Siemens Ag Spons Adr

Good morning, ladies and gentlemen, and welcome to the Siemens 2026 First 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 call over to your host today, Mr. Tobias Atler, Head of Investor Relations. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to our Q1 conference call. All 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 Q1 results. As always, we will have time for a lively Q&A. Please be aware that our AGM starts right after, and therefore we must limit the time of the conference call to 45 minutes. With that, over to you, Roland.

Thank you, Tobias. Good morning, everyone, and thank you for joining us to discuss our first quarter performance ahead of our AGM. We delivered a strong start to fiscal 2026, generating clear momentum for continued value creation for our stakeholders. While geopolitics are making headlines and creating substantial volatility, we are focusing on opportunities to drive collaboration, competitiveness, and customer value. I will share some more examples in a moment. Now, let me outline some of the key highlights of the first quarter and give credit to our hard-working team, which has earned our customers' trust again. Book the Bill reached a healthy 1.12, lifting orders backlog to a record high of €120 billion. Nominal top line growth rates were materially impacted by strong Euro, as expected. Group orders reached 21.4 billion euros, up 10% on the prior year, led by massive momentum at smart infrastructure. The team reached a quarterly order record in healthy end markets. It was supercharged by several large data center orders, mainly in the United States, to build out cloud and AI infrastructure. Digital Industries posted an encouraging start, although the macro environment is still offering only limited support for key customer verticals. Both automation and software delivered double-digit order growth on easycoms. Our automation business was particularly strong in China, where only our fully localized portfolio has gained further traction in a competitive environment. We continue to launch new products in the first quarter, and there are more to come during fiscal year 2026. The software business is capitalizing on strong demand in healthy end markets. Mobility orders were clearly up, and we have a compelling pipeline of awarded larger contracts. A great success was announced last week. We will deliver more than 200 train sets for the world's largest open rail system for fully automated train operation in Copenhagen. Overall, revenue growth reached 8% with broad-based growth across all businesses. A very strong contribution came from smart infrastructure electrification business, up 22%, and the software business at Digital Industries achieved 11% growth. Automation increased a healthy 9%. I'm pleased to see that revenue was up in all regions. The Americas led the way, up 11% fueled by strong momentum in the United States. EMEA grew 8% and Asia-Australia was up 5%, driven by India, which was up 15%. Stringent execution and sound operating leverage converted into a strong industrial business profit of 2.9 billion euros. Profit margin expanded to 15.6% and topped market expectations despite a currency headwind of 60 base points. These results translated into earnings per share pre-PPA of €2.80. After an extraordinarily strong fourth quarter for free cash flow, we saw a seasonal swing back and delivered €700 million. After a strong start, we raise and narrow our group profit for earnings per share. Ralph will give you some more color. In November, we laid out our One Tech Company program for focusing on highly synergetic portfolio to drive scale. We are working diligently on all necessary steps to execute our plan to deconsolidate Siemens Healthineers. And we are making good progress. In early Q2 of the calendar year, we will update you on further details as planned. Just a few days ago, we divested our airport logistics business in the United States to Funderlande and have thus now closed this remaining portfolio topic entirely. Four key levers drive our growth ambitions as one tech company. First, grow digital. At the world's leading tech event, Consumer Electronics Show in Las Vegas, we showcased how customers and partners are harnessing AI to transform their businesses. With our AI-enabled technologies, deep domain know-how, and trusted partnerships, we are accelerating the industrial AI revolution. More in a minute. Second, growth regions. Together with the EPC expertise of Samsung C&T, we will deliver customer-centric, smarter and more sustainable solutions in infrastructure projects such as for airports, hospitals and data centers. This is another great opportunity for us to bring together our strengths in digitalization, electrification and automation across Siemens. Six landmark projects in Saudi Arabia, Thailand, and Canada have initially been identified for collaboration. Third, growth verticals. Data centers' demand has materially exceeded our expectations and reflects our design and delivery capabilities. The team grew our revenue in Q1 by around 35%. We are confident that we will be able to keep up this pace through fiscal 2026. We will achieve this by combining our strengths with a best in class partner ecosystem. For example, together with Invent, we developed a liquid cooling and power reference architecture purpose-built for hyperscale AI workloads based on the latest NVIDIA systems. Our technology partnership with Delta Power Solutions will provide prefabricated modular power solutions. Together, We will cut data center deployment time by up to 50% and CapEx by up to 20%. Equally important, we will reduce carbon emissions as well. Fourth growth lever, Grow AI. One of the best reference cases is our own native and AI-powered manufacturing factory for motion control in Nanjing, China. Our team there has improved lead times. time to market and productivity decisively through constant digital transformation and by using more than 50 AI applications. Now, our Nanjing factory was recognized as the fifth Siemens location to earn the World Economic Forum's Global Lighthouse Award. I briefly talked about the importance of mutually beneficial partnerships to bring AI to the real world. Use it to create impact and then scale it. At the CES, we showcased a number of examples. Together with our longstanding partner, NVIDIA, we are building the industrial AI operating system throughout the entire value chain, from design and engineering to manufacturing operations and into supply chain. Our customers can develop products faster with the most comprehensive digital twins, simulate complex systems and processes in software, and then adapt production in real life. Our primary product launch was the Siemens Digital Twin Composer, which does exactly that. It creates a virtual 3D model of any product process or plant. At CES, our pilot customer PepsiCo shared how they have used it with real-time data to simulate plant operations for selected manufacturing and warehouse facilities. The results are impressive. Within weeks, our teams optimized and validated new configurations to boost capacity and throughput by 20%, a highly scalable approach. As another element of our partnership with NVIDIA, we will build an AI accelerated portfolio on GPU technology, including AI native electronic design and simulation as well. And we will closely collaborate to design the next generation of AI factories and optimize each other's operations through shared innovations. We deepened our high-profile partnership with Microsoft as well. Looking ahead, we are expanding the co-built and award-winning industrial co-pilot to form a comprehensive suite across the industrial value chain. In addition, nine new AI-powered co-pilots are being deployed in our software offerings, such as Teamcenter or Polarion, to streamline product data navigation and drive operational efficiency and cost savings. This steady stream of innovations is also supporting our growth in digital industry software business. Organic ARR growth again reached a very healthy level of 10% over the prior year. In addition, our acquisitions Altair and Dogmatics are adding to our success by delivering a business performance in line with our expectations. The integration of Altair is progressing well. There, around two-thirds of the measures for achieving the cost synergy target of $150 million have already been implemented. A key measure from a financial as well as a cultural perspective was bringing our teams together by consolidating our own 100 sites. At the same time, they continuously strengthen our EDA portfolio with tuck-in acquisitions. These positive perspectives over to you, Ralph.

