Siemens Energy Ag

Good morning and a warm welcome to the Siemens Energy Q1 analyst call. As always, all documents were released at 7 a.m. on our website. And as a reminder, on January 27th, we pre-released our Q1 fiscal year 2025 figures due to the better than expected cash flow performance. Our president and CEO, Christian Bruch, and our CFO, Maria Ferraro, are here with me. Christian and Maria will take you through the major developments during the first quarter of fiscal year 2025. 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. Christian, with that, over to you.

Good morning, everybody, also from my side. Thank you very much for joining us today. We had a strong operational performance during the first three months of fiscal year 2025, and this provides us a very good jump of pace to achieve our full-year targets. We booked orders of 13.7 billion euro. This is down on last year's because Grid Technologies booked some very large orders in the prior year quarter. However, the absolute level was above my original expectations. At 1.53, the book-to-bill ratio was strong, And I'm pleased to say that the order backlog grew to €131 billion. And this represents yet another record level for us. Our backlog margins improved again, further underpinning our fiscal year 2028 margin targets. Maria will take you through our financial performance in more detail. But let me say that I'm very satisfied, not only with our order intake, but also with revenue growth of more than 18%. and the margin improvement of 270 basis points and the excellent cash conversion, cash flow of 1.5 billion euros, clearly exceeded my expectations. Our market continued to develop really nicely. The underlying trends remain strong, and we see our customers are looking to secure as much capacity as possible, given strong growth in electricity consumption and the build-out of data center capacity. At this point, we already have secured a project volume of around 20 gigawatts in gas, which we expect to convert into orders in fiscal year 2025 and fiscal year 2026. Let me also highlight that in wind, offshore is coming back. The successful auctions in South Korea and Japan indicate that offshore wind is regaining momentum. In 2025 alone, we expect auctions concerning capacities of more than 20 gigawatts globally. Our guidance for fiscal year 2025 and our targets for fiscal year 2028 reflect that we are on growth and margin expansion mode. We are clearly on track to reach our fiscal year 2025 guidance and we are taking the necessary steps to deliver on our fiscal year 2028 targets and beyond. To support Such a strong growth, we need a strong balance sheet, and I'm pleased that we were able to strengthen our balance sheet further. This is reflected in our bond yield spreads, which have come back down to 2022 levels, and the S&P upgrade from BBB- with a negative outlook to BBB- with a stable outlook. To deliver on our growth, we are investing in our capacities. However, we take a measured approach and expand our capacities in a responsible way neither losing sight of cost nor the risk of adding too much capacity. As I just mentioned, the underlying market remains very attractive across the different regions of the world. This quarter, our orders in the U.S. were particularly strong. There we are seeing broad-based investment in generation as well as rising investment in grid infrastructure. This is driven by strong demand for electricity and the need to replace aging infrastructure. The expansion of data center capacity continues to progress, and some of the hyperscale projects are now materializing. Great Technologies has long been a trusted partner in the data center build-out, and with a fast-growing electricity demand, we are successful to push for successes also at gas service. In the U.S., we have also experienced an acceleration of the nuclear renaissance, which has started with service and lifetime extensions. We had a big lifetime extension project in the U.S. at the start of last year, leading to strong growth in order intake in fiscal year 2024. And we are experiencing excellent start in quarter one, thus also expect this year to be strong. Given our know-how and our large fleet of nuclear steam turbines, we see more good opportunities over the coming years. As you know, there are new nuclear projects for large nuclear power plants, and over the coming years, small nuclear reactors will most likely become a reality. At Siemens Energy, we are well positioned with our instrumentation and control systems, as well as our steam turbine offering. When we look at opportunities for offshore, I want to point out the UK and Asia. And in the UK, we were able to book the East Anglia II project in the quarter. In Asia, four contracts were awarded in the South Korean auction and two projects in Japan's auction round three. So we clearly see that offshore is returning to growth, providing great opportunities for Siemens Gamesa, given our competitive offering and our track record. This will drive revenue and profits in the outer years of the decade. In this quarter, our order intake was particularly strong in the Americas, where orders rose by 60% to just over €5 billion, as we were able to book two F-frames and 10 SGT-800, as well as grid technologies where we booked a large order for synchronized condensers. We also had a good order level in EMEA where we booked the East Anglia II project I already mentioned, and this project is for 64 15-megawatt offshore wind turbines with a total power output of 960 megawatt. Generally, we experience high demand for all our businesses in Europe in comparison with the prior year quarter. Our orders, however, were lower. This is, as I said before, because of a tough comparison of the very large grid technologies orders we booked last year