Siemens Energy AG
XETRA:ENR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
10.28
48.35
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Siemens Energy AG
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and welcome to Siemens Energy's 2022 Fourth Quarter Conference Call. As a reminder, this call is being recorded. Before we begin, we would like to draw your attention to the safe harbor statement on Page 2 of the Siemens Energy presentation.This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties.At this time, I would like to turn over the call to your host today, Mr. Michael Hagmann, Head of Investor Relations. Please go ahead, sir.
Thank you, Lucas. Good morning and a warm welcome to the Siemens Energy Q4 analyst call. As you know, all of the documents were released at 7:00 o'clock on our website. And here with me is our President and CEO, Christian Bruch; and our CFO, d. They will take you through the major events of the last quarter as well as the numbers for the fourth quarter and the full-year. We hope this will take approximately 30 minutes, so that we will have approximately 30 minutes for Q&A.And with that, I hand over to Christian.
Yes. Thank you very much, Michael, and also hello from my side to everybody here on the call for the quarter 4, 2022 conference call.We are experiencing really a challenging period in history, and the war in the Ukraine is now in the 9th month, believe it or not. We have absolutely record high energy prices. We see inflation on the level which we have last seen in the '70s and '80s. So it is and was a stormy 2022. And we are, I think, also looking into not an easy 2023.I hope that you personally and your families get well through the current situation. And I'm really keen to explain you our numbers together with Maria, who will lead you in more detail to our results in a second.But let me briefly recap before the main reasons also why we changed also an organizational setup and why it is so important for us to drive profitability growth and predictability. And we'll get us with this, obviously, where we want to be as a most valued energy technology company.Since 1st of October, we have a new group structure. This new group structure makes us leaner and more agile, more transparent and allows us to align with our customer needs. I always said I want you also to carefully understand how movements in the customer markets move our numbers forward.And in today's slide deck, you can find historical KPIs like order intake, revenue and profit before special items for fiscal year '21 and also '22, to provide you with an overview of how the main new business areas and independently managed businesses performed in fiscal year 2021 and over the course of fiscal year 2022.In reference to our cash tender offer for all outstanding shares in Siemens Gamesa. I'm pleased that we received the approval by CNMV on the 7th of November. The acceptance period started on the 8th of November and will run until 13th of December.In case, we reach a shareholding of more than 75%, we will start the delisting process after the end of the acceptance period. And in case of exceeding the threshold of 96.7%, we will pursue a squeeze out of the remaining shareholders. Maria will later share some more detail of the time line and also the status of the funding of the transaction.Let me give you a quick update on our business in Russia. And I mentioned during our quarter 2 call that our business in Russia is under review, and in quarter 3, we took provisions to cover the exit from Russia. And in quarter 4 now, we closed the sale of our 65% stake in SGTT. This was a gas turbine factory in St. Petersburg on 5th of October and the sale of our factory in Voronezh, which is the transmission equipment on 12th of October.And I have to say this is an excellent achievement seeing the difficult circumstances under which this was performed. I hardly know any other company who really processed it this way. And I'm very glad that with this, we were able really to close out the business as painful as it was. But at the same time, also give our employees in proper hands going forward.And we are still now looking in management buyout for the regional company. That's a smaller transaction. We don't expect any bigger impact from these activities in 2023. So this is something which hopefully lies behind us.Let us now take a look at our operating performance in quarter 4. Gas and Power had yet again a very solid performance despite really all the challenges we have seen in the market. Russia, I mentioned, supply chain as well.Siemens Gamesa continued to incur losses on an underlying basis. Jochen Eickholt and his team have identified the major root causes for the poor profitability and with the Mistral program are addressing this now. Jochen has explained it in his analyst call recently.And if I look now on the quarter, we had strong orders for just over EUR 12 billion and finished the fiscal year 2022 with a, total orders of EUR 38.3 billion at Siemens Energy. This represents a comparable increase of 27% for the quarter and a comparable increase of almost 12% for the full year, really demonstrating that our products are needed for the energy transition.GP realized a strong order intake across the board with total orders of close to EUR 8 billion, and SGRE was also strong with orders of EUR 4.4 billion. We now have a record order backlog of EUR 97.4 billion, equivalent to more than 3 years of revenue. Keep in mind, in this order backlog there's also a decent amount of service business included.Quarter 4 revenue rose 6% on a comparable basis, driven by SGRE, where revenue rose 13%. Revenue at GP rose by 2%. We continued to have an impact from the loss of revenue in Russia and some supply chain constraints. If we adjust for the loss of revenue in Russia, revenue at GP rose 5% on a comparable base. For the full year revenue declined by 2.5% comparable because of the decline at Siemens Gamesa.Our adjusted EBITA before special items in quarter 4 came in at around EUR 600 million for a margin of 6.5%. And this includes the gain on the sale of the development assets at SGRE, which contributed EUR 565 million.For the full year, Siemens Energy made an adjusted EBITA before special items of just under EUR 400 million, which means the margin of 1.3% is just below the lower end of the targeted margin band of 2% to 4%.I'm very pleased that despite the negative impact from the loss of revenue in Russia and supply chain challenges at Gas and Power, we managed really to exceed last year's level in Gas and Power and came in at EUR 223 million for a margin of 3.8% in quarter 4.SGRE did post a profit of just under EUR 400 million. Excluding the gain on the disposals of the development assets, SGRE losses would have been roughly at the same level as in quarter 4 of 2021.Cash flow was very strong, close to EUR 2 billion in quarter 4 and EUR 1.5 billion for the year. And if you look really since we started in April 2020, we generated around EUR 4 billion of cash as a company.Let me make 3 points in this context. First, Gas and Power continues to be a strong cash generator. It generates roughly EUR 1 billion of cash flow during quarter 4, EUR 2.35 billion during fiscal '22. And in fact, GP generated all of the EUR 4 billion group cash flow since the spin-off.Second, also, SGRE generated roughly EUR 1 billion in cash flow during quarter 4. But this number, obviously, as I said, includes the proceeds from the disposal of the development assets. On an underlying basis, it would roughly has been at the same level as quarter 4, 2021.And third point, we had a strong balance sheet at the time of the spin-off. And because of our strong cash flow, it is even stronger today. This is important always to keep in mind in context of the cash tender offer. Demand for Gas and Power business continues to be strong, and as you can see from the order intake.And let me now talk about the outlook for fiscal year 2023. For Siemens Energy, we expect revenue growth between 3% and 7% on a comparable basis. And we expect a profit margin of the range of 2% to 4%. And Maria will present later in detail the assumptions for SGTT and TI. And that these are in line with the objective to reach 6% to 8% for Gas and Power.Let me now briefly recap fiscal year '22. On the one hand, many initiatives are driving the energy transition and investment into infrastructure. And on the other hand, the war in Ukraine and continuing COVID restrictions in China provided us with rather an unpredictable environment of challenges. And at the same time, we continue to transform our company to capitalize on the opportunities