Siemens Energy AG

XETRA:ENR

Ladies and gentlemen, thank you for standing by. Good morning, ladies and gentlemen, and welcome to the Siemens Energy's Q1 Fiscal Year 2025 Analyst Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens Energy presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. [Operator Instructions]

At this time, I would like to turn the call over to your host today, Mr. Michael Hagmann, Head of Investor Relations. Please go ahead, sir.

Thank you, Moritz. Good morning and a warm welcome to the Siemens Energy Q1 Analyst Call. As always, all documents were released at 7:00 a.m. on our website. And as a reminder, on January 27, we pre-released our Q1 fiscal year 2025 figures due to the better-than-expected cash flow performance.

Our President and CEO, Christian Bruch; and our CFO, Maria Ferraro, are here with me. Christian and Maria will take you through the major developments during the first quarter of fiscal year 2025. This will take approximately 30 minutes, and thereafter, Christian and Maria are available to answer your questions. For the entire conference call, we have allowed an hour. Christian, with that, over to you.

Yes. Good morning, everybody, also from my side. Thank you very much for joining us today. We had a strong operational performance during the first 3 months of fiscal year 2025, and this provides us a very good jump off base to achieve our full year targets. We booked orders of EUR 13.7 billion. This is down on last year's because Grid Technologies booked some very large orders in the prior year quarter.

However, the absolute level was above my original expectations. It's 1.53, the book-to-bill ratio was strong. And I'm pleased to say that the order backlog grew to EUR 131 billion. And this represents yet another record level for us. Our backlog margins improved again, further underpinning our fiscal year 2028 margin targets.

Maria will take you through our financial performance in more detail. But let me say that I'm very satisfied, not only with our order intake, but also with revenue growth of more than 18% and the margin improvement of 270 basis points and the excellent cash conversion, cash flow of EUR 1.5 billion clearly exceeded my expectations.

Our market continued to develop really nicely. The underlying trends remain strong, and we see our customers are looking to secure as much capacity as possible, given strong growth in electricity consumption and the build-out of data center capacity. At this point, we already have secured a project volume of around 20 gigawatts in gas, which we expect to convert into orders in fiscal year 2025 and fiscal year 2026.

Let me also highlight that in wind, offshore is coming back. The successful auctions in South Korea and Japan indicate that offshore wind is regaining momentum. In 2025 alone, we expect auctions concerning capacities of more than 20 gigawatts globally.

Our guidance for fiscal year 2025 and our targets for fiscal year 2028 reflect that we are on growth and margin expansion mode. We are clearly on track to reach our fiscal year 2025 guidance and we are taking the necessary steps to deliver on our fiscal year 2028 targets and beyond.

To support such a strong growth, we need a strong balance sheet, and I'm pleased that we were able to strengthen our balance sheet further. This is reflected in our bond yield spreads, which have come back down to 2022 levels and the S&P upgrade from BBB- with a negative outlook to BBB- with a stable outlook. To deliver on our growth, we are investing in our capacities. However, we take a measured approach and expand our capacities in a responsible way, neither losing sight of cost nor the risk of adding too much capacity.

As I just mentioned, the underlying market remains very attractive across the different regions of the world. This quarter, our orders in the U.S. were particularly strong. There, we are seeing broad-based investment in generation as well as rising investment in grid infrastructure. This is driven by strong demand for electricity and the need to replace aging infrastructure. The expansion of data center capacity continues to progress, and some of the hyperscale projects are now materializing. Grid Technologies has long been a trusted partner in the data center build-out. And with the fast-growing electricity demand, we are successful to push for successes also at gas service.

In the U.S., we also experienced an acceleration of the nuclear renaissance, which has started with service and lifetime extensions. We had a big lifetime extension project in the U.S. at the start of last year, leading to strong growth in order intake in fiscal year 2024. And we are experiencing excellent start in quarter 1, thus also expect this year to be strong.

Given our know-how and our large fleet of nuclear steam turbines, we see more good opportunities over the coming years. As you know, there are new nuclear projects for large nuclear power plants. And over the coming years, small nuclear reactors will most likely become a reality. At Siemens Energy, we are well positioned with our instrumentation and control systems as well as our steam turbine offering.

When we look at opportunities for offshore, I want to point out the U.K. and Asia. And in the U.K., we were able to book the East Anglia 2 project in the quarter. In Asia, 4 contracts were awarded in the South Korean auction and 2 projects in Japan's auction round 3. So we clearly see that offshore is returning to growth, providing great opportunities for Siemens Gamesa, given our competitive offering and our track record. This will drive revenue and profits in the outer years of the decade. In this quarter, our order intake was particularly strong in the Americas, where orders rose by 60% to just over EUR 5 billion as we were able to book 2 F frames and 10 SGT-800 as well as Grid Technologies where we booked a large order for synchronized condensers. We also had a good order level in EMEA, where we booked the East Anglia 2 project, I already mentioned. And this project is for 64 15-megawatt offshore wind turbines with the total power output of 960 megawatts.

Generally, we experienced high demand for all our businesses in Europe in comparison with the prior year quarter. Our orders, however, were lower. This is, as I said before, because of a tough comparison of the very large Grid Technologies orders we booked last year in Germany.

Across all businesses, I'm very pleased with the order intake in the first quarter and that we are successful to balance the orders across the different regions. Looking back to the last 2 years, our orders exceeded EUR 50 billion each year, while at the same time, the order intake quality improved in terms of margin quality as well as terms and conditions.

Hence, we see our order backlog rise in volume, improving margin quality and become more resilient. This quarter, our order intake was yet again strong with EUR 13.7 billion, and our book-to-bill ratio was above 1.5. This strong quarter and the strong order intake not only reflects a high market demand but also our leading portfolio, our global presence and our customer proximity.

As a result, we have yet again now another record order backlog of EUR 131 billion at the end of quarter 1. 93% of this year's revenue is covered by our backlog. This gives us great confidence that we will deliver on our fiscal year 2025 guidance. Equally, the reach of our backlog gives us great confidence that we will be able to deliver on our fiscal year 2028 targets.

