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Siemens AG
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Good morning, ladies and gentlemen, and welcome to Siemens' 2020 Third Quarter Conference Call.As a reminder, today's call is being recorded.Before we begin, I would like to draw your attention to the safe harbor statements 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. Sabine Reichel, Head of Investor Relations. Please go ahead, madam.
Good morning, ladies and gentlemen, and welcome to our Q3 analyst call.All documents were released at 7:00 a.m. this morning. As always, you can find everything on our IR homepage.I'm here this morning together with Joe Kaeser, Roland Busch and Ralf Thomas; and we are here together to review the Q3 results this morning. As always, we will start with the presentation and then we will have enough time for Q&A.And we will already start right now with Joe.
Yes. Thank you, Sabine. Good morning, everyone, and thank you for joining us to discuss our third quarter results in what I will call interesting times.The COVID-19 pandemic has already now fundamentally changed our society and our daily lives. And it's far from over, in our view. Since the start of the pandemic, our first priority has been to secure people's health and safety. It is true for our own employees as well as for our partners and the whole value chain. Also, going forward, we'll continue to take all necessary precautions to keep people safe and healthy while maintaining business continuity and serving our customers the best we can. And we continue to drive productivity by further digitalization also in our own processes and our own procedures. At Siemens alone, we conducted around 800,000 virtual meetings every day. For the most part, forced by the pandemic, we reduced travel and entertainment costs by more than EUR 100 million in the quarter. While the amount of savings may not fully be sustained, we expect a significant [ pushing ] to save for good also in the future.As another key learning, we decided to implement what we call a new normal working model with average 2 to 3 days per week of mobile work globally and permanently wherever possible. It should be applicable for up to around 140,000 employees globally. We expect this to also result in considerable savings related to office space and building maintenance while benefiting our employees with more flexibility, more empowerment and less waste of time for commuting. Expanding our remote services, for example, through boosting the use of artificial intelligence helped us to serve our customers well, proving to be a reliable partner at any time. It has also become clear that the digital transformation is in full swing also at our customers' enterprises too. Our early investments in software, digital services and remote maintenance are clearly paying off; and we are off to taking market shares, as numbers show for the quarter. Also, we have been working hard to keep our own global operations up and running. Since we do expect COVID-19 related volatility to remain in both demand and supply sides, we continue to use all instruments to flexibly adjust capacities in order to act quickly with regards to changing environment. Currently, around 8,500 employees are in short-term work in Germany, and we will be able to quickly adapt this number both ways if necessary.Despite these challenges, our strategic concept Vision 2020+ to transform and reshape Siemens is clearly gaining traction. With 99.36% approval rate, we received a powerful support from our shareholders for the energy spin-off, therefore further streamlining and derisking the new Siemens AG. We are fully on track to execute the spin-off by the end of fiscal 2020, with a planned listing on September 28, 2020. You'll hear more on the energy businesses and the plans going forward at the Energy Capital Market Day on September 1, 2020. Another important example for a long-term-oriented strategic development is Siemens Healthineers. It is a testimony for value creation by unleashing the potential of focusing businesses, make them more transparent and receive a sector-based rerating when confidence in track record rise. While we realize that the timing has been courageous and some investors are worried about short-term CapEx in the sector as well as midterm valuation and synergies, we do support the planned acquisition of Varian by Siemens Healthineers. It is a clear-cut and meaningful strategic move delivering value to all stakeholders from the midterm onwards. As communicated, Siemens as a major shareholder will not participate in the capital raise, reducing its shareholdings to about 70% in the next step. We also do expect a significant rise in [ free flow ], enabling longer-term investors to take meaningful tickets going forward. And Ralf will give you a more detailed assessment from a majority shareholders perspective later.Furthermore, we continue to expand our digital ecosystem by joining forces. This time, we agreed to cooperate with SAP in the areas of product life cycle management, supply chain and asset management to accelerate the industrial transformation. As a first step, SAP will sell our Teamcenter software as core foundation for PLM, and Digital Industries will resell certain SAP products.Now let's look at our key figures at a glance for the first -- for the third quarter. As expected, COVID-19 related shutdowns and restrictions caused a deep slump in demand, with very different prospects of recovery. Also, as expected, we saw very diverging regional and end market development. While China's industrial production is already back at or in parts even above 2019 levels, important sectors such as automotive, machine building or aerospace face strong headwinds across most geographies. Some of the regions and/or sectors may take quite some time to recover to pre-COVID levels. Even though [ intensive ] stimulus programs were initiated around the globe, there is still limited visibility, mostly on the back of a material probability that we'll see a second wave of COVID-19-related volatility going forward. This is especially the case for DI, where we do expect modest top line growth sequentially on a comparable base but considerably lower levels year-over-year.In this difficult environment, we delivered a convincing performance relative to market expectations and in most parts also compared to last years. Book-to-bill ratio was up at 1.07, with orders only down 7% at EUR 14.4 billion. Revenue declined moderately by 5% to EUR 13.5 billion, mostly on the back of lower demand on the product side in Digital Industries and Smart Infrastructure. Also, we saw a negative impact from limited customer site access in service and projects businesses across the board.We performed well on the operating industrial profitability, with an adjusted EBITA from industrial business up 8% to EUR 1.8 billion, also obviously benefiting from a EUR 211 million increase in value from our strategic Bentley shareholdings, which is an excellent margin performance of 14.3% as reported. Underlying key drivers were strong software business and swift execution of contingency measures. Last but certainly not least, certainly not least, we delivered an impressive and timely all-in free cash flow of more than EUR 2.5 billion year-over-year, needless to say that we'll continue to focus on cash going forward.Now Roland will give you further insight on our operational business performance and progress in executing our competitiveness programs going forward.Roland, over to you.