and to deal with the challenges.Because of the war in Ukraine, and if I see, obviously, certain programs like the RePowerEU and the U.S. Inflation Reduction Act, which really adequately now address the energy trilemma in terms of size and urgency. We see obviously a lot of push and worldwide initiatives to invest into energy infrastructure.I really encourage you to look into the International Energy Agency's World Energy Outlook, if you have not done so, which was published at the end of October. And if you see, obviously, now that they see the invasion as a turning point towards a cleaner, more affordable and more secure energy system and believe that investments in clean energy will have to double to $2 trillion by 2030. It shows you how big the momentum in energy transition is and will continue to be.If you look at the most important events for Siemens Energy during the fiscal year '22, it certainly begins with our virtual AGM in February. Our initiatives to restore profitability at Siemens Gamesa started 1st of March when Jochen Eickholt became CEO and continued with the launch of the cash tender offer in May.Also in May, we had our Capital Markets Day in Berlin at which we announced the new group structure and took the opportunity to explain our path to become the most valued energy technology company.Since 1st of October, we are operating under the new group structure. And we have largely finalized now the exit from Russia, as I said before.If you look on the new group structure, and you have seen the slide before, but while I'm showing it to you, there is obviously, first of all, just to underline the new group structure is one of the cornerstones in our company transformation together with, obviously, the cash tender offer for SGRE.And the new group structure is broader and flatter. And as we have reduced the hierarchy levels now from 11 to 6, we also see a broader Board and Executive Board. And I have the businesses represented in the Board. That's important for me to really drive the diligence and the operational excellence in the different businesses, which means clear structure with clear accountabilities and a very clear business orientation.And across this, we are also harmonizing our go-to-market approach that customers really get easy access to the whole breadth of the portfolio. And we will further improve also our operational excellence and channel our innovation towards what we call the 5 [ feat ] of action, which we presented also on the Capital Markets Day to really invest into energy transition.Allow me to talk about our 2 new Board Members; Anne-Laure de Chammard joined us from ENGIE to assume the role of Head of Transformation of Industry. As you know, we see a significant opportunity not just to grow our independently managed businesses or sustainability -- sustainable energy systems, compression steam and what we call EADs, or Electrification, Automation, Digitalization, but really also to build and expand our business.Compared to utilities, many industries are yet in the early stage of the decarbonization journey at a time when high energy costs make efficiency even more of a success criteria. And Anne-Laure has been responsible for ENGIE's Energy Solutions business. And she has extensive global management experience in the areas of industrial and energy services. I'm very glad that we have her onboard and this will be an interesting development also in this area.Many of you have met Vinod Philip either at the CMD when he presented on innovation, on tenders and during roadshows talking about strategy and sustainability. He has been a long time, 24 years with Siemens, held several positions such as CEO of Power Generation Services, and has been until the end of September, our Chief Technology and Strategy Officer.Vinod will shape the global functions, not only to be lean, but also to support our value creation across the different businesses. And this is an important element for me because that is the underlying infrastructure in which the businesses operate procurement, IT, data, innovation. And this is what Vinod will make sure to really have the company to perform.I also would briefly like to mention how glad and happy I am that Maria accepted the extension, and to have her besides me is a good feeling. And I look forward for the next years to come to push the company forward.Let me now talk about Siemens Gamesa. I have said it before and I say it again, without wind, we cannot solve the energy trilemma. First priority now is really to stabilize the company and then improving the profitability in the short term.Thereafter to expand the margins in the medium term and to unlock the full potential in the long term, which is with, no question there in the market.We have a solid foundation at Siemens Gamesa to build a profitable business. And always, I think it's important to remind that in the medium to long term, the market prospects are really, really promising if I see all the gigawatts of wind which has to be added, onshore and offshore.Siemens Gamesa has a growing service business. In fiscal year 2022, service revenue rose 14% comparable to EUR 2.2 billion, and its order backlog stands at EUR 17.8 billion for the service part.Siemens Gamesa, as others, I have to say, has been able to raise prices and that is a good sign. Within 1 year SGRE's onshore ASP rose 26% to EUR 0.82 million per megawatt. If you look at the last quarter, SGRE's onshore ASP even rose to EUR 0.95 million per megawatt, excluding India. This is always what you have to see because India is special in this scope. So it is really now a decent increase, reflecting also the needs to show the inflation also in the prices.Jochen has identified the major root causes and is now tackling these different things to address the underperformance in the context of the Mistral program and he has my full support for his activity. The short-term target is really to stabilize the business. And as I said, midterm is a margin expansion.Let me come once again to a couple of awards just to underline successes, which we had across the value chain of energy and across our portfolio with some recent project wins and which always is a good indicator for me how our portfolio fits into the energy transition.The transformation of an existing coal-fired power plant into a hydrogen-ready combined heat and power plant is the first example. EnBW will use an existing coal and waste heat power plant at Stuttgart-Munster. And Siemens Energy's scope will be the supply of 2 SGT-800 packages. 100% H2 ready is certified by TUV SUD and the commissioning of the plant is planned for '24-'25.And as soon as hydrogen is available and is economic, hydrogen firing of the power plant is planned. This is particularly important because, obviously, Germany is accelerated coal exit plan will ask for hydrogen-ready gas turbine plants, which we provide.Investments into the grid infrastructure are of the utmost importance, but the investments are not only limited to at the end grid connections and grid automation, but also in grid stabilization and TenneT commissioned us to supply 3 grid stabilization systems for the German power grid. 2 of those systems are synchronous condensers, consisting of a generator and the flywheel.And the third of the 3 solution is the technical premiere, the world's first reactive power compensation system with supercapacitors. And it will use the short-term storage, obviously, there in form of supercapacitors, which will be also more and more needed in the grid to stabilize it.And my last example is Qatargas awarded us the world's largest Turbine Compressor Frame Agreement ever. The project comprises 32 compressor trains consisting of SGT-700s and turbo compressors, with -- together with a 20-year service contract in relation to the expansion of the North Field in Qatar for the gas exploration and LNG production.At Siemens Energy, we have put ESG at the center of our strategy. And we are developing, since the start, Siemens Energy alongside our ESG framework and our continuous efforts to improve our ESG KPIs and to be transparent about this is now really bearing fruit.And in fiscal year 2022, we could, therefore, improved all our ratings, which were published during this timeframe. And let me just highlight 2 of the ratings. ISS raised our rating to B- and we now rank in the first decile with ISS.MSCI raised our rating from BBB to A. So we are now in the top 1/3. And we will publish our Sustainability Report together with the Annual Report on December 12, so please take the opportunity and have a closer look at our achievements.And with this, I hand over to Maria.
