Siemens Energy AG
XETRA:ENR
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Siemens Energy AG
Earnings Call Analysis
Q3-2024 Analysis
Siemens Energy AG
In the recent quarter, Siemens Energy demonstrated significant growth and a robust pipeline. The company’s order backlog reached an impressive EUR 120 billion, underpinned by strong market momentum in the Grid Technologies and Transformation of Industry segments. Overall, the company's revenue grew by nearly 19% to EUR 8.8 billion, reflecting increased revenues across all business areas.
Siemens Energy reported a profit of EUR 49 million for the quarter, alongside a substantial improvement in free cash flow, which increased to EUR 727 million. This improvement reflects higher profitability and strong order momentum, particularly in the Gas Services and Grid Technologies divisions, which each contributed over EUR 400 million in cash conversion.
Siemens Gamesa, the company's wind subsidiary, continues to face challenges but is making incremental progress. The division experienced a loss of around EUR 450 million for the third quarter, with cumulative losses reaching EUR 1.3 billion for the year. However, the company remains optimistic about future growth opportunities in offshore wind projects and improving order quality.
During the quarter, Siemens Energy made several strategic investments to expand its manufacturing capacities, including facility expansions for transformers in the United States and India. The company also commenced new vacuum tube production in Berlin, aimed at providing SF6-free substations, a more climate-friendly solution as Europe phases out SF6 by 2026.
Looking ahead, Siemens Energy is on track to meet its full-year guidance. The company adjusted its expectations for Siemens Gamesa, now projecting losses of up to EUR 2 billion, while expecting free cash flow before tax to be in the range of EUR 1 billion to EUR 1.5 billion. Executives emphasized the need to strengthen the balance sheet and maintain a solid financial foundation.
The global energy consumption, particularly power consumption, continues to grow, driven by factors such as data centers and increased electrification. Siemens Energy is well-positioned to capitalize on this trend, with opportunities across power generation, power transport, and electrification solutions. The company's investment in new technologies and capacity expansions positions it for sustained growth.
Siemens Energy remains committed to innovation and delivering value to stakeholders. The company continues to develop and market climate-friendly products, invest in future capacity, and enhance its project selectiveness to improve margins. Despite current challenges, particularly within Siemens Gamesa, the strategic measures underway aim to ensure long-term profitability and growth.
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Good morning, ladies and gentlemen, and welcome to Siemens Energy's AG's conference call for the third quarter for fiscal 2024. My name is [ Francie ], and I'm your Chorus Call operator. [Operator Instructions] This conference is being recorded. [Operator Instructions] I'd now like to hand over to Tim Proll-Gerwe. Go ahead.
[Interpreted] Good morning, and welcome to today's conference call. We published our financials this morning at 7:00 a.m., and we'd now would like to present them to you in person. With me here in Berlin, we have the CEO, Christian Bruch; and the CFO, Maria Ferraro. Both will be available to answer questions following the presentation.
You are familiar with our procedure. Mr. Bruch will be speaking in German. Ms. Ferraro will speak in English. There will be 2 webcasts, the original line and an English line where simultaneous interpreters will interpret everything into English. Ms. Ferraro will be listening to the original.
For the following Q&A, journalists can also register for a separate telephone number, and you have been sent the link with the invitation to today's conference call. You can also register for that right now, if you like. To avoid any feedback, please make sure that you put your phones on mute.
The presentation that will be shown to you will be downloaded as always on our home page following the presentation. There will not be a text. Both speakers will be speaking off the [ cuff ].
I'd also like to draw your attention to our safe harbor statement on forward-looking statements. This can be found on Page 2 of our presentation.
And I'd like to hand over immediately to Christian Bruch, our CEO.
[Interpreted] Thank you, Tim, and good morning. Thank you for dialing in this morning. Siemens Energy is on a good way towards achieving its annual forecast and the corporate goals for the current year. The order backlog has grown over the past quarter, and I'm very happy that at the same time the margin in the order backlog has also increased, which gives us a good foundation for next year to grow profitably.
For our wind subsidiary, Siemens Gamesa, we are proceeding as planned, and I would summarize the quarter as follows. Step-by-step, quarter-by-quarter, we are making headway. It's not exciting, but it's what we want to achieve.
Maria will, as usual, present the figures in greater detail. But before that, let me stress some essential points from this quarter. The global energy consumption, in particular, power consumption continued to grow. This growth is reflected in all of our business areas, and we expect that the global demand for power will continue to grow in addition to population growth and more electrification.
New additional markets contribute to this one topic, which is currently discussed everywhere, is the power need for data centers. They make up a considerable part of our inquiries, the inquiries reaching us, not order intake, but inquiries. And for the future, this means potential growth. And we see that across our entire portfolio, power generation, power transport and what we call electrification solution when it comes to transformation of industry.