in Germany. Across all businesses, I'm very pleased with the order intake in the first quarter and that we are successful to balance the orders across the different regions. Looking back to the last two years, our orders exceeded 50 billion euro each year while at the same time the order intake quality improved in terms of margin quality as well as terms and conditions. Hence, we see our order backlog rise in volume, improve in margin quality and become more resilient. This quarter our order intake was yet again strong with 13.7 billion euro and our Book-to-bill ratio was above 1.5. This strong quarter and the strong order intake not only reflects high market demand, but our leading portfolio, our global presence, and our customer proximity. As a result, we have yet again now another record order backlog of 131 billion euro at the end of quarter one. 93% of this year's revenue is covered by our backlog. This gives us great confidence that we will deliver on our fiscal year 2025 guidance. Equally, the reach of our backlog gives us great confidence that we will be able to deliver on our fiscal year 2028 targets. On this slide, you can see that even looking into fiscal year 2026, roughly two-thirds of our revenue is covered by just the current backlog. Let me also remind you that 48% of our backlog pertains to long-term service agreements. This means, as of today, we know that we will generate more than €60 billion of resilient, highly predictable and profitable revenue well into the next decade. Given that we will continue to leverage our strong competitive situation in nicely growing markets, we will continue to grow our backlog and continue to improve the backlog quality. This is a strong base to deliver on our fiscal year 2028 targets and to generate value for our shareholders. Let me now highlight some of the investments we have done to deliver the growth and the key measures we have taken to stay on the right cost curve to deliver on profitability. Given the importance of technological leadership, let me also give you a few examples of portfolio developments relating to the last quarter. In order to deliver on our backlog in the light of strong market growth, we are investing in our capacities. We are investing in a responsible way, leveraging our global footprint and our global supply chain and avoiding the risk of potential overcapacities. Last year, Siemens Energy as a whole grew by 13% on a comparable basis, and we are targeting roughly 10% annual growth until fiscal year 2028. This means securing higher factory output and capacity extensions are absolutely critical. Last year, grid technologies grew by more than 30% on a comparable basis, and this year grid technologies will grow by more than 20%. This is a testament to the fact that we can manage strong growth. We will invest roughly €2 billion in fiscal year 2025 so that we will be able to deliver across all of our growing businesses. Let me share three examples out of several expansion projects. In order to support our large gas turbine capacity extension in Berlin, Germany, we are extending our in-house blade and wane manufacturing capacity in Tampa, Florida, and our combustion system manufacturing capacity in Budapest. Equally important, It is to build technical expertise and manufacturing competence in regions of strong demand, such as the Middle East. In Saudi Arabia, we have extended the footprint of our factory in Dammam by more than a third and added the necessary capabilities to build gas-insulated switchgear and to assemble HL-class turbines, which will be used in the Tiber II and Qasim II combined cycle projects. At Siemens Gamesa, we continue to be affected by the following effects of the temporary interruption of the sales activities of the 4X and the continuation of the temporary interruption of the sales activities of the 5X and onshore, but we see a better picture in offshore. I already mentioned that the offshore wind market is turning. Given our track record and with the 15 megawatt platform, a very competitive offering, we are well placed to capitalize on this upturn. This we can see in a much improved offshore oil pipeline at Siemens Gamesa. Our investments in Aalborg and Le Havre will further increase our execution capabilities. I already mentioned that our backlog quality continued to improve in the quarter. This means that the orders we took in the quarter had better margins and better terms and conditions than those we executed. In order to keep this trajectory, we will continue to be very disciplined on project selectivities. And let me pick gas services as an example. Gas services booked €5 billion of orders in the quarter and the margin quality improved further as prices continue to increase. It is important to bid on the right projects where our products and solutions provide good benefits to our customers. This is especially true for modifications and upgrades in the service business as well as our large and medium-sized gas turbines. We also continuously work on our cost position, and I would like to highlight two drivers here. The first driver are the cost savings related to the integration of Siemens Gamesa. There we are on track to deliver 50% of our overall target of €300 million of annual cost saving by the end of this fiscal year. The second driver is a reduction of structural costs to reduce the cost base in our onshore business as we reduce the business volume and focus on target markets. We are also making progress, and I'm pleased to say that we came to an agreement with the unions in Germany and in Spain. In addition, we obviously continue the integration with Siemens Gamesa to generate cost savings also from the central functions and the legal structures. We will only be able to deliver shareholder value on a sustainable basis if