Thank you, Christian, and good morning and a warm hello from my side. Very happy to be here with all of you and happy to take over now and go through some of the financials a little more in detail. So, going to this slide -- thank you; talking about and giving further details into our voluntary cash tender offer and the progress that we've made so far. As Christian mentioned, we're very happy with the approval being obtained, and now we're in the midst of the acceptance period, which is expected to go until the December 13.We've also provided a tentative or expected time line of various milestones here because, of course, the 2 hurdles that we're trying to achieve. The first one being 75% ownership by the end of the acceptance period. This will then we can trigger a delisting process. And therefore, we'll have to call an extraordinary general meeting to be convened thereafter. And this would be put in place about 1 month in order to proceed with the delisting.If we reach a squeeze-out threshold, that's the second threshold, this is at 96.7% shareholding. Then, of course, we would request the squeeze-out mechanism shortly after the announcement of the results. And this, of course, will start in the new calendar year.Again, just as a reminder, the transaction value in its entirety is approximately EUR 4 billion. We have stated and I continue to state that Siemens Energy is and remains committed to a solid investment-grade rating. The financing and the structure of the financing of the transaction underpins that, including our intention to raise EUR 2.5 billion of equity or equity-like instruments. This is all designed to support this very key and important objective.So let me make a couple of points. First is, and I absolutely agree, as Christian mentioned earlier, we have continued to have exceptional and excellent cash flow and we have a strong balance sheet.Secondly, we've already placed a mandatory convertible bond with a nominal value of EUR 960 million on the 6th of September. This is an addition, if you recall, in Q3, we had already pledged as part of the transaction, EUR 1.15 billion of cash to the CNMV already.So this has reduced the entirety because, of course, we're financed for the entirety of this transaction of EUR 4 billion. We've already reduced effectively that EUR 4 billion bridge facility to EUR 2 billion. And further take-outs in the debt and equity markets, of course, are expected to refinance this facility. But this facility is in place still for a maximum up to November of 2024, an additional 2 years.So I hope and I really want to clarify this and make sure that it is clear. First and foremost, our offer is fully financed and secured. And of course, any decision on the structure and the timing of any equity issuance will be made at a later point in time. And that depends on a variety of factors, including market conditions, and of course, our share price among many others.With that, I'm very happy and pleased to come to our financial performance in Q4. So as always, I'll be presenting our figures at a group level. And for the last time, I'll be talking about our reporting segment, Gas and Power.As we communicated in our CMD in May, from next fiscal year on, starting October 1, we will report in our new structure. Therefore, providing, as promised, the much more anticipated transparency on our business.So if we go to the next slide, please, let's start with an overview of the SE Group for Q4. So on an SE level, orders continued to be very strong with a growth of just over 27% year-over-year on a comparable basis, this despite a high basis of comparison.Both segments contributed to this increase. This results in a fourth quarter order intake of EUR 12.2 billion. This is the highest ever quarterly order intake we've had in our brief history. This then drives our order backlog to another record high of EUR 97.4 billion.Revenue rose just shy of 6% year-on-year on a comparable basis. So GP grew slightly by plus 2.2%, but SGRE also significantly up compared to prior year's level. And of course, it should be noted that this is also driven by the sale of the windfarm development portfolio. This contributed approximately EUR 600 million to KPIs orders, revenue, cash and profit and that was finalized in the fourth quarter.Book-to-bill, again, very strong for Siemens Energy, at 1.33. This reflects also a 1.3 book-to-bill for both Gas and Power and SGRE. So again, building on that followed foundation.Looking at adjusted EBITA, before special items, this amounted to just shy of EUR 600 million, of course, a very strong increase compared to last year, representing a 6.5% margin. GP sharply improved compared to its prior year's quarter's result and SGRE turned positive in the fourth quarter. I'll talk about GP in more detail in just a minute.At SGRE, again, the positive result of EUR 390 million was due to the result of the sale. EUR 565 million was included in profit and higher profitability -- and I think this absolutely should be underlined -- the high profitability and stability of their service business also came into play in Q4.Countering that, of course, were burdens and challenges regarding the 5x platform, costs related to supply chain disruptions and general cost inflation, as management indicated in their call last week, and that continued to weigh on their profitability so that on an underlying basis SGRE had a loss.Free cash flow amounted to almost EUR 2 billion in the fourth quarter and exceeded strong prior year's quarter level of EUR 985 million. In this case, GP had an exceptionally strong cash flow and so did SGRE, of course, again, reflective of some of the disposal proceeds. But I think it's important, GP had a very strong Q4, SGRE had a strong Q2, and this is encompassed in that very strong overall cash balance for the quarter of EUR 2 billion.Now let's look at the full fiscal year for Siemens Energy, going to the next page here. So as Christian mentioned, and actually, he said in our press call earlier, I like this. It was a bit of a perfect storm. And we did actually operate in a very challenging environment during fiscal year '22.And despite that, GP delivered a solid performance characterized by building that strong order balance and increasing its profitability year-over-year. And I think it's important, this is also on the back of the execution of our competitiveness program.However, looking at the group, overall, you have to say the performance was held back by the negative development at SGRE. But driven by GP, Siemens Energy's orders really exceeded the prior level -- high prior level by 12% on a comparable basis and rose to just over EUR 38 billion.The record order backlog of EUR 97.4 billion represents a bit more than 3 years of revenue and provides a very solid foundation to deliver on the profit improvements and what we've committed to in terms of our midterm targets and that we're striving for. And it's absolutely key that we execute with excellence. I mean this is an absolute priority for all of us for fiscal year 2023.Revenue, down slightly, 2.5% on a comparable basis, this includes Russia-related effects as growth at GP was more than offset by a decline at SGRE. Of course, looking at the book-to-bill, very strong for the group at 1.3.Siemens Energy adjusted EBITA before special items decreased slightly, as you see here, to EUR 379 million. Last year, slightly higher, just over EUR 660 million. This is due to the high loss at SGRE. Also special items amounted to negative EUR 453 million this year, largely relating to the restructuring of our business activities in Russia and restructuring and integration costs at SGRE.Free cash flow, clearly, a highlight for the full year, came in at EUR 1.5 billion, above the high prior-year level and