SIE Q4-2024 Earnings Call

Operator

Good morning, ladies and gentlemen, and welcome to the Siemens 2024 Fourth 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, Mr. Tobias Atzler, Head of Siemens Investor Relations. Please go ahead, sir.

T

Tobias Atzler

executive

Ladies and gentlemen, and welcome to our Q4 conference call. All Q4 documents were released this morning and can be found on our IR website.

I'm here today with our President and CEO, Roland Busch; and our CFO, Ralf Thomas, who will review the Q4 and full fiscal '24 results, followed by the outlook for fiscal 2025. We will also elaborate on our long-term direction for Siemens to act as one tech company. After the presentation, we will then have ample time for Q&A. The schedule -- the call is scheduled for up to 90 minutes.

Since there is a lot of agenda, with that, I hand it over to Roland.

Roland Busch

executive

Yes. Thank you, Tobias, and good morning, everyone, and thank you for joining us to discuss our strong fourth quarter and full year 2024 performance, and we look ahead into our ambition for fiscal year 2025 as well.

Four years ago, we started executing our strategy to combine the real and the digital worlds, and we have achieved impressive results. Now it is time to take Siemens to the next level as ONE Tech Company. We started this program to accelerate transformation to make a step up and unlock our full potential. Later, I will talk about the key building blocks to achieve even stronger customer focus, fast innovation and higher profitable growth and ultimately value creation.

But before that, let's start with fiscal year 2024. We delivered a successful fiscal year and created substantial value for all our stakeholders during a challenging period. The world experienced a year with ongoing geopolitical tensions and macroeconomic uncertainties, again, wars, risk and inflation from new tariffs. And intensifying unilateral approaches held back global trade, private spend and production.

Export-driven Europe and Germany, in particular, were impacted primarily. Ongoing destocking and overcapacities, especially in China, weighted on global manufacturing as well. However, the further rise of digitalization and AI, increasing demand for higher resilience and steps towards an all-electric and a decarbonized world offered tremendous opportunities for all our offerings, be it software electrification, automation, sustainable infrastructure or mobility.

My thanks go to our global team, Siemens, for a great contribution and successfully managing this complex environment together with our customers and partners.

As a technology leader, Siemens seized significant market opportunities. Orders topped EUR 84 billion and were 4% below prior year's tough comps, while revenue grew by 3%. A healthy book-to-bill of 1.11 and strong backlog of EUR 113 billion give us confidence for fiscal 2025.

Industrial Business profit and margin were level with our strong prior year. We demonstrated again that our strategy as a leading technology company powered by a resilient operating model delivers. All this, despite the fact that our core industrial automation business faced material headwinds.

Our strong operational performance also compared to competition is most notably confirmed by continuously excellent free cash flow. Our Industrial Business delivered another record year with almost EUR 11 billion of free cash flow, which led to an impressive EUR 9.5 billion for the group.

Operational strength is fully reflected in our record high earnings per share pre-PPA, and excluding Siemens Energy, of EUR 11.45, up 6% and well within the guidance range we issued 1 year ago.

All 3 businesses met their latest fiscal year guidance. Digital Industries revenue declined by 8% on a comparable basis, at the lower end of the guided range, due to challenging conditions for our automation business. Profit margin reached 18.9%, where a very positive development in the software business was overcompensated by missing volume and related progression effects in the automation business. Smart Infrastructure grew by 9% and achieved a record profitability of 17.3%, even exceeding this year's guidance.

I'm very pleased that the data center business revenue grew more than 50%, now exceeding EUR 2 billion, at clearly -- and clearly winning market share. Smart Infrastructure remains on a very consistent improvement path, which is highlighted by an impressive 16 consecutive quarters of year-over-year margin expansion. And the team will aim higher as they will show at their Capital Market Event in Zug in December.

I am very pleased that the Supervisory Board extended the contract of Matthias Rebellius according to his wish until end of fiscal year 2026. With his strong leadership, passion for customers and deep knowledge about technology markets and regions, he will further shape the outstanding successful journey of the Smart Infrastructure business and support us in the transformation of Siemens.

Mobility, again, delivered healthy revenue growth by achieving 9% on stringent backlog execution, well within the guided level. Annual order intake reached EUR 15.8 billion with a book-to-bill close to 1.4, reflecting the competitiveness of our portfolio. The team achieved industry-leading profitability and free cash flow, again, managing risks and opportunities in a prudent way.

Siemens has been a global company from the very beginning. It is in our DNA to continuously develop our well-balanced global footprint, improve resilience and make investments where our biggest opportunities lie.

In fiscal year 2024, among our large countries, the U.S. contributed 12% revenue growth, while India was up 16%, whereas Germany and China were lower on soft industrial demand. Looking ahead, we see opportunities in all geographies, and we are deeply rooted in local societies and will continuously drive our local for local strategies.

Now let me outline some key operational highlights for the fourth quarter. Our customers continued to invest in electrification, digitalization, sustainability, and this led to strong organic top line performance.

Book-to-bill reached 1.1 on strong order growth momentum of 47% in Mobility and significant order growth at Smart Infrastructure driven by large orders. Orders in Digital Industries came in as expected below prior year. Our automation business was moderately up on prior year's trough level.

However, economic activity was still muted, and investment sentiment weak in core industries such as automotive and machine building. And macroeconomic indicators and company news point to a late recovery in our key region, Europe. And China still held back from ongoing destocking in the distribution chain, albeit we see some green shoots supported by government stimulus.

Our software business recorded several large orders, yet below the extraordinary high level of large EDA contract wins in prior year. Overall, revenue growth reached 2%.

The largest growth contribution came from Mobility, up 15%, while Smart Infrastructure grew by 9%. The software business in Digital Industries grew moderately on a very tough comps, whereas automation was substantially lower due to fading support from order backlog and soft demand from short-cycle book and bill orders.

I am particularly proud of our electrification and electrical products team, both achieving revenue growth in the low teens, managing fast output growth by ramping up our own resources and managing the entire supply chain very well.

What really matters is value-creating growth, and we executed in a very stringent way, a strong profit of EUR 3.1 billion in the Industrial Business and is an outstanding highlight, EUR 5 billion of free cash flow, all in.

Our digital business was a major growth driver in fiscal year 2024, up by 22% and reaching revenue of EUR 9 billion. This now equals around 12% of total revenue. We continue to launch innovative offerings on our digital business platform, Siemens Xcelerator, across all businesses and drive the expansion of our partner ecosystem. The SaaS transition in Digital Industries is fully on track, delivering annual recurring revenue growth of 14% in Q4.

Two weeks ago, we announced a crucial strategic move to reinforce our leadership in industrial software and AI with the acquisition of Altair Engineering. And we continue to sharpen our portfolio by optimizing our portfolio with targeted smaller investments and disposals. An important milestone was the closing of the Innomotics divestment on October 1 as well as the announced sale of airport logistics.

The underlying strength of our company, combined with focus on attractive shareholder return, is reflected in our dividend proposal of EUR 5.20, up by EUR 0.50.

Looking ahead into fiscal year 2025, we will react flexibly on market developments, balancing growth and innovation investments with productivity and cost measures tailored to the individual business requirements.

From what we see today, with a backdrop of diverging trends of ongoing challenges in the industry sector, alongside strengths in infrastructure markets such as electrification and mobility, we expect further value-creating growth in 2025, and Ralf will give you the details and our assumptions.

Now let me shed some light -- some more light on our ONE Tech Company program. As I mentioned, we achieved a lot over the past 4 years, driving profitable growth, record performance and strengthened technological leadership. We are perceived as a technology company and have built a strong foundation for future success.

From a strategic perspective, our portfolio is very well positioned along secular demand trends driven by electrification, automation, digitalization and sustainability, solving the most pressing challenges of our customers and society. But today, we are at a pivotal moment.

