Siemens Energy Ag

Good morning and a warm welcome to the Siemens Energy Q2 analyst call. As always, all documents were released at 7 a.m. on our website. On April 16, 2025, we pre-released our Q2 fiscal year 2025 figures due to a better than expected quarterly performance. On this occasion, we also raised our guidance for the full year. 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 second 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 call, we have allowed an hour. So, Christian, over to you.

Thank you very much, Michael. And good morning, everybody, also from my side. Thank you very much for joining us today. During the second quarter, our performance remained strong. Reflecting the strong performance, we have raised our guidance for the full year across all KPIs. In our last quarterly call, I explained the resilient nature of our business model, and this provides us with confidence that we are well-equipped to deal with tariffs as they arise and continue to focus on profitable growth. We continue to benefit from strong markets and booked orders of 14.4 billion euros, reflecting comparable growth of 52.3% against prior year quarter. Almost half of our orders in the quarter came from gas services, which booked their highest order intake in history. With a 1.45 book-to-bill ratio, our order backlog grew once again to a new record high of €133 billion. At the same time, we managed to further improve our backlog margins. Revenue came in at €10 billion, reflecting revenue growth of just over 20%. Growth for the first half was therefore close to 20% and well above our original expectations. Our profit before special items rose to €900 million, including roughly €100 million of timing effects at Grid Technologies. This corresponds to a profit margin of 9.1% for the quarter and an improvement of 700 basis points year over year. The first half-year profit margin was at 7.3%, an improvement of almost 5 percentage points year over year. Cash flow of €1.4 billion yet again exceeded our expectations, taking cash flow for the first half year to €2.9 billion. The improvement versus last year was driven by better results, but also by customer payments and reservation fees. The underlying trends in our markets remain strong. Globally, we see that our customers are keen to secure capacity, given strong growth in electricity consumption and the need to transform the generation base. As an example, let me point out the current developments in Germany. We expect that under the new German government, a pragmatic approach will be pursued for the construction of new dispatchable gas fire capacity of roughly 20 gigawatts over the coming years. While the underlying market trends remain strong, we have to see that the outlook for the global economy has become more uncertain, also because of the potential impact of global tariffs imposed by the United States and other countries. We are closely monitoring the developments and continuously analyzing the potential impact. For the second half of the fiscal year, we are currently estimating a limited direct impact to our results of up to a high double-digit profit impact after mitigation measures. In our gas business, we had an order backlog at the end of the quarter representing 29 gigawatts and reservation agreements for around 21 gigawatts. We expect to convert these reservations into orders in fiscal year 2025 and in fiscal year 2026. Given the strong market demand, pricing remains favorable, which is reflected in a further improvement of our backlog margins. Business resilience is key in the current market environment and therefore I'm very pleased that we have seen significant progress over the last couple of months. Our balance sheet continues to improve as we had €4.7 billion in net cash on the balance sheet at the end of this quarter. Based on the excellent performance during the first half of fiscal year 2025, we have raised our fiscal year 2025 guidance. For our fiscal year 2028 targets, we will provide an update with the full year results on November 14th. On November 19th and 20th, we will host our Capital Market Day in Charlotte, North Carolina. We will not only showcase our biggest North American factory, but also provide further insights into our businesses and how we want to realize profitable growth. Let me elaborate briefly on the new fiscal year 2025 guidance. Maria will share more details later in the presentation. We increased our outlook for all KPIs, growth, margin, net income, and cash flow. And given the faster growth at gas services and the stronger than expected revenue development at Siemens Gamesa, we now anticipate 13% to 15% growth compared to 8% to 10% before. The 100 basis points upgrade in our group profit margin expectation is predominantly driven by grid technologies. This is based on very strong execution and more significant cost regression than we had anticipated. This said, we also see gas services and transformation of industry progressing ahead of expectations. Driven by the favorable order trends, customer payment patterns, and better-than-expected profitability, we now expect another year of strong cash flow. Targeting around €4 billion, we are doubling last year's cash flow level with