Thank you, Roland, and good morning, everyone. Let me share more about our strong start to the new fiscal year and our expectations. Orders for digital industries at 4.8 billion euros were 13% above the prior year with a book-to-bill of 1.07. It was encouraging to see that DI's automation business showed a clear uptick sequentially and improved for the third consecutive quarter. Book-to-bill was clearly above one in both discrete and process automation. However, overall market dynamics are only gradually improving and provide limited visibility only. On top of a record fourth quarter, DI's software business again delivered significant growth over the prior year with orders close to 1.7 billion euros for a book to build slightly above one, driven by some large orders in EDA. Our backlog at Digital Industries increased moderately to 9.8 billion euros, driven by automation. Revenue for DI increased 10%. Therein, its software business achieved strong growth of 11%, driven by healthy double-digit growth in EDA and simulation. The core PLM business was up 7%. Automation revenue was up 9% to 2.9 billion euros on the back of strength in the short cycle factory automation business. Discrete automation increased 11% while process automation was slightly up. Strong profit conversion on the improved top line in automation supported by a very healthy product mix and a solid contribution from the software business drove DI profitability to a higher than expected 17.8%. Executing adequate pricing measures and productivity gains resulted in a clearly net positive economic equation in the first quarter, which we will maintain in fiscal 26. Integration-related costs for Altair and Dogmatics had a magnitude of 70 basis points in the first quarter, and we expect this number to reach around 100 basis points for the full fiscal year. Both numbers are without severance, which will play a minor role in the further integration process. Finally, as anticipated, negative currency effects were a material burden on DI's margin development and amounted to around 110 basis points. After a very strong Q4, digital industries had a softer start in free cash flow at close to 400 million euros. Looking at the regional top-line perspective, DI's automation businesses delivered growth across the board on easy comms, albeit with varying dynamics. As mentioned, China showed particular strength up double-digit in orders and revenue with a book to build clearly above one. The contribution of our local Chinese portfolio increased further. Growth was driven by discrete automation supported by healthy demand from distributors. Germany was solid while other parts of Europe and the U.S. showed some improvement trends driven by localization and to some extent also by supply chain resilience efforts in several of our end markets. Verticals like electronics and semiconductors, as well as aerospace and defense, are supporting growth. The iSoftware business again executed well in favorable end markets. A key contributor was the United States with substantial growth. After a successful start, we confirm our fiscal 26 guidance for revenue growth of 5 to 10%. We expect the profit margin to move towards the direction of the upper half of our guidance range of 15 to 19%. The eye is continuing its transformation by driving structural improvement measures, optimizing its sales approach, and launching innovative products. For the second quarter, we see the eye orders up over the prior year soft level with a contribution from the automation business and growth in software despite a lower large order volume from EDA both sequentially and over prior years. We anticipate that DI revenue growth will be up mid-single digits, supported by growth in automation and software. For the second quarter, we anticipate a profit margin around the midpoint of the annual guidance range. Now let's turn to smart infrastructure, which again delivered an outstanding performance in the first quarter. The team achieved strong top-line growth in healthy end markets along with further margin expansion once again. In total, orders were up 22% reaching a record level of 7.2 billion euros. This increase was driven most notably by growth of 38% in SI's electrification business and 22% in its electrical products business. Their order growth benefited from a high volume of large data center wins across numerous hyperscalers and colocation providers. Data center orders amounted to a record high of 1.8 billion euros of which a bit more than half were larger in size. Book-to-bill reached an outstanding 1.30. SI's order backlog at an all-time high of 20.2 billion euros provides excellent visibility for the remainder of fiscal 26. Revenue growth was broad-based and reached 10%, which was above expectations with the largest contribution coming from the electrification business up 22%. Stringent backlog execution again led to further margin expansion, which rose 210 basis points year over year to 19%. The Q1 margin included commodity hedging effects of plus 100 basis points due to volatile copper and