Siemens Ag Spons Adr

Good morning ladies and gentlemen and welcome to our Q3 conference call. All Q3 documents were released this morning and can be found also on our Ambassador Relations website. I'm here today with our President and CEO Roland Busch and our CFO Ralph Thomas who will review the Q3 results. After the presentation we will then have time for Q&A. This call is scheduled for 75 minutes. So with this, let's jump right in over to Roland.

Thank you Eva. Good morning everyone and thank you for joining us to discuss our third quarter results. I'm very proud that we delivered another outstanding performance. My thanks go to all the Siemens employees worldwide for their strong focus on execution and their commitment to support our customers. We again clearly delivered on our ambition to empower our customers to master their digital transformation and sustainability challenges. We execute on our strategic priorities and targets outlined at our Capital Market Day. And we accelerate high-value growth as a focused technology company. In the third quarter, the strong economic recovery across all regions continued. China was once again a key growth engine, with Europe and the US catching up, supported by ongoing vaccination progress. We expect this favorable macro environment to continue with some growth moderation, especially in China. However, the rapid spread of new virus variants shows us that the pandemic is still not over. Recovery. was also broad-based across our key industrial verticals, such as automotive, machine building, or electronics, and across most infrastructure segments, such as power distribution, data centers, or mobility. Part of this strong manufacturing rebound is due to some stock-building effects at our customers to mitigate their risks from supply chain constraints. Like our customers, we are seeing challenges in our supply chain, such as a tight supply of components like semiconductors. We also see elevated pricing levels for raw materials, transport and components, a situation that will prevail into fiscal year 2022. I'm very pleased how well our teams have handled these challenges so far and have limited their impact. Availability is best possible secured through close collaboration with our suppliers. And we are leveraging our global network of supply chain professionals. In our factories, we are seeking to optimize output without compromising employee safety to match strong customer demand. In certain areas, our factories are operating at full capacity. This leads to extended customer delivery times and clearly higher order backlog, mainly in short cycle automation products. So far, headwind from material cost inflation has been partially mitigated through hedging and long-term contracts. And on top, through timely pricing measures, we have been able to contain bottom line impact. Our top priority is on execution. to build on our strong momentum, strategically and operationally. And we again made great progress. Our portfolio further strengthened with bolt-on acquisitions, mainly in the digital area. Our offering? Highly competitive. Good examples are our large auto events at Mobility. They are based on superior technology and lifecycle cost, combined with digital capabilities. Our sustainability approach, an important business differentiator with implementation in full swing. All this led to an outstanding performance across all matrices in the third quarter. We will pursue this path of rigorous execution to drive profitable growth and steady cash generation. Looking ahead, we expect a further gradual uptick in our discretionary spending in line with opening of economies. In addition, we plan to selectively invest in new applications, sales channels, and additional resources to grasp growth opportunities. Based on our excellent first nine-month performance, we again raise our outlook for fiscal year 2021. We expect our book-to-bill ratio to be above one, As before, we now expect revenue growth for the Siemens Group of 11 to 12% on a comparable basis. And net income is now seen in the range of 6.1 to 6.4 billion euros. Ralph will walk you through the details. Now let me give you some more color on the topics I touched in my introduction. We are actively shaping and strengthening our portfolio with bolt-on acquisitions. As indicated before, a particular focus is on our software and digital service offerings. Just a recap from the Capital Market Day. An important building block is the acquisition of SupplyFrame, which will decisively accelerate our digital marketplace strategy. We closed the acquisition just a few days ago. During the third quarter, Digital Industries has been quite active and has acquired five smaller software companies. We added deep expertise in simulation for the PLM and EDA portfolio. We also added vertical application building capabilities to our Mendix low-code platform. The combined purchase price is just north of 100 million euros. We are very pleased that Siemens' half-year acquisition of Varian is performing well after its closing in April. Both operations and integration are fully on track. Enhancing digital capabilities and driving value creation through resilient business models is crucial for all Siemens units. And it is also crucial for our customers. At the Capital Market Day, we presented an example from mobility. Mobility is building a mobility as a service platform for our customers to enable digital planning, booking, and payment for multimodal travel. Be it by train, bus, or ride-sharing, or any other option. Be it first or last mile, and be it regional or countrywide. With the acquisition of skills, we are now decisively strengthening this software portfolio. Mobility will provide operators worldwide an enhanced digital offering for their core processes, from sales to operations. This will help to increase the usage and convenience of public transport. Together with Harkon, EOS.Uptrade, Weizmark and Padam, skills S3 passenger software will become part of an interconnected software portfolio. This step will bring a wide variety of services together. SKILZ's scalable cloud-based platform enables public