Siemens Energy Ag

Good morning, ladies and gentlemen, and welcome to Siemens Energy's Q1 fiscal year 2024 analyst school. As a reminder, the school is being recorded. The presentation will be followed by a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. Before we begin, I would like to draw your attention to the safe harbor statement on page two of the Siemens Energy 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. Michael Hagman, Head of Investor Relations. Please go ahead, sir.

Thank you, Alice. Good morning and a warm welcome to the Siemens Energy Q1 analyst call. As always, all documents were released at 7 o'clock on our website. Our president and CEO, Christian Bruch, and our CFO, Maria Farao, are here with me. Christian and Maria will take you through the major developments of the last quarter. This will take approximately 30 minutes, and thereafter, Christian and Maria are available to answer your questions. For the entire conference call, we have allowed an hour. So, Christian, with that, over to you.

Thank you, Michael. And a late good morning, everybody, also from my side. Thank you very much for once again joining Maria and myself for this conference call. We had a little bit more than two months ago passed our CMD, and you are familiar with our guidance and also the targets, as well as our key priorities for 2024. And just as a reminder, flagging up the three things which we want to focus on in 2024, which is delivering profitable growth based on the record order backlog, fix the wind business, and obviously maintain a solid financial foundation. We had explained, obviously, the different measures on the capital market day in more detail, and I'm glad to say that we are progressing in line or slightly ahead of our plan in respect to the guidance and our objectives and the midterm targets. If you look on the key figures, on this slide order intake revenue profit before special item and cash flow you can see that we had a very solid start to the year and in fact the key figures were better than expected for the quarter and hence we pre-released our results on january 23rd whilst i'm happy with the start to the year i also want you to understand that we benefited to a degree from project chips you know the business is not a month by month business it has its volatility in there That's relatively normal and obviously particular seeing the very high market dynamics across all the different businesses. And this is also the reason why we still maintain our guidance for the full fiscal year. On the right hand side of the slide, you can see the KPIs for the group. We had a strong growth in order intake, revenue and achieved also a turnaround in our profit before special items. In context of our objective to drive profitable growth, I'm happy to share that order intake of the former gas and power business grew by more than 27% on a comparable basis, so that the order backlog for those businesses reached another record high of 78 billion euro within improving margin quality. Revenue of the former gas and power business grew by 15.7% on a comparable basis, And profit before special items grew from 478 million euro to 634 million euro, which resulted in profit margin before special items of 11.3% and increase of nearly two percentage points year over year. I will talk about Siemens Gamesa in more detail in a moment. Sorting the quality problems and managing the ramp up remain our key focus at Siemens Gamesa. And in this context, I'm happy to share that we have not suffered any further setbacks in onshore wind and that the offshore ramp up is progressing in line with our plans. And this means that no further provisions have been taken in addition to those communicated in quarter three fiscal year 2023. On the right hand side, you can also see that we ended the first quarter with a net cash balance, including pension obligations of 840 million euro. This is in line with our objective to maintain a solid financial foundation and reflects a better than expected underlying cash flow, as well as good progress in the execution of our divestment program, including the sale of the 18% stake in Siemens Limited India. We talked about the guarantees when we reported on the full year. I just want to report here that the 11 billion euro facility as a back guarantee is underwritten by nine key relationship banks based on a back guarantee by the German government. And this additional 1 billion euro facility has been committed by a group of three relationship banks. And we obviously continue to work on all the different matters and obviously try to also to get out of this facility as fast as possible because obviously it also costs money for us. The operating environment remains really favorable across gas services, great technologies and transformation of industries. It's not only a good volume demand, but also a healthy pricing environment. In wind, we do see obviously the positive actions in Europe, SEU and various other countries are addressing some of the problems that have haunted the industry over the past two years. In January, the energy ministers of the EU member states endorsed the European Wind Charter, which is, I think, a step in the right direction to strengthen the European wind market. Let me briefly touch on our guidance. We are well on track to reach our targets, but as mentioned before, we are for the time being maintaining our guidance as is. Let's move to Siemens Gamesa. We have said on many occasions we believe in the role of wind for the energy transition, and this together with the turnaround program that we have in place gives us the confidence and the value of our wind business. And as presented in the Capital Market Day, there are key strategic decisions regarding product portfolio, market presence, manufacturing strategy and business setup that we'll be sharing with you in the coming quarters with most major communication milestones stretching until the end of calendar year 2024. Operationally, the performance during the first quarter was slightly ahead of our expectations, nothing major. that will lead us to change our full year guidance, but certainly a result that shows an increased level of control and management, and in context of our objective to stabilize and fix the wind business, this is a positive element. The Quality Task Force is making progress, and six months after our announcement, we have not received new data which would point to major deviations compared to our original cost estimate, and the offshore ramp-up is ongoing. We highlighted at the Capital Market Day also that we will take out structural costs at Siemens Gamesa. The plan is under development, and we expect that all businesses and the corporate functions will contribute to the cumulative cost savings of €400 million by 2026. And additionally, we continue with the integration of the corporate functions between Siemens Energy and Siemens Gamesa in line with the synergy plan, which has been communicated during the announcement of the transactions. Let me now share some more details, first on onshore and afterwards on offshore. We have completed the review of our entire onshore backlog and have started to engage in the customer discussions. We have material completed the root cause analysis for the priority one quality issues and for 80% of these we have short term measures in place. We have already defined long term corrective actions for half of the quality issues. while we continue to implement remediation and mitigation sections. This means also that we progress in line with our plans. Maybe let me say a couple of words on how the process works, that this is understood on how normally this works. Obviously, first comes the technical analysis of really having an engineering and technology solution available. It's relatively normal that from time to time you re-look on the things by also talking then to your suppliers what you need and planning the execution around this. So we're now entering a situation where we do exactly this, converting a technology solution into, okay, how do we execute it, which supplier do we need, what is the delivery times, and so forth, such that the