stronger than expected. And this is driven by an exceptionally strong performance at GP top line with respect to order intake, and the free cash flow pretax of EUR 2.4 billion, which is approximately EUR 1 billion higher than in fiscal year '21.Next slide shows our net cash position, which improved to EUR 2.8 billion -- EUR 2.1 billion, excuse me. And you see here, starting with our cash and cash equivalents of EUR 6 billion going through all of the various things. This hasn't changed from a formatting perspective at all, where we then get to our EUR 2.2 billion here at net cash on the right-hand side.One thing to note, our provision for pensions and obligations did decrease from EUR 623 million to EUR 570 million and this is largely driven by higher discount rates.Now moving along, I think it's important to note that in the fourth quarter, we have further strengthened our liquidity position. And we have total available liquidity of just shy of EUR 12 billion, comprising of around EUR 6 billion of cash and cash equivalents with just shy of EUR 6 billion of undrawn credit lines.And furthermore, we had a EUR 2.9 billion remaining guaranteed bridge facility related to the cash tender offer, which has been already further reduced to just shy of EUR 2 billion in the meanwhile. So hopefully, that gives a very comprehensive overview of cash and our liquidity position.So, now going to Gas and Power, strong development across all KPIs. And again -- and it continues to be resilient to, our Gas and Power business, despite all of the headwinds, which were not immune to, including supply chain disruptions and, of course, geopolitical difficulties.But we continue to really ensure that we accompany our customers with their growing demand for our energy and our technology to facilitate the energy transmission and this is demonstrated by our strong growth in order volumes.In Q4, we booked just shy of EUR 8 billion, exceeding the very high level of prior year by almost 21% on a comparable basis. This strong growth resulted in a strong and healthy order backlog of EUR 62.5 billion, again exceeding previous quarter end record.What's also nice is this growth goes across all the businesses and in the last quarter, specifically, but also in prior quarters, there was a sharp increase at Transmission. This is including 3 large orders for grid connections for offshore wind farms in Germany and a high-voltage direct current or HVDC system for the first electricity connection between the U.K. and Germany.Also very positive, in the fourth quarter, we booked 10 gas turbines, greater than 10 megawatts. Therein, 6 large gas turbines. This means that for the first time, we have reached the #1 position globally in the power generation market for gas turbines greater than 10 megawatts with a market share of more than 37%.A real huge congratulations to the team for that success, that's quite impressive. 2 of the 6 large gas turbines were our high-efficiency HL frames. This means that in total, we booked 29 large gas turbines in fiscal year '22, resulting in a market share of 28%, which is in line of our original aspiration to have a market share of above 20%.We also booked 4 industrial gas turbines in Q4, so that we're able to secure in total 48 units in the range between 10 and 100 megawatts in the 4 quarters that make up, of course, our fiscal year '22. This means that we have a 45% market share, reflecting a very strong #1 position again in this range.Now looking at revenue. Revenue remains on a growth trajectory and grew by 2.2% comparable and 9.3% on a reported base despite the loss of revenue in Russia, which is approximately EUR 150 million and, of course, continued headwinds with respect to supply chain. However, nominal growth benefited in the fourth quarter from FX tailwinds in the magnitude of around 6.7 percentage points, mainly due to the strengthening of the U.S. dollar.Revenue growth was driven by Transmission in our Industrial Application businesses. However, from the disaggregation of the revenue table, you can see that in Q4, all businesses contributed to nominal growth based on their third-party businesses with all businesses showing percentages of increases from Generation just shy of 2%, IA at 13% and Transmission at 15%, respectively.Book-to-bill for Gas and Power, again, very strong at 1.35, and particularly strong, as I just mentioned, in our Transmission business with close to 2 as a book-to-bill. Adjusted EBITA before the special items came in quite strong at EUR 222 million, reflecting just shy of 4% margin despite, again, the challenges such as the war in Ukraine, with high double-digit, low triple-digit impact and supply chain constraints, again, about EUR 100 million headwind on profitability in the second half of fiscal year '22. And this predominantly burdened our adjusted EBITA before special items in our second half of fiscal year '22.Sanctions against Russia in Q4 impacted our profit by just shy of EUR 50 million during the quarter due to the loss of revenue and other operational effects. We did manage to mitigate a lot of these headwinds due to our rigorous project execution, a strong focus on operational excellence and the continuous delivery on our cost saving programs. Of course, that, coupled with price increases along the way. This was and is very hard work across the divisions. But again, we're really proud of the achievements that we've made.So looking at free cash flow pretax in Q4, we see the same trend as in previous quarters. Gas and Power continues to be a strong cash generator. It more than tripled compared to prior year's quarter and generated roughly EUR 1 billion of free cash flow in the fourth quarter.So quickly looking at the full year numbers at the GP segment. Again, very strong order intake at 24% on a comparable basis, rising to just shy of EUR 27 billion, all businesses, and that's really important, all businesses contributed with double-digit growth.It's also important to note that the record order backlog of EUR 62.5 billion has further improved. And what I'm really -- we're tracking very closely is that the margins in the backlog are in line with our midterm targets. We'll come back to this in a minute.Revenue increased as well. And when you look at the quarterly development, you see that comparable revenue decline of 6% in Q1 was followed by steadily improving quarter-by-quarter revenue dynamics to the growth momentum that we expect to continue into fiscal year '23.Service revenue came in at 6% above prior year and new unit revenue 4% above prior year. So we had a positive mix in fiscal year '22. Again, book-to-bill ratio over 1, 1.4, and that means it's been running above 1 for the fourth year running. EBITA before special items came in at strong at EUR 943 million, this reflecting a margin of just shy of 5%. This implies an improvement of 40 bps versus last year despite all the challenges that we've mentioned before.Again, one highlight is definitely the free cash flow pretax. GP generated EUR 2.4 billion of free cash flow pretax. This represents a cash conversion rate of 3.7%. As a reminder, the overarching target for free cash flow in the midterm is and remains the cash conversion rate of 1 minus revenue growth over multiple years.So let me be clear. The exceptional cash flow in fiscal year '22 benefited from project-related cash inflows, mainly driven by contract assets and liabilities, again, of course, on the back of the very strong order momentum.As you also noted in previous quarters, we talked about our higher balances of inventory. So this has more than offset cash outflows for inventory, again, related to the buildup of safety stock. And we said that earlier, we would do what is necessary to ensure that we're meeting our commitments and minimizing