silver prices, which more than compensated for a negative currency impact of 60 basis points. The business continued to benefit from economies of scale due to higher revenue and ongoing productivity improvements. Freakish low showed a solid start for cash conversion. As expected, we saw a seasonal buildup of operating working capital. Looking at the regional top-line development, there was robust demand across the board. The U.S. stood out with massive order momentum up 54%, led by data center demand also on strong bookings in buildings. It's good to see that Germany as well as Europe and the Middle East delivered healthy top line growth across businesses and along with stringent backlog execution driven by the electrification business. China showed some improvement on low levels amid the continuously soft real estate market. As I service business delivered 7% growth driven by double digit growth in the Americas and Asia-Australia. We continue to expect a very consistent end market trend with data centers and power utilities as primary growth engines. For the second quarter and for the full fiscal year, we expect the comparable revenue growth to be in the upper half of the guidance range of 6% to 9%, strongly supported by order backlog. For the second quarter, we anticipate a profit margin within the full year's guidance range of 18% to 19%, yet heavily depending on development of commodity prices and exchange rate. For full fiscal 26, we expect the profit margin to be within the upper half of our guided range. And, of course, we will diligently work on adequate pricing measures to pass on higher commodity costs if needed. Mobility started fiscal 26 with a solid performance. Orders at 2.9 billion euros were above the prior year, yet the book-to-bill was at 0.90. Order backlog stands at 51 billion euros with a further improvement of a gross margin profile. This includes 15 billion euros of highly attractive service business. As Roland mentioned, several high-volume contract awards are in the pipeline for actual booking over the next few quarters. In the second quarter, we already recorded our share as consortium leader of the 3 billion euros S-Bahnik Copenhagen project. Revenue in the first quarter was up 9%, driven by strong rolling stock and customer services contribution. Profit margin improved to 9%, supported by margin expansion in the rolling stock business. Free cash flow saw a swing back in the first quarter after an exceptionally strong performance in the prior year's fourth quarter. Looking at project payment profiles and the timing of order awards, we expect the second quarter to be rather soft before we see a material catch-up in the second half of fiscal 26. Our assumption for the second quarter is that revenue growth will be temporarily softer on tough comps in the low single digits. Our full year outlook for revenue growth is unchanged in the range of 8 to 10%. Second quarter margin is seen within our full year margin guidance of 8 to 10%. Our below IB performance is shown on page 16 in the appendix was as expected. Let me point out that we recorded a gain of around 200 million euros from contributing fluent shares to the Siemens Pension Trust in the first quarter. It had been mentioned in our annual report as subsequent event already and was already part of our guidance in November 25. Pre-cash flow performance in the first quarter at close to 700 million euros was off to be a seasonally solid start. After an exceptionally strong fourth quarter, operating working capital increased by approximately 1.3 billion euros. By paying a settlement of around 400 million euros, we closed the long-time legacy chapter of the removal of nuclear waste in Hanau in Germany. The obligation stems from a public law contract which was approved in September 2025. We are very confident that we will continue to achieve industry benchmark levels of double-digit cash return once again for fiscal 26. With a capital structure of 0.9 for industrial net debt over EVTA and an industry-leading AA rating by both Standard & Poor's and Moody's, we continue to act from a position of financial strength. On top of the dividend of 5 euro and 35 euro cents, we are materially adding to shareholder return through our accelerated share buyback. Over the last two years, we have accumulated a buyback volume of 4.4 billion euros in the current program, well ahead of the initial schedule. In addition, we intend to retire 18 million treasury shares in March and will reduce our capital stock to 782 million shares accordingly. Finally, let me conclude with our raised outlook for the Siemens Group. Following our strong start to fiscal 26, we now expect to reach the upper half of our revenue growth guidance of 6% to 8%. And we increase our EPS pre-PPA guidance for the Siemens Group and now expect to reach a range of €10.70 to €11.10, up 20 cents at the midpoint. In a time of highly volatile geopolitics, we continue to create value by delivering profitable growth and resilient cash generation. With that, I hand it back to Tobias for the Q&A.