very strong contributions from gas services as well as grid technologies. We are now expecting net income of up to €1 billion, excluding the one-time gain related to the demerger of the energy business from Siemens India Ltd. Despite the fact that the debate about tariffs has led to economic uncertainties, the underlying market trends remain favorable. Electricity consumption continues to grow, and aging infrastructure needs to be replaced. Growth in electricity consumption has been particularly strong in the United States, where we also see a big need to replace aging infrastructure. While its tariffs would make certain projects in the U.S. more expensive and some projects may be delayed, we expect this to have only temporary effect on the demand and to be offset by strong demand in other regions. In the Middle East, demand remains strong. Saudi Arabia and the UAE continue to invest in sustainable and affordable electricity and energy infrastructure in countries like Libya, Iraq and Syria need to rebuild their electricity and energy infrastructure. In Asia-Pacific, the continuous growth in GDP and rising standards also support ongoing investments. We had strong orders in North America, with power generation and grid infrastructure investments being the main drivers. Several data center-related orders for gas turbine-fired power plants and a lifetime extension of a nuclear steam turbine in this quarter support our view that data centers provide upside in demand and that we are experiencing a nuclear renaissance. In the Middle East, we booked two large orders in Saudi with a total contract value of roughly 1.6 billion US dollars, as we already announced during this quarter. In Saudi, we are seeing an oil-to-gas shift, and these two power plants are replacing all oil-fired power plants and reducing emissions by up to 60%. A highlight in Europe was the Grid Technologies Project, which connects Norfolk, Wingard West and East, an RWE project where grid technology is responsible for the onshore station and the high-voltage equipment in the offshore substation. During the quarter, we also received an order in Taiwan for two gas turbines and related components for the Ku-Kwang-2 power plant in Taiwan. Let me now give you some current examples to underline our focus on profitable growth. Our ongoing capacity expansions and ramp-up activities across all business areas are well on track. Besides our capacity ramp-up for large gas turbines in Berlin, which will materialize in fiscal year 2027, we are also expanding our capacities for medium-sized gas turbines. This means we will be able to cope even more efficiently with a strong market demand. During the quarter, Siemens Gamesa started to deliver our flagship SG14 turbine to the Sofia side of the UK coast in the Baltic Sea and successfully installed the 5000 offshore wind turbine. This means that Siemens Gamesa has now delivered an offshore wind turbine capacity of 27 gigawatts to sites in 14 countries. We continue to develop our training programs to attract young professionals, and I'm very pleased that we are successfully competing for talents in our industry. I mentioned that the pricing environment remains favorable. Despite that, we continue to apply strict selectivity on the projects we take into our order backlog. Additionally, our teams focus strictly on cost-auto initiatives and productivity measures to remain competitive. I already mentioned the cost regression effects at grid technologies. These show that we are effectively limiting the overhead costs in the factories and in the functions in this gross environment. At the same time, the integration of Siemens Gamesa into Siemens Energy is well on track to achieve the targeted cost savings. Considering our position in the nuclear market, we entered into a partnership agreement with Rolls-Royce in February, which is expected to lead to the exclusive supply of steam turbines, generators, and other auxiliary systems for small modular reactors. At Siemens Gamesa, we execute our strategy to focus on selected core markets in our onshore wind business. We agreed to materially divest our wind business in India and Sri Lanka to a group of investors led by TPG. Closing of the transaction is expected latest by the beginning of fiscal year 2026. Let me briefly address our situation in the U.S., including the tariff debate, which has been one of the most discussed topics over the last weeks. Siemens Energy has been present in the United States for more than 100 years, and some major acquisitions, such as the Westinghouse Power Generation business in 1998 and Dresser Rund in 2014, have increased our footprint significantly. Currently, we have eight major manufacturing sites and a total of around 12,000 employees working in the U.S. It is one of our most important markets with €7 billion of revenue in fiscal year 2024, and orders of more than €10 billion, which are currently significantly increasing, as you could see a couple of slides before. The order backlog at the end of fiscal year 2024 stood at around €24 billion. Based on the great potential we see in the United States, we continue to expand our footprint in the US. We will have invested roughly €500 million in the United States