On this slide, you can see that even looking into fiscal year 2026, roughly 2/3 of our revenue is covered by just the current backlog. Let me also remind you that 48% of our backlog pertains to long-term service agreements. This means, as of today, we know that we will generate more than EUR 60 billion of resilient, highly predictable and profitable revenue well into the next decade.

Given that we will continue to leverage our strong competitive situation in nicely growing markets, we will continue to grow our backlog and continue to improve the backlog quality. This is a strong base to deliver on our fiscal year 2028 targets and to generate value for our shareholders.

Let me now highlight some of the investments we have done to deliver the growth and the key measures we have taken to stay on the right cost curve to deliver on profitability. Given the importance of technological leadership, let me also give you a few examples of portfolio developments relating to the last quarter.

In order to deliver on our backlog and in light of the strong market growth, we are investing in our capacities. We are investing in a responsible way, leveraging our global footprint and our global supply chain and avoiding the risk of potential overcapacities. Last year, Siemens Energy as a whole grew by 13% on a comparable basis, and we are targeting roughly 10% annual growth until fiscal year 2028. This means securing higher factory output and capacity extensions are absolutely critical.

Last year, Grid Technologies grew by more than 30% on a comparable basis. And this year, Grid Technologies will grow by more than 20%. This is a testament to the fact that we can manage strong growth. We will invest roughly EUR 2 billion in fiscal year 2025 so that we will be able to deliver across all of our growing businesses.

Let me share three examples out of several expansion projects. In order to support our large gas turbine capacity extension in Berlin, Germany, we are extending our in-house blade and vane manufacturing capacity in Tampa, Florida, and our combustion system manufacturing capacity in Budapest.

Equally important it is to build technical expertise and manufacturing competence in regions of strong demand, such as the Middle East. In Saudi Arabia, we have extended the footprint of our factory in Dammam by more than 1/3 and added the necessary capabilities to build gas-insulated switchgear and to assemble HL-class turbines which will be used in the Taiba 2 and Qassim 2 combined cycle projects.

At Siemens Gamesa, we continue to be affected by the follow-on effects of the temporary interruption of the sales activities of the 4.X and the continuation of the temporary interruption of the sales activities of the 5.X and onshore, but we see a better picture in offshore. I already mentioned that the offshore wind market is turning. Given our track record and with the 15-megawatt platform, a very competitive offering, we are well placed to capitalize on this upturn. This, we can see in a much improved offshore order pipeline at Siemens Gamesa. Our investments in Aalborg and Le Havre will further increase our execution capabilities.

I already mentioned that our backlog quality continued to improve in the quarter. This means that the orders we took in the quarter had better margins and better terms and conditions than those we executed. In order to keep this trajectory, we will continue to be very disciplined on project selectivity. And let me pick gas services as an example. Gas Services booked EUR 5 billion of orders in the quarter, and the margin quality improved further as prices continue to increase.

It is important to bid on the right projects, where our products and solutions provide good benefits to our customers. This is especially true for modifications and upgrades in the service business as well as our large and medium-sized gas turbines.

We also continuously work on our cost position, and I would like to highlight 2 drivers here. The first driver are the cost savings related to the integration of Siemens Gamesa, where we are on track to deliver 50% of our overall target of EUR 300 million of annual cost savings by the end of this fiscal year. The second driver is the reduction of structural costs to reduce the cost base in our onshore business as we reduce the business volume and focus on target markets. Here, we are also making progress, and I'm pleased to say that we came to an agreement with the unions in Germany and in Spain.

In addition, we obviously continue the integration with Siemens Gamesa to generate cost savings also from the central functions and the legal structures. We will only be able to deliver shareholder value on a sustainable basis if we continue to innovate and enhance our portfolio.

Let me, therefore, highlight 3 examples out of the quarter. Together with our customer and partner, SSE, we have launched Mission H2 Power. The aim is to develop a combustion system for the large HL gas turbine at Keadby so that it will be capable of operating on 100% hydrogen while maintaining the flexibility to operate with natural gas and any blend of the two. Our colleagues at Grid Technologies have installed the first robot that will autonomously inspect and perform troubleshooting at a substation. This is a technology which we will also use to inspect offshore platforms.

In the quarter, we have tested and shipped the compression trains to the Woodfiber LNG side in British Columbia, using 100% green electricity. This project will be one of the world's first net zero LNG export facilities.

On December 12, we published our sustainability report 2024. And obviously, as Chief Sustainability Officer of this company, I can only recommend that you go through the report, not only to see which targets we have set but also how we are progressing on our path towards becoming a more sustainable company. We continue to advance our ESG plan, and this is reflected in our ratings. However, we also suffered setbacks in other areas. And this is partly a reflection of the strong growth in our conventional business, where we will, therefore, have to increase our efforts.

Let's look on some of the highlights. For the second year in a row, 100% of the electricity we use in our own operations came from renewables. SF6 continues to be a focus area. There, we are tracking well ahead of our target to reduce consumption by 60% because of the success of our completely SF6-free Blue portfolio of gas-insulated switchgear.

Compared to the base year 2019, we have reduced emissions in our own operations already by 55%. And this means we are well on track to reach our target. Our very strong growth trajectory, however, provides us with challenges when it comes to Scope 3 downstream emissions, which arise from the use of our products. Here, we suffered a setback compared to last year, but we are still down 11% compared to 2019. Going forward, we will continue to focus on growth as well as emissions and will, therefore, need to increase our efforts in order to reduce our CO2 intensity.

We have, over the last years, made good progress to build a more diverse leadership team at Siemens Energy, that is something I'm very proud about. As part of this, we aim to reach a share of 25 women in top leadership positions by September 30, 2025, and the share of 30% women in top leadership positions by end of fiscal year 2030. In fiscal year '24, the share of women in top leadership positions was 24%.

We also refer our sustainability report to our safety performance in the company. Safety is our top priority. And we are making progress, but also are not there where we need to be and where I want to be with the organization. Managing safety always is a precondition to manage successfully also your business. And all our employees, our business partners, such as contractors, suppliers and customers can count on my personal commitment and on the commitment of the organization to a safe and healthy working environment. We continue to drive our zero-harm culture where everyone is committed to care, respect and accountability.