disruption in our production processes as much as possible in light of the global supply chain constraints.Nevertheless, contract liabilities are still lower than the sum of contract assets and inventories put together, that's why we believe we're well covered for the risk of an eventual normalization of order levels with associated cash outflows.On the next slide, let's look at our order backlog. So the backlog is really important to us because, of course, it provides strong visibility on revenue well beyond a 12-month time frame and reinforces our business foundation. Over 20% of our order backlog converts into revenue within 1 year. That means approximately we have about 3/4 of our revenue already in-house.Our order backlog in Gas and Power segment is large. It's almost EUR 63 billion, as I just noted. And has a solid growth trajectory over the next 2 years -- over the last 2 years; excuse me, rising 30% from the end of fiscal year '20 to the end of fiscal year '22.So as mentioned, it's a rule of thumb about 3x annual revenue for Gas and Power. And also important is that the backlog grew across all dimensions, across the businesses and also geographically.It grew almost 40% in new units and just shy of 15% in service. The stronger growth in new units is due to the stronger market demand and a catch-up effect as we, as I just mentioned, have been regaining market share over the last 2 years. This means that we're building on the foundation for our rejuvenation of our service fleet over the coming years.But also, I think it's notable to indicate that I just mentioned transmission. So that is also counting as new units and those transmission orders are coming into our backlog, again, for execution in future years. However, for fiscal year '23, stronger revenue growth in new units compared to service, this means that we'll have a bit of a negative mix impact.Today, just shy of EUR 40 billion of the order backlog is service, which we know is high margin and resilient and around 60% is comprised of service in our total order backlog. This means that service is and will remain a resilient, large and profitable part of our business.So with that, I continue to confirm that the margins in our backlog are in line with our midterm targets. So we can clearly say our business foundation has further strengthened and improved.So, looking now to the next slide, please. In terms of our achievements. In Gas and Power, in fiscal year '22, we're progressing in line. We have the strong order momentum as mentioned, and we're on track to reach our fiscal year '23 targets.So let's recap fiscal year '22 guidance and compare this with what we have achieved. As a reminder, when it comes to revenue guidance, we excluded effects from lost revenue in Russia. This was around EUR 370 million. We did not exclude the negative impact related to lost business in Russia in our adjusted EBITA margin before special items guidance.However, to transparently reflect operational performance in fiscal year '22, we show all numbers adjusted for Russia on the right-hand side. So what you see here is that the SE level we guided for the low end of the minus 2% to 3% comparable revenue growth range, excluding Russia, and we have achieved negative 1.2%.For adjusted EBITA margin before special items, we guided towards the low end of the 2% to 4% range. Given SGRE's performance, we came in slightly below at 1.3%. But again, this is broadly in line with Capital Markets expectations and consensus for Q4.At GP, comparable revenue growth, excluding Russia, came in within the guidance range of 1% to 5%, at 2.2%. The adjusted EBITA margin before special items came in at 4.9%, and adjusted for Russia at 5.5% is right at the midpoint of our guidance range, of course, said in November last year.With that, yes, it's the end of an era. As I said earlier today, it's the last chapter in the history of Siemens Energy, where we no longer will look at the Gas and Power segment, because this segment will no longer exist coming next fiscal year, neither in our reporting nor in our management structures.Just want to remind everybody, this is a slide that we showed at the Capital Market Day with our new transparency going forward. Here, you see that the KPIs for each of our business areas, so of course, for Siemens Energy overall, but all of our business areas will have full transparency on the KPIs listed here.With respect to the independently managed businesses, we will have volume plus profit, and of course, SGRE continues as is. In the appendix, you can already see the comparable key figures for the new organizational setup and you can find the breakdown for orders, revenue and profitability.Talking about profitability, just for -- yes, to be absolutely transparent, we will slightly change our profit definition as of fiscal year '23. We are removing the metric financial income from operations from our profit definition. It did not have a material impact in any case. Hence, and this is why our new profit definition reflects a very proper operational perspective on our business performance.So talking about '23, we have headwinds. We continue to have significant headwinds in our business activities. I wanted to just refresh this. Of course, we are expecting higher labor costs. In the first half of the year, we continue and will have continuing geopolitical tensions. Of course, we also have energy costs, and this, we expect a rise of roughly 20% in '23.This said, and as you've seen from our results for this year, we have been able to counter the headwinds so far and we will continue to endeavor to do so in the future. In this context, I want to mention again or I'd like to mention the business mix.We've already made this point in our CMD that the high share of service revenue and our high service backlog gives us business resilience and this absolutely holds true. Our supply chain management team continues to do an excellent job, making sure that we don't have critical shortages and we risk mitigate with any disruptions wherever possible.And as you also know, we have a base productivity program in place, which, in normal times, covers cost increases, as well as our ongoing cost savings program. The delivery of our structural cost, our accelerated impact program is on track.Of course, if you recall, we have the EUR 800 million target, at the end of fiscal year '23. We've delivered more than EUR 300 million in '22, and we'll deliver another EUR 250 million rather in fiscal year '23.So with that, I think now to the outlook, please, on the next page. Let's go through our financial outlook for fiscal year '23. For Siemens Energy, we expect a comparable revenue growth, which excludes currency translation and portfolio effects in fiscal year '23 in the range of 3% to 7% and a profit margin before special items of 2% to 4%.We also expect a sharp reduction of net loss compared to fiscal year '22. And we expect free cash flow pretax to be in a negative range of low to mid-triple-digit million. You also see here our overall assumptions per business area. This is also what our assumptions comprised. And the assumptions for Gas Services, Grid Technologies and TI -- this is something I really want to underline -- they reconfirmed the targets of the former GP segment.If you recall, we have an adjusted EBITA margin before special items target within a range of 6% to 8%. And what you see here, the assumptions per business area, underpins that in our ability to reconfirm that target guidance.With respect to SGRE, we assume that SGRE's revenue and profitability will be in line with its business plan. After a very thorough review here, I now hand back to Christian to explain our key priorities in the next fiscal year and some final remarks. Thank you for your patience.