Rapid changes in technology such as the intensified use of AI and software digitalization and the shifts in markets through rising competition like in China provide both risks and opportunities. We have defined our long-term direction for Siemens to act as ONE Tech Company, a company characterized by stronger customer focus, faster innovation and higher profitable growth.

We are currently working on 3 main pillars to drive change faster and more rigorously. The first pillar we have is foundational tracks targeted to reshape the fabric of our company, laying the foundation for ONE Tech Company. We will optimize processes, structures, systems and ultimately change behaviors towards an organization that can scale faster and is geared towards collaboration.

For example, through foundational technologies that are used across the company, eliminating internal redundancies, delivering the best technology once and productizing it and providing seamless functionality for our customers, we will accelerate the development of sales of scalable vertical offerings along digital threats across businesses.

And we will accelerate through a more intense use of our partner ecosystem and the huge amount of data we can access. As a result, we will deliver greater value to our customers. AI will be built in all our offerings based on a coherent data strategy.

This brings me to the second pillar, investments. Our capital allocation approach will be even more rigorously geared towards growth fields, both organically and through acquisitions. Our plan to acquire Altair is a milestone in strengthening our industrial software offering with an attractive, highly complementary portfolio. A core area of our investment tracks covers investments in R&D as well as in growth regions, such as India or certain verticals like data center.

Third pillar is focused on productivity. For fiscal 2025, we will further invest in our own digital transformation by implementing new IT tools to optimize operations. In addition, we will leverage AI and data-driven insights to drive efficiency across all functions and improve competitiveness.

For example, broad-based use of AI tools in coding will require substantial reskilling and shifts in our workforce. We will continue to provide updates on our progress over the coming months and are on the road to share a comprehensive perspective on Siemens as ONE Tech Company at the Capital Market Day late in calendar year 2025.

A key area of investment, providing valuable scaling offerings -- scalable offerings is our digital business platform, Siemens Xcelerator. One year ago, we announced our game-changing collaboration with Microsoft by launching the Siemens Industrial Copilot. Together, we have made significant progress.

Over 100 companies are using the Copilot and our co-creation partner, thyssenkrupp Automation Engineering is the first to plan a global rollout. It is also great to see that more than 120,000 engineers who are using our engineering platform, TIA Portal, can now enhance their work with this gen AI-powered assistant.

At this week's SPC (sic) [ SPS ] fair, we have launched the latest innovation from our partnership with NVIDIA scaling AI. An industrial AI suite that runs on a new line of industrial PCs powered by NVIDIA's GPUs is accelerating AI execution 25x. This makes complex AI tasks in advanced automation broadly available and boosts efficiency.

We continuously upgrade our offerings across all businesses. At the InnoTrans fair, we launched Signaling X, leading rail signaling and control systems into the digital future. Both mainline and mass transit signaling applications and systems can be seamlessly controlled and operated from one centralized signaling data center. This -- and open interfaces to train planning systems enable rail operators to optimize operational efficiency by up to 20%. Bringing Siemens Xcelerator and vertical know-how together is essential to scale offerings and drive sustainability.

Together with Merck, we will work as a preferred partner on their smart manufacturing concept of the future. We are supplying cutting-edge software and hardware solutions across their 3 business sectors. Modular production is reducing time to market, lowering investment costs and cutting CO2 emissions.

Smart applications can also be transferred to hospitals. Soon to be open Kantonsspital Baden in Switzerland will optimize operations and improve patient experience with a customized IoT platform. Thousands of asset tags and sensors will feed into an app-based navigation system. This enables the operators of the hospital to identify and locate critical assets through real-time location-based services. Our comprehensive smart buildings portfolio is also used by the hospital.

In the Netherlands, we partner with Alliander, a large distribution grid operator serving 3.5 million customers. With our new software, Gridscale X, we tackle critical challenges of the energy transition, such as capacity constraints. Its implementation aims to extend grid utilization by up to 30%.

And finally, a great example for cross-company collaboration from our Mobility business. Singapore Land Transportation Authority awarded the Siemens-led consortium to provide the power supply system for the Cross Island Line. Smart Infrastructure is supplying the medium voltage switchgear. In combination with the earlier award of the signaling system, more sustainable and cost-effective operations can be achieved.

As I mentioned, a core strategic lever for the value creation is our goal to grow the digital business. It's clear, 2024 was a step-up, also benefiting from large software license deals and very successful SaaS transition. We achieved a compounded annual growth rate of 14% to EUR 9 billion over the last 4 years.

All our businesses allocate significant resources to expand and promote Siemens Xcelerator, software and digital service portfolio. And the planned integration of Altair Engineering will boost our share of digital revenue even further.

Successful transition of a significant part of our DI software business towards Software as a Service is crucial in driving our digital business. Over the past 3 years, we have delivered impressive results, and we will keep the momentum up. ARR growth reached a very healthy level of 14% over prior year in Q4, and our plan to sustain ARR growth in the low teens in fiscal year 2025, in line with our target of more than 10%.

The cloud portion stands at EUR 1.8 billion, equaling a 42% of ARR, exceeding our target of 40%, 1 year ahead of schedule. The team is now targeting to approach the 50% mark by the end of fiscal 2025.

All indicators, number of total customers, small -- share of small and medium enterprises and customer transformation rates continue to develop in the right direction. As indicated, after surpassing the belly of the fish in the SaaS transition from the PLM and part of the EDA business, we will continue to see gradually higher profitable growth contribution.

More than 90% of our business enables positive sustainability outcomes for our customers. Two recent examples are joining the global battery -- turning the Global Battery Alliance and using green steel for controlled cabinets. A very important step was that our updated ambitious near- and long-term emission reduction targets have been confirmed by the Science Based Targets initiative. We are fully committed to drive towards a low-carbon future.

A key lever for future success is further accelerating our innovation speed. In fiscal year 2024, we invested around EUR 6.3 billion to further upgrade our strong connected hardware base and intensify investments in our software and digital portfolio. For fiscal year 2025, we plan to keep with the intensity, at least on the 8.3% of revenue level, potentially even a notch higher, with further growth in absolute terms.

To unlock our potential as ONE Tech Company, we must scale our software business faster. As an important step towards this ambition, we pooled development resources relevant for certain cross-business software technologies and applications together in a foundational technologies unit. Their mission is to build common cross software services for a frictionless customer experience, no matter where they use our portfolio. These services will be used across the company.

This will enable us to accelerate innovation, productize software services -- core software services more effectively and efficiently, eliminate internal redundancies and harmonize the Siemens Xcelerator end user experience. In addition, our foundation technology team is closely collaborating with all businesses to maximize the impact of investing in 11 company core technologies.

As you can see from the examples on this slide, all businesses will drive their innovation leadership along key offerings in connected products and systems, automation, domain-specific software applications and services as well as sustainability offerings.

Now I want to briefly touch on our planned strategic acquisition of Altair Engineering, which will decisively strengthen our industrial software business. We have been building our leading software portfolio since 2007 based on a visionary and a well-executed strategy. Acquiring Altair is an important cornerstone of our ambition as ONE Tech Company and will expand our comprehensive digital twin with a full-suite simulation and AI portfolio.

We are driving portfolio optimization as an ongoing process to continuously become stronger and sharpen focus. Recently, we announced 2 bolt-on acquisitions to complement our Smart Infrastructure portfolio with Trayer Switchgear and Danfoss Fire Safety products. With the announcement -- with the announced sale of airport logistics to Vanderlande, we will very successfully close the chapter of our portfolio companies.

And there's a clear path ahead of listing Siemens Energy India in 2025 with subsequent steps for us to return to a shareholding of 75% in Siemens Limited India, while exiting the energy-related activities in 3 to 4 years from now.