Our total recordable injury rates declined by 12% last fiscal year and 9% during the first quarter of this fiscal year. However, 2.35 recordable injuries per 1 million of hours worked is not satisfactory, and we stay focused to improve this value. We further strengthened our global review process of lessons learned for all recordable incidents and high potential near misses. We had more than 25,000 engagements such as safety moments, EHS walks, talk events, field workshops and so forth last year throughout the organization. By raising awareness, we take the first step to prevent future incidents.

And with this, let me hand over to Maria for the financial numbers.

Thank you, Christian. Good morning, everyone. Very happy to be here with all of you to present our Q1 fiscal year '25 results.

Let me launch right into that. Looking here, we see the group results overall. I think with respect to orders, we've discussed that quite a bit, maybe of interest is the share of service business in the order intake increased sharply compared to prior year at just shy of 40%. Book-to-bill ratio, very strong, 1.53. We know this has led to a new high in our order book of EUR 131 billion. The margin quality in the backlog continues to improve. I'll go into that further in just a moment. Revenue, EUR 8.9 billion, up by 18.4% comparable with all businesses contributing to this growth. All businesses contributed except led here by Grid Technologies at 24%; Siemens Gamesa and Transformation of Industry, both with approximately 18% growth; and Gas Services with 6% growth.

Revenue also grew significantly in both new units and service, which really shows a broad-based a growth for us. Regarding service, we have had and continue to have a strong outage season as in quarter 1 of last year. And again, and this is reflected by the service share as a percentage of the revenue at 37%.

Profit before special items more than doubled year-over-year with all businesses showing profit improvement. Profit came in at EUR 481 million or 5.4% margin. This is in line with our normal seasonality. Of course, always remember, we have higher profitability in our first half than in the second half, again, driven by the mix of new unit versus service. Siemens Gamesa losses were below prior year, in line with our full year planning.

Net income came in positive at EUR 252 million. Just a reminder that for the full year, we expect our net income to be around the breakeven mark. This is excluding assumed positive special items subsequent to the demerger of the Energy business from Siemens Limited in India. Just a status update, the demerger is expected in March 2025. And then, of course, Siemens Energy will then own 6% in Siemens India Limited and 6% in the newly created Siemens Energy India Ltd.

Also a reminder in terms of treatment, due to the loss of significant influence in Siemens India Limited at that point or the point of demerger, the accounting for the 6% SIL share will change from at equity to at cost. Therefore, we expect that this will trigger a book gain of slightly below EUR 1 billion. This is based on the share price of Siemens India Limited as of December 30.

Free cash flow pretax. This, as mentioned already, was materially stronger than expected at positive EUR 1.5 billion. This is, of course, driven by our project advance payments, timing effects, including positive customer payment behavior at the end of the calendar year. All businesses contributed to this improvement. I'll talk a little bit more in detail about the drivers of the free cash flow in a moment.

Now also just to reflect a little bit on our order backlog. Something that I provided in Q4, of course, is, as you see on the right-hand side of the slide was the backlog project margin, where you see increases across the business areas and a stabilization in Siemens Gamesa. So I do not provide, so we don't provide a detailed update on quarterly development of the margin, but I can confirm the upwards trend in the backlog margin continues in Q1.

So just looking a little bit at our business areas. From a Gas Services perspective, we see pricing is trending up slightly and new orders continue to be accretive to the backlog margin, of course, very much on a selective basis. When it comes to Grid Technologies, we also see that pricing remains very favorable at the high level. With Siemens Gamesa, the latest auctions as well as order intake in offshore have also confirmed the upwards trend in pricing. When it comes to TI, new orders continue to be accretive to the average backlog margin. And of course, among the highest contributors to this development are the independently managed businesses of compression and steam. So again, just to give you a little bit of a flavor from how the backlog margin continues to develop.

Looking now please at cash flow. So free cash flow, EUR 1.5 billion, as I just mentioned, better than expected due to a number of factors. Of course, part of that is part profitability, part strong orders, which, of course, drive project advanced payments and timing effects, as I just mentioned, including positive customer and payment behavior.

Of course, the biggest swing is the change of the operating net working capital, as you can see here, a cash inflow of EUR 1.4 billion in the quarter. This relates predominantly to customer advanced payments and creates an increase in the contract liabilities of just over EUR 2 billion as well as trade payables compensated -- contributed to this, excuse me, and this was partly compensated by an increase in inventories as well as an increase in trade receivables.

Furthermore, we benefited in this quarter from a strong inflow of reservation fees. This came in the amount of approximately EUR 190 million, which is also contributing to the development of our operating net working capital.

A quick update on our quality cash outs. As you know, we indicated for the full year, a mid-triple euro million amount. As of Q1, we're just shy of EUR 100 million of cash outs related to our quality issues from Q3 of '23. When it comes to CapEx, we confirm the outlook that we provided in Q4, which was around the EUR 2 billion mark. But just to be clear, in terms of weighting, we see the weighting of that spend to come in the second half of the year or having a bit of a hockey stick towards the second half.

Looking at net cash now on the right-hand side of the slide. Overall, we now have EUR 8 billion in cash and cash equivalents. This, by the way, is the highest ever cash balance we've had since spin. Here, you also need to take into account to get to net cash, EUR 3.8 billion of our financial debt, of which EUR 3.1 billion is long term in nature. We also have to consider pension provisions of just about EUR 0.5 billion. Then this brings us to an adjusted net cash position of EUR 3.7 billion at the end of December. This is compared to an adjusted net cash position of EUR 840 million a year ago.

So what does this mean? This means we have ample liquidity of over EUR 12 billion, with EUR 8 billion in cash and cash equivalents, very little short-term debt and not to forget, a renewed syndicated rolling facility worth EUR 4 billion and no short-term debt for refinancing needs. And with this, of course, one of our main priorities is to continue to have a strong balance sheet commensurate with an investment-grade profile. And as mentioned already by Christian, one of the very important steps in this process was the rating update from S&P on December 16, where they revised our outlook to stable from negative and reaffirmed the BBB- investment grade rating on Siemens Energy.

So let's take a look now at the business areas, and let's start with Gas Services. Overall, for Gas Services, this was a strong quarter. Again, orders of EUR 5 billion. This is a 25% increase year-over-year. As already shown, strong demand in the U.S. and Middle East here and a significant growth in service orders. Book-to-bill ratio came in very strong at 1.77. Order backlog sits at EUR 49 billion. This is another all-time high.

