Siemens Energy Ag

Please stand by, we are about to begin. Good morning, ladies and gentlemen, and welcome to the Siemens Energy's Q3 fiscal year 2025 analyst call. As a reminder, this call is being recorded. 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. At this time, I would like to turn the call over to your host today, Mr. Tobias Hang. Please go ahead, sir.

Good morning and a warm welcome to the Siemens Energy Q3 analyst call. My name is Tobias Hang and I'm very excited to host this analyst call for the first time in my role as the head of investor relations. As always, all documents were released at 7 a.m. on our website. 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 third quarter of fiscal year 2025. This will take approximately 10 minutes. Thereafter, Christian and Maria are available to answer your questions. For the entire conference call, you have allowed one hour. So from here, Christian, over to you.

Thank you very much, Tobias, and good morning, everyone, also from my side. Thank you very much for joining us today. The third quarter proved to be another successful period for our company, further demonstrating our path to profitable growth. In addition to our strong financial performance, we have accomplished important milestones to generate shareholder value in the medium to long term, and which I'll address later. Let me mention one accomplishment right at the start, as we just released the information a couple of days ago. After exiting the Bund guarantees, the Bund now waived the condition that restricted us from paying a dividend for the fiscal year 2025. So we are now in the position to pay a dividend for 2025 if the Annual General Meeting in February 2020 approves this. This is an important milestone achieved. And I would like to thank all employees at Siemens Energy for their hard work and commitment, which has contributed to our strong performance. This quarter's most notable achievement was a record-breaking order intake of €16.6 billion. This reflects an increase of almost 65% in comparison to last year, supported by two large offshore orders at Siemens Gamesa and strong orders across all businesses, resulting in a book-to-bill ratio of 1.7. Our order backlog has reached a new record high of €136 billion. This was achieved despite negative currency translation effects of almost €4 billion. Revenue demonstrated consistent growth reaching €9.7 billion in the quarter and this reflects a 13.5% increase when compared to the same period in the previous year. Our profit before special items increased to 497 million euro, driven by a strong performance from grid technologies, gas services and transformation of industry. Overall, Siemens Energy's profit margin was 5.1% for the quarter, which is an improvement of 450 basis points year over year. Our cash flow stood at 419 million euros in quarter three, which is lower than in the previous year, however, well in line with our expectations and the fiscal year 2025 guidance. As everybody else in the industry, we experienced macroeconomic uncertainties during the quarter. These included the euro's tariff discussion and geopolitical tensions in different regions. Despite these challenges, we were able to successfully manage operations. Notwithstanding the prevailing volatility in the market environment, the underlying demand and pricing trends remain favorable. In quarter three, we recorded an impact of around 100 million euros from tariffs, which is broadly in line with our previous statement and mainly driven by one-time effects related to long-term service agreements. The EU-US agreement on 15% tariffs effective late July is higher compared to our original assumption of 10%. Thus, it will have an additional impact of up to a mid-double-digit million euro amount in Q4. Our business has delivered another strong quarter, continuing the solid performance of this fiscal year. This puts us on track to meet the upgraded guidance issued in the second quarter and we are currently trending towards the upper end of the range. As previously communicated, a comprehensive update regarding our midterm targets will be provided with the full year financial results on November 14th. At our Capital Market Day, which is scheduled for November 19 and 20 in Charlotte, North Carolina, we will present an in-depth overview of our business operations, their strategic plans for achieving profitable growth, and generating attractive shareholder returns. Allow me to provide you with a brief overview of the factors that contributed to our record order intake in this quarter. The demand for electricity is continuously increasing and it is essential to ensure a reliable and secure supply. From a global standpoint, the U.S. experienced the most significant surge in orders, accounting for nearly 35% of all orders in Q3. This represents a three-fold increase compared to the previous year, with a total value of around 6 billion euros. Notably, demand remains strong despite the tariff uncertainties, underscoring the current resilience of the market. However, despite our success in the U.S., we were able to secure a globally balanced order book. At Siemens Gamesa, we have received two major orders in Poland for offshore wind projects, both valued at over 1.5 billion euros each. And these orders underline our excellent position in offshore wind. Gas services set a new order record in the third quarter with a quantity of 86 gas turbines. This encompasses the entire portfolio of frame sizes, ranging from 15 megawatts to 500 megawatts. We have booked around 9 gigawatts of orders, which were mainly converted from our reservation agreements. Of these, 3 gigawatts were related to data centers. Growth was also driven by orders from the U.S., which accounted for nearly 50% of the total gas turbine orders. With regard to the applications, around 60% of the orders were related to our core business, including coal and oil-to-gas shift, peaker units, and generally higher energy demands. However, 40% of these orders were driven by new applications, including data centers, floating energy, and power ship applications. This has also resulted in significant growth in medium-sized gas turbines. Year-to-date sales for those have already exceeded the total sales from the previous two years combined. At the end of the third quarter, we had 21 gigawatts of reservations agreements on hand. Considering the order backlog of 37 gigawatts, we have now a total commitment of 58 gigawatts. The favorable pricing trend continued in the third quarter across all frames. We anticipate that this trend will be maintained for the foreseeable future. Also, grid technologies continued their successful development in the last quarter. As indicated already in the last quarter, we see in addition to HVDC and large transformer projects the demand for grid stabilization equipment on the rise to cope with the increased volatility requirements for the grid infrastructure. In the third quarter, we observed for grid technologies an exceptional global market demand for our product business, particular for power transformers. Also here it was supported by a strong order intake in the US. Our previously announced capacity expansions are therefore required to meet the demand for this market growth. At the same time, we are focusing on productivity increases to optimize capacities and reduce lead times. In our solutions business, we benefit from our long-term relationships with our customers, especially in Europe, where we see the demand continuing. We were nominated preferred supplier for two large HVDC projects in the UK by National Grid and Scottish Power. In the US, we were awarded an HVDC project, which constituted our largest order for grid technologies in this quarter. In Germany, our grid stabilization equipment FACT has been recognized with an award for a significant bundle of three STATCOM stations. Particularly in North America, we were able to achieve higher pricing by offering competitive lead times to our customers. So far, the project pipeline has remained robust despite tariff uncertainties. In transformation of industry, the demand came mainly from Germany, Northern Europe, and the Asia-Australia region. The order growth can mainly be attributed to electrification, automation, and digitalization, but also industrial steam and generators. Our compression business maintains stable pricing despite macroeconomic uncertainty due to tariffs and the oil price volatility. We still see underlying long-term market trends remaining intact. We are committed to continuous improvement within our company, and I'm proud to share with you some of the milestones we have completed in this quarter. Let me first start with our onshore wind business. We have successfully received the first order for the revised 4X wind turbine, and as previously stated, focus here primarily on the southern European market. Siemens Gamesa will supply eight turbines for the La Brasa wind farm in Spain Basque Country, and this project represents the first new wind farm development in the Basque Country for two decades. Siemens Gamesa also released the first tranche of the revised 5X turbine for sale. This is an important step for our onshore business on the road back to a regular presence in our key markets. To ensure product quality and strong turbine performance with roughly revised machine architecture, main components, and production steps. During the conditional market launch, we will continue to conduct prototype testing to validate the positive technical assessments obtained to date. Parallel to the technical evaluation, we will gradually expand the plant production volume based on the validation results. As I previously indicated, our substantial offshore orders this quarter have further increased our backlog. Consequently, we are continuously working to strengthen the resilience of our supply chain. We have now signed a memorandum of understanding with TDK to source rare earth magnets from Japan and with this build an alternative of supply from China. To address the significant increase in demand for power transformers, Contra and Siemens Energy are investing approximately €260 million in expanding their large power transformer factory in Jankomir, Zagreb. The construction is scheduled to begin in 2026. The new investment will more than double the capacity by 2031 from the original capacity in 2022. Maximizing profitability remains a primary objective for us. In the current market environment, focusing on pricing opportunities remains key. At the same time, it is important to keep the focus on project excellence and cost consciousness. I'm proud how our teams are executing the demanding backlog and leverage the improved backlog margins to significantly drive the margin profile in this quarter. In the second quarter, we announced our partnership with Rolls-Royce on SMRs, which entails the exclusive provision of steam turbines, generators, and ancillary systems for small modular reactors. This partnership is already yielding initial results as Rolls-Royce SMR has been selected by Great British Nuclear to construct three SMRs in the UK and signed an early works agreement in the Czech Republic for potential small modular reactors at the Tamnian nuclear power plant. In this dynamic market environment, small bolt-on acquisitions are one lever to lay the foundation for additional growth. We recently acquired the remaining 50% stake in RWG, a company that provides maintenance, repair, and overhaul services for industrial aeroderivative gas generators and power turbines. It is a strategic acquisition to strengthen our service capabilities for the growing aeroderivative market segment. In addition, we have acquired a transformer factory in Italy and this facility is used as a feeder plant for medium power transformers for the Trento and Nuremberg plants. I don't want to spend too much time on our strong balance sheet, as Maria will discuss our last quarter's achievement in detail later. The most notable milestone, as mentioned at the beginning of this quarter, was the exit from the Bund guarantees, which will enable us to distribute returns to our shareholders in the future, and now even already for fiscal year 2025. Capital allocation will be one of the primary topics addressed at our Capital Market Day event in November, where we will present a comprehensive plan outlining how shareholders will participate in our future success. And with this, let me hand over to Maria.

