Earnings call transcript: Siemens Q1 2025 shows solid profit amid market volatility

Siemens (ETR:SIEGn) reported a robust performance for Q1 FY2025, with a solid profit of €2.5 billion in its industrial business and earnings per share (EPS) of €2.22. The company’s revenue grew by 3%, despite a decline in group orders. According to InvestingPro data, Siemens currently trades above its Fair Value, with a P/E ratio of 21.37x and a market capitalization of $181.5 billion. The company maintains strong financial health, earning a "GOOD" overall rating from InvestingPro’s comprehensive analysis system. Siemens confirmed its full-year guidance, projecting revenue growth between -6% and +1% and a profit margin of 15-19%. Following the earnings release, Siemens’ stock price rose 4.59%, reflecting positive investor sentiment.

Key Takeaways

• Siemens achieved a 3% revenue growth in Q1 FY2025.
• The company maintained its strong position in industrial AI and digital transformation.
• Siemens confirmed its full-year guidance, anticipating a challenging yet optimistic outlook.
• Stock price increased by 4.59% post-earnings announcement.

Company Performance

Siemens demonstrated resilience in a volatile macroeconomic environment, with strong growth in its industrial business. Despite an 8% decrease in group orders, the company managed to achieve a 3% revenue growth. This performance underscores Siemens’ ability to navigate market challenges, supported by its strategic focus on digital transformation and industrial AI.

Financial Highlights

• Revenue: €20.1 billion, a 3% increase year-over-year.
• Earnings per share: €2.22, reflecting solid profitability.
• Free cash flow: €1.6 billion in the first quarter.
• Profit in the industrial business: €2.5 billion.

Market Reaction

Siemens’ stock price rose by 4.59% following the earnings announcement, closing at €222.35. This surge reflects investor confidence in Siemens’ strategic direction and its strong financial performance. The stock’s movement positions it closer to its 52-week high of €225.8, indicating positive market sentiment. InvestingPro data shows impressive returns of 34.62% over the past six months and 31.56% over the last year, with relatively low price volatility. The stock’s beta of 1.21 suggests moderate market sensitivity.

Outlook & Guidance

Siemens confirmed its full-year guidance for FY2025, projecting revenue growth between -6% and +1% and a profit margin of 15-19%. The company anticipates an improvement in the second half of the fiscal year, with a normalization of distributor inventory by the end of Q2. Siemens is also planning to close the Altair acquisition in the first half of 2025, which could further enhance its market position.

Executive Commentary

CEO Roland Busch emphasized Siemens’ commitment to leveraging AI to transform industries, stating, "Siemens provides the operating system for industry that will be supercharged by AI." CFO Ralf Thomas commented on the company’s strategic flexibility, noting, "We are not religious about the 75% shareholding. It needs to make sense."

Risks and Challenges

• Macroeconomic volatility could impact future performance.
• Sluggish investment sentiment in core industries may pose challenges.
• Regional market variations, with soft growth in Asia/Australia, could affect overall results.
• Potential supply chain disruptions may impact operational efficiency.
• Competitive pressures in the industrial AI and digital transformation sectors.

Q&A

During the earnings call, analysts inquired about the dynamics of Siemens’ software business orders and the potential reduction of its stake in Siemens Healthineers. Discussions also focused on the expected recovery of digital industries’ margins and free cash flow generation strategies. Analysts showed interest in regional market recovery perspectives, particularly in the context of varying economic conditions across different regions.

Full transcript - Siemens (SIE) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the Siemens twenty twenty five First Quarter Conference 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 two of the Siemens 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 conference over to your host today, Mr. Tobias Hutzler, Head of Investor Relations.

Please go ahead, sir.

Tobias Hutzler, Head of Investor Relations, Siemens: Good morning, ladies and gentlemen, and welcome to our Q1 conference call. All Q1 documents were released this morning and can be found also on our IR website. I’m here today with our CEO, Roland Busch and our CFO, Rife Thomas, who will review the Q1 results. After the presentation, we will have time for Q and A. Please be aware that the virtual Siemens AGM starts right after this call, and therefore, we must limit the time of the call to forty five minutes.

With that, over to you, Roland.

Roland Busch, CEO, Siemens: Yes. Thank you, Tobias, and good morning, everyone, and thank you for joining us to discuss our first quarter performance ahead of our virtual AGM. We delivered a promising start into fiscal year twenty twenty five, generating clear momentum for continued value creation for our stakeholders. And we are strategically well positioned in attractive markets with a balanced global footprint. This is a solid foundation to master ongoing macroeconomic uncertainties, also fueled by high volatility from political decisions around tariff regimes and potential countermeasures.