transport operators to replace their legacy systems with a digital booking system. It covers inventory management, reservation, and ticketing for rail and bus travel. And here is the value for our customers. It increases utilization and availability of passenger transportation by optimizing convenience and yield. This is also a tangible benefit for the environment and for sustainability. Skilled software is already in use across nine countries at 33 transport operators such as SNCF, Irish Rail or ViaRail. The profile of this acquisition is very attractive, scoring high on our strategic imperatives and capital allocation criteria. We are expanding in a fast-growing adjacent market. The SaaS business model delivers fast-growing, resilient recurring revenue with highly attractive margins. We see significant synergy potential to utilize Siemens' global presence. Bringing technological resources together, we will drive growth for combined offerings. The acquisition will be accretive to EPS pre-PPA in year two after closing, which we expect for the first quarter in fiscal year 2022. And the return on capital employed is above our weighted average cost of capital. The agreed purchase price is 550 million euros plus unearned out. Skills forecasts revenue for calendar year 2022 of around 40 million euros with an attractive EBITDA margin. Valuation multiples are comparable with recent transactions for high quality software as a service assets. And there's more good news for mobility. We have a longstanding relationship with Amtrak in the United States. Recently, We were awarded equipment and service orders totaling 2.8 billion euros. Our scope of delivery is for 73 sustainable, efficient and reliable trains. From 2024 onwards, they will replace the aging fleet in eight states with modern dual-powered or hybrid battery trains. This will transform how Americans travel. Amtrak expects to add 1.5 million additional riders annually. How? By offering higher capacity, shorter trip times, and a more comfortable travel experience. Our concept to optimize lifecycle cost convinced Amtrak to take this long-term platform decision. We achieved this through rolling stock platform approach, real-time digital monitoring, and predictive maintenance. We are excited that Amtrak has further ambitious plans for their fleet. Depending on the execution, Amtrak has the option to order up to 140 additional trains and related maintenance agreements. Great potential for additional business. In line with local requirements, the trains will be built at our U.S. Manufacturing and Service Management Hub in Sacramento. At the Capital Markets Day, we introduced our holistic degree framework. It comes with ambitious targets around six core action fields for sustainability. We will regularly report on our progress and see strong implementation momentum. Let me highlight a few examples from Q3. We launched many initiatives to achieve our target of net zero operations by 2030. Among those, our Siemens real estate team has now defined standards to target net zero carbon for all new construction projects. An important part of our ethics approach is the support for international initiatives in the fight against corruption. To support them under the collective action panel. Hence, we expanded our commitment by another 20.5 million US dollars. This brings the total volume of Siemens integrity initiative to nearly $120 million. And we joined the Valuable 500 initiative to highlight our commitment to an inclusive culture. At Siemens, people with disabilities participate fully and are empowered to contribute. On top, we have an even greater impact on sustainability through our customers' operations. Great evidence is again the Amtrak order I mentioned earlier. By using dual-powered and first-of-its-kind hybrid battery trains, Amtrak will be able to significantly reduce emissions by up to 70% relative to today's fleet. Another great example is from the water industry. Swedish water supplier VA Syd operates around 2,000 kilometers of drinking water pipelines. A key challenge is to reduce around 10% of non-revenue water due to leakages. Together with our customer, we are rolling out an AI-based leakage detection system to waste fewer resources. On top, the customer increases productivity by avoiding unplanned service disruptions. So how does all this translate into our financials? Let me give you a brief overview for the Siemens Group in the third quarter. Orders were at 20.5 billion euros, up by a powerful, comparable 44% over the pandemic-hit prior year quarter. The rise was driven by double digit growth in all businesses, leading to a very strong book-to-bill ratio of 1.27. Revenue was up comparable by 21% to 16.1 billion euros now. Increases were recorded in all businesses with strong contributions from Siemens Healthineers, Digital Industries and Smart Infrastructure. Top-line growth was very strong and broad-based. We recorded double-digit comparable growth across all regions. Germany was up 30%, the US grew 19% and China was up 14% on already tougher comps. Adjusted EBITDA for our four industrial businesses rose substantially to 2.3 billion euros. It benefited from strong top-line driven profit momentum. structural improvements are continuing to pay off. As expected, discretionary spending for sales and project-related efforts started to pick up again. Altogether, this led to an excellent margin performance of 15.3% up by 100 basis points. It translates into a strong earnings per share of 1.68 euros, also benefiting from lower income tax expenses. Ralph and I continue to be extremely satisfied with our progress towards achieving a steady free cash flow development throughout the year. 2.3 billion euros of free cash flow all in, in the third quarter, is another proof point, driven by an excellent 2.4 billion euros from industrial businesses. Our strong cash performance is also reflected in our solid industrial net debt over EBITDA position. It stands at 1.9 times, despite material cash outflows of €13.4 billion for Varian. With that, over to you, Ralf, and let's take a closer look at operational performance and financials.

