Siemens Ag Spons Adr

Good morning, ladies and gentlemen, and welcome to Siemens 2023 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, madam.

Good morning, ladies and gentlemen, and welcome to our Q4 conference call. All Q4 documents were released this morning and can be found on our IR website. I'm here today with our President and CEO, Roland Busch, and our CFO, Ralph Thomas, who will review the Q4 and full fiscal 2023 results, followed by the outlook for fiscal 2024. After the presentation, we will have time for Q&A. The call is scheduled for up to 90 minutes. 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 impressive fourth quarter in full fiscal year 2023 results. Before diving into our record performance and looking forward with confidence, Let me highlight how Siemens continuously strengthens the fundamentals to succeed in a volatile business and geopolitical environment. All our businesses are leveraging secular growth trends driven by automation, digitalization, electrification, and sustainability. We empower our customers in industry, infrastructure, transportation, and healthcare to accelerate their digital and sustainability transformation. Our technology is transforming the everyday for everyone. It is instrumental in solving the most significant challenges of our time, including labor shortages and resilience of value change as well as climate change. More than 90% of our business enables customers to achieve a positive sustainability impact, such as less energy consumption and decarbonization, minimizing waste, less use of raw materials and water, or better passenger and patient experiences. We address the specific needs of our customers in their vertical domains and create substantial value for their businesses. We support our customers to stay relevant and competitive in the future. Three years ago, we started executing our strategy as leading technology company to combine the real and the digital worlds. We are well positioned to create even more impact with higher speed and agility going forward. A major success factor is the scaling of our offerings by providing a repeatable answer to recurring customer problems. We do that by deploying a common cutting-edge technology stack together with our fast-growing ecosystem of partners. Our open digital business platform Siemens Accelerator is core to achieve this goal and I will talk about some exciting examples later. This gives us significant opportunities to consistently achieve high value growth while driving profitability and cash. Looking at the agenda, we reflect on a record fiscal year 2023. We give a confident outlook for 2024 from a position of strengths. I am very proud that we delivered on our raised promises in fiscal 2023 and created substantial value for all our stakeholders. We all experienced another year with ongoing geopolitical and macroeconomic turmoil, including wars, fast-paced interest rates hikes to fight inflation, erratic destocking effects, and skilled labor shortages. Many thanks go to Team Siemens. worldwide for a tremendous contribution to successfully managing this complex environment and working strongly together with our suppliers, customers and partners to make a positive impact. As a technology leader, Siemens captured significant market opportunities and market share. Orders topped 92 billion euros and were further up by 7% from already very high levels, while revenue grew by a very healthy 11% at the upper end of our guidance. A book to bill of 1.19 and record backlog of 111 billion euros gives us confidence for fiscal 2024. With all-time highs for industrial business profit and margin, we demonstrated again that our strategy as a technology company powered by a strong operating model is bearing fruit. Our outstanding operational performance also compared to competition is most notably confirmed by continuously stellar free cash flow. For the first time ever, we exceeded the €10 billion threshold and topped prior year's level by a stunning 23%. This equals almost 13% cash return on sales now for four years in a row in double-digit territory. Operational strength is fully reflected in earnings per share pre-PPA and excluding similar energy of €9.93, slightly above the updated guidance range. Basic earnings per share more than doubled over prior year and for the first time crossed the €10 mark. Profit in industrial business reached a record high of 11.4 billion euros, growing by 11% compared to prior year. And this translates into a further improved margin level of 15.4%. All three businesses met or, in the case of mobility, exceeded their revenue guidance with a full, powerful finish. in Q4. Digital industries grew by 15% of a comparable basis. This was the third year in a row with double-digit growth despite a macroeconomic market slowdown through the year. Profit margin reached 22.6%, a record high level, with strong backlog conversion in the automation business, overcompensating effects from the ongoing SaaS transition. Our