Siemens AG

XETRA:SIE

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to Siemens 2021 Second 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 are 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]

Good morning, ladies and gentlemen, and welcome to our Q2 conference call. All Q2 documents were released this morning and can be found also on our Investor Relations website. I'm here today with our President and CEO, Roland Busch; and our CFO, Ralf Thomas, who will review the Q2 results and FY '21 outlook. After the presentation, we will then have time for Q&A. This call is scheduled for 60 minutes. In addition, Roland and Ralf will be hosting a virtual sell-side meeting and investor roadshow next week. Since there's a lot on the agenda. With that, I hand over to Roland.

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

Thank you, Eva, and good morning to everyone. Thank you for joining us to discuss our second quarter results. I'm very proud that we delivered another outstanding performance. My thanks goes to all the people at Siemens worldwide for their dedication and for always embracing a growth mindset. From a macro perspective, industrial recovery continued. This was clearly visible in key verticals such as automotive, machine building, electronics, chemicals or pharma. Part of the strong manufacturing rebound is due to catch-up effects and strengthening resilience in increasingly strained supply chains. From a regional perspective, China stands out, now clearly above pre-COVID levels for industrial output. Recovery in Europe and the United States gains traction with vaccination now progressing at a fast pace. Broad-based fiscal stimulus will support over the midterm to modernize infrastructure and lower greenhouse gas emissions. All in all, the economic environment is improving, albeit with large regional differences depending on the pandemic impact. Our top priority is on execution strategically and operationally, and we made substantial progress here. Our portfolio, more focused and strengthened. Our competitiveness programs, fully on track. Our offering best suited to create sustainable customer impact and support their digital transformation. All this led to strong operational momentum, driving profitable growth and excellent free cash flow. We expect to continue the second half in fiscal 2021. At the same time, we will continue to manage risks and opportunities in a prudent way. We expect an uptick in discretionary spending. In line with opening of economies. In addition, we plan to selectively invest in further digital applications and vertical offerings guided by demand from the market and our customers. Also, we will improve our sales processes and performance across all sales channels to grasp growth opportunities. Besides the pandemic-related risks, we keep a close eye on stretched supply chains. Our teams have done a great job so far. They are working hard to further mitigate risks from electronic shortages and price increases in certain categories. Currently, there's also strained supply for steel, plastics, and freight, amongst others. Hence, in selected cases, we may face production constraints and prolonged delivery lead times to customers over the next months. Based on our strong first half year performance and significant portfolio gains, we raised our outlook for fiscal year 2021 again. We expect our book-to-bill ratio to be above 1. We now expect revenue growth for the Siemens Group of 9% to 11% on a comparable basis. And net income is now seen in the range of EUR 5.67 billion to EUR 6.2 billion. These numbers do not include any effects from the Siemens Healthineers' acquisition of Varian, which closed after the second quarter, and Ralf will walk you through the details. Now let me give you some more color on the topics I touched in my introduction. As I said, we made good progress to shape and strengthen our portfolio. Siemens Healthineers closed 3 weeks ago the transformational Varian acquisition and started its integration. We are very pleased with Varian's strong strategic fit, sound financing structure and synergy potential. I'm sure our 75% stake in Siemens Healthineers will become even more valuable. Smart infrastructure finally closed the C&S Electric acquisition. This is fully in line with our strategy to grow in Asia. We get access to a fast-growing low voltage power distribution market in India, and at the same time, C&S will serve as export hub for further markets in the region. In some regions and especially in India, the pandemic is raging particularly violently these days. My thoughts go out to all our colleagues and to all people who are affected by the serious consequences. Our management teams, especially in India, are doing everything possible to protect our employees. We support from here as best as we can. And I hope that international aid will take effect soon and that vaccinations will increase rapidly in the country. We haven't talked a lot about our global venture firm, Next47. Five years after redefining the strategy of our venture capital activities, I can say that we are very pleased with the progress. Next47 combines capital investments with hands-on business development capabilities for start-ups and supports our management with great insights into the venture market. Today, Next47 is invested in more than 30 promising ventures. Siemens benefits by collaborating with these start-ups in attractive technology fields of relevance to us. And the concept pays off. In the second quarter, 2 companies were listed in the United States, ChargePoint and AEVA. The ChargePoint listing created a gain of more than EUR 200 million in connection with the transfer to our stake to the Siemens Pension Trust. Finally, we closed the Flender divestment to Carlyle, an important step to focus Siemens. The sales generated a higher-than-expected gain of almost EUR 900 million. I talked about digital transformation opportunities at the beginning, and a good example is the Hanover Fair, which had its second virtual edition just a few weeks ago. Many of you experienced our unmatched digital enterprise offering at a virtual 3D tour. We had intense discussions and interactions with thousands of customers. Focus was on how to use digital twins, AI, edge computing and data to act quickly and flexibly in fast-changing environments and how to adapt products and manufacturing processes in a resource-efficient way. PLM software is a key driver for digitalization. So we are proud that our Teamcenter portfolio was recognized by the well-known Forrester Research firm as the leader in this space. When we started the new chapter of Siemens, I told you that we will strengthen and amplify our ESG program. Sustainability is the core of our business. It is part of our offering when talking to customers, governments and investors. We stepped up our focus and commitment to 4 ambitious sustainability initiatives at once. The goal is to contribute to limit global warming to 1.5 degrees. By 2030, we have set ourselves clear goals to drive decarbonization such as: to aim for 100% electric vehicles in our fleet, to use 100% renewable electricity, to own or lease only buildings that have net zero carbon emission and we intend to achieve a 20% reduction in our supply chain's emission. We will give you more insights on our ESG measures at our Capital Market Day on June 24. A literal lighthouse for sustainability is our Electronic Works factory in Amberg. Amberg joined our Chengdu factory in the Global Lighthouse Network of the World Economic Forum for its systemic digital transformation program. The team applies seamless data integration from suppliers to customers and a lean digital factory concept. The outcome: additional 140% factory output at double product complexity without increase in electricity or resources. They have an even greater impact through our customers' operations. A good example is our strategic partnership with Mercedes-Benz, where we are expanding our decade-long cooperation. We will jointly redesign Mercedes-Benz Berlin, Berlin-Marienfelde factory site. How? By developing innovative solutions for digitalization and increasing energy efficiency in production. A key component will also be the qualification of employees. It is planned to be -- to roll out this blueprint for sustainable and digital production globally in their production network. Our technologies have the purpose to deliver sustainable customer value. Let me highlight a few more recent examples. Considering the pandemic, time-to-market has never been more important. We helped BioNTech company's -- BioNTech, to convert its existing Marburg site to produce the COVID-19 vaccine in record time of 5 months. We collaborated closely to rapidly implement our technologies such as for process control and manufacturing execution. Production is end-to-end digitalized to enable paperless documentation right from the start. The Smart Infrastructure -- in Smart Infrastructure, we have worked hard on continuously expanding our portfolio for EV charging, infrastructure and services. The secular growth trend towards electric vehicles to supply emission-free mobility is accelerating. So we see good opportunities and sustainably grow this business. Customers are, for example, oil majors upgrading filling stations with charging infrastructure. Other customers include local utilities, municipalities, fleet operators and residential enterprises. Another highlight. Our Mobility business received AUD 190 million order to upgrade and modernize the New South Wales rail network. Our traffic management and signaling solutions will increase capacity, reliability and availability. So how does all this translate into our financials. Let me give you a brief overview for the Siemens Group in the second quarter. Orders were up 11% at EUR 15.9 billion with a strong book-to-bill ratio of 1.08. Key drivers were Siemens Healthineers and Smart Infrastructure, both up double digit. Revenue was up across all businesses and regions by 9% to now EUR 14.7 billion. Top line growth was stronger than expected. This comes to a significant extent from our business in China, where we will sharply up 44% year-over-year on easy comparables. But growth was broad based. Top line growth in Germany, for example, increased by 7%. Adjusted EBITA for our 4 Industrial Businesses rose sustainably to EUR 2.1 billion, benefiting from strong top line-driven profit momentum. In addition, structural improvements are paying off. Our discretionary spending continued to be on very low levels, but this effect will decline. With ongoing progress to bring the pandemic under control, countries will reopen and travel and sales efforts will pick up. All together, this led to an excellent margin performance of 15.1%, including 1 percentage point of severance. It translates into strong earnings per share of EUR 2.82 also benefiting from the Flender gain. Ralf and I are extremely satisfied with our progress to achieve a more consistent free cash flow development throughout the year. EUR 1.2 billion of free cash flow all in, in the second quarter is a very strong performance driven by exceptional EUR 2.1 billion from Industrial Business. And I promise we will continue this path. With that, over to you, Ralf. Let's take a closer look at operational performance and financials.

