Siemens AG

XETRA:SIE

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Siemens 2022 First Quarter Conference Call. As a reminder, this call is being recorded.Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and, therefore, subject to certain risks and uncertainties.At this time, I would like to turn the call over to your host today, Mrs. Eva Riesenhuber, Head of Investor Relations. Please go ahead, madam.

[Eva Riesenhuber, Head of Investor Relations]

Thank you very much. Good morning, ladies and gentlemen, and welcome to our Q1 conference call. All Q1 documents were released this morning and can be found also on our IR website.I'm here today with our CEO, Roland Busch; and CFO, Ralf Thomas, who will review the Q1 results and recent portfolio actions. After the presentation, we will then have time for Q&A. Please be aware that the virtual Siemens AGM starts right after this call, and we must limit the time of the call to 45 minutes.With that, I hand over to Roland.

[Roland Busch, President, CEO & Member of Management Board]

Thank you, Eva. Good morning, everyone, and thank you for joining us to discuss our first quarter results ahead of our virtual AGM. It was an eventful quarter, indeed, so let's start right away.I'm pleased with our very successful start in the fiscal year 2022. We continued to deliver on our ambition to accelerate high-value growth and made significant progress to further shape and focus our portfolio. All our businesses seized market opportunities arising from transformation trends of decarbonization, automation and digitalization. Transformation for our customers means substantial greenfield investments in areas such as automotive, batteries or semiconductors and related machinery. In addition, we see resilient, strong demand for upgrading, manufacturing, buildings, grids and mobility infrastructure along the life cycle, investments with a clear goal to become more automated, more intelligent, more sustainable and more efficient. This led to unprecedented order momentum in the first quarter.However, the macroeconomic environment was and remains challenging. Persistent pandemic impact, cost inflation and global supply chain-related constraints and shortages prevail. Crucial area is electronic components, where this situation is very dynamic. Tight markets for some parts are now expected to continue to fiscal year 2023. Longer delivery times than usual in parts of our portfolio led to an exceptional stream of preordering by our customers in the automation and electric product businesses.Consequently, a considerable backlog has built up, which will take several quarters to process through the system and normalize. While we are optimizing manufacturing in our own digitally IoT-enabled factories, leveraging our geographical footprint and benefiting from our broad supplier base and global partners.We are currently not meeting our high standards for delivery times to customers for some of our products. Therefore, we work relentlessly to optimize deliveries and muster these challenges together with our customers. Despite these constraints and the Omicron wave building up, we avoided major disruptions in our operations and maintained factory loads on high level, yet not always with a product mix we would like to produce.Finally, increased cost inflation overall is an opportunity for us to gain market share. Why? Customers are looking for market leaders that deliver the highest value to improve their productivity, are resilient and, of course, financially strong. As a leader, a technology leader, we are confident to balance cost inflation with pricing actions over time.All in all, this led to another excellent performance across all financial metrics. We are well underway to deliver on our full year guidance. As indicated, orders reached an impressive level of more than EUR 24 billion, up organically by 42%. We achieved record levels in all businesses, while Healthineers was just shy of a new all-time high for a single quarter.Our book-to-bill of 1.47 is exceptional, and a record backlog of EUR 93 billion secures a high-value growth ambition for fiscal year 2022 and beyond.Revenue grew by 9% to EUR 16.5 billion, led by Digital Industries with 11% and with clear growth in Smart Infrastructure, Mobility and health care. All major regions contributed, with Germany up 18%; U.S. increasing by 6%; and China on high comps, still growing by 5%.Profitability in industrial businesses came in at a strong level of 15.7%. Operational success consequently translates into improving net income and EPS pre-PPA, which were both up 20%. And a consistent free cash flow of EUR 1.1 billion above prior year's level is, again, clear evidence for our high-quality business profile.As a focused technology company, we are continuously shaping our portfolio. We took an important step in the Mobility business with the announced divestment of Yunex, the leading provider of