Siemens AG

XETRA:SIE

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to Siemens 2023 First Quarter Conference Call. As a reminder, the 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 are, therefore, subject to certain risks and uncertainties.

At this time, I would like to turn the call over to your host today, Ms. Eva Scherer, Head of Investor Relations. Please go ahead, ma'am.

[Eva Scherer, Head, IR]

Good morning, ladies and gentlemen, and welcome to our Q1 conference call. All Q1 documents were prereleased yesterday evening and can be also accessed on our IR website. I'm here today with our CEO, Roland Busch; and our CFO, Ralf Thomas, who will review the Q1 results. After the presentation, we will have time for Q&A.

Please be aware that the Siemens AGM starts right after this call, and we must, therefore, limit the time of the call to 45 minutes.

With that, I hand over to Roland.

[Roland Busch, President & CEO]

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 a very successful quarter, so let's begin with the key highlights right away.

I'm very pleased with our flying start to fiscal 2023 in an economic environment that remains volatile. The impressive growth momentum of our business once again highlights the great trust our customers place in the relevance of our portfolio and our ability to perform. All our businesses seized market opportunities. They all benefit from a very robust investment demand for our offerings around electrification, automation, digitalization and sustainability.

Orders at EUR 22.6 billion grew sequentially, and clearly exceed the revenue in all industrial businesses with an excellent book-to-bill of 1.25. Despite material negative currency effects, backlog remains at record level of EUR 102 billion, giving us very good visibility for the remaining fiscal year 2023.

Key focus was and remains on diligent backlog execution supported by further easing of supply chain constraints. Our key goal is to shorten delivery times, and this led to a strong revenue growth of 8% to more than EUR 18 billion overall. It was driven by Digital Industries and Smart Infrastructure, each contributing an excellent 15% growth.

Once again, Digital Industries automation business set the pace amongst its peers. We gained further market share, with revenue up by an impressive 23% based on excellent execution and improved component availability.

As market opportunities are attractive and demand patterns favorable, our businesses gradually released targeted OpEx and CapEx investments, yet we continue to have a tight grip on investments through constantly calibrating forecast scenarios with the latest developments. Top line growth created substantial value, with Industrial Business profit of EUR 2.7 billion at its highest first quarter level ever. This led to a strong profit margin of 15.6%.

On top of delivering on financial performance, we continue to make steady progress in executing our strategy. The closing of the Commercial Vehicles divestment, we took another step to simplify our portfolio. The formation of an integrated motors and large drive champion is making good progress, too.

Digital business in the first quarter amounted to EUR 1.7 billion, and we are very confident that we will achieve double-digit growth in fiscal 2023. The SaaS transition in Digital Industries is fully on track, delivering annual recurring revenue growth of 14% in Q1, and Cloud ARR tripled versus prior year and rose to around EUR 650 million, now representing 18% share of total ARR.

After our flying start to fiscal 2023, we will further leverage our exceptional order backlog, execution strength and the net positive economic equation. This gives us high confidence level despite a volatile environment. Driven by excellent operational performance, we raised our guidance for fiscal year 2023 for both revenue growth and earnings. We are now guiding for revenue growth in a range of 7% to 10%, up by 100 basis points, and raise the range for EPS, pre-PPA by 20 cents. And Ralf gives you more details later.

Besides having confidence in our operational strength, I was also encouraged by our discussion on the World Economic Forum when looking further at longer-term perspectives. Many leaders showed a willingness to take action and drive change, and this is reinforced by public investment programs, be it decarbonization, resource efficiency or more resilient value chains through glocalization. These transformations will provide ample opportunities for Siemens across the board, and we are more strongly positioned than ever with our diversified global footprint to seize them.

Here are the key numbers at a glance. Let me briefly touch on 2 more topics. Free cash flow, around EUR 100 million, was softer due to our substantial growth momentum and will strongly rebound throughout fiscal 2023. EPS pre-PPA came in at EUR 2.08 driven by excellent operational performance and including some headwind from an unpleasant surprise from our Siemens Energy stake.

Looking further into our fiscal year 2023, our healthy order backlog continues to be a source of strength, visibility and resilience. It stands at EUR 102 billion. And considering negative currency impacts of EUR 4 billion on a comparable basis, our order backlog has increased further from already record levels. It gives us confidence to achieve our profitable growth targets with an even higher share of short-cycle products and systems compared to 3 months ago. Visibility in our short-cycle product businesses in Digital Industries and Smart Infrastructure for the remaining 9 months of fiscal 2023 is at unprecedented levels. The longer-term project and service backlog of Mobility and Healthineers comes with healthy gross margins.