by the end of this fiscal year since fiscal year 2023. With the potential terrorist impact in the U.S., the outlook for the global economy has become more uncertain. We are closely monitoring the developments and continuously analyzing the potential impact. At the same time, we are taking proactive steps to mitigate those. We are, as Siemens Energy, not immune to tariffs, as we have a global supply chain and trade flows into the United States from the rest of the world. It is also important to get a better understanding of the secondary trade policy effects on GDP and energy demand and tertiary effects such as potential changes in customer behaviors. Besides the direct financial implications, those new tariffs and regulations will add bureaucratic hurdles to the import process for authorities and importers. So we have set up a global task force to assess the best approach for Siemens Energy, acknowledging the complexity and fluidity of the situation. And this is an ongoing exercise and we focus on what we can control. And when it comes to existing protections, we have contractual terms such as change of law clauses, which largely protect our equipment backlog according to those the import and the cost associated with the import are charged to the customer. When it comes to the service business, the picture is more mixed. Contracts differ widely, but service contracts have in common that the cost base is more local and that escalation clauses are embedded in these contracts, which provide us with a certain degree of protection. And keep in mind that we operate a very decent local footprint, as I said before, with eight factories in the U.S., Although we are to a large degree covered through the duration of our backlog, we are working on further mitigation measures with the target to raise further our local content in the United States. This accounts to the supply chain as well as our own production. This will take some time and we are taking it step by step. In our race guidance for fiscal year 2025, we have anticipated what we know as of today with respect to tariffs. For the second half of the fiscal year, we are currently estimating a limited direct impact to Siemens Energy of up to a high double-digit million euro impact after mitigation. Again, this includes already existing protection as well as the short-term measures we have at hand. As always, we will revisit our business assumption, our mid to long-term planning over the summer months, and hopefully the picture around tariffs and feasible further mitigation measures will be more stable then. Based on that, we will provide you with an update on fiscal year 2028 targets with our quarter four results. And with this, let me hand over to Maria.

Thank you, Christian. Good morning, everyone, and a very warm welcome also from my side. I'm pleased to share with you our Q2 financial results. And let me start straight away with the Siemens Energy Group figures. As indicated, we had another very strong quarter, exceeding basically all major KPIs compared with expectations. We therefore had the announcement on April 16th, pre-releasing our key figures, upgrading the outlook for fiscal year 25. Let's get right into orders. Orders, as mentioned, reached 14.4 billion for the quarter. This is on the back of very strong demand, which continued by more than 50% increase versus prior year. The improvement was primarily driven by an increase in our new unit business, growing significantly by 67%, and supported by a substantial rise in the service business with 30% compared to Q2 of fiscal year 24. Service share for the first half of fiscal year 25 stands at 37%. Our book-to-bill ratio, 1.45, again driving our backlog to our new high of $133 billion. Margin quality, which is very important in our backlog, continues to improve. This reflects a number of factors, for example, positive pricing, developments above cost inflation, of course, our execution, and this all supports our midterm profitability targets. Revenue stood at $10 billion. This is up by just shy of 21% on a comparable basis, and this is the highest or a record quarterly revenue since the inception of Siemens Energy. All segments grew double digit to support this revenue, and it was also supported by better pricing across all business areas. Again, revenue grew significantly in both new units at 23% and service at 16% comparable. Profit before special items increased by more than five times year over year, with all segments improving and contributing to this result. Profits stood at $906 million. This is a 9.1% margin and was mainly due to a couple of factors. Firstly, increased volume, corresponding fixed cost absorption effects, as well as execution of high-margin projects also driven by better pricing. Additionally, it should be noted in our profit for grid technology, we benefited from positive timing effects of approximately 100 million. This mainly refers to a project where we did some preliminary work based on a limited notice to proceed from the customer. As a result, the cost at that time for the preliminary works ran through the P&L without any profit as the zero profit margin method was applied. In Q2, we then accordingly received the final notice to