implementation of the matter will obviously then come Thereafter, which this is why we also see the biggest cash outflow next year, which means, OK, start of these activities and then working through this over the next years to come. So this is what always has to be understood. If you talk about technical analysis complete and then obviously shorter measures defined because this includes the supplies and then we go into execution and this will take us some time, step after step. And this is just, I think, important to understand for you. Our analysis at the same time for the future onshore product portfolio goes hand in hand with our geographic market analysis. And we will communicate the restart of our commercial activity as soon as we have a clear date in place, which is not today. We are working through these elements and the priority is always first fixing the quality issues and really making sure that there's a very solid view on, okay, how is the availability of the units and going forward. We intend to be clear on this in 2024, but please stay with us on that one today. We have no clearer statement yet on that one. Let me move to offshore. The ramp-up is ongoing. You recall that we highlighted the four factories which we are ramping up, Cuxhaven, Aalborg, Le Havre and Halle. In Cuxhaven, Aalborg and Le Havre, we are progressing in line or slightly ahead of our plan. This is the intention to show this on this slide. Obviously, with the reduction in routing hours during the first quarter per unit to drive up the productivity. The ramp-up in HAL remains work in progress, I clearly have to say, because also it's a finalization of the facility, but also then getting the teams up to the right productivity level. We have experienced there a slight reduction in output, so that is something where the team is working on to improve this. And keep in mind, the main volume increase in offshore is planned for the second half of this year. Let me, like always, move to a couple of highlights. I'm always pleased, I said it before, that we never have a problem to identify these four examples for the different business areas alongside the energy transition, which shows that the market is good, but also the portfolio is well positioned in the energy market. The first project I would like to highlight is a new power plant project in Kazakhstan, an example of how natural gas helps in the energy transition. We are delivering three gas turbines and three generators, as well as spares for a combined heat and power project in Almaty, which is replacing a very outdated coal-fired power plant. You may be aware that Kazakhstan committed to a reduction in greenhouse gas emissions by 15% to 25% by 2030, and this project is a cornerstone in that regard. The second project is once again a project a project in our field for wind, which is the first offshore wind farm in New York and the first utility scale offshore production in the US as such. And we have shipped the first 12 SGT 11-200 offshore wind turbines to the site, which is a good 30 miles out of the coast of Montauk. Once completed, the 130 megawatt offshore wind farm will generate enough renewable energy to power roughly 70,000 households and will eliminate up to 6 million tons of carbon emissions over 25 years. The third project, just briefly to highlight, is an HVDC link from the UK to Denmark. I think what is very positive about this is the execution time of three years in terms of then starting and going into operation, which is key, obviously, to underline that it's possible to build out the grid also at a higher speed. We are still convinced that the electric grid will be the key determining factor and the speed of the energy transition more than the generation side. The last project is around the decarbonization of industrial processes. Together with BASF, we are building a water electrolysis plant at their facility in Ludwigshafen. It has an output of slightly above 50 megawatts and the capacity of 8,000 metric tons of hydrogen per year. This is really for demonstration and integration that into an industrial process. So a first step to commercialization and obviously Also, the intention is to use renewable energy sources to ensure that we power this project. Slide comment also to the environment and political environment, particularly seeing that we have COP28 behind us, which obviously flex up the transition away from fossil fuels. This also means that at the same time, we have to drive really also low emission technologies and improve efficiency measures or double the efficiency measures by 2030. And this means that investment in efficient fossil power plants will continue alongside the build-up of renewables and investment into the grid, as well as obviously in the hydrogen economy. And this is what we stand for. So I see these market momentums very positive for Siemens Energy. We do see also the constraints we now see on the simply speed up in terms of doing things fast enough. We do see slight delay on the hydrogen side, which is not unexpected on the green hydrogen side, which I think is also getting to realism what it takes now to build a commercial market and make sure that money is really invested. But as I said, I'm pleased on how we are aligned around the different targets. With this, I briefly want to touch base on our ESG report. We obviously continue to drive our sustainability targets as core of our strategy. It has been overshadowed a bit in 23 by all the other news in terms of attention. But I want to highlight that we issued our sustainability report on December 6th. the same day as our annual report. And we outlined there in much more detail what we want to achieve and what we are doing to reach our targets. And on this slide, you can see how we are progressing towards our key targets when it comes to emissions, diversity and health and safety. Across our operations, we reduced emissions by 59%. This means we're well on track to meet our climate neutral target in our own operations by 2030. However, given the strong growth trajectory, we need to double up and intensify our efforts here. And green electricity is a major lever to achieve our goal to become carbon neutral in our own operations. Our 100% targets of being 100% supplied by renewable energy in our own operations was achieved in 2023. And obviously, in this regard, I'm very grateful what the organization has implemented. Because of our portfolio scope three emissions, so the emissions our products generate at our customers by far exceed our own emissions and provide the biggest challenge. And here we also made significant progress towards our science-based target of 28% reduction by 2030 compared to the base year of 2019. And this reduction reflects the fact also that our products, solutions and services are designed to help really our customers to lower the carbon footprint, which is one of the key planks of our strategy. We offer low and zero emission power generation. We enable efficient transport of electricity and we decarbonize and electrify industrial processes. I'm pleased with the progress we made in women in leadership positions, which is a key KPI for us. I mean, we are a strong believer that diversity matters. improves the management of a company. We were able to achieve a 28% in the leadership position of female talents. That is something which is obviously very positive, but it will continue to require big efforts to keep this number growing. And obviously also to make sure that diversity is understood everywhere across a lot of different matters Let it be ethnicity or religion or whatever you can identify there. Over the last couple of years, our progress has been reflected in improved ESG ratings. And just yesterday, we received the updated CDP rating. And I'm pleased that CDP has acknowledged our environmental transparency and performance on climate action change with an A rating. And being on the A list means a lot to us as an organization because it recognizes really the effort which we're doing, but also recognizing the leadership we want to take in the energy transition. And with this, Maria, I would hand over to you for more details on the numbers.