Thank you, Christian. Good morning, everyone. A very warm welcome from my side. As always, I'm pleased to share with you our quarterly results. Before I go into the performance of the business areas, let's start with a quick overview of the Q3 fiscal year 2025 at the Siemens Energy Group level. As Christian already mentioned, we had a record order intake and strong results this quarter, which puts us on track to meet the raised guidance, and we are currently trending towards the upper end of the range there. Also of note, due to the strength of the euro, we had some headwinds from currency translation. Therefore, I do want to point out that the spread between nominal and comparable growth for orders is 430 bps this quarter, and for revenue is 270 bps in the third quarter. Again, a nominal impact on profit because largely this is margin neutral. Looking at orders, again, we reached an all-time high this quarter since the spin with $16.6 billion. And this is the continuing strong demand, which increased the orders by almost 65% compared to prior year. The improvement was across the board, but primarily driven by an increase at Siemens Gamesa, where we booked two offshore orders each with more than $1.5 billion. On a geographic basis, as Christian showed, the growth was very broad-based. All reporting regions recorded sharp increases with a remarkable performance in the U.S. The overall improvement in orders was driven by a significant increase in the new unit business, growing with 137%. Looking at book-to-bill, 1.7, really driving the older book again to a record high of $136 billion. As I just mentioned, this was partially held back by negative currency translation effects of almost $4 billion this quarter. I'll review the backlog just in a moment. Now, moving on to revenue, $9.7 billion, up by 13.5% on a comparable basis. Here, the improvement, very strong growth, driven by GT by 26% and GS by 17%, each again growing on a comparable basis. Revenue, therefore, grew significantly, and significantly in new unit at plus 21% comparable and also in service at 6% comparable. Profit before special items increased by roughly 10 times year over year, with all segments improving sharply and Siemens Gamesa as expected. Profit before special items, therefore, was at $497 million. This is a 5.1% margin. And the profit increase here was mainly due to increased volume and corresponding fixed cost absorption effects. Also, we continue to execute high-margin projects driven by better pricing and, of course, also, never to forget, our strong service contribution of 33% this quarter. Therefore, we were able to compensate the majority of the impact resulting from tariffs, which, as mentioned already, amounted to around $100 million in Q3. And this is broadly in line with our Q2 statement and mainly driven by one-time cumulative catch effects related to our long-term service agreements. Now, looking at special items. As expected, the demerger of Siemens Energy India Ltd. led to an effect of roughly positive half a billion or 0.5 billion, resulting in a profit overall of $956 million for this quarter. Just as a refresher, on June 9th, Siemens Energy India Ltd. was successfully listed. As previously stated, our target is to be the major shareholder in fiscal year 2018. We will achieve this by swapping, essentially, the 6% ownership of Siemens India Limited and therefore purchasing the remainder from Siemens AG. The required cash-out fluctuates with the relative share price development of both entities and, of course, the share price of Siemens Energy India Limited in fiscal year 28. Again, this is taken into consideration in our business plans. Now looking at net income, this came in at positive $697 million, which, of course, is a tremendous increase quarter over quarter. Then free cash flow pre-tax, this stood at positive $419 million. There is a decrease there compared to previous year's quarter. This is mainly driven by changes in operating working capital and some timing shifts, as well as significant payments received last year, for example, from Siemens Gamesa, which was not the case in this quarter this year. I will talk in more detail about the drivers of free cash flow in just a moment. Now, let's look at our order backlog this quarter. So again, as I mentioned, new high of $136 billion, giving us transparency well into the future. Now, I'm happy to report that, of course, our revenue coverage has increased and stands at 95%. And already for fiscal year 26, our revenue coverage is at almost 80%. Again, with increasing resilience due to broad-based demand, and we also see that the backlog project margin development continues to be positive year-to-date. Now let's talk a little more in detail about free cash flow and the drivers of free cash flow. Looking at Q3, we, as I mentioned, have a free cash flow pre-tax of $419 million. and this is about $300 million lower than in Q3 of prior year. This is mainly due to, as I mentioned before, some timing shifts to Q4, changes in our net operating networking capital. This is driven mainly by a reduction in trade payables and also an increase in accounts receivable, as well as a lower increase in contract liabilities. And again, additionally, to note, the effect in special items from the demerger of Siemens Energy India Limited leads to an adjustment in the same amount in other items, of course, as this is a non-cash impact item. Both of these effects outweigh the significantly improved net income of approximately $700 million. Of course, also in Q3, I think it's very important. We have not seen a change in customer payment behavior, and we still see a continuation of incoming reservation fees. I'd also like to give you an update on where we stand on the Siemens Gamesa quality cashouts. This amounted to around 120 million in the quarter. As a reminder, for the full year, we had indicated a mid-triple-digit euro amount, million amount, so therefore this is in line with our expectations. Also, an update when it comes to CAPEX. We spent just over $450 million in Q3, almost half a billion. And this is to fuel our future growth mainly for expansion and capacity extensions. For example, the ramp-up of our SG14, our offshore business, as well as investments in expansion capacity for gas services and grid technology. With regards to the CapEx outlook, as you know, we provided this in prior years Q4, fiscal year 24, of around $2 billion. Currently, we see some delays or shifts into fiscal year 24, and therefore will remain slightly, slightly below the $2 billion, but we still expect a significant amount for Q4 of this fiscal year to come in, and then in total be below, just slightly below the $2 billion. Now looking at cash, our cash bridge and net cash. On the right-hand side of the slide, overall, we have 8.5 billion in cash and cash equivalents at the end of the quarter. We have a slight decline from the previous quarter. Again, looking at perhaps three things here I'd like to point out, which is we do have negative effects, translation effects of roughly 200 million. We also have the regular employee share buyback program of 170 million. This was conducted in Q3 of this year. In addition, we had cash taxes. We had to pay cash taxes of just over $150 million, as well as interest payments roughly the same amount. We have here, as you can see, slightly reduced financial debt with $3.7 billion, of which $2.2 is long-term. Considering, again, our pension provisions stable at $401 million, then this brings us to a net cash position of $4.4 billion at the end of June. This is compared to an adjusted net cash position of $1.7 billion a year ago. With this, we continue to have a strong balance sheet, commensurate with an investment-grade profile, which is also reflected in our external ratings. Perfect segue, some important milestones in the third quarter of this fiscal year 2025. On May 26, 2025, S&P revised their outlook to positive from stable and affirmed the BBB minus rating for Siemens Energy. And on June 17 of 2025, we received an investment grade rating of BAAA2 with a positive outlook in its inaugural rating from Moody's. On June 5th, we announced the planned replacement of the $11 billion facility backed by the German federal government and the additional $1 billion guarantee backed by Siemens AG. The new $9 billion syndicated facility, together with existing guarantee lines, will fully support our scale project business and related guarantee demands for the years to come. Very pleased with that. Additionally, as mentioned already, the termination of the government's counter guarantee relieves us from the annual financial burden. I mean, this costs us approximately $100 million plus from fiscal year 26 onward. and in addition lifts the restriction on bonus payments to the executive members 2026 onwards. As Christian already mentioned just a few days ago, very pleased with this, the Bund waived the restriction for dividend payments already for fiscal year 2025. We are very pleased with this decision as it gives us the ability to pay a dividend to our shareholders earlier