Siemens Ag Spons Adr

Good morning, ladies and gentlemen, and welcome to Siemens 2022 fourth 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, Ms. Eva Scherer, Head of Investor Relations. Please go ahead, ma'am.

Good morning, ladies and gentlemen, and welcome to our Q4 conference call. My name is Eva Scherer, and I took over as Head of Investor Relations as of October 1st. I look very much forward to collaborating with you. All Q4 documents were released this morning and can be found also on our IR website. I am here today with our President and CEO, Roland Busch, and our CFO, Ralph Thomas, who will review the Q4 and full fiscal 2022 results, followed by the outlook for fiscal 2023. After the presentation, we will have time for Q&A. The call is scheduled for up to 90 minutes. Since there is a lot on the agenda, with that, I hand over to Roland.

Thank you, Eva, and good morning, everyone, and thank you for joining us to discuss our excellent fourth quarter and fiscal 2022 results. But before diving into the quarter, let me briefly start with an important milestone and a source of pride for every Siemens employee and shareholder. Our company turned 175 years just one month ago. Celebrating this anniversary was about our heritage, but even more about our future. Siemens keeps reinventing itself from a position of strengths by anticipating trends and developing new technologies, by staying relevant and creating impact for our stakeholders, by having the right team to transform at even higher speed, and by laying the foundation of the decades ahead. Our ambition is clear. We will continue to play a leading role in empowering our customers and societies to transform, tackle, the world's biggest challenges for a sustainable and better future. Two years ago, we started executing our strategy as a leading technology company to combine the real and the digital worlds like no one else. We create substantial value for our customers, be it in industry, infrastructure, transportation or healthcare. We empower customers in these areas to master their digital transformation decarbonize and improve resource efficiency. They accelerate our own cloud speed and scale digital and sustainable technologies to achieve even higher value growth while driving profitability and cash. Looking at the agenda, we review a very successful fiscal 2022 and give a confident outlook for fiscal 2023. I am very proud that we delivered on our updated promises in fiscal 2022 and created substantial value for all our stakeholders, despite many challenges. We all experienced a year with geopolitical and economic turmoil, including the war in Ukraine, the ongoing pandemic-related supply chain constraints, soaring inflation and labor shortages. Against this backdrop, Our focus has been on successfully managing this complex environment together with our customers, partners, and suppliers. My thanks go to Team Siemens worldwide for the dedication and commitment to go the extra mile even under difficult circumstances such as extended lockdowns. In times of uncertainty, As a technology leader, Siemens captured significant market opportunities and market share. Secular growth trends such as electrification, automation, digitalization and sustainability play to our strength and we were again a key catalyst for top-line growth. Orders were up by a stunning 17%, while revenue grew by 8%. A book to bill of 1.24 and a record order backlog of 102 billion euros bode very well for fiscal 2023. Our outstanding performance, as also compared to competition, is most notably underpinned by an excellent free cash flow. We repeat it. prior year's record level of 8.2 billion euros, equaling more than 10% cash return on sales. This is the third year in a row in double-digit territory. Earnings per share pre-PPA came in at 5.47 euros, well within the updated guidance range and a remarkable result. With strong operational performance and higher gains from divestments, we were able to successfully compensate for substantial headwinds. Some were expected, like SARS transition in digital industries, but even more material were unforeseen impacts, such as the wind-down of our Russian operations or more severe pandemic-related supply chain constraints. Profit in industrial businesses. reached a record high of 10.3 billion euros, exceeding the 10 billion mark for the first time. This translated into a further improved margin level of 15.1%. All three businesses exceeded their revenue guidance with a powerful finish in Q4. Digital industries grew by 13%, comparably, and profit margin was close to the prior year level with strong conversion in the automation business. It almost fully compensated effects from the SaaS transition well ahead of expectations set at the capital market day. Smart infrastructure grew by 10%, came in at the upper end of this year's profitability guidance and a very steady and consistent improvement path. Mobility grew by 3% and achieved industry leading profitability again, despite the wind down of a very accretive business in Russia and pandemic headwinds. A major milestone was the optimization of the portfolio through divesting Unix. Now