Siemens Ag Spons Adr

Good morning, ladies and gentlemen, and welcome to the Siemens 2023 Third 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 2 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 conference call over to your host today, Mrs. Eva Scherer, Head of Investor Relations. Please go ahead, Madam.

Good morning, ladies and gentlemen, and welcome to our Q3 conference calls. All Q3 documents were released at 7 a.m. this morning and can be found also on our IR website. I am here today with our CEO, Roland Busch, and our CFO, Ralph Thomas, who will review the Q3 results. After the presentation, we will have ample time for Q&A. With that, I hand over to Roland.

Thank you, Eva. Good morning, everyone, and thank you for joining us. Let's begin with the highlights of our third quarter. I'm pleased we continued our path of profitable and value-creating growth and demonstrated, again, competitive strengths across all our businesses. This is well reflected in our strong top-line performance. Revenue reached almost 19 billion euros, up by 10%. Growth was broad-based with digital industries, smart infrastructure, and mobility all contributing double-digit. Smart infrastructure was standing out with 15% revenue growth. Siemens Healthineers was up 10%, excluding effects from anti-gene tests in prior year. Our digital industries automation business grew on a high level by 15%, outperforming most peers. Smart infrastructure continued to show great competitive strength. For example, the electrification businesses grew by 22% with strong momentum in power distribution and data centers. Over the last month, I have met many customers from various industries across the globe to discuss how to accelerate their digital transformation and sustainability journeys. Our customers trust in our technology. Execution capabilities and vertical domain know-how will enable us to benefit over proportionally from secular investment trends in the years ahead. As expected, industrial customers and distributors are now normalizing their order patterns in the short cycle product businesses and adjusting inventory levels on East supply chains. This normalization of demand continued in the third quarter and was clearly visible in the order development of our short-cycle businesses, most notably in China, but also in Europe. Softer order development and destocking had some knock-on effects. Less short-cycle book and bill business for specific products and some delivery postponements prevented even higher revenue growth in digital industries. China's market recovery in manufacturing is materializing slower than expected, and we anticipate some further subdued development. Besides the macro situation, this is also depending on the timing and implementation of governmental stimulus activities and the private consumption to pick up. On group level, orders at 24.2 billion euros grew 15% and were driven by the highest ever quarterly order intake of mobility. It was north of 8 billion euros on several large orders. I also want to highlight robust demand at smart infrastructure on par with a strong prior year. Book2Bill reached an excellent level of 1.28, pushing backlog again higher to a record level of 110 billion euros. Stringent backlog execution and revenue growth converted into strong industrial business profit of 2.8 billion euros. Both DI and SI operated at high profitability levels of 21.1% and 15.6% respectively. What sets us apart from many peers is excellent cash generation. 3.1 billion euros for our industrial business is a stellar accomplishment. The SaaS transition in digital industries is fully on track with cloud ARR approaching the mark of 1 billion euros, representing a share of total ARR of 27%. Annual recurring revenue growth was at 14% again in Q3. While delivering on financial performance, we consistently make progress in executing our strategy. We have presented a targeted 2 billion euros investment strategy to boost further growth, innovation, and resilience. In addition, we made further progress in optimizing our portfolio. The global motors and large drives champion Innomotics launched its brand and achieved an important milestone stone as it is now legally separated in Germany. As for our Siemens Energy investment, we took the next step to lower our stake in Siemens Energy AG to 25.1% by transferring 6.8% to the pension trust. And we will continue to further wind down our stake in Siemens Energy. It goes without saying that the repeated massive losses and quality issues in the wind business of Siemens Energy are a major disappointment. After a strong performance year to date, We will continue to focus in the fourth quarter on our execution strengths to leverage the large order backlog and maintain a continuing net positive economic equation. Therefore, we confirm our guidance on group level for fiscal year 2023. Revenue growth of 9% to 11%. And EPS pre-PA, excluding Siemens Energy Investment, €9.60 to €9.90. And Ralph will give you further details later. Here are the key numbers at a glance. Let me briefly touch on two more topics. Industrial business profit margin came in at a healthy level of 15.3%. Our operational strengths resulted in an EPS pre-PPA at €2.60 when excluding Siemens energy investment. EPS pre-PPA, as reported, reached €1.78. Our substantial order backlog stands at a record level of €110 billion, further fueled by strong demand for our systems, solution and service businesses. As I mentioned, Customers of our short cycle product businesses in digital industries and smart infrastructure continued their return to normal order patterns. They intensified destocking due to shorter lead times and improved component availability. This trend will continue in the quarters ahead and gradually bring down order backlog in the shorter cycle businesses and systems to more sustainable levels. For both, smart infrastructure and digital industries, we expect backlog levels will still be elevated at the start of fiscal 2024. We will continue to focus on our excellent execution capabilities, including successful management of our supply chain and flexible manufacturing processes. Let me emphasize that our mid- and long-term secular market growth trends are fully intact. There might be some quarters with more volatile macro developments ahead of us, but the demand for higher automation and digitalization, as well as more sustainable product and solutions, will increase. We see a drastically shrinking labor force in many countries, most notably in China, with the decline of more than 80 million people in the labor force by 2040. In addition, There is a need for further electrification, resource efficiency and decarbonization of industry, mobility and infrastructure, as well as more resilient and diverse manufacturing structures. This can only be tackled with a much higher degree of automation and digitalization. This will trigger substantial investments, also fueled by governmental programs across the globe. Countries and companies with the highest implementation speed will be most successful. To tap this potential, we presented a 2 billion euro investment strategy for new high-tech factories, expansion of capacities, innovation labs, and education centers, which we have been unveiling through this year. These investments double down on our highly competitive