Order backlog of Siemens Energy has surpassed EUR 120 billion, and this high order backlog gives us a good planning base for next year, because the revenue for next year is already included in our order backlog this year.
And we also see that customers are already reserving capacities for the future, and you might have seen or heard it. We continue to invest in the expansion of our capacities. I'm going to give you more examples for this in a second. As I already mentioned, it is quite positive that we were able to improve the quality of the margins of our order backlog. On the one hand, this is the more consistent selectiveness when it comes to projects, but also the improvement measures that we have carried out over the past years that now have an impact on margins. And at the end of the [Audio Gap] be optimistic with regard to the future.
The revenue in this quarter has grown [Audio Gap] %. The profit before special items was EUR 49 million. In order to service the growing demand of our customers, we have invested in the expansion of our manufacturing capacities, and this quarter we had some examples for this as well. For the quickly growing area, Grid Technologies, we already had investments into facility expansions for transformers in the United States and India that we announced last quarter in June.
We started our new vacuum tube production in Berlin that provides SF6-free substations for our customers. SF6, as you probably know, counts among the most climate detrimental gases. And starting in 2026, the EU is going to gradually fade it out.
We are already retrofitting for the future. We've invested considerably into the future. And I can say that I'm proud that we have an innovative climate friendly product that we will launch on the market that is doing justice to the power transmission requirements of the modern markets.
In July, we announced further expansions of facilities for transformers in Nuremberg and Weiz in Austria. We also expand the grid partnerships along the supply chains. One example for this is the start of a joint venture with our Croatian partner, Koncar. This is a joint venture for supplier parts for high-performance transformers, high-voltage DC transmission at gas services. We also started our burner production that we initiated 3 years ago. Step-by-step we're fulfilling our plans and goals in our Hungarian facility for burners. We produced gas turbines and hired 400 people there.
In the offshore area of Siemens Gamesa, we are making progress when it comes to ramping up the facility capacities, and we had a strong revenue growth last quarter. We're not where we want to get to, where I want to -- but gradually, we're improving. In this context, let me make a few remarks on the state of affairs of the other activities at Siemens Gamesa.
The integration of corporate functions into Siemens Energy was processed according to plan. The company was taken over on August 1st by Vinod Philip. I'd like to say thank you very much to Jochen Eickholt for his important work for Siemens Energy over the past years. In the past 2 years, he paved the way towards a successful wind business in close coordination with Vinod Philip. They discussed the next steps.
The quality issues for the onshore platforms 4.X and 5.X are processed in coordination with our customers. And for the sake of completeness, I would like to point out that in this quarter, we carried out our annual update of the statistical models for the forecast of failure rates and the associated costs, and we do this once per year. And the changes on the basis of this update were within the range of our expectations. For the overall issue of 4.X and 5.X platforms, there are no material effects worth reporting.
As communicated in the last quarter, with our 4.X platform, we want to go back into sales by the end of the business year in Europe. The sales figures will be small at the beginning and it will take some time to get back to the old level, and for 5x we continued to plan to take up distribution activities over the course of the next business year.
The third quarter, or the -- wind business has closed a third quarter with a loss of around EUR 450 million. So the loss after 3 quarters is stipulated at EUR 1.3 billion. This is within the original expectation range, but it is anything -- it is far away from satisfactory. I always said that we will not be able to restructure the wind business from one day to the next, it's going to take time.
What's important for me is to go through the quality problems as planned. Wind energy continues to be a central part of the capacity expansion to cope with the increasing power consumption in the next months. There will be a lot of options for offshore wind projects in Europe, and in the medium and long-term, we continue to see good growth progress and growth opportunities for us.
Similar to every other quarter, I want to show you some examples that highlight the contributions of the individual business areas of Siemens Energy to the energy transformation.
On this slide you can see 4 examples from -- one from each business area. For Gas Services, our record order backlog in this quarter was supported and backed by orders in Saudi Arabia. Saudi Arabia is currently going through a considerable investment program to restructure and expand its energy infrastructure. This means expanding grids and renewable energies, but also more environmentally friendly gas power stations and the turbines are delivered, amongst others, by Siemens Energy, which led to a record order at gas services in Taiba 2 and Qassim 2, 2 of the most efficient gas power stations in the world, with a performance of 2 gigawatts each are produced based on our technology. With this solution, the CO2 emissions are reduced by 60%.
The next project is actually from the fourth quarter. Nonetheless, I'd like to present it to you because it is of utmost importance for the decarbonization in Germany. It's the project on the right-hand side of the slide. The Northern German energy provider, EWE, has ordered a 280 megawatt electrolysis plant from transformation of industry, which is going to become operational in 2027, and will be located in Emden and will produce 26,000 tons of green hydrogen.