Our world-class supply chain teams continue to make a clear difference in a competitive environment, building on long-term trustful relationships with our suppliers and partners. This close collaboration currently matters most in industrial electronics, where supply is still tight.

A strategic growth catalyst for all our businesses is achieving sustainability impact at our customers. Here, you can see great examples of how we bring our hardware, software, domain expertise and services together to create customer value. After an initial investment by Siemens Financial Services, the vertical farming company, 80 Acres Farms, entered a strategic partnership with Siemens to faster, more efficient and sustainable farming practices globally. Through close collaboration, we are enabling their digital transformation to optimize and scale up operations across their U.S.-based production farms. Digital Industries and Smart Infrastructure will jointly provide a comprehensive set of solutions. We are spanning from advanced industrial automation and digital twin software to intelligent facility and energy management.

Let me highlight the largest order in the first quarter for a turnkey metro system linking Sydney in the new Western Sydney Airport. It's worth EUR 900 million, integrating fully automated driverless trains and a complete set of digital rail infrastructure. We will optimize operations across 15-year maintenance contracts based on our digital asset management solution, RailigentX, which is part of our Siemens accelerator digital business platform.

These projects demonstrate how deeply embedded sustainability is in our offerings and how sustainability creates significant business momentum. Customer impact is our biggest lever for decarbonization and environmental protection. We will avoid 150 million tonnes of greenhouse gases for our customers through our products and solutions sold in fiscal year 2022. With the publication of the sustainability report last December, we announced new and more ambitious targets for our own decarbonization efforts and related investments. As a core action, we set ourselves the goal of reducing physical CO2 emissions by 55% by the end of fiscal year 2025, and by 90% by 2030.

We know we can achieve this by expanding our best practices. One excellent blueprint of increasing production while, at the same time, lowering the environmental footprint is our automation products factory in Amberg. This team is at the forefront with brilliant ideas and was recognized by the World Economic Forum as a sustainability lighthouse factory. We see good progress with the strategic transition of our DI software PLM business towards software as a service. Let me highlight just a few data points. As I mentioned before, the transition is fully on track, with a share of cloud ARR at 18% of total ARR tripling year-over-year. Around 5,450 customers have signed on to the software-as-a-service business model, with an increasing share of small and medium enterprises and start-ups. And among them are around 70% new customers, underpinning our ambition to expand our existing customer base.

Our intensified customer success management is bearing fruit. We see initial SaaS buyers placing follow-up orders by expanding numbers of users, functionality and additional applications.

With that, over to you, Ralf, to give further details regarding our operational performance and the outlook for fiscal year 2023.

[Ralf Thomas, CFO]

Thank you, Roland, and good morning to everyone. Let me share further details regarding how we capitalized on the momentum we created with an outstanding start in the fiscal -- in the first quarter and our raised outlook for fiscal '23.

In Digital Industries, we saw continued robust demand at high levels across our core end markets, leading to sequential order growth. Investment sentiment continues to be healthy, not only in discrete industries, including automotive, machine building and aerospace but also in hybrid verticals such as food and beverage or pharma. As expected and indicated before, we saw some adjustment in automation order patterns compared to the extraordinary prior year quarter. Orders were down 13%, still substantially exceeding revenue with a book-to-bill for DI overall at 1.24. Therefore, our record-high backlog in Digital Industries further increased to more than EUR 14 billion. Customer cancellations continue to be marginal. We expect more than EUR 10 billion of this record backlog to convert into revenue in fiscal '23, which gives us very good visibility and confidence for the remainder of the fiscal.

Orders in discrete automation came back from very elevated levels, while process automation was close to prior year level. Software was modestly up with several larger deals in the PLM business. We anticipate the normalization of order patterns to continue during fiscal '23. We expect that this will lead to book-to-bill rates below 1, resulting in a gradual reduction of order backlog on easing supply chain challenges. Strong revenue conversion will ultimately lead back to healthier delivery times.

Automation revenue rose 23% on broad-based strength. Supply chain constraints continue to ease, and the team, again, did an excellent job to run the factories at high utilization and optimized output. Still, we keep a close eye on potential disruptions from component availability and potential increased infection rates in China following Chinese New Year travels.