than expected. This is the next progressive step and an important milestone for us, and now we revert to the relevant governance process and appropriate steps to approve a potential dividend payout for fiscal year 2025. As a reminder, Siemens Energy has a dividend policy to distribute 40% to 60% of net income attributable to shareholders of Siemens Energy. All right. So this, again, is a good segue. And Christian already mentioned it. We receive very often from investors in the last weeks regarding capital allocation and structure. And maybe just to reiterate, as always stated, we are committed to a conservative capital structure. This prudent financial policy is essential to navigate our industry cycles, project volatility, managing our working capital, and, of course, to meet our future financial commitments, all while preserving the flexibility, as you see this year and in years to come, to invest in the growth of our business. We will use the time now over the next couple of months to work on our midterm business plan, review investments such as CapEx R&D requirements for growth, and analyze our capital structure accordingly. What we do know is we will continue and we'll maintain our dividend policy. So please stay tuned for this and at our Q4 call, respectively. And as you heard, Christian invited you all to our Capital Market Day on November 20th in Charlotte, North Carolina, U.S. Just also, lastly, as a reminder, our mandatory convertible bond is scheduled to mature this year on September 14th. Given the current share price, we do expect this to trigger the minimum conversion ratio, which will result in the issuance of approximately 62 million new shares, which has been also accounted for. So now, let's take a look at the quarterly financial performances of our business areas, and let's start with gas services. So, overall, a very strong quarter for our gas services business. Orders of $6.2 billion, up more than 20% from prior year quarter, and this is driven by a very strong new unit business, which was up 144% compared to prior year. Book-to-bill ratio just shy of 2 at 1.98, and backlog record of 53 billion. Again, Q3 was characterized by a very strong gas market for gas turbines greater than 10 megawatt, with the largest markets being in the Middle East and in the U.S. In Q3, we booked a record of 86 gas turbines for power generation in oil and gas. 18 of those were large gas turbines. Our gas turbines greater than 10 megawatt market share for power generation stood at 37%, and large gas turbines, therefore greater than 100 megawatts, at 39%. Revenue for gas services for Q3 stood at $3.1 billion. This is just shy of a 17% increase on a comparable basis. New units showed significant growth of 47% and service business of 14% growth. Looking at profit before special items for GS, $406 million. This more than doubled year over year, resulting in a margin of 13%. This improvement of over 600 basis points was driven by better margin quality of the process order backlog and, of course, underlying with better pricing. In Q4, I have to say this, you know, gentle reminder of the typical seasonality that we have in our guest services business and the mix effects. But overall, a very strong Q4, Q3 for our guest services business. So moving on to grid technologies. Yet again, grid technologies delivered significant improvements in order intake, revenue, and profitability. Orders were at $4.2 billion, up 24% year-over-year, driven by strong broad-based demand, specifically from the U.S., and exceptionally high demand for the product business. Book-to-bill ratio for grid technologies was 1.5 and a backlog of $38 billion. Revenue for Q3 grew by just shy of 26% on a comparable basis, to $2.8 billion. Revenue here increased substantially. This was driven by increases in both product and the solutions business. Profit before special items came in at $448 million, again almost doubled compared to Q3 of prior year. This resulted in a margin of 15.9%. Here the improvement is driven by continued strong underlying operational performance. Higher volumes, including corresponding digression effects and operational improvements, coupled with the higher margin of the process order backlog. Again, a very strong quarter for our GT business. Moving on to transformation of industry. Here we see another solid quarter for TI, especially with regards to profitability. For Q3, we see orders of $1.4 billion. This is an increase of 23.4% versus prior year on a comparable basis and driven by new unit orders with an increase of 35%. Book-to-bill ratio was 1%. And the backlog at the end of the quarter amounted to $8 billion. Revenue grew by 6.1% across all businesses, with a strong growth in service and new units as well. The biggest contributor to the revenue growth in Q3 was our compression business, with over 11% growth comparable. Looking at profit before special items, $157 million. This is an increase of roughly 50%. compared to the previous year quarter. This is a margin, like I said, of 11.5%, and the improvement here of 370 basis points was mainly due to sustained volume growth, particularly in the service business, and improved margin quality of the process order backlog. Biggest contributor to the improvement is our industrial steam turbine business with plus 350 basis points versus last year and compression with 530 basis points. So very well done to the PI team. Moving on to Siemens Gamesa. Extremely strong order intake this quarter and all other KPIs in line with expectations. Orders here came in just shy of $5 billion. which is roughly seven times prior year's order. As mentioned a few times, we have our two large orders in Poland and offshore were booked this quarter. Onshore orders continue to be affected by temporary interruption of sales activities. However, as Christian already mentioned, the first 4X order was booked in Spain. Book to bill came in at a strong 1.95, and our order backlog in Siemens Gamesa stood at $38 billion. Revenue for the quarter was $2.5 billion. On essentially the comparable level of prior year, offshore business, including service, almost doubled year over year, but could not fully offset the expected decline in the onshore business due to the sales stop. Profit before special items came in at a negative $438 million. This is on par, or nearly on par, of prior year's level. As we've always indicated, Siemens Gamesa remains in a transformation or restructuring mode, with puts and takes remaining somewhat volatile throughout the quarters. For example, the first half of this fiscal year was trending positively versus prior year, And in addition, an underlying operational improvement in Q3 was offset by mainly two effects. Number one, tariffs. They had an impact here of a mid-double-digit amount, which accounts for almost half of the impact of Siemens Energy so far. Secondly, as per usual, we had the annual regular update of the statistical models. And this is for the evaluation of the entire wind turbine fleet of over 100 gigawatts or approximately 100 gigawatts of maintained fleet. And this regular update is with respect to failure rates and truing up and looking at cost assumptions. This had also high double-digit impact, but again, was well within our expectations. Also something to note that the 4X and 5X provisions remained basically stable. So overall, a very strong or as expected quarters for all of our businesses. So now, moving on to the next slide, please, looking at our financial outlook for fiscal year 25. As indicated, the outlook for this year is reaffirmed, trending towards the upper end of the guided range. We are, for ESE overall, we continue to expect 13% to 15% comparable revenue growth. Profit margin between four special items between 4% to 6%. Again, this includes the already mentioned direct impact from tariffs after mitigation measures of approximately or around $100 million. This is stemming from global impact of tariffs, also including China and specific raw material tariffs. Based on the recent EU-US agreement of 15 percentage points, excuse me, for tariffs, effective late July, we do expect a further negative profit impact of up to mid-double-digit Euro millions in Q4, and this is also embedded in our guidance. Net income of up to $1 billion, excluding the positive special item from the demerger, as we excluded that from the onset of the year. As we know today, that is approximately $0.5 billion. Free cash flow still confirmed around $4 billion. And when you look at the assumptions per business area, the same applies for the Siemens Energy Group, where we reaffirm our assumptions, which we have raised already in the second quarter, with a tendency toward the upper end of the guided ranges. For Siemens Gamesa, we stick to our commitment to around the $1.3 billion loss. And lastly, again, an update of the midterm targets will be provided with full-year results in November and further elaborated at the capital market shortly thereafter. With this, this concludes my part, and I shift right back to you, Christian. Thank you very much for your attention.