Thank you, Joe. And good morning, ladies and gentlemen, from my side as well.As you can see from our solid operational set of numbers, Siemens is a more focused and adaptive yet comparatively resilient company. Now let me walk you through the businesses.Digital Industries operated in a very heterogenous environment. On top of ongoing structural changes, COVID-19 had a significant negative impact on key customer industries such as automotive, machinery and aerospace; and we see no return to precrisis levels short term. On the other hand, digitalization and increased importance of semiconductors drive softer demand, particularly in our Mentor business, once again a clear evidence of the sound strategic rationale to expand in the electronic design automation segment. This was visible in orders and revenue both down only mid-single-digit and clearly topping expectations. Lower orders in short-cycle automation were cushioned by several large order wins in the software business, driven by the United States. Geographically, in short-cycle automation a substantial recovery in China partially compensated for a significant decline in all other regions. Safety stock levels in Chinese distribution channel are on an elevated level. We saw a similar pattern in revenue development. Revenue was clearly down in both discrete and process automation, where we see lower investment in oil and gas markets due to low oil prices. However, software clearly outperformed competition, with 10% growth leading to a sharply higher profit contribution. Against this backdrop, Digital Industries recorded a margin of 24.5%; excluding the Bentley reevaluation (sic) [ revaluation ] effect, a margin of 18.8%, which is very satisfactory in such a difficult environment.The team worked on all levels: stringent execution of structural improvement, strict hiring policies and discretionary cost savings, yet shutdown-related savings such as for travel, marketing and the like are not sustainable going forward. Cash conversion was very satisfying. We are pleased by the excellent results from the ongoing working capital initiatives.This page gives you a lot more color on the regional perspective on top line. The widespread COVID-19 impact in automation across our key countries and key industries is clearly visible. You may ask, have we seen the trough? As Joe said earlier, we still have a lot of uncertainty in the market and expect a volatile and diverging development depending on region and market segments. All in all, under the assumption of no major further lockdowns, we expect to see in the fourth quarter sequential top line stabilization.As indicated, Smart Infrastructure was also weathering a tough environment due to a significant cooldown in short-cycle industrial and building products demand. In addition, we saw pandemic-related restrictions to access customer sites and factory closures, particularly in India. We expect smart infrastructure markets to moderately decline in 2020, with some pockets of growth in the health care and data center verticals. However, we see the biggest negative impact in industrial markets, followed by construction, while grid currently shows better resilience. Book-to-bill was solid at 1.01x, with broad-based weaker orders and the strongest declines -- and with the strongest declines in Europe and Asia. Low-voltage products help up comparatively well with only moderate order decline. Revenue was clearly ahead of expectations, down by 6%. Main impact was in the product business with a significant decline of 13%. Our systems, solution and services business were well more resilient. As in previous downturns, we expect a more distinct negative impact on solutions and service with a typical time lag of around 9 to 12 months. Missing profit contribution due to lower revenue from our product businesses, together with the negative impact from the shutdown in India, weighed on profitability. Grid edge investments burdened margin by around 130 basis points.Smart Infrastructure is diligently executing on its competitiveness program to optimize footprint and automate all offshore processes. Hence, we expect a high double-digit-million amount of severance charges in the fourth quarter. Smart Infrastructure continues to operate in a very volatile market environment. We expect revenue to decline in the fourth quarter year-over-year; however, at a lower rate compared to the third quarter, combined with a clear margin improvement.Mobility delivered a resilient top line performance. Our strong sales funnel converted as expected into orders, leading to a modest 2% growth year-over-year. I was very pleased that Deutsche Bahn once again put their trust in us by awarding a EUR 1.1 billion order to expand climate-friendly mobility in Germany with 30 high-speed trains. Since they are based on our proven Velaro platform, we met a key decision criterion to be able to deliver already in 2022. Important to mention is also a sound positive order momentum in rail infrastructure. We expect strong order development to continue in the fourth quarter. The Mobility team performed very well in keeping its operations running; however, with increased efforts to safeguard health in manufacturing sites. As a result, revenue growth reached 2%, driven by the execution of large rolling stock projects. However, restrictions to access customer sites burdened all businesses and led to a revenue decline in higher-margin rail infrastructure and customer service businesses.Margin performance in the third quarter was at somewhat disappointing 7.1%, temporarily below the target margin corridor. However, the Mobility team is confident to return to the lower end of the target margin corridor in the fourth quarter. As expected, free cash flow recovered strongly from a softer first half year, benefiting from major milestone payments as well as down payments for new rolling stock orders. We expect a decent free cash flow also in the fourth quarter.An important cornerstone of Vision 2020+ is our goal to drive further margin expansion through competitiveness and cost optimization programs. Considering the ongoing impact from COVID-19, both Digital Industries and Smart Infrastructure have further accelerated their programs to drive structural improvement. Digital Industries is confident to achieve its target of EUR 320 million in permanent cost reductions already by fiscal year 2021. Smart Infrastructure increased its goal by EUR 40 million until fiscal year 2023 and expect to achieve EUR 190 million now by fiscal year 2021. In addition, Smart Infrastructure is working on concrete steps to exit dilutive portfolio elements. We continue to be well on track to achieve our targets for lean and effective governance to reduce costs by EUR 300 million in fiscal 2021.We've talked before about our major progress in execution Vision 2020+ from strategic and structural perspectives. Now I want to highlight the third pillar, to shape our future. It's about people. Siemens AG completed the new leadership team has assigned its -- and assigned its responsibilities as of October 1. Digital Industries will be led by Cedrik Neike, building on his excellent digitalization experience. Here I want to thank Klaus Helmrich for many years of extraordinary passion and performance to shape the leading digital enterprise. He will support Cedrik during the transition phase. As of October 1, Matthias Rebellius will be appointed to the Managing Board to lead Smart Infrastructure, building on his long-standing experience in this business. As announced earlier, a few weeks ago, Judith Wiese will join Siemens from DSM to take over responsibility for human resources and global business services. She has a wealth of experience in designing and implementing change processes. Ralf will, of course, continue to lead our excellent finance organization and contribute his outstanding expertise as CFO.I'm looking forwards to working, and this strong team, to lead a more focused Siemens. Our company will be focused on value creation for all [ stakeholders ]. As technology leader, we will contribute to solve key societal challenges.With that, I hand over to Ralf to give you further details on financials and implications of the announced Varian acquisition by Siemens Healthineers on Siemens AG.Ralf?