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

Thank you, Roland. Also good morning from my side. Let me share further details regarding our excellent performance across the businesses. Our key markets for Digital Industries and automotive and machine building continued to recover at strong pace. All automation businesses showed order growth with discrete automation up double-digit and process automation being moderately up, while software was lower on tough comps. In short-cycle businesses, restocking effects were visible. Our automation businesses saw a sharp 45% order growth in China. However, on easy comps impacted by pandemic-related shutdowns in the prior year. We are very pleased that revenue rose double digit in all businesses. Discrete automation was up in the mid-teens with exceptional strength in China. Process automation returned to growth in all key countries on improving investment sentiment. Revenue growth in automation was driven by China, up by 61% on easy comps, which we expect to moderate. We also see positive sequential momentum in Europe to return to growth in part due to lower comparables. Significant revenue increase in the U.S. benefited from a strong solution business. Software grew by 11% on strength in the EDA and Mendix segments. Our PLM business, saw improving investment attitude by their customers on a broadening basis. Margin performance at Digital Industries reached an excellent 20.1%, as expected, impacted by 200 basis point severance due to ongoing structural optimizations. Margin improvement was benefiting from strong profit conversion on higher revenue in short-cycle businesses combined with low COVID-19-related discretionary spending. Furthermore, the execution of our program to structurally improve the cost base is bearing fruit now. A strong contribution came from the software business driven by EDA whereas cloud and integration investments accounted for around 110 basis points negative impact, on par with prior quarter's levels. We are excited that Digital Industries for the first time ever achieved more than EUR 1 billion of free cash flow in a single quarter. This exceptional performance is based on stringent working capital management and early customer payments in the software business. Now let's have a look at our market segments and geographies. As usual, this page is summarizing the regionals perspective regarding top line, which I already highlighted. When looking at our key vertical end market expectations for the next quarters, we see a continued recovery along broad-based improved sentiment in the wide range of industries. Yet we are fully aware there's still uncertainty regarding the pandemic development. And our team is very dedicated and determined to mitigate risk from supply shortages such as electric components and plastics, as pointed out by Roland. We expect a strained supply chain for the month to come and have included a certain negative impact from rising commodity prices in our assumptions. For the third quarter, we anticipate for DI from today's point of view further significant comparable revenue growth on similar level as seen in the second quarter. Based on this, we foresee the profit margin for the third quarter to be slightly below the second quarter with gradual return of discretionary spending combined with targeted investment and higher OpEx to capture future growth opportunities in automation and software. Let's move on to Smart Infrastructure, which delivered a strong performance across all metrics. We saw 2 major drivers for the decent volume growth: first, strength in short-cycle electrical product business was supported by further recovery in the industrial end markets; second, systems businesses benefited from the strong demand in power distribution due to renewables integration and data center. Orders in total were up 10%, driven most notably by an increase in the high teens in electrical products. In this business, we saw a tailwind from restocking effects at distributors anticipating supply chain constraints and impact from rising commodity prices. The solutions and service business returned to moderate growth in line with its later-cycle market recovery in nonresidential end markets. Revenue growth of 6% was broad based across the major regions with strength in China on pandemic-related low comparables up by 48%. Germany was up by 3% and the U.S. grew 2%. Product businesses were significantly up by 13%, whereas systems grew clearly. The solutions and services business were moderately down, reaching the growth trough as expected and will grow from here again. Margin performance of 11% benefited from higher capacity utilization as well as structural improvement from its competitiveness programs and discretionary cost savings. We expect momentum in our short-cycle product business to continue in strong end markets and our solutions business to pick up in the second half of the fiscal year. And we see for the third quarter comparable revenue growth rate to be up in the low teens. Margin will be slightly above the level of the second quarter. So far, as in Digital Industries, impact from higher raw material pricing was limited due to our stringent hedging and pricing actions. However, SI included stronger headwinds for the second half in their assumptions. Mobility again showed a solid set of numbers in an ongoing difficult business environment with pandemic-related restrictions in our factories and at customer sites. Order intake decreased by 8%, impacted by several pushouts of larger orders into the second half of the fiscal year. Revenue was up 3% on clear growth in rail infrastructure and a moderate increase in the service business while rolling stock was