Siemens Ag Spons Adr

Please stand by, we are about to begin. Good morning, ladies and gentlemen, and welcome to Siemens 2022 second 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 Riesenhuber, Head of Investor Relations. Please go ahead, ma'am.

Thank you. Good morning, ladies and gentlemen, and welcome to our Q2 conference call. All Q2 documents were released this morning and can be found also on our IR website. I'm here today with our president and CEO, Roland Busch, and our CFO, Ralph Thomas, who will review the Q2 results in fiscal 22 outlook. After the presentation, we will then have time for Q&A. The call is scheduled for up to 75 minutes. In addition, Roland and Ralph will host a self-taught meeting later in the afternoon and will be on roadshow over the next two weeks. Since there's a lot on the agenda, with that, I hand over to Roland.

Thank you, Eva. Good morning, everyone, and thank you for joining us to discuss our second quarter results. Before I talk about our strong performance, let me reflect on the turning point we have witnessed in Europe with the war in Ukraine. We strongly condemn this war, and together with the international community, we stand in, calling for peace to stop this human tragedy. As top priority, we immediately supported our 180 employees and their families in Ukraine for their safety and well-being. In addition, we kick-started humanitarian aid with 2 million euros for Ukraine refugees and people in the country through our Siemens Caring Hands organization. Since the war started, our help amounts to more than 14 million euros. In addition to immediate disaster relief, Siemens matched more than 4.5 million euros of donations from employees and provided contributions in kind for key technical solutions as well as shelter for refugees. This is accompanied by many private initiatives from our employees, which we support as good as we can, also with programs to integrate Ukrainian refugees into the labor market. I want to take the opportunity to thank everyone who put a lot of time, effort, and personal engagement to help the victims of the war. This brings me to our operations in Russia, which represents around 1% of our global revenue on group level with around 3,000 employees. Mobility has the largest local footprint with long-term project and service business, while our digital industries and smart infrastructure businesses are based on sales and local service. After the start of the war, Siemens put all new business in and international deliveries to Russia on hold. The comprehensive international sanctions as well as current potential countermeasures significantly impact our business activities in Russia, particularly on the rail service and maintenance business. After thoroughly assessing the situation, Siemens has decided to exit the Russian market for its industrial business. This has not been an easy decision given our duty of care for our employees and our long-term standing relationship in a market where we have been active for more than 170 years. We are evaluating the impact on our people and will support them to the best of our abilities. We have already started to wind down industrial operations and all industrial business activities. This does not include Siemens Healthineers, focused on humanitarian healthcare, which acts as a separate listed company. Our Siemens Financial Service operation in Russia is a local equipment leasing business amounting to around 3% of SFS total portfolio. Siemens Financial Service also put all new business on hold at the end of February. We are honoring existing contracts while we evaluate all options in line with regulatory requirements. The impact on our second quarter financials amounted to around 600 million euros on net income due mostly non-cash accounting impairments, write-offs and charges. By far the largest impact was recorded in our mobility business and Ralph will give you further details. From today's perspective and under the given circumstances, we see further risks with uncertain timing on net income in the range of low to mid triple mid-digit million amount from wind down effects. Potential items are mostly non-cash charges related to the wind down of legal entities, valuation of assets in Russia at SFS and restructuring. Timing is difficult to predict since the wind down of legal entities also depends on fast changing local regulations and factors outside our control. Despite the significant effects from the Siemens Russia exit, I would like to stress that Siemens is confirming the group guidance given at the beginning of fiscal year 2022. Our strong operational performance in the first half of the fiscal year, combined with positive portfolio effects, allow us to generally weather the one-time impact from winding down the business in Russia. Talking about portfolio effects, we now expect the closing of the divestment of the parcel logistics business during the second half of fiscal 22. And Ralf will guide you through the details. Looking at key operational highlights from the second quarter, I am pleased with the progress of our strategic initiatives to drive digital and sustainable business and simplify our portfolio. Our customers continue to invest in their digital transformation and improve resource and energy efficiency in the wake of rapidly increasing energy and material prices. And our automation and software solutions become even more relevant with tight labor markets and increasing complexity in manufacturing grids or infrastructure. Order growth momentum of 22% remained very strong across most customer verticals, still with a certain level of pre-ordering due to long lead times. Overall revenue growth was strong with 9%, excluding effects related to Russia. And I'm particularly proud of our digital industry's automation business, again, clearly gaining market share with revenue up by 16%. This is also clear evidence of a very agile and successful supply chain. The SaaS transition in digital industries accelerated more than expected, leading to annual recurring revenue growth of 13% and a share of cloud ARR of 9%, up 3 percentage points from last quarter. and I have to say here that we are very happy about this acceleration. What counts in the end is consistent free cash flow generation and we delivered again 1.3 billion euros all in. Together with the proceeds from divestments, this will strengthen our balance sheet further and offers room for accelerating our share buyback program and deleveraging. However, The macroeconomic environment remains very volatile. The war is amplifying cost inflation and constraints on supply chains, where the situation remains very dynamic. During the second quarter, the pandemic impacted productivity in some areas in the US and Europe. Moreover, recent Omicron outbreaks in China and