And Q1 was characterized by a strong gas market for gas turbines greater than 10 megawatts, which with, again, the largest markets being in the U.S. and Middle East. In that regard, in Q1, we booked 24 gas turbines greater than 10 megawatts, thereof, 4 large gas turbines and 20 industrial gas turbines. We had a very strong SGT-800 bookings with 18 units in the quarter. Our market share, therefore, stands at 28%.

Looking at revenue, Q1 revenue, EUR 2.8 billion. This is just shy of 6% increase on a comparable basis. Here, we have a very strong service business, which showed significant growth of 20%. The service share as a percentage in Q1 stood at 73% versus 64% in Q1 prior year, again supporting in this quarter, the margin expansion or a favorable business mix.

So going into profit. Q1 profit for GS was at EUR 412 million, an increase of 32% year-over-year. This resulted in a margin of 14.6%. This is the highest quarterly profit in Gas Services since spin. Now again, the improvement of 250 bps. This was driven by higher volume in the service business. Again, this is a mix issue as just mentioned, and improved operational performance.

Friendly reminder again on seasonality, when it comes to mix, half 1, or first half is always stronger than the second half, again, because of this service mix.

Let's move on to Grid Technologies. On the next page, thank you. Here, we see Grid Technologies, very strong quarter indeed with Q1 orders of EUR 5 billion. And again, we've talked about this being expected below the exceptionally high level of prior quarter. That's true. But I'd like to put this into perspective.

In this EUR 5.1 billion, there are no large HVDC orders. I think that demonstrates the underlying order momentum on the other parts of the business, such as product solutions, et cetera. And here, you see the revenue exceeded orders, our book-to-bill of just over -- just over 2. And here also, the order backlog grew to a new high, record high of EUR 36 billion. 24% revenue growth on a comparable basis in Q1 for GT and this is -- the increase was substantially across all businesses, led by growth, of course, in the Solutions business.

Profit, Q1 profit was EUR 309 million. This is an increase of 45% or 220 bps year-on-year, resulting in a margin of 12.5%. This is also the highest profit for GT since the spin. Here, the improvement is driven by increased volume, operational improvements and, of course, as you just saw in the order backlog, the higher margin of the processed order backlog.

On the next slide, let's take a look now at Transformation of Industries. Here, Transformation of Industries booked orders of EUR 1.5 billion, again, an expected decrease based on a couple of large orders that were booked last year. Book-to-bill ratio at 1.09, and also here, order backlog at the end of the quarter amounted to over EUR 8 billion. Revenue grew by just shy of 18%. This also driven by all businesses and growth in both service and new units.

The biggest contributor in Q1, as you can see in the IMB figures was the compression business at just shy of 36%. Profit before special items, EUR 157 million. This is a margin of 11.8%. Also here, triple 260 bps of improvement by -- driven by increased volume and digression effects, a very strong underlying operational performance as well as higher margin in the order backlog. Also for TI, this is the highest quarterly profit since spin. And I have to always commend the team in TI. This really shows the success of their turnaround plan and focus on profitability across the businesses.

Moving on now to Siemens Gamesa on the next slide. Another quarter in line with expectations for Siemens Gamesa. Here, Q1 orders at EUR 2.4 billion increased sharply, and that's due to growth in the offshore business. This was 172% growth quarter-over-quarter and primarily due to a large order in the North Sea. Onshore orders, as expected, minus 44%. And as Christian already mentioned, onshore remains affected by the follow-on effects of the temporary interruption of the sales activities for the 4.X and 5.X.

Book-to-bill came in over 1 at 1.01, and the order backlog at the quarter end stands at EUR 39 billion. Again, as mentioned earlier, we do see a slight upwards trend in our backlog margin based on the late order activity as well as, of course, as we continue to convert through the onerous backlog in onshore.

Revenue in Siemens Gamesa grew significantly by 18% to EUR 2.4 billion. This is due to growth in the offshore business. Here, for offshore, including service, the growth was just shy of 50% at 46%; onshore, of course, declined by 6%. Profit improved for Siemens Gamesa in line with expectations but remained negative at EUR 374 million. Again, the overall improvement here is really driven by the multiple levers that we discussed, but of course, by our offshore business, in particular, because of the higher volume ramp-up due to progress made in our manufacturing ramp-up, which we report back to you on a quarterly basis.

So this concludes the financial overviews of the BAs. Maybe just to sum up very briefly. We really had a strong start to the year across all main financial KPIs, I think you -- that was evident now in the business area overviews. And this, again, shows that we're on the right trajectory and underpins our guidance for this fiscal year. We have excellent cash conversion and continue to focus on the strength of the balance sheet.

So now let's quickly go to the outlook, which, for the most part, is unchanged. Here you see SE or Siemens Energy overall expects 8% to 10% comparable revenue growth, profit margin correspondingly at 3% to 5%. Net income at breakeven. This again excludes any positive special items. Free cash flow pretax. Now due to the development in the first quarter, we now expect to exceed the previous free cash flow pretax guidance of up to EUR 1 billion. And as a result, as communicated, we intend to update the free cash flow pretax outlook with the half year results for the fiscal year 2025 in May.

So with this, I'd like to thank you, and I'd like to hand back over to you, Christian, for some closing remarks.

Thank you, Maria. Let me leave you with a couple of key messages before we go into the question-and-answer session. Message number one is that we are on track to deliver on our fiscal year 2025 outlook, and we are on track to deliver on our fiscal year 2028 targets. We are in an attractive market, and we are in excellent position. Because of growth in electricity consumption and the need to replace aging infrastructure, there is a strong demand for our products and services, and this demand is driving orders and revenue. And because of good execution, we were able to show strong margin expansion and excellent cash conversion.

We have a high-quality order backlog, which is underpinning our revenue growth and margin targets out to fiscal year 2028 and partly beyond. And almost half of that backlog is high-margin service. We are investing in our factories and in innovation to maintain technology leadership. Despite the fact that we are investing in the business, we enjoy excellent cash conversion have been able to strengthen our balance sheet further. And this is reflected in normalized bond yields and the S&P upgrade and improves our chances to exit the German government counter guarantees. So we are well placed and fully committed to deliver value to our shareholders. And with this, Michael, over to you.