soft. Mobility continued to operate on industry-leading margin level of 9.2%. We are confident that Mobility will show sharp order growth in the second half of our fiscal year '21 since the team booked already some of the delayed orders and expect to win large projects from a strong sales funnel. Revenue momentum is expected to accelerate with mid-single-digit growth in the second half of fiscal '21. Third quarter margin is seen on level with the second quarter performance. Free cash flow is expected to rebound in the second half of fiscal '21 with highest impact in the fourth quarter linked to timing of down payments. Let me briefly point out a few important topics below our Industrial Businesses, including an updated assessment for full fiscal year '21 still without Varian effect, which I will comment on in a minute. Siemens Financial Services delivered an outstanding performance in the second quarter due to an extraordinary strong debt business benefiting from a very low level of credit risk. Weighing opportunities and risks, we expect for the second half of fiscal '21 earnings before taxes somewhat below first half. Hence, our guidance for the full year remains unchanged. Significant improvement over fiscal 2020, however, not at pre-COVID-19 levels. As expected, our Portfolio Companies continued to execute their full potential plans and booked severance charges of EUR 63 million in the second quarter. We expect for the full year ongoing losses at Siemens Valeo joint venture, clearly overcompensated for the positive contribution from the fully consolidated businesses. Regarding the Siemens Energy investment. Significant PPA effects of around EUR 200 million for fiscal '21 still overcompensate positive operational results. Siemens Real Estate will not see any further major disposal gains this year and profit will therefore be well below prior year at a high double-digit million amount. In the second quarter, corporate items benefited from a gain of EUR 222 million in connection with the transfer of the stake in ChargePoint to the German Siemens Pension Trust. For fiscal '21, we continue to expect corporate items and pensions on prior year level, including the impact from higher performance-related incentive accruals. PPA excluding Varian is expected around EUR 600 million. Elimination, corporate treasury and other items is now seen below fiscal 2020 level due to lower interest expenses on debt. The tax rate is expected in the range of 24% to 28%. In discontinued operations, we recorded overall a higher-than-expected disposal gain for the Flender divestment of EUR 884 million pretax in the first half year. Also Flender delivered a very strong operational performance since October until closing. For the remainder of the year, we see some Flender-related expenses still to come and some remaining subsequent spin-off costs from Siemens Energy. Hence, we expect a high triple-digit million amount as a result for this item for fiscal '21. As mentioned, free cash flow performance in the second quarter was truly fantastic. Our teams are more than ever geared to consistent and constant cash conversion. Our continuing focus on working capital management delivers impressive results now. A cash conversion rate of 0.86% for the Industrial Businesses for the first half of this year is truly remarkable. In free cash flow, all in, we have covered a substantial tax payment of EUR 1.2 billion in the second quarter, which will normalize throughout the year. Siemens Healthineers closed its transformative acquisition of Varian at the beginning of the third quarter. The strategic rationale to establish a strong partner for customers and patients along the entire cancer care continuum is compelling. Siemens as majority shareholder strongly supported the financing structure by placing bonds of USD 10 billion at very favorable conditions and providing an intercompany loan to Siemens Healthineers at arm's length. After the second capital raise by Siemens Healthineers, the Siemens shareholding diluted to around 75%. As indicated, we are fully committed to our current rating and to take deleveraging actions based on a strong operational free cash flow and portfolio-related cash considerations such as from the Flender divestment. This was recently also recognized by Standard & Poor's, who upgraded our A+ rating outlook from negative back to stable. As Roland already highlighted, the raised outlook for Siemens Group with revenue growth of 9% to 11% and net income of EUR 5.7 billion to EUR 6.2 billion, I will give you the updated framework for the businesses. Digital Industries now expect 9% to 11% comparable revenue growth. The margin is expected at 20% to 21%, 100 basis points up. Smart Infrastructure now anticipates 5% to 7% comparable revenue growth with a margin of 11% to 12%, up by 50 basis points. Mobility confirms to achieve mid-single-digit comparable revenue growth with a margin of 9.5% to 10.5%. It is important to note that effects relate to Siemens Healthineers closed acquisition of Varian are still excluded at this stage. Siemens Healthineers outlined on May 3 a preliminary financial assessment of the Varian impact for the second half of fiscal '21. Besides Varian's operational performance, a large part is related to technicalities in accounting, such as aligning revenue recognition policies and purchase price allocation as well as transaction-related one-offs. Based on these estimates, we expect a negative effect of EUR 300 million to EUR 500 million on Siemens' net income during the second half of fiscal '21. We will include a more precise assessment of the Varian impact for fiscal '21 with our third quarter's earnings release. With that, I hand it back to you, Eva.