Thank you Roland, also good morning everybody. Let me share further details regarding our excellent performance across all businesses. Our key markets for digital industries in automotive and machine building continued to recover at a strong pace leading to very dynamic order activity by our customers. The surge in demand was partially caused by customer concerns about component shortages leading to extended delivery times. All automation businesses showed massive order growth, with discrete automation sharply up and process automation being substantially up. Software was softer overall on tough comps in the EDA business, while PLM clearly recovered. European countries contributed with record growth rates to automation growth, albeit on easy comps. Italy more than doubled. Germany was up 65%. And China continued its strong momentum with further 56% order growth. Here we expect a normalization of growth going forward. We are very pleased that automation revenue rose 23% year-over-year and also achieved clear sequential growth over the second quarter. Discrete automation was up in the mid-20s with broad-based demand across regions. Process automation saw continuing recovery in demand, achieved growth in the mid-teens, and was also up sequentially. Revenue growth in automation was broad-based with double-digit increases across all major regions. Strong momentum in China continued up by 27% year-over-year and with further sequential growth. Software was up modestly by 2% with a heterogeneous picture in the segments. As indicated, EDA business is somewhat lumpy depending on revenue recognition from large contracts and it did not reach the high level of the prior year. However, our PLM business saw further improving investment attitude among its customers and is back on a clear growth trajectory. Mendix continued its strong mid-to-double-digit growth momentum. In line with our expectations, digital industries reached an excellent 20.3% margin performance. This is an operational improvement of 150 basis points over the prior year quarter, which benefited from an effect related to the revaluation of the stake in Bentley in the magnitude of 570 basis points back then. Margin improvement benefited from strong profit conversion on higher revenue in short cycle businesses combined with prior measures to structurally improve the cost base. As indicated previously, Cloud and integration investments accounted for around 100 basis points of negative impact similar to prior quarter's levels. We are literally thrilled that digital industries achieved more than 1.1 billion euros of free cash flow in the third quarter. This truly exceptional performance with a cash conversion of 1.32 times is based on hard and consistent work on stringent working capital management across all businesses. Now let's have a look at our market segments and geographies. I already highlighted the key developments from a regional perspective. Looking at our key vertical and market expectations for the next quarters, we see a continuing recovery along broad-based positive sentiment in a wide range of industries. Even demand from aerospace and defense industries is bottoming out now. As Roland said, our team is extremely dedicated and determined to mitigate risk from supply chain shortages in areas such as electronic components. And we expect a rising impact from higher commodity prices in our assumptions. Nevertheless, for the fourth quarter, we anticipate for DI, from today's point of view, further high single-digit comparable revenue growth, reflecting continuous sequential growth momentum. Given the well-managed ramp up in discretionary spending and investments to leverage the strong growth opportunities, we expect the profit margin for the fourth quarter for DI to be slightly below the very strong third quarter. Now let's move on to smart infrastructure. The team delivered very convincing top-line growth in improving end markets and provided further evidence for a clear margin expansion trajectory. In total, orders were up 24%, driven most notably by a sharp increase north of 40% in the electrical products business, benefiting from very strong industrial demand. The solutions and service business showed clear growth, benefiting from several large orders, for example in Germany. Revenue growth of 15% was broad-based across all major regions, with strength in Europe, excluding Germany, but up by 20% in the United States, up by 16%. China increased by 4%, a kind of normalization on tougher comps. Product businesses were up substantially by 29%, whereas systems showed a significant recovery from a low level in the prior year. As expected, the late-cycle solutions and services business returned to mid-single-digit growth and will continue to recover in the quarters ahead. Margin performance of 12.1% benefited from higher capacity utilization related to increased revenue, as well as structural improvements from its competitiveness programs. On the other hand, there was some headwinds from commodities, pricing, and currency effects. On this slide, for smart infrastructure, you can see further details for the regional top line development, which I already touched upon. We expect the momentum in our short-cycle electrical product business to continue in the strong end markets and our solution business to pick up further in line with the improving growth perspectives in the late-cycle buildings market. The electrification market is on a solid growth trajectory with accelerating renewables integration and the trend towards electrification in areas such as transportation. And we see for the fourth quarter comparable revenue growth rate to be high single digits. As Roland and I already highlighted, smart infrastructure has done an excellent job of mitigating the impact from strained supply chains. However, as indicated before, we see stronger headwinds coming up from higher raw material prices, which cannot be fully compensated by hedging and pricing actions. In total, we expect the fourth quarter margin to be slightly above the level