Yes. Thank you, Christian. Thank you, Maria. We now have just shy of 30 minutes for the Q&A. There are 13 participants in the Q&A queue. So it would be very kind if you stick to one question at the beginning. [Operator Instructions] The first 3 questions go to Vivek Midha, Akash Gupta and Gael de-Bray. So Vivek, if you please go ahead.

I had a question regarding your comments on your reservations in gas at 20 gigawatts. Could you give us an update, therefore, on how much of your capacity over the coming years is therefore already reserved and booked up. If a customer were to come to you today, when would be the earliest that they could arrange delivery, given that your large gas turbines, maybe that's about 2/3 of your total new units. I mean, this is quite a substantial number that you're talking about, 20 gigawatts?

Yes. Thank you very much for this question. And first of all, a couple of points to that. We have to see that we also looking on capacity expansion of roughly 30% on our side, which you have to factor in if we talk about this there. So there is an increase in volume coming from, obviously, '26, '27 then onwards. The second point is in terms of, let's say, more or less what does it mean in terms of how loaded are we?

It depends a bit on the frames. The larger frames are more loaded than the smaller frames is what we see in terms of delivery time. You have to think about, obviously, if you talk about a large frame '29, 2030 and then onwards, really now if it is about timing there.

So this is roughly where we are. And obviously, we also try and we see us able to do this to ensure that we serve customer needs also with the flexibility on the frames, which could be their multiple trains on a smaller turbine and find solutions there. One thing you have to keep in mind, obviously, that we will, as I said, continue to extend capacity on the supply chain and on our own factory.

Next question goes to Akash. Akash, please.

My question is on grid orders. So Maria, you said that there was no large HVDC order in the quarter, but still you managed to get EUR 5 billion in orders. So I'm just wondering like shall we assume this as a new run rate going forward for the base business and then add any large HVDC on top of this? Or was there any factor behind very strong level of these known HVDC orders in first quarter? Any commentary would be helpful.

Thanks, Akash. And to some extent, what we're seeing now is that we see a stronger demand for grid stabilization. This drives particular [ syn cons, ] and we have been really successful, now positioned that into the market. This I also see -- I would not completely say it changes the trends, but obviously, you see other elements getting prominent now in the market. We also believe going forward, we see obviously big HVDC projects coming. So it's not out of the market. But fundamentally, I'm very glad to see that the other elements also come through.

One thing you have to be aware in terms of the investment needs for customers. It's always obviously an interdependency. Once you invest into HVDC, at one point in time, you have to pull forward then the grid stabilization. And then you can go the next steps in terms of HVDC and creating more connectivity. But this will give and take.

And between power transformers, HVDC and the switchgears, this is where we're trying to keep also the balance to create this diversity, which provides resilience. So fundamentally, yes, you see more elements new coming in, but obviously, I don't see the HVDC trend breaking away or so. But it gets a little bit more diverse.

And the next question goes to Gael de-Bray, please.

Can I get back to the 20 gigawatt of reservation agreements you've secured in gas. How does that compare to the level you had 1 year ago? And how much of that 20 gigawatt was incrementally secured in the quarter so that we get a sense of the momentum here.

And maybe finally on this, with demand from data centers now materializing, does it mean you also see upside to the 70 gigawatt market size you had previously assumed for the next few years?

Gael, on the -- roughly to give a momentum, obviously, into this 20 gigawatt, which is obviously a reservation agreement. If you would compare it to overall '24, I mean, this is quarter 1, reflecting the 19 gigawatt what we had last year in orders roughly. So this unfolds, obviously, going forward over '25 and '26, but you see the strong momentum in gas. I mean, that is definitely the message. The second question, now you have to help me, that was?

Sorry, that was about the assumed market size of 70 gigawatts, I think you had previously for gas over the next few years. How is this changing now perhaps with the data center demand materializing more tangibly?

Yes. I mean, obviously, we see also this quarter a strong momentum in the -- from the data center side. However, I would not revise our midterm expectation on the 70-gigawatt-ish type of market. We always have to be aware that, obviously, still it's a fraction of the electricity market on the gas turbine side with the data centers.

And we always said that is something which we anticipate somewhat on top. On the gas turbine going forward, it could reflect 15% to 20% of the total market. This is roughly the number we gave, I think, also in the last quarter. And I would still hold on to this type of expectation that this potential, this 15%, 20% upside is there. What I want to see is really that also the reservation agreements turn into real orders and that it's coming. And -- but roughly, roughly, this is the number I would see.

Next 3 questions go to Supriya Subramanian, Sebastian Growe and Max Yates. Please, Supriya, you go ahead.

Just had a question on the U.S. market and how we are positioned potentially in case the tariffs that have been announced and maybe coming? So I want to see how well you are positioned within the U.S. in terms of delivering local for local, and if any, if we have any mitigating factors or ability to pass this on to customers? And also, I would appreciate if you could give a little bit of color or nuance across the sort of 4 divisions as well, how you're positioned?

Yes. I will try to do this. And obviously, interpreting the tariffs is an ongoing exercise week after week after week at the moment because it's obviously also the question is, what is the tariff, what is the counter-action, what is the trade off.

First of all, how local are we. We have 8 factories. We have 12,000 people. We have already last year, decided to invest into the U.S. roughly, if you look over the last 3 years, it's roughly EUR 0.5 billion what we invest in the U.S. in terms of capacity expansion. So we have a decent local base. And the question is always how does it compare to competition?

If you look across the different businesses, I think we are well positioned in GT, and that is obviously also with the data centers. Don't forget that is the biggest market potential at the moment. And you know that we're investing in the transformer factory. And that is something which we see. Gas, obviously, I've shown in the press call in the morning, our investment in Tampa in Florida for the blades and vanes. We have the generators out of North Carolina. So it's also local, but also there, we have distributions globally coming, for example, from Europe.

That is something now what we're trying to understand, to balance that out and also any tariff effect can be forwarded that to the customer which is in the backlog, normally the setup. We have to balance what is in service, what is a new unit, but it's really now getting into nitty gritty of details. Wind is not so much of my focus at the moment. Obviously, it is a very selected amount of offshore projects under execution. I don't expect them to be impacted. Onshore is largely a service business, which is done locally and transformation of industry is also a very service-driven local footprint type of business. So we'll have to see this.