And with that, over to you, Ralf.

Ralf Thomas

executive

Thank you, Roland, and good morning to everybody. Let me share more about our strong fourth quarter finish and our outlook for fiscal '25.

Orders for Digital Industries at EUR 4.3 billion were 6% below prior year with a book-to-bill of 0.93. The software business continued its strong trajectory with orders exceeding EUR 1.9 billion for a book-to-bill well above 1, driven by several large orders in the EDA space. Some of these orders were recorded even earlier than anticipated in the sales funnel.

Prior year's quarter provided exceptionally tough comps due to an unprecedented high level of EDA orders back then. The automation business saw sequentially softer orders. However, as expected, orders were moderately up compared to trough levels of prior year Q4.

As Roland mentioned, the market environment remained challenging with subdued output and important customer industries and soft investment sentiment in key regions, especially in Europe. We saw progress in destocking in China, where distributor stock levels closed the fourth quarter at around 10.5 weeks reach and have been moving further down since then. However, stocks are still elevated, particularly in the factory automation area, and it continues to be our expectation to return to normal levels in the second quarter of fiscal '25.

Our backlog in Digital Industries further decreased to EUR 9.2 billion. Therein, the software backlog amounted to EUR 5.6 billion, a number that has been growing over time with the increasing share of recurring revenue due to the SaaS transition. The automation backlog stood at EUR 3.6 billion, which will provide only very limited support for revenue growth going forward near term.

Revenue for DI was 18% lower. Therein, the software business achieved 4% growth on tough comps driven by the PLM business, up by 7%. While the EDA business was flat in the quarter, we should look at the full fiscal year growth rate for '24, which reached an impressive 19%. On the other hand, automation revenue was down 26% against a very strong quarter for the business in the prior year's Q4.

Discrete automation declined by 30%, most notably affected by destocking in the short-cycle factory automation business. Process automation was down by 15%. DI profitability reached 16.2%, somewhat better than anticipated, with a robust conversion in the software business.

Lower revenue in automation led to reduced capacity utilization and consecutive margin contraction. The teams worked hard on executing contingency and productivity measures to partially balance lower volumes, and there is more to come in the next quarters. Together with stringent pricing discipline, particularly in China, productivity gains supported a net positive economic equation in Q4 and full fiscal '24.

We were pleased that Digital Industries again achieved strong free cash flow of more than EUR 1 billion, leading to an excellent cash conversion rate of 1.4. The main driver was the automation business, where the optimized net working capital, while -- where we optimized net working capital, while the software business saw a very solid cash conversion above 1. For the full fiscal year '24, Digital Industries generated EUR 3.2 billion in free cash flow, a solid contribution in a truly challenging environment.

Now let me give you the regional perspective on our top line automation performance. As mentioned, economic conditions were muted, particularly in Europe, and destocking still has some way to go, particularly in China. This means a broader rebound of automation orders will take place later in calendar year '25 due to sluggish demand.

Yet in China, we saw some stabilization on very easy comps with 11% order growth, in line with the low level of short-cycle automation orders and further fading backlog support, revenue in all key regions declined materially from strong prior year levels, again, most pronounced in Europe.

Looking at our key vertical end markets for the next quarters. Official sources point to an ongoing muted growth momentum for manufacturing output and customer demand well into fiscal '25, particularly in machinery and automotive. However, we see some indication of higher activity in early-cycle verticals, including chemicals, electronics and semiconductor market.

While the fundamental global trend for automation and digitalization industry is fully intact to drive sustainability and mitigate labor shortages, we continue to see sluggish economic developments in key countries. This will negatively impact our automation business during the first half of '25.

We assume improving trends beginning to materialize not before the second half of fiscal '25 once destocking is completed. On this basis, we will further initiate and execute steps to adjust and reallocate resources into growth regions and reskill our people to best fit to our strategic perspectives, with hardware and software becoming much more integrated. As the year progresses, we will continue to provide additional more detailed information.

These investments and adjustments support our strategy execution and higher agility moving ahead. At the same time, we will rigorously drive our local-for-local approach in China, combined with scalable products for specific customer segments. The goal is to win against intensified local competition.

Weighing all these factors for fiscal year '25, we expect a stabilization and sequential improvement of order levels in automation, which consecutively translate into improving revenue levels in the course of fiscal 2025.

The software business will continue its strong underlying growth trend, building on a very successful SaaS transformation. However, as indicated, the extraordinary large-scale software license contracts, which were booked in the third quarter of fiscal '24, will most likely not repeat on these extraordinarily high levels in fiscal '25. As a result, software revenue in fiscal 2025 will most probably not exceed prior year's level. Consequently, for Digital Industries, in total, we expect comparable revenue growth in the range of minus 6% to plus 1% in fiscal '25.

Profitability will follow a similar pattern with higher volumes to benefit margin in the second half year. In addition, the effect from reskilling, further cost reduction and productivity measures will increasingly support during fiscal '25.

We again expect to outweigh merit increase with productivity for a positive economic equation for the full fiscal year. All in all, we expect profit margin for fiscal '25 to be in the range of 15% to 19%, the midpoint being at the lower end of our through-the-cycle target range.

From today's perspective, we expect a very slow start into fiscal '25. In the first quarter, we see orders on level with prior year on further destocking in automation and with supporting growth momentum from the software business. We anticipate DI revenue growth to be down low teens. Automation revenue will decline sequentially on fading backlog support, continued destocking and still sluggish demand.

The first quarter of the software business is a seasonally soft quarter, yet revenue is expected to grow in the low teens on low comps in the EDA business and clear growth in the PLM business on consistent SaaS transformation.

We may see the profit margin for the first quarter to be clearly below the full fiscal year guidance due to missing capacity utilization and a less favorable automation product mix. And it's also depending, of course, on the timing of the before-mentioned investments and adjustments.

Now Smart Infrastructure, again, executed excellently leading to a truly outstanding fourth quarter performance across all metrics. The team achieved strong top line growth in healthy end markets and another proof point for consistent margin expansion for the 16th quarter in a row.

In total, orders were up 14%, driven most notably by 31% growth in the electrification business. Orders benefited again from larger wins, primarily from data centers and energy customers. Electrical products was up strongly by 11%, also driven by strong data center demand.

For full fiscal '24, we even exceeded our ambitious expectations for order intake in the data center business with a growth rate above 60%, reaching more than EUR 3.6 billion. Billings was up 2%, driven by the product business. SI's order backlog at the high level of EUR 18.2 billion provides very good visibility for fiscal '25.

Revenue growth was broad-based and reached 9%, in line with expectations with the largest contribution coming from the electrification business, up by 12%. Electrical products continued its growth path on a high level with 10%. Buildings showed clear growth with 6%, driven by a healthy service business. Flawless backlog execution again led to further margin expansion of 260 basis points year-over-year, now reaching remarkable 17.5%.

The business once again benefited from economies of scale from higher revenue and increased capacity utilization. The economic equation was again clearly positive, supported by strong pricing, more favorable material cost and sustainable productivity gains outweighing merit increases.

The SI team very successfully implemented effective measures to reduce operating working capital strongly related to inventories, despite clear revenue growth. Free cash flow showed a stellar finish with an all-time high of more than EUR 1.5 billion, bringing full year cash conversion to 0.97, well ahead of our target of 1 minus growth.

Looking at the regional top line development. We saw a robust demand with strong order momentum driven by Europe and Middle East on large order wins in various verticals. The U.S. was up 6% on tough comps, again, benefiting from thriving data center demand driven by hyperscalers. China was up 8% broad-based. Revenue increased in all regions, supported by strong backlog execution. The U.S. achieved outstanding 21% growth. Key growth engines were the electrification and electrical product businesses. The service business delivered 9% growth led by a substantial increase in Asia.