Thank you, Christian. Hello, everybody. I think it's still, yes, still good morning here. And thank you for joining us today. You have all seen our preliminary numbers, which we published on January 23rd. But allow me to provide some more detail and to explain a little further our quarter one numbers for fiscal year 24. So moving to the next slide, you see here the Siemens Energy Group. As Christian already mentioned, we had a solid start to the year. The positive momentum across all former gas and power businesses continued, and Siemens Gamesa performed within expectation. When it looks at orders, the order development was outstanding, better than expected, really reflecting this continuous favorable demand pattern, as well as some pull-forward effects in certain businesses, such as grid technologies. We recorded comparable order growth of just shy of 24%. This is against quite a high basis of comparison, and that resulted in orders for the quarter of $15.4 billion. This is the highest ever order intake slice in a quarter to date. While all segments contribute to the growth, the increase was particularly strong at grid technologies and transformation of industry. The book-to-bill ratio overall was a very strong 2, driving the order backlog once again to a new high of $118 billion. Revenue came in at $7.6 billion, a 12.6% increase on a comparable basis, with all segments contributing to this growth. The biggest contribution came from our grid technologies business, which grew by 33% on a comparable basis. Across the board, service revenue improved significantly and grew somewhat stronger than the new units business. This resulted in an overall favourable business mix in our first quarter. It's also very important to note, from a seasonality perspective, we generally do have a strong service season in Q1, and that has held true across all segments. Looking at profit, this improved sharply to positive $208 million. with grid technologies and transformation of industry reporting sharp improvements year-over-year. Gas services just shy of the strong level of profitability in the first quarter of previous year, and as expected, Siemens Gamesa's losses were below prior year, which, if you recall, was burdened by quality-related charges, but in line with our overall full-year planning. Special items included the pre-tax gain from the sale of the 18% stake in Siemens Limited India. This has already been indicated. of around $1.7 billion, which brings us to a pre-tax profit for the quarter of $1.9 billion and a net income of $1.6 billion. Free cash flow came in seasonally weak at minus $283 million. Of course, this is a mixed picture where we have positive contributions from the former GP businesses. This is supported by the higher profitability. Again, we showed that and presented that at the Capital Market Day in November. as well as, of course, our advance payments from our customers, reflecting the very strong order development. This was offset by the negative free cash flow at Siemens Gamesa of negative 1.2 as expected. Again, the high cash flow at Siemens Gamesa was expected and budgeted for, and this is the result of the losses, and the seasonal buildup of operating networking capital. This is a bit of a swing back from a strong Q4 last year, And as Christian just mentioned, ramp up expenses in the offshore business. Now let's take a look at order backlog, please. As in prior quarters, we always like to highlight the order backlog. This is important for us. It provides very strong visibility. And of course, given the strong order growth and the order backlog continue to grow, as just mentioned, to a record high of $118 billion at the end of the quarter. Close to 50% of the backlog is service. So again, service being that recurring, resilient, high-margin, and cash-generating business. And we're also seeing strong growth in our new units business. This is important as new units help us to grow our installed base and create additional service revenue in the future. Apart from Siemens Gamesa, all of our businesses had book-to-bill ratios above 1%, And standout is grid technologies with almost a book-to-bill of four. Again, as just mentioned, at the CMD or Capital Market Day in November, we provided you with a deep dive on the order backlog, providing additional transparency in terms of reach, expected revenue generation, and the backlog margin development by business area. Just to provide a high-level update, the positive trends indicated at the Capital Market Day continue with respect to our order backlog quality because as you know it's extremely important that our backlog grows however we have to ensure that we convert it into profitable revenue and keep an eye on operational excellence now let's go to liquidity status and cash bridge please but before we do or before i go into this further let me provide an update on our divestment program as you know we decided to strengthen our balance sheet with significant near-term cash measures targeting 2.5 to 3 billion of cash inflows by means of our accelerating our existing divestment program, as well as the sale of the 18% stake in Siemens Limited India to Siemens AG. As mentioned earlier, we closed the sale of that stake early December, which resulted in a cash inflow of roughly 2.1 billion and a one-time P&L gain of approximately 1.7 billion. Now let me give you just a brief overview of the other ongoing divestments. First is Trench. As you already know, we signed an agreement to sell Trench Group to Triton in October 2023. The closing of this deal is expected at the end of the second quarter, and this transaction should provide us with cash inflow of low to mid-triple digit million amount. Looking at Windar. In May last year, we had signed an agreement for the sale of Windar. This was classified in our annual financial statements as assets and liabilities held for disposal. The closing is now expected in the second quarter. This will also result in a total cash inflow of a low triple-digit million amount and a high double-digit million gain. There are other smaller transactions in progress. So all in all, we expect in the second quarter, or let's say is the second half of the calendar year, another cash inflow of $600 to $700 million and more than $300 million in book gains from disposals. Therefore, we are very confident to reach the upper end of the $2.5 to $3 billion full-year target for cash proceeds, as well as the assumed full-year gains from divestments of around $2 billion. And we are also confident to reach our target of an adjusted net cash position at the end of fiscal year 24. So a lot of progress there. Now, looking at the group's cash bridge as at the end of Q1, overall, $5.3 billion cash and cash equivalents and $3.9 billion of financial debt, of which $3.2 is long-term in nature. This brings us to a net cash position of $1.4 billion versus a net debt position of $193 million at the end of Q4. As mentioned at the CMD and as I just explained when I updated with respect to our ongoing divestment program, It is our clear target to maintain this net cash position throughout the year. Again, the $2.1 billion proceeds related to the sale of our stake in Siemens Limited India constituted the main cash inflows, while we had operating cash outflow pre-tax of $283 million, as well as