proceed. This led to a catch-up effect and the underlying margin was realized. Looking at net income, this is positive at 501 million. Just a reminder that for the full year, we now expect, based on the unchanged change guidance, rather, a net income to be up to 1 billion, again, excluding any assumed positive special item effects subsequent to the demerger of the energy business from Siemens Limited India. This is expected to lead to a positive special items in a mid three digit million euro range in the third quarter. Free cash flow was again stronger than expected at $1.4 billion and improved by just shy of $1 billion year over year, driven again by increased profit and positive working capital benefit, namely project advance payments as well as reservation fees. I will talk a little bit more about the drivers of cash flow on slide 12. Looking at order backlog on the next slide, here we see our new high of $133 billion. Of course, as we indicated in previous quarters, this really provides us transparency well into the future, as you see per annum. And fiscal year 25 revenue coverage now stands at around 94%. In fiscal year 26, we are already sitting at approximately 77%. And we continue to see an upward margin trend across all business areas, driven mainly by pricing above cost inflation. Again, our growing backlog provides a strong foundation for our fiscal year 25 outlook and our midterm targets. Moving on to cash flow. For Q2, we see free cash flow pre-tax of $1.4 billion. Again, around $900 million higher than in Q2 of prior year. This is mainly due to improved profit across all businesses. strong orders which yet again drove project advance payments, and this is reflected in the positive change of net operating working capital, as well as reservation fees. Please keep in mind that the $501 million net income in Q2 also includes a negative $265 million non-cash impairment related to the disposal of the India wind business, which has been added back in the cash flow statement. This is mainly reflected in the increase of the amortization, depreciation, and impairment line item. Quick update on the quality cash-outs with respect to Siemens Gamesa. This amounted to $84 million in the quarter. And as a reminder, for the full year, we've indicated guidance here of a mid-triple million amount. When it comes to CapEx... we confirmed the outlook we provided in Q4. This is approximately or around $2 billion, but clearly with a weighting or a hockey stick towards the second half of the fiscal year. Now, looking at net cash on the right-hand side of the slide, overall, we have $9 billion in cash and cash equivalents, which is the highest ever cash balance since the spin or since the inception of Siemens Energy. We have stable $3.9 billion in financial debt, of which $2.9 billion is long term. Considering the pension provisions, this brings us to an adjusted net cash position of $4.7 billion at the end of March. This is compared to an adjusted net cash position of $1.3 billion a year ago. So with this, we continue to have a strong focus on our balance sheet We want a strong balance sheet that, of course, is in line with our strong investment grade profile. As mentioned in the Q1 call, the exit from the Bundpact Guarantee Facility is a priority. We are already preparing the replacement of the Bundpact Guarantee Facility and remain committed to exiting the facility as soon as possible, and particularly in this fiscal year if possible. Now let's take a look at the business areas and let's start with gas services. A very strong order for our gas service business in a half-year development. This is a record quarter for GS, with orders of $7 billion. This more than doubled from previous year. This outstanding result was due to many large orders booked in different parts of the world. We have a book-to-bill ratio here of 2.22%. A record order backlog of 52 billion. Again, Q2 was characterized by a very strong gas market for gas turbines with greater than 10 megawatts, with the largest markets being in the Middle East and the U.S. In Q2, we booked 61 gas turbines greater than 10 megawatts for the power generation oil and gas. 18 of those were large gas turbines. Our gas turbines greater than 10 megawatt market share for power generation stood at 40%. Looking at revenue for GS, this was 3.2 billion. It's just shy of 19% increase on a comparable basis. Here we see service business showed significant growth of 22% and new unit business of 10%. The service share as a percentage of revenue in Q2 was 67%, very stable versus a 66% in prior year, supporting a margin expansion, again, in a favorable business mix. Q1 profit stood at 511 million, an increase of 34% year on year, resulting in a margin of 16.1%. This is the highest quarterly profit for GS ever since spin. This is an improvement of approximately 175 bps, driven by higher volume in the service business, as just mentioned, and better margin quality of the processed order backlog, again, driven by better pricing. Just a friendly reminder, after a very strong first half, I do want to remind everybody about the seasonality, particularly in our gas services business, is such that the mix in the second half, and this is particular also