intelligent road traffic solutions. Mobility and Yunex have clearly demonstrated that Siemens is able to develop businesses very successfully and increase their value. Now we found the best owner with a long-term oriented Italian Atlantia Group, well positioned to develop the business further. Siemens Mobility will concentrate on its leading rail and mobility software portfolio. Closing is expected by September '22, depending on regulatory approvals, and we expect our records -- and to record a pretax gain between EUR 600 million and EUR 800 million in Mobility.I'm also pleased to announce 2 further important milestones in our strategy to find best options for our portfolio companies. After a swift process, we decided to divest the Siemens parcel business to German Körber AG for an attractive purchase price of EUR 1.15 billion. Here, we expect a post-tax gain in the range of EUR 800 million to EUR 1 billion. The Siemens parcel business will be an excellent strategic and cultural fit to Körber's supply chain business with benefits for all stakeholders. Since the separation of Siemens Logistics business into parcel and airport is still ongoing, we expect the transaction to close during calendar year 2022.Also, yesterday, we signed the agreement to sell our 50% stake in the joint venture Valeo Siemens eAutomotive to Valeo. The net profit impact of around EUR 300 million will be recorded in the second quarter within portfolio companies, while closing is expected in July with corresponding positive net cash impact.Finally, I want to briefly touch upon our stake in Siemens Energy. We are clearly not satisfied with the operational performance at Siemens Gamesa, which led to high share price volatility in Siemens Energy. Appointing Jochen Eickholt, an experienced turnaround manager, as the new CEO is an important step in the right direction. We remain committed to reducing our shares in Siemens Energy. However, in the interest of our shareholders, we will take a prudent decision on the timing, which depends on market conditions as we have explained in the past.Here, you can see some recent examples out of many on how customers build on our technology in hardware and software on our digital-enabled services and deep domain know-how. They strive to transform their businesses and drive sustainability at the same time. No matter what it is, smarter battery manufacturing, faster aircraft development, optimized energy consumption or greater passenger yield of public transport, Siemens has the right solutions for our customers' challenges.Coming back to our DI software business and its crucial strategic transition towards software as a service, mainly for PLM business. In the first quarter of our transition, we made good progress, and the numbers look promising. And annual recurring revenue grew by 11% year-over-year to EUR 3 billion, fully in line with our midterm target of 10% annual growth, wherein the key indicator, Cloud ARR, is share of total ARR, grew by 1 percentage point in this quarter alone to 6% overall.After the first quarter of actively selling our cloud-based offerings, customer feedback is positive. We see a solid initial flip rate of around 40% of PLM renewals, which is in line with our plans for the first quarter. Our plan is to increase the speed of the SaaS transition further in the upcoming quarters. Around 500 customers have signed on to the new as-a-service business model, seeing the distinct value of this enhanced offering. The first quarter is an initial indication, and we have an even clearer view on the shape of the transition with our second quarter disclosure.As I showed before, the dynamic change towards decarbonization and more sustainability in all aspects creates a lot of business momentum for us. In addition, we made also good progress in executing on our DEGREE actions, our own DEGREE ambitions, which we launched at our Capital Market Day. For example, reduced our Scope 1 and 2 carbon footprints already by 36% compared to the base year 2019 and plan to be net zero by 2030. This is also recognized externally. Siemens is ranked #1 in the Dow Jones Sustainability Index among 45 companies included in the industry group.I want to finally point out a key topic becoming even more important during the pandemic: how to successfully strengthen bonds with our employees. First, we are implementing a flexible way of working wherever feasible. And second, we are fostering resilience as well as relevance and employability of our workforce globally. This is a strategic priority with dedicated programs and broad offering of learning opportunities to keep Siemens as the workplace of choice now and for the future. Our teams are also focused on hiring sufficient talent and keeping voluntary attrition at a healthy level to succeed in tight labor markets.With that, over to you, Ralf. Let's take a closer look at operational performance and further financial details.