Thank you very much, Maria. As usual, I will conclude the presentation with a summary of the key messages before we proceed to the question and answer session. First, our good operational performance continued as expected so that we... We affirm the raised outlook issued in the second quarter with a tendency towards the upper end of the guided ranges. We will provide an update on our mid-term guidance in November. Secondly, despite the macroeconomic uncertainty, the demand for our products, solutions, and services remains strong, resulting in a record order intake. We anticipate that demand will remain strong in the near future. And next, we continue to invest in capacities, innovation, and partnerships. These investments will strengthen our operations and portfolio, preparing us for future profitable growth. And finally, our stronger performance is acknowledged by the rating agencies. As a result, we could exit the bond guarantees in an early manner and can even pay now a dividend for fiscal year 2025. I would once again like to mention the Capital Markets Day in November. We really, really look forward to welcome you there and hope you can make it. And hopefully many of you in person in Charlotte, it will still be definitely an exciting event. So if you have not registered yet, please do so. And for this, now let me hand over to Tobias for questions and answers.

Thanks a lot, Maria. Thanks a lot, Christian. So now we will start today's question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad. Again, please press star 1 on your telephone keypad. If you no longer wish to ask a question, please press star 1. As I already see that there are quite a lot of questions in the queue, I would ask you to limit your question please to one question per person. And the first three questions will be coming first from Sebastian Grobe, BNP Paribas Exxon, Alex Jones, Bank of America, and Akash Gupta from JP Morgan. Sebastian, please go ahead.