We continue to see very consistent and resilient end market demand trends with growth in our main verticals based on the secular trends Roland mentioned earlier. Commercial buildings and some industrial verticals continue to show modest growth going forward, also depending on interest rate developments, of course.

We continue to see high momentum in the data center vertical on increasing adoption of AI-based applications. Upgrading grid capacities with hardware and software is a very resilient growth trend for which we are well positioned with our comprehensive offering.

For the first quarter, we see the comparable revenue growth rate with our full year growth guidance of 6% to 9%, strongly supported by order backlog. We expect for Smart Infrastructure to achieve further margin improvement in fiscal '25 within a range of 17% to 18%. In the first quarter, we expect margin to be on prior year's operational level of 16.4%, excluding a positive effect related to past portfolio activities back then.

Mobility closed the year with strong performance across all metrics and with outstanding free cash flow. Orders at EUR 4.6 billion, up by 47%, included several large margin accretive services, rail infrastructure and software contracts. Among them were long-term maintenance contracts for locomotives and intercity trains in the U.S. totaling EUR 800 million.

The backlog stands at EUR 48 billion, clearly up over prior year and with improved gross margin. They are now close to EUR 14 billion of accretive service business, securing accretive and recurring revenue streams. This lays the foundation for fiscal '25 being another year with strong revenue growth broad-based across all businesses with a high share of rolling stock.

Our sales funnel continues to look very promising for fiscal '25 for a book-to-bill well above 1 across all business activities. A look at the expected timing of upcoming project awards is indicating an order level materially above fiscal '24.

Specifically on the Egypt projects, we are progressing in the project execution of the Green Line extension, where we presented the first Velaro high-speed train at the InnoTrans fair. For the Red and Blue Line, the teams are working hard towards the financial close. From today's perspective, it is expected in the second half of fiscal '25. Then the remaining contract volume of around EUR 4.5 billion will be booked.

Revenue in Q4 was up 15% on broad-based growth with a strong contribution from customer services and large rolling stock projects. Profit margin reached 9%, with improvement in most businesses and led by customer services. With more than EUR 1.1 billion in Q4, Mobility delivered an exceptionally strong free cash flow, and we are quite proud of that, in particular, comparing this business against their peers. This led to a cash conversion rate of 1.14 for fiscal '24, once again clearly differentiating Siemens Mobility from competition.

Mobility is a long cycle business has delivered continuously healthy cash conversion for many years, representing a very attractive asset-light business model with a high degree of prefinancing. Our assumption for revenue growth for the first quarter '25 is within the corridor of 8% to 10%, which we expect for full fiscal year '25. First quarter margin is seen as well in the full year margin guidance of 8% to 10%.

Let me keep the perspective on Below Industrial Businesses. Crisp and a strong operational performance is driving net income. SFS delivered a solid Q4 performance with earnings in the equity business overcompensated by a lower contribution from that business on higher expenses for credit risk provisions.

Return on equity for full fiscal '24 stood at 17.6%, up 130 basis points from prior year. This is again clear evidence for a very well-diversified portfolio and prudent risk management. Tax rate came in at 25% in Q4.

Now let me briefly conclude the extremely successful chapter on portfolio companies initiated back in 2019. This group businesses was attributed very low value back then. Through rigid execution of plans to achieve full potential and to find better owners, the management teams were able to create more than EUR 7 billion in enterprise value over the time and generate attractive cash proceeds for Siemens. Closing the Innomotics divestment and signing the sale of airport logistics business to Vanderlande were a major step in recent weeks.

High-level and resilient free cash flow is the ultimate yardstick for excellent performance. In the fourth quarter, our Industrial Business delivered free cash flow of EUR 5 billion and an excellent cash conversion of 1.6. EUR 9.5 billion for free cash flow, all in, in fiscal '24 and 12.5% cash return on revenue are, again, great proof point of stringent focus on working capital management by our global teams.

We are confident to continue this path in fiscal '25 with cash generation in the Industrial Business on similarly high level. However, we expect higher cash outflow below Industrial Businesses. Yet, the goal is to continue achieving industry benchmark levels of double-digit cash return.

Strong operational performance and cash generation is also reflected in our excellent capital structure. We will continue acting from a position of strength with Industrial net debt over EBITDA of 0.7x at year-end. And we have already recorded significant cash proceeds in the first quarter from the Innomotics disposal.

Based on our very strong balance sheet and industry-leading credit ratings, we have the flexibility for stringent capital allocation, balancing investments in the company and ongoing high shareholder returns at the same time. Our commitment to a progressive dividend policy and continuing execution, our share buyback program is fully intact.

As I explained 2 weeks ago, we expect Industrial net debt over EBITDA to remain in the target corridor after closing the Altair acquisition, which is expected in the second half of calendar year '25. As discussed, we have substantial financing potential from selling shares in listed companies, and we will take a very prudent approach to protect their share price once decisions are taken.

We will again match our commitment of a progressive dividend policy by proposing to the AGM a dividend of EUR 5.20, clearly up by EUR 0.50 from the prior year dividend. This represents a very attractive dividend yield of 2.9% based on September and closing share price of around EUR 181. On top, the current share buyback is very well on track with a buyback volume of EUR 1.2 billion in an attractive average buyback price of EUR 171.

Now let me come to the assumptions for our outlook for fiscal '25. We assume moderate macroeconomic growth in fiscal '25 due in part to continuing geopolitical uncertainty, including trade conflicts. The outlook assumes no further increases of geopolitical tension throughout fiscal '25.

Building on our strength and boosting innovation, we will maintain R&D intensity, at least on the level of fiscal '24, with a strong focus on foundational technologies as well as new offerings in the businesses.

In addition, we will continue to selectively invest in growth fields to improve go-to-market digital sales channels, vertical specific and sustainability offerings, as pointed out by Roland before. However, every decision we will take with a focus on value creation and addressing strategic priorities in resource allocation.

To support midterm growth momentum, we will also increase CapEx on targeted growth fields to expand capacities and resilience. As discussed, we assume higher efforts for adjustment, free and upskilling in fiscal '25. From today's perspective, severance alone will be slightly above prior year's level. Based on current rates, we anticipate no material impact from exchange rate.

We have further simplified our Below Industrial Business reporting to focus on material items. I want to point out the key outlook assumptions for fiscal '25 in this area. SFS will continue its resilient performance with earnings in line with prior year and return on equity well in the target range.

Cost of governance, net of brand fee, will be on level with prior year due to some focused investments temporarily showing -- slowing down our intended path of consistently decreasing this item to net 0 by '26, which we reiterate herewith.

As explained by Roland, we bundled material resources and foundational technologies and will drive an investment push in innovation, new digital processes and AI adoption. This means the innovation cost item is expected to be in the range of EUR 500 million to EUR 700 million in fiscal '25.

For simplification reasons, we bundled all smaller items such as SRE and pensions and financing elimination and other. From today's perspective, this item will have a positive effect around the prior year's level also related to portfolio topics. The tax rate is expected to be in the range of 23% to 27%, a regular rate without extraordinary effects from today's point of view.

Here, you can see the summary of the outlook on Siemens Group level. Additionally, you can find the perspectives on individual businesses, which I already discussed. So the outlook reflects our confidence in continued high-value growth, despite diverging market conditions for the individual businesses in fiscal '25.

On Siemens Group level, we anticipate 3% to 7% comparable revenue growth and, again, a book-to-bill ratio above 1. We expect basis -- basic EPS from net income before PPA accounting, excluding the gain from the sale of Innomotics of around EUR 2 billion in a range of EUR 10.40 to EUR 11 in fiscal 2025. As always, this outlook excludes burdens from legal and regulatory matters.