cash outflows related to financial interest of $33 million cash tax and minority dividends and some smaller items. Net cash adjusted for pension obligations amounted to roughly $0.8 billion at quarter end. This is an improvement of $1.6 billion versus the end of last financial fiscal year. So at the end of Q1, we have a total availability of liquidity of $10.3 billion with around $5.3 billion in cash and cash equivalents and $5 billion undrawn credit lines. With this, we continue to have a very strong balance sheet as at the end of the first quarter of fiscal year 24. absolutely in line with our commitment of a conservative financial risk profile, as well as our commitment to an investment grade rating profile. So moving on, please, to our business areas. Let's start here with gas services. So gas services had a strong, again, maybe to put into perspective, they have a strong prior year quarter as well. But for Q1, we booked $4.1 billion in orders. This exceeds, as just mentioned prior year, by a 13.1% comparable rate. The order growth was driven by a high volume of large orders, especially from Eastern Europe and Central Asia. Book-to-bill over 1.5 in order backlog rose to $42 billion. In Q1, we booked 22 gas turbines greater than 10 megawatts. Thereof, 11 large gas turbines and 11 industrial gas turbines. Q1 is characterized by a strong gas market for gas turbines greater than 10 megawatts, and in this regard, Siemens Energy reached a market share of 29%. Revenue grew by just shy of 11% versus a high comparable basis and came in at $2.7 billion. Again, both service and new unit business, which resulted, like in prior years' first quarter, in an overall favorable business mix in Q1 for GS. Profit came in at $313 million, which is close to the very strong level of prior year's quarter. This is about an 11.7% margin, and we continue to benefit from a high service contribution, as well as a keen eye on operational excellence and strong execution. Now let's take a look at grid technologies. A very successful start for grid technologies, with significant improvements across all KPIs. Orders outstanding in our grid technologies business area with an overall positive market environment for them. Orders in the first quarter exceeded the prior year by almost 33% and rose to 8.2 billion. This development was driven by the product business and HVDC orders in Germany, also in part benefiting from some pull-forward effects. The book-to-bill was just shy of four, as I mentioned earlier, and backlog rose to 28 billion. grew substantially by 33.1% year-on-year and came in at $2.1 billion, and again supported by the strong order intake in prior fiscal year, and that growth was driven by all businesses with main contributions from both product and solutions. Profit was $213 million, or a margin of 10.2%, and this is quite an improvement of 310 BIPs versus last year. Again, this results from the higher revenue, and a comparatively higher margin in the process order backlog, but also some timing effects were included therein. So on the next slide, we take a closer look at TI, or transformation of industry. At the CMD, I think it was really highlighted on our plans forward and what we've done in the past years to really create that solid foundation for our TI business. I think, you know, really looking at maximizing service share, selectivity, really a keen focus on this, and an improved price and risk profile. And I think this is very nicely reflected in the Q1 results. Looking at orders, $1.6 billion, this exceeded prior year by almost 40% comparable. This sharp increase was driven by a large order in our compression business and a large order in steam, our industrial and steam turbines and generator business. And the book-to-bill came in at just over 1.4, and a backlog rose to $7 billion. Revenue, 17.8% growth on a comparable basis, important across all four IMBs, really showing double-digit growth, and EAD and compression businesses showing the highest growth rates. Revenue growth was also supported by a very strong customer service demand, particularly in our compression and in our industrial steam turbines and generator business. Profit nearly doubled, came in at a strong, 105 million, and this is a margin of 9.2%. And, of course, this is an improvement of 350 basis points versus last year. This increase was driven in part by higher revenue, better pricing, as I mentioned earlier, increased service revenue, and, like I just mentioned in grid technology, some timing issues and project-related issues. And this has influenced, for example, like timing, as I mentioned, and some currency impacts and a favourable mix. Now let's take a look at our wind business, Siemens Gamesa. Christian earlier provided you with an update on the situation. I mean, looking here at the main financial KPIs, orders slightly above the level we saw in prior year. Again, onshore orders as communicated due to the temporary suspension of sales, slightly halved due to the cessation of sales activities for 4X and 5X. However, we saw growth in service orders and in offshore orders. Order backlog for Siemens Gamesa decreased to $41 billion, just a slight decrease. Revenue grew moderately by just shy of 5%. Increased service revenue more than offset a decline in onshore and offshore businesses. Of course, onshore remains and continues to be affected, as Christian mentioned, by the known quality issues and offshore by the ramp-up challenges. Looking at profit, it came in at negative $426 million in comparison to prior year's quarter. If you remember in prior year quarter, it also included charges of $472 million related to quality issues. And I think the recent quarter's underlying performance, of course, was driven by project margins, burdened by higher planned costs due to the quality issues that are quite well known, as well as increased product costs and ramp-up challenges in the offshore area. So how do we sum up our achievements in Q1? I think overall, solid start to the year in the former gas and power businesses, and Siemens Gamesa performing in large part as expected. We feel we're on the right trajectory towards our full-year targets. Again, the first quarter is encouraging, but also benefited from some project shift in timing. Topics, again, very normal in our business, but certainly even in light of the market dynamics we are currently seeing. This is why we maintain our guidance. Again, a highlight was the progress. I think we made really strong progress on our ongoing divestment program. and we're confident to reach the upper end of the two and a half to three billion year end target. So let's take a look at the outlook for fiscal year 24, which remains unchanged. So just as a reminder, we continue to expect for Siemens Energy Group a comparable revenue growth in the range of three to seven percent and profit margin before special items between negative two and positive one. Furthermore, we continue to expect net income of up to one billion. This includes impacts from disposals And we continue to assume a negative free cash flow pre-tax of around $1 billion. Overall, the assumptions that we gave per business area remain unchanged. This concludes my part of the presentation. And with this, I hand back to Christian to conclude with our key priorities. Over to you, Christian.