we continue to innovate and enhance our portfolio. Let me therefore highlight three examples out of the quarter. Together with our customer and partner SSE, we have launched Mission H2 Power. The aim is to develop a combustion system for the large HL gas turbine at KITBEE so that it will be capable of operating on 100% hydrogen while maintaining the flexibility to operate with natural gas and any blend of the two. Our colleagues at Grid Technologies have installed the first robot that will autonomously inspect and perform troubleshooting at a substation. This is a technology which we will also use to inspect offshore platforms. In the quarter, we have tested and shipped the compression trains to the wood fiber LNG site in British Columbia using 100% green electricity. This project will be one of the world's first net zero LNG export facilities. On December 12th, we published our sustainability report 2024. And obviously, as chief sustainability officer of this company, I can only recommend that you go through the report, not only to see which targets we have set, but also how we are progressing on our path towards becoming a more sustainable company. We continue to advance our ESG plan, and this is reflected in our ratings. However, we also suffered setbacks in other areas, and this is partly a reflection of the strong growth in our conventional business, where we will therefore have to increase our efforts. Let's look on some of the highlights. For the second year in a row, 100% of the electricity we use in our own operations came from renewables. SF6 continues to be a focus area. There we are tracking well ahead of our target to reduce consumption by 60% because of the success of our completely SF6 free blue portfolio of gas-insulated switchgear. Compared to the base year 2019, we have reduced emissions in our own operations already by 55%, and this means we are well on track to reach our target. Our very strong growth trajectory, however, provides us with challenges when it comes to Scope 3 downstream emissions, which arise from the use of our products. Here, we suffered a setback compared to last year, but we are still down 11% compared to 2019. Going forward, we will continue to focus on growth as well as emissions and will therefore need to increase our efforts in order to reduce our CO2 intensity. We have over the last years made good progress to build a more diverse leadership team at Siemens Energy. That is something I'm very proud about. As part of this, we aim to reach a share of 25 women in top leadership positions by September 30, 2025, and a share of 30 percent women in top leadership positions by end of fiscal year 2030. In fiscal year 24, the share of women in top leadership positions was 24 percent. We also refer in our sustainability report to our safety performance in the company. Safety is our top priority and we are making progress but also are not there where we need to be and where I want to be with the organization. Managing safety always is a precondition to manage successfully also your business and all our employees, our business partners such as contractors, suppliers and customers can count on my personal commitment and on the commitment of the organization to a safe and healthy working environment. We continue to drive our zero harm culture where everyone is committed to care, respect and accountability. Our total recordable injury rates declined by 12 percent last fiscal year and 9 percent during the first quarter of this fiscal year. However, 2.35 recordable injuries per one million of hours work is not satisfactory and we stay focused to improve this value. We further strengthened our global review process of lessons learned for all recordable incidents and high potential near misses. We had more than 25,000 engagements, such as safety moments, EHS walks, talk events, field workshops, and so forth last year throughout the organization. By raising awareness, we take the first step to prevent future incidents. And with this, let me hand over to Maria for the financial numbers.

Thank you, Christian. Good morning, everyone. Very happy to be here with all of you to present our Q1 fiscal year 25 results. Let me launch right into that. Looking here, we see the group results overall. I think with respect to orders, we've discussed that quite a bit. Maybe of interest is the share of service business in the order intake increased sharply. compared to prior year at just shy of 40%. Book-to-bill ratio, very strong, 1.53. We know this has led to a new high in our order book of $131 billion. The margin quality in the backlog continues to improve. I'll go into that further in just a moment. Revenue. $8.9 billion, up by 18.4%, comparable with all businesses contributing to this growth. All businesses contributed, led here by grid technologies, at 24%. Siemens Gamesa and Transformation of Industry, both with approximately 18% growth, and gas services with 6% growth. Revenue also grew significantly in both new units and service, which really shows a broad-based growth for us. Regarding service, we have had and continue to have a strong outage season as in quarter one of last year. And again, and this is reflected by the service share as a percentage of the revenue at 37%. Profit before special items, more than doubled year over year with all businesses showing profit improvement. Profit came in at 481 million euros or 5.4% margin. This is in line with our normal seasonality. Of course, always remember we have higher profitability in our first half than in the second half, again driven by the mix of new unit versus service. Siemens Gamesa losses were below prior year in line with our full year planning. Net income came in positive at 252 million. Just a reminder that for the full year, we expect a net income to be