Thank you, Roland. And good morning, everyone. Finally, welcome from my side as well.I will start with the performance of Siemens Financial Services, where we have seen further negative impact related to COVID-19 effects. SFS achieved IBIT of EUR 36 million, resulting in a return on equity of 4.6%. Compared to the financial services industry, this is a solid performance. However, Siemens Financial Services addressed continuing high uncertainty with an impairment on an equity investment in South America and increased credit risk provisions. It is important to mention that credit hits due to the actual defaults have been only relatively low level, so far.For the fourth quarter, there is continuing high uncertainty regarding adverse COVID-19 related effects and risks in SFS' different businesses. We will closely monitor developments in the respective markets, particularly in the Americas. From a strategic perspective, SFS continues to be focused on supporting Siemens' core businesses to differentiate offerings and enable business model innovation. An excellent recent example is the partnership with Singapore-based Berkeley Energy Commercial Industrial Solutions. Smart Infrastructure and SFS entered into an investment and framework agreement to offer "distributed energy as a service" solutions bundled with financing for Asian customers.Let me now point out a few more topics below industrial businesses. Within portfolio companies, the future Flender business, consisting of mechanical drives and wind energy generation, showed a very decent performance and strong order growth. In parallel, the team is working hard to drive preparations for the intended listing via spin-off in calendar year '21. For corporate items and pensions, we expect for fiscal year 2020 total cost at the lower end of our expectations at around EUR 1.2 billion. In discontinued operations, we saw a lot of movement and recorded a loss of EUR 451 million. While Gas and Power, before special items, contributed a slightly positive adjusted EBITA, its performance was impacted by substantial write-downs on inventories. As you saw already last week, Siemens Gamesa recorded a substantial loss, as indicated before. Further items were spin-off costs in the mid-double digit million range; and material, mainly carveout-related, taxes of around EUR 100 million.Let me touch now on a clear highlight in the quarterly performance.Our intensified focus to drive free cash flow and reduce its seasonal backend-loaded pattern is finally bearing fruit. Cash conversion in industrial businesses was at 1.18x; excluding the Bentley revaluation effect, even at 1.33x. After 9 months, we are now up 13% year-over-year in the industrial businesses. Pulling all levers to improve working capital management supported this development across the portfolio. It is also a positive signal that free cash flow on an all-in basis more than quadrupled, with positive contributions from Siemens Energy and portfolio companies as well.Talking about Siemens Energy. As Joe already mentioned, during the third quarter, we achieved all intended milestones on our road map to spin-off. I want to point out that the new company is on a very sound financial basis with its low level of debt and extensive liquidity. Standard & Poor's assigned Siemens Energy a solid investment-grade rating of BBB with a stable outlook. This confirms our approach to prepare Siemens Energy for independence with a healthy business profile and financial flexibility. We are now looking forwards to executing the final steps until spin-off. The Siemens Energy team is excited to explain the business and value creation potential in depth to you during their virtual Capital Market Day on September 1. It will be followed by an intense road show in the weeks thereafter.Last Sunday, the Healthineers team explained already in depth how the combination of 2 industry leaders with unique capabilities will redefine cancer care and create long-term shareholder value. What are the implications for Siemens AG? Siemens as majority shareholder is fully supporting this transaction financed through a combination of debt and equity. After the capital increase by Siemens Healthineers, the Siemens stake is expected to dilute from 85% to around 72%. We decided to structure the bridging and longer-term debt financing on Siemens AG level and provide an intercompany loan of around USD 9 billion to Siemens Healthineers, of course at arm's lengths conditions. Main benefits are lower borrowing costs due to Siemens' stronger rating and faster execution based on existing documentations. Furthermore, Siemens has a long-standing presence, strong reputation and relationship with banks and investors in the debt markets. This provides higher execution certainty for the transaction. Siemens will place the bonds in the market prior to closing the transaction. Looking at Siemens' financials, we will see as a consequence a temporary negative impact on EPS, ROCE; as well as a higher net debt-over-EBITDA ratio. We are strongly committed to our current rating and to take adequate deleveraging actions combined with a clear focus on diligent capital allocation.Finally, let me now briefly summarize our outlook.As already explained, we expect the economic consequences of COVID-19 pandemics to continue to strongly impact our fiscal fourth quarter's financial results. Macroeconomic developments and the influence on Siemens still cannot be reliably assessed. Furthermore, we cannot reliably forecast the amount of the spin-off gain within discontinued operations; confirm our book-to-bill and revenue outlook for fiscal 2020. Guidance for basic EPS from net income remains suspended.Now Joe, Roland and myself will be happy to take your questions. With that, I turn back the mic to Sabine.
Thank you, everyone. And we will now start with Q&A. Operator, please take the first questions.
[Operator Instructions] Our first question comes from Andreas Willi from JPMorgan.
My first question is on the industrial software business, and then one on the outlook. On the industrial software business, you had a very strong quarter better than peers. Maybe you can elaborate a bit on the sustainability of this versus specific drivers in the quarter; and how the rollout of MindSphere, if at all, is already contributing to this. And what does it mean for profitability when maybe the mix shifts here a bit towards this new offering? You mentioned the collaboration with SAP as well on the PLM side. Maybe you could elaborate a bit how that works. SAP has its own PLM offering. Is this just a resell of each other's products, or is this also more of an integration on the software level going forward? And on the outlook, you mentioned the uncertainty, but maybe you could help us a bit what you have seen particularly in China in July in terms of the strengths there, whether that continued or whether that is one of the reasons why there is still quite some uncertainty for Q4.
Yes, Andreas. Thank you for your questions. Maybe I get started with the industrial software piece. And you rightly stated this was a strong quarter for our industrial software; and from a growth perspective and, I think, also from a profitability contribution point of view has been getting very close or even exceeding peer companies. MindSphere, to put that ahead, didn't play a material role in that. Obviously, it was rather driven by the excellent Mentor performance based on semiconductor demand in their customer base. So Mentor, just to give you a bit of flavor, in the quarter has been contributing about 40% to the revenue development. And therefore, their contribution was -- I would call that outstanding. As always, in industrial software you develop an account, and finally when you sign the contract, there is a high likelihood that there is also a revenue recognition piece in it that is immediately having impact on bottom line. This was also the case in the Mentor development of the third quarter. It's obvious that this cannot be anticipated and repeated on a quarterly basis steadily, so I personally would consider this quarter to be outstanding in regards top line and bottom line contribution of the Mentor business.And I think Roland will later on discuss the SAP cooperation and its impact. Let me quickly jump to the outlook with regards to what was the exit rate on top line. That's obviously, for you, has the same importance as it has for us. And I have to say, I mean, we were impressed by the development in China, with June in the quarter giving a strong contribution to the quarterly development in total, but we also did see some channel inventory building up at the late stages of June, so I would be still cautious to extrapolate that exit growth rate effect of June. For July, it's too early to conclude. And I would consider the performance development, so far, on a global basis as expected. We do see pockets of growth opportunities, in particular in China, but we also see still massive impact in Europe, and particular Germany and Italy, and also quite some question marks in the U.S. for the further development of the fourth quarter. In terms of the vertical, the businesses, the industrial sectors we are dealing with, obviously automotive and machinery and aerospace are still suffering, but we also do have quite some nice successes when it comes to food and beverage. And also, the semiconductor business on a global basis is obviously supporting also the sentiment on the Mentor side. So all in all, I would consider the third quarter in terms of margin development as outstanding. We have been very explicit on the Bentley effect with 2 percentage points on the industrial business' margin, but we also are quite happy that our cost measures have been kicking in and are hitting bottom line along the plans we made, as Roland has been elaborating on, and also the fact that de facto travel ban has been contributing and lowering T&E expenses by some 70% compared to prior year's quarter. This is, of course, supporting bottom line, but it will not remain on those levels going forward, depending on the development of the COVID-19 consequences. So from a sequential perspective, I would see software being on a very continuing growth path. As mentioned before, quarter-over-quarter, that may vary depending on closing contract signing and then recognizing revenue accordingly. And last but not least, I think it's also fair to say that our team did an outstanding job in consistently pulling through, making sure that we grab all opportunities we could grab and also keeping the supply chain stable, as Joe has been mentioning a couple of times before. We trust in that outstanding capabilities of our team. However, we stay alert when it comes to corona consequences.