[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] And our first question comes from the line of Andreas Willi, JPMorgan.

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

My question is on DI and the growth there ex software, which was surprisingly strong in the U.S., but maybe still lagging a bit in Germany and Italy. Maybe you could explain a bit more what you see in the U.S.? You mentioned strong solution or system business. The market seems to have only been up low single digits in the U.S. And in Germany and Italy, what do you see kind of in the underlying trends there in terms of improvement coming?

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

Yes. Thank you, Willi. So coming to the United States first. So that's still a mixed picture. But the leading indicators they are signaling further improvements. What's still holding back a little bit is the process industries. You see that also on the industrial output on a global level that U.S. is a little bit backed. We have, from a PI perspective, 38% up in the United States. This is mainly driven by discrete, modestly by process automation or process industries. And for SI, it's up of 2% in revenue, and this is mainly driven by products. Products and systems hold back by solutions business. So still, we have -- this is a lagging market. They're building technology, commercial buildings market. So we hope that this goes in the right way going forward. Germany, for example, if you talk about DI, this was a minus 3% growth. Discrete was, here, it was contrast. Discrete was down, process was up. But in Germany, we see overall that the manufacturing industries have a solid improvement; machinery, very much so and we expect also further improvements there. Italy, we also see some visible improvements in certain business segments. There, we see that, but still revenue was somewhat flattish, but we see a positive momentum in this Italian market there. I hope this helps.

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

Yes, that's very helpful. And maybe as a quick follow-up, Siemens Energy, there were some speculations of a larger seller in the market. Can you confirm whether you or the pension fund sold any shares?