In an environment of accelerating technological progress, our technologies enable our customers to combine the real and the digital worlds to improve competitiveness, resilience and sustainability. Our discussions with partners, customers and opinion leaders at the World Economic Forum were centered around accelerating implementation plans for AI. Moving on from more speculative discussions one year earlier. And we are right in the sweet spot. With our leading leadership in Industrial AI, we see strong traction in bringing real world impact for our customers.

Siemens provides the operating system for industry that will be supercharged by AI. I will share some examples in a moment, but now let me outline some key highlights of the first quarter. Our solid top line performance highlights the confidence our customers place in us. Bouygues (EPA:BOUY) de Bill reached a healthy EUR 1.09, lifting orders backlog to a record high of EUR 118,000,000,000. Group orders reached EUR 20,100,000,000.0, 8 percent below prior year.

We saw ongoing momentum at Smart Infrastructure, where orders were clearly up even from a high level. Mobility orders were solid, but with sharply less volume from large contracts in prior year. As expected, orders in Digital Industries started to recover with a book to bill above one for the first time in two years. Our Automation business was clearly up on prior year with plus 6%. Recovery was driven by China, where we expect destocking in the distribution chain to largely finish by the end of Q2.

However, overall economic activity was still sluggish and investment sentiment soft in core industries such as automotive and machine building. Our key region, Europe, lacks momentum and in particular, Germany is still in a crisis mode with companies and society urgently awaiting action and clarity from a new government. Overall, revenue growth reached 3% with strong contribution from mobility and smart infrastructure. Smart infrastructure, again, driven by double digit growth in the electrification business. The revenue in our Automation business of Digital Industries was, as expected, substantially lower due to continued destocking, partially compensated by 15% growth in our software business.

Regional dynamics and sentiment are also reflected in our revenue growth numbers for the group. The Americas were up by 17%, fueled by strong momentum in The U. S, while EMEA was flattish and Asia, Australia was down 4% on softness in China. What really counts is value creating growth and we executed in a very stringent way, despite the well known headwinds from the DI Automation business. A solid profit of EUR 2,500,000,000.0 in the Industrial business topped market expectations.

Earnings per share pre PPA reached EUR 2.22, excluding the divestment gained for Innomotix. And as a clear highlight, our promising start delivered seasonally growth strong EUR 1,600,000,000.0 of free cash flow all in. We are shaping the future and creating impact along a number of fronts. A key area is our strong progress and strength in our leaderships in sustainability. Siemens is a major contributor, particularly in terms of helping our customers to decarbonize.

Our offerings sold to customers in fiscal twenty twenty four will over the course of their lifetime avoid around 144,000,000 tonnes of greenhouse gas emissions. This is much higher than the 121,000,000 tonnes of emissions Siemens generates along our entire value chain from scope one, two and three in fiscal year twenty twenty four. In our own operations, we continue to make great progress with 60% less CO2 equivalent emissions compared to fiscal year twenty nineteen, surpassing our 55% target for 2025 ahead of time. This is also reflected in the recognition of our location in third as Sustainability Lighthouse by the World Economic Forum. And as all good things come in threes, our Alangan site was has become a WETH digital lighthouse factory next to Amberg and Chengdu.

With Air Green digital approach, the team increased productivity by 69% and reduced energy consumption by 42% in four years. This is a living example for deploying AI successfully with more than 100 use cases and intensively using the power of digital twins. With additional investments, we will further develop it into a showcase for the industrial metaverse. We have defined our long term direction for Siemens as one tech company, a company with stronger customer focus, faster innovations and higher profitable growth. A cornerstone of our one tech company program is the acquisition of Altea to enhance our strong industrial software business.

The regulatory clearance process is advancing very well. We obtained the Altair shareholder approval a few weeks ago. And considering the progress made and depending on further progress of the regulatory approval process, a closing already in the first half of calendar year 2025 could be possible. However, our current planning is still based on a closing in the second half of the calendar year. We will continue to provide updates on the OneTech company program over the coming months and give you a strategy update at the Capital Market Day on December 9.

There’s a debate going on among many stakeholders whether AI is overhyped. For our industrial world in automation, mobility, infrastructure and healthcare, certainly not. The intense application of AI in all industries we serve will supercharge the transformation towards better and faster decision making and productivity improvements based on data driven knowledge. It will boost productivity by simplifying tasks, speed up time to market and use resources more efficiently. And whatever innovation makes the development and training of large language models more efficient will drive the faster adoption of industrial AI.

Siemens is the ideal partner to empower our customers since we can apply our domain know how and have access to a vast amount of operational data to adopt AI for the real world at scale. We already integrate the best foundation models from world class partners and make applications accessible via our Siemens Xcelerator platform. At this year’s Consumer Electronics Show in Las Vegas, we launched a series of new industrial AI products and a photorealism enhanced digital twin. Jet Zero, a start up led and backed by aviation specialists, will collaborate with Siemens on the development and production of a revolutionary blended wing aircraft with the aim to improve fuel efficiency by 50%. They will use the full suite of our latest industrial AI powered software and automation technologies to achieve their ambitious schedule.