Revenue in discrete automation was up a stunning 24%. Process automation is on a steady positive trajectory and achieved 14% revenue growth. Software was lower by 6% as expected, reflecting flat PLM revenue on ongoing momentum of our SaaS transition, while EDA recorded lower volumes from larger orders.

Margin at 22.5% was outstanding driven by the automation businesses, while software, as expected, had a slower start into fiscal '23. Strong profit conversion across all automation businesses on high volumes and capacity utilization came with a very favorable mix on improved availability of components for high-margin products. Productivity gains and price increases from previous quarters, which materialized now through backlog conversion, enabled us to overcompensate cost inflation in the quarter. Effects from higher wages and cost dynamics making their way through the supply chain will increase over the next quarters, but we are well prepared and confident to keep the economic equation net positive throughout fiscal '23.

Cloud investments accounted for EUR 67 million in the first quarter, equaling 130 basis points of margin impact on Digital Industries. We expect around EUR 300 million of cloud investments for fiscal '23 in total.

Regarding free cash flow, Digital Industries had a softer start swinging back to a certain extent from an extraordinary fourth quarter, leading to a cash conversion rate on prior year level. Operating working capital increased on higher receivables due to high billings towards calendar year-end, and an intentional temporary buildup of inventories to safeguard revenue growth. We expect a material catch-up in cash generation beginning in the second quarter.

Looking at our key vertical end markets for the next quarter, we expect continuing market growth momentum substantially driven by price inflation. We closely monitor the underlying real investment sentiment, which so far remain positive for our offerings. Yet we will remain alert in tracking the overall still ambiguous macroeconomic situation. And as Roland said before, we will continue to manage costs tightly with an empowered team close to their markets.

Now let me give you the regional perspective on our excellent top line automation performance. As mentioned, automation orders were robust on a high level against very tough comps, which you can see on this slide as well. This was most notably visible in Europe compared to an exceptional first quarter in fiscal '22 of extraordinary pull-forward order levels.

China orders rebounded from the softer fourth quarter, with massive sequential growth and only 7% decrease compared to peak orders 1 year ago. Outstanding double-digit revenue growth in automation was broad-based across regions. China delivered 17% revenue growth despite an infection wave in December. Germany, up by 16%, and Italy, up by 23%, show strength across the board while, in the U.S., both discrete and process automation increased double digit.

As Roland said, our teams are well prepared and determined to leverage improved global component availability for stringent and optimized backlog conversion. Since Digital Industries achieved fantastic momentum in the first quarter which we expect to continue, we raise our guidance for revenue growth by 200 basis points to 12% to 15% for the full fiscal year '23. And we lift the profit guidance on the lower end by 1 percentage point towards 20% to 22%. From today's perspective, for the second quarter, we anticipate that DI will achieve revenue growth and profit margin towards the upper end of the raised corridors.

Q2 will be again driven by strong backlog execution in automation. We expect the software business to show improved revenue growth on easy comps, while profitability will continue being impacted by SaaS transition and EDA orders, skewed rather towards the third and fourth quarter. For the second half of the year, we expect clear revenue growth acceleration and improving profitability in the software business.

Smart Infrastructure achieved a truly outstanding first quarter performance. The team delivered excellent top line growth in robust end markets, boosting profitability to a quarterly all-time high. In total, orders were up 16%, driven most notably by 33% growth in the electrification business, fueled by larger projects with repeatable and scalable solutions such as in the semiconductor vertical and a strong base business. Buildings showed 13% growth, and electrical products was up 3%.

Revenue growth reached 15%, with the largest contribution from the electrical product business up by 24%, and electrification up by 20%. The team, again, very successfully managed the supply chain. This was SI's best quarter ever, with a margin performance of 15.3%, up 270 basis points year-over-year. SI benefited from higher capacity utilization as well as ongoing structural cost improvements from our competitiveness program.

Headwinds from material and other cost inflation were overcompensated by pricing actions and productivity. Positive currency effect contributed around 50 basis points to margin improvement. As with DI, SI allowed for temporarily higher inventory levels to safeguard growth momentum. On top, increased revenue at the end of the year has been driving up accounts receivables, resulting in weaker free cash flow for Q1. This will improve massively in the second quarter.