It's an important project because it shows that we are ready as an industrial company to create conditions to produce the -- to handle the hydrogen ramp-up. And I have to say the commercial conditions for a faster ramp-up of hydrogen industry are insufficient, because -- in this project with EWE, it's a so-called IPCEI project, Important Project of Common European Interest, which is subsidized with Federal and regional funds. The official funding commitment was given in the mid of July, and after that the contract was signed between EWE and Siemens Energy, which was the starting point for the actual implementation.
So the market environment for green hydrogen needs to improve. But let me stress again, we continue to make progress step-by-step.
And with this, I'd like to give the floor to Maria for the figures.
Thank you, Christian. Good morning, everyone, and a warm welcome also from my side. So let's jump right into the financial performance for the third quarter at group level. As Christian mentioned, our orders came in at a solid EUR 10.4 billion. Standout is gas services where orders more than doubled year-over-year to a record EUR 5.3 billion.
Overall, orders did decrease. This is due to a high basis of comparison, particularly in our Grid Technologies business and an expected decrease year-over-year at Siemens Gamesa. If we exclude that expected decrease, the orders actually increased 30% year-over-year.
Group book-to-bill ratio was at 1.18, and our order backlog is now at EUR 120 billion. As mentioned by Christian, what is important is the margin quality in that backlog, and that improved once again, but I'll get to that in a moment. Revenue for the group grew by just shy of 19% at 18.5% on a comparable basis to EUR 8.8 billion.
All business areas increased revenue quarter-over-quarter, with Grid Technologies at just over 30%, Siemens Gamesa just over 25% and Transformation of Industry just over 23%. They all generated strong growth. Gas services up slightly due to a very strong basis of comparison last year.
Overall, service grew by around 16% comparable and importantly, also tracking new unit sales, which grew even greater at around 19%. Profit came in at positive EUR 49 million, again, with a very strong growth at Grid Technologies and Transformation of Industries. Also important to note with respect to profit is that Siemens Gamesa was in line with expectations.
Overall, for the quarter, as per usual, we had puts and takes into the profit, including onetime legacy project effects impacting transformation of industry and gas services. Just as a gentle reminder, of course, the seasonality of our gas services business is such that the mix in the second half shifts more towards new units, especially in Q4 and less service business, which, of course, has an impact on the margin.
Special items this quarter amounted to just shy of EUR 70 million. This is driven by pre-tax gains from the reversal of a previous write-down. This is a pending sale of an asset, which is part of our divestment program, which we've talked about in the last 3 quarters. As a result, this brings us to a profit as reported for Siemens Energy for the quarter of EUR 119 million and a net loss of just over EUR 100 million, at a EUR 102 million.
Free cash flow strongly improved to EUR 727 million. This is reflecting higher profitability and strong order momentum. Gas Services and Grid Technologies showed very strong cash conversion and contribution, each at just over EUR 400 million.
The cash outflow at Siemens Gamesa was in line with our expectation. Just high level some noteworthy topics for the quarter by business area. So in Gas Services, already mentioned, record orders this quarter, and of course, profit impacted by the onetime effects, of course, also including the seasonality of the business.
Grid Technologies, here we benefited really from a higher volume and higher margins in the processed order backlog, and a very strong profit for the quarter. We're still seeing very strong market momentum in Grid Technologies.
At Transformation of Industry, here, we're seeing a continuous positive market environment, of course, with some timing effects, and -- as Christian just mentioned, in our sustainable energy systems business, which makes our electrolyzers. But even there, we're faring well. And as just mentioned, we have a very good order and a very good win recently.
Finally, at Siemens Gamesa, here we're making progress step-by-step. And as expected for the quarter, we did not see any large orders in that business.
So with that all in mind, let's dive a little deeper into the order backlog on the next page.
As mentioned here, we have EUR 120 billion at the end of the quarter. I'm pleased to say, and I mentioned it already that the backlog quality continues to increase across all businesses, and the trends continue to support our midterm targets.
Also important is that 50% of our overall backlog is service. This is the predictable, resilient, recurring high margin and cash generating business, but we're also seeing strong growth and solid margin improvement in the backlog of our new units business, and this is very important because new units then help us grow the installed base, and of course, continue to build on that base for additional service revenue into the future.
On the next page, let's talk about our cash flow. And here, due to the year-to-date strong cash flow, our cash position improved again in the third quarter. Our cash and cash equivalents increased to EUR 6.1 billion, our financial debt remained stable. This brings us to a net cash position, excluding pensions of EUR 2.25 billion..
This is versus a net cash position of EUR 1.9 billion at the end of Q2, so therefore, growing our overall cash position, and this is supporting, of course, our clear target to maintain a net cash position throughout this year. This is also in line with our commitment of a conservative financial risk profile as well as our investment-grade rating profile.