[Ralf Peter Thomas, CFO & Member of the Managing Board]

Thank you, Roland, and good morning to everybody. Let me share further details regarding our very convincing performance in the first quarter.As Roland mentioned, our key markets for Digital Industries, such as automotive, machine building and electronics, continue to show strong underlying momentum. A significant portion of the exceptional order growth in the short-cycle factory automation and motion control businesses was caused by customer concerns about extended delivery times and expected further price increases.Looking at the unprecedented book-to-bill of 1.64, our backlog in Digital Industries exceeded EUR 10 billion. All automation businesses showed massive order growth up by 77%. Software closed several larger deals in the PLM and EDA business, leading to substantial order growth north of 30% on easy comps. Some of these orders came in earlier than expected.We are very pleased that automation revenue rose 13% over a solid prior year base, even though there were limitations from component and capacity availability. We don't expect the shortage situation to start easing before the second half of fiscal '22.Revenue in discrete automation was up 15%, driven by motion control. Process automation continued its recovery and achieved 7% revenue growth. Software revenue was up 7%, clearly exceeding expectations. A negative impact from the launch of the SaaS transition in PLM was outweighed by substantial revenue recognition from larger deals in the United States, which were in parts closed earlier than originally anticipated. While PLM was up by 8%, EDA showed a strong mid-single-digit growth against tough comps, and Mendix continued its substantial growth path north of 30%.All this means Digital Industries reached an excellent 21.8% margin performance. Margin strength benefited from solid profit conversion on higher revenue in short-cycle businesses, combined with the sustainable impact of our measures to structurally improve the cost base. In addition, positive currency effects of around 50 basis points supported margin development.Profitability in the software business remained on a high level due to the mentioned highly accretive revenue recognition from large contracts. Ongoing cloud investments accounted for around 130 basis points of negative margin impact on digital industry levels and will gradually increase throughout fiscal '22. We are pleased that Digital Industries achieved almost EUR 500 million of free cash flow, in line with the seasonal pattern and despite material bonus payments and inventory buildup.Looking at our key vertical end markets, for the next quarters, we expect a continuing positive momentum based on sound investment sentiment in most of our key industries. Longer term, fundamentals of investment demand are fully intact and beneficial for Siemens, while supply chain constraints will continue to restrict customer output in many industries.Now let me give you the regional perspective on our dynamic top line automation growth. All regions showed hyper order growth with similar patterns of early customer orders due to extended delivery times: China soaring 78%; Germany jumping by 62%; and Italy skyrocketing 155%. Obviously, we expect a normalization of demand going forward and a gradual reduction of backlog.Revenue growth in automation was broad-based with strong increases across all major regions. The excellent momentum in China remained on high levels across all businesses, up by 15%. Germany, up by 14%, was driven by motion control, mainly. Italy showed 30% revenue growth on easy comps, while the U.S., the discrete automation business increased double digit.For DI, from today's point of view, we anticipate for the second quarter a more negative impact from the software business on top line and margin. The first reason is the higher volume of PLM contracts, which are up for renewal and where we target to convert a sizable number to SaaS. Secondly, we expect a softer performance in the EDA after a very strong first quarter.Combined with strong backlog conversion in the automation business, which will again be limited by component availability, we see a mid-single-digit comparable revenue growth rate for the second quarter on tougher comps. For the full fiscal year, we will approach the upper limit of the range of 5% to 8%. We expect the profit margin for the second quarter to be around 20%, highly dependent on the speed of the SaaS transition. Let's remind ourselves, we are just heading into the second quarter of this important transformation.Now let's move on to Smart Infrastructure. The team delivered excellent top line growth in better end markets and the next proof point for a clear margin expansion trajectory. In total, orders were up 26%, driven most notably by more than 40% growth in the electrical product business benefiting from ongoing industrial and data center demand. In addition, electrification grew around 30% with large order wins in the semiconductor vertical in the U.S. Buildings was up double digit on strength in the product business and with accelerating solutions and services activity.Revenue growth was 6%, with the largest contribution from the electrical product business up by 15%. Margin performance of 12.6% benefited from higher capacity utilization related to increased revenue as well as structural improvements from our