At CES, their CEO explained that their ambitions would not be achievable without our technology partnership and the power of Industrial AI. Here you can see some examples from for long term partnerships where we bring Siemens Accelerator and Domino home together for lasting customer success. From day one, Siemens has been the technology partner for multi champion winning Red Bull Racing now for twenty years. Together, we have always been pushing the boundaries of latest digital twin technologies for design, engineering, testing and manufacturing. We signed a multiyear agreement with U.

S. Based Compass Data Centers to support aggressive scaling targets for data centers construction. Smart infrastructure will supply up to 1,500 prefabricated units of a customized modular medium bodgets kit solution. Key benefits of the standardized design are easy deployment, low maintenance and cost efficiency.

Ralf Thomas, CFO, Siemens: And

Roland Busch, CEO, Siemens: finally, a great example from our mobility business. HS2 in The UK awarded Siemens with several key infrastructure and long term maintenance contracts for up to fifteen years worth in total GBP $560,000,000. For the first time, automatic train operation over ETCS will be applied in The UK national high speed rail system for improved capacity, punctuality and energy efficiency. I’m very pleased with the continuing successful transition of a majority of our DI software business towards Software (ETR:SOWGn) as a Service. ARR growth reached again a very healthy level of 14% over prior year.

The cloud portion stands at EUR 1,900,000,000.0 equal to 42% of ARR, with a team targeting to approach the 50% mark by the end of fiscal twenty twenty five. All indicators, numbers of total customers, share of small and medium enterprises and customer transformation rates continue to head in the right direction. And with these positive perspectives, over to you, Ralf.

Ralf Thomas, CFO, Siemens: Thank you, Roland, and good morning to everybody. Let me share more about our promising start to the new fiscal year and our expectations. Orders for Digital Industries at EUR 4,200,000,000.0 were 6% above prior year with a book to bill of 104. It was encouraging to see that all automation businesses showed material sequential improvement and a book to bill above one. The software business delivered clear growth with orders exceeding €1,300,000,000 for a book to bill close to one, driven by strength in the EDA space.

As Roland mentioned, underlying market dynamics and manufacturing output were still muted in important customer industries and investment sentiment was soft in key regions, especially in Europe. However, we saw further progress in destocking in China, where average distributor stock levels closed the first quarter at around nine point five weeks reach, yet with substantial differences on individual distributor level. As indicated, we continue to expect to return to normal levels by the end of the second quarter of fiscal twenty twenty five. Our backlog in digital industries increased moderately to EUR 9,600,000,000.0. Therein, the software backlog amounted to EUR 5,700,000,000.0 supported by a strengthening U.

S. Dollar. The automation backlog stood at EUR 3,800,000,000.0. We see this as a fairly normalized level. Revenue for DI was 11% lower.

Therein, the software business achieved strong growth of 15% on easy comps, particularly in the EDA business, which grew more than 30%. The PLM business was up 8%. On the other hand, automation revenue was down 19% to billion, which we expect to be trough in the current cycle. Discrete automation declined by 24%, again most notably affected by destocking in the short cycle factory automation business. Process Automation was down by 2%.

The high profitability reached 14.5% with a robust conversion in the software business. Lower revenue in automation led to reduced capacity utilization and consequential margin contraction as expected and guided. Regarding our announcements in November, the teams have been progressing well with the executing capacity adjustments in several regions to partially balance lower volumes. This led to severance charges of EUR 52,000,000 or 130 basis points in the first quarter. We expect to finalize the full assessment process for further adjustments and reskilling requirements in the coming weeks.

Continuing stringent pricing discipline and productivity gains supported a net positive economic equation in the first quarter, which we target to maintain for full fiscal twenty twenty five. Digital Industries achieved a solid free cash flow of more than EUR 600,000,000 benefiting from lower receivables. Now let me give you the regional perspective on our top line automation performance. As mentioned, recovery of automation orders gained some traction. In China, orders increased sharply sequentially and were up 14% over prior year on very easy comps.

Our key countries in Europe were also sequentially up despite muted economic conditions. In line with a low level of short cycle automation orders in previous quarters and further destocking, revenue in all key regions declined materially, most notably in Europe and in China. Looking ahead, we confirm our fiscal twenty twenty five guidance for revenue growth of minus 6% to 1% to plus 1% and profit margin to be in the range of 15% to 19% as the assumptions laid out in November are still valid. From today’s perspective, once destocking is completed everywhere, we anticipate that improving trends will begin to materialize in the second half of fiscal twenty twenty five, supporting top and bottom line. As you can see in the appendix, official sources point to further emerging green shoots in early cycle verticals such as electronics and semiconductors.