infrastructure grew by 15% and came in at a record profitability level of 15.4% at the upper end of this year's guidance. A very steady and consistent improvement path, which is underscored by an impressive 12 consecutive quarters of year-over-year profitability improvement. And there is more to come. Mobility accelerated revenue growth by achieving 15% well above the guided level. For the first time, annual order intake exceeded €20 billion with a book-to-bill around 2, reflecting strong market momentum. Even more importantly, the team again achieved industry-leading profitability and free cash flow, managing risks and opportunities in a prudent way. Let me outline some key operational highlights of the fourth quarter. Our customers continue to invest in digitalization and sustainability. This led to strong organic top-line performance. Book-to-bill reached 1.02 on strong order growth momentum of 26% in mobility and clear order growth at Healthineers and Smart Infrastructure. As expected, we saw ongoing normalization of short cycle automation demand in digital industries. Customers and channel partners were further adjusting inventory levels on East supply chains and software demand. This was partially compensated by an extraordinary high level of large EDA orders with customers mainly from high-tech industries. From today's perspective, we anticipate that our automation orders have seen the bottom in Q4. Overall revenue growth reached 10% on the highest quarterly revenue level ever in all four industrial businesses. All of them showed similar growth rates in the range of 8 to 12%. And I'm particularly proud of our digital industry software team achieving revenue growth of 30% driven by large contract renewals, mainly in EDA. Once again, the electrification business of smart infrastructure showed great competitive strengths, growing by 25% with ongoing momentum in power distribution and data centers. What really matters is value creating growth. and we executed strongly. A record quarterly high of 3.4 billion euros profit in the industrial business and as an outstanding highlight more than 4.6 billion euros of free cash flow all in. Our financials are clear evidence of our sound operating model and consistent execution. Some more facts. Digital business reached revenue of 7.3 billion euros in fiscal 2023, and we continue to launch at high-speed innovative offerings and drive the expansion of our partner ecosystem. The SaaS transition in digital industries is fully on track, delivering annual recurring revenue growth of 15% in Q4. We continue to sharpen our profile by optimizing our portfolio with selected smaller investments and disposals. An important milestone has been the largely completed calf out of enomotics on October 1st as planned. The fundamental strength of our company combined with focus on shareholder return is also reflected in our dividend proposal of €4.70. In line with our progressive dividend policy, we plan to increase by €0.45. And Ralph will explain to you in more detail the expansion of our share buyback activities. Looking ahead into Fiscal Year 2024, we will stay vigilant and react flexibly on market developments. We will execute on our long-term oriented investment strategy, which is targeted for attractive market opportunities and will further improve our global footprint for innovation, production and service. Ultimately, this leads to higher competitiveness and resilience. Our teams are very close to what's happening at our customers and keep a close eye on OPEC spendings. They're confident that we will maintain a net positive economic equation with a constant focus on productivity, while inflation driven price effects will somewhat fade in fiscal year 2024. From what we see today, and despite an anticipated muted global economic development, we expect further value creation growth in 2024, and Ralph will give you more details. For the record, here are our impressive Q4 numbers. Let me briefly add that revenue growth was regionally broad-based. Emiya? was up by 13%, followed by Americas with 11%. Asia-Australia grew by 4%, health-backed by softness in China. EPS pre-PVA, excluding Siemens Energy Invest, came in at €2.64, driven by strong operational performance. Looking into Fiscal Year 2024, our healthy order backlog is a source of resilience. It stands at a record level of €111 billion. Lead times in short cycle, product businesses and digital industries and smart infrastructure returned to mostly healthy state. Supply chains and manufacturing execution are back to normal. Our customers and distributors continued destocking in all key countries, particularly in China. We assume this backlog consumption to continue in the first half of FISCLIA 2024 until inventories are back to normal levels. Visibility in our systems, solution and service business is far reaching into FISCLIA 2024. I briefly talked about the importance of mutually beneficial partnerships to scale new technologies and drive growth. A game-changing