Siemens Energy Ag

Good morning and a warm welcome to the Siemens Energy Q4 analyst call. All documents were released yesterday evening on our website. I'm very pleased that our president and CEO Christian Bruch and our CFO Maria Ferraro are here with me. As always, Christian and Maria will take you through the major developments during the quarter and the fiscal year. They will also provide you with the new guidance and the headline medium term targets before they will give you further insights into the market trends and how they expect individual businesses to perform over the coming years. That should take approximately 45 minutes. We have approximately 45 minutes for Q&A thereafter so that in total the call shouldn't take more than one and a half hours. A recording of today's conference call will be available shortly after the conclusion of the call. And the conference call is also being webcast for those who have just dialed in through the telephone at the moment. You can actually click on our website on www.siemens-energy.com forward slash investor relations to get onto the call. Before we begin, I would like to draw your attention to the Safe Harbor Statement on page 2 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. Before we start, let me remind you about the process for the Q&A session. If you wish to ask a question, please press 1 on your telephone keypad. And if you want to withdraw yourself, press star 1 to get onto the queue and star 2 to get off the queue. And with that, I hand over to Christian.

Thank you very much, Michael. And also from my side, a very good morning. Thank you very much for joining our call today. And as Michael indicated, we would like to do it a bit in two sections. First of all, Maria and myself will go through the usual reporting. And then thereafter, we will address on how we want to deliver midterm and the different business and how we execute our strategy. going forward. First of all, I'm pleased to say that we not only delivered strong growth and significant margin expansion, but that we have reached the top end of our guidance for fiscal year 24 for all the key KPIs. And even after raising our guidance in quarter two of this fiscal year. Cash flow came in very strong and we generated more than 900 million euros of free cash flow in the quarter. We booked 50 billion of orders and again finished the year with a record order backlog with significantly better margin quality. This means that we have built the case for strong growth and rising profitability for many years to come. Electricity demand growth remains strong, driving investment in infrastructure, especially in power grids. The rising demand related to the build-out of data centers provides further upside for our products. And I will elaborate more on the drivers and what it means for our business areas in the mid-term as we go through the presentation. Our guidance for fiscal year 2025 and our new mid-term targets for fiscal year 2028 reflect the positive momentum at gas services, grid technologies, and transformation of industry, as well as our commitment to break even at Siemens Gamesa in fiscal year 2026. For fiscal year 2025, we expect the revenue growth between 8% and 10%. This will mainly be driven by grid technologies and transformation of industry. But based on the good backlog, we now also expect gas services to grow. We expect a profit margin before special items of three to five percent, which represents an improvement of two to four percentage points compared to prior year 24. All business areas will contribute to this improvement. Net income this year is expected positive due to gains. Without these gains, we still expect at least to be breakeven. Cash flow before interest and tax, we expect to reach up to 1 billion euro. Maria and I will provide more details around the midterm outlook of the businesses later, but let me highlight the key targets we want to achieve in the midterm. We defined midterm. as the period up to and including the fiscal year 2028 to make it comparable to the targets we set at the capital market day back in November 2023. In fiscal year 2024, our performance was better than we expected due to the performance in our factories and better project execution. And because of this improvement in our operational performance, we pulled forward the fiscal year targets 2026 for gas services, grid technologies and transformation of industry by one year. In addition, our orders were higher and better than expected, leading to a very healthy order backlog with better margin quality, which means we can also upgrade our expectation beyond the current fiscal year. Given the better operating performance and the better backlog, we are now targeting group margins between 10 and 12% by fiscal year 2028, compared to 8% or higher before. Our new target growth is between high single and low double digit margin. It is roughly double what our previous expectation was. Let me give you more details on last year's performance starting with growth. Growth was strong with 12.8% and exceeded the top end of our revised guidance of 10 to 12% by 80 basis points. It also exceeded the midpoint of our original guidance of 3 to 7% by almost 8 percentage points. The stronger than expected growth shows that we have been able to transition from restructuring mode into execution and growth mode in the company within a relatively short period of time. This strong growth shows that the energy transition is driving our business across the entire portfolio and that our profit margin before special items of 1% was in line with the top end of our guidance. This represents a significant improvement compared to the previous year. However, the level is in no way satisfactory because the losses at Siemens Gamesa overshadowed the improving performance in the other businesses. Grid technologies, gas services and transformation of industry with its part particular on steam generators and compression have gone into growth and execution mode and delivered decent margins and we expect more to come. Even though Siemens Gamesa