The key figures for all of the individual businesses, as a note, they were published in the earnings release this morning. For your convenience, we've included those business area overviews on our website, which can, of course, be downloaded at your convenience.
With respect to our financial outlook on the next page. As just outlined, across the Siemens Energy Group, we had a solid quarter, and we're on track to reach our full year guidance and objectives.
Just 2 important changes to our financial outlook. Number one, we made a slight adjustment to our assumptions for Siemens Gamesa. We now expect losses at Siemens Gamesa of up to EUR 2 billion compared to EUR 2 billion before or around EUR 2 billion rather before.
And number two, we now expect free cash flow before tax in the range of EUR 1 billion to EUR 1.5 billion compared to up to EUR 1 billion before.
And with that, I'd now like to hand back over to Christian. Thank you very much.
[Interpreted ]Thank you very much, Maria. To close, I'd like to show you our priorities, which we pursue across the entire business year. I've repeated -- I've mentioned that repeatedly, the 3 issues increased profitability, and at the same time, use growth opportunities. I already mentioned some examples in the beginning. Secondly, the turnaround in the wind business continues to be a focus topic for us. And third, we need to strengthen our balance sheet in order to maintain our solid financial foundation that Maria just mentioned.
We are currently on a good path towards achieving these goals. I would like to say thank you to our employees who have worked with great commitment towards the further development of Siemens Energy. We all -- I am very proud of what this team is doing. And you can -- rest assured, we will do everything possible for Siemens Energy to be sustainably and lastingly successful.
Back to you, Tim.
[Interpreted] Okay. I can see that the English-speaking journalists can also ask your questions in English. They will be answered in English. [Operator Instructions] Mr. Hubner has a question.
[Interpreted] I have 2 brief questions on capacity expansions and the investment volume, and is this jobs state guarantees. Are you reviewing this every now and then? And how does this all fit in together?
[Interpreted] Thank you very much. I'll take the first question, and Maria will take the second one. Capacity expansions, as you can see, what we're doing here is we're expanding existing sites, so that as far as the capital requirements can be as low as possible. And at every site, we have several hundred new jobs, and we've seen -- we talked about this, and you can imagine that you can add all of this up. And as I said, there will be several thousand additional members of our workforce, especially at Grid Technologies, but we can also see this in the other areas as well. They will have to have new [ hires ] as well, and investments will be required. They will vary from one site to the next, but per site, I would say -- well, all in all, we talked about this at the Capital Market Day in the grid area, about EUR 600 million that we'll be investing in the expansion of capacities.
Thank you for your question regarding the status of the guarantees -- state guarantee. Of course, the facility is up and running. We're utilizing that as we mentioned in the last quarter. We're obviously looking to not only optimize that -- the usage of that facility, but of course, as we mentioned, get off of the facility as soon as possible. And this is due to -- of course, the cost for that facility continued to be very high. We mentioned that last quarter that it's a low triple-digit amount. So this is quite costly. But just to say, of course, with a strong order book, this is what was anticipated for this year, and of course, we continued to have guarantees available to us.
We're also looking at other, of course, jurisdictions where there's additional guarantee facilities available to us, for example, in Spain and other countries. And this is also faring very well for us where we feel very comfortable with the amount of guarantee facilities available for our demand.
[Interpreted] The next question will be from Bloomberg, Wilfrid [ Ekelderner ].
[Interpreted] I just have a very quick question and it's on a reduction in jobs at Gamesa. You had said that you need to save money, Mr. Bruch, and certain activities with regard to the Spanish trade unions when it comes to the reduction in the workforce. Could you tell us how many of that might be, and which sites would be affected? And how many savings -- how much in savings you plan to achieve?
[Interpreted] Thank you very much. Well, first of all, we're right in the middle of negotiations, so I can't really give you any figures right now. What we're trying to do is to make sure that all of the other business areas grow. The net number of our workforce is growing, and we're trying to balance things there. It won't work everywhere, but in some areas it will. And this applies in particular [ to see to it ], that the utilization of capacities is such that we can take this into account. So we'll see this in our revenue next year because we didn't have any orders for a very long time there.
And as I said, for some time now we've been working on this, and in order to make use of the fluctuations that we have so that we can also reduce this slightly. And this is something that we will be discussing with the employees' representatives in different countries, but it's too early to give you any additional details.
[Interpreted] The next question is from Reuters, Christoph Steitz.
I have a question regarding the 4.X turbine. You want to bring it back on to the market towards the end of the year. Is it already on the market? Because the third quarter is almost over. Can you tell us exactly when you will start to sell it again?