Well, just let me add one more point in order to appreciate also the -- our Mendix colleagues' contribution. They had a very, very strong quarter too with their comparable growth rate, as mentioned by Ralf, regarding Mentor. Regarding our SAP and -- cooperation, let me go back to the strategic logic. So it's about the digital thread from PLM through manufacturing, supply chain management and operations to really have a digitalization in the operations, which we can provide together because we're coming from different perspectives. From ERP system, SAP is a market leader. And we are very, very strong in the PLM process in the IoT space but also in the automation space. We have a very strong customer base. The both of us are -- have our products running, so it's quite natural to see how we can stitch things together and make really this digital thread. From that perspective, it's a very good start that we have Teamcenter now embedded in SAP. We have some certain elements of SAP which we are selling. It's indeed a cross-selling agreement, but it's a start. We're, of course, working on a stronger integration, which is for the benefit of our customers in order to really have complete industrial IoT solutions for our customers.
Thank you.
Our next question comes from Ben Uglow from Morgan Stanley.
I think we're all probably going to be drilling into the digital industry and software performance to understand how we think about it going forward. Ralf, I didn't completely understand the comment about the Mentor being about 40% of the revenue development. Do -- is what you're saying that it contributed to 40% of the 10% software growth, or is that something different? So that was just a clarification. Maybe I can ask the same question which is in a different way. If we strip out the Bentley effect from last year and from this year, your margin has gone from 16% to 19% in Digital Industries on a sort of apples-to-apples basis. Of that 3-percentage-point change, how much is simply coming from software mix? And how much is from the temporary cost savings? Because you will have had a big impact there. And in the event that the temporary cost savings were to go away, can you remain within your 17% to 23% margin band?
Thanks, Ben. Definitely one of the burning questions, and I apologize for not having been precise enough, obviously. What I said is that Mentor is contributing around 40% in general to the software revenue of Digital Industries. And in that particular quarter, we had substantial project wins. Project wins means that in the very early stages of delivering you have revenue recognition effects that also boost profitability, and the DI and software profitability has been benefiting from those wins in the third quarter. And I also tried to indicate that it's very hard to anticipate in which quarter you finally close major contracts. Therefore, it's not a steady process on a quarterly basis, but over the course of the year, you have a pretty good feeling of -- that these contracts will materialize 1 quarter -- or not in a particular quarter but over the quarterly development. So expect volatility in that regard, and we saw that also last year. You may remember prior year's third quarter was rather weak in terms of that effect. So talking to the overall impact of what has been contributing to that hike, as you've been putting it, without Bentley effect from 16% to 19%. I mean the software mix has been mentioned already by you. I think that was a strong component. I also have been elaborating a bit on the fact that T&E claims have been going down by 70% year-over-year quarterly. That is a level that can't be maintained in the long run. It was just driven by the fact that corona doesn't allow for traveling. And there is -- if you want to look for a rule of thumb there, probably we would like to see that half of that is sustainable. We will act accordingly, but it would not be same to the business development in the long run if we tried to keep it on that very, very low level that we saw in the third quarter. So we expect some bounce back as corona opportunities arise and are opening again. Then with regard to concluding then on the margin development. I think the DI business has a fair chance to stay within the margin range in the fourth quarter on an underlying basis without special items but, of course, at the lower end of the margin corridor we have been guiding.
Maybe Ben and gentlemen, let me take it maybe from a different perspective about and beyond a quarter or 2. I believe it's fair to say that our software strategy to bring the hardware and the software together into what we call the EAD system has been paying off. What we see in particular is that what the Mentor offering provides more and more makes its way to the automotive industry on the electrical simulation. And the semi -- even the semi world has been picking up on Mentor, to be supported by obviously a corporation which understands a lot about automation. So that's the trend we have been seeing over time, and that is expected to be continued. I think the bigger question on fiscal Q4 is more the matter on the -- on the PLC sell-through. That's kind of an uncertainty. So in a nutshell, what we expect above and beyond, let's say, COVID-19 impacts either way is that we expect a modest sequential growth on both bookings and billings; maybe a slight book-to-bill ratio above 1, slightly. And on the margin side, obviously the jury is out on what exactly the mix will be in the quarter, as Ralf has been mentioning, but we do expect that DI remains in the target margin range on normalized-level profitability. That's our plan. And whether we are a bit above or a bit below, obviously it depends on how much software customers take from the order backlog at this time. But as a general note, and that's important to us, the software is going to drive quality of margin in -- both in terms of sustainable margin as well as in growth. And that's actually what we've always been targeting so that we get the volatility from the PLC side a bit down on levels which are easier to manage. So I hope this was helpful, but then again we have a global supply chain and global demand. And should there be any, let's say, COVID-19 impact, this will -- obviously will change the forecast as what we see today based on customer feedback and our own capabilities to deliver.
[ Our next ] question comes from Alexander Virgo from Bank of America.
I had a couple of quick follow-ups and then another question on Gas and Power actually. So the follow-ups were, I think you mentioned that -- margins in software now approaching peers, so I just wanted to clarify that, that means north of the broader range for the group and into the mid- to high 20s. The second clarification was I think you mentioned a number in terms of investment in SI of about 130 basis points, if I remember correctly. I just would -- could you clarify that? In the quarter. And then on Gas and Power, you mentioned that, I think, the adjusted EBITA was low single digit or so in the report. I just wondered if you could give us a little bit of a color on the operational performance in Gas and Power given the disc ops is obviously affected by the Gamesa performance this quarter as well.