let me outline some key operational highlights of the fourth quarter. As I mentioned, our customers continue to invest in electrification, automation, and digitalization, and this led to an excellent organic top-line performance. We also clearly benefited from currency translation effects of around eight percentage points. The bill reached 1.06 on strong order growth momentum of 17% in smart infrastructure and 9% in health and use. As expected, we saw normalization of demand in digital industries on a high level with order growth of 3%. Overall revenue growth was at 12%, strongly up in all industrial businesses and led by double-digit growth in digital industries and smart infrastructure. I'm particularly proud of our digital industries automation business. Once again, noticeably gaining market with revenue up by 23% based on an excellent execution and supply chain management. What really matters is value creation growth and we execute it strongly. For the first time, more than 3 billion euros profit in the industrial business in a quarter And an outstanding highlight, almost 3.5 billion euros of free cash flow. Our financials are clear evidence for a sound and compelling strategy. Some more facts. Digital business reached revenue of 6.5 billion euros in fiscal 2022 and sustainability is a core driver for growth across all businesses. The SaaS transition in digital industries is fully on track, delivering annual recurring revenue growth of 14% in Q4. Cloud ARR almost quadrupled versus prior year and rose to more than 500 million euros, now representing 15% share of total ARR. And if challenges arise, our teams are working relentlessly to resolve them. Most notably, we were able to retire the P&L risks associated with the wine in Russia in Q4. The divestment of the local finance and leasing activities was closed. This fundamental strength of our company is also reflected in our dividend proposal of €4.25, an increase of 25 cents in line with our progressive dividend policy. Looking ahead into fiscal year 2023, we remain alert and monitor all developments closely. It is obvious that we have a tight grip on OPEX and CAPEX investments, which are closely linked to attractive market opportunities and favorable demand patterns. Our teams are very close to what's happening in our markets. And they are empowered to gradually release OPEC spending based on the very latest developments compared to our planning scenarios. From what we see today, based on our strong order backlog and a clear net positive economic equation, we expect further value creation, growth, creating growth in fiscal year 2023. And Ralph will give you the details. Finally, I want to emphasize a further fundamental strength of Siemens, which enables us to balance geopolitical risks. We are a global yet agile company with robust, and fully localized value chains in every geography. Our footprint is diversified with each region to avoid unbalanced dependencies. The latest regional exposure is in the appendix of today's presentation. Let me reiterate. Our investment decisions are based on a favorable risk and reward profile to achieve our profitable growth targets. In addition, we strive to continuously strengthen our competitiveness compared to incumbents and emerging competitors, often from fast-growing markets. The basis of all of this is technology leadership in combination with size, leading market positions, and trust. I was twice in Asia during the last two weeks, and we see continuous dialogue and collaboration on eye level as a prerequisite to solve the global challenges of our time together. As indicated, orders reached an impressive level of almost 22 billion euros, up organically by 7%, leading to a record high quality backlog. Revenue exceeded the 20 billion euros threshold for the first time after spinning off Siemens Energy in 2020. Growth was broad-based in Asia-Australia up by 22%, with double-digit growth in five out of six lead countries. EMEA was up by 7%, and the Americas rose 8%. Industrial business profitability of 16.2% was up 220 base points. And EPS pre-PPA came in at 3,59 euros, driven by strong operational performance and from the divestment gain of the mail-in parcel business. Looking into fiscal year 2023, our healthy order backlog is a source of strength and resilience. It gives us confidence to achieve our profitable growth targets by standing at 102 billion euros, up almost 18 billion euros over prior year. Visibility in our short-cycle product businesses in digital industries and smart infrastructure is at unprecedented levels, far reaching into fiscal year 2023. The long-term project and service backlog of mobility comes with healthy growth margins. Going forward, we continue to focus on stringent execution and supply chain excellence to meet customer expectations better than competition. Our world-class teams have made a substantial difference here based on long-term, trustful relationships with our suppliers and partners. Transparency through advanced analytics and our localization strategy are key success factors to mitigate constraints as much as possible. A strategic growth catalyst for all our businesses