competitiveness program, which is fully on track. Headwinds from commodities, such as steel and copper, as well as component and logistic cost inflation were to a large degree mitigated by pricing actions. Free cash flow was off to a slower start due to higher inventories to secure production and seasonal effects such as bonus payments.Looking at the regional top line development, we saw broad-based strong order momentum, led by the U.S. and with all major regions up double digit. Revenue increased in all regions with the service business delivering 6% growth in line with the overall SI performance. I want to point out that like Digital Industries, the Smart Infrastructure team did an excellent job to mitigate major disruptions in its supply chains and keep factories running at high capacity utilization.We expect momentum in our short-cycle electrical product business to continue, driven by exceptional customer demand. The late-cycle buildings market is picking up further. However, we still see some headwinds in the U.S., where we anticipate certain delays of the infrastructure stimulus program only taking effect in '23.The electrification market is on a solid growth trajectory with accelerating renewables integration, higher electricity consumption and additional demand due to high energy prices. Based on this, for the second quarter, we see the comparable revenue growth rate to be in line with our full year growth guidance. We anticipate the second quarter margin to improve compared to prior year at the lower end of the full year guidance range of 12% to 13%. Looking at our backlog, for the second quarter, we expect the highest negative impact from the cost inflation versus price increase equation. This will improve in the second half of fiscal '22. Mobility delivered like a clockwork in the first quarter. A key highlight was the all-time quarterly high in orders topping the competition clearly. Order growth of 94% was driven by all businesses with a major order of EUR 1.5 billion for high-speed trains in Germany. We won contracts for more than 250 locomotives and several high-profile rail infrastructure projects, including in Oslo, Frankfurt and Pune in India. I want to emphasize that these orders are fully in line with our defined growth areas, such as rolling stock platforms, product signaling and services where we see the most attractive margin potential. Backlog stands at record level of EUR 39 billion with healthy gross margins, and our sales funnel continues to look promising for the quarters ahead.Revenue grew 7%, fully in line with our expectations with clear growth in rolling stock and rail infrastructure, while customer services was up 5%. Again, Mobility reached industry-leading profit margins based on stringent execution. Mobility had a good start with a cash conversion of 0.48, and we expect a balanced cash conversion throughout fiscal '22.Our assumption for revenue growth for the second quarter is towards the lower half of our full year guidance range of 5% to 8%. Second quarter margin is seen on a similar level as in the first quarter, not yet achieving the lower end of the target margin corridor of 10%.I keep the perspective on below industrial business is crisp. All details are in the earnings bridge on Page 22 in the appendix. SFS delivered an excellent performance benefiting from a favorable credit environment and a strong result from equity business. The portfolio companies' solid performance at consolidated units more than compensated for a small loss from our stake in Valeo Siemens, which recorded a positive one-off effect. The latest decisions on the divestment of the parcel logistics and the exit from Valeo Siemens are major steps on focusing our portfolio and at the same time, creating substantial value and reducing volatility within portfolio companies. As Roland already mentioned, a higher loss from the Siemens Energy investment was an unexpected and very unsatisfactory development.Free cash flow performance in the first quarter highlights a very solid start to the year, in line with our ambition for a consistent and balanced development throughout the year. we are very confident to continue on this successful path.Strong performance in the first quarter with profitable growth and stringent working capital management is reflected in 2 important parameters of our Siemens financial framework. First, ROCE, excluding Varian-related M&A effects of 16.4%, was within the target corridor already. And secondly, with 1.4x industrial net debt over EBITDA, we continue our deleveraging path. With our strong investment grade rating, we are well positioned to refinance parts of our maturing debt at very attractive interest rates and will also pay back loans from free cash flow.Now let me close with our outlook. We will continue to execute relentlessly our strategic initiatives such as simplifying the portfolio, driving the SaaS transition and value-creating growth built on digitalization and sustainability. After a strong performance in the first quarter, we are confident to achieve our targets for full fiscal '22. We see the potential to reach or even exceed the upper end of the EPS target corridor. We will update you with our guidance for the second quarter's disclosure when we have better visibility, in particular, regarding time lines and impact of the portfolio topics.With that, I hand it back to you, Eva, for the Q&A.