And one question on Chinese competition -- Chinese competition in the field of wind turbines in Europe. This is an issue that since April the EU Commission has also been looking at and whether for some of the project developers in Europe and in Germany this is now a topic.
How do you see this topic, because it's a competition issue that's relevant for you as well? It's about cheaper turbines. And we see that big established players are slowly dealing with this topic and are thinking about choosing cheaper Chinese providers for bigger projects. What's your take on that?
Siemens Gamesa outlook for Ms. Ferraro, What is driving this optimism -- the slight profit optimism at Siemens Gamesa? Has anything changed there? It's a small tweak to the outlook, but I'm just wondering what's driving it.
[Interpreted] On the 4.X turbines, as you rightly said, there's not that much time left in the business year. We will start towards the end of the quarter. And then the sales process starts and will start in selected countries, and then we'll see about the order intake. And we will also start with a limited number. We'll do this gradually. You will see this before the end of September.
Now the other question that you had, thank you for that. It's an important question. First of all, we see more and more Chinese competitors on the international market, both onshore and offshore. This is due to the fact that the Chinese market is very difficult for those manufacturers, and they have big problems there.
But at the end of the day, it's important for me to stress that we cannot always run away with every future technology and say, "The Chinese are doing it." We can't do it with batteries. We can't do it with wind. We have to think about what it is we want to do and where. And wind is a future technology for me.
And as you mentioned in the offshore sector, there was this discussion. And there will be a lot of competition. We have to take the competition seriously, but I continue to believe it is important to achieve a level playing field. So I support the investigation from the side of the European Union, but it's important to keep the balance.
I always said we have to cooperate with China, we will need them for the energy transformation, but on the other side we are interested in keeping future and key technologies in Europe. So high quality criteria that we've been advocating for years need to be part of the assessment, where is value-added, where do we do research and development, et cetera, et cetera. And I think there's still some potential. This is not taken up everywhere, yet, but it is important if you want to keep future technologies in the continent.
It's not always the price. I have to stress this in the current discussions as well. Very often we see on the market that there are contractual conditions that you have difficulties understanding and subscribing to from the risk opportunity profile as a private company. So we have to look at this.
And what's also important, because it's always one issue in the discussion, I am strongly convinced that with the capacity that we have in the Western industries, we will be able to handle the growth, and our customers see this as well. We have to consider that the productivity in the facilities are increasing. We're expanding capacities. So I think we can do this.
But there is a huge Chinese wind industry that is looking for a home. And it is up to us to find the right balance in the public discussion, how can we succeed in including and working with China because we're interested in this. And on the other hand, we need to keep these industries in Europe.
So there's no easy answer, but I can only raise the caveat that we shouldn't say for every future technology, if it's also a future technology in China, we let it be.
Thank you for your question regarding the Siemens Gamesa profit update. I would say, overall, the development at Siemens Gamesa continue to be in line with expectations. As you know, we're working through the known challenges, and we do experience some normal and expected volatility going in both directions. For example, in this quarter, we had the model update in the project reviews, and we systematically are working through the issues.
However, all in all, we've now had 3 rather stable quarters with losses that fare between the minus EUR 400 million and minus EUR 450 million. And with now 9 months under our belt, and of course, the visibility -- solid visibility for the fourth quarter, we can now say that the negative EUR 2 billion marks the low end of the range of our expectations.
[Interpreted] We have 2 questions in the chat. One question, [ Sara Lego ] with [indiscernible] in Spain. But the question has already been answered. It's the same question that Bloomberg just had. It's about 450 people affected in Spain by dismissals and what that process looks like.
But Pepe Garcia with elEconomista wants to know, Mr. Philip now is the fourth Siemens Gamesa CEO in 4 years, actually 5 years. Why do you think it will be better this time than with the previous 3? And the second question, the guarantee lines in Spain for EUR 1.2 billion, and will there be additional subsidies from the state?
[Interpreted] I think Maria will elaborate on the guarantees on the issue of the change in leadership of Siemens Gamesa. Let me just make one comment. Jochen Eickholt did a good job, and that was not the reason for the change to highlight this. I already said this during the last call. We said we now want to look at a medium-term plan, a multiyear plan, and we decided to now do and execute the change and not in the future, because we want to focus on the breakeven in 2026.
With Vinod Philip, we have a experienced manager with a lot of technical expertise, and he is very well networked in Siemens Energy, which -- I believe is a big advantage because for many functions, purchasing, logistics, administration, we can use the good structures that we have in Siemens Energy. Vinod [ Philips ] has spearheaded the integration project, and he hits the ground running. So I am very optimistic that we are gradually going in the right direction.