Yes. Thanks, Maria. Let me conclude with our key priorities for fiscal year 2023. First, we are fully aware that we, let's say, need to deliver on our fiscal year 2023 targets. This will be the key focus in the stormy environment, which will still be there in 2023. Second, leveraging our new operating model, we kicked it off, that's great. But, obviously, we now really have to bring it to fruition and really make sure that we pull the key levers to develop the different businesses, what we have. Third, the turnaround of SGRE is very clearly ours, in particular mine key focus area going forward.And fourth, I just want to underline that there is a massive amount of opportunities in the market. We have seen a good '22. And we continue to see a lot of programs the Inflation Reduction Act or the RePowerEU, which really foster the investment into energy infrastructure. And of this, we obviously want to benefit.And with this, over to Michael for the question and answer.
Yes. Thank you, Christian and Maria. As you have realized, it took a little bit longer than we anticipated. So we said we will extend the call a couple of minutes if there are more questions. At the moment, we have 5 questions on the line. [Operator Instructions] I'll readout the first 3 people that are in the queue, so it's Gael de-Bray, Jingyi Zheng and Sean McLoughlin and we'll start with Gael.
Can I start with the margin target for 2023. If my math is correct, the weighted average of the targeted margin ranges for the 3 divisions suggest that Gas and Power will move towards the upper end of the former margin range of between 6% and 8% in 2023. So is this a correct statement? Or is there something I'm missing here, like, for example, maybe a change in the reconciliation profit line compared to prior years? So that's question number one. Question number two is on the free cash flow dynamic. Obviously, you enjoyed a very strong and positive swing in terms of working capital in Q4. But it appears to be all just about customer prepayments or about extending payment terms with your suppliers, so all of these will likely reverse out in 2023.So I guess my question is, can you help me understand the magnitude of the working capital or contract liabilities normalization, which might happen this year and, well, basically over the next couple of years?And the final one, still in relation with the cash flow performance. You're guiding for EUR 450 million of extraordinary cash out for the non-carve-out countries. Is this taken into account into the free cash flow guidance? Or will it be booked below the line?
Thank you, Gael, for your questions. And hopefully, I've marked them down correctly and able to answer them to your satisfaction. So with respect to the margin target, I think there is a reconciliation impact, low triple-digit impact on reconciliation. But in terms of your math, think of it essentially in the middle part of the range. It's maybe slightly higher, just based mathematically, but in the mid part of the range would be where you should land, yes. So I think that that's important to understand.But again, Gael, and I really do want to underpin this. This absolutely supports and confirms and allows us to reconfirm our GP guidance of 6% to 8% for next year. So that's how you should see it. What's also important, if you see, based on the comparable data; all business areas are showing really strong improvements next year to get into those ranges. I think that underpins the businesses adherence and diligence to the operational excellence therein and of course, our cost-out programs.With respect to your second question on the free cash flow dynamic and the normalization. So we still expect to be at a very strong order level next year. So you're right that some of that cash dynamic was based on prepayments and so on that we get from our orders based on our very strong top line. But this is something that we do expect to continue into next year and to stay at that high level, if you wish.Is there going to be a normalization? Yes. And we've indicated that, of course, as we start to execute on that backlog, we'll have some of the balance sheet shift, if you like. I mean to keep it into perspective though, because I don't want there to be thinking that it's going to be extremely large. It's about a mid-triple-digit value that we anticipate at this point in time in terms of the normalization for next year.Now the last question was in terms of where it would be below the line? Just to confirm that that's where that would be recognized. Thank you, Gael.
And Gael was lucky because he posted 3 questions. If we could please take one, maybe 2 here for the time being so that we don't extend too much. So the next question is from Jingyi Zheng at Credit Suisse.
This is Jingyi from Credit Suisse. I just have one on the demand environment. I understand you talked about strong order growth in Transmission, large orders there and all business segments contributed to double-digit growth, as you mentioned. So I'm wondering if you could please give some more color on the demand picture for the other 2 divisions in the quarter and your expectation into fiscal '23, if possible by geography please.