However, I also always say we as well as our competitors have a global supply chain. And I think everybody will now try to work that out, how it works. And fundamentally, it will impact somehow, but I see us well positioned in the competitive environment, and we now have to figure out what exactly our mitigation actions.

In terms of mitigation, in a supply chain like ours, you also have to be aware, nothing goes fast. You cannot do things differently in a month or 2, but that is the same for us as for the competitors.

And the next question goes to Sebastian Growe.

I have one question on the order backlog quality and thanks for the commentary in regards to pricing. I understand that you won't provide a specific number with regard to the related improvement in project margins. Would it however be fair to assume that and provide execution is going as planned, that you feel ever more comfortable with your '28 targets and that this would rather support the upper half of the corridor? Or would these incremental tailwinds on project margins rather come through beyond '28?

Thank you, Sebastian, for the question. And also trying to put this maybe into context, certainly for this year. I think, look, the backlog margin improved. This is what we showed last year across the businesses between 4% and 4% for GS and TI and 6% for GT. And of course, that then allows us because remember, if you look at our guidance, last year, we're at 1%. We're looking to go to 3% to 5%. Some of that expansion of the 2 to 3 points better helps us in terms of our guidance for this year, maintaining again the first part of your question regarding '25.

Now looking at '28, I mean, that is quite a few years out. And of course, there's a range there for a reason. But as we mentioned also in Q4, we have seen and we continue to see some of that backlog margin converted into '28, but also what we also indicated was some of that backlog margin converts post '28.

So again, to bear that in mind, Christian mentioned some of our bookings now happening even in GS beyond the guidance frame. And certainly, for GT, we've indicated for some quarters, that some of that uplift in margin comes well beyond as it's booking now towards the 2030 and beyond. So hopefully, that puts that into context for you.

So midpoint -- sorry, to just kind of maybe on this one, '28 midpoint would look sort of more okay to you from today's perspective than it was eventually with the last update that you gave in November?

Sebastian, I mean if I was able to tell you at this point in time, what happens in '28 other than the assumptions that we have right now, I mean, look, I think it's fair to say that we see a very positive market momentum, as Christian mentioned. It's fair to say that we see electricity demand increasing over the time frame of our guidance. And hence, why the mid-part mark of the guidance is a good place to be, and that's realistic. At this point in time, I can't indicate anything more than that. The 10% to 12% sticks, Sebastian.

Next question goes to Max Yates.

So could I just ask around pricing on new gas turbines and also in the aftermarket business. So is there any way you could help us quantify when you look at sort of the units you're booking on a sort of per megawatt basis or euros per megawatt or how best to frame it, what kind of pricing you're seeing on gas turbines versus maybe 12 or 24 months ago?

And then maybe, obviously, in the aftermarket business, we've seen 20% growth this quarter. I appreciate you've talked about some of the sort of nuclear renaissance, the work you're doing on sort of steam turbines there. But is there any way we can sort of break out what pricing is doing on some of your longer-term service agreements at the moment? So yes, across OE and aftermarket would be helpful on pricing.

Yes. Thank you, Max. I would keep it somewhat generic, you can imagine. But obviously, if you look over the last 2 quarters, I mean, first of all, I always think about -- I mean you've seen the net impact on the backlog margin, plus obviously, you take the inflation, you roughly know the growth rates and you know the orders from us, and you get a feeling for it. If you look back over the last 2 years, one thing you have to say, margin improvement, particularly in the large frame. So that is HL&F, obviously, it was overproportionately good. And for the smaller frames, it was okay, still covering more than the inflation, but it's really very distinct over the last 24 months for the large frame so substantially going beyond inflation.

So that's roughly where I would see that. On the service piece, this was the second question, right? The service step after step after step improving. This is what we're seeing. Keep in mind that a lot in the elements where if you look on our service and try to compare it in the market, HL kicks in only '28 and thereafter. And that is particularly thereafter. And that is something that you always have to keep in mind, right, because that is obviously a nice service piece, which is then coming in.

Okay. And just sorry, very quick. On the hyperscaler orders, do those differ materially in prices versus, say, what you're selling in other parts of the world?

Hyperscaler, thank you. Sorry, I didn't -- the reception wasn't very well. Yes, obviously, pricing on hyperscalers is better, it's good, right, because obviously also of the market situation. However, as I said, generally, the trend in the market is positive. And for me, it's more about what is the smartest regional balance? Because the one thing is really looking just on the margin.

The other thing is really how do we ensure stable, solid execution across the regions of the world, seeing all the momentums we have in the different regions. So don't get hung up completely on the margin of one single segment. At the end, it's a balance to keep a resilient backlog and how to execute this into profits.

Next 3 questions go to Alex Virgo, Ben Uglow in Will Mackie. So Alex, please over to you.

Christian and Maria, I wondered if we could just talk a little bit about the free cash flow. I appreciate that you're not updating the guidance explicitly here. But Maria, can you talk a little bit about the elements of surprise, I guess? If I look at the year-on-year, you had great order performance but lower orders year-on-year. You've had a higher service share in those orders. So down-payments relatively year-on-year is a less of a contributor.

And I think the -- and obviously, the reservations point is in turbines, not in grid, where I think the real surprise came in, in terms of the Q1 cash flow. So I want to understand what is it that's driven surprise, given I imagine that a lot of this is milestone payments, which you must have had on a 12-month view or decent visibility on a 12-month view?

And just thinking about how we can think about the cadence as we go through the rest of this year. Do we expect that to sort of meaningfully unwind? Is there a risk that we have a negative quarter? I just want to get a better understanding for what are the moving parts? And why was it so much of a surprise so that we can start to think about that full year number and the, I guess, the continued strength of those orders and as those 20 gigawatts of reservations convert?

Thank you, Alex. And I do appreciate the question maybe to dig a little deeper into the Q1 free cash flow. Maybe just to put into context, of course, it was stronger than expected, maybe not so much a surprise in various elements, right? And maybe looking at it from the main factors, as you rightly pointed out.