around the break-even mark. This is excluding assumed positive special items subsequent to the demerger of the energy business from Siemens Limited in India. Just a status update, the demerger is expected in March 2025. And then, of course, Siemens Energy will then own 6% in Siemens India Limited and 6% in the newly created Siemens Energy India Limited. Also a reminder in terms of treatment, due to the loss of significant influence in Siemens India Limited at that point, or the point of demerger, the accounting for the 6% SIL share will change from at equity to at cost. Therefore, we expect that this will trigger a book gain of slightly below $1 billion. This is based on the share price of Siemens India Limited as of December 30th. Free cash flow pre-tax. This, as mentioned already, was materially stronger than expected at positive $1.5 billion. This is, of course, driven by our project advance payments timing effects, including positive customer payment behavior at the end of the calendar year. All businesses contributed to this improvement. I'll talk a little bit more in detail about the drivers of the free cash flow in a moment. Now, also just to reflect a little bit on our order backlog, something that I provided in Q4, of course, is, as you see on the right-hand side of this slide, was the backlog project margin, where you see increases across the business areas and a stabilization in Siemens Gamesa. So I do not provide, so we don't provide a detailed update on quarterly development of the margin, but I can confirm the upwards trend in the backlog margin continues in Q1. So just looking a little bit at our business areas, from a gas services perspective, we see pricing is trending up slightly, and new orders continue to be accretive to the backlog margin, of course, very much on a selective basis. When it comes to grid technologies, we also see that pricing remains very favorable at the high level. With Siemens Gamesa, the latest auctions, as well as order intake and offshore, have also confirmed the upwards trend in pricing. When it comes to TI, new orders continue to be accretive to the average backlog margin. And of course, among the highest contributors to this development are the independently managed businesses of compression and steam. So again, just to give you a little bit of a flavor from how the backlog margin continues to develop. Looking now, please, at cash flow. So free cash flow, $1.5 billion, as I just mentioned, better than expected due to a number of factors. Of course, part of that is part profitability, part strong orders, which of course drive project advance payments, and timing effects, as I just mentioned. including positive customer and payment behavior. Of course, the biggest swing is the change of the operating networking capital. As you can see here, a cash inflow of $1.4 billion in the quarter. This relates predominantly to customer advance payments and creates an increase in the contract liabilities of just over $2 billion, as well as trade payables contributed to this, and this was partly compensated by an increase in inventories as well as an increase in trade receivables. Furthermore, we benefited in this quarter from a strong inflow of reservation fees. This came in the amount of approximately 190 million, which is also contributing to the development of our operating networking capital. Quick update on our quality cashouts. As you know, we indicated for the full year a mid-triple euro million amount as of Q1. We're just shy of $100 million of cash outs related to our quality issues from Q3 of 23. When it comes to CapEx, we confirmed the outlook that we provided in Q4, which was around the $2 billion mark. But just to be clear, in terms of weighting, we see the weighting of that spend to come in the second half of the year or having a bit of a hockey stick towards the second half. Looking at net cash, now on the right-hand side of the slide, overall we now have $8 billion in cash and cash equivalents. This, by the way, is the highest ever cash balance we've had since spin. Here you also need to take into account to get to net cash $3.8 billion of our financial debt, of which $3.1 billion is long-term in nature. We also have to consider pension provisions of just about a half a billion. Then this brings us to an adjusted net cash position of $3.7 billion at the end of December. This is compared to an adjusted net cash position of $840 million a year ago. So what does this mean? This means we have ample liquidity of over $12 billion with $8 billion in cash and cash equivalents, very little short-term debt, and savings. not to forget a renewed syndicated rolling facility worth $4 billion and no short-term debt refinancing needs. And with this, of course, one of our main priorities is to continue to have a strong balance sheet commensurate with an investment grade profile. And as mentioned already by Christian, one of the very important steps in this process was the rating update from S&P on December 16th, where they revised our outlook to stable from negative and reaffirmed the BBB minus investment grade rating on Siemens Energy. So let's take a look now at the business areas, and let's start with gas services. Overall for gas services, this was a strong quarter. Again, orders of $5 billion. This is a 25% increase year over year. As already shown, strong demand in the U.S. and Middle East here, and a significant growth in service orders. Book-to-bill ratio came in very strong at 1.77%, Order backlog sits at $49 billion. This is another all-time high. And Q1 was characterized by a strong gas market for gas turbines greater than 10 megawatts, with, again, the largest markets being in the U.S. and Middle East. In that regard, in Q1, we booked 24 gas turbines greater than 10 megawatts, thereof four