Thank you, Ralf. And congratulations to a remarkable milestone. We're presenting the quarterly results for the 50th time. We are now ready for Q&A. Please limit yourselves to one question per person. We want to give as many of you as possible the opportunity to raise your question. Operator, please open the Q&A now.

Thank you, ladies and gentlemen. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. The first question comes from the line of Benjamin Healan from Bank of America. Please go ahead. Mr. Healan, your line is open.

If we can't hear Ben, then we take the second one.

The next question comes from the land of Ben Uglow from Arxcap Analytics. Please go ahead.

Oh, good morning, Roland, Ralph, and Toby. Thank you for taking the question. I guess it's more of a kind of theoretical one, given some of the price moves we've seen in the market in the last week or so. It's the whole issue of software and SaaS. And, I mean, frankly, we're all pretending to be experts and we're not. Roland, you are an expert. Could you give us your kind of candid, honest, simple assessment for your industrial software businesses? What are the real risks versus what are the opportunities? So if we kind of balance out how you are thinking about it internally, you know, between EDA, the PLM business, whether you have to make more investments or whatever, how are you thinking about this, dare we say, debate? What would be your perspective? Thank you.

Yeah, so I give it a try, and it's hard to be an expert on technology because it's changing so fast. But you have basically three levels of software, and I'll make it rather simple. The first one is call center kind of software, which is more the interaction with human beings and the like, chatbots. This is already gone. I mean, this was AI dominated. So take that off. The second one is, I call it more deterministic software, workflow-based software, multi-workflow-based software, which, number one, has a very strong database, a structured database, but then does repetitive tasks. This is the next one, which has a chance to, let's say, see substantial changes. Where we feel very comfortable is what we call, I mean, deep software, physics-based software, which is really adding value to AI. So it avoids hallucination. Is it hallucination in the design? Is it hallucination on the shop floor? It always gives you a confinement on what really is true and what's not, what's physics and what's not. So take an example of simulation. You simulate something, and, of course, AI can give you a lot of benefits You can, for example, you don't have to simulate in all corners of this space. You can simulate only in certain areas and come very quick to a conclusion. That can accelerate. simulations 10 and a hundred and thousand times however you always want to double check then is that still within the boundaries of physics and and that's a reason why we believe this kind of software and that's basically our software stack which we have in why this software is more enhanced And in doing, in enhancing the software with AI, it can also spread faster. So more people will use it and simulate it. So digital twins can, the adoption and the usage of digital twins can be even enhanced in using AI technology because again, it goes faster and you have a much, much more, have a higher adoption rate. Last point, what's definitely a safe bet is things like Teamcenter and .matics. This is authorization tools, database with domain or how embedded. Teamcenter, for example, which holds the BOM in a structured way, in a very, very structured and domain-based way of holding data. That's something where you really can, this is a safe bet because this can only grow in that dimension. I hope that helps.

That does. And in the interest of time, I'll pass it on to my colleagues. Thank you.