So some of this is the continued strength in volume. So we do see additional advanced payments. Maybe to put into perspective, looking at GT. In the previous quarter, there were a couple of large contracts which had advanced payments attached. That's very true. If you think about the percentage of advanced payments, these were also things that we're trying to optimize in previous quarter. And so therefore, from -- even in terms of project size, there was a bit of a mix, right? But we did have and continue to have additional advanced payments, not only in GT, but in also parts of the other parts of the business.

Then you're right, we have this additional reservation fee, just put a thumb in the air of EUR 200 million. Then there is almost a third category, and this is where we received what I talked about was this customer positive payment behavior. Here, we're a series of large payments that were, let's say, received in and around the calendar year end, even in terms of looking at due dates. So this was something more of, let's say, stronger than expected for the Q1. But we did have a strong start, and that's why we indicated that we are now looking into free cash flow, and therefore, it's under review. And so we know that we will exceed the previous guidance of EUR 1 billion. And maybe to put that into context again for you, let's say, we've exceeded our Q1 expectations by roughly, roughly the EUR 1 billion to EUR 1.5 billion. And we do expect, Alex, again, to your second part of your question, how should we see this in the next quarters. We don't expect negative cash flow quarters, and we also expect a large part of that what we exceeded in Q1 to remain sticky for the rest of the year.

But what we're looking at now is we're really assessing some of this positive market momentum that is creating tailwinds to see how that will fare in the quarters to come.

That's super helpful. Do you mind if I just clarify or follow up on the down payment question, and the customer payment behavior question. Is this a reflection of more money being put down upfront? Or is it a -- I guess the terms and dynamics implied by you receiving reservation fees for gas turbine slots for the first time in your history. It indicates that payment behavior and the dynamics of supply and demand are changing materially and obviously extends massively the duration of the cycle.

So I guess that's what -- I appreciate that you don't know necessarily, but I just want to try and understand whether those -- that change in behavior is something that has immediately had an impact? And whether we should be thinking about that proportionate down payment being materially different?

I think, Alex, maybe we separate it into 2. I go back to the calendar year end of some of our customers. So therefore, that's not something that we'll repeat each and every quarter. I think that's one element. The more money upfront, I think, goes to the reservation point here where we do see things that we didn't anticipate where we actually are receiving more money upfront. So I would just take those 2 things into context for the rest of the quarters for the year.

But again, we are taking quite a deep dive into this to look into free cash flow as it pertains to the rest of the year. So stay tuned for that update at Q2.

We're running up against time. We still have 6 participants, which haven't asked a question. And we -- just try to keep the questions short if possible, and to the point. Now over to you, Ben, please.

Can you just give us a bit more qualitative color on some of the customer conversations around the slots and the bookings and -- potential bookings in gas turbines. I mean these are being pushed out across the board. I think GE even over sort of said it, we're now looking at '29, '30 in some cases.

How are you deciding those slots? How would you allocate those slots? To what extent is it first come, first serve, existing relationships, project complexity or whatever it might be? And I guess the blunt question is, if I'm a hyperscale data center customer or anybody else, and I simply come in and offer a much, much higher price, to what degree does that guarantee me a slot? I guess I'm interested in how those conversations are working right now.

Well, that's a super question, Ben, I have to say, going really into bid tactics here. First of all, the discussions, particularly on the data centers are in the sense unusual that the time between having a discussion and concluding a reservation agreement is extremely short. It's really hedging really a little bit their risks in terms of access to slots. This is we do see, and this we do see actually in GT as well as NGS. And our approach to that is we are trying to balance the benefit of having a, let's say, good margin type of market with customers where time pressure plays a different role with still fulfilling long-term commitments to long-term customers, which particularly on the utility side come back year after year after year.

And this is why I also tried in the one map to show a little bit the regional distribution and also to balance out between Europe, U.S., Middle East, particular, Asia, not so much, but that is a key element for me. So it's not always, can I go where the highest margin is? Margin is a criteria. But obviously, long-term relationship with the customer and balancing out and really having a diverse set of the backlog is important for us, and this is what we're trying to embrace while looking on a continuous margin expansion across the board. But this is how we try to balance it.

The next question goes to Will, please?

So my question goes to the planned turnaround in Siemens Gamesa of your profitability. I think kindly at the end of last year, you gave 4 buckets of drivers for the target to reach breakeven. I guess the question is, how are you tracking across each of those buckets. There's been some emphasis around the commentary on operational excellence and around offshore profitability. But maybe if you could talk to your confidence of hitting breakeven in '26 and where the risk and opportunity lie across those buckets?

Thanks. I mean let me go through some of the buckets really. The one thing is, obviously, the offshore productivity, what we highlighted, that is really improving step after step after step. I would still -- as I said last time, I still like to see it faster but moving on, right? So I would say that's, as expected, moving.

Service, you see it now improving really on the quarters. It's still impacted here and there by one timers. So it is, let's say, on the path to be a profitable business again, but not to the extent or the speed where I would see it. So this is something where we need to watch, particularly also seeing that sometimes whatever the sequencing also of the quality measures we have to see with the customers. And this is a little bit -- if you ask me on a quarter or a year, what moves there a bit.

The onshore new sales and generating this, this is where I put a bit of question mark, I really have to say, simply because it's moving slow. You have seen us taking orders in on the repowering. So that's okay. We have now concluded the agreement with the Works Councils that we can reduce the capacity. But we also were looking into generating some new unit sales throughout '25 and then into '26 with the biggest uptake. And this is what we have to see.

I still am on the track to launch the sales activities on the 5.X in '25. That is same as before. But this is obviously what has to land also in your orders then in to '26. And this is where I have not yet the proven evidence, and this is where I would put the question mark a bit on, where I feel let's say, positive, and this is what I try to make also in my notes is really on the offshore order development with all the comments around in the world, I see us doing tracking well there.

Next 3 questions or next 4 questions, so we wrap it up. Going to Vlad Sergievskii, Sean McLoughlin, Phil Buller and Simon Toennessen. So Vlad, please.

I was choosing the questions, but let me go with the wind one. So the question on the future of offshore wind. What is your long-term plan for competing with Chinese OEM, who now already have much bigger turbine than any Western OEM at the moment? Will you need to develop a bigger turbine to ensure competitiveness against Chinese, let's say, indeed 4, 5 years from now? And if so, when do you think you need to make this decision? And how much could it cost?