in Q4, this shifts towards more new units and less service business from a mix, and therefore has a downward impact on the margin. This year will not be different from prior years. So now let's look at grid technologies, please. Yet again, GT, well done, delivered significant improvements across all KPIs. Q2 orders of 5.2 billion. This was driven by a strong, broad-based demand across products and solutions, as well as also mentioned earlier, in different regions, particularly increased volume from large orders in Europe. Orders include HVDC orders of approximately $1 billion, as well as several other fax orders with a total volume of approximately $500 million. Book-to-bill ratio, 1.82. Order backlog for GT, just like GS, also a new record high of $38 billion. Revenue for Q2 grew by just shy of 34% on a comparable basis. And again, it increased both in product and solutions business. I think that's important to note. Q2 profit was $575 million, this more than double compared to prior year, and resulted in a margin of 19.9%. Also for GT, this is the highest quarterly profit since the inception of the company. Improvement here was driven by strong operational performance, higher volume, including corresponding digression effects, operational improvements, and the higher margin in the process order backlog. The strong underlying profitability of around 16.4% was further elevated by those positive timing effects I just mentioned of 100 million approximately. Now looking at transformation of industry, orders for the quarter were at 1.6 billion. This was essentially flat or a 2% decrease relatively unchanged. versus a high prior year comparable base. There was one large order that was booked last year, taking that out, actually underlying the orders grew this year. Service orders grew and increased by 17%. This was supported by an increasing share in mods and upgrades. Book to bill was above one at 1.11 and order backlog at the end of the quarter amounted to 8 billion. Revenue grew by 10.5%. This was driven by all businesses. The strong growth in new units and service both grew. And the biggest contributor in Q2 was the compression business for revenue at plus 21% year over year. Profit was 155 million. Again, for TI, this is almost double from prior year. Margin was 11% correspondingly. Improvement was mainly due to volume growth, particularly, as I just mentioned, in the service business. and improved margin quality of the order backlog. Moving on to Siemens Gamesa, this quarter was in line with expectations. So Q2 orders stood just shy of $1 billion, essentially on prior year's level. As expected, there were no large orders in the offshore business, and onshore orders continued to be affected by the temporary interruption of sales activities. Book-to-bill ratio accordingly came in below 1 at 0.32%, The backlog at quarter end stood at $36 billion. And revenue here, we see Q2 revenue grew significantly by 16% to $2.7 billion. This is due to the growth in the offshore business. The offshore business, including service, experienced growth of 51% for revenue in the quarter. Q2 profit for Siemens Gamesa before special items came in at negative $249 million. This marks an improvement of around $200 million year-over-year and keeps us again on track. We reconfirm our full-year guidance of a loss of around $1.3 billion. Again, improvement was based on offshore due to higher volume and corresponding fixed cost absorption effects. In addition, very typical in project business, we see project-related one-offs. Some are negative, some are positive, but in this case, we had some tailwind from project-related one-offs from a positive perspective. In onshore, we saw moderate improvement year on year as we continue to work through the onerous backlog as we've reported quarter over quarter, as well as the quality issues. Just again, additionally, to shed a bit more light on the Siemens Gamesa India business on March 26th, we announced the divestment of the majority stake of this business in line with our objective to focus and de-risk the onshore business. This led to an impairment of $265 million, which is included in special items. We expect deconsolidation by the end of this fiscal year or beginning of next fiscal year. Let me now move to our revised outlook for fiscal year 25. So overall, Siemens Energy now expects 13% to 15% comparable revenue growth, previously 8% to 10%, a profit margin of 4% to 6%, previously 3% to 5%. Again, this includes a limited direct impact from tariffs on Siemens Energy profit of up to a high double-digit amount after mitigation measures. Net income of up to $1 billion previously was at breakeven, Again, excluding any positive special items from the demerger of the energy business from Siemens Limited India. Free cash flow pre-tax of around $4 billion. This was previously up to $1 billion. So again, almost all of the assumptions for business area have been raised. You see them there in front of you. They've been detailed. And an update of the mid-term targets will be provided with the full year results in November and further elaborated at the CMD straight after. So with this, thank you very much for your attention, and I turn it back to you, Christian.