However, we will closely monitor if and how tariff disputes will impact the macro environment. For the second quarter, we see DI orders close to prior year’s level with an improving automation business, but substantially lower volume from the EDA software business. We anticipate DI revenue growth to be down high single digit. Automation revenue will grow sequentially, whereas software is expected to be flattish with strength in PLM compensated by EDA. For the second quarter, we see the profit margin to be rather flat sequentially.

Now let’s turn to Smart Infrastructure, which again delivered an outstanding first quarter performance. The team achieved strong top line growth in healthy end markets and further operational margin expansion for the seventeenth quarter in a row. In total, orders were up 5% on a record level of EUR 6,200,000,000.0. This was driven most notably by 10% growth in the electrification business, where orders benefited again from large contracts, primarily from data centers, energy and industry customers. Book to bill reached very healthy 1.17.

SI’s order backlog at an all time high level of EUR 19,800,000,000.0 provides excellent visibility for the remainder of fiscal twenty twenty five. Revenue growth was broad based and reached 8% in line with expectations with the largest contribution coming from the electrification business up by 12%. With 9%, Electrical Products continued its consistent growth path from a high level. Building showed 5% growth also driven by a healthy service business. Stringent backlog execution again led to further operational margin expansion of 50 basis points year over year to 16.9%.

The business continued to benefit from economies of scale from higher revenue and high capacity utilization. The economic equation was again clearly positive, supported by strong pricing and sustainable productivity gains outweighing cost increases. Free cash flow showed a seasonally exceptional start for cash conversion, which was supported by advanced payments amongst others. Looking at the regional top line development, we saw robust demand with strong order momentum driven by Europe outside Germany and Middle East on large order wins in various verticals. The U.

S. Was up 9%, again benefiting from strong data center demand. China showed soft top line development across businesses in a challenging environment. Revenue growth in most regions was fueled by strong backlog execution. The U.

S. Achieved an outstanding 20 growth. Key growth engines were the Electrification Electrical Product businesses again. The Service business delivered broad based 8% growth. We continue to expect very consistent and resilient end market demand trends with growth in our main verticals.

For the second quarter, we see the comparable revenue growth rate to be at the upper end of the full year growth guidance of 6% to 9% strongly supported by order backlog. We anticipate operational margin to be around the midpoint of the full year target range of 17% to 18%. In addition, we may see an extraordinary gain related to exiting the wiring accessory business in the second quarter. Mobility started fiscal twenty twenty five with a solid performance. Order at 2,700,000,000.0 were lower due to sharply less volume from large order bookings as expected, yet the base business showed a healthy margin profile.

Order backlog stands at EUR 49,000,000,000 with further improvement in gross margin. This includes more than EUR 14,000,000,000 of attractive service business. Revenue in the first quarter was up 10% on broad based growth with a material contribution from customer services and strong rolling stock backlog execution. Profit margin reached 8.4% with strength in the customer service business, offset however by a less favorable business mix in rolling stock. Free cash flow was soft in the first quarter after exceptionally strong performance in prior year’s fourth quarter.

Looking at project payment profiles and timing of order awards in the sales funnel, we expect the second quarter again to be rather soft before we see a material catch up in the second half of fiscal twenty twenty five, driven by advanced payments from new orders to come. Our assumption for revenue growth for Q2 is trending towards the lower end of the corridor of 8% to 10%. Second quarter margin is seen as well towards the lower end of our full year margin guidance of 8% to 10%. Let me keep the perspective on below industrial businesses crisp. Siemens Financial Services achieved a solid Q1 performance.

From today’s perspective, SFS is expected to deliver in the second quarter profit exceeding prior year, including a strong result from the equity business driven by the expected sale of a stake in an equity investment in India. A major driver for Siemens net income was a EUR 2,100,000,000.0 gain from divesting Innomartix to KPS, which was recorded in discontinued operations. Free cash flow performance in the first quarter was off to a seasonally very strong start with industrial business delivering EUR 1,700,000,000.0. Stringent working capital management contained the increase in operating working capital at EUR 400,000,000. We are confident to continue achieving industry benchmark levels of double digit cash return once again in fiscal twenty twenty five.

Liquidity outside free cash flow was materially strengthened through EUR 3,100,000,000.0 proceeds from divesting Innomotix. Further inflows are recorded from the continuing sell down of the Siemens Energy stake, where we are now below 15% shareholding. With a capital structure of EUR 0.4 for industrial net debt over EBITDA and an industry leading AA rating by both Standard and Poor’s (NYSE:SPY) and Moody’s (NYSE:MCO), we continue to act from a position of financial strength. Following the promising start into fiscal twenty twenty five, we confirm our guidance. However, we will monitor macroeconomic volatility closely to be able to act swiftly if need be.

Our direction is clear. We will deliver further value creation by profitable growth and resilient cash generation. With that, back to you Tobias.

Tobias Hutzler, Head of Investor Relations, Siemens: Thank you, Ralph. We are now ready for Q and A. Please limit yourselves to one question per person. We want to give as many of you as possible the opportunity to raise your question. Operator, please open the Q and A now.