[Eva Riesenhuber, Head of Investor Relations]

Thank you, Ralf. We are now ready for Q&A. [Operator Instructions] So operator, please open the Q&A now.

[Operator]

[Operator Instructions] We will now take our first question from Guillermo Peigneux.

[Guillermo Peigneux-Lojo]

It's Guillermo Peigneux from UBS. Two from me, and I will ask them one by one. First on DI, you commented on the progress made on the SaaS transition in the first quarter and what the acceleration will mean, especially on cloud investment for 2022 in terms of growth trends and also on the second quarter '22 fiscal year margins. So far, margin execution seems ahead in the first quarter and second quarter. And when looking at the backlog and the SaaS transition trends, how should we think about this, I mean, profitability for the second half of fiscal year '22 versus this first half '22?

[Ralf Peter Thomas, CFO & Member of the Managing Board]

So thank you, Guillermo. So let me start with the first part of your question. I mean, with regard to SaaS transition, we are making good progress. Roland has been pointing out a couple of KPIs. I won't repeat them. What we said is that we will accelerate, as customers allow, in our transitioning, and impressive number of 530 contracts being converted into the SaaS model that was quite convincing, and we do expect additional momentum building up in that field.In the first quarter, the impact of all our cloud investments, including SaaS, was 130 basis points, as pointed out. This translates into around EUR 55 million nominal. And for the rest of the fiscal year, we expect that this is going to accelerate, and we may end up with something between EUR 240 million and EUR 280 million grand total for the fiscal year, to give you a bit of color on that and to fill your models also in terms of the way forward.With regards to the backlog and the visibility, as I said, I mean, with the tremendous new orders, which are, to a certain extent, probably based on the expectation of our customers for extended delivery times and potential price increase, we do not expect that momentum keeping up on that very high level. But we are also very pleased to see that our customers obviously very much appreciate our strength in helping them transitioning to digital business models and more sustainability oriented portfolios. So we seem to be very much in line with the demand of our customers.So unwinding of the backlog for the second half of the fiscal year, we do expect that there will be some momentum in kind of normalization of the new orders, and therefore, backlog will then start to unwind. However, before we get back to whatever the new normal is going to be, there will be another couple of quarters that we will carefully watch the development of demand and also focus on our capability to deliver. Because, as Roland said, I mean, in the center of our interest is that we satisfy the needs of our customers, and we are very, very intensively working with them in certain parts individually to make sure that we don't jeopardize their business models and their business opportunities way forward.

[Roland Busch, President, CEO & Member of Management Board]

Maybe just to add, all our major products are cloud-enabled to support the transition for fiscal year '22. We still have work to do on really native -- some native SaaS applications, some platform support. We are working on it. And above and beyond the 530 customers currently being -- we are currently being quoted another 300-odd customers. So we believe that we have -- we really have a good momentum to make the SaaS transformation.

[Guillermo Peigneux-Lojo]

Very helpful. I think one more from me. For Mobility, could you comment on the profitability of the orders coming versus the profitability of the orders in the backlog? I'm trying to get a sense on whether new orders are still accretive to margins.Also, on payment terms and customer advances, are there any changes on the very strong current environment where everything remains the same?And then lastly, on how Mobility is actually dealing with the chip shortages and the supply chain constraints.