Maybe in terms of the Gas and Power piece. So the underlying margin on Gas and Power was basically breakeven. We inched out a small profit, which is more a rounding error than anything else. So breakeven. What we liked a lot was that bookings have been picking up quite significantly in the energy business. And the second what we liked is -- was the cash flow. Free cash flow was positive. And that's something obviously we take a -- quite a look at because that -- cash matters, in the end, more than any other financials in the energy business.
Yes. So let me then take the second question, around Smart Infrastructure. First, the 130 basis points of investment are pretty evenly spread over storage inverters, eMobility and smart buildings. From a structure or distribution perspective, it didn't change a lot over the prior quarter; and this is also going to be the investment scheme, if you will, way forward. In the quarter, that translates into some EUR 40 million of incremental investment, that 1 point -- that 130 basis points. And I think the management team of Smart Infrastructure is very diligently looking into opportunities and is developing those long -- their long-term strategic plan. Can you repeat the first question again, around the software margin? I didn't get that properly, to be honest.
Yes, Ralf. No, it's just I think you mentioned in your answer to the previous question, or it might have been to Andreas's question, I apologize, that the margins in software were approaching peers or exceeding -- or profitability getting close to or exceeding peer companies, I think, is what you mentioned. I'm just obviously pushing you. [ I just wondered. I'm wondering ] if you could give us an indication of what [ that will mean ].
No, I got it. I mean, first of all, I wanted to say that the ultimate yardstick, of course, is peer comparisons and market share wins. And the top line development in the quarter suggests that we have been winning market share there obviously. And related to that, due to the nature of the contracts, I elaborated on those large contracts that have immediate bottom line impacts, I think we have been benefiting a lot, which has been taking us to levels that we feel quite comfortable with, getting closer to top-quartile performance. But as I also pointed out, this will not repeat itself, yet on a quarterly level we are getting into the right direction. So top line, clear wins. Bottom line, room for further stabilization. And let me also shed one word on the discontinued operation in general. I mean we are restricted from a regulatory perspective to get into details, but the mechanics work along the lines that we need to add back depreciation, regular depreciation; amortization; and equity pickups, obviously. This is material impact. Also, in the quarter, we've be flagging out inventory write-offs there. And once the energy business is disclosing on a stand-alone basis, you of course will see different numbers in that regard. On a grand total for your models, that shouldn't make a difference because it will all be then kind of relieved and washed out with the final deconsolidation effect.And last remark. You asked last quarter. And I just answer that question without being asked: We also saw, of course, project expenses to prepare for the listing and also completing the carve-out. That was in the mid-double-digit area, as pointed out. I mentioned the EUR 100 million of taxes that were in DO, carve-out related. And I also said and I would like to repeat that the fourth quarter will also be affected by that. There is a material amount still being allocated in the 2 months that are outstanding now.
Our next question comes from Simon Toennessen from Jefferies.
I've got one question also on the software business and one question on cost savings. Since the first quarter, you've been mentioning the semis piece, particularly around Mentor, quite significantly, and it obviously seems to be driving significant growth. I think we all know about the large contract we -- you had earlier this year. You mentioned in the slide deck that, I think, semiconductor and electronics accounts for about 10% of DI, but can you quantify a bit more what percentage of software revenues do you think the semis piece can become? And maybe if you could also comment on, either this quarter or year-to-date, how the software business excluding the semis business has performed, i.e., more in the traditional businesses? And the second question, on cost savings. You're bringing forward, obviously, savings in DI and SI by the end of next year. Can you give any indication what percentage of savings you think you can achieve this year versus '21, i.e., a bit more of a split, so we know how much more in savings will likely come next year? And maybe one last point here: You obviously brought it forward quite significantly since Q1. Maybe you can elaborate a bit on the key drivers here. I remember the slides you provided last year, at the CMD, and there were various levers you had that you wanted to pull to achieve those savings. Just interested in what are the key drivers.
Well, first of all, let me start out with software and Mentor contribution. I think we mentioned almost each and every quarter that we are very happy with the acquisition. And Roland, for good reasons, has been adding that we are as happy with Mendix even though not that material in terms of top line contribution and earnings but on a very good path also to unfold its beauty in our internal processes, supporting applications then based on MindSphere and the like. And with regards to the growth trajectory of the semiconductor business, I mean, 10% share. That's what we said is the basis of last -- was the basis and -- on our current assessment. The growth trajectory or the impacts to the business may look differently, yes, in the next year, but on an overall basis over the full cycle, I think this has been a very stable portioning into the different business fields, yes. Of course, we are driving into that direction as we follow growth opportunities; also with a very strong standing in the marketplace, winning market share. As you know, in software it's extremely important, as there is resilient follow-up business then behind that. The share of 40% of Mentor, yes, I think that has been pretty stable throughout the last quarters and I would be happy to see that continuing. The growth rate, however, in that particular quarter was outstanding, and I would not foresee that to continue quarter-over-quarter. As Joe has been mentioning and explaining already, the sequential development for DI in total is that what we are eyeing at, at the moment. And we do see a funnel that is stabilizing on the levels we see, but as mentioned, quarter-over-quarter, it's very hard to predict, yes. And therefore, we wouldn't dare doing that. The residual business that you have been touching on is obviously then 60% of the portfolio. That does not benefit as much as Mentor does from their customer markets development. So everything that is going into automotive and machine tools is rather muted at the moment, and the geographies affected are struggling, Germany and also Italy and a big question mark behind the U.S. development anytime soon. I think we mentioned that before. With regard to the cost savings, I think...
I'll take this. You were asking for the costs savings, the drivers. Let me start with DI. There's 3 buckets. One is on the support functions of Digital Industries. We are bringing some of these functions together, leveraging synergies. The second one is process improvements. Is it in their regional structure, the optimization of logistics and controllings but as well as some structural changes? The third one which I would like to highlight is the internal digitalization, so using our own software. Is it on software and automation? Is it a higher level of automation in our manufacturing lines but also the end-to-end PLM life cycle process? So we're using our own software, including MindSphere, to optimize. On SI, we are working on the portfolio. So we are optimizing, eventually also selling some low-margin businesses and portfolio elements. We have a service push here. So we are trying to get more volume into service, which is obviously a little bit delayed due to this COVID impact. Then we have manufacturing optimization. We are consolidating manufacturing sites. We are working constantly on that. We had already some closures and some more to come. And last but not least, same thing is offshoring and automation, similar thing, where we are automating more and more our own processes. And yes, this summarizes our program.