is achieving sustainability impact at our customers. Here you can see great examples how customers build on our technology and domain expertise in attractive growth verticals. So let's start with digital industries. The team in China has entered a strategic partnership with Dongfang Boiler to accelerate planning and building of large-scale concentrating solar power plants. Digital Industries will provide a broad range of automation and SCADA solutions to optimize clean, renewable solar power generation in a series of projects. We will deliver more than 30,000 PLCs in the coming year with the first project underway. We continuously strengthen our position as a key technology partner for sustainable automotive battery gigafactory production. The latest example is the partnership with European Automotive Cell Company. ACC will use the broad range of our Siemens accelerator hardware and software portfolio to optimize design and manufacturing via digital twins. The clear goal is to scale up production efficiently, combine with best-in-class energy management in two plant gigafactories in France and Germany with a potential foamboard. Smart infrastructure is working on many projects to decarbonize energy infrastructure and transportation. As part of our broader collaboration between Shell and Siemens on a low-carbon energy solution for the future, Siemens is an important electrification and automation partner to realize one of the worldwide largest green hydrogen production plants. It is called HH1 in Netherlands. Another good example is the collaboration with Volta Trucks, where we support Volta's zero-emission, fully electrified transport as a service model. Our offering includes the latest charging and power distribution infrastructure, software, and even financial services for Volta Trucks' commercial electric fleet customers. Our mobility solutions are the backbone for safe, reliable, and sustainable transportation solutions, and let me mention just two highlights. Mobility will provide an automated CPTC signalling system in Taiwan, allowing for driverless operations, greater availability and improved passenger experience. Akim, a French rolling stock leasing specialist company, ordered 65 of our best-selling Vectron locomotives for European cross-border transport. All these projects demonstrate how sustainability creates significant business momentum for us. In addition, we move ahead in implementing our degree ambitions, and I want to point to three topics. First, as a strong external reference, we were again recognized as number one in the Dow Jones Sustainability Ranking among our industry peer group. Second, Besides creating sustainability impact downstream towards customers, we put a large focus on our upstream supplier base. We held a series of C-level global supplier collaboration days with more than 400 selected key partners. The goal was to align on requirements, tools, and identify joint action fields how to drive decarbonization, resource efficiency, and circularity approaches. Our offerings will play a major role to support our suppliers in driving sustainability and creating a win-win situation. And third, at a time when criminal cyber attacks on enterprises and governments are used as a strategic weapon, it is a strong signal that Microsoft is joining our cybersecurity ecosystem charter of trust. We will work together. on further developing robust security principles for the design phase and supply chain security. My fellow board member Judith Wiese and I will highlight our progress and future priorities at a virtual sustainability update event on December 12th. We are looking forward to discussing this key area of interest with you. A core strategic lever for value creation is our goal to grow the digital business annually by around 10% until 2025. Fiscal 2022 was a successful step in this direction, achieving around 15% growth to 6.5 billion euros despite the ongoing PLM SaaS transition in digital industries. And we are confident to continue a strong growth trajectory in fiscal 2023. After summer break, each business presented a leading trade at leading trade fairs, the latest launches of our software and IoT-enabled portfolio, all built on the principles of our open digital business platform Siemens Accelerator. Smart infrastructure attracted high customer interest at the Leiden Building Fair with Building X, our recently launched smart building software suite for net zero buildings. Mobility was an inner trance to showcase its comprehensive mobility software suite X and its Religent X application suite for digital services to achieve 100% system availability. And just last week, the digital industries team highlighted our comprehensive IoT offerings for industry together with a strong ecosystem of partners at the SPS fair. We bring together solutions and applications from sensors to edge to cloud. Customers will benefit from integrating IT and OT to increase performance, productivity, flexibility, and sustainability. When looking at the strategic transition of our DI software PLM business towards SaaS, I'm pleased with the progress. As I mentioned before, the transition is fully