[Roland Busch, President, CEO & Member of Management Board]

Yes. Thank you for that question. I will take that. So I mean, let me start in saying that with the Mobility margin, we are still above -- well above that one of our competition. So the 9.3%, which you see currently, is hold back by extra costs, some separation costs for Yunex. We have skills integration costs. And as we said, we have a -- we're guiding for 10% to 10.5%, and we said that we will come -- in the quarters to come, we will increase it as planned. I will come to that in a second, looking forward.Regarding the gross margin improvement, we see that our gross margin in the backlog improved compared to the last year's quarter. And sequentially, it stays on the same level of Q4 to Q1. So we have a good feeling there.Customer behaviors on payment. So we have the overdue ratio. So the total overdues and the percentage of the -- or the receivables and the percentage of the overdues, it slightly increased by some basis points. So I would say there's no indication that there's a change.Just one thing I would like to highlight is that we do have supply chain constraints as well in some of our products, as others do have as well. And now we see to the Omicron wave, we have some cases reported in some sites, which really made us to reduce the output of some sites. We watch that closely, and assembly lines are affected in particular because people have to work next to each other to assemble a cockpit, for example. So therefore, we have to really stay tuned what that does to our business. But so far, we keep the guidance which is out there.

[Ralf Peter Thomas, CFO & Member of the Managing Board]

Guillermo, just one more point in terms of payment terms of this industry. There's no material change that we observed. We are benefiting, of course, from large orders and advanced payments in that regard. And the fact that Mobility had a great start in terms of free cash flow is encouraging us that they will end up with better terms and KPIs compared to prior year.

[Operator]

We will now take our next question from Ben Uglow from Morgan Stanley.

[Benedict Ernest Uglow]

I'll try and keep it brief in the interest of time. Two things. First of all, Ralf, you often give us an update on the so-called channel in China, what you're seeing in terms of automation and motion control and, I guess, updating us on the sort of restock effect and how things are progressing. So that's question one.Question 2, which is more broad. On Siemens Energy, you've sort of signaled an interest in reducing your stake over time. From a kind of Siemens Group standpoint, do you see any obligation or do you feel any obligation to participate in any future capital increase that may come from Siemens Energy? How are you feeling about your stake there?

[Ralf Peter Thomas, CFO & Member of the Managing Board]

Thank you, Ben. We are all well here, and hope you are well, too. And the general question in China is always on top of my agenda. As you know, we are very consistently looking into that, and we have a lot of transparency. However, we can't see each and every angle as I always make as a cautionary statement in that regard when it comes to accuracy. But to cut a long story short, the first quarter was very consistently developing there with all the potential artifacts of additional orders being placed earlier than they would have been placed originally anticipating price increase and also extended delivery times.Looking into the channels themselves, there is no major amount of incremental inventory that is building up, so no shelves being overfilled. And also, from the first insights I do have in the development in January, I do not see that there is a massive change. There's always, ahead of Chinese New Year, the question what is artificial and what is anticipated. And on top of that comes the corona impact there. So it's hard to read that.But if you ask me whether there's anything that is significantly standing out compared to that what we saw in the past, I would rather say no. The momentum on those high levels we saw in the first quarter will definitely not be maintained over the course of the year when it comes to new orders, that's obvious. And when and how the unwinding of a massive backlog of more than EUR 10 billion is going to happen, it's too early to assess. I do expect that to start in the second half of fiscal year. And until we reach then new normal, it may take up to a handful of quarters. That's my gut feeling at that point in time.So no major restocking. Momentum, keeping alive. We will see the typical artifacts around Chinese New Year, and we will share more details and we'll have more visibility in our second quarter's disclosure then.