the following lockdowns in Shanghai and Shenzhen, among others, pose a risk for the third quarter. Missing deliveries from Shanghai have a knock-on effect across China and outside due to supply chain disruptions and logistics congestions. We support our employees in the lockdown areas with care packages and ensure health and safety. Our factories in the Shanghai area work either close-loop production or are in the progress of ramping up. The situation changes every day. and we expect that we will not be able to fully recover production in the third quarter. We continue to work relentlessly with our supplier network and our own factories to optimize deliveries and master these challenges. Our focus is on mitigating impact on our customers as much as possible. And we continue to balance cost inflation with timely pricing actions over time. All in, we saw a strong operational performance with continuing growth momentum. As indicated, orders reached an impressive level of 21 billion euros, up organically by 22%, leading to a record backlog of 94 billion euros. Our book-to-bill of 1.23 is again excellent. Revenue grew 7% to 17 billion euros led by Seamoth Healthineers with 16% and with high single-digit growth in digital industries and smart infrastructure. Mobility recorded revenue reductions due to Russia. Main contributions came from Germany up 10% and the US increasing by 17% while China was flat on tough comparables. strong operational profitability of 14.6% in industrial business, excluding Russia-related burden, which amounted to 360 base points. EPS pre-PPA came in at €1.50, including a negative impact of 71 cents related to effects from Russia. The prior year benefited from the Flander gain. As I mentioned before, we see strong secular growth trends in all our businesses. Addressable markets are now amounting to €465 billion, complemented by fast-growing adjacent markets in digital and IoT of additional €130 billion. Currently, we are assessing the various short- and long-term effects on mid-term market growth And we are convinced that the underlying growth drivers for Siemens in digitalization, automation, decarbonization, resource efficiency, and related stimulus programs are fully intact. Let me highlight a real source of strength and resilience in our recorded order backlog of 940 billion euros, which is up more than 20 billion euros year over year. A vast majority of the second half fiscal year revenue is already in our books across all businesses. First and foremost, it is now about stringent execution and supply chain excellence. Visibility in our short-cycle product businesses in digital industries and smart infrastructure is extraordinarily far-reaching. It is supported by a high level of advanced reservation payments. In certain areas, substantial orders on hand reach into the first half of fiscal 2023. The long-term project and service backlog of mobility comes with very healthy gross margins. A key strategic lever for value creation is our goal to grow the digital business annually by around 10% until 2025. We are very well on track. The revenue exceeding 3 billion euros in the first half year digital industries is accelerating the SaaS transition and also driving rapid growth in Mendix and supply frame. In addition, we reinforced our growth ambitions with decisive organizational steps in smart infrastructure and mobility. A dedicated grid software unit was set up in January in smart infrastructure bringing around 2,500 software and operational technology experts together. The team just launched a new comprehensive and open grid software suite for a net zero world. In a similar move, we bundled all software businesses at Siemens Mobility, such as Harkon, Skills, or ByteMark under one roof. The goal is... to optimize customer experience and processes across all modes of transport, leading to faster, profitable growth. Coming back to our DI software business and its crucial strategic transition towards software as a service, mainly for our PLM business. In the second quarter, we saw a faster than expected acceleration of the transition clearly visible in the numbers. The annual recurring revenue grew by 13% year over year to 3.1 billion euros ahead of our mid-term target of 10% annual growth. Therein, the key indicator Cloud ARR, as share of total ARR, grew by three percentage point in this quarter alone, up from 6% to 9% overall. Customer feedback is positive and sales teams are very active. We saw an increased flip rate of 44% of PLM renewables, covering almost 70% of the total contract value. This volume was higher than anticipated, and as the flip side of success translated into lower revenue and profitability in the current quarter. Around 1,250 customers have signed on to the Software as a Service business model in the first half of the fiscal year. In the second quarter alone, Around 50% of customers were small and medium enterprises. Among them, many new customers in line with our ambition to expand exactly this customer base. Q2 was the strongest quarter for software renewals in the PLM portfolio, and our plan is to continue serving our customers' appetite for SaaS. Here you can see some great examples how customers build on our technology and domain know-how to transform their businesses and drive sustainability. No matter whether it is in frontier applications such as underwater farming or for long-term customers working on next-generation trucks and power grids or more sustainable public transport, Siemens has excellent hardware and software solutions addressing our customers' challenges. All these examples demonstrate how the dynamic change towards decarbonization, resource efficiency, and more sustainability creates significant business momentum for us. In addition, we continue to execute on our degree ambitions. I want to highlight two initiatives. Our share of renewable energy sources stood at 78% in fiscal 2021. We will increase this ratio further for example, through an additional 10-year solar power purchase agreement in Germany. The war in Ukraine and rising cybersecurity incidents put this topic even higher on public and corporate agenda. A strong cybersecurity offering is a must-have and a business opportunity too. We further strengthened our footprint with the opening of a critical infrastructure defense center in Canada, primarily, for utility customers. More than 1,300 cybersecurity experts at Siemens operating in five global hubs work hard every day to protect our customers and Siemens. Also a strong signal for cross-company collaboration is the merger of the Digital Trust Forum with the Siemens Charter of Trust Initiative, and we are happy to welcome Bosch and Deutsche Post DHL. With that, over to you, Ralf. Let's take a closer look at operational performance and further financial details.