As you can see from this ambitious outlook, we enter fiscal 2025 from a position of strength with a leading portfolio, a consistent strategy towards our ambition as ONE Tech Company and a clear set of priorities. However, we monitor macroeconomic volatility closely to be able to act in an agile way. Our direction is clear, we will deliver further value creation by profitable growth and resilient cash generation.

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

T

Tobias Atzler

executive

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

Operator

[Operator Instructions] The first question is from Martin Wilkie from Citi.

M

Martin Wilkie

analyst

Can I dig a little bit more into your Digital Industries revenue growth outlook for 2025 and what drives the high end and the low end of the revenue guide? It is a wide range, and expecting software to grow the low end could imply quite a big decline to actually double digit in automation products.

Also you pointed to a soft start and the China destock continue into Q2. But as we look at the second half, what would drive the bottom end? Is it a risk of China bottoming later? Is it the ongoing decline in Germany? Maybe it's pricing or market share changes. Just to understand what drives that wide range and the low-end scenario for the full year.

Ralf Thomas

executive

Thank you, Martin. You may imagine that we gave it a lot of thought before we concluded on the guidance for DI automation in particular, and it's exactly around the topics that you have been mentioning in your question.

First and foremost, I would like to reassure you that we have a very close look and tight grip around the stocks in China. Just to update you, I mentioned that in my presentation that the reach of the distributor stock in China has been coming down to 10.5 weeks at the end of September and has been further coming down then below 10 in the week -- in the weeks since then.

And there is a trend, but too early to really conclude finally whether and to what extent this, let's call it, an acceleration has the potential to take us to an earlier normalization than that what we have been mentioning before.

So in a nutshell, we would like to reconfirm that from today's perspective and mathematically model driven, we do expect February, March of '25 to see the normalization being completed in this important end market for ourselves.

We do also have a look as closely as possible at our end customers. You remember that there are 3 components in assessing the situation in China. First is our own backlog, which has been coming down to quite a normal level, meanwhile. The second is the distributor stock. And the third one is the inventories that our end customers hold on their books, which is hard to assess. We also see movements there, but we are not done yet.

So all that has been allowing us to conclude that we are in the process of making progress according to the goals that we have been setting ourselves and what we also have been sharing with you, but we are not done there. And part of that is also reflected in the relatively broad range of guidance we are giving for top and bottom line for DI in total.

So what is giving us confidence that we will overcome that dry spell, if you will, even though there is additional uncertainty arising in particular, German politics is not really supportive at the moment to conclude properly on what the German export industries are going at the moment, but what we clearly can see is that there is such a huge and big need for digitalization and for automation for the new -- for the business model and the transformation of our end customer industry.

Roland this morning has been elaborating broadly on that in the press call. There's such a huge under automated community in the small and medium companies. We're talking about 200,000 entities in China. We're talking 100,000 entities, give or take, in the U.S. and something between 40,000, 50,000 in Germany alone, not to talk about the rest of Europe.

All that is going to be driven also under the command of regulatory requests for making improvements in the sustainability, at least in the European hemisphere. This is going to be regular pressure -- regulatory pressure also on the way forward. So there's no way around. On top of that comes the scarcity of skilled labor and also the desperate need that people are taking a closer look at scarce resources generally.

So all that is going to drive the business. I don't want to speculate about interest rates, but this may be a further incremental momentum being created over the course of calendar year '25. And again, without speculating, I think it will very much depend on the political scenery, how China and the U.S. are going to get their act together on the way forward, stimulating their economies.

There's one thing for sure. From my personal point of view, they will not sit there having their hands idle. They will do something to get momentum into their economies because none of them can afford a further decline when it comes to businesses.

So all that is not tangible enough to get it to 1 single month where you can describe the driving change momentum in '25. But all the indications that we can see from macro -- from well-renowned institutes and also from that what we feel in our customer industries, talking to them time again, that momentum we are creating with our ONE Tech Company is reflecting the urgent need in the marketplace to get things on to higher grounds. And this is something to be seen.

When it's happening? As I elaborated on the bandwidth of our guidance it's, I think, suggesting that we cannot determine that from today's point of view, exactly. But the walking assumptions, I think I shared them with you, and from all I read about that what you and your peers think about economy, I feel pretty much in line with your thoughts.

Roland Busch

executive

If I add one more point is that I believe the confidence of the people or the uncertainty on the other side of what the future will bring is one of the major drivers, which is hard to make a judgment.

You see that in China, extremely high savings rate, uncertainties. If they get more confidence, you will see -- we see -- of course, that this would impact very, very quickly car purchases and the like.

Same on the United States. If the confidence comes back that this is going to be a good development, then you will see a pickup. And this is, I guess, is the biggest uncertainty which we have.

Could work out well maybe after the elections because uncertainty comes also because nobody knows where it's going. Now we know what's coming, and that can also grow confidence.

Operator

The next question is from James Moore from Redburn Atlantic.

J

James Moore

analyst

It's James at Redburn. My question is on the DI margin. It's kind of in 3 parts. Hope that's okay. Firstly, could you bridge the surprise from the 13% guided to the 16% achieved? Was that September or software or automation?

Secondly, are there any aspects of the '25 DI margin bridge that you could quantify, for example, what you're expecting on productivity or the economic equation or Chinese double costs dropping out or currency accretion dilution? Or any specific pieces to the jigsaw that will be helpful.

And finally, roughly, how do you see first half, second half margin developing this year in DI?

Ralf Thomas

executive

Thank you, James. Good to hear from you and your questions. Of course, crucial for us and have been crucial in the way we have been putting together guidance. Let me start with the first piece.

I think it was a quite favorable development that we got incremental software wind beneath our wings on the last couple of miles. As I said many times before, we don't urge or push our customers. We respectfully wait for their orders. And I think the finish has been strong, in particular, in those places where margin accretiveness is well pronounced. I'm talking EDA and alike.

The flip side, however, is always that this doesn't repeat itself, and you cannot plan that properly. The pull-ins, as some of our colleagues call that, is something that is really, really tough to anticipate, not only for Siemens, also for other software companies.

So therefore, it's hard to predict how exactly the first quarter will look like from that perspective, and that takes me to the seasonality for our guidance next year.

From that, what I said in my presentation before, it's obvious that the first half will be impacted by slow markets and also further normalization on the automation side. That will be reflected in the profitability also in the first quarter and in the second quarter maybe. And I indicated that this is going to be below -- potentially below the annual guidance that we have been giving.

Too early to talk numbers in that regard. But it could be lower by up to 200 basis points, give or take, if the also investments and adjustments we need to make are going to materialize in that period of time.

So talking of the midterm perspective throughout fiscal, of course, we have been talking about consistency -- contingency measures that we have been taking. Incremental productivity, we are looking into. We also do take ourselves serious, and the economic equation will be net positive over the full fiscal year, but most likely with a strong back end at the end of the fiscal year, which will then also drive the margin development throughout the quarters.

So there's plenty of activities going on. But at the same time, and as Roland said before, we act from a position of strength, and we are prudently looking into profitable growth opportunities. We will also continue investing in artificial intelligence and moving our workforce and footprint even further into growth markets around the globe.

So this is also opportunities that is coming up. And the balance of those different forces may create 2 slow quarters in the beginning of the fiscal year to allow us then with momentum on top line, also to groom the margin into the right direction again at the end of the fiscal year.

However, what we do really explicitly not want to do is lose the momentum in our technology leadership in that regard, and we have spelling that out a couple of times. We feel encouraged by the customer needs and the mid- and long-term market trends to continue with that what we call in a nutshell combining the real and the digital world.

We have been setting the pace in that field, and we are clearly leading with our offering. Therefore, we want to continue spearheading that movement and capitalize on the momentum. And as you know, as a long timer, it's always the incremental change in the market that is allowing you to react swiftly as a leader, and this is what we intend to do, what we did in the past and what we will continue doing.