[Roland Busch, President, CEO & Member of Management Board]

Ben, on -- we, as a shareholder, we are definitely not satisfied with the development of the performance of Siemens Energy and Siemens Gamesa Renewables. We continue to see an intrinsic value in Siemens Energy and in Siemens Gamesa, which needs to be realized by actions now quickly. So we see that the appointment of Jochen Eickholt, the CEO of Siemens Gamesa, is the initial step in the right direction, and we need to see actions quickly now. We remain committed to reducing our shares in energy, but we make, in the interest of our shareholders, a prudent decision on the timing, respective market conditions.And now to your question, obligation to participate in any equity raise or debt financing, answer is no.

[Operator]

We will now take our next question from Simon Toennessen from Jefferies.

[Simon Toennessen, Equity Analyst]

I've got 2 questions, one on the DI backlog and one on software, please. So firstly, how should we think about the level of preordering in the first quarter versus, I guess, the underlying demand level and also, here the impact to order growth, you think, on the remaining 3 quarters, but particularly the second half of the year?And also, given the backlog now in DI, can you guide us a bit better, Ralf, on the revenue recognition for the remaining 3 quarters? Is there a percentage of the DI backlog that's actually going to impact fiscal '23 revenues now?And then secondly, on software, I think orders were up 30% plus, if I'm right. Do you stick to your 0% software growth guide, given SaaS for the year? Or given the strong momentum overall, you can actually manage this transition now with software growing in fiscal '22?

[Ralf Peter Thomas, CFO & Member of the Managing Board]

Thank you, Simon. Let me start with the latter one. As I said, we were very happy and pleased by the fact that we received EDA orders earlier than originally expected. That kind of pull in, if you may, if you want to put it that way. Won't repeat itself endlessly, but it's too early to assess what impact that is going to have on the full fiscal '22. If and when there's an opportunity to grab a major order, we take that. And as I already pointed out many times before, those large orders are building up over years. And when you then finally reach the home stretch, you just lock it in as soon as you can. So therefore, we don't want to speculate on that.If and when we have another major win of that magnitude or even beyond, this may be massively supporting us in our software margin development and maybe even overcompensate at the end of the day the SaaS impact. But too early to tell. We won't be able to answer that question, honestly, before the fourth quarter end at September 30.Talking backlog and execution. Clearly, yes, there will be orders that will only be executed and turned into revenues in fiscal '23. We do have visibility for the running quarter and also for the 2 quarters to come. Obviously, the real challenge is handling the supply chain. Our teams did that extremely well, as Roland has been pointing out. There is also impact, of course, from raw material increase that we tried to compensate with pricing, which happened quite well so far. I think that will build up over the course of the year, and also logistic costs. And it's always a trade-off. If you want to make sure that you are in control of your logistic, then you have to pay a higher price. I mean, you see that all over the place, airfreight, sea and also on the road.So I think we have a lot of respect for turning the backlog. We have visibility. There will be ongoing momentum in turning that into revenue, but we also have a lot of respect for the challenges in supply chain, including logistic costs.

[Eva Riesenhuber, Head of Investor Relations]

[Operator Instructions]

[Operator]

Next question is from Andreas Willi from JPM.

[Andreas P. Willi, Head of the European Capital Goods]

Yes. My question is on DI in terms of how you plan capacity additions there. And that's obviously linked also to the earlier questions on level of preordering, but also to what degree some of the current momentum is market share gain or not in terms of what you need in terms of capacities going forward and how you weigh that up against the risk then of basically protecting your margins into the next down cycle. So what are you doing on capacity in DI? And do you believe you're gaining market share? Obviously, it's very difficult to say currently with these volatile order numbers.

[Ralf Peter Thomas, CFO & Member of the Managing Board]

Thank you, Andreas. I'm very confident that we are winning market share in some areas. It's hard to imagine we don't comparing our figures to competition. But in terms of capacity, it is really a very interesting and also delicate question. We are considering that time and again, but we are also prudently looking into the length of that cycle and also the impact thereafter.At the moment, we still have room to further improve. We are not fully using our capacity yet. And it's also a question of the program we are running there. As indicated last year already when we discussed the fourth quarter close, I said that we deliberately accept that we changed the production programs more frequently to allow for best possible -- for best possibly satisfying our customer needs and demand. So at the moment, we don't see an urgent need to expand capacities, but we are mindfully looking into that, not to miss out on any opportunities. But whatever we do, we will do that in a very flexible way and will not lock ourselves into overcapacity scenarios.