Yeah, thank you very much, Maria. I mean, I said it at the beginning, just to repeat it. the three elements which we continue hammer on, deliver on profitable growth, fix the wind business, and maintain a solid financial foundation. This will always be our mantra throughout all the quarterly calls. And with this, I would hand over to Michael to lead the question and answers.

Perfect. Thank you. Thank you, Christian. Thank you, Maria. As a reminder, just if you want to place a question, please press star one. If you want to remove yourself from the queue, hit The first three questions go to Vivek Mehta, Max Yates in Supra, Suburbanian. So, Vivek, if you please go ahead.

Thanks very much, everyone, and good morning. My question is on the orders. So at the time of the capital markets day, you suggested that at the group level, this would be down meaningfully. Since then, we've had the announcement on Horn C3, and you've obviously had excellent orders in the quarter. So could you maybe quantify how large the pull-forward effects in grid technologies were and how much of a downturn at group level is likely in order intake this year, if at all. Thank you.

Yeah, thank you very much, Vivek. Obviously, I have to say the current dynamic market environment, it's, let's say, a little bit a challenge to project it. Definitely, I would continue to, let's say, I would say we do see a stronger quarter one compared to all other quarters, very clearly. So don't projectors going forward. We also believe that we are largely in line with our statements we made on the Capital Market Day with an uptake on grid technologies. I think this is where we are very confident that we will probably exceed our own projections coming from there. On the rest of the business, it is largely in line. Wind, we also have to clearly see that we obviously had a good quarter and 24 will be weak. So all in all, we will definitely not be short of orders. I would say it in 24, but also don't expect that momentum to continue. Some of this were particular on grid also that now some of the call offs out of the frame contracts we communicated before. And now everybody is obviously pushing, pushing, pushing because they see the grid really being a shortfall. But there is a limitation to that also in terms of execution capacities.

I want very quick clarification. Should we expect the Horn C3 firm order to come in Q2? Thank you.

The Horn C order to come? No. No. Okay. Thank you.

Thank you, Vivek. Next question now goes to Max Yates. So, Max, please go ahead.

Thank you, and good morning. The question I had was just on a couple of the 2025 cash building blocks. And I guess the two things I'd love to understand, firstly, just on the sort of wind repairs, you show that chart that shows kind of the max or the highest cash outflow being in 2025 for the onshore repairs. Could you give us a feel for roughly what you think that number will be And then I guess the other part of the cash question is when I look at your grid business and the level of orders and I think about sort of some of the other parts of the supply chain, say the sort of cabling, they have relatively large kind of ongoing investment plans there. So I guess my question is a little bit around your kind of CapEx line in 2025. When you look at your backlog, do you see the requirement, particularly in grid technologies, of a sort of step up and major investment plan there? Thank you.

Thanks, Max. I appreciate the question on cash and relating to the building blocks. If you recall at the Capital Market Day, in line with the cash out curve that we also showed today, it obviously clearly shows the cash out in 25. We did not provide a 25 figure per se, but what we did say is between 20 and 4 and 25, this is where we see the majority of the cash out. And then, of course, over the two years of 25 and 26, then we expect the cash out of 1 to 2, back in of the 1 to 2 billion. So that would be cumulative over 25 and 26, just to be clear. 1 to 2 billion generated between 24 and cumulative 25 and 26. We did not give a cash outlay target for 25.

Max, let me comment on your question with regard to the capacity. The answer is yes. I mean, there's obviously we intend to extend the capacity, particularly on the grid technology side. This particular tackles two locations, which we are intending to build out from existing sites. This allows us also to do it on a manageable capex level, I would call it. So important steps, but also in our current plans all considered. I think that is important, but obviously we will continue to build out the capacity in grid technologies.

Understood. Thank you very much.

Thank you, Max. Next question goes to Supriya Subramanian. So, Supriya, please go ahead.