And just again to highlight the [ CESA ] facility at the EUR 1.2 billion mark that was finalized in this quarter and very thankful for that support. I think the discussions were very constructive as they always are, with the various parties within Spain. At this point in time -- I mean, ongoing discussions are always occurring. But at this point in time, we do not see further support, but are very grateful for the support that we've received so far with the very open and collaborative discussions.
For the next question, I'm going to switch to English. It's Matt from EnergyWatch. Ask your question, please.
Two small ones regarding Siemens Gamesa. You mentioned in the report that changes in the estimates for new, existing and potential agreements with customers had an offsetting effect on the loss. Can you quantify how much and why you've changed those estimates? And isn't there a risk that you are kind of counting your chickens before they hatch?
And the second one, you emphasized once more today that you plan to sell the 4.X in Europe at the end of September at the latest. Does this mean that you're already now putting it forward in tenders as there is, of course, an initial process price [ let's say ] on...?
[Interpreted] I will take the second, and then Maria goes in the first one to explain you the details. The processes as such, we are finalizing certain gates within the 4.X sales [ release ] process. This is what we're doing as we speak. And once we have done this, then we start to engage into tenders and put out the end prices, right? I mean that is required. We are not at that stage yet, but this is what we then intend to do until the fiscal year end, so until end of September.
Yes, with respect to the agreement with customers, that offsetting effect, I think we've discussed this in the last quarters, that of course, with some of the fixed price contracts of the past we are constantly reviewing with our customers how together we can make some of those cost estimates better in terms of sharing of these increasing costs. Because, of course, as we all know, cost inflation has occurred quite dramatically in the last 12 to 18 or 24 months. So these are the discussions that are ongoing.
And as I think Jochen has mentioned in previous quarters and also in this quarter, we have been successful in securing some of that, and this is something that is an ongoing discussion, so nothing particular to highlight and certainly not to disclose in terms of a number. But these are the discussions that are ongoing with our customers when it comes to some of the older contracts, and we're very pleased to see that those discussions are going in a positive manner.
[Interpreted] [Operator Instructions] I have 2 more questions. [indiscernible] Fleming from [indiscernible].
I have 2 questions. The share price went up. When you compare this to the second quarter, are there any reasons for this?
And the second question is the legal position, you talked about the situation having been improved in the third quarter, there will be high investments. Mr. Bruch, you said that you want to strengthen the balance sheet to also keep a strong financial position. Do you have any specific measures that you're planning in this respect?
[Interpreted] I think we'll take it like this. I'll do one part of it, and Maria will take the other part of the question. We like to divide up the work. So the question of -- special shareholder questions, no, we don't see any -- we see a very broad distribution there. So I think that there is basically no shareholders group that would have to be separated out especially. Maria, go ahead.
Thank you for your question regarding strengthening of the balance sheet. This is something that we've been working on very, let's say consistently since Q1, as you know, when we originally put out the guidance on the proceeds from disposals, and of course started in Q1 with a very successful disposal of the [ SIL ] share stake.
And what we mentioned at that time is, we said between the EUR 2.5 billion to EUR 3 billion in proceeds for disposals was our estimate for the year. And also what we did in Q2 is we updated that guidance because we said not only has it been successful. So far, we do see and have transparency for the rest of the disposals in our disposal program for this year to be around the EUR 3 billion mark now. And that's exactly what we're doing.
We're very consequently looking at our portfolio [ and ] ensuring that those disposals continue to add to the strength of our balance sheet. If we couple that with the free cash flow from operations, and we see with our EUR 6.1 billion of cash and cash equivalents this quarter, that we're well on our way to having the net cash position that we've committed to for this year in our balance sheet.
So this is how we continue to strengthen the balance sheet, and we foresee that continuing until the end of Q4 in line with our guidance.
[Interpreted] The next question is Markus [ Fruhauf ] from the FAZ.
[Interpreted] I would like to know the payments to Siemens or the fees for the state guarantees, which would be -- can you give us an order of magnitude for the fiscal year? Maybe you could give some more details on that?
And as you said before, when will this be completely finished? Are you still interested in using the name Siemens?
[Interpreted] Well, that was a cleverly asked question, I must say. Well, the payments, when you talk -- if you're referring to license agreements, this is quite transparent in our report, and let me just refer to one part of our business. Siemens Gamesa is not part of this because they have a different license agreement. And from that, you can derive the fact that up until EUR 700 million could be involved here. So you can calculate that if you take a look at the figures.
But we also have a number of other things that are also purchased, and -- from Siemens because we are grateful of this because this gives us shared services, for instance, in different areas.
And the name Siemens, well, we're proud of the name Siemens and it has helped us a great deal in positioning ourselves as a company. It is a very strong name for our customers. There's a great amount of value that we get for this. And as I said, we don't know what things -- well, we'll have to see how things develop in the future, but right now, I have other priorities to deal with, but we are working on that step-by-step.