[Roland Busch, President, CEO & Member of Management Board]

And one more to add. You might have heard that we recently opened a new digital factory in Nanjing for our motion control business, supports us, obviously.

[Operator]

We will now take our next question from Alexander Virgo from Bank of America.

[Alexander Stuart Virgo, Managing]

I appreciate you squeezing me in. I guess just a super simple question and a bigger picture one. Given the strength of the quarter, and I know you talked about some of the challenges you're facing, but you seem to be managing those better than most, why not increase the guidance?

[Ralf Peter Thomas, CFO & Member of the Managing Board]

Thank you for that question, Alex, really. I mean first and foremost, I mentioned that in my presentation and also Roland implicitly, we need to have a better understanding and more visibility in the timing and the exact P&L impact of the divestments we have been announcing just lately.We also said in our guidance in November that the ballpark of those divestment gains being on prior year level, give or take, EUR 1.5 billion, it's a hell lot of money, obviously. And therefore, we need to make sure that we really are in control. And in particular, for the parcel project, there is a carve-out still going on. And when we talk carve-out, we are talking minimum 80 jurisdictions around the globe, typically, which is not fully in our control. So timing of the divestments.Then, as I mentioned before, we have a lot of respect for the supply chain challenges. So far, the teams have been excellently handling that, and to that, what I know also quite more effectively than some of our peers. But still, there is impact. And there's also a COVID Omicron momentum building up in Central European countries at the moment, which is also deserving a lot of respect. So we take that into consideration.And we also are mindful of the cost challenges, the -- what we call price cost equation. We have so far not been affected a lot by that. DI managed that very well. SI slightly negative in the quarter. I mentioned that the second quarter, they will see the biggest impact from that, and that will then unwind and improve over the course of the fiscal year. And also logistic costs have been kicking in quite substantially. I also mentioned that's giving you a bit of a gut feeling that was around 50 basis points margin for the company's industrial businesses, including health care in the first quarter, and there is no relief that we see at the horizon at the moment in that regard.SaaS momentum is the third component. And there, we saw a very promising first quarter momentum. We have been turning 530 contracts, as Roland said, and we are ready for more. We leave it to the customers to determine the pace there. But we saw very promising momentum also in the first couple of weeks into the second quarter. So all that together, I believe, deserves a lot of attention and prudence and assessment. And what we shared with you in terms of our view on the guidance is the only honest answer I can give at that point in time.

[Eva Riesenhuber, Head of Investor Relations]

Thanks a lot to everyone for participating today. I'm really, really sorry that we couldn't take more questions. But as always, the team and I will be available for further questions.With respect to the Siemens AGM, you can watch the live webcast of the speeches from Jim Hagemann Snabe and Roland Busch via the Investor Relations homepage. The Siemens AGM will start in half an hour. Please stay healthy, and goodbye.

[Ralf Peter Thomas, CFO & Member of the Managing Board]

Thank you, guys.

[Eva Riesenhuber, Head of Investor Relations]

Thank you.

[Roland Busch, President, CEO & Member of Management Board]

Thank you. Bye-bye.

[Operator]

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.Once again, let me repeat the instant replay numbers. Participants in Germany, please call the replay number [phone], access code 5230956. Participants in Europe, please call the replay number [phone], access code 5230956. Participants from the United States, please call the replay number [phone], access code 5230956#. The replay service will be available until tomorrow night. A recording of this conference will also be available on the Investor Relations section of the Siemens website. The website address is www.siemens.com/investorrelations. Thank you for your participation. You may now disconnect.