Operator

The next question is from Andrew Wilson from JPMorgan.

A

Andrew Wilson

analyst

I wanted to ask on Smart Infrastructure and specifically around data centers, which you kind of mentioned a number of times, have been a source of strength in the Q4 and earlier in the year. I guess, I was just hoping you could try and give us a bit more of a sort of quantum around quite where data center, I guess, orders and sales are and the growth rate you've been seeing.

And then kind of any comment around sort of competitive dynamics that you're seeing there? I appreciate this might be more detail in December but, yes, I was hoping for a bit of a kind of head start on that.

Roland Busch

executive

Yes. So we grew that business by 50% to EUR 2 billion, and this is on the backdrop of not only a broad range of small -- I mean, call-offs for products, but also for frame contracts from large hyperscalers. And they want to ensure that this is not a -- the supply of electrical products is slowing down their building of data centers.

So -- and they are ready to change the way how this business used to be. It used to be just a call off and you ask for some switches. Now they want to have planning security. And this allows us also to invest, for example, our investment in the United States, which is a different way.

Yet on the other side, it's kind of competitiveness. Number one is the need -- of course, you need to have a very solid, very competitive switching technology. Now what we have is a renewed portfolio, which is very competitive.

Number two is, very often, they act in global, so they want to rely on global supplies.

And number three, they want to rely on really good quality, on-time delivery. And that's something what we -- all of these elements, we can tick the box. So we have a very strong confidence in the quality and the accuracy of delivery.

And there's a reason why -- and this a great thanks to our team, which is managing not only the supply chain in difficult times, but also ramping up capacity in a very solid manner.

So this is, I guess, a differentiation criteria. It's a package which you don't find that often in the market and which gives us a lot of tailwind.

If you talk to the people working on data centers and so on and so on, is it the suppliers for silicon? Is it the suppliers for slates? So this demand is unbroken. This could be even higher because the bottleneck currently seems to be also on silicon. So therefore, for the next years, we see this trend is ongoing, and we see -- keep on growing of building data centers.

On a side remark, what can impact that market is the availability of reliable green electrons. And as you can hear from many of these hyperscalers, when they start investing in, for example, small nuclear -- modular nuclear power plants, that's not their core business. But they need to secure the supply in order to make the business run. So this is how crazy this is. We are benefiting again from a very strong technology, a very strong team there.

A

Andrew Wilson

analyst

So just to clarify, the 50% growth was for the year or was for the Q4?

Roland Busch

executive

This was for the year.

Ralf Thomas

executive

And revenue.

Roland Busch

executive

Revenue orders -- revenue, yes, yes.

Ralf Thomas

executive

New order, 60%, EUR 3.6 billion, that's what we said.

Operator

The next question is from Jonathan Mounsey from BNP Paribas.

J

Jonathan Mounsey

analyst

Maybe just a question related to an emergent situation. So Mobility's peers, I think Alstrom and Stadler, are both claiming to suffer from supply chain issues at the moment. I think Alstrom reduced its railcar production guidance last night by 8% for the year.

Then contrast your guidance and ability today for 2025, I think organic sales growth actually sits above Siemens consensus. And while maybe Stadler's issues might be more location and weather specific, why are you not facing at least the same supply chain stress as Alstrom? And how can you be confident that your supply chain will be unaffected, while your peers seem to be struggling so much?

Roland Busch

executive

So except that I know that Stadler's, one of their site sits on this flooding areas, what we feel very pity about and hope that this can recover quickly. I cannot touch too much on what their bottlenecks in supply chain is. But I can tell you that on our side, of course, we always are -- have talked to our supply chain. But after our COVID dip, so to speak, we don't see any major issues here, which are -- which we are aware of.

Is it either on mechanical parts? Or is it on -- we had won a bottleneck on semiconductors because these are very special, and you cannot really go for double sourcing. We don't see that. So therefore, from that perspective, I would say that no red -- I don't know, yellow light here from our perspective.

The other one is we are working tremendously out of our backlog, which is EUR 48 billion. And we have a very good visibility on what the demand is. The other point is really that since we have a very, very good growth now to have rolling stock, in particular, we have good growth in rail infrastructure as well. But rolling stock, this is really about driving now the productivity and a flawless execution in the way how we deliver.

And the last point, you can see that also from our strong free cash flow, which we have strong delivery that, currently, this machine is very well running. Yes, we're very happy about it.

Operator

The next question is from Max Yates from Morgan Stanley.

M

Max Yates

analyst

Just my question is on your software margins going forward. I think you've been kind of clear in saying that your software revenues overall may not grow in 2025. Within the margins, you've obviously got 2 moving pieces. You've got kind of the PLM SaaS transition rolling off. Then you've got some of the profitable large contracts that won't repeat.

So I guess, my question is, do you expect your software margins, when you net those 2 effects together, to improve within your guidance? Is that what you're assuming?

And then can you just remind us, when you talk about kind of the SaaS transition rolling off and getting to more normalized margins that compare well with your peers, there's a lot of debate over kind of what that actually means.

Are we talking in 3 years' time, in 2027 this could be '25? Is a competitive margin versus peers '28? Just any kind of clarification for what you think as sort of normalized margin for this business looks like on a 3-year view?

Ralf Thomas

executive

Thank you, Max, for the question. With regard to software margins, we said, and for good reasons, we will stick to that, that we don't talk numbers at the moment. We are aware of the fact that you would love to see that. And once we have been passing the SaaS transition completely, I think this is the moment in time when we have made consistency and stability in that matter.

Your big picture conclusion is right. Of course, in the absence of another extremely high level of super material large-scale license contracts, this will not repeat itself either. This is obvious. However, we always said that we are in the investment mode with the SaaS transition. So therefore, this is not a huge deviation, that this is going to shape the big picture.

What we do assume, of course, is even staying on prior year's level, give or take, and kind of compensating the extraordinary nature of these large-scale deals. I think it's quite a stabilizing element on the way forward, and we appreciate that.

On top, as discussed before, but let me just reemphasize that, again, we also said that investments in our cloud activities, they have been reaching probably peak level with EUR 244 million in fiscal '24. It will decline and go back and somewhat compensate also for the absence of those highly lucrative, large-scale license businesses.

So too early to finally conclude our numbers, as I said before, but you see, we have been well balancing the entire system and are looking forward to then give you a clear perspective on the post SaaS transition era, if you will.

Now talking the normalized margin and standards in that field, unfortunately, and I know you know as much as I do, it's hard to see a standard out there in a business -- in a part of the business world where there's hardly any GAAP-based figure. And therefore, I do not want to conclude on how to compare ourselves to which peer.

Obviously, the element of stock-based compensation is playing a huge role in that field, and I do not have the intent to contribute another idea about how that can be looked at. At this point in time, we will come up with a set of numbers 1 day, and that will be as transparent, as you know us that we are. So the dimension you are talking is certainly the one we are striving for.

And I think maybe next year, in our Capital Market Day, as Roland indicated, we're going to have one late in calendar year '25, the time is the right one to anticipate a bit where exactly to go.

At the moment, it's just about keeping the momentum and the SaaS transition, if I may. Underpinning that again is really with great momentum into the right direction, a lot of positive feedback from customers. We win exactly in the sweet spot of the market in small and medium companies.

We have great momentum with the cloudification in that piece, reaching the target a year earlier than originally planned and setting ourselves another demanding challenge in reaching the 50% by the end of fiscal '25. These are drivers of success to get to leading margin levels also in the software arena on the way forward. Nothing less is what we aspire.

Operator

The next question is from Ben Uglow from Oxcap Analytics.