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

Thank you, Andreas, for giving me an opportunity to kind of clarify here. I mean, first of all, you do know after the spin, Siemens AG has been holding 35.1% of Siemens Energy shares, which is still in place. There was another 9.9% that was contributed to the Pension-Trust. And since this is a ring-fenced legal entity of its own, we cannot comment on that. Unless there is a threshold reach that requires disclosure, this would be at 5% shareholding or 3%, respectively. From that, I do conclude that these thresholds have not been met yet. And therefore, if at all, there cannot be -- cannot have been any major movements there. From the very beginning, however, and I know that you know and the community knows, we have been clearly indicating that the contribution to the Pension-Trust is not supposed to be a strategic holding there. So therefore, I think we have been very transparent from the very beginning. In a nutshell, Siemens AG shareholding, 35%, unchanged. Pension will report according to the requirements from a legal perspective.

[Operator]

And our next question comes from the line of Alexander Virgo, Bank of America.

[Alexander Stuart Virgo, Director]

I wondered if you could, in a similar vein to how you've just done for DI, just comment a little bit on the regional differences in SI. I think stronger than expected there and good to see the development of the different parts of the businesses. Clearly, very strong growth in electrical products, and you talked about restocking. So I wondered if you could just give us a little bit more of the color within SI.

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

Happy to do so. So let me start with China. There, we had an up of 48% in revenue. This was mainly driven by our products and systems. This is really -- but we have to say also in China, this was true for SI and DI -- not SI only, but DI as well. It's an easy comp because this was the trough in China over Q1 -- or Q2 in that case. So then Germany, we see that there's, this year, growth of 3%. Systems grew very much highly accretive as well as products modestly. So for United States, their revenue is up 2%, which is driven basically by our product and systems business and the solution business, again, commercial buildings really were holding us back. It's down. However, we saw an order intake of plus 11%, which gives a little bit of hope that this picture will also spill over into our solution business. And hopefully, we can see that they are troughing and they are picking up momentum going forward. So internally, we have to say that, in SI, that the products market was very, very strong. Overall, an increase of 13%. And this was more driven, I have to say, by the industrial products, less the building products. So this is a consistent picture, that building is modestly growing where the industrial products are growing strongly. So overall in the market, I think the picture is, as we described, we still see a weakness in the United States, in particular, on the nonresidential building market where America is really lagging. We see a momentum in Europe, moderate growth from a market perspective. And again, products very strong. And the grid investment or the grid market, we see that -- we see a robust growth of something like 4% in the market.

[Alexander Stuart Virgo, Director]

Yes. And a quick follow-up, if I may. Could you remind us the growth in software orders and perhaps just comment on software orders in China as well -- in DI, sorry.

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

In DI. So the software business was growing by 11%. This was again driven mainly by EDA, but PLM also was now catching up again. So we see some highlights there. I mean, China, extremely strong, extremely strong and also Americas and also Europe. So this was really kind of a broad support of our software business. Mendix also up with more than 20%. So that's a trend, which we see. If you look forward, we see that this goes -- the growth will keep on going modestly. And again, PLM -- hopefully, PLM can get more momentum. This is also driven by a recovery in these major verticals like automotive and the like.

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

I think, Alex, your question was on new orders, mainly if I may comment on that. I mean you do know from our past business development that major orders in that field are difficult to anticipate and we never have been sacrificing timing for margin, and we will continue doing so. So there's a seasonal component in that, that is hard to predict. But what we definitely do see is we benefit clearly from the momentum in the semiconductor space not only in new orders, but also in revenue and in profitability. And Mendix is also developing really in a very, very encouraging way even though the magnitude and materiality of the -- to the overall portfolio is not yet fully unfold.

[Operator]

And our next question comes from the line of Simon Toennessen with Jefferies.

[Simon Toennessen, Equity Analyst]

Yes. My first question is on free cash flow. The EUR 2 billion in H1 is above any first half you've had since the new business structure is in place, I believe. Obviously, last year in H2, you had exceptionally strong cash at EUR 6.2 billion, I think. And in the year before, in 2019, it was EUR 5.7 billion in H2. Given the earnings growth you're guiding for the year and the development into the second half, is there any reason why the second half free cash flow should be below any of those 2 prior years? I know, Ralf, you commented about the tax payment, but any color there would be helpful. And then I have one follow-up, if I may.