Conference Operator: Thank you, ladies and gentlemen. You. And our first question comes from the line of Max Yates from Morgan Stanley (NYSE:MS). Please go ahead.

Max Yates, Analyst, Morgan Stanley: Thank you. Good morning, Roland and Ralph. I just wanted to ask about the software business. So you’ve done sort of $1,300,000,000 of orders. You had sort of one of your competitors in the quarter was talking up some wins with some of your customers like VW.

So I just wanted to know, is there any feeling that you missed out on a few orders this quarter? And maybe if you could just talk a little bit about the pipeline that you see for the rest of the year. I mean, just to put some numbers on it, obviously, we’re starting the year at around $1,300,000,000 of orders. Do you see scope when you look at your pipeline to have some quarters through the year that are again getting up to that kind of $1,800,000,000 1 point 9 billion dollars billion dollars and $2,000,000,000 level? Or do we think this kind of $1,300,000,000, 1 point 5 billion dollars is probably more of a reflection of underlying demand?

I’m just really trying to understand kind of how the pipeline may imply that, that order number trends through the rest of the year. Thank you.

Ralf Thomas, CFO, Siemens: So thank you, Max, for that question. Let me start with the funnel and the quarterly expectations. I mean, as we pointed out last year in November, when we have been guiding for fiscal twenty twenty five, I mean, it’s always hard to predict when major orders are kicking in hunting white elephants is expensive if you do so and therefore we don’t. But what we do foresee, we had pointed out a very strong first quarter in EDA business that doesn’t repeat itself in the second and most likely not in the third quarter. So for the fourth quarter, things look quite promising again, but too early to determine whether or not as always, we stay tuned and we try to get the best possible outcome in each and every quarter, but we don’t push for timing that hurts margin typically and we are out to profitably growing the business and not to as fast as possible growing the business.

That’s not helpful. And on the PLM side, I think there will be a momentum building up in the next two quarters. However, with the SaaS transitioning, as you know, this is also kind of equalized in the quarters from a revenue recognition point of view. So as indicated, we still stick to the assumptions that we made and shared with you in November that we will see a rather flat development year over year on an annual basis. But it’s very, very encouraging how transitioning to the SaaS business model.

We do see momentum. We keep on rolling all the relevant KPIs, even though the 42%, we seem to be stuck a bit, but that’s purely driven by math as we had a strong first quarter in EDA with a fairly low part of SaaS transitioning, ARR cloud based. This is pure math that we got stuck with 42%. We are still dedicated and very optimistically looking into achieving the 50% target. And as mentioned before, the original target of 40% has been reached for cloud based ARR already one year earlier.

So all indicators to support our thesis that we are very successfully going through that transition on the way forward.

Max Yates, Analyst, Morgan Stanley: Very helpful. Thank you.

Roland Busch, CEO, Siemens: Regarding the software business. So Siemens Xcelerator, this is the whole suite of software which we’re offering is widely used across the automotive industry. Truck, they use software across design and manufacturing processes. So the continued success of also in the automotive industry supports our ARR growth of 14%. So we value our long term partnership with VW, and we will also look forward to continue work with them.

They continuously use our technology, including software and automation across design, manufacturing processes at various VW group companies and throughout their supply chain. So Siemens has a history of working with customers like VW who use software from a variety of suppliers. But our strategy has been to enable openness, so we can work with VW and others as we do with many other customers who continue to use Siemens technology alongside competitive solutions.

Max Yates, Analyst, Morgan Stanley: Great. Thank you very much.

Tobias Hutzler, Head of Investor Relations, Siemens: Next (LON:NXT) question, please.

Conference Operator: The next question comes from the line of Ben Uglow from Akskup Analytics. Please go ahead.

Ben Uglow, Analyst, Akskup Analytics: Yes. Morning, Roland, Graven, Tobias. Thanks for taking the question. Mine really relates to portfolio. Obviously, there’s been a lot of speculation in the German press, even in late December around the Health and Ear stake.

And I did want to just sort of clarify your position on all this. I guess two kind of questions. Before, when we were on previous conference calls like Altaira etcetera, I think the assumption was that Siemens was only willing to sell down bit by bit in connection with M and A, sort of 5% here or there. And I guess people are now thinking, well, is a broader deconsolidation possible? And secondly, and I think Ralph, in an article you were indicating that the decision will be taken and or announced, I’m not sure what the language was, at a meeting at the end of this year, Capital Markets Day, potentially November, December.

If things moved quickly or if the are you bound to how quickly can you take some kind of decision around Healthineers or should we not expect anything until the end of this year? Thank you.

Roland Busch, CEO, Siemens: Yes. Thanks, Ben. Actually, we are not limited in taking decisions, not at all, but we make mindful decisions. So let me start, Steven’s Healthiness. We always said that after investing $16,000,000,000 in Varian, we want to see the synergies.