B

Benedict Ernest Uglow

analyst

Mine is basically about capital allocation, and then I did just want to have one clarification. On the dividend front, this is the second year where you've done a double-digit dividend increase, which is pretty unusual for Siemens. Can you tell us what's sort of driving that?

When I think about the cash, you're now spending EUR 4 billion plus on the dividend versus one on the buyback. So how do we tap between those 2? On the buyback, could you comment on share cancellation? Because if I look at the amount being bought in versus the cancellation, there's quite a discrepancy.

And finally, on the clarification, the ONE Tech Company and the foundational investments, so to speak, is that step-up all in the innovation line? So if I look at that innovation thing below the line, it's going up by ballpark EUR 400 million. Is that all of the incremental investment? Or is other stuff around ONE Tech included in the divisions? Can you just help us with that?

Ralf Thomas

executive

Yes. A whole bunch of questions, Ben. Let me start with the dividend increase. We didn't want to intimidate anyone with an increase of double-digit second year in a row. But just kidding, you know that. We have been committing ourselves to a meaningful capital allocation considering also our shareholders. That's what we said, and we repeated that and underpinned it when we have been announcing the Altair acquisition. I think, therefore, it's just fair to walk our own talk.

Does it mean we will continue double-digitally growing dividend? Definitely not. But we have been making another big step in taking the company on to higher performance levels. We are aware of the challenges, and we discussed them already in the automation field. But we feel very strong with regards to the capability to generate cash from operations.

I know that you know, and never forget our first meeting when I was the CFO, you have been cautioning me to talk about consistency in free cash flows at Siemens. That was back 11 years. And I hope you agree that the picture has been changing dramatically throughout the decade. And therefore, we are confident that we can do that.

It's also obvious that with the disposal of Innomotics, the proceeds being reallocated and invested into an extremely interesting asset on the software side, taking us into the right direction as a ONE Tech Company, I think we try to keep a broad-based balance between distributing our funds and redirecting and allocating resources into the future growth and transformation of the company.

And at the same time, our shareholder-friendly, looking at our shareholders, making a decent return for them, including also the share buyback program. Thank you for touching on that.

Of course, we have been starting, I think, fairly well with the new program, EUR 1.2 billion being bought back in that program that is just started to run a couple of months back. We have been creating momentum, have been using also prudently the general market conditions for buying back, I think.

Too early to talk about cancellations, but the big rule of thumb is, of course, we need a certain level of shares for remuneration purposes. We distribute stock. And it's obvious that the level of buyback is exceeding that.

And it's our intent to then cancel when meaningfully also further shares as we did that in the past. At the moment, the 800 million shares outstanding, including treasury shares, is definitely not the end of the story. But at this point in time, we do not consider a cancellation. It doesn't make sense for a smaller quantity, to be honest with you.

Then talking capital allocation within the company, if I may put it that way, Roland has been pointing out the 3 tracks we are on. This is the single biggest transformation of an industrial company of our magnitude into the space of digitalization and making ourselves a tech company and having more than 90% of our offerings in the sustainability space.

I think we are quite comprehensively shaping the future in that field. And there are some areas in which it makes a lot of sense to accelerate and use the momentum of joint hands initiatives being applicable for all the businesses. That's why we have a firm grip around that.

For the time being, maybe for another year, 1 or 2 years, maximum, I think that momentum needs to be created to get also an acceleration in the processes and also to reap the fruit of scaling that up then at a later point in time.

So yes, there is strong investment momentum in innovation at the moment. This incremental, give or take, EUR 500 million compared to prior years is intentionally under leadership of the Managing Board. We don't want to compromise on anything. It needs to be quality processes, IT, artificial intelligence and momentum when it comes to accelerate. No resistance needed from anyone in the company in that field will be applied, period.

And the other part is that each and every business is, of course, further developing themselves. That's why we mentioned that there is a need for reskilling, upskilling and also adjustments to strengthen the resilience of our businesses, not only in automation, but in particularly there, of course.

We do the same thing in SI. Each and every part of the portfolio is under scrutiny, if you will, in that regard. We don't want to miss the momentum of this huge paradigm shift, and we intend to spearhead that.

So in a nutshell, yes, there is that innovation piece that you have been touching on, plus there is initiatives in the businesses, be it DI, be it SI, be it Mobility, they are [ entrepreneurs ], and they need to shape the future. They need to get as close as possible to their customer base, which is also in transformation processes, and we will help our customers and we will shape the processes and the organizational setup in our businesses according to the future needs.

And this is why we consider this being the biggest transformation any industrial player has been going through, and we don't create noise when it comes to P&L, bottom line and dividends.

Operator

The next question is from Simon Toennessen from Jefferies.

S

Simon Toennessen

analyst

I've got one on Germany, and I heard what you said on the political landscape, Ralf. But I guess, historically speaking, your German cyclical automation business has been quite correlated with China. And I guess, given the structural changes and challenges in Germany and what we're seeing at the moment is, I guess, diverging performances also of the auto OEMs in the regions, do you think it's still fair that Germany can improve once China improves, I guess, throughout '25? Or do you think there would be a much larger gap in performance and Germany might be rather a drag on DI in all of '25 and maybe even beyond?

And if I may, related to that, I guess, one of your big German customers -- or auto customers is planning to cut plants and footprint. And if I listen to a lot of the global OEMs in automotive, there's some material headcount reductions going on at the moment. So how do you see your important automotive business and, I guess, the CapEx outlook in line with that?

Roland Busch

executive

So thank you for that. First one, there's a correlation between the machine builders, machine tool business and, of course, China because, again, China on a global basis sits on 30% of the global industrial GDP. So that's not moving, you've seen that.

At the same time, and this happens not only for the car industry, but also different machine builders, they see an increased competition in China, the local companies are there, which are offering products. So therefore, there's a certain pressure for innovation, but also to some extent, localization. That's in particular relevant for the smaller ones.

The larger ones machine builders and the like, they are localized and they are driving also their localization. This holds true, by the way, very much also for this -- for the car industry suppliers, so the Bosch, Continental and ZF Friedrichshafen and so on.

So from our perspective, we are sitting in either machine tools, it could be a German one, it could be a Chinese one, because we are very much localized. We have an extremely strong local footprint. And we are even improving, coming back to this ONE Tech Company program. One part is the local for local product development in China to accelerate, deliver more product lines there on drives and automation, to have a competitive offering against local competitors.

We do not intend to give any market share up there, so therefore -- and from that perspective. But again, there's a correlation. So if China is picking up, you will see that also in Germany and likewise.

Regarding the car industry, it's clear that there's a huge race for having the most competitive cars in a world which is deviating -- which still has demanding combustion, but deviates. China, there's a strong demand for hybrid, but this is a different kind of hybrid that the Europeans have. They told -- it is a plug-in. That means it's basically an electric car with a small combustion engine rather than having a combustion engine with a little bit of battery. And that's what the demand is currently.

When it talks about cutting plants, you have to put in mind that we are not delivering into the car. So if volume goes down, that doesn't really impact us. The question is, we are linked to the investment cycle. The pressure of all carmakers, even if they are not doing well yet, are now the pressure to deliver new models, more productive, having new kind of designs, which require also different setups, maybe also more flexible in the way how they manufacture cars, that's an investment cycle, which is a different one. It's basically decoupled. It's not completely decoupled, but it's decoupled.

So -- and since we are in the design phase with our software in the automation phase and the production, it's a different game, and investment is needed in order to be competitive. So therefore, we are less impacted than the typical cars manufacturing suppliers, and this is where you see all the reductions in headcounts. And this is the reason why you don't see that to that extent also from our side.

Conclusion is it's all about innovation, innovation, innovation. And is it on the car industry? Is it on the machine builders or the supply industry? And that's something what we are driving coming back to the comments from Ralf. This is the reason why we make a step-up now.

