Siemens AG (OTC:SIEGY) announced strong fiscal year 2023 results in its recent earnings call, led by CEO Roland Busch. The company reported record orders of €92 billion and an 11% revenue growth, achieving a record-high profit of €11.4 billion in the industrial business, with a margin of 15.4%. Siemens also exceeded €10 billion in free cash flow for the first time and saw growth in their digital business, with revenue reaching €7.3 billion. Looking ahead, Siemens plans to continue their investment strategy and focus on productivity, expecting further value creation growth in fiscal year 2024.
Key takeaways from the call include:
- Siemens reported strong growth in its digital industries segment, driven by its software business, which achieved record order levels and revenue growth.
- The company announced plans to expand its US footprint with a €150 million high-tech manufacturing factory in Dallas-Fort Worth.
- Siemens expects to reach a 40% Software-as-a-Service (SaaS) target ahead of schedule, with cloud ARR already accounting for 30% of total ARR.
- The company is preparing for the full independence of its Innomotics brand and evaluating options for a public listing.
- Siemens anticipates a soft economic development in the first half of 2024, with improving trends beginning to materialize in the second half.
- The company will propose a dividend of €4.70, and a new share buyback program of up to €6 billion will be launched.
- Siemens expects profitable growth in fiscal '24, maintaining high levels of R&D intensity, selective investments, and increased CapEx.
- Siemens reported strong operational performance and cash generation in the past year, leading to an improved capital structure.
- The company plans to invest 150 million euros in a new electrification plant and has received orders from hyperscalers.
- Siemens India Limited (SIL) is expected to be spun off, with Siemens Energy buying an 18% stake at a discount of 15%.
Siemens executives discussed their investments in research and development (R&D) in order to capitalize on the automation market. The company plans to accelerate its Xcelerator program and continue investing, with the expectation of a pickup in demand in the second half of the year.
On the software side, Siemens saw a strong performance in the fourth quarter and expressed optimism about the demand for software and electronic design automation in fiscal year 2024. The company expects to be backend loaded in terms of software sales.
Siemens plans to invest 150 million euros in a new electrification plant and has received orders from hyperscalers. The company sees a strong trend in electrification and has a high conversion rate for customer demand. Siemens India Limited (SIL) is expected to be spun off, with Siemens Energy buying an 18% stake at a discount of 15%.
During an earnings call, Siemens discussed its revenue development and plans for investment. The company is experiencing strong order intake and is no longer holding back from the supply chain. They are investing in new manufacturing sites in the United States, gearing up activities in India, and looking for capacity improvements in Europe. Siemens also highlighted the growing customer focus on sustainability, with a demand for efficient drives and asset maintenance.
InvestingPro Insights
Diving deeper into the financials of Siemens AG, InvestingPro data reveals that the company's market capitalization stands at a robust 125.79B USD. The P/E ratio, a measure of the company's valuation, is at 14.04, indicating a potentially undervalued stock considering its strong performance. The revenue growth for the last twelve months as of Q3 2023 is 11.76%, aligning with the company's report of record orders and profit.
Two InvestingPro Tips that may be of interest to investors are the projected growth in net income this year and the fact that Siemens has maintained dividend payments for 32 consecutive years. This suggests a stable income source for investors. Additionally, the company is a prominent player in the Industrial Conglomerates industry, which may provide some assurance of its market position and resilience.
For those seeking more insights, InvestingPro offers an array of additional tips and data points. The InvestingPro platform provides a comprehensive analysis of companies like Siemens AG, helping investors make informed decisions.
Full transcript - SIEGY (BA:SIEGY) Q4 2023:
Operator: Good morning, ladies and gentlemen, and welcome to Siemens 2023 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, Ms. Eva Scherer, Head of Investor Relations. Please go ahead, madam.
Eva Scherer: Good morning, 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 2023 results followed by the outlook for fiscal 2024. After the presentation, we will have time for Q&A. The call is scheduled for up to 90 minutes since there is a lot on the agenda. With that, I hand over to Roland.