As in Digital Industries end markets, we continue to see nominal growth in all key verticals, however, also substantially fueled by price inflation. We closely watch underlying trends and continue to see healthy demand with real-term growth in all major verticals. Both public institutions, such as universities and hospitals as well as commercial customers, invest in sustainability offerings such as energy efficiency and intelligent buildings. Further important verticals more related to renewable energy integration and IT infrastructure such as power distribution or data centers continue to show robust growth.

Looking at the regional top line development, we saw strong order momentum everywhere except China, impacted by the recent pandemic way. Order growth in Germany benefited from a more technical effect of preponing service agreements, which are renewed every year into the first quarter, equaling around 27 percentage points which will reverse in the second quarter. The U.S. was the main growth engine, up by a remarkable 20%.

Revenue increased broad-based, with the most impressive 25% growth again in the U.S., benefiting, for example, from strong data center business. Building on an outstanding start and ongoing momentum at Smart Infrastructure, we raised our guidance for revenue growth by 100 basis points to 9% to 12% and lift the profit guidance by 50 basis points to 13.5% to 14.5%. For the second quarter, we see the comparable revenue growth rates within our upgraded full year growth guidance strongly supported by order backlog. And we anticipate the second quarter margin to be in the raised margin corridor, too.

Mobility started the year with a solid first quarter. Orders at EUR 3 billion included the mentioned major order win for the Sydney Metro project and led to a book-to-bill of 1.21. The backlog stands at EUR 36 billion with healthy gross margins, and our sales funnel looks very promising for the upcoming quarters across all business activities. Among others, we expect to book the recently announced large India locomotives orders for around EUR 3 billion in the second quarter.

Revenue in Q1 was up 7% on double-digit growth in the rail infrastructure businesses while rolling stock was up moderately. Profitability at 8% was still impacted by suppliers' delays in delivering materials and components and a less favorable business mix with lower share of product business. This was largely offset by positive effects mainly related to the sale of inventories, which had previously been written down. Mobility had a soft start for free cash flow due to timing of large customer payment, which shifted into January. Therefore, we expect a material catch-up in the second quarter.

Our assumption for revenue growth for Q2 is double digits due to a low basis of comparison from onetime Russia effect in the prior year's quarter. Second quarter margin is expected around the level of the first quarter, also depending on gradually easing material supply constraints.

Let me keep the perspective on below. Industrial Business is crisp. More details are in the earnings bridge on Page 23 in the appendix. SFS delivered a solid quarter in line with expectations. Value creation at our portfolio companies continued with a gain of EUR 140 million from the Commercial Vehicles divestment. On top, we saw solid operational performance of the remaining businesses. The disappointing performance of our Siemens Energy investment led to a negative impact of EUR 187 million. In addition, Siemens Energy lowered its expectations regarding profit development for full fiscal year '23, which will be reflected in our equity result as well.

Free cash flow performance in the first quarter reflects our strong growth momentum, which will continue throughout the year. Operating working capital was up, driven by inventories and accounts receivables, each increasing by around EUR 1 billion quarter-over-quarter. Due to our temporarily increased inventory levels, we are well positioned for the next quarters to execute our backlog diligently while we will, in turn, reduce our working capital gradually and drive our free cash flow accordingly. We expect a material catch-up in free cash flow performance already in the second quarter and another strong performance for full fiscal '23. With this tight grip on working capital, we are very confident to continue our deleveraging path driven by excellent cash conversion.

Before I conclude with our outlook, I want to briefly recall Roland's backlog slide. We delivered very consistently on our commitment given in November and had a great first quarter. We built strong momentum to convert our backlog into revenue and drive profitability. Our visibility and confidence for the remainder of fiscal '23 has improved even further, with EUR 40 billion of expected revenue generation from a very strong backlog in the coming 3 quarters.

Following the flying start into fiscal '23, we raised our guidance. On Siemens Group level, we now anticipate 7% to 10% comparable revenue growth, up by 100 basis points, and a book-to-bill ratio above 1. We expect profitable growth of our industrial businesses to drive basic EPS from net income before PPA accounting to a range of EUR 8.90 to EUR 9.40 in fiscal '23, up from the previous range of EUR 8.70 to EUR 9.20. This outlook excludes burdens from legal and regulatory measures and material impairment. Of course, we monitor macroeconomic volatility closely and will be able to act swiftly if need be. So in a nutshell, the course is set for cash excellence and outstanding value creation.

With that, I hand it back to Eva for the Q&A.