All right. Any indication on the split between '20 and -- fiscal '20 and next year on the savings?
See, we have been accomplishing already by far more than we had been originally guiding you at the Capital Market Day last year. So to take the example of DI: That was EUR 320 million by then, 50-50, EUR 160 million until '21, and another EUR 160 million until '23. Out of that EUR 160 million, we have been exceeding that amount already in fiscal '20, but we have been also beefing up our plans. And we will share that with you then in the fourth quarter after assessing fiscal year '20 completely, but we will, by far, exceed the original plans. And DI in particular has been doing a great job in -- of -- in pulling in those savings, so to speak, and accelerate substantially. That also has been underpinning the performance of the third quarter. And that's the piece that I mentioned when I answered Ben's question that will be sustainable and independent of travel expenses.
Our next question comes from Martin Wilkie from Citi.
The first question is on Mobility. Obviously a very strong quarter [indiscernible]. And I think you indicated [indiscernible] Q4 as well. Perhaps if we look into next year...
Martin, you're breaking up. Martin, you're breaking up. Maybe you can start again [indiscernible].
Is that any better?
Yes. Go ahead. Yes, much better, yes.
Yes...
Okay. The question was on mobility, where you had some strong orders this quarter and, it sounds like, next quarter as well, but when we look at the [ tendering process ] given what's happening with COVID and work from home and potential [indiscernible] patterns, is that [ tender pipeline ] still feeling -- is it[indiscernible]? Obviously, there's a balance between what governments might do on stimulus versus what rail companies have for budgeting, but just some sort of sense as to what the tender process looks like inside Mobility.
[ For the ] top line, the tendering, right? Yes...
I'll try to -- I'll repeat your question. Hopefully, that -- I understood it well. You're asking more from a market perspective how this is going next year; whether the stimulus programs from government is, let's say, compensating eventually lower demand. So this -- actually we've seen -- and latest example in Germany. We got just awarded 30 high-speed trains. So the demand is still on even though the capacity is now on a lower level. We have the lower loads, but this is increasing as we go along. We see that in a couple of countries they use the time also to invest in particular in the infrastructure which is outdated, the automation of rail infrastructure. There are a couple of projects there in the pipeline in Europe but also in Asia. And so therefore, we see that the market is still intact. And we see, going forward, let's say, comparable growth rates, but again it's also really depends on how fast and how quick the stimulus programs are really going to work. In some cases, for -- in Germany, for example, really the question is more how you get the money spent because it's really a big pocket and you really have to get enough people behind it to make it.
Our next question comes from Jonathan Mounsey from Exane BNP Paribas.
So really back maybe on Mobility and probing a bit more in terms of maybe service. We see the mix impact in the quarter. I'm guessing that's to do with weaker service levels on higher-margin activity. Have you thought about scenarios for a second wave of COVID-19? I mean travel on the train today. Trains are running. Schedules have normalized, but there aren't many people on those trains. And I just wonder what happens if schedules are brought back to maybe where they were in April again and, say, miles traveled falls by 30% later in the year. What happens to the business profitability if trains aren't out there running? It seems almost ridiculous that they are, at the moment, at the levels they are given so few people are traveling on them. And then further out, in terms of the opportunity on Mobility, I know you're, I think, developing hydrogen train technology, I think. Or is it the Mireo, if I pronounced that right? How far off are you from a commercially operated service in that area? And then slightly unrelated, just on energy: You're talking about reducing the stake, I guess, directly around 35% after the spin. Is "25% and one" share still the hard floor given the guarantees that FS has made with energy? Or are we actually talking about potentially going sub 25% on an investable time horizon?
So the first question obviously is difficult to answer because it's very hard to say whether a second wave will come, and what kind of impact and regionally also. I mean there are different governments having different kind of rules and regulations, so it's very hard to say. What we can say for sure is that service correlates with miles, traveled miles, of rolling stock, then you have -- you're coming into service intervals. So it's very hard to say. What we do is we are providing software solutions for our customers which allow them to have proper distancing in cars. They are weighing the cars and then they can see how many people are on it. So we can monitor [ also our cameras in distance ]. So therefore, we help our customers to really run their operations as good as possible. For the Mireo, you mean the new platform, which is very successful. I think this was also correlated to the service question. I think here we have -- I think we have a breakthrough also regarding -- no. go ahead.
No. No, it's more about the -- I think you're developing a hydrogen version, I believe. I was just wondering. Obviously, Alstom has hydrogen trains running in Germany. And when you might be in a situation to do similar.
I hope, soon. We are developing a version. We are using Ballard's fuel cells, and we have our first train in place. We are offering that and we hope that we can report a first order there too. You know that we already have some order intake on hybrid, sort of battery hybrid trains, which is we believe the -- maybe the faster market to come, for obvious reasons.
And then on energy...
Energy...
So with regard to the energy stake. I mean we said from the very beginning that it is our intent to...
[indiscernible].
Prudently introduce the asset to the market. And we said that we are going to hold the 35% on an interim basis in terms of selling-down throughout the first 12 to 18 months. Also be mindful of the 10% in our pension fund, which is also meant to be there not as a strategic asset and -- but we are also mindful of the interdependencies in the beginning, I think, for the first 2 years. That's why we picked that we will definitely not consider any sell-down that goes further than that blocking minority that we will have.
I think we have 5 more questions in there. [Operator Instructions]
We'll now take our next question from Gael de-Bray from Deutsche Bank.
The first question I have is kind of a follow-up on the Mobility side. In principle, could you be interested by some of the assets that will be put for sale by Alstom Bombardier as part of the concessions made to the European Commission? And the second question is about the corporate expenses, which have systematically been much lower than what you originally guided for in the past few quarters. So do you see this as a sustainable trend reflecting the group's decentralization approach? Or shall we be concerned about a potential catch-up of these expenses going into the next few quarters?