Thanks Tobias, Maria, Christian, thanks all for giving me the opportunity. It would be around guest services and the capacity planning and visibility. You said on the last call in quarter two that you were covered for 28 and with a backlog now at 37 gigawatts, you must apparently start taking orders for 29. So it's a backdrop on your positive comments on the press call earlier today that the margin quality continues to expand in the backlog. My questions are, to what extent can you continue to benefit from better pricing thanks to the attractive the attractive delivery times that you offer and how does a strong demand environment impact your capacity planning as today's demand appears to really outpace the earlier 70 gigawatts market focus that you shared with us.

Hi, Sebastian. I hope I have understood your questions correctly because the quality was very poor. But if I understood it, it's based on really the quality or the margins on the gas side and also the capacity implied. First of all, I mean, as you, if I heard you correctly, indicated, very much linked also to timely delivery. And obviously, we're able to do it. We see it, the big element for us is also we see it across the different frames. I think that is the one key message I wanted to take home. and we have been very successful to balance the demand over the different frames. We see pricing trends also in that regard relatively intact, in terms of continue also going forward to help to drive the backlog margin, but it's obviously tapering off at one point in time. That's very clear. In terms of capacity expansion, as you know, we are expanding both the midsize and the large size. The midsize kick in 26 and the large gas turbines kick in 27 with the additional volume. So if you look on next year, roughly, roughly, we're looking on a flight level capacity around the 20 giga and then obviously further increasing in 2027.

The next question comes from Alex Jones from Bank of America.

Good morning. Thanks for taking my question. Can I zoom in on grid tech a little bit? Sequentially orders are a little bit weaker, although I understand that they're lumpy. But one of your peers has also talked about weaker momentum in European HVDC projects due to affordability concerns. So could you indicate whether you've seen anything similar in that regard in your conversations with customers and more broadly whether the sort of strong momentum in grid tech demand continues into Q4 in 2026 in your view? Thank you.

Yeah, thank you very much for the question. Obviously, and if you look also on our order intake, this is very much driven by transformer products, and we also expect a good order intake also in the coming quarter on the larger projects, HVDC solutions type of piece. But what you have to always be aware, that's a large project business, and it comes a bit more bumpy in terms of decision-making of customers, and absolutely. Costs investment into the grid infrastructure and cost of the grid infrastructure are a concern to customers, and we work very closely with our customers to help really to improve this cost level. Despite that, I see this continuing demand for HVDC projects, and this is why also the two projects mentioned in the U.K., we see additional projects in Europe, which are Could very well land in quarter four, but you know as always, as a sporting business, they can slip a month or two, but the discussions are ongoing. So there is an underlying need which we see continuing. But very clearly also in terms of the pricing, and this is I said before, it has to normalize a bit. And we are working also closely to find other ways to improve the cost base for the customers like standardization, other setups, and we will continue to drive it. But fundamentally, we see the demands continuing.