[Eva Scherer, Head, IR]

Thank you, Ralf. We are now ready for Q&A. In order to provide as many of you as possible the opportunity to ask your questions, please limit yourself to one question per person. Operator, please open the Q&A now.

[Operator]

[Operator Instructions]. Our first question comes from the line of Ben Uglow from Morgan Stanley.

[Benedict Uglow, Morgan Stanley]

It's really to understand the situation in Digital Industries in China. And in particular, I guess what I kind of want to know more about is, what areas in China, what end markets or what contracts are actually behind this big uplift? So if we look at last year's fiscal first quarter, your DI orders in China were plus 78%, so almost double, and this year, we haven't really come down very much. We're minus 7. So it's still a very, very robust picture. And it is, I would say, we don't know exactly, but several hundred million higher than where we were in '19 and '20.

My question is, in that gap, in that delta, is there one end market or one factor that is driving your battery or EV or semis, were there historic EDA orders, how -- if we were to drill into that change, what is driving the change?

[Ralf Thomas, CFO]

Thank you, Ben. Very exciting question that we have been looking into consistently over the last couple of quarters. Let me give you a quick rundown. First and foremost, calling back our conversation in November, the sequential new orders in China were really impressively coming back in the first quarter. Compared to the levels of the fourth quarter, we almost doubled up. And as expected, there must have been also, let me call it, psychological patterns in the sales force's behavior. Maybe whatever the root cause was, we are where we committed ourselves to in the first quarter.

Then looking into the different verticals and what has been the driving force, honestly, I wish there was one as you have been pointing out, but it wasn't. If you look into the market and into the new orders that we received, it's about twofold. On the one hand side, in absolute terms, from a materiality perspective, we continue in the high teens with machine tools in automotive. So strong, solid and material markets that we benefit from. Then there is also contribution from process industries and mining to a certain extent. But also verticals like batteries and food and beverage are contributing massively also clearly double digit, still on smaller scale but relevant on the growth path ahead of ourselves. So when you then look into the year-over-year relative growth, who has been the biggest contributors, I mean, there's definitely solar to mention on the SI side and mining, as I mentioned before, but also the petrochemicals from LDA are benefiting a lot. So it's really on a broad basis and not restricted to one industry only.

Let me also just shed a quick word on the aftermath of the COVID wave and the expectations for Chinese New Year. I mean, first and foremost, the number of working days in January have been massively impacted by Chinese New Year. Last year, that was rather in February. This year, it was in January, and we still do see quite a meaningful print in, not audited yet, of course, and not fully consolidated, but a good guesstimate of what happened in January, which is still supporting a meaningful normalization as mentioned before. So I don't see any cliff or any other negative impact that would be indicating a massive change anytime soon.

So luckily also, there is no new wave of COVID cases after the Chinese New Year traveling intensity in our workforce. At the moment, we don't see anything like that. And with more governmental stimulus programs in the pipeline and the opportunity to rebound the economy and consumer confidence, it's maybe also getting a bit better, but we don't want to speculate what we see. However, on a factual basis, that China's PMI in January was at 50.2. So the first time over and above 50 since middle of '22. And with that, I think we may say that we lift up our own expectations and to that what we have been pointing out to you when we discussed the guidance for fiscal year back in November.

[Operator]

Next question is from the line of Gael de-Bray from Deutsche Bank.

[Gael de-Bray, Deutsche Bank]

Can I actually zoom on the electrical products segment? I think you printed 24% organic revenue growth but only 3% order growth. So can I ask about the book-to-bill in the electrical products segment this quarter and, more generally speaking, your thoughts about the outlook for the business?

[Ralf Thomas, CFO]

Gael, I mean, first and foremost, it's a highly attractive market segment for us, and we have been definitely gaining momentum in that field. What we do see is that the growth momentum that has been generated is also supported by the key growth markets and is going to continue from today's perspective. I need to look up the book-to-bill. I will come to that later, but it's definitely over and above 1. We may see a normalization at the second half of the fiscal year in that field. But in general, book-to-bill, we had been discussing a bit in the fourth -- in the November disclosure process. I -- just to complete the picture, the book-to-bill for the first quarter was 1.14. As I said, that may moderate and normalize over the course of the fiscal year, but there's also a strong backlog supporting the quarters to come.