Let me start out, Gael. Thank you for the question. With the second one, of course, corporate expenses are also to a certain extent come down -- have been coming down due to corona impacts. I mean the same is applicable for T&Es when it comes to corporate. It's not material in terms of magnitude but also very much cooled down. And we will maintain at least a part of that after introducing telephone conferences effectively doing board meetings and alike, then also digitally. And also maybe digital AGMs are going to be another source of potential savings in the years to come. We are very keen to learn from our lawmakers in the country how they intend to proceed with that, for example. It's not really changing the big picture, but it's a few million as well that should be considered. So talking on the way forward, I mean, we are absolutely committed to our cost savings of the EUR 500 million that Roland has been elaborating on. We do see that we will stay clearly within that framework. We have been also giving clear indication that for fiscal 2020 stabilizing all the processes around the carve-out activities has absolute priority. And we have been walking our talk in that regard and -- but we also feel quite comfortable that learning from reengineering business processes with digital tools is opening up new opportunities for us, and we will definitely not stop halfway in that regard. So for fiscal 2020, I think we need to agree upon that this has been driven by the big picture of getting things done around the carve-out in preparation of the spin-off. And for '21, we are committed to our cost savings, which are material. At the same time, we need to invest in that new way of working remotely. And we will share with you the quantitative impact on that, but rest assured the same yardstick applies for investments, CapEx, new tools that we apply for business decisions. Each and every investment needs to earn its return. And we are quite confident that there will be new opportunities arising that may have impacts then on '21 and beyond.
If I may -- yes. So just to follow up on this. What do you see has a good annual run rate for the corporate expenses in the longer-term compared to the 1.1 billion you target for 2020?
As I said, I mean, this year, there have been extraordinary impacts, on the one hand side, from carve-out and spin preparation; on the other hand, also from COVID, for example, with lower travel expenses and digital AGM and alike. So it would be premature to conclude on a final run rate, but the point I was trying to make: Rest assured we will tap on each and every opportunity. Some of them may also trigger investments. And we will share with you transparently what that means for the run rate way forward.
On the assets offered for remedies, let me quickly run you through that. The ZEFIRO V300 from Bombardier, the high-speed train concept going back 2007. We have our new platform, so no interest. Reichshoffen combined with the Coradia Polyvalent platform. Reichshoffen -- we repeatedly said that this is by far not enough to really reinstall a proper competition in France, so therefore not interested. And regarding the Hennigsdorf and TALENT 3 platform, this is only a part of a manufacturing site and with a lot of deliveries into it. So in total -- and also the TALENT platform may have better products to offer, not interested. The last one is indeed the onboard unit and remedies where it's more unlocking the potential to really deliver new ETCS system because you need to an -- have an access to onboard units on the existing fleet. And there we are very much interested because, if that would not work, this remedy, then Alstom Bombardier could really block the market. I hope the -- and here we got the signal from the antitrust authorities that they clearly see it and they [ approve ] the remedies which were offered, but this is not clear yet. We have to see.
Your next question comes from James Moore from Redburn.
Yes. I have 2 clarifications on the DI margin and then 1 on Smart Infrastructure. [ First, on ] DI, if we exclude the software [indiscernible] revenues [indiscernible] information, if we call it that [indiscernible] and margins were roughly flat...
James, I think you have to start again. James, we cannot hear you properly. Can you start again?
Hello. Can you hear me?
Yes, now it seems better. Can you start again, please?
Well, I'll try again. My question, first question, is about the DI margin. And if we exclude software [indiscernible] assume that the remaining DI revenues, automation revenues fell 10% [indiscernible] and margins were roughly flat. And can you help us with the digital investments in DI? I was assuming 65 million but may...
James, now you're -- we're losing you. We can't hear anything. Where are you? You're working from home. You need to find the line. Probably you're on holiday.
I apologize. What -- I am in Spain. My apologies. [indiscernible] you take a question from someone else.
No, no, no. That's fine.
Well, why don't you answer the portion we can answer, so far?
We didn't get the second one. The first one...
The first one is understood, around the automation impact and margin impact from DI, from software as a service investment. I will answer that, but the second one didn't come through. Can you repeat that, please?
I have [ a question in regard the structure ] and just whether you [indiscernible] about the medium-term 15% margin target. And really, [ what is in that ]? Is it a specific [indiscernible] units or some other levers?
Now the question -- James, the question was, if I may repeat that, you asked about Smart Infrastructure and the mid-term margin target from 11% to 15%. So what's in there in order to make it, right? Is that the question?
Correct, Joe.
Okay, thank you. Yes, that's what I thought.
Good.
Okay, SI. Who's the...
So let me start with DI margin...
Thank you. Take it away for DI.
let me start with the DI margin impact. From that, what I understood, the cloud investment, as we call that, for the quarter was 1.4%, yes. And that translates into some 50 million. I think that have been mentioned by you. We do see a declining impact from the MindSphere investment and also from Mentor integration way forward. So that will fade away over the course of the next years, as mentioned before. And we will continue to invest in software as a service, obviously. And that magnitude of impact of 1.4%, I think that's a good orientation also for the full fiscal year, but it will not exceed that level way forward, yes. We tried and are successfully walking that thin line between investments and also rewards on those. That is, of course, not only strengthening the product business, yes. It's also very much supporting the software development, and that has been proving that it is fairly resilient and contributing to the overall margin development. I think that has been executed properly along the lines that we have been indicating before.And with regards to Smart Infrastructure and are they going to achieve their target margin ranges, of course, we need to accept the COVID impact, at least short term, but since we have been developing those margin ranges around the industry peer profit pool, the management team is committed to accomplish that. They have been setting themselves very ambitious saving targets and goals that they are going for. They have been confirming and even beefing up the potential. We also have been pointing out very clearly that SI will not be able to maneuver as quickly as DI does in that regard. So they are a couple of quarters ahead, so to speak, in terms of determining the measures and also getting acceptance from the workers' council and all that it takes to implement successfully. So I do not have any doubts that they are going to accomplish that target, but it will not be earlier than pointed out before. I mean fiscal '22 and ahead. And I also would like to repeat what I said of when we discussed the DI margin development, of course, that travel and entertainment expenses have been massively moving down also for SI. This will not be a sustainable level, but we do intend to keep a firm grip around half of them. That's the intent. And on top of that, SI has been also announcing and committing that they will work themselves through their portfolio, identify parts and elements that are not core any longer. And I do see them on a very successful way to complete that in the quarters to come.
And on SI, maybe I'll remind you. On SI, I'll remind you what we have said on the Capital Market Day, the strategy of secure, leverage and expand. Secure, we want to secure really our strong business. We have a good product business where we want to expand it and also work on it. We've just explained about it. As well as our energy automation business, where we are a market leader and with a very, very high-margin contribution. And again, we saw also resilience in this market. We hope we can capture more of that. On leverage, it's really about leveraging the growth parts which we have, for example, data center. By the way, data center made a very, very good contribution in Q3 because we could deliver, as well as service in Asia. Services comes with a high margin. We want to expand our service business and see also some opportunities in Asia too, including some areas where we are investing, as we said before. Let me mention charging, for example. And then expand. That means really, again, working very hard on our cost savings and our portfolio mix. So this combination is the plan with which we want to achieve this target margin rate.