Yeah, thank you. Good morning, and thanks for taking my question. I just wanted to check on Siemens Gamesa, and since you said that, you know, majority of the root cause analysis is now done, if you could share some key findings from that in terms of, you know, Are we confident that the issues are now limited to the identified fleet? What is needed to fix the issues, whether it's design versus supplier quality? And when do you think you can re-enter the 4X and 5X turbine market?

Yeah, thank you very much for the question. I mean, first of all, we have not seen any new root causes. So the question in terms of did we see it on the main causes, my answer is yes. I think this is what we're from all the data, what we have available as of today that has been analyzed. Obviously, the key thing now is, as I said, to identify the planning going forward. In terms of what we have seen, Sorry to be a little bit not as simple, but it's a combination of matters, right? It is very often, it is a certain design with certain suppliers. We definitely have seen an influence on the suppliers, which doesn't mean it's solely the supplier. And I think this is obviously... also something but we see this as an element of combination combined with a load on on the turbine in terms of in conditions and so forth so it means that it gives us multiple opportunities to fix the problem one thing is a renewed design one thing is some slight design changes with a new supplier and these are the elements what we're working through now but what we definitely have seen is, let's say, a variety of reasons coming together. This is why it's unfortunately not so simple. And keep in mind, there's also one thing which is not to be overlooked, is also then how was the installation quality, right, in terms of the different regions and making sure that this is all aligned. So we are seeing a diversity, and I think this is why it's important So we have our challenges, to put it in simple words, on how to do it. But in terms of the mechanisms coming together, I have not seen any new things over the last couple of weeks and months. So that is a positive.

Okay, great. Thank you. Maybe just a very quick mechanical question. So the guidance for financial results, It's changed from negative 150 to negative 300 million last quarter to this quarter. I just wanted to check what's changed underlying there.

Hi, thank you for the question on that. So, yes, there's a few factors that have been included now that led to the increase of the 150. One is there were some changes in terms of rates on warranty. that have been included. And secondly, we have properly included, of course, the additional costs for the Bundt back guarantee facility. So that is why we've updated accordingly there the amount.

Perfect. Yeah. Thank you. Thanks a lot. That's it for my end.

Thank you. The next three questions go to Alex Virgo, Sebastian Grover, and Gail Debray. So, Alex, if you go first, please.

Thanks Michael morning Christian Maria. Thanks for taking the questions. I wondered if you could just give us a sense of. your your response i guess from a from a big picture standpoint with respect to this root cause analysis um i asked the question i think at the cmd um so same sort of question again i'm just wondering what it's all very well to establish and work out that or identify the symptoms and i appreciate you've done all of the work around the installed base and just making sure or trying to understand if you've changed anything in the way you design these turbines and the way you interact interact and and uh operate with the suppliers because i guess ultimately that's really what we want to hear or want to see with respect to what you then go forward and change even if we you know it's a bit too early to talk about what you're actually doing to to fix it is that does that make sense as a question

Absolutely, Alex. And the answer is yes, right? I mean, if you wouldn't do something different, obviously, we are absolutely disappointed with the surprise we had to present last year. And one thing which has been introduced is obviously different design methods, largely also leveraging our offshore capabilities, very clearly to say, plus externals. And one key thing which comes really out for me is really with the introduction particular of new designs, the how shall I call it combination of manufacturing readiness level together with supply chain readiness level. And the diversity you see on certain suppliers, for example, for a specific item like a bearing is stunning. And then it's about, okay, how do you ensure the quality control? How do you make sure that you really understand it? And this does require extra rigor. This is also why, to be honest, we push out the date for the announcement when to reintroduce the new sales on 4X and 5X because these processes we want to have implemented as well as leveraging our processes and supply chain management from the Siemens Energy side and bringing these groups together. That is a key underlying factor. Fundamentally, I would say there's nothing where you would say you cannot do it right to the expectation to the market. So that is all would work out. But definitely there are things where we have to say this cannot continue as is and this has to change. And this is what we're doing at the moment.

Okay, thank you. And as a follow-up question, can I ask if you could comment, please, on the pricing environment specifically in gas turbines and in grid? Clearly, a tight market is generally helpful from a supplier perspective. And given the history in both businesses with respect to pricing discipline, I wondered if you might just – or any comments you might be able to make on those businesses would be helpful. Yeah, I'm happy to do so.

Yeah, let me come to grit and gas for a second. I've seen there were some, let's say, question marks also around the pricing environment in wind. And just also to put that one in perspective, because there was, let's say, a low ASP price shown in onshore wind in the first quarter, which is driven by the fact that we're not selling 4X and 5X, but repowering solutions. and India at the moment, which is a very limited scope and then has a different price. Just to put that into perspective. So also I would see in wind the pricing environment okay. I mean, that is something just as on the sidelines. Grid remains pricing-wise a favorable environment, clearly to say. It's a very tight market. At the same time, we have to get ready for making sure that we do not get – It takes us as granted, right? Because at the moment it's a very good environment. Maria indicated that the order backlog margin goes up, right? Despite the fact that if you get more and more new units, right? I mean, so this is a mixed effect, even overcompensated. And also gas services show still good behavior in the industry today. I really have to say I feel comfortable with that. It's not as strong as in grid technologies, logically, but it's a good pricing environment.

Great. Thanks very much.

The next question goes to Sebastian. Sebastian, please go ahead.

