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.