operations and our global presence to support growth in the most relevant markets. In the third quarter, we made three major announcements to expand our resilient footprint and enable future growth for digital industries throughout the current decade. In Singapore, we will build a highly automated and digitalized factory for factory automation to meet the growing demand in Southeast Asia. The factory will be completely digitally developed in the metaverse with substantial savings of planning and operational costs. It will create 400 jobs and start of production is planned for autumn 2025. Our factory in Chengdu, as the twin factory of Amberg in Germany, has continuously grown since its start of operations in 2013. To support our local for local strategy and maintain our leading market position in China, we will further expand capacities by up to 40%. The ambition of the Chinese government to further upgrade manufacturing and more than 360,000 small and medium sized enterprises in this area will offer ample opportunities to drive automation and digitalization. Third pillar, we announced a 500 million investment to build a new net zero emission technology campus in Erlangen. We will transform and expand today's world-class site for development and production of machine tool controls and power electronics components until 2029. This campus will become the nucleus of our global technology activities around the industrial metaverse. The goal is to collaborate in a strong ecosystem of partners, to revolutionize production in the future more efficiently, flexibly and sustainably. A key lever is applying core technologies such as artificial intelligence, large language models and additive manufacturing at scale. Further investment plans in the US to foster growth in smart infrastructure will be announced in due course. The smart infrastructure team, together with digital industries, has done an excellent job over the past years by bundling capabilities and teams to expand our global data center business. Key for success are predefined standards for the full range of low and medium voltage electrification building automation and services. They can be tailored to specific customer needs to optimize reliability, energy efficiency, and lifecycle costs. A good example is the Greenergy data center in Estonia, where we implemented the most sustainable data center in the Baltics with AI optimized cooling management. Further important components of our offering are lifecycle services and financing solutions from Siemens Financial Services. We are gaining market share in this highly attractive market with annual growth rates of around 25% in the last two years. By far the largest market is the US, home of many hyperscalers, which are our largest customers and where we see tremendous opportunities. Accelerated use of generative AI applications will give demand a boost in coming years, as, for example, Google highlighted recently. We continue to see steady progress with a strategic transformation of main parts of our DI software business towards software as a service. Let me highlight just a few proof points. As I mentioned before, the transition is fully on track with share at 27% and almost 1 billion euros in cloud ARR. More than 9,200 customers have signed on to the software as a service business model, including a further increasing share of small and medium enterprises. And among the SaaS customers are 76% new logos, clear evidence of our ability to expand our existing customer base. Customer transformation rate reached a new quarterly high of 94%, proving the attractiveness of our offering. We will continue to invest in and drive the transformation. Our digital business remains on a strong growth trajectory and stands at 5.1 billion euros after the first nine months of the year. We are well on track to exceed 10% growth for the full year despite the ongoing SaaS transition in digital industries. Growth will be further supported by continuous expansion of our Siemens Accelerator digital business platform. For example, With our portfolio, we combine our leading printed circuit board design and analysis technology, a key part of our EDA offering, with supply frames designed to source intelligence platform. This platform comprises real-time availability and lead time data for over 600 million component parts. This new solution enables our customers to reduce cost increase agility and make better component decisions at the point of design. A core driver for the energy transition is active management of the low voltage power grid by distribution grid operators. As an industry first, our low voltage INSIGHT X software tackles exactly these requirements. How to increase power grid capacity in existing fast changing networks, through insights on critical segments and by reducing outage times. A digital twin of the low-voltage grid reduces data handling efforts and optimizes planning activities. And we continuously strengthen our offering with acquisitions. A good example is the addition of Optrail's unique algorithms to our Harkon train planning system offering. Achieving sustainability impact is at the core of our customers requirements. Pfizer's new high containment plant in Freiburg is a great example of how we bring core technologies, vertical domain know-how and collaboration across Siemens together to drive sustainability and achieve superior customer value. Software and automation solutions for clean room production are combined with smart building management and services. As a result, The plant operates paperless and consumes 40% less energy while maintaining the highest product and employee safety standards. With this new plant, Pfizer is now able to produce up to 12 billion pills per annum at the location, up by 7 billion pills. There is significant potential for us with European and US reshoring activities for plants that handle active pharmaceutical ingredients. Making aviation more sustainable is the goal of MAVE Aerospace from the Netherlands. Like many other aerospace innovators, they use a broad range of our design and simulation software to develop the next generation all-electric, zero-emissions commuter aircraft. And let me finally highlight two large orders in mobility, where our digital service solution, Religent X, for remote condition monitoring and data analytics played an important role. In England, we were awarded an eight-year service contract extension worth 530 million euros from new rail operator TransPennine. A large fleet of 20-year-old trains was digitally upgraded and Religent X from our Siemens Accelerator portfolio will enable to offer best possible customer experience and availability. also enabling optimization of total lifecycle costs for fully connected and energy efficient trains. This was a key argument for S-Bahn Munich to choose Siemens as a partner for its 2.1 billion investments to modernize and expand its fleet. The trains have a capacity of 1,800 passengers, replacing over 1,500 cars during rush hour. We are steering Siemens for mid- and long-term success and enable our customers to achieve more with less. At the same time, we drive profitable growth and cash generation for sustainable value generation. And with that, over to you, Ralph, to give you further details regarding our operational performance and outlook for the fourth quarter.