moment. We often talk about the benefits of combining domain know-how with a strong digital offering. And here are the proof points that this combination is working. The joint venture BMW Brilliance wants to increase its production capacities in China They choose us as partner. Or take Guangdong Huaqing Glass, Asia's largest glass manufacturer. They want to improve their product quality further and they want to produce more efficiently and more flexibly. To help them achieve their goals, we developed a one-stop lean digital factory solution which will be rolled out across 15 of their factories. This is all about long-term value for our customers And another highlight, our smart infrastructure business is very successful in selling to data centers. The COVID pandemic has driven up e-commerce significantly at the same time. We need more processing storage of data. Our building automation and electrical infrastructure systems are optimized for data center. They help our customers to reduce the energy consumption as well as the operating costs. Our team won several multi-million orders with data center operators and so-called hyperscalers. So how does all this translate into our financials? Let me give you a brief overview for the Siemens Group in Q1. Orders went up 15% at 15.9 billion euros with a strong book-to-bill ratio of 1.13%. All business contributed to this increase. Mobility's large orders in Germany and Austria were key drivers. For example, there's a large order for digitalizing the German rail infrastructure and more to come. Revenue was up across businesses and regions by 7% to now 14.1 billion euros. Topline growth was much higher than expected. This comes partly from our business in China, where we were up 21% year-over-year, but growth came from other places too. Top-line growth in Germany, for example, increased by 8%. Adjusted EBITDA of our four industrial businesses rose sharply to 2.1 billion euros, benefiting from strong top-line driven profit momentum. In addition, we made clear structural improvements and our discretionary spending was very low. This helped us with profitability. Just to give you one data point here, travel and related expenses were down by 64% year on year. Well, that's a level that we will not be able to maintain going forward. Altogether, this led to an excellent margin performance of 16% and translates into a strong earnings per share ratio. of 1.72 euros. Alf and I were very satisfied with our progress when it comes to achieve a more consistent free cash flow development throughout the year. One billion euros of free cash flow in the first quarter is an excellent start, and Alf and myself, we are promising we will keep our eyes on the ball. For many companies, a pandemic is not a time for growth, but some of our businesses and regions all conditions proven. Based on the assumption that this continues in the coming quarters, particularly for our short cycle, we raised our outlook for the fiscal year. We expect a book-to-bill ratio above 1. We expect mid to high single-digit comparable revenue growth and net income in the range of 5 to 5.5 billion euros. With that, Over to you, Ralph. Let's take a closer look at some of the figures for our first quarter.

Thank you, Roland. And also good morning from my side, ladies and gentlemen. Since most business financials were already pre-released, let me give you some more color on key reasons for our outstanding first quarter's performance. As Roland said, our key markets for digital industries in automotive and machinery rebounded faster than originally anticipated. All automation businesses returned to order growth again, while software was lower on tough comps. Our automation businesses saw a stunning 34% order growth in China. Also, Germany was up 13%, benefiting from a short cycle recovery in export-driven end markets. Revenue growth in automation was driven by China, up by 27%, which overcompensated for single-digit declines in other major regions. We assessed that around one-third of this massive growth in China is attributable to restocking effects. Discrete automation was clearly up, while process automation was flattish overall due to ongoing softness in the U.S., where we continue to see low investment levels in oil and gas markets. Software grew by 5% on strength in the EDA and MENDIC segments, while the PLM business continues to see a cautious investment attitude at their customers, for example in aerospace. Margin performance at digital industries reached a quarterly record of 22.5%, driven by a fairly unique accumulation of tailwinds. Main reasons are strong growth and higher capacity utilization in short-cycle product businesses for factory automation and motion control, combined with a very favorable mix therein. A strong contribution came from the software business driven by EVA, whereas cloud and integration investments accounted for around 120 basis points negative impact in the first quarter. Besides the COVID-19-related low level of travel and marketing costs, structural improvements from our accelerated DI1 cost-out program are also clearly visible in our bottom line. On top, lower severance costs accounted for 260 basis points margin improvement year on year. We liked very much that digital industries generated more than 500 million euros of free cash flow in the first quarter, which is typically seasonally weaker. After the pre-release, we were asked if December had been the main driver of outperformance. Historically, revenue distribution in our automation business is rather evenly split in the first quarter, influenced by the number of working days around Christmas in many countries. However, this year pent-up demand, restocking effects, and faster industrial recovery led to an extraordinary strong December revenue share of 36% of quarterly revenue.