And if you follow-up Siemens Healthiness closely, their synergies are ramping up in this current fiscal year to the higher level, as well as making really good progress in diagnostics and turning customers into Atellica. And we always said we want a shareholder to benefit from this uptick. And if you look at the Q1, very promising start. So we see that already. Secondly, yes, we announced that we are going to sell five plusminus percent of shares to finance Altair.

But this is just a way to finance and very meaningful acquisition. So we are not dogmatic, as we always said, on the shareholder relationship with Siemens Healthineers. And let me say that we will come up with a strategy, how we want to go forward in the Capital Market Day, December nine. And so then you will know more.

Ben Uglow, Analyst, Akskup Analytics: Understood. Just one follow-up and apologies for pressing the point.

Roland Busch, CEO, Siemens: Go ahead.

Ben Uglow, Analyst, Akskup Analytics: But the market, the stock market and obviously we all get very excited assumes that Siemens will naturally deconsolidate, right, Either going below 50% is a real prospect. And obviously that’s part of the rerating story. Is deconsolidation something that you are considering? Is that something that you’re willing to do?

Ralf Thomas, CFO, Siemens: Ben, of course, we cannot hinder the stock market to speculate as you know. But we have the freedom to act in all directions. That’s what we always said. What we do is we are prudently and sororially assessing the situation. It’s broader than just shareholding.

As we said, it’s about how can Siemens AG (OTC:SIEGY) best possibly benefit in a healthcare market beyond MedTech and how instrumental would Health and ES be at a certain point in time for that. That is driving our thinking. We don’t exclude anything as we said that before. We always use the wording that we are not religious about the 75% shareholding. It needs to make sense and you can rest assured we are prudently looking into all options and scenarios and we will conclude in a way that everyone will understand our rationale.

Ben Uglow, Analyst, Akskup Analytics: That’s very clear. Thank you very much both.

Tobias Hutzler, Head of Investor Relations, Siemens: Next question please.

Conference Operator: Your next question is from James Moore from Redburn Atlantic. Please go ahead.

James Moore, Analyst, Redburn Atlantic: Yes, good morning everybody. Thank you for the time. I wanted to ask about portfolio, but Ben snaffled that. So can I ask about the 14.5% margin in DI? Could you elaborate a little bit on the dynamics between software and automation?

Without numbers, I sense that software profitability was very strong in the second half of last year because of the large license revenues and revenues have now normalized. Would it be fair to assume that the software margin has normalized from that level even if it’s progressing? Could you talk a little bit about pricing trends on both sides of DI? And on the cost savings, could you size the potential of the actions? You’ve quantified the size of the severance that you’re looking to do.

I’m just trying to think about what the size of savings could be and whether they more land in ’26 or whether they’ll already start to land in this year from a kind of bridge modeling perspective.

Ralf Thomas, CFO, Siemens: James, thank you for that universe of question. I tried to sort it out in a meaningful time. If you allow, I start with the big picture and you’re perfectly right. We had a very strong and also focused second half of fiscal twenty twenty four when it comes to software large scale deals with corresponding profitability. We also guided in November that this will not repeat itself on the same levels in fiscal twenty twenty five.

We are working hard on that and first quarter was promising in particular with a strong growth focus in EDA, which was helpful. But in a nutshell, the full fiscal year for software will be rather backloaded for the rest of the upcoming three quarters. We said that the funnel for EDA business in the next two quarters looks rather dry, yes. I mean, we are always doing the team is always doing their best and they have been very successfully hunting. But as I said before answering another question, we try and will be meaningfully in our attempts to hunt at the right point in time and not sacrifice margin for timing.

That always paid off and we will continue doing so. So on the software side, EDA short term rather low, mid- and long term of course and highly attractive market. And we also do see electronics and semiconductor markets in general picking up momentum quite meaningfully. So strategically and structurally, the demand, which is driving our software business is very well intact and we feel very comfortable with our portfolio in that regard. Now talking automation, also let me give you a quick rundown of the different market segments, the verticals as we call them.

Automotive, obviously stagnant in Europe and in Japan, U. S. Rather declining positive momentum building up in China. We do see in machinery first signs of stabilization, substantial price pressure for European and American manufacturers out there, but mild expansion from our point of view in fiscal twenty twenty five. And this is going to be widespread across countries.

When it comes to chemistry and pharma, positive momentum has been building up. And as I said before, the sweet spot of the market seems to be electronics and semiconductors at the moment, mid and long term demand on a really promising trajectory in that regard. When it comes to aero and defense, positive develop continues after COVID people obviously start traveling again and more than during that period of time. However, there is one of the important players globally obviously struggling and therefore we do not expect a massive expansion in that part of the market. So that’s a big picture at the moment.