large gas turbines and 20 industrial gas turbines. We had a very strong SGT 800 bookings, with 18 units in the quarter. Our market share, therefore, stands at 28%. Looking at revenue, Q1 revenue, 2.8 billion. This is just shy of 6% increase on a comparable basis. Here we have a very strong service business, which showed significant growth of 20%. The service share as a percentage in Q1 stood at 73% versus 64% in Q1 prior year, again supporting in this quarter the margin expansion, or a favorable business mix. So going into profit, Q1 profit for GS was at $412 million, an increase of 32% year-over-year. This resulted in a margin of 14.6%. This is the highest quarterly profit in gas services since spin. Now, again, the improvement of 250 bps, this was driven by higher volume in the service business. Again, this is a mixed issue. as just mentioned, and improved operational performance. Friendly reminder again on seasonality, when it comes to mix, half one, or first half, is always stronger than the second half, again, because of the service mix. Let's move on to grid technologies. On the next page, thank you. Here we see grid technologies, very strong quarter indeed, with Q1 orders of $5 billion. And again, we've talked about this being expected below the exceptionally high level of prior quarter, that's true, but I'd like to put this into perspective. In this $5.1 billion, there are no large HVDC orders. I think that demonstrates the underlying order momentum on the other parts of the business, such as product solutions, et cetera. And here you see the revenue exceeded orders are booked to bill of just over two. And here also the order backlog grew to a new high, record high of 36 billion. 24% revenue growth on a comparable basis in Q1 for GT. And this is the increase was substantially across all businesses led by growth, of course, in the solutions business. Profit, Q1 profit was 309 million. This is an increase of 45% or 220 bps year on year, resulting in a margin of 12.5%. This is also the highest profit for GTE since the spin. Here, the improvement is driven by increased volume, operational improvements, and of course, as you just saw in the order backlog, the higher margin of the process order backlog. On the next slide, let's take a look now at transformation of industries. Here, transformation of industries, booked orders of $1.5 billion. Again, an expected decrease based on a couple of large orders that were booked last year. Book-to-bill ratio at 1.09. And also here, order backlog at the end of the quarter amounted to over $8 billion. Revenue grew by just shy of 18%. This also driven by all businesses and growth in both service and new unit. The biggest contributor in Q1, as you can see in the IMB figures, was the compression business at just shy of 36%. Profit before special items, 157 million. This is a margin of 11.8%. Also here, triple 260 bps of improvement driven by increased volume and digression effects, a very strong underlying operational performance, as well as higher margin in the order backlog. Also for TI, this is the highest quarterly profit since SPIN. And I have to always commend the team in TI. This really shows the success of their turnaround plan and focus on profitability across the businesses. Moving on now to Siemens Gamesa on the next slide. Another quarter in line with expectations for Siemens Gamesa. Here, Q1 orders at $2.4 billion increased sharply. and that's due to growth in the offshore business. This was 172% growth quarter-over-quarter and primarily due to a large order in the North Sea. Onshore orders, as expected, minus 44%, and as Christian already mentioned, onshore remains affected by the follow-on effects of the temporary interruption of the sales activities for the 4X and 5X. Book-to-bill came in over 1 at 1.01%. And the order backlog at the quarter end stands at $39 billion. Again, as mentioned earlier, we do see a slight upwards trend in our backlog margin based on the latest order activity, as well as, of course, as we continue to convert through the owner's backlog onshore. Revenue in Siemens Gamesa grew significantly by 18% to $2.4 billion. This is due to growth in the offshore business. Here for offshore, including service, the growth was just shy of 50% at 46%. Onshore, of course, declined by 6%. Profit improved for Siemens Gamesa in line with expectations, but remained negative at $374 million. Again, the overall improvement here is really driven by the multiple levers that we discussed, but of course by our offshore business in particular, because of the higher volume ramp-up due to progress made in our manufacturing ramp-up, which we report back to you on a quarterly basis. So this concludes the financial overviews of the BAs. Maybe just to sum up very briefly, we really had a strong start to the year across all main financial KPIs. I think that was evident now in the business area overviews. And this again shows that we're on the right trajectory and underpins our guidance for this fiscal year. We have excellent cash conversion and continue to focus on the strength of the balance sheet. So now let's quickly go to the outlook, which for the most part is unchanged. Here you see SE or Siemens Energy overall expects 8% to 10% comparable revenue growth. Profit margin correspondingly at 3% to 5%. Net income at break-even. This again excludes any positive special items. Free cash flow pre-tax now. Due to the development in the first quarter, we now expect to exceed the previous free cash flow pre-tax guidance of up to $1 billion. And as a result, as communicated, we intend to update the free cash flow pre-tax outlook with the half-year results for the fiscal year 2025 in May. So with this, I'd like to thank you, and I'd like to hand back over to you, Christian, for some closing remarks.