Next question, please.

The next question comes from the line of Phil Buller from J.P. Morgan. Please go ahead.

Oh, hi. Thank you. Roland, you made question reference to... an update on health and ears in calendar Q2. Should we infer from that that's a reference to timeline for approvals, a potential EGM type vote or something lighter like a publication of deconsolidated financials, just to better understand what we may get an update on, please.

So number one is we just said that we will come in Q2, the calendar year, to come with an answer. And there are a lot of things which we are looking at. Number one is obviously tax impact. We will have clarity by then. We still have services which Siemens delivers to health and health. We talk about license fees. There are financial aspects. So we put that all side aside and come to an conclusion of what's best for the Siemens shareholders and Siemens Health News shareholders. The delta between the two options are six months, plus or minus. So we have to have that in mind. But we make diligent decisions once we have all the facts in our hands and then inform accordingly.

Okay, thank you. Next question, please.

The next question comes from the line of Benjamin Helan from Bank of America. Please go ahead.

Yeah, morning. Thank you guys for taking the question. The question I had was on your comments on the BI margin. You talked about being in the upper end of the range, but can you talk through some of the items a little bit? Why can you not be towards the very top end of the range? Because on my numbers, the FX headwind becomes a little lighter as you go through the year. Software should continue to grow, so Any comments around that would be super helpful. Thank you.

So thanks for that question, Ben. And let me first start that saying that we feel that DI is doing a terrific good job on acting in a really challenging market at the moment. And I think you agree also from that what you hear from peers and general statements on the market development. that it makes a lot of sense to stay vigilant and look at matters because disability may be there at a given point in time, but it's very volatile. So, we will do that and continue to be very, very diligent in our assessment for the way forward. But talking about the performance of the first quarter, As I mentioned, I mean, we had a strong showing in software again with a big portion of EDA and also simulation business. I mean, the new acquisitions, Pear and Dogmatics, they are integrated and working really like Swiss clockwork. So we are very happy with the assessment of the current momentum being created there. But the driving force when it comes to profitability and also growth momentum for the first quarter was automation. First and foremost, we are very happy to see factory automation with a high conversion and growth back that has massive and positive impact on the mix, obviously. Growth momentum is there, including China. I had been mentioning in the press call that our local for local developments value for money category that is gaining momentum and is gaining ground. So we do see growth rates of 40% plus in that field, even though the overall volume still being low triple digit million, but it's definitely contributing and is clearly showing that we can do that. We are in a position of strength and we can also compete in a highly competitive market environment like China. By the way, Public sources are clearly telling us that we are not losing market share there. There's very encouraging news also from neutral sources like MIR, data that brokers are commenting on. So we feel encouraged by that as well. Fact-based, not on sources. That's important to us in that field to validate our own perception of the market. And then, as you do know, we have been putting a lot of measures in place, adjustments being made that now start bearing fruit. We are very, very actively driving productivity, including AI features being used by ourselves. And we also, as you do know, and as do the competitors and peers, pricing is also something we are looking at. So new products, adjustments, bearing fruit, productivity is driving matters forward. The markets themselves, I mean, there's still a couple of question marks around automotive with a very diverse picture globally when it comes to geographies. But momentum building up, as you do know, and as we reported on in semis in aero and defense and also in pharma, And also machine builders, there is at least some green shoots that we can see and also can book, which is more important than seeing them only. However, there is going to be challenges on the way forward. The investment sentiment is pretty shaky. We see that time and again. Markets are also nervous, and there are lots of debates around geopolitics, around potential tariffs, back and forth that are not encouraging the sentiment of investments being made on a broad basis continuously and foreseeable in the quarters to come. And last but not least, I would like to mention again that the exchange rate impact is massive. We had been indicating that to you when we gave our annual guidance in November. You saw that DI was hit by 110 basis points in this first quarter. The quantum leap of the exchange rates from the first to the second half of last fiscal year still needs to be digested. And I would also like to use the opportunity to clearly point out that the second quarter will also not be a walk in the park in that regard. So in a nutshell, we see very good momentum in an extremely attractive business in which we are clearly technology leader. And with that, we see the opportunities arising. We grab them, but we are also mindful of the risks. And therefore, we stay with that, what we said so far, which we believe is encouraging for the quarters to come.

Very clear.

Thank you. Next question, please.

The next question comes from the line of James Moore from Broadchild and Cole Redburn. Please go ahead.