[Interpreted] Which is more expensive?
[Interpreted] It depends on the profit that we generate.
Guarantees...?
[Interpreted] Oh, you're talking about guarantees. That's for Maria.
Okay. Thank you. I'll take that. So what is-- let's say, the higher cost. So there's 2 elements to the [ Bund ] facility. Number one is that we pay for the back guarantee that the [ Bund ] has provided to us. And as mentioned earlier, this is a low triple-digit amount, it's a good estimate between EUR 100 million to EUR 130 million, because, of course, this also depends on the utilization of that facility.
And then, of course, the second element are the guarantees themselves, and this is what we've said. This is what we do when we have transactions with the banks, and that's at market price. So there is no difference. The difference is the additional cost of the [ Bund ] facility, and as mentioned, that is a low triple-digit amount. It's hard to estimate because, as mentioned, it really is based on utilization.
Next question, [ Karsten Wiedemann ] with [indiscernible].
I have a question on gas turbines, or H2 ready turbines. We know that -- will the Federal government have some tenders regarding power plant strategy and capacity mechanisms? How do you prepare for this, especially with H2 ready? There could be a fast demand starting '25, '26 and whether you'd be able to cover that quickly?
[Interpreted] Thank you very much for this question. Well, first, yes, we are in close contact and close exchanges with our customers to prepare this. The general conditions for the tender aren't clarified yet. So our customers also still have some questions, but we try to closely cooperate so that we're able to react quickly.
But I always said it is desperately urgent that these tenders happen in early 2025. You've seen during the quarter that the demand for gas is extremely high, this applies to us but also to our competitors. So I can only urge to really start the tender and publish it, but we're in close contact with our customers also as far as hydrogen readiness is concerned.
I can only stress, the gas turbine will not be the limiting element at the end of the day. The limiting aspect will be that hydrogen has to be available in the market. From a technical point of view, it will have to be tested on the gas turbine. But from a time point of reference, I don't see this as a limitation but the availability of green hydrogen. This is going to be the challenge, but the aspect now is to get the tender up and running, because at the end of the day it's about grid stabilization and replacing coal power plants.
Christian, I think, that goes to you, it's from Craig Richard -- [ wind power ] [ monthly ], and you should answer it in English as well. In which markets do you envisage receiving your first orders for your 4.X and 5.X turbines? That's the first question. And how will these turbines differ from the ones sold previously?
Yes. Thank you very much, Craig. I mean -- maybe I'll start with where they differ. And obviously, we have a decent investigation behind us with more than around 12 months of technical upgrades, re-engineering and these things, and obviously, a very rigorous supplier qualification, which goes into that. And fundamentally, certain design principles remain, but obviously a lot on the elements, particular obviously, driven by the quality experiences have been improved and are currently then implemented.
The countries which we tackled first with the 4.X -- I think you can expect us to see in Southern Europe, there will be certain countries which we tackled, because obviously, also certain structures of the [ auction ] mechanisms will favor certain regions. My key target in terms of the forward-looking markets was always coming from the other side.
What can I do to keep the turbines, we bring into the market standardized and have no or very little variations, doing the same things over and over again. And this drives me with the market selection. We always have underlined that our core focus areas are Europe and the U.S. But if we can keep certain turbine models really the same, then we would look opportunistically also into other markets. So you can potentially also see here and there -- see certain other markets. You might have seen that there is some smaller order intake also in this quarter, which is, for example, partly some countries in Asia, which we still serve with other turbine models. And this is also what you will continue to see. And this is then step after step, but also 5.X coming only next fiscal year, so stay tuned on this, and we will continue to update you on how we are faring in terms of the re-entry into the market.
We have a second question by [ Wilfrid Ekelderner ] with Bloomberg.
I have a second question, a brief follow-up question. Mr. Bruch, you mentioned that the demand in Siemens Energy is driven very much by power needs coming from data centers. Can you elaborate on this? How is this developing? You said there are no orders coming in yet, but a lot of inquiries. Maybe you can explain what is the peculiarity of this market and where is Siemens or Siemens Energy involved here? Where are you trying to get into this market? And how can you service this?
Well, thank you. First, the products that are affected. Everything that relates to the grid side, the connection to the power grid, but also data centers are big consumers. So it's about stabilizing the frequencies, which is very important for the grids and this is where we can already see orders coming in, in a [ veritable ] range.
And then the second area is power generation per se. Data centers have a consumption that differs from data center to data center. For smaller data centers this can be around a couple of tens of megawatts, but for the bigger hyperscaler data centers, it can be a couple of hundred or up to 1 gigawatt of power consumption. And then they need to have a dedicated power generation. That can be based on renewables. That's the goal for [ many ] -- but that very often doesn't do justice to the speed. So many of the data centers ask for gas turbines, also over various years. And if you think of the big data center companies, you might be familiar with their investment plans.