came out slightly better than we anticipated at the beginning of the year, €1.8 billion of losses mean that there is still a lot of work to be done by Winod and his team, and they are driving that. Net income of €1.3 billion compares to our expectation of up to €1 billion, which included gains from the proceeds of our divestments. We exceeded our target as we started to realize some of the tech synergies through the full integration of Siemens Gamesa into the overall company structures. Cash flow was once again much better than expected, driven by higher than expected profitability and stronger order intake. And with this, we ended the year with a record net cash balance. Let me, like always, turn to some examples to highlight milestones in the different business areas. And let me kick it off with a project in Saudi Arabia where we received, in order to deliver three highly efficient F-class gas turbines, a steam turbine and four generators with a total capacity of 1.2 gigawatts. This installation will replace oil-based generation and thus also reduce the CO2 emissions and the power generation and obviously help the kingdom to significantly reduce its carbon emissions. At Siemens Gamesa we inaugurated the factory for our 14 megawatt offshore wind turbine in Taiwan. This is our first factory for this type of turbine outside Europe and the new plant will be instrumental in manufacturing all turbines for the one gigawatt high long offshore wind project in Taiwan. It is obviously also setting the stage for other opportunities, not only in Taiwan, but also in the rest of Asia. With the increasing share of renewables in the generation mix, we see the need really for further solutions for grid operators to stabilize the grids. The third example, what you see here is a synchronous condenser, which is a suitable solution to the problem of really stabilizing the grid. And in quarter four, Tenet awarded us with the largest synchronous condenser project worldwide ever. And the project comprises eight SYNCONs, which will take until the end of 2031 to be complete and running. A good example for the electrification of industrial processes is a project at Shell's Chemical Park in Moordijk. Shell wanted to replace old steam-driven turbines at the site's largest plants with electric motors. We will now supply the motors and provide the electrical integration. It's a good example to see that you see energy consumption moving from fossil fuels to electricity and really in this era of electrification. And with this, I would like to hand it over for details on the numbers to Maria.

Thank you, Christian. Good morning, everyone. It's a pleasure to be here with all of you, and I'm very pleased to present our financial results for the full fiscal year and, of course, for Q4 of fiscal year 24. So in front of you, you see Siemens Energy Group results for the fiscal year. Here, let's start with orders. I mean, the tagline of strong revenue growth and significant margin improvement is visible. But looking at orders, first and foremost, we see this is in line with the record order intake of prior year. It also should be noted that in orders, of course, we had anticipated a decline in Siemens Gamesa of quite a substantial amount of just below 10 billion, of which the rest of the businesses have compensated for and still have an increase year over year. And that really shows some of the potential of our businesses with respect to the demand that we're seeing. And it's across the board. Grid technology plus 34%, gas services plus 28% and also transformation of industries comes in at 18% order growth year over year. Book to bill a very solid 1.46. And of course, as mentioned already by Christian, we have an order backlog of 123 billion euros. of which I can say clearly that's a record, but also what I will demonstrate later is it's not just about the quantity. I always say it's about the quality. And certainly here we can see that that quality continues to improve, which underpins the foundation for our outlook for next year and certainly for the midterm in 28. Revenue, $34.5 billion, up by 13%, slightly over even our own aspirations in terms of 10% to 12% for the year. Here, the growth was clearly guided by grid technologies, where they had over 32% growth year over year. But again, this is across all BAs. I do want to underline that. Transformation of industry came in with just over 16% revenue growth year over year. Siemens Gamesa, over 11%. And gas services, even when we thought it would be flat, here the team did an outstanding job and was at 1.4%, even slightly above our own expectations. What's also important when it comes to revenue growth is really looking at the mix. And here you see the growth was in new units and service alike. Of course, ensuring that we have the new unit growth, but also the service share, which you know is very important for our future growth. continuing revenue, profit and cash. Profit before special items, we've returned to profit at 1%, that's at the high end of our range or 345 million. Of course, this is driven by on the back of the really strong performance of GSGT and TI, but also by minimizing or reducing the loss at Siemens Gamesa. And of course, that shows the improvements of all the other businesses that we're able to generate a profit. Special items, here we see 2 billion in special items. This is due to the disposal gains. If you recall, at the very beginning of this year, we took proactive measures to strengthen our balance sheet. And of course, that had gains related deemed special items. And this is specific to the majority of which is related to the portfolio transportation. Transformation, not transportation. Net income came in positive at 1.3 billion, again benefiting from some of those gains of approximately 2 billion from our strategic portfolio decisions. Last but not least, looking at cash flow, here we see an increase to 1.9 billion. This is pretty much doubling an excellent increase versus prior year. Of course, this is on the back of our profit conversion, increased order intake, and of