In general, book-to-bill, as we have been guiding for Siemens grand total, it's going to be above 1. Obviously, we do expect a strong contribution from Mobility, as always, in that growing business, with also a very solid gross margin in the existing backlog. But having been giving you a bit of color in the last disclosure, I would like to update that a bit. I said it will be 90% plus for short-cycle business. And for DI in particular, from today's perspective, I think that 90% plus may approach 1 from the south, but obviously, the first quarter has been contributing a lot with 1.24 for DI and 1.31 for SI. For SI from today's perspective, I would expect book-to-bill above 1 for the full fiscal year.

[Gael de-Bray, Deutsche Bank]

Okay. But specifically for electrical products, you don't really see a risk of inventory correction happen in the next years.

[Ralf Thomas, CFO]

So I mentioned that a bit. I mean, first and foremost, we don't see any cancellations at the moment. It's completely immaterial, no change compared to that what we said before. The backlog is giving us quite some visibility. I do not see any channel stuffing or any artifacts out there that may be material in nature, but of course, as you know us, we are paranoid about looking into that matter. And therefore, if and when there would be a change of the scenery, we would, of course, directly react.

At the moment, there is no sign of channel stuffing or any artifacts. However, as always, around Chinese New Year, you better wait for the actuals of the second quarter of our fiscal year second quarter before you conclude on matters. There is always also a bit of dancing around price change and the like. So wait for the second quarter before we can talk facts. But from today's perspective, no massive change or artifacts in the channels.

[Operator]

The next question is from the line of Andrew Wilson from JPMorgan.

[Andrew Wilson, JPMorgan Chase & Co.]

I just wanted to dig in a little bit on the pricing developments across, I guess, particularly DI and SI in the Q1. And also, I guess, thoughts around pricing strategy for FY '23 as a whole, please.

[Ralf Thomas, CFO]

Yes. Thanks, Andrew, for that question. In the German call before, I already have been elaborating on that a little bit. The rationale is, as we shared with you, that we resolve what we call the economic equation with a net positive ideally in each and every quarter and, in particular, over the full cycle. What does that mean? Any kind of cost inflation, be it wages, be it material, be it anything else needs to be compensated by productivity measures and pricing power over the course of a cycle.

Last year, first quarter, just looking back at that for a moment, we started with a slight net negative into the fiscal '22. At the end of the year, we turned it around into a net positive. And we now, first quarter fiscal '23, started with a net positive for both DI and SI. We are not trying to maximize pricing only because what we see is a massive demand at our customers for sustainability offerings that we have for digitalization and also for automation. And therefore, our prime target is to maximize growth -- profitable growth on the way forward. And therefore, we pretty much reflect the increase in wages, inflation on the wage side as a yardstick for that.

So we do see then on a global basis between 4% and 6% for the full fiscal year for us as a global player, and we need to compensate that by pricing power and additional productivity gains. So far, that worked out very well. I also indicated that for the second half of the year, in particular, there may be a slight decrease in that net positive that we see on a percentage basis at the moment, but it will still be net positive. And if need be, we will have levers in our hand to make sure that we end up in the corridor. We expect to accomplish growth, profitable growth, winning market share and capitalizing on the huge momentum we have been creating over and above that of our peers is the key target that we are pursuing.

[Operator]

The next question is from the line of Philip Buller from Berenberg.

[Philip Buller, Berenberg]

Obviously, a good set of results. The question is on cash flow. I appreciate there's some cash to consume ahead of all this growth that's coming. But can you touch on what's happening on the prepayment side of things, please? And is there anything to read into the commentary around receivables, i.e., are there any concerns on the potential creditworthiness of any of your customers? And just thinking about Q2 in that regard, net debt to EBITDA in Q1 at 1.1x despite this soft cash print would imply you're going to start to continue deleveraging pretty quickly as the quarters roll by. So I'm curious to hear what the plans are to ensure that you don't delever too much further.

[Ralf Thomas, CFO]

Thanks, Phil, for those relevant questions. I mean you can imagine close to my heart. I mean, first and foremost, I think it was very meaningful, and we still consider this to be meaningful also on the way ahead to make sure that we are able to capitalize on the massive growth momentum that has been created would be completely naive to optimize inventories at the same point in time. So we deliberately allowed a meaningful temporary buildup of inventories to safeguard the top line for the quarters to come. That was, give or take, EUR 1 billion incremental increase December 31 over September 30. There is also a technical impact. And obviously, from accounts receivable, we accelerated growth in the last couple of weeks in the last quarter.