Yes, thank you very much for the question, and let me do it a little bit generically. But I mean, the thing what really pleases me is that really every business posted book-to-bill above 1, as Maria indicated. And this shows really it was consistent across the businesses that there's a very strong request in the market. What was overproportionate in 2022 was really the ask for the high-voltage DC connectors, which is the converter stations which connected, for example, the offshore wind parks to the electrical grid. And we see really a strategic move into these types of investments, which we expect to continue also going forward.That is one part of the Transmission business and this is why we highlighted it so deliberately. But I think all in all, it was really across the board, including also efficiency improvements. And this is also coming sometimes with technology like heat pumps, like digital, like EAD. So all these sectors also enjoyed a very strong order book, which allows us to work from a strong backlog, really with, let's say, good visibility on the revenue.Going forward, I would expect, in general, on the order side in '23 to be -- if I take the wind out for a second. I would expect the businesses to be lower than '22 still in a good range in terms of book-to-bill, 1 or above. But keep in mind; this is not always just in terms of the demand. It has also something to do with selectivity on orders. And this is where we, let's say, phase ourselves in very carefully.But the underlying market itself in terms of investing into energy infrastructure looks good. So it looks really good and despite all constraints in the different countries. And obviously, what we see at the moment and this is why I also highlighted this particular, which is a strong movement, is the Inflation Reduction Act. It will trigger particular wind, grids and hydrogen, potentially, is what we are seeing now.We also are curious to see what's happening in Europe. We see a deliberate exercise to invest into the transmission grids, depending by the different grid operators. We are curious to see what happens on the acceleration of the wind investments, right, in terms of particular Europe, are they able really to speed up the processes.For SGRE, I mean, I expect with all the offshore, which is currently under awards, a strong '23, depending on single big orders, what we have to see. All in all, I think we expect a very intact energy market, let me put it this way. But we will also carefully see on how we balance this out.
Thank you. Christian, next question goes to Sean McLaughlin. And after that, it will be Phil, Ajay and Will. Sean, over to you.
Just on Slide 30, it's really fascinating to have this breakdown by the new division structure. On grids, I'm curious that it was down year-on-year. What drove this? And what is behind the bounce back so strongly and for the '23 guidance? Is it pricing, were there one-offs? Any color around that interesting. And also the sustainable energy systems, I mean, what is your time line for profitability there?
Yes. Let me raise it, and Maria, please add if I miss out certain things. There's, a couple of elements in transmission, what you see. First, we flagged it up throughout the year this business has been impacted by the lockdown in China. There were certain feeder factories, which then led to the situation that other factories were not fully loaded, even so the projects were there. That is something obviously which impacted us quite substantially.Second, keep in mind, there was also a profit contribution from the Russian business, which was going out. And third, also in terms of your question to recovery, yes, there is also a price increasing element in this business, which we also indicated. And we also expect that the supply chain element, which we were struggling in '22 with in certain areas, also because there is a high dependency on certain suppliers is better now under control with all the activities, which we have launched in '22 for '23.So this contributes to this bounce back mechanisms. And in this regard, obviously, even so you see a big jump. You have to see it with the different factors.Sorry, yes, yes, profitability. Sorry, Sean. Yes, it will depend, obviously, now on the -- how it raises in terms of the orders, right? And I always said I expected in terms of a profitable really business after the -- let's say, in the second half of the decade, I always said.I do believe the Inflation Reduction Act accelerates now certain activities. I would not yet pull my expectation forward, because my target is that we really have a scalable technology in the market where you really have profit pools and until then really carefully develop it.To see it from the numbers, this is a mid-double-digit, let's say, number in terms of more or less net investments, what we're doing in this area. We will continue to look on it. We've seen all the first bigger projects coming. It could be in '25. But we will not -- we will only, let's say, do it if we're really confident that we have commercial products and this is really to be seen how the next steps are.Don't forget, hydrogen will only fly also if you solve the recycling matter on the materials. And this is something which the industry still has some work to do, I believe.
And next question goes to Phil Buller at Berenberg.
Can you hear me now?
Slightly better, but if you speak a little bit louder, that would be helpful.
I'll speak as loud as I can. I'll speak as loud as I can. And if you can't hear me, feel free to move on. The question is around the Gamesa assumptions in the guide for 2023. I guess I'm curious how much visibility for what the confidence levels, specifically around the cash burn in Gamesa in 2023 that's embedded in your guide?
Maria, passes the question, nicely to me. I mean, Gamesa is in very detail out in the market. And obviously, you have to -- I'm 100% sure you looked very detailly on the business plan. And I think in the trajectory also to the midterm, I think that is a very sound assumption. However, I also would say 2023 will be the transition year. It will be also not, let's say, without stretches and really hard work, what Jochen is doing. And it will obviously depend in terms of making sure that quality cost get under control. And that is something where I would declare victory only if I see it over a couple of quarters, as I always said.And in this regard, we really now have to see over the next couple of months, how are the actions which Jochen has introduced in terms of getting factories under control, getting quality cost under control really now, working before we clearly say this is how we look on it.It's something where there is, I think, puts and takes. But it's also where I would say it's not without risk. We still, in the perspective of the overall company, obviously, looked at these and then put out our guidance. So I think we took a diligent look on it. However, I think we'll have to see how the next quarters now work out with SGRE. It will be a lot of diligent work from Jochen and myself.
And if I can just follow up on the up to EUR 2.5 billion of equity and equity-like instruments. I know you've done about EUR 1 billion. What's your thinking about the other 1.5 billion at this point? I hear your comments, Maria, around the need for a solid investment grade and the timing will depend on various factors. But do you fully intend or should I say, do you actually need to go to EUR 1.5 billion in equity? Or could you stomach that without needing to dilute shareholders?
Yes. No. Thanks, Phil. I'm absolutely happy to maybe further expand on that. I think the transaction as such and the financing structure as such was devised specifically with maintaining a strong balance sheet. So hence, the equity and equity-like portion, and I think, and we will stick to that because, of course, that underpins our ability to remain and to have our investment-grade rating. And this is something, again, that we formulated well in advance. What I do want to stress over and over is that we have time. And I think this is something that I hoped would come across today is we certainly have time. We will continue to work -- look at market conditions and determine when the right time is to raise that further equity.But you're right, we've already raised just shy of EUR 1 billion with the mandatory convertible bond that we successfully placed in September. And now going forward, let's look at what the acceptance period and what the acceptance rate is and now going forward into the next year, we'll see when the market conditions are right for further equity transactions.
Next question goes to Ajay Patel at Goldman.
So 2 questions. The first one was what are -- are there any other alternatives to equity or equity-like instruments for the financing of Siemens Gamesa? I'm just thinking in terms of the dilution that we can see at current prices. Is this the right route? And how have you thought about that in your conclusions?And then the second question is more on cash flow, free cash flow and the negativity. So in Siemens Gamesa, clearly, by the guidance, it's implied that 2023 should be negative free cash flow. Would you expect that still to be a draw, on the business going into '24 as well, i.e., when do you see Siemens Gamesa sort of covering itself from a cash flow basis in its own right?