Thank you. Thanks a lot. So next question goes to Akash Gupta from JP Mong.

Yes, hi, good morning, and thanks for your time. My question is on capital allocation, and I appreciate you were going to give us more details at the Capital Markets Day, but just looking at where we stand right now on the balance sheet, you've got $4.4 billion of net cash, but then you're sitting on $17 billion of net contract liability, which is up from $14.7 billion at the end of last year. You still have $4 billion roughly potential outflows in Siemens India transaction assuming spot prices. So my question is for Maria. Like, you know, we do hear from some investors who hope for share buyback. Maybe just wanted to ask at the high level thoughts you can share on prospects of share buyback in your capital location policy. Thank you.

Thanks, Akash, and thank you for outlining the balance sheet movements. You're absolutely correct. Of course, in line with the demand as we see for our orders, which has, as you know, a direct impact on our contract liabilities. With respect to our short-term priority, maybe to give a bit of color, you know, we're in a very solid net cash position, and we would like and we would have that net cash position maintained. And, yes, in the midterm, we see that and we will see that the strong annual cash flow does look at or offer opportunities, and that's exactly what I stated earlier, that those are the opportunities that we're looking at in line with our new business plan, in line with things like, a book-to-bill ratio greater than one continuing and that order demand continuing. And this is exactly what we'll put together and put some color around that for you in Q4, but even more so at the Capital Market Day. Hopefully that gives you a bit more color, Akash. I know you really want to know, but we will provide those details in November.

Thanks a lot, Maria. Thanks a lot, Akash. So the next three questions go to Max Yates from Wong Stanley, A.J. Patel from Goldman Sachs, and Gail DeBray from Deutsche Bank. Max, please go ahead.

Thank you. Maybe if I could ask a question on the wind business. So maybe sort of two parts to it, I guess. To get to the $1.3 billion question, I guess for this year, you need to get to sort of, I think 239 million loss in Q4. I understand that kind of 100 million provision will drop out, but is there any other kind of levers to give us confidence on that rate of improvement? And then I guess when we think about next year, is there any way when we think about kind of the trajectory from a 1.3 billion loss to break even, we can sort of think about buckets of improvement, like when we think about the offshore ramp, when we think about the sort of cost cutting in the 4X and 5X, and then we think about the improvements in the margin, improvements in revenue margins as some of the lower margin stuff drops out. How do we sort of separate that to maybe give us a bit more visibility where possible around that sort of what is now quite a big jump from 1.3 billion to break even? Thank you.

So, Christian, you can take the overall buckets of improvement.

I'll talk about this year.

You're taking this year?

Yes, absolutely. Hey, Mats. Good to hear you. Obviously, I mean, you mentioned the levers by and large, and this is still consistent with what we said before. There is a substantial lever coming from the offshore productivity improvement, and we see it really continuing in terms of going up in productivity. It's mainly the Mark 6 delivery now. And this is ongoing. This will be an instrumental lever for us also next year. Obviously, the team is driving also the improvement in service onshore, which will be instrumental to get it really to a profitable business that was heavily impacted by the 4X and 5X elements. Currently, the target that we are deploying until the end of 26, or let's say most of the measures for the 4X and until the end of 27, most of the measures for the 5X, and that obviously also should impact then afterwards the profitability on the service side. And the other thing is, I said it before, One thing which we will need to continue to look into going forward for 26 is additional cost measures, seeing that the revenue in onshore new units is lower than we anticipated. The team is continuously working on this to ensure that we can really bridge this $1.3 billion to a break-even. But this is mainly really the key levers. On top of it, at the moment, really, the management has a very, very rigorous focus on cost left, right, and center. This is not only expensive, but also includes very diligent CapEx deployment, also seeing the outlook into the market. But this is mainly the lever's mugs.

Thanks Max and also for this year you're fully right looking at the Q4 because of course we've reconfirmed the around 1.3 billion so that's exactly what we're aiming for and as Christian said the team in Siemens Gamesa is really very laser focused on all potential to ensure that we get there and I think it's important that maybe I outline a few things even relating to Q3. There is the one-time tariff impact, and it is one-time in nature, because this is related to service agreements whereby their legacy service agreements, we can't really pass those costs on. So that is one-time in nature. Again, kind of showing the dip, if you'd like, in Q3. And the second is the regular annual update that happens in Q3, of course, also impacted, like I said, with a high double digit. If you take those two out, there is an underlying operational performance improvement, uh based on the productivity measures and what's happening with offshore so if you take those out then of course you can back into a q4 number which gets us to the 1.3 around 1.3 for the year but it's very much a diligent process that the siemens gameza team is undertaking month by month a quarter by quarter again to get us to this one um this break even next year Also to remember, I think I need to stress that for next year, the breakeven is by the end of the year, right?

So we're going to continue to ensure that we're breakeven by the end of fiscal year 26.

Sorry, but just to be clear, it's breakeven for when we take the entire profit, right? It's not just you're going to do a quarter of breakeven, it's the entire profit.

Correct, correct. The entirety of the year. But yes, exactly. So take that into consideration, Max. Mathematically for the year, we will be breakeven. Thank you. Yeah, appreciate it, Carlos. Thank you very much.