example is our collaboration with Microsoft, based on our shared vision to boost cross-industry AI adoption. The first application is the Siemens Industrial Copilot, an assistant for human-machine collaboration and manufacturing, enhanced and powered by generative AI. It will allow users to rapidly generate, optimize, and debug complex automation code. It will allow users to significantly shorten simulation times. And it will allow users to tackle labor shortages successfully. Because incremental improvements are not sufficient anymore, step changes are required. At the SPS fair just a few days ago, the leading automotive supplier Schaeffler AG demonstrated how the Siemens industrial copilot will drive engineering productivity. Together with Microsoft, we are already working on numerous AI copilots in other manufacturing industries, such as consumer packaged goods or machine building. In addition, we have the clear ambition to address all industries where Siemens is active. Our partnership with Microsoft can be characterized as a virtual circle. Accelerated AI adoption will drive green data centers demand, where Siemens is also an important partner for Microsoft to provide critical infrastructure. Siemens Accelerator's ecosystem and marketplace are growing steadily. At the EMO trade fair, we introduced together with DMG MORI an end-to-end digital machining twin offering, which is now available on the marketplace. Based on our digital native motion control platform, the CNC Numeric 1, The digital twin includes the controller, the customer-specific DMG Mori machine tool, and the to-be-machined workpiece. It enables up to 40% faster production ramp-up while minimizing unproductive machine times by up to 75%. Our Siemens Industrial Edge ecosystem is enhanced with new applications from pneumatics specialist Festo. This new offering provides customers with more flexibility to build individual IoT solutions easier and faster to improve maintenance and increase quality. The Siemens Accelerator Digital Business Platform combined with our domain know-how is essential to scale offerings and drive sustainability. The first great success story, how we accelerated the digital transformation of our customers, comes from the United States. Together with Ford, we co-created a standardized and scalable SIMATIC automation workstation. It combines the OT installations for manufacturing automation with the IT environment functionality, such as central software deployment by leveraging our industrial edge ecosystem this innovative platform will enable fast and easy development of digital use cases the benefits for ford are simplified and more efficient processes on the shop floor and much higher flexibility and it will be widely deployed in greenfield and brownfield manufacturing plants at ford Our UK team transferred the experience from optimizing power grids to the water industry. Northumbrian Water Group has started to connect more than 1 million smart meters to our SaaS-based metadata management system, Energy IPX. With this major rollout, the utility identifies household leaks to help reduce water consumption. The third example comes from the healthcare market. An offering with significant potential is the comprehensive digital twin for smart hospitals. At the recently inaugurated Inselspital Bern, building, planning, and construction data, as well as construction documentation, are being digitally transferred to operations. This has laid the foundation for providing a digital twin in the future and opens new possibilities to optimize processes while supporting efficiency. And finally, after the successful commissioning of a first route section, Austrian federal rail provider UBB presented a long-term framework agreement with Siemens Mobility worth 400 million euros. We will digitalize the country's rail network with the latest technology, which is a crucial cornerstone to doubling network capacity by 2040. All these projects demonstrate how Siemens Accelerator works successfully. A core strategic lever for value creation is our goal to grow the digital business annually by around 10% by 2025. Fiscal 2023 was another successful step in this direction, achieving around 12% growth to 7.3 billion euros despite the ongoing PLM SaaS transition in digital industries. And we are confident to continue this strong growth trajectory in FISCLIA 2024. All our businesses allocate significant resources to further development and promote Siemens accelerator software and digital service portfolio. I'm very pleased with the continuing progress of transforming main parts of our DI software business towards software as a service. After two years, we are fully on track to achieving our goal. ARR growth reached a very healthy level of 15% over prior year, which we strive to sustain in fiscal year 2024. Cloud ARR share already stands at 1.2 billion euros, equaling 30% of total ARR. And we expect to reach the 40% target one year ahead of schedule. Around 11,300 customers have signed