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

Yes. Thanks, Simon. I think cash flow that has been filtering through now is really close to our heart, and we spend a hell lot of time with our management teams around the globe to make sure that this is consistently developing and is also overcoming the steep changes that we used to have in the past. Therefore, we can't help if we are required to have major tax payments being made. That's why we have been explicit on that one. If you take that out, there is also a bit of seasonality in chunky elements in the fact that we do have restructuring and severance that we had already booked in the payout stream, so to speak. That's very hard to predict, but this will have an impact, obviously. Beyond that, I think what we see with regard to working capital management, this is very encouraging. Of course, there will be an impact on the second half after this outstanding first half of the fiscal year. If you compare that to the prior years, in particular, last quarter, so hard to tell whether there will be the so-called September wonder again but I doubt it will have the magnitude that it used to have. And we are happy with that development, getting rid of that extreme seasonality. What we are out for is that we have a consistent process in place down to the shop floor that we make sure that each and every lever and driver for consistent cash flow is used. And therefore, I think the incentive scheme that we have been implementing, literally embracing, the full management team globally is now also contributing to that one. So our focus is on consistency in that regard. So being very explicit. I would wish not for another September wonder as we used to have, but rather for consistent development over the quarters, including the first quarter of the next fiscal year then. But I'm quite positive that the second half of the fiscal year will continue delivering a high-margin conversion, maybe not to the extremes of the prior years, but still along the lines of our own ambition level, 1 minus growth. And I think operations have been clearly flagging out that they are capable to do that.

[Simon Toennessen, Equity Analyst]

And as a follow-up on severances and the savings program. It seems you front-loaded a bit the severances in Q2. Does that mean we should see a slowdown in terms of severances in the second half versus the first half? So if you could give any guidance on the divisional level for severances either for H2 or on a full year level would be appreciated. And then maybe where are we on the savings program in DI and SI as of the second quarter in terms of execution?

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

Let me start with the first part of your question around severance. You are right. The second quarter was heavy with regard to severance charges. I mean we had a grand total of EUR 215 million for the company. That included also, as I flagged out on the Portfolio Companies, EUR 63 million. So when we talk Industrial Businesses, I think there was a very strong focus on DI as expected and also as mentioned. If I talk about the full year, I respectfully need to tell you that I can't share the divisional numbers with you because we adhere to the process with the unions. We negotiate first, talk to the stakeholders and then conclude and talk numbers. But if you need to fill your model for the full fiscal year, I think we may see twice the amount of the second quarter for the full fiscal year on a grand total company level. Now talking how is the progress doing with regard to our cost-out programs. I think you are aware that we have been beefing up the programs for all the businesses. DI and SI have been substantially updating and upgrading their commitments for fiscal '23 and also for fiscal '21 as an interim milestone for that one. And we will share more of that what we intend to accomplish current fiscal and way forward in our Capital Market Day with you when the management teams will talk about their ambitions by themselves.

[Operator]

And our next question comes from the line of Ben Uglow, Morgan Stanley.

[Benedict Ernest Uglow]

I hope that all are doing well. I had a couple of questions. Obviously, when we look at the sort of year-on-year growth, and I think Andreas pointed out this nice 34% pickup in the U.S. and 23% on orders in Italy, it is -- these are quite big gains. But what I really wanted to understand, when you're thinking about the sequential trend, i.e., when we're looking at the fiscal third quarter orders versus the second quarter and we're looking outside of China, am I right to understand that you guys are thinking that, that trend line, that sequential evolution of demand, and I think you put up a nice industrial production chart going back to the beginning of '20, that trend line in principle, you feel, is rising? And if so, which industries are kind of leading that trend? So that's the first question. The second question is just from where you sit on the automation side, are you hearing anything significant at this stage from your customers around either chip shortages or microcontrollers based on -- we've heard quite a lot in the last couple of weeks from Ford and others. What kind of feedback are you getting from the channel, please?

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

Okay. Ben. Thanks for the questions. And let me start with the first one. Of course, we are very intensively looking into the sequential development in all countries, in particular, in China, but also in the other key countries that we are sharing also with you on that very slide that you typically see with the arrows pointing up for most of the relevant industries in our portfolio. Let me first make 2 general remarks. I mean, obviously, the second quarter of our fiscal year has been the COVID-induced trough in China last year. The third quarter, again, we'll provide some easy comps in the more Western geographies. So looking into the monthly development is making a whole lot of sense and that's what I did and what I will continue doing, obviously. If you take January and February as a starting point, so to speak, obviously, China was heavily affected not only by COVID, but also by the positioning of Chinese New Year, which was shorter this year and also had a different timing in terms of the month being affected. So I took the average of the 2 of them for China. And if you take that as a 100% starting line as an index, we saw a very, very encouraging development in March still on relatively easy comps. That's why the growth rates have been so high in China, and China has been driving the overall picture. Now looking ahead and seeing first indications for April with tougher comps in China, but still relatively easy comps for the rest of the world, we still see growth momentum that is continuing. So sequentially, April keeps the momentum of the strong March in China and has relatively easy comps in the Western world, including Germany and also Italy. So from a sequential growth, we don't see any breakup of the momentum that we had in the last part of the second quarter. What is also, of course, something that we need to bear in mind is the exchange rate impact, which was fairly high on top line and also on bottom line. We didn't stress that too much because it was not really relevant and material for the big picture, but the impact was still quite heavy, yes. So that will also make a difference on the way forward when you talk growth rates and the different geographies. By the way, I didn't mention that, but we had 50 basis points of negative impact on the Industrial Businesses margin from exchange rate in the second quarter and we do expect that there will be continuing impact on the way forward. So the trend line that you have been asking for, we clearly do see a continuation of the growth momentum with the different geographies depending on the prior year's quarter, which was fairly easy for the non-Chinese environment last year. I hope that helps.