How did we do against that? We talked about it already, but let me quickly recap. I mean, the stock level issue in China seems to go along the lines that we have been guiding nine point five weeks of stocks in our distributor shelves. That’s quite meaningful development. We also said that we don’t expect a finalization of what we call normalization before the end of the second quarter.

This is still very valid and we feel quite comfortable. Pickup in new orders automation was good. So how did January look like? It’s obvious that we have been doing quite well in December. And in the first quarter, when it comes to new orders, including China, we are in line with our expectations with the start into the new quarter, the second quarter and even global second quarter new orders are quite promising at the moment.

Still, we need to admit that with Chinese New Year having a different phasing this year compared to prior year January is difficult to assess. There is always artifacts around that in the Chinese market at that part of the year. But we are quite confidently looking into the further development of the second quarter, but we’ll definitely not jump to conclusions too early in that regard. So in a nutshell, making good progress along the lines that we expected, talking the stock levels throughout our own orders on hand, the distributor stocks and our end customer stocks, I mean, to give you a number, give or take, I do think there is still some million sitting on those three shelves that need to unwind and this is exactly along the pace that we have been indicating in November. So assumptions are still valid.

Talking about severance and I would like to underpin that twice also reskilling. We are not out to severance only. We want to assess and that’s what I also said in my presentation, to what extent we can use those well skilled resources as much as possible that we do have. We see that as a competitive 130 basis points on the margin level that we have been spending on severance in the first quarter, I think that’s quite the pace that we may expect. There will be quarterly ups and downs, so it will not be equally spread over the four quarters, but the dimension maybe will be the is the right one.

And as I said, there is a bias to use reskilling activities rather than severance and all the improvements on the global footprint and the cost positioning seems to be very well on track. We also saw that in the development of the profitability in automation in the first quarter and in the first couple of weeks in the second quarter. I hope this is giving you a meaningful picture of the overall situation.

James Moore, Analyst, Redburn Atlantic: It does. Thank you so much.

Tobias Hutzler, Head of Investor Relations, Siemens: Next question please.

Conference Operator: The next question is from Gal Debre from Deutsche Bank (ETR:DBKGn). Please go ahead.

Gal Debre, Analyst, Deutsche Bank: Thank you very much. Good morning everybody. Can I ask about the guidance for DI this year? I mean, I’d like to get your level of confidence about reaching the growth guidance in particular because based on your indication for Q2, it seems that DI revenues will probably still be down around maybe 9% or 10% in the first half. So it looks like a bit of a stretch to be back in the range of between minus 6% and plus 1% for the full year, especially considering that in fiscal Q3 then the basis of compo reason will be extremely challenging on the software side.

So any more color on this would be great. Thanks very much.

Ralf Thomas, CFO, Siemens: Thank you for that question, Gail, and giving me the opportunity to confirm that I’m highly confident that we will make our growth guidance. We said that the first half of fiscal twenty twenty five will be overshadowed by destocking and normalization. This is exactly along the lines that we have been expecting and is materializing also with the pace that we have been expecting and also sharing with you. What is encouraging me is that there seem to be a first green shoots on new orders in automation, including China. Too early to declare victory, of course.

We are very seriously looking into that. We are as close as possible. I know that you know that there are distributors asked and interviewed in China. The picture is very diverse from one distributor to another, but the trend is into the right direction. And the way I saw the January figures developing in new orders in China and also on a global basis is encouraging me that we are going to see the momentum expected for the second half of fiscal year.

As we indicated to you, we will have more clarity after the second quarter, obviously. But at the moment, I can only underpin, we feel very confident that we will up to that what we said and promised.

Gal Debre, Analyst, Deutsche Bank: That’s great. Thanks very much.

Tobias Hutzler, Head of Investor Relations, Siemens: Thank you, Gael. Next question please.

Conference Operator: The next question is from Simon Toonissen from Jefferies. Please go ahead.

Simon Toonissen, Analyst, Jefferies: Yes, good morning Roland Raffin, MTBS. I’ve got one on digital industry and your European business. Can I ask you how you expect this to develop through the rest of the year? Your U. S.

Competitor this week talked quite upbeat about Italian machine building momentum. And if I look at your slide, I think you still had Italian orders down 12 in DI in the quarter, Germany down three. And so given how important Europe is for you, just how do you see Europe developing for the rest of the year? And kind of related to that, is the European recovery far and foremost driven by China recovering? Or do you think it can recover on its own?

And do you think kind of the recovery cycle related to Europe is sort of different to what we see maybe in the past?

Ralf Thomas, CFO, Siemens: Thank you, Simon. And of course, you are addressing a very complex topic here. I mean, it’s not that this is one single driver only. And in a nutshell, I would underpin what you said before. I mean, we do see, as I said before, that in machinery in particular, there’s first signs of stabilization in global production after eighteen months of contraction.