No, thank you for the questions, Max. Thanks a lot. Next question goes to AJ Patel from Goldman Sachs.

Good morning, and firstly, thank you for the presentation. I guess I wanted to expand on wind also. Look, this quarter, you did very well on the order intake side. We saw two good projects come through on offshore. And I'm just thinking of the picture going out and what you have as a preferred bidder status on offshore that we can maybe look forward to to add additional growth, and there's that picture accelerating as we go towards 2030. It seems like there's a lot of orders that have gone through auctions in the utility part of the sector, and these haven't yet firmed up for any manufacturer, and I just wondered how you fit into them.

I have to say I'm struggling a bit from the top of my head to give you the preferred supplier order of magnitude, roughly. But obviously the outlook towards 28 is relatively sound. I mean, they're in place. And there is obviously discussions ongoing, either preferred supplier status, like the Japanese ones, the green ones, what we have communicated before. which stretch out to 2030, 2031. The question will be really now, okay, do they really come to final investment decision? Do they close and then move forward? Fundamentally, How I look on it, obviously, is we still believe the offshore market is very, very sound and available, but not on the flight level which was originally assumed. And this is why we also are very carefully planning today's growth, particularly if it comes to ramping up capacity on sites, and rather look on productivity measures than really building new sites or so. And that is something one has to see. But I think we look with interest now on auction on seven in the UK. This will be very, very interesting what comes out of this. And this will be also, I think, a sign for the rest of Europe on how to make an auction successful or not successful, but hopefully successful. Okay.

Thank you. Next question goes to Gerd Debray from Deutsche Bank.

Well, good morning, Christian and Maria. Thanks very much. Can I ask about the older dynamics in gas? I mean, 9 gigawatts, I think you said, in the quarter. I mean, that's pretty spectacular, especially when comparing to Jeeva and Nova, which bagged, I think, only 5 gigawatts over the same period. So I'd like to understand, firstly, the selectivity process here and the risk that you're taking perhaps a bit too much on board. And secondly, the competitive dynamics. I mean, especially in the U.S., are your peers more capacity constrained than you are, meaning that you're offering better delivery times? And then, if I may, just a clarification on one of the comments you've had around pricing normalizing. So does it mean that prices are flat? coming back perhaps a bit down or is it rather that you're still raising prices but at a slower pace than prior quarters? Thanks very much.

Hi, Gail. First of all, I would say, yes, it has been an absolutely excellent quarter of the gas service folks, and I'm really, really proud of them on what they achieved. And that is also really, you know, our business is also driven on how closely you interact with the customers and really what is your style to develop projects. And they have done a tremendously good job. But don't, let's say, just look on the quarter at the end. I mean, also in comparison to others, we always have to look on full years. I think we're doing very good. The big plus, I think, for us has been the breadth of our portfolio in terms of frame sizes. And it's really for the first time that I see that across all frame sizes there has been super high demand. And that was a very good success, and this allowed us to secure that order level. I think we are all roughly from flight level of delivery times, if you talk about a certain frame similar, but obviously you can answer requests with smaller frame sizes faster than with NHL, for example. In that regard, I think it was a very successful quarter and well done. Pricing is still good. I would say the pricing environment, so I see it positive. But I always want to put it into perspective compared to 12 months ago. And I think what I'm seeing is that the increases obviously are getting a bit lower, but the pricing trends are still positive also going forward from our perspective.

Thanks a lot. Thank you. So the next three questions go to Vivek Mir from Citi, Vlad Sagievski from Barclays, and Sean McLovin from HSBC. Vivek, please go ahead.

Thank you very much, Tobias, and good morning. Hopefully a quick follow-up. On the last call, you mentioned the new German government's plans for 20 gigawatts in additional gas capacity. Has there been any update on potential timing of those tenders? I understand that this is still contingent on European Commission approving state aid. Thank you.

Yeah, we had luckily yesterday our minister here at the site looking at least on our guest advice, so that's hopefully a good sign. And the discussions are progressing, if I understand her correctly, with the European Union. It's not concluded yet, but I think it's on a good path. And I always said, and I would also continue to believe like this, that it's coming in two phases. So it's not 20 gigawatt in a go, but roughly, roughly assume it's, let's say somewhat in the area of 50, 50. So on how it is split in the phases. So I believe over the next months we see progress. Keep in mind that the first thing is that the government with our customers finds an agreement on how to structure it. And then obviously the bidding on the equipment comes. So I would still look, obviously, towards calendar year next year, more or less, for us. Not anymore in this calendar year, but everything right here is positive in terms of getting this moving. Very clear. Thank you.

Thanks a lot. Next question goes to Vlad from Barclays.

Yes, good morning. Thank you very much for taking my questions. Very strong margin performance in gas services this year and this quarter. Going forward, and I'm thinking a few years forward, is there a material opportunity to increase profitability in the services part of the business and long-term service agreements in particular? Or most of future margin improvement for this division will likely be driven by, obviously, a very positive new equipment cycle. And also a follow-up to that, is there a point potentially when new equipment margin in gas could start being accretive for the overall margins of the gas services business?

We just have to because some of... Oh, yeah. Yeah.

Okay. Thanks a lot. First of all, you know, In terms of how the service business is working, obviously you book the long-term service agreement and then you work against it and also try to continuously improve it. This has been always the case also in the past. The one thing is the backlog margin. The question is, okay, how do you convert it afterwards to profits by finding new ways of doing things, 3D printing, smarter ways, AI, and all the likes. We will continue to work on it. In terms of the booked service agreement, It's a very gradual, let's say, increase. I don't see this as a big moving point. The big moving point for us has the improvement in the new unit margins, which is really across all frames now, and that is the big change. And these really provide the uplift in the average margin. I would frame it like this from today's perspective. The new units business is really an interesting business to do, which was not always the case like this. But obviously, what will not change is that the service margins are substantially higher than the new unit margins.