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

On the chip shortages, Ben, we would like to differentiate a little bit the semiconductor business in that where the money flows for the producers, which is basically the very expensive, high powerful processors; and there are the others they were less invested and they've not the latest technologies. These are really the $2 chips, which are, for example, drivers for displays and the like. So you have to differentiate. In the former one, there, when we talk to our customers, automotive market, I mean they are consumer -- they are buying maybe whatever, 15% of the whole volume probably. The rest goes into laptops and iPads and the like. So the power -- the purchasing power is there a little bit on the other side, there's less in automotive so there's the reason why you see a shortage there. Whereas on the second part, these low-priced chips, the point is that the capital investment in the semiconductor industry is more going for this more profitable other contractors. So we have just a capacity issue. And that if that's -- if the demand is rising, then you see the shortage there. So 2 different kind of mechanisms, you have to differentiate. We are sitting more on the later one. And -- but so far, let's knock wood. We managed to not run into any shortage so we could deliver. And we hope that this stays for the second half of the year, but there's a certain risk in here.

[Operator]

And our next question comes from the line of Martin Wilkie, Citi.

[Martin Wilkie, Managing Director]

Yes. It's Martin from Citi. My line cut off briefly, I hope you've not had this question already. But I wanted to ask about Mobility and the comment about orders sort of coming through into the second half. Just if you can give us some sort of sense as to the conversations you're having with customers. Was it just sort of -- literally sort of 1 signature or a piece of paper that has moved these orders potentially from the first half of the year into the second? Or is there some hesitancy in some orders? Just to sort of get some sort of sense as to what customers are saying about that. And as a sort of related comment, we are beginning to see some indications of rail being included in various sort of post-COVID stimulus packages. Is your sense that, that is something that customers are beginning to talk about? Or are the details so far out that it's really too early to take a view on that?

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

Yes. So I mean when you look at our numbers, orders minus 8%. This is really -- it's really pushout. So watch out for the second half of the year. And this is driven by also corona, of course, now that you have limitations in the way how you're pushing your projects forward. But I can repeat what I said last time that our projection that this market has a nominal growth of 15%. That's what I think we said. We have -- we see that over the next 3 years -- nominal over the next 3 years we see that still. And our -- when we talk to our customers, obviously, they talk about stimulus in rail. A couple of reasons, CO2 reduction. Any kind of stimulus goes into reducing the CO2 footprint. This would address, for example, city-to-city flights, which eventually you can cover by commuters. It is any kind of rail traffic brings your transport emissions down. But you also talk about new technologies, battery trains, fuel cell trains for the hydrogen. So there's a full nine yards. And this, along with that, obviously, we need capacity. This is where the infrastructure signaling business kicks in because with new signaling technologies, you can increase capacity of existing lines by, whatever, 20%. And therefore, yes, we are talking about the stimulus, which eventually goes into rail. We do not see it in current fiscal year and that's with the cycle time eventually also not materializing revenue in '22. But we see definitively this stimulus program will keep that market on a very good momentum.

[Operator]

And our next question comes from the line of James Moore, Redburn.

[James Moore, Partner of Capital Goods Research]

Roland, Ralf, Eva, I have 2 questions on software, if I could. So I was very encouraged to see your comments that EBITA was particularly strong in EDA. Are you in any way able to talk about the speed of revenue growth in EDA in the quarter? And how you see through-cycle margins developing in that segment in the next years? My second question is about digital investments going forward and whether you think you need to materially increase the speed of cloud investment as I see the market seems to be, post-COVID, transitioning faster to SaaS.

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

So let me come back to the first question. I can just repeat that our revenue was significantly up by 11%. That's what we see. I don't know -- regarding spreading that out in EDA and PLM, I mean, that's something which maybe I look to Ralf. But again, we have a strong EDA business. And you know where it's driven from. It's a semiconductor market, which is obviously really pushing very much. But also on PLM, we see a growth rate. Cloud investments. Yes, we are investing in our IoT offerings. You know that Mendix is a SaaS -- basically 100% SaaS business and software. And we were -- we are working on also doing more there. But here, I would like to refer to our Capital Market Day, where we will give you much, much more insights to what we are doing there.