Good morning, all, and thanks for taking my questions. The first one would be a follow-up on the free cash flow bridge for 24. Maria, you had pointed earlier to a free cash flow of positive $1 billion or around that level for XGP with around $2 billion negative for SGRE behind the about $1 billion negative at group level. In wake of the stronger than earlier fiat order pipeline at XGP, can you help us understand what would drive really a zero free cash flow for the remaining three quarters as per that guidance framework?

Hi, Sebastian. Thank you for the question on a free cash flow. Look, clearly it is a strong start to the year. And as you know, this is driven by a multitude of factors, things like seasonality, volatility. But of course, with stronger demand and higher order intake, then of course it has an impact on our cash. Q1 was strong, and we indicated that momentum at the Capital Market Day, and we saw that still happening. And, of course, this is only Q1. We have other forces. There's puts and takes, as I always say, in each and every quarter. And I think now we are committed to a net cash position. I think you saw some of the progress that we've made there. We make cash generation a key priority. However, you may have noticed that, of course, as we execute through this backlog, we do need things like inventories and so on in terms of operating working capital to kind of progress accordingly. We see that all in hand, and so, of course, we're monitoring that very closely. However, we will not, at this point in time, we confirm our cash flow guidance for the year because of some of these puts and takes. Again, I think it's important to note that we're still just in Q1. Yeah? Thank you.

Fair enough. And the second one is just on the order pipeline at SGRE. So Christian, one large offshore customer has lowered its capex plan for the period through 2030 just today. And against the backdrop, can you comment on how you see the offshore volumes over time?

Yeah, I mean, we always said offshore is going to be delayed, and then you can debate whether it's two to three years or how long it is. But we said it's after, let's say, it starts with 25 to pick up again, and then it is starting from there. Keep in mind, we always have, let's say, looked on the volume, we assume, for our business case, whether the announcement with a kind of... Lower level, so we always expected, we never calculated with the full market, which was announced. Let me put it this way. And obviously, then from 25 onwards, we expected to recover. But it will take some time now to get the things in place, to get the auction mechanisms refurbished. But in that regard, we do believe that, for example, 25 and offshore is for us stronger than in 24, just to keep that in mind. And also, obviously, we're sitting at the moment also on a backlog for the next years to come, which we also have to work off first. So the current situation is not unexpected. Let me put it this way.

Helpful. Thank you so much.

Thanks. Next question goes to Gael Debrey. Gael, please.

Yes, thanks very much. Good morning, everyone. So I have two questions, please. The first one relates to Gamesa. Since the root cause analysis of the quality issues is essentially completed now, and with Q1 looking a bit better than expected, I mean, would you agree there now appears to be some upside risk to the 2 billion loss expected for the full year. That's question number one. Question number two is, well, GE, GE Vernova will shortly become an independent company out of GE. And I was curious to see if you had any commentary, any thoughts on that, either positive or negative. Thanks very much.

Thanks, Gail. On the performance with Siemens Gamesa throughout the year, I would stay with what we have set in the Capital Market Day. And obviously also keep in mind that because also of not going into a sale, we also have to manage the structural costs. And that is something where I would stay with what we have set, if you look on the numbers, back in Capital Market Day in November. On Venova, No, I mean, I would never comment on a competitor, but I wish really Scott and the whole team all the best really to make it happen. I think he knows and we know how challenging it is to set up a separate company. I'm very glad at the end to have a relatively comparable peer in the market, also for ourselves. And I think we are looking forward to a healthy competition in that regard. But I really wish the team around him really all the best for getting it done now.

All right. Thank you very much.

Thanks. As a couple of people have just recently registered, the list has been growing again. So if you could now stick to one question, please. Next three questions go to Sean McLaughlin, Phil Buller, and AJ Patel. Sean, if you start, please.

Good morning. Thanks for taking my question. Just digging back into Gamesa, will you need to redesign the 4X and the 5X before... re-releasing to the market. I note comments that you'd let the original design team for these turbines go. I mean, if you're to fix all the quality issues first, what's the risk that you're actually out of the market for another year or more before you step back in? Thank you.

first of all what we are looking is is uh um how should i say refurbished version or improved version of the 4x and 5x which because fundamentally also there's a lot of good things about the turbines but there's obviously fixing uh the on the on the current base design that is the assumption um and obviously this is what we're working through if there would be anything else um We would communicate it throughout 24. But at this point in time, we are really working in a refurbishment or a retrofit, you would say, type of program. This is where we are at the moment. What we had done in terms of the design teams, we obviously wanted to have people on it with a fresh pair of eyes. But obviously, they are identifying the things which need improvement and others which have worked. But that is still my planning in terms of the retrofit solutions. I cannot really tell you now what the exact timing is, but the base is 4x and 5x.

Thank you. Next question goes to Phil Buller. Phil, please.

Hi, thanks. Sorry, can I follow up on that same question, please? I guess if I'm reading the slides right, we're going to have a portfolio decision by the end of 2024, but we're going to be doubling the number of 5X installations in 2025. So do we not need to start bidding almost immediately, i.e. before a technical solution is fully in place? And if so, is that because we'll be in a position where we're fully comfortable with the scale of corrective costs that we'll need to absorb down the line, which you can maybe price in, so to speak?

Thanks. I'm not sure, Phil, whether I understood the full

connections between the different statements what you made um i guess i guess it's to do with the fact that if we are needing to bid near term if if you're assuming that we're going to double the number of 5x installations in 2025 it feels like we might need to start that bidding process imminently maybe that's wrong yeah but if we are maybe and we've got a retrofit type solution near term, I wonder if we'll be bidding with pricing in mind to support the bridge, so to speak, which would be unfavorable.