Okay. So thank you, Ajay, hello. And maybe to your first point, I think in terms of other alternatives, it goes back to what I just mentioned in terms of the structure of the financing. And the fact that -- I mean, this was done with quite some detail also to ensure that, again, our balance sheet remains in a position to be commensurate with an investment-grade rating. So that equity and equity-like portion of the financing needs to remain. Again, what we have is the flexibility in terms of timing. And we also have, in terms of whether we do with rights or without prescription rights, of course, the 10% without, of course, we've already exhausted. So we need to get to the AGM and replenish that capital authorization, but those are the options that remain to us. And again, we remain flexible on timing.With respect to the free cash flow for Siemens Gamesa Renewable Energy, look, we and as Christian mentioned, the anticipation is next year is that transformational year. It's also a year in which heavy execution of their record order backlog takes place.So hence, uses of cash in that regard. So clearly, this is, again, that transitional year. But we fully expect for that to turn around come '24 onward.
For the time being, there's one last question coming from Will Mackie. As I said, that there's some follow-up question then coming from Phil Buller. But first, Will Mackie at Kepler Cheuvreux.
My first question would be to ask about China and particularly how you see the balance between the opportunities to leverage your technology expertise across gas turbines or transmission in the midterm and progress with any discussions there? And also perhaps the risk with regard to it being a supply base, as you've mentioned earlier in some of the supply chains for transmission.And the second would be relating to the pricing inflation balance. You've highlighted a lot of the risks around the inflation. But perhaps to talk through the ability to achieve price increases across each of the business segments. I'm thinking specifically transmission, which you've already alluded to, but also perhaps within turbines and other business segments.And the last is a follow-up. I don't know why we're dancing around the issue. But with regard to SGRE, you know or at least my understanding is that they've provided a lot of information about the midterm prospect, but no specific guidance on the next fiscal year. It may be a regulatory issue that's holding you back. But there are implied numbers by working backwards from your data.But maybe you could share, as it's been asked a couple of times, your thoughts on the particular profit outlook that we should start to build into our assumptions and the impact on the cash flow?
Yes. Thank you very much. I mean in terms of China, first of all, I have to underline that '22 was excellent year for China in terms of really order book, but also profitability. So despite corona, I have to say China for us as the market worked out good. You know that in terms of gas turbine, we have, I would say, some alliances there with Chinese companies. And our target is really how can we make sure that from a bottom line perspective, we exploit the market as good as possible?But I will be also very careful in terms of what we take on or what we not take on. But there is, obviously some opportunities you know in terms of the 30-60 plan. There is also a decent investment still supposed to come on the gas turbine side. And together with partners, we're trying to get our fair share, but focus really on the bottom line contribution.On the Transmission side, that is normally a very interesting business. However, not for the whole market, some market is not accessible really to us and I think will also continue to be restricted. And this is how I look on it. Also, we have a good base. But that is something where I would be -- where not the major growth would come from for the company, let me put it this way.But let's say, we are very, let's say, put this way, happy with the suppliers we have in China. I have to say within the pandemic, they did an outstanding job. They have been actually relatively reliable. Our own factory was locked down. That was a key problem. But our supply base in China worked out actually pretty robust and very good. So if you talk about the risk as a supply base, it's more about the diversification.It's not a problem to have China as a supply base. It's a problem if you only have China as a supply base. And this is where we definitely will need to drive more diversification and this is what we are doing at the moment. This is the longer-term exercise, where I'm a little bit concerned is more on the material side, on the mineral side, because that is something which takes a long time. It's not always us. It's more a strategic setup. But we'll have to be aware that a lot of the materials and minerals we are dependent as the Western World on China and will continue to be so and it will take a couple of years to at least diversify this slightly.Pricing inflation, also on the other technologies, on the other areas like also the gas turbines, I see good pricing trends and a lot of work. I believe there's potential in the current market. It also needs to be because we see inflationary elements and we see also inflationary elements still in '23 and we'll continue to work on this.So far, at least, I see with all the customers also willingness to discuss it. And it's not just on the pricing itself. It's also about the commercial conditions on how you index and how do you capture volatility. So I think the environment is good for that in terms of, let's say, as a percentage definitely also wind has been a good contributor in terms of price increases.SGRE in terms of expectations, maybe I'll put it generic. I mean, we put out the plan. No, we did not provide the dedicated guidance. And also we'll continue to say so that we expect SGRE to deliver on the plan they just put out, right? I mean that is my expectation on how I look on their numbers. And this is how we would look on the overall performance, of course, also in the company. Anything to add?
No, absolutely. But you're right. I mean there's also a regulatory element to that. So you're fully right. But the entirety of the business plan is included in the valuation report. And so therefore, that's our expectation, as Christian mentioned.
And the last question comes from Phil Buller. Phil, over to you.
So I just wanted to follow up on Gael's earlier question with regard to free cash flow and the guidance for this year. I think you mentioned there was, some below the line items on free cash flow. Maybe I heard that wrong, but I was hoping you could clarify what that was, and what the moving parts were, please?
Yes, we just clarified that. Yes, you're absolutely right. It's what's, the central items or reconciliation and we said that's a low triple-digit amount. Okay. And that -- by the way, it's nothing that's not included in our guidance. Just want to make sure that everything is embedded in the guidance that we've put out for fiscal year '23, including the reconciliation of central items. Okay.
Right. That brings us to the end of the Q&A. Over to Christian for some closing remarks.
Yes. Closing remarks, first of all, many thanks for your patience for a long call this time. But I think it also has been a long and half year. So thanks for being with us throughout the whole year. I mean, already, unfortunately, it's already time to say, I wish you a good Christmas going forward, and all the best for the New Year, it goes faster than always. And looking forward to see you really next year in the next year's calls. And stay healthy and all the best for you and your families.
Thanks, everyone, also from my side. And I'm not going to say Merry Christmas, because I hope to hear from some of you at least even after we've pretty sure did all the questions. So bye, everyone. Thank you.
Thank you, everyone. Take care. Bye-bye.
That will conclude today's conference call. Thank you for participation, ladies and gentlemen.The recording of this conference call will be available on the Investor Relations section of the Siemens Energy website. The website address is siemens-energy.com/investor-relations.