course, customer payments and advance payments alike. And of course, the higher negative cash outflow that we saw at Siemens Gamesa was offset by the increase in the other segments. And when you're looking at the other segments and their contributions, grid technologies and gas services generated free cash flow of $2.2 billion and $1.4 billion respectively. TI came right on CCR or cash conversion rate of just over one. And of course, we already talked about Siemens Gamesa offsetting that. Now let's take a look at the Q4 performance by business area, starting with gas services. Here we see a solid finish to the year, a strong quarter for GS with orders worth $3.6 billion. This is a 40% increase, as you can see, quarter over quarter. This is driven by strong demand globally, particularly in the U.S. and the Middle East, and significant growth in service orders. Book-to-bill was 1.3%. And their order backlog, a record for gas services, came in at $45 billion. For Q4, we booked six gas turbines greater than 10 megawatts, five large gas turbines and one industrial gas turbine. The market share for GT in the greater than 10 megawatt area in Q4 was 11%. And for the full fiscal year, in terms of gas turbines greater than 10 megawatts, we are sitting very well at 27% or number two. Looking at revenue here for gas services, we see a relatively equal slight increase over the last quarter. Here, the service business showed a clear growth of just shy of 6%. We had a slight, just in terms of timing, a slight new units business decline, again, just due to timing effects, but here at 16.5%. And the full year gas services growth, again, at 1.4%, exceeding their target range, of course, which was originally flat. Profit, strong profit, Q4 profit before special items at $141 million. This is a 5.2% margin. And again, it's important. We always have this mix issue for our gas services business in Q4. But in this particular quarter, of course, we had a legacy item, a charge relating to a legal proceeding. And excluding that charge, we see an underlying strong Q4 margin of 6.6%. For the full year before the special items, we're just over a billion in profit. The margin is sitting at 9.5%, again, excluding that legacy item. GS had a very strong 10.5% profit for this year behind them. Now let's take a look at grid technologies. On the next page, please. Thank you. Here we see orders for the quarter at $5.4 billion. This is more than double the prior year quarter. This is driven by higher volume, of course, in grid solution orders in Germany and in the US. And of course, also significant is the solid progress in order intake that's happening within the project business, also within GT. Orders exceeded revenue by a factor of two. And order backlog, of course, grew to 33 billion, a record for them. And just put that into perspective, just a few years ago, their order intake for the year was just over 7 billion. So just to put that into perspective. Revenue here, Q4 revenue grew by just shy of 39% on a comparable basis. Here we see the grid solution revenue nearly twice the level of prior year quarter. Full-year GT growth came in at over 32%, in line with the guidance of 32% to 34%, and certainly well ahead of our original guidance of 18% to 22% well-done grid technologies. Looking at profit, Q4 profit was a margin of 10.2% at $277 million. This is the highest quarterly profit of the recent fiscal year for GT. And of course, this is on the back of strong, disciplined operational performance, higher volume, and of course, that margin improvement in the backlog, essentially looking at margin expansion. Here, the full year profit margin was at 10.5%, which slightly overshot the guidance of 8% to 10%. TI, next looking at TI, Q4 orders showed an over 28% increase with major contribution coming from compression and sustainable energy systems, book-to-bill ratio of 1.5, and here also a record backlog at 8 billion for TI. Q4 revenue, very strong, grew by almost 14%, and interestingly, grew across all businesses within TI, and this is due to that strong execution of the backlog, both in new units and in service. Full-year growth for TI, strong at 16.3%, and slightly above their guidance of the 14% to 16%. Q4 profit, margin at 6.7% or just shy of 94 million. Again, on the back of that operational performance, increased volume, higher margin quality from order backlog. Also of note, if you recall, it wasn't so long ago that we were talking about some of the turnaround businesses with compression and steam. Very proud to say and well done on the back of a lot of hard work that we achieved 10% profit margins for those businesses now. Full year profit margin, 7.4%, slightly over exceeding the 5.7% guidance range. Again, demonstrating the success of the turnaround plan and TI, well done. Now going to Siemens Gamesa, another quarter in line with expectations. Q4 orders were moderately down compared to Q4 of last year. Offshore growth was driven by some contracts, but specifically North Sea Horn Z3 contracts However, of course, we did have reductions, expected reductions in onshore in Q4. This was, of course, related to the temporary suspension. Book-to-bill ratio for the quarter was strong at 1.3. Order backlog continues to be quite high. If you recall, we indicated $40 billion. Here we're at $38 billion. And 50%, not to forget, 50% of the backlog is service at just over $18 billion. Revenue, Q4 revenue grew by 20%. This is driven predominantly by offshore and the offshore business growth as a result was just over 37%. Onshore declined slightly and service was flat. Full year growth was at 11.1, smack in the middle of the 10 to 12% guidance range for wind power. Again, the profit was in line with our expectations and the full year loss of $1.8 billion, as you recall, we amended that to say up to the $2 billion in losses right in line with our revised guidance in that regard with negative profit. So now, without further ado, let me turn over to Christian to take us through some more insights on delivering our strategy and our mid-term outlook. Christian.