Yeah, just to be clear, I mean, the installations which are shown on the slides are backlog work off, right? This is what we are, let's say, have in the books, what we are doing, and that is the rotor update, right? And just showing on how we continue to do it. And obviously, we are at the moment deciding, okay, do we do the certain fixes in the factory? Do we do it in the field and how we do it and balance it also there with the customers? That has nothing to do with new orders. I hope that's clear. New orders obviously has to do something then. Hey, how do we look on more or less 26 and beyond? right? And how is then the load in the factories and how do we balance this? And this answer comes later, right? But this is really, if you refer to the slide, that's really existing orders in hand, which we're still going to execute.

Thank you. Yeah, I assume that's part of the 25 bridge on slide six would be predicated on orders that might need to be sooner. But that 25 is all backlog.

It's all backlog.

Okay, perfect. Thank you.

Right. So we've got three more people in the queue, as I previously mentioned, AJ Patel next, then Akash Gupta, and then Will Mackey. So AJ, if you go ahead, please.

Thank you very much. I just wanted to carry on the train of thought that we've just been discussing. So what I want to understand is, is that has the range of costs, the 1.6 billion provisions that you've highlighted, has that narrowed in terms of the potential possibility of the range of it, given the assessments you're making? And would you be able to make a full, once the assessments are finished, would you be able to be more definitive about that $1.6 billion of incremental cost? And does any of this plan have any cost for a new blade or any developments need to happen on turbines if you would need to go back out in the market? Or is that all additional? Just wanted to differentiate the cash flows here for Siemens Gamassa.

Yeah, I mean, first of all, to the cost level, I mean, we reconfirm it because we reconfirm it. It is obviously a very detailed picture now on what allocated where. What you have to keep in mind that the biggest chunk of the cost is really either related to installation or cost things which occur at a later point in time, which is very much also on how we organize execution. And this is obviously will be only later judged on this because you need a crane, you need a team at site and so forth. And the other thing is customer negotiations, LDs and these type of payment, which is also influenced a bit by the mitigation plan and the negotiation with the customers, which is still to come. And this is why at this point in time, it's too early. The smallest part of the cost, which we equate is cost. the part itself. That is actually not my major concern. And it's really about all the installation related cost and customer elements. And this is why you're going to see that number not changing fast, right, in terms of it. Because this is where we will see once we execute through the backlog.

Okay. Thank you. Next question goes to Akash Gupta. Akash, please.

Yes, hi. My question is on Siemens Energy, not Siemens Energy, but Siemens India. So we saw in last quarter Siemens India announced their plan to consider separation of energy business. And the question is that at what stage do you need to recognize a liability in your balance sheet to execute the plan to buy back majority stake in energy business of Siemens India from Siemens Agi? Thank you.

Hi, Akash. Maybe I'll take that one. So you're absolutely right. That's absolutely in line with our plan that that announcement was made. So essentially now we're doing the demerger and carve-out process. This is something that will take, I mentioned this at the CMD, this is something that will take a number of years and a number of milestones. We anticipate at least two years' time for this part of the process. And then there's a number of steps after that. that will, at that point in time, determine how we do swaps and so on for the new Siemens Energy India Limited setup. So again, I think it's too early at this point in time, but we're on track. I'm happy that announcement was made because it shows that we're progressing, and this was always the plan.

Thank you. Right. Will, last question goes to you.

Thank you. Good morning to you all. My question is, can you help me understand again the dynamics within the onshore business at SGRE? Specifically, you're booking solid revenues better than expected. What's in there and what are you selling with regard to the orders that you're taking at the moment? And then when we look at the predictions you've given us for production rates for Forex and 5X in 2024, when will the Forex and 5X be contributing to the revenues within the onshore business, or are they already?

Thank you. Yeah, thanks. First of all, what are we, let's say, selling and executing? And this is, I mean, for example, as I mentioned before, one thing was repowering solutions, which is US market. And the other thing was, for example, India, which is a smaller onshore units. And keep in mind, there's also service business continuously running and executed. We serve 85 gigawatts, right? I mean, in terms of onshore wind installation still, and this is ongoing. Um, on, um, the, um, the. Execution. No, I have to. The question was revenue recognition. Boy, this is getting now in details. I mean, we recognize the revenue while executing its percentage of completion, uh, approach. And in this regard, it's already considered now, right? It is in the numbers and we'll continue to do so in line with the outlook for the next years to come. That was the intention actually to show this slide. The intention was to show we continue to execute the project around the 4X and 5X. Yes, we are shifting this a bit depending on do we want to do things in the factory or on the field, but it will continuously generate revenue out of the backlog.

Thank you.

Right. I think in the interest of time, and as we had other companies report as well, we now close the Q&A. Christian, if you want to have a final remark before we close the call.

Yeah, I mean, as I said, I think we'll probably see a relatively similar picture, hopefully, over the next quarters to come, which is a very dynamic energy environment, which is a positive. let's say, working through the matters at SGE. I can understand that you would love to have much more specific and detailed answers. Unfortunately, the world is that complex. For me, it's important that it really goes step after step. I mean, we have to rebuild trust into that business. That's what we're trying to do in that regard. Many thanks for the discussions and the questions also. And I hope we, step after step, can give you more comfort around what the organization is doing. Thank you. Thanks, everyone.

Bye.

Bye-bye. Take care.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the investor relations section of the Siemens Energy website. The website address is www.siemens-energy.com slash investor relations.