on to the soft as a service business model with a vast share of small and medium enterprises. And among the SaaS customers are 77% new logos, underpinning our ambition to substantially expand the existing customer base. The quarterly customer transformation rate remained on a high level with 87%. Looking ahead, we will actively work on managing the skills transition as well as digitally selling further functionality and applications. Based on our assessment, we have surpassed the trough of the SaaS transformation of our PLM business and a small part of EDA. From here, we will gradually see higher profitable growth contributions. The largest part of EDA, which marks around one third of digital industry software business, remains term license based. As indicated in Q3, we recently announced our plans to expand our US footprint. This is the final cornerstone of our 2 billion global investment strategy to boost innovation, growth and resilience. In Dallas-Fort Worth, we will build a high-tech manufacturing factory for 150 million euros, fully equipped with Siemens software and automation to produce critical electrical infrastructure equipment. The factory will start production in 2024 and is planned to gear up for full capacity in 2025. This investment specifically supports long-term customers in the data center space, where demand is expected to grow by around 10% annually through 2030. We are gaining market share and achieved an extraordinarily strong order level of almost 2 billion euros in fiscal 2023. and we delivered revenue growth of around 25% for the second year in a row. Bail's pipeline visibility into FISCLIA 2024 is robust, driven by additional AI workloads and co-location demand. A key lever for further success is our strength in innovation. In fiscal year 2023, we invested around 6.2 billion euros to constantly upgrade and drive the connectivity of our strong hardware base and intensify investments in our software and digital portfolio. For fiscal year 2024, we plan to maintain R&D intensity at around 8% of revenue with further growth in absolute terms. is our clear goal to extend leading technology positions and drive sustainability offerings. A great example for both is our blue GIS switching technology without fluorinated gases for primary distribution. It helps our customers to drive the sustainable energy transition ahead of EU regulation. In addition, our central technology team is closely collaborating with all businesses to maximize the impact of, once again, investing more than 500 million euros in the advanced development of 11 core technologies. We see strong progress and mutual benefits in areas like artificial intelligence, advanced manufacturing, cybersecurity, connectivity and edge, integrated circuits, and power electronics or circularity. Further cost strategic lever is continuing portfolio optimization. In fiscal 2023, we announced some complementary technology acquisitions, such as Avery Design Systems in DI software or Heliox, a specialist in eBus and eTruck fast charging solutions. And we will continue this path of bolt-on acquisitions, complying with our six strategic imperatives. At the same time, we executed several smaller divestments, both in the industrial business as well as from our portfolio companies. After having reduced our share in Siemens Energy HE to 25.1% in fiscal 2023, we are working on an accelerated separation from Siemens Energy in India. Yesterday, we announced a set of measures including our intention to acquire 18% of the shares in the publicly listed company Siemens Limited India for 2.1 billion in cash from Siemens Energy. With this, we agreed with Siemens Energy to accelerate the unbundling of the activities currently conducted in the Indian subsidiary of Siemens by the way of a demerger. Ultimately, we target a return to a shareholding of 75% in Siemens Limited India in four to five years from now. Siemens Energy is to become a majority shareholder in the then-listed company Siemens Energy India. These are important steps to simplify the structure and sharpen the focus. And we will continue this path. The new Enermotics brand as a leading motors and large drive supplier was successfully launched and is well perceived by customers and its more than 15,000 employees. Enermotics is performing strongly with good visibility based on a healthy order backlog. With these attractive prospects, we have decided to start as next step further preparations towards the full independence of Enermotics. We will start preparations for a public listing while diligently evaluating all other options according to the best owner approach. We will pay particular attention to ensure a future setup which offers sustainable, growth-oriented and value-creating development. So as you can see, we further shape our leading technology company in many aspects to drive performance. And with that, over to you, Ralf. Let us take a closer look at operational performance and our detailed outlook for the fiscal year 2024.