We are really leveraging our technology across all businesses, productizing it, deploying AI as much as we can, building a technology stack, which combines the real and the digital world. That's something what we see there is a very strong demand.

Operator

The next question is from Alexander Virgo from Bank of America.

A

Alexander Virgo

analyst

I wondered -- it's kind of clarification questions really, partly picking up on James and Ben's questions earlier on. I wanted to make sure I understood your comment, Ralf, with respect to Q1 margins in DI being up to 200 basis points below 15%. So does that mean 13% is possible? And I wondered if you could just give us a sense what proportion of that, the innovation piece of it, represents?

Because I think from your answer earlier on to Ben's question, that incremental growth below the line, i.e., the innovation spend of EUR 400 million to EUR 500 million or so, it sounds like it's going to be maintained over the next couple of years, whereas cloud investment seems to be peaking in 2024. I just wanted to make sure I fully understand the -- what you were saying about that and interpret it correctly.

Ralf Thomas

executive

Thank you, Alex, for giving me an opportunity to clarify. Obviously, I wasn't precise enough. On the innovation piece, below the line, this is an initiative that we have been starting to make sure that we accelerate and capitalize on the technology momentum we are going to create, making best use of AI digital opportunities, internal processes, getting us faster, quicker and better and closer to the customers at the end of the day.

This is broadly based and is actually covering and touching all the businesses. That's why we run that for 1.5 years, maybe 2 years, yes, in a way that we do not miss out on every -- any opportunity in any business.

The DI margin impact for the first quarter is not correlated to that incremental cost. But what I said is that DI themselves, in particular, in automation, we are preparing the workforce and our footprint for the future as well. And part of that is reskilling, upskilling, also adjustments here and there.

You may expect a higher level of severance also compared to prior year. Just to feed your models, maybe between EUR 350 million and EUR 450 million grand total for the entire company, with a big portion of that being allocated to DI.

And I do not know the timing of that because I'm not in the driver seat. There is alignment needed for adjustments, in particular, when it comes to the German co-determination. There is also timing needed when it comes to efficiency and impact of reskilling activities. Not everyone in my age of 63 would like to be reskilled, for example. There's opportunities, but...

Roland Busch

executive

You would.

Ralf Thomas

executive

No, just kidding. But what I want -- what I would like to get across is we have the top line aspect of automation. We have the investment and adjustment aspect on the DI in every business, more or less. And therefore, it's hard to predict when that exactly is going to hit the P&L.

And having said that, I wanted to say that we will have a slow start from a top line perspective. I think I got that across normalization, destocking and the like will not be completed before the second quarter.

So therefore, we are going to have a slow start, and that start can be very slow, if you will, also on the margin side, if and when all these effects I mentioned will materialize as early as possible. This is what we are striving for.

Of course, we want to make changes as fast as possible to then create momentum as early as possible. So therefore, we consider that to be a quality, if you will, to get a kick start on measures and adjustments, which then have a negative impact on the margin, of course, in the first quarter, in particular, on the DI side being affected in a focal area.

And that could take us down, those 200 basis points, below the lower end of the margin guidance for the full fiscal year, and you translated that perfectly well with the right math.

T

Tobias Atzler

executive

We will take one last question.

Operator

Today's last question is from Phil Buller from Berenberg.

P

Philip Buller

analyst

Just a question on this ONE Tech Company program. I appreciate the software-hardware integration being a game changer in efficiency terms for your customers, but it should be for yourselves, too, as well. And I know that we're investing. But I'm wondering if this strategy is...

Ralf Thomas

executive

We lost you.

Operator

The connection with the questionnaire has been lost.

Ralf Thomas

executive

Can we give a new try?

Roland Busch

executive

Maybe we can give it a new try.

Operator

He needs to dial back.

T

Tobias Atzler

executive

Just wait a second. Give it a try again.

Operator

Mr. Virgo is now back. I opened his line.

T

Tobias Atzler

executive

Operator, can you just take 1 additional question? I think the next one is Gael de-Bray.

Operator

The next question is from Gael de-Bray from Deutsche Bank.

G

Gael de-Bray

analyst

Look, I have, again, a question around DI, but I guess, this time more around process automation because the weakness in discrete automation has been fairly well documented for a number of quarters.

But I was more surprised this quarter to see the 15% decline in process automation, where some of your peers have continued to grow the business pretty nicely. So any color on that, please?

Ralf Thomas

executive

It's hard to do a peer-to-peer comparison as the other peers do also not completely disclose their regional footprint. But I personally do assume that the regional footprint has been playing a major role in the different speed of growth opportunities for the different players.

We are aware of where we have further opportunities on the way ahead, and we will definitely make best use of them. Therefore, I don't want to speculate, but geography in my personal assessment has been playing a major role, seeing also what you just mentioned out there.

Roland Busch

executive

One more thing to add. Within process automation, we also have our 5G -- industrial 5G relearn, ruggedized business. And that one has maybe more exposure also to factory automation in other markets. So therefore, that could be another impact there as well.

G

Gael de-Bray

analyst

Understood. Can I just have a very quick follow-up on the earlier questions about the additional innovation spending? The question I have is, how do you balance spending more on these so-called foundational technologies and not losing sight of value creation and product innovation that would be perhaps more focused on customers' near-term priorities?

Ralf Thomas

executive

I tried to guide a bit in that field with assumptions for fiscal '25, where we are going to see same levels on the positive side in that newly created condensed line, including others in financing and everything.

And there's one thing you are aware already. I also had been mentioning in my presentation that portfolio effects are going to contribute there. You do know that our airport logistics business has been signed. Don't want to anticipate when they will be closing and what magnitude of positive impact that could have, but that's part of it. And there's also a couple of other topics. So rest assured, we are able to fund that without hurting shareholder interests.

Roland Busch

executive

And maybe since you asked, number one is there's one part, and we have selected that very carefully, where we are looking for digital services, which we can scale. So this is not -- we do not take responsibility or any kind of innovation away from businesses where we do not believe that we can scale it horizontally. These are things that we already see 5x developing the company, and we want to drive productivity there, number one.

Number two is, and I think the last question, which we have also saying, you have to do that also internally, develop on your own. Yes, part of it is also our -- rollout of our ERP systems and bring them to the cloud, which is an investment here. We have chosen a very different way. In former time, these huge IT projects, they run for 5 years, you make a plan, and this never materialized. What we did is we say we do not roll it out business by business, and they make their own stuff, but we decided to make that business type by business type.

So our SAP, which goes to the cloud for product business, we do that once for the company, which applies then for all product businesses, within all divisions or businesses you have. And that's something what -- where we can -- and the second point is at 5-year, we make sprints. We say with each investment we do, we incrementally want to see how KPIs go down, order to cash, you name it, we have core processes, and we want to drive productivity there.

So yes, we are eating our own dog food. We are bringing technology in there. We are deploying also data hub. So we bring data silos down and make them available. This is very important for the interfacing customers, but also for the supply chain. And that's what's going in there.

The major spendings are basically the next 1 to 2 years, basically, but we want to drive productivity for our own businesses, but also bringing this innovation faster to our customers at the same time.

T

Tobias Atzler

executive

Thanks a lot to everyone for participating today. As always, the team and I will be available for further questions. We are also looking forward to meeting many of you at the sell-side meeting in London later today and during our upcoming road shows. Have a great day, and goodbye.

Operator

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

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Siemens AG
XETRA:SIE

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Q4-2024 Analysis
Siemens AG

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2024-Q4

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Siemens AG XETRA:SIE

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Q4-2024 Analysis Siemens AG

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Earnings Call Transcript 2024-Q4

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Siemens AG
XETRA:SIE

Q4-2024 Analysis
Siemens AG

Earnings Call Transcript
2024-Q4