Roland Busch: Thank you, Eva. Good morning everyone and thank you for joining us to discuss our impressive fourth quarter and full fiscal year 2023 results. Before diving into our record performance and looking forward with confidence, let me highlight how Siemens continuously strengthens the fundamentals to succeed in a volatile business and geopolitical environment. All our businesses are leveraging secular growth trends, driven by automation, digitalization, electrification and sustainability. We empower our customers in industry, infrastructure, transportation and healthcare to accelerate their digital and sustainability transformation. Our technology is transforming the everyday for everyone. It is instrumental in solving the most significant challenges of our time, including labor shortages and resilience of value change as well as climate change. More than 90% of our business enables customers to achieve a positive sustainability impact, such as less energy consumption and decarbonization, minimizing waste, less use of raw materials and water or better passenger and patient experiences. We address the specific needs of our customers in their vertical domains and create substantial value for their businesses. We support our customers to stay relevant and competitive in the future. Three years ago, we started executing our strategy as a leading technology company to combine the real and the digital worlds. We are well positioned to create even more impact, higher speed and agility going forward. The major success factor is the scaling of our offerings by providing a repeatable answer to recurring customer problems. We do that by deploying a common cutting edge technology stack together with our fast growing ecosystem of partners. Our open digital business platform Siemens Xcelerator is core to achieve this goal, and I will talk about some exciting examples later. This gives us significant opportunities to consistently achieve high value growth while driving profitability and cash. Looking at the agenda, we reflect on a record fiscal year 2023. We give a confident outlook for 2024 from a position of strength. I'm very proud that we delivered on our rate promises in fiscal 2023 and created substantial value for all our stakeholders. We all experienced another year with ongoing geopolitical and macroeconomic turmoil, including wars, fast paced interest rate hikes to fight inflation, erratic destocking effects and skilled labor shortages. Many thanks go to Team Siemens worldwide for a tremendous contribution to successfully managing this complex environment and working strongly together with our suppliers, customers and partners to make a positive impact. As a technology leader, Siemens captured significant market opportunities and market share. Orders topped €92 billion and we're further up by 7% from already very high levels. Revenue grew by a very healthy 11% at the upper end of our guidance. Our book to bill of 1.19 and record backlog of €111 billion gives us confidence for fiscal 2024. With all-time highs for industrial business, profit and margin, we demonstrated again that our strategy as a technology company powered by our strong operating model is bearing fruit. Our outstanding operational performance also compared to the competition is most notably confirmed by continuously stellar free cash flow. For the first time ever, we exceeded the €10 billion threshold and topped prior year's level by a stunning 23%. This almost equals almost 13% cash return on sales now for four years in a row in double digit territory. Operational strength is fully reflected in earnings per share pre-PPA, and excluding Siemens Energy of €9.93 slightly above the updated guidance range. Basic earnings per share more than doubled over the prior year and for the first time crossed the €10 mark. Profit in the industrial business reached a record high of €11.4 billion growing by 11% compared to prior year and this translates into a further improved margin level of 15.4%. All three businesses met or, in the case of mobility, exceeded their revenue guidance with a full, powerful finish. In Q4, digital industries grew by 15% on a comparable basis. This was the third year in a row with double digit growth, despite a macroeconomic market slowdown through the year. Profit margin reached 22.6%, a record high level with strong backlog conversion in the automation business, overcompensating effects from the ongoing SaaS transition. Our infrastructure grew by 15% and came in at a record profitability level of 15.4% at the upper end of this year's guidance, a very steady and consistent improvement path, which is underscored by an impressive 12 consecutive quarters of year-over-year profitability improvement. And there is more to come. Mobility accelerated revenue growth by achieving 50% well above the guided level. For the first time, annual order intake exceeded €20 billion with a book to bill around 2, reflecting strong market momentum. Even more importantly, the team again achieved industry leading profitability and free cash flow, managing risks and opportunities in a prudent way. Now, let me outline some key operational highlights of the fourth quarter. Our customers continue to invest in digitalization and sustainability. This led to strong organic top line performance. Book to bill reached 1.02 on strong order growth momentum of 26% in mobility and clear order growth at Healthineers and Smart infrastructure. As expected, we saw ongoing normalization of short cycle automation demand in digital industries. Customers and channel partners were further adjusting inventory levels on supply chains and softer demand. This was partially compensated by an extra ordinary high level of large EDA orders with customers mainly from high tech industries. From today's perspective, we anticipate that our automation orders have seen the bottom in Q4. Overall, revenue growth reached 10% on the highest quarterly revenue level ever in all four industrial businesses. All of them showed similar growth rates in the range of 8% to 12%. And I am particularly proud of our digital industry software team, achieving revenue growth of 30% driven by large contract renewals, mainly in EDA. Once again, the electrification business of Smart infrastructure showed great competitive strengths, growing by 25% with ongoing momentum in power distribution and data centers. What really matters is value creating growth and we executed strongly a record quarterly high of €3.4 billion profit in the industrial business and, as an outstanding highlight, more than €4.6 billion of free cash flow all-in. Our financials are clear evidence of our sound operating model and consistent execution. Some more facts. Digital business reached revenue of €7.3 