of the third quarter. Roland already talked about the strategic progress being made at mobility. Looking at the numbers, order growth obviously stands out, driven by the Amtrak order and several large contracts in rolling stock and rail infrastructure. And our sales funnel looks pretty promising for the quarters ahead. Revenue grew 5% in line with expectations driven by rail infrastructure, while rolling stock was soft due to project phasing. Service business is moderately up by 4%, still somewhat impacted from lower ridership. Mobility did an excellent job compared to the competition of delivering resilient revenue growth throughout the pandemic period. Profit margin was again within the target range based on stringent execution and benefiting from fewer pandemic-related restrictions on accessing sites. Our assumption for revenue growth is expected to continue to be in the mid-single-digit quarter in fiscal 2021. Fourth quarter margin is sequentially higher compared to the third quarter, getting closer to double-digit performance. As indicated, free cash flow is expected to rebound and catch up materially in the fourth quarter, closely linked to the timing of down payments. At this point, let me briefly highlight the excellent operational performance of the Siemens Healthineers team, who disclosed financials last Friday. Since then, their share price reached a new all-time high, now reflecting a market cap of around 65 billion euros. As majority shareholder, we are also very pleased with the upgraded operational outlook in total, and in particular at Varian, as well as with the stringent and well-prepared integration approach. In the appendix of the presentation, we have incorporated the relevant outlook slide, the update on variant performance and integration status, as well as the profit bridge from Siemens Healthineers to Siemens AG. The anticipated negative impact of the variant transaction on Siemens net income was 177 million euros in the third quarter and is expected to reach close to 350 million euros for the full fiscal year. Next, I want to touch upon a few important topics below our industrial businesses, including an updated assessment for full fiscal year 2021, now including all variant effects. SFS delivered another consistent performance in the third quarter and is well on track to achieve a significant improvement over fiscal 2020. However, not at pre-COVID-19 levels yet. Our portfolio of companies returned impressively into top-line growth territory and the fully owned businesses achieved margin improvement. As indicated before, we continue to expect for the full fiscal year ongoing losses at Valeo Siemens to overcompensate for the positive contribution from the fully consolidated businesses. Siemens Energy Investment, as you already know, suffered a setback in the third quarter. For fiscal 21, we expect now, in addition to PPA effects of around 200 million euros, a deteriorated net income contribution attributable to the Siemens AG stake to weigh on our results. Siemens Real Estate will not see any further material disposal gains this year. Therefore, profit will be well below the prior year at a high double-digit million amount. For fiscal 21, we now expect corporate items and pensions to fall below prior year level and reach around 900 million euros due to numerous smaller factors with positive effects. Among them, of course, are cost savings from the corporate 2020 plus program. PPA on intangible assets now includes variant effects in the area of around 200 million euros and is expected around 800 million euros in total. Elimination corporate treasury and other items is now seen slightly below fiscal year 2020 level. due to lower interest expenses on debt. After we recorded lower income tax expenses in the third quarter, due mainly to the reversal of income tax provisions, we now expect the tax rate to be around 25% for the full fiscal year. In discontinued operations, we recorded a material positive impact from the reversal of income tax provisions as well. For the fourth quarter, we still see some minor remaining subsequent spin-off costs from Siemens Energy to come. As the overall result for discontinued operations for fiscal 21, we expect a close to 1 billion amount driven by the slender gain. As mentioned, free cash flow performance in the third quarter was again brilliant. Our continuing focus on working capital management delivers impressive results for steady cash conversion. A free cash flow of more than 6 billion euros and a cash conversion rate of 0.92 times for the industrial business after the first nine months is truly remarkable in the light of double-digit top-line growth. Strong cash focus across the entire organization is also clearly visible, an excellent cash conversion rate of 1.54 for free cash flow all-in in the third quarter. Our financial strength was also recognized by Moody's upgrading the rating outlook to stable and affirming our A1 rating last week. Given the strong performance in the first nine months, We do not expect another September wonder, but rather assume continued steady performance, including the mentioned catch-up by mobility. Now, as Roland already highlighted, the raised outlook for the Siemens Group, with revenue growth of 11% to 12% and net income of €6.1 to €6.4 billion, including effects from Varian, I will give you the updated framework for the businesses. We assume that our businesses do not experience significant supply chain constraints during the remainder of the fiscal year. Furthermore, we see our fourth quarter as a continuation of clearly easing negative currency translation effects on our top line. Digital industry now expects 10 to 12% comparable revenue growth. The margin expectation continues to be at 20 to 21%. Smart infrastructure now anticipates 8% to 9% comparable revenue growth and confirms a margin of 11% to 12% expecting to reach the upper half of this range. Mobility continues to anticipate mid-single-digit comparable revenue growth with a margin of 9.5% to 10.5%. With that, I hand it back to Eva.