So therefore, with the payment terms agreed upon, there's also a natural increase in accounts receivables. We double and triple and quadruple cross-check the validity of those accounts receivables. And also our customers, we are screening each and every of them as we always do. I do not see any change in that. In terms of payment behavior, I do not expect any massive change in pattern. From today's perspective, there is no data points for that at all. So that's pretty much rational and intended way forward. We will unwind the inventory levels over the course of the fiscal year. Again, there will be a first contribution in the second quarter because it's a delta quarter-over-quarter that matters, obviously. And with the payment -- large payments that we receive from customers when it comes to project business, you know that it's hard to predict whether you get the check on the last day of the quarter or early in the next quarter.

So we are, I think, in a regular process in that regard. We received some of the payments that could have been coming and hitting our accounts in December and January from the Mobility perspective mainly. So that's ticked off, if you will. Leaves us with a huge expectation and ambition for the second quarter to start bouncing back. There will be a massive change in free cash flow and cash conversion, in particular, for SI and also for Mobility. You have heard pretty much the same from Siemens Healthineers already. So all the businesses are geared up for massive change on the cash conversion side in the second quarter.

And that, again, will then start having impact on our industrial net debt over EBITDA. We have been giving ourselves a maximum of 1.5x, which we clearly have been beating. So we are better than that with 1.1. And over the course of the year, we expect further deleveraging for the second quarter, in particular. Bear in mind that there's going to be a dividend payment that is also on levels that are unprecedented so far. So from a deleveraging perspective, the focus will be on the second half of the fiscal year.

[Eva Scherer, Head, IR]

We will take one more question.

[Operator]

The last question is from the line of James Moore from Redburn.

[James Moore, Redburn]

Ralf, could I just qualify your answer to Ben earlier? Were you saying that Chinese daily order average in the start of the new quarter in automation was similar to the first quarter daily average? That was just a qualification.

And my question is on portfolio. Following the capital raise at energy, could you talk about your ambitions on your remaining stake?

[Ralf Thomas, CFO]

Let me first qualify, James. What I said is quarter-over-quarter, you remember we had an intense discussion about the new orders from China in short-cycle business in the fourth quarter. And we had been expecting back in November, having about 5 weeks into the fiscal year back then, that there was a massive change back to normalization on prior levels. That has been taking place. What I said is we have been almost doubling up new orders for automation in China in the first quarter compared to the fourth quarter of last fiscal year. And then I have been changing perspectives and said in January, taking all the artifacts into consideration that come from a different allocation of Chinese New Year. Last year, that was mainly in February, starting 31st of January. This year, it was fully covered in January.

So the number of working days and all the artifacts around Chinese New Year, trying to anticipate that in a meaningful way, what will be the final outcome for the first quarter. I said there is no cliff that I could see for the behavior in China on that one, but there is normalization. Normalization, if I may translate, that give or take something between 10% and 15%, I would still call normalization and not a cliff. So therefore, at the moment, I do not see any cliff on the new orders for short-cycle DI automation business in China with all the uncertainties around Chinese New Year and the like that I mentioned.

Talking portfolio in the 35% shareholding of Siemens AG and Siemens Energy, we are boringly consistent on that matter from the very beginning. We said that we will not do anything that will -- may harm the newly listed company back then. There was an intent to start selling down our stakes during the first 12 to 18 months. If market conditions allow, I think you agree that wouldn't have been helpful for any participant. If we did back then at the moment, Siemens Energy is busy preparing or completing the purchase of Siemens Gamesa Renewable Energy shares. They are delisted at the moment, and I think Christian and Maria have been giving quite a reasonable overview about their intent, how to proceed. We respectfully look at that. And we are not in a hurry with anything, but what we absolutely endorse and believe in, this is a very, very meaningful asset when it comes to sustainability considerations in the long term, so therefore, there's an intrinsic value that goes far beyond than what we see at the moment. That's my personal view on matters.

And with that having said, we are not in a hurry, but you should also bear in mind the 10% that we held after the listing in our Siemens pension fund has been sold down to less than 3% in the meanwhile without any noise and without harming any one of the stakeholders being affected. I think that was a meaningful way to get things done. And I would also think this is a meaningful way how to handle things the way forward.

[Eva Scherer, Head, IR]

Thanks a lot to everyone for participating today. As always, the team and I are available for further questions. Have a wonderful day, and goodbye.

[Operator]

Ladies and gentlemen, that will conclude today's conference, and you may now disconnect. Thank you for joining, and have a pleasant day. Goodbye.