So the third topic is what we call electrification solutions. This is everything around the integration, storage solutions. There are people who already think of very innovative solutions where we try to provide solutions. So I want to stress this, we believe that towards the end of the decade this will be between 2% and 5% of the global energy consumption. And for us, this would mean 20% of growth. So this is a truly visible new industry and what makes this special is the speed behind it. And data centers are driven -- at least often are driven by artificial intelligence, and those who train the models faster will be the first on the market. So speed is very important here.
So there will be a lot of pressure over the next years to make this power available. And we see that there are regional differences, we see the United States strong, the Middle East is strong when it comes to that. And it's going to be interesting to see over the next couple of years who the investors will be. Will it be the providers of the data centers, will it be the power providers. This has not yet been clarified, but it's a very intensive market.
[Interpreted] [ Your ] final opportunity, *1. We have 2 more questions in the chat. I'll read the first one out. [ Stefan Ade ] from the VDI News. He also has a question on Chinese competition. You've answered part of it, but I'd like to ask it once again, it's an important topic. How do you see the technological competitiveness of the Chinese providers? Can the traditional manufacturers such as Siemens Gamesa set themselves apart with technology or not? And what does that mean with regard to your business?
[Interpreted] Well, I think the answer is a very broad-based answer, and I would never assume that the Chinese competitors cannot keep up with our technology. I respect Chinese competitors, and technology is a lot of different things. We do a lot to be innovative, of course. And of course, this is going to be a very important aspect. It's not only with regard to new units, but also for service solutions. That will be an important point.
And as I said, I do believe that it would be wrong -- very wrong to say that the turbine doesn't work. And they might be the largest one in the world, and that the Chinese know how to construct a wind turbine. But nonetheless, I do believe that in our overall offer to our customers, we can set ourselves apart.
And what you see in industrial products, again, if they are complex, in other words where there are rotating parts, where it's not all that simple to assemble things, there indeed, there is competitiveness on the part of Western industries compared to Chinese competitors. If you take a look at other industrial products, compressors or other industrial units, if you see that there is a major Chinese competitor, we still have successful Western companies. We have to strike this balance, we need this type of balance. And I think that's something that we will see in the years to come.
But as I said, we will continue to work to provide innovations and also reliability, that's very important as well. That's why it's so important for me to have the same processes, standardization and in the final analysis, our customers are investing in something that will be commissioned many years later. And then over decades, they will want to be able to operate them safely and reliably. This will be a very important topic when it comes to distinguishing between the 2, and that's when the purchase price looks quite different.
It's a clarification question from Matt [indiscernible]. He said, just a quick clarification regarding the 5.X. I believe that you have earlier aimed for reintroduction early in 2025, and now you say during the next fiscal year?
Actually, I can answer that question. We said during fiscal year 2025. So no, it's no semantic change, that for clarification.
And the last question in the chat is from Pepe Garcia from elEconomista. Maria, that's directed to new directions about the guarantees, once again. What is the cost of the fees for the Spanish EUR 1.2 billion credit lines? And just to check, I heard German lines costs were EUR 100 million -- roughly EUR 130 million. Is that true? Can you say anything about?
And Maria, actually, I do not know whether this is a number we will reveal, but over to you.
Yes, no, thank you for the question. I think it is a very good clarification because I just mentioned earlier the extent of the cost of the [ back ] guarantee [ please ]. It's a back guarantee that the German government provides. They don't actually provide the guarantee lines. The guarantee lines are actually provided by the banks. And I think that's a very distinct difference, because the fees then, for example, in the Spanish facility are really just related to the fees from the banks for the utilization of that facility. However, for the [ back ] guarantee, i.e., the assurance from the [ Bund ], which doesn't cost them anything, we have to pay for that in addition, and that's what I meant about the low triple-digit amount. So just to ensure that we don't mix the 2 up.
[Interpreted] I think that concludes all the questions. So -- concludes today's conference call. Thank you for participating and for asking so many questions. We're pleased that you're interested in our company. It's a wonderful company. If you have any follow-up questions, myself and my press team are available to you on the phone.
One more thing. The conference call for analysts with Christian Bruch and Maria Ferraro will begin at 10:00 today. So you, as journalists can dial in, but you cannot ask questions there. You will find the link on our homepage. The next official conference will be the financial press conference on the 13th of November in Munich in the [ gas ] sale event. I hope we'll be able to see most of you in person there.
Until then, I hope you all have a wonderful summer vacation, if you haven't had yours yet. Come back well rested and in good health. Thank you very much.
[Foreign Language]
[Statements in English on this transcript were spoken by an interpreter present on the live call.]