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

James, if I may get a bit into it also from my end, I mean, we shared with you on a continuing basis, what we called our cloud investments. It was another 110 basis points in the second quarter, including integration efforts, including MindSphere and SaaS investments. That was exactly on the same level as we have been anticipating. That's pretty much on par with the last 2 quarters. So we continue doing that on a regular basis, as we pointed out. And we are, therefore, moving ahead in this space, as indicated, so to speak. When it comes to the growth on a quarterly basis, in particular, for the EDA business driven by Mentor, obviously, this can be quite chunky and choppy because, I mean, whenever you have a major order that you acquired, that has immediate impact driven by the specific terms and conditions of the contract on revenue recognition. Therefore, don't expect, as we always said, that this is repeating itself on the same level quarter-over-quarter. We had a very strong second quarter, obviously, with a growth rate in revenue clearly above 30%. And also, the Mendix business development was quite favorable in the second quarter with growth momentum clearly above 20%, but it would be naive to predict that on a quarterly basis being stable. So expect quarterly movements there. But what is important to us is we occupy the space at the customers, and we are clearly very well positioned with our portfolio addressing and also participating from the strong momentum in the semi space. And we do see also opportunities on the way forward to maintain that momentum, but definitely not on a quarterly consistent pace.

[Operator]

And we will take the last question from the line of Gael de-Bray, Deutsche Bank.

[Gael de-Bray]

Can I ask about the U.S. Historically, you've struggled to expand your positions in the U.S. automation market. So I'm obviously very positively -- positively surprised to see the strong 30%-plus pickup in North America this quarter, given most of your peers were hardly positive over the same period. So I'm trying to understand the market share dynamics there, whether you had specific product launches or specific commercial push in the U.S. that might explain the outperformance or maybe that's something completely different?

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

I mean that -- your observation is correct and there's no substantial change, obviously, within a quarter on this positioning there. So it's indeed, it was -- the growth was indeed driven by discretes, by our SIMATIC business, factory automation, less so by process automation. Process automation was still growing, but modestly. Motion control, by the way, flat. And factory automation was definitely benefiting from solution business. So that means customers demanding more than just a click-clack PLC, but they are really looking now into more value. And that's the way how we eventually can get better traction in the United States market going forward. Also looking into the way how we can deploy new technologies, edge technologies and the like. So therefore, well, there's -- we have hope that we can get more positive signals from there. I hope this helps.

[Gael de-Bray]

Okay. Do I have time for a quick follow-up on the guidance?

[Eva Riesenhuber, Head of Investor Relations]

A very quick one.

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

Yes, you do.

[Gael de-Bray]

Okay. Because when I look at the net income guidance, it's largely unchanged if I strip out the higher-than-expected capital gains in the quarter while at the same time you're guiding for higher growth, stronger margins for DI and SI and also a lower tax rate. So I was obviously wondering what will be the offsets to all these positive effects?

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

Well, I mean, thanks for giving me an opportunity to comment on the matter. I mean, first of all, there is also, from our perspective, an uptick for the second quarter -- second half of the fiscal year in our guidance when it comes to operations. I mean we have been very explicit on our expectations. If you look at Page 16 of our little handout, that shows that we have been clearly updating the expectations for the businesses. At the same time, you need to bear in mind that we now do no longer benefit from the discretionary spending impact year-over-year last year. We have been starting to normalize -- sorry, to see the lower levels starting in the third quarter materializing. Now year-over-year, this will no longer have an impact. It was substantial as we indicated before. We also, thank God, are in a position that we seem to be quite successful in the current fiscal year. So there will be bonus accruals being beefed up like for other competitors and peer companies that we saw reporting. The third thing is that we also have been clearly pointing out that we do see selective investment in growth opportunities, Roland has been mentioning this explicitly, and we would be completely naive to not invest now in this tremendous growth opportunities that we see in key markets. We are extremely well positioned when it comes to the footprint, participating in growth momentum in markets where some of our peers at least do not have such a strong showing. Therefore, we believe this is the right moment for selective investments. And therefore, we will not sacrifice a long-term opportunity for a quarterly development.

[Eva Riesenhuber, Head of Investor Relations]

Thanks a lot to everyone for participating today. As always, the team and I will be available for further questions. We're also looking forward to continue our discussion during our road show next week. Please stay healthy, and goodbye to you.

[Operator]

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. .And once again, let me repeat the instant replay numbers. Participants in Germany, please call the replay number [phone] and the access called 1072629#. Participants in Europe, please call the replay number [phone], access code 107269#. And participants from the United States, please call the replay number [phone] access code 107269#. This replay service will be available until tomorrow night. A recording of this conference call will also be available on the Investor Relations section of the Siemens website. The website address is www.siemens.com/investorrelations. Thank you.