on track. with a share of cloud AOR at 15% of total AOR, tripling year over year. Around 3,100 customers have signed on to the software-as-a-service business model in the first year of the transition. Among them were close to 60% new customers, underpinning our ambition to expand our existing customer base. And many first-time SaaS buyers have already placed follow-up orders throughout the year. So far, around 74% of customers were small and medium enterprises, clear evidence that we are successfully expanding our reach in this segment. We have been pleased that customers from our traditional businesses, such as auto, food and beverage, and industrial machinery, show a strong preference for our cloud offerings. Looking at another data point of customer acceptance, we saw a rising transformation rate of PLM renewables over fiscal year 2022. It has been stabilizing above 80% of the total contract value up for renewal. As anticipated, the change in accounting towards recurring revenue again translated into lower PLM revenue and profitability in the current quarter. Looking ahead, we will intensify and optimize our customer success management and online customer nurturing activities. This will drive revenue with the adoption of further functionality and applications. We are confident to achieve further dynamic ARR revenue growth in fiscal year 2023 in line with our ambition to grow above 10%. To sum it up, our own internal transformation to change the business model as well as customer buy-in is fully on track. A key lever for future success is our targeted and outcome-driven investment in innovation. We plan to further increase R&D intensity to around 8% of revenue through constant renewables of strong hardware base and intensified investments in our software and digital portfolio. It is a clear goal to extend market-leading technology positions, drive sustainability offerings, and expand software as a service models across all businesses. In addition, our central technology team is closely collaborating with all businesses to maximize the benefit of jointly investing more than 500 million euros in 11 core technologies. These key overarching areas are, for example, data analytics, artificial intelligence, cybersecurity, or simulation and digital twins. An important lever for margin expansion have been our competitiveness programs where we made substantial progress in fiscal 2022 and reaped the benefits. Digital industries and our corporate lean and effective governance program were executed one year ahead with the desired outcome. The latter overachieved its target even slightly, which is showing its benefit across Siemens. Smart Infrastructure will finalize its program by the end of fiscal 2023 to plan further supporting its ongoing margin expansion. And going forward, we will continue to focus on productivity improvement as part of our daily business while managing the economic equation. A further core strategic lever is continuing portfolio optimization. In fiscal 2022, we were successful in strengthening our software capabilities across our businesses. At the same time, we executed several divestments by finding strong buyers while creating substantial value and cash for the company. Looking ahead, we will continue with targeted bolt-on acquisitions and selected divestments, strictly adhering to our six strategic imperatives. The carve-out process for large drives applications is progressing well. During this process, it became evident that LDA and Sucatec, both part of portfolio companies, have many commonalities in value chains and manufacturing technologies with parts of the motion control business in DI. These are specifically the low voltage motors, gear motors, and vice spindle technology businesses. Therefore, we decided to combine these businesses in a new company with an own legal setup and outside the core business of Siemens AG during fiscal year 2023. With a joint revenue of around 3 billion euros and around 14,000 employees, we create a powerful global player addressing a more than 20 billion euros market for electrification and power conversion. We are convinced that this integrated motors and large drives champion will be significantly stronger and more resilient than each business operating independently. The company is specialized with a high degree of vertical integration in this market. It will be highly competitive with an attractive end-to-end portfolio from low voltage to high voltage motors, geared motors, medium voltage converters, and motor spindles. It is completed with an innovative solution and digitalization portfolio and a broad range of service offerings. The clear goal is to set the strengthened combined business completely independent from to unlock significant value and margin potential, best preparing it for future success. The motion control units business at DI, Digital Industries, with drive technology and machine tool systems is strategically important and a core topic for Siemens. We plan to further invest in this area. And with that, over to you, Ralph. Let us take a closer look at operational performance and our detailed outlook for the fiscal year 2023.