China is gaining momentum and India continues to expand. That’s what we see. On the other hand, Japan, Europe and also U. S. Display some sequential stabilization, yet year over year it remains negative at the moment and we further do see substantial pricing pressure.

I mentioned that before for European and American manufacturers due to low prices in Asia, which might limit upward dynamics going forward at least in the short term. We do expect the current global stabilization that we see to be followed by a mild expansion, as I called it before, for the full fiscal, but definitely back end loaded. And this is broadly spread when it comes to Europe in particular. Italy is playing a major role. I can see a couple of topics that underpin that what one of our competitors said, but to quantify a trend from that in the short term, I think that would be too much at this point in time.

I mean, the overall sentiment and can only repeat what I said before, we have been seeing and entering into fiscal twenty twenty five with a back end loaded scenario. All that what we have been anticipating has been materializing so far, even a bit more momentum on top line, but too early to declare victory, as I said before. So we need to ask you for some more patience before we can quantify and then confirm numbers on that. But Europe is definitely one of the areas with a lot of complexity also driven by tariff discussions and alike. So we from a Siemens perspective concluded as I answered Ben’s question already and others that we are confident that we will make our numbers.

We are also, I think, looking forward to opportunities in the industrial space when it comes to artificial intelligence and being one of the key drivers in that field. But Europe as such is going to be a challenge for the next couple of weeks and we will stay very close to matters.

Simon Toonissen, Analyst, Jefferies: Thank you, Rob.

Tobias Hutzler, Head of Investor Relations, Siemens: We will take one last question.

Conference Operator: This last question is from Alexander Virgo from Bank of America. Please go ahead.

Alexander Virgo, Analyst, Bank of America: Thanks very much. Good morning, Roland. Good morning, Ralph. Thanks for taking the question. I wondered if you could just give us a little bit more color please on free cash flow.

It’s obviously been very strong in the quarter. I appreciate you can’t really comment on Health and Ears, but SI very strong and you called out Advance Payments in particular as a driver. So I wondered if you could just give us a sense of how we should think about that through the balance of the year. And as part of that, is the advance payments and orders related to data centers and thinking about the comments that we’ve heard from both Schneider and Vertiv in the last couple of quarters about delays in Europe. I appreciate Europe doesn’t tend to get much of a comment on data centers given how strong The U.

S. Is. But it’s interesting just to hear what the dynamics in Europe might be given that’s where the big catch up could theoretically happen. Thank you.

Ralf Thomas, CFO, Siemens: Thanks, Alex, for addressing this very important and also material matter to us. I mean, first of all, free cash flow entering into new fiscal was really quite promising and we have been creating momentum on a fairly high level, encouraging us that we will again be able to live up to our own ambitious targets of again delivering double digit cash return on sales for the full fiscal year. As always part of it will be seasonality, would be naive to believe that there is not a strong fourth quarter required to make it to those levels. But I’m not worried about that. The team is really into matters.

I mean, everyone is focused on generating cash from operations. We know how important that is. And I personally was very much pleased that we saw a strong SI free cash flow again also DI of course, but SI again has been using the opportunity in a market in which we are a relevant player to collect advance payments. This was not always the case, you remember that. So large orders, including data center business is always an opportunity to collect advance payments.

And therefore, we will continue doing so. We will use the opportunity also being a relevant player in that field and contributing at least to a certain extent setting market standards in that regard is also quite helpful. So operational management of resources and assets is on everyone’s top priority list of priorities on top. So therefore, I’m quite confident that we will continue with that momentum in the quarters to come. When it comes to the data center business as such, I mean, it’s obvious that you cannot repeat each and every year 60% plus of new order growth as we saw that last year, but 50% of revenue growth was quite something and we have been accomplishing that again in the first quarter.

With a book to bill above one, seasonality in large orders being placed is having its own dynamics and therefore we don’t push customers. We respectfully listen to their wishes and timelines and we have been always well advised doing so and will continue doing it that way. So growth momentum may not be on the same levels as we saw that last year, but clearly in the double digit area, probably between 2030% from today’s perspective, I think that’s quite an attractive field. And being one of the players providing not only opportunities to install what is available now, but also driving the business models onto higher levels of efficiencies. We are a well recognized partner for our customers and we are very happy to live up to their high expectations in that field.

So in a nutshell, data center is still a driver of growth and profitability in that field. Free cash flow will be on everyone’s mind and I’m absolutely confident that SI, in particular, is going to continue its path on success. And I’m sure you listen to them in December and Zug anyhow.

Alexander Virgo, Analyst, Bank of America: Thank you very much, Ralph.

Tobias Hutzler, Head of Investor Relations, Siemens: Thanks a lot to everyone for participating today. As always, the team and I will be available for further questions. Have a wonderful day and goodbye.

Conference Operator: Ladies and gentlemen, that will conclude today’s conference call and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.

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