Yes, a couple of comments. First of all, we are, let's say, broad market leader in the offshore market, and we obviously are also can demonstrate to our customers that we have a lot of experience in this. We will continue to invest also into new developments because we want to keep this leadership.

But I also always said, we do it very carefully. You might recall that we said we won from the 15-megawatt grid we to get 2,000 units out finally into the field. So this will be the kind of bread and butter business in offshore in this decade, and this still holds true. Why can we -- why do we believe we can compete?

First of all, you see in a lot of areas. I mean having a Chinese competitor is nothing new. I mean, we have the same in compression. We have that on steam. And obviously, if you do the things right, I think you can compete and this is where we have the confidence. It does mean that we continuously need to optimize our operations. And the one thing which in offshore wind will be critical for customers, I believe, is the confidence in you to deliver really the project and afterwards also to be long-term available to fix problems because one thing what you do see with offshore wind and onshore wind, the turbines need maintenance. And they are not always, let's say, easy to do, and that is something where our reference base and our reputation definitely comes in.

If I talk to customers, that is what I also do here. So I'm confident that we can compete in that field. What I do see as a behavior more in the industry than a couple of years ago, is a more interest to tie up closer with each other with the core customers and the OEMs to really have a long-term plannable base.

One thing you also have to be aware on the Chinese competitors, in particular, that is a lower wind market. So if you look then come into Europe, that's a different wind regime. It doesn't mean they cannot do it. They absolutely can do it. You have seen them successful for some of the biddings. But in the long term, I believe if you have a good product, if you have a good service offering, then we can also compete in this market, and we do it from a market leadership position.

Right. Sean, over to you.

Just a question around the challenges around capacity expansion in GS and GT. Just assuming that with blades and vanes, in the U.S., you've addressed one of the key bottlenecks for GS. What would you say going forward are your key supply chain or labor challenges or anything else to ramping in GS and GT and any maybe regional specifics here?

Yes, GS is for me really, first of all, mainly blades and vanes and then the next thing is the forgings, which is the supply of things, but they're also -- we did not only expand or invest it into our own manufacturing. We also invested at suppliers or with suppliers into that.

The biggest challenge there, I do see it's simply the time to market, right? I mean if you invest until you have the yields out, particularly for the high-performance blades, it simply takes time to ramp up. And this, by definition, limits the speed of growth, right? This is one thing where I also do not have a better answer to make this faster. It will take time, and we have done the investments, but it will still take several quarters to really see that impact.

On the GT side, much more regional distributed piece. You know we're investing in the transformer side. There, it's really the time to construct the factory and then ramp it up. And this is why we do it at existing sites that we have personnel available who is experienced but it's really about timing to build a factory. The regional challenge, if you, for example, talk to the U.S., the U.S. is a hot market at the moment. If you talk about construction companies, building it up, hiring new people, and that is some -- everybody who is expanding factories and they see that, that this is also more challenging than, for example, doing it in Asia, but absolutely needed in the local market, but there's -- nothing prevents us of adding another factory if the market demands that.

Phil, over to you.

I have a question for Maria, if I may. I was wondering how discussions are going or have gone of late with the rating agencies? And where do you think you're currently operating at in terms of the leverage or the cash from ops criteria relative to what the agencies would typically need to see to drive an upgrade? I know you upgraded to neutral watch in December, but how do you think you're trending versus the next rating levels? And is there a milestone in that regard that we need to think about as it pertains to the guarantees?

Thanks, Phil, for the question. And Yes, we are very pleased with the fact that in December, and that's part of the annual process, as you know, that the negative outlook was removed. And essentially, it is on the back of our improved outlook, our guidance for '25, and of course, the details that are provided to our rating agency, which goes directly out to 2028.

So again, this is more of a -- we're constantly talking to our credit rating agency on a quarterly basis, of course. However, it's generally an annual process by which they then conclude and provide a large report for us. However, what I can say is, of course, the strengthening of the balance sheet, the net cash position, the fact that we -- in terms of -- you saw the financial debt profile, I mean, even in our long-term debt, EUR 1.8 billion of the EUR 3.1 billion are leases.

So again, in terms of strength of the balance sheet, I think we're very much well on our way. And I think that is also seen by our rating agency in light of and coupled with our guidance on things like profit, et cetera.

The last question goes to Simon Toennessen. Simon, please.

I've got one just on pricing relative to sort of your market shares in general. How are you thinking about potentially giving up some of the strong pricing you're having for gaining some share in some of the respective market? And what is clearly a very favorable also competitive market, particularly in GS and GT?

I'm thinking particularly about the U.S. I guess where, for example, you're not producing large gas anymore. So would you say that, for example, the very weak euro that we've seen versus the dollar over the last 6 months, you could gain some share in some of the markets like the U.S. when you ship, for example, out of Berlin to the U.S. So I'm just generally thinking how you -- what's your thought process on that? Or do you just generally want to look at the bottom line rather than share gains?

Yes. I mean, first of all, if I heard you correctly, in terms of margin versus market share, no, I mean that is obviously also not the discussion at the moment. The euro dollar is something which benefits us, obviously, in this quarter, but I would not substantially see it strategically different in terms of positioning ourselves.

Keep in mind, if you look on the local manufacturing, first of all, the generators are in the U.S., the [ blades ] and vanes are in the U.S. You know that we would have the base in the U.S. if you would like to do this.

So I'm not substantially seeing the major differences there. I think this will be too much of an interpretation. It's much more to really see what is customer diversity, how do we look on execution, what is regional spread, that drives you much more because at the end, what we want to make sure that over the years to come, we continuously improve step after step.

Perfect. We overran a little bit, but we wanted to give an opportunity to all participants to ask questions. So I'll hand over to Christian for final remarks before we close the call.

Thank you very much for listening in and for all the questions and your interest. I just would highlight, obviously, our Capital Markets Day in November. So please book it already in terms of joining us for, hopefully, a super interesting discussion. And thanks very much. Stay tuned, stay safe, and looking forward to hopefully see you in person going forward. Thank you.

Thanks, everyone.

Thank you.

Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.