Wonderful. Thank you very much.

Next question goes to Sean McLovelin.

Thank you and good morning. Just coming back to Gamesa, I wanted to understand a little bit, building on Max's question about the buckets. You now have a seven megawatt turbine onshore coming to market in September. Am I right in thinking that you're still assuming almost no onshore deliveries in fiscal 26? Or are you already thinking that you might be able to secure awards, particularly in Germany, that can contribute to fiscal 26. And if that's the case, how should we think about risks for further service, pricing, and cost adjustments as we go through fiscal 26? Thank you.

First of all, absolutely, I would not plan with larger onshore sales in 26. And if you see particular Germany, you bring it now to the market, you start to develop the project, that might lead to first order intakes in 27, but in particular in Germany it takes time. because you have to obviously get the permitting in place for that turbine project. And this will take time. And in this regard, 26, no, is really not a contributor to the revenue, which is significant. In terms of, I have to now to reconcile, the service piece itself, that's mainly really driven by getting the 4x, 5x service in line with the reliability. We have now achieved roughly 80% of the 4x and 5x orders that we had in our books with a takeover certificate. So that's the volume which now comes into service and obviously with increasing reliability and availability. And that is a major contributor to build the profitability next year. But it also means they need to continue to grow the availability months over months over months based on the refurbishments what has been done and are happening at the moment.

Thank you. Just to confirm that I've understood, so you wouldn't expect first order intake for the seven megawatt turbine potentially until 27?

Could you just repeat it? The reception is that. Sorry.

Did I understand correctly that the first order intake for the seven megawatt turbine could potentially be in fiscal 27?

Correct. Correct. Thank you.

Yes. Unfortunately, we are running out of time, so I will take one more last question, which goes to Will Mackey from Kepler-Chevreux.

Good morning, everyone. Thanks for squeezing me in. I go back to gas services, please, and work on the discussion about conceptually where you can go or where you might go as a group with your capacity planning. You've planned to increase the capacity as you've signaled on medium and large size turbines out for 26 and 27. Perhaps to basically specify how that compares with the run rate at 25 in terms of the capacity. and then how you see the supply chain set up to go beyond that if you're ready into 27, 28 with additional shifts or expansion and pulling your suppliers with you. So just a medium term view on new build GS capacity planning into the 26, 28 period.

It's getting complicated now. I will try to do this. First of all, compared to this year, More or less, I would see, I mean, it's mainly coming from the mid-sized gas turbines is what you're going to see. And this in totally, if I look, it's always a question of you look on gigawatts or you look on number of turbines, obviously. But if I look on gigawatts properly towards next year, 10%-ish roughly increase. And then obviously the big chunk comes in with a large gas turbine increase. And as we said, this is around 25% to 30% in 27. No, I have to... Supply chain. Thank you. Sorry. The supply chain. And obviously what we're doing parallel to this, we started this roughly 15 or 18 months ago to extend the supply chain on the blades and vanes. It's one thing, right, with external suppliers as well as in our own factory. This takes normally quite a time to ramp it up, so this will be a continuous process, and that is one of the big constraints of the next two years at least while we're growing this pipeline. And the other thing is that we continue to do other agreements. There is a smaller company which we bought on the supply chain side, just to strengthen the supply chain. everything is public yet, but where we build around it to ensure that we can really deliver that growth level. So that is happening while we speak, but it's really step after step after step.

Thanks a lot, Christian. I can squeeze in one last question, which would be Ben Ouglo from Oxcap.

Ben, please go ahead. Morning, everyone, and thank you very much for squeezing me in. A lot of my things have been answered, but But one question I had, that three gigawatt number out of the nine gigawatts for data centers is pretty eye-catching. Christine, can you just give us a kind of qualitative sense of where's that coming from? What type of machines is it? I think in the commentary, you kind of gave us a breakdown between mid-sized machines and large machines. Just give us a sense of what type of turbine is being ordered. Thank you.

Hi, Ben. Thanks for the question. Also, they're across the board, but particularly in the last weeks, you see a lot of mid-sized, multi-trained type of solutions, or like F-frames, right, because they're simply fast available. The longer you stretch it out, if you look, then you're also going to get it back to HL. But we've seen, particularly on the F-frames track record, which is a good balance between size and speed. And this was driving it, but obviously you will need it across the board. It depends a bit who's your customer. I also have to say from which field they're coming, rather from the gas field or rather from the classical data center operator. But this is how I look on it.

And am I correct to think that you've got no significant HL orders contracted in backlog? For data centers?

For data centers, from the top of my head, I'm struggling. I think we had a couple of, right? I mean, I'm – yeah, but potentially not in the U.S.

Understood. So this is really an F-class phenomenon, basically.

Yeah, and obviously you now see other markets coming up and this look into HL units, but there was a logic in the – which particularly has driven the U.S.

Understood. Thank you very much. Thanks, Ben.

Thanks a lot. So that would conclude our Q&A session. Christian, any closing remarks from your side?

See you at the Capital Market Day in person, I would say. No, thank you very much for your attention. In a volatile world, and I'm really proud of what the team has achieved step after step. We're getting there and look forward to speak to you soon in person, hopefully. Thank you.

So thank you, everyone, for participating today. As always, the team and I will be available for further questions. So thank you very much. With that, we conclude this call.

Thank you, everyone. Bye-bye.

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. Have a good day. Bye-bye.