Oh, yes, good morning, and thanks for the time. I wondered if I could make a clarification before a question. Just, Ralph, on the DI margin, you talked about it being led by software. Could you comment whether the margin progressed as well? My question is on smart infrastructure. You can see such good data center orders. Roland, I wondered if you could comment on the architectural changes to 800-volt DCs. and whether you would agree that we're going to switch from low voltage towards a higher low voltage or a medium voltage, AC to DC, and mechanical to solid state, and what you think the timeline on that looks like as to when those new architectural orders will come in, and where you really are positioned in DC and solid state across circuit breakers and switchgear. Do you have any new products coming, or is it just the existing hybrid solid state products that you already have?

So let me start with the clarification on the DI margin. I just started my little talk on that with software, but I clearly said that the driving force was automation. When it comes to conversion, I said with regard to software that we had, after a strong fourth quarter, Again, a good quarter when it comes to EDA and simulation business. These are very attractive markets, and also we are an important player there, obviously. So, therefore, there was software contribution, but the main driver for the conversion into profitability was clearly coming from automation, bouncing back, if you wish, and doing their homework when it comes to the adjustments, bearing fruits, and also productivity gains. And the new products that we have been introducing in China for China, we said the last time that we are out there to stand the heat of the Chinese kitchen, and we certainly do. Thanks.

So good morning, James. Yeah, we are launching a new product, and stay tuned. This will go out at 800 volts DC. Actually, I put it on stage today. You can have a look at it. And, yes, there will be a change from AC to DC for many reasons. Number one is the losses. You can reduce losses. And number two is the switching speed. Our solid-state switching switches thousands times faster than the normal AC or mechanical connector switch, which prevents any kind of impact on GPUs. Obviously, this is very expensive stuff. solid-state transformers is a way to go. They are two alternative concepts, so to speak. We believe solid-state transformers will make its way. We are working on it, also in a partnership bringing new products. The question of penetration is that obviously you need to release the new AI factory code, so to speak, because this thing has to work. I mean, we are working on it together with NVIDIA, by the way, to define this reference concept. And once that's released, I believe it will penetrate very quickly. Why would it? Because next generation of chips, they're going from 150 to 300 watts per unit. And that's a tremendous amount of heat you have to dissipate, which requires you to automate an AI factory completely differently. For example, you will go from a, BCM, so building control units to really industrial-grade control units, which will be much, much faster, which can react really much faster to the demand which these chips has. You have to bring them into a very, very narrow band of temperature in order to protect them from degrading. And that has to be done really extremely fast. And liquid cooling does its own because this allows you to make a very fast change. So therefore, the pickup rate really depends also, by the way, on the customer. We have some hyperscalers which are pushing very hard. Some others are more reluctant. So this is a reason, obviously, you can see that there's a certain, let's say, they're cautious to adapt new technology because once you have it on the ground, you better make sure that it works. But the trend is clear, and the pickup really depends on the next step of experience bringing DC technology. So we are very clear that this will work, and you're right. The more powerful these things get, the more you're pushing from a low voltage to a medium voltage, medium voltage to high voltage level. That's quite obvious.

I hope that helps. Thank you so much. Next question, please.

The next question comes from the line of Andrei Kuknin from UBS. Please go ahead.

Yes, good morning. Thank you very much for taking my question. May I just follow up first on the software side? And thank you for your perspective, Roland. Very insightful. I just wanted to specifically ask about that potential risk about engineers starting to engage their agents and therefore getting higher utilization per seat effectively, and hence maybe having less seats. Is that something that you can address with Altair-like token model? Can you roll that out across your other offerings? And the main question I had was really about pricing. You've touched on that. I just wanted to check in terms of the raw material price increases that we've seen, We've seen some evidence of price increases in China for, I think, both DI and SI products, especially DI. Could you share with us what you plan for Europe and U.S. in terms of price increases to offset that headwind? Thank you.

On the first one, I mean, obviously, I don't think there's a risk because if you have some much more powerful tools and you eventually have more people using this technology, that's one thing. On the other side, yes, the utilization rate can go up. Once we are embedding AI into our offerings, obviously we would also charge for it. And that goes in the business model in direction of tokens because you want to charge once you use it. It's a little bit similar to the SaaS models which we have. And you're right, this will be the path going forward. We are, and I think we are not alone that we didn't figure out completely how this monetization goes. It goes also back to the question on whether you're not using open or proprietary models behind it, how you use them. But that's exactly the direction which we see. And again, there will be a higher utilization rate per seat. For example, I said it before, when you don't have to simulate the whole different space, you can select, pre-select. And by the way, we have a tool, we have a software tool, which also enables you once you're in the design phase to that you just check out for four or five design points and then you come to a conclusion faster rather than going all the way through another couple of hundred simulations. Yes, super powerful, super speed increases the productivity per seat. But at the same time, we believe this is rather than driving growth, then hindering it.