Our next question comes from William Mackie from Kepler Cheuvreux.
I have a couple of questions. Firstly, related to SFS, after the reassessment you've made of risks that have impacted the third quarter, could you talk a little bit around how you see those risks evolving against the EUR 29 billion asset base as we go through the fourth quarter; the puts and the takes which might affect the outcome of how you view the loan loss provisions and the equity, which you've touched on? And secondly, within Smart Infrastructure, if we come back to that. Historically, we've always seen a strong fourth quarter within that business seasonally, so -- and given the differences in the moving parts between the product and the system and solutions, could you walk through a little bit how you see the evolution of Q4 against Q3 sequentially again?
So thank you, William, for those questions. Let me start with SI. I mean with all the disclaimers we said around corona, it's obviously difficult to predict, but what we do see is that we are going to maintain that sequential development quarter-over-quarter, as you and ourselves have been experiencing that before. So on a sequential basis I think both new orders and revenues are having a good opportunity to increase in the fourth quarter over the third quarter. Comparing to the prior year's quarter, I wouldn't be that optimistic, obviously. And it will take some time before we reach back, come back to that fiscal '19 year's level. We said that a couple of times before, but we are also, as indicated, quite happy with the cost-out measures gaining grounds there; and also the discretionary element of T&Es that have been coming down substantially; and as I said before, the portfolio aspect that SI management has been addressing. We can't share with you, obviously, but you can rest assured we are very consistently following up on that and we will do the right moves at the right time.So with that, I would like to change to the first question you've been raising, around Siemens Financial Services and, on top of that, what I said already in my presentation. I would like to add that, I mean, there's 3 components, yes, that have impact on SFS' performance on a quarterly basis, obviously. The first is that there is a need to provide for certain risks, credit hit risks, provisions there, for example, coming into play when a customer is indicating that he or she is asking for extending the payment duration. And that immediately triggers a revaluation of the rating of that customer. That again triggers provision. That does not necessarily mean that this specific customer is going to be in default or in Chapter 11, though there is an impact from accounting perspective, yes, which we of course need to adhere to and we do that. That has been contributing some 5 percentage points of return on equity in the quarter. The second piece that I have been touching on, obviously, equity investments. You own the business. And as long as there is development on a certain location for one of those investments, and once corona measures kick in and clear that space, yes, without having access to it, the progress of the project, yes, is put on hold. And that implicitly is also triggering a revaluation of the future and -- revenue streams of that investment being reflected then in a revaluation of the equity investment. And on top of that, of course, equity investment itself has a lower return these days, as we know.So these 3 components had a grand total impact of those 9% that we have been discussing with you for SFS. What are we doing? We are very consistently and literally continuously going through the portfolio. We see the portfolio to be in a much better shape than it was after Lehman, as we discussed, but we are not immune, obviously. And therefore, the categorization, and looking into it the way I just described it, looking into credit hits, on the one hand side, which is a statistical phenomenon, if you will, for accounting purposes, we will keep you updated. It will not go away next quarter, obviously. We do expect, depending on corona impact, that this will last for a few quarters more. And with the equity investments, which is a very small part of our portfolio, anyhow, below 10% obviously, we take that case by case. And we, of course, cannot exclude that there will be further impact.
Our next question comes from Daniela Costa from Goldman Sachs.
I'll try to ask 2 quick questions. The first one, I wanted to ask regarding how you're thinking about sort of the dividend proposal to the Board. I know you have a 40% to 60% payout, but this is in many extent, I guess, some special year with Spain, Varian, also very good free cash flow. Consensus seems to expect a cut in absolute terms, but I was wondering if you can just comment how you're thinking about it. And then my second question relates to your statements regarding being a long-term majority shareholder in Siemens Healthineers. I think that was the wording that you've used. I wanted to check, just a clarification, exactly on what that means. Does it mean being the largest shareholder on Siemens Healthineers going forward or necessarily being above [indiscernible]?
Thank you, Daniela. Let me start with the second question. Majority shareholder for us means "50% plus 1" share, minimal. And with regard to the dividend policy, we are committed to the 40% to 60% payout ratio, but we always said that noncash items will be separately looked at. And that will be applicable also for the current fiscal.
I think we have time for one last question now.
Our last question comes from Wasi Rizvi from RBC Capital Markets.
Just a couple left from me actually, on the China elevated inventory levels. I think you've been a bit more definitive than what we've heard from other companies, so I'd be interested. Is there any particular end markets or regions perhaps within China where you think that is? And then on SI, just the investment, do you have a time frame for when you think this goes on for? Is this basically now an ongoing cost for the foreseeable future as the costs of doing business in markets such as inverters and eMobility are changing quite a lot and progressing rapidly?
Thank you, Wasi. Let me start with the SI part of your question. I mean for the time being, we do expect that to continue for minimum 2 years, yes, maybe on levels that may vary, but it also depends on how quickly we accomplish the intended outcome on that one. We do see the business on a good trajectory for this one, but of course, also the customer needs to be reflected in that. And as long as corona is impacting the business model, it would be premature to say when and how intensity shall be changed in that regard, but we will keep you updated on that, maybe in the next quarter, with our view on the fiscal '21 then. And with regard to China, what I meant to say is that, in June, we had a very favorable development on top line in our short-cycle product business in China, affecting mainly DI but also parts of SI. And we do see, due to the nature of our go to market there, channel partners which have been also filling their shelves, it's hard to predict when and to which extent that is flowing out to end-customers then, but I want -- I personally have been reviewing those figures with a cautionary element for myself because it would be premature to conclude from a strong exit growth rate in June that the fourth quarter will go along the same trajectories.
Yes. There is no -- you need to know there is no inventory level which we are concerned about [indiscernible] of time. As you know, the continuation needs to be watched very well, but there is no full channel waiting for -- to be sold. Each has that -- we need to be mindful about that growth doesn't last forever.
All right, good. Well, with that, I think now we are at the end of our conference call. Thank you, everyone, for participating. The team and I am also available for further questions. And I wish you a lovely summer, and stay healthy. Bye.
Bye.
Bye-bye.
Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation.Once again, let me repeat the instant replay numbers. Participants in Germany, please call the replay number (0049) 69-2000-1800, access code 9921383. Participants in Europe, please call the replay number (0044) 20-7660-0134, access code 9921383. Participants from the United States, please call the replay number (001) 71-9457-0820, access code 9921383. 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.