Yes, Andre, and with regard to pricing and raw material, I mean, you do know that we run our operations on the basis of what we call economic equation, the mandate for every business leader to make sure that any kind of cost increase, including material, of course, will be compensated with pricing and productivity measures. And we are very successfully applying that concept for many years. and we are also net positive for both SI and DI in the first quarter and will be that clearly for the full fiscal year when it comes to that economic equation. We wanted to share with you, that's why we have been so explicit, that raw material commodity hedges have been having massive impact on the first quarter's result, in particular on the SI side, not really material for DI. So it's obvious that spot prices are very volatile these days, and it can backfire in the quarters to come. That's why we are cautious on that matter, obviously. So short-term hedging, is only a remedy for a relatively short period of time. We typically are hedging and covering 75% plus for the next three months. That's what we do for exchange rate and also for commodities at the end of the day. I feel pretty confident that we can master those challenges mid and long term. However, it's obviously the task of the businesses to come up with a meaningful and prudent judgment how to compensate for that if it's staying higher for longer on the material cost side. We are prudently assessing that. We don't overreact. You probably also witnessed in the past that our price increases have been fairly moderate compared to our peers and particularly in China. And that's what we did again. I hope you have understanding, and I apologize that we, of course, do not share pricing strategies, not by geography, but what I can share with you is The overall impact is in the area of 1 to 1.5% pricing impact in the first quarter. I guess we're going to stay with that for the rest of the fiscal year. And we have been introducing a new price list in China as per January 1st. I think that's public knowledge. Meanwhile, we don't intend at this point in time and do not have plans to change that again. anytime soon. And with regard to the other geographies, it's pretty much along the same lines. We are running and we are executing pricing strategies with a steady hand and also with respect to the trust that our customers do have in us. So therefore, it's, if necessary, one of the levers. It's not the only driving force that we do have to make sure that We stay successful with our operations time and again, and I would like to underpin that again. It's not only that we sell productivity tools to the market. We drink our own champagne, and we do that for many years quite successfully, so we feel encouraged that we can master that challenge in the quarters to come. However, we wanted to flag it out as a source of uncertainty to you.

That's very helpful. Thank you very much. Thank you. We will take one last short question, please.

The last question for today comes from the land of Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you very much for taking my question. I'll keep it short. I wanted to ask about free cash flow and how should we think about that for the rest of the year, particularly the working capital buildup given how strong the growth trends are. Should we think this is more of a next couple of quarters buildup or will we see a strong recovery?

Thanks, Danila, for that question. I mean, you can imagine that we are very intensively looking into that matter. We have been building up, I think, what we may call a successful track record throughout the last six years on that regard. So we saw a very, very strong fourth quarter. I don't want to talk around the main focus of the exercise. Therefore, it wasn't a surprise that assets in the working capital environment have been building up, also preparing ourselves for higher volumes and the growth perspectives we are pursuing. Nevertheless, there was an extraordinary, that's why we have been so precise on the matter, the Hanau asset retirement obligation that we still had to pay for. It was booked in the years before and there was an accrual form for that. Now, finally, after We got permits, I really mean it, to pay for that after quite some time. It was unfortunate that it happened in the first quarter of the new fiscal year, which was a bit slow anyhow when it comes to cash conversion, in particular in mobility. You heard that a couple of projects have been shifting. But in a nutshell, we are extremely, extremely convinced that we have instilled all the processes around pre-cash flow generation so deeply into the organization. I dare to say it's a cultural issue in the meanwhile that everyone knows what he or she needs and can contribute in that regard. It will be back loaded for mobility. I was very explicit on that one. I think we had quite a meaningful start for SI and DI in that regard. So I'm not worried about the matter, but the extraordinary half billion impact of that one time effect, it just had a massive impact in the first quarter. And we will come back.

Got it. Thank you very much.

Thanks a lot to everyone for participating today. As always, the team and I will be available for further questions.

Have a wonderful day and goodbye.