billion in fiscal 2023 and we continue to launch at high speed innovative offerings and drive the expansion of our partner ecosystem. The SaaS transition in digital industries is fully on track delivering annual recurring revenue growth of 15% in Q4. We continue to sharpen our profile by optimizing our portfolio with selected smaller investments and disposals. An important milestone has been the largely completed carve out of Innomotics on October 1, as planned. The fundamental strength of our company combined with focus on shareholder return is also reflected in our dividend proposal of €4.70, in line with our progressive dividend policy we plan to increase by €0.45, and Ralf will explain to you in more detail the expansion of our share buyback activities. Looking ahead into fiscal year 2024, we will stay vigilant and react flexibly on market developments. We will execute on our long-term oriented investment strategy which is targeted for attractive market opportunities and will further improve our global footprint for innovation, production and service. Ultimately, this leads to higher competitiveness and resilience. Our teams are very close to what's happening at our customers and keep a close eye on OpEx spendings. We're confident that we will maintain a net positive economic equation with a constant focus on productivity, while inflation-driven price effects will somewhat fade in fiscal year 2024. From what we see today and despite an anticipated muted global economic development, we expect further value creation growth in 2024, and Ralf will give you more details. For the record, here are our impressive Q4 numbers. Let me briefly add that revenue growth was regionally broad based. EMEA was up by 13%, followed by Americas with 11%. Asia-Australia grew by 4%, held back by softness in China. EPS PPA, excluding Siemens Energy Invest, came in at €2.64 driven by strong operational performance. Looking into fiscal year 2024, our healthy order backlog is a source of resilience. It's down to the record level of €111 billion. Lead times in short cycle, product businesses in digital industries and Smart infrastructure returned to mostly healthy state. Supply chains and manufacturing execution are back to normal. Our customers and distributors continued destocking in all key countries, particularly in China. We assume this backlog consumption to continue in the first half of fiscal year 2024, until inventories are back to normal levels. Visibility in our systems, solution and service business is far reaching into fiscal year 2024. I briefly talked about the importance of mutually beneficial partnerships to scale new technologies and drive growth. A game changing example is our collaboration with Microsoft (NASDAQ:MSFT), based on our shared vision to boost cross industry AI adoption. The first application is the Siemens Industrial Copilot, an assistant for human machine collaboration and manufacturing, enhanced and powered by generative AI. It will allow users to rapidly generate, optimize and debug complex automation code. It will allow users to significantly shorten simulation times and it will allow users to tackle labor shortages successfully. Because incremental improvements are not sufficient anymore, step changes are required. At the SPS fair just a few days ago, the leading automotive supplier Schaeffler AG demonstrated how the Siemens Industrial Copilot will drive engineering productivity. Together with Microsoft, we are already working on numerous AI copilots in other manufacturing industries, such as consumer packaged goods or machine building. In addition, we have the clear ambition to address all industries where Siemens is active. Our partnership with Microsoft can be characterized as a virtuous circle. Accelerated AI adoption will drive green data center demand where Siemens is also an important partner for Microsoft to provide critical infrastructure. Siemens Xcelerator ecosystem and marketplace are growing steadily. At the EMO trade fair, we introduced together with DMG MORI an end-to-end digital machining twin offering which is now available on the marketplace. Based on our digital native motion control platform, the C and C1, the digital twin includes the controller, the customer-specific DMG MORI machine tool and the to-be machine workpiece. It enables up to 40% faster production ramp up, while minimizing unproductive machine times by up to 75%. Our Siemens industrial edge ecosystem is enhanced with new applications from kinematics specialist Festo. This new offering provides customers with more flexibility to build individual IoT solutions easier and faster, to improve maintenance and increase quality. The Siemens Xcelerator digital business platform combined with our domain knowhow is essential to scale offerings and drive sustainability. The first great success story how we accelerated the digital transformation of our customers comes from the United States. Together with Ford (NYSE:F), we co-created a standardized and scalable SIMATIC Automation Workstation. It combines the OT installations for manufacturing automation with the IT environment functionality, such as central software deployment. By leveraging our industrial edge ecosystem, this innovative platform will enable fast and easy development of digital use cases. The benefits for Ford are simplified and more efficient processes on the shopfloor and much higher flexibility. And it will be widely deployed in greenfield and brownfield manufacturing plants at Ford. Our UK team transferred the experience from optimizing power grids to the water industry. Northumbrian Water Group has started to connect more than 1 million smart meters to our SaaS-based meter data management system, EnergyIP X. With this major rollout, the utility identifies household leaks to help reduce water consumption. The third example comes from the healthcare market an offering with significant potential is the comprehensive digital twin for smart hospitals. At the recently inaugurated Inselspital, Bern, building, planning and construction data as well as construction documentation are being digitally transferred to operations. This has laid the foundation for providing a digital twin in the future and opens new possibilities to optimize processes while supporting efficiency. And finally, after the successful commissioning of a first route section, Austrian Federal Rail provider ÖBB presented a long-term framework agreement Siemens Mobility worth €400 million. It will digitalize the country's rail network with the latest technology, which is a crucial cornerstone to doubling network capacity by 2040. All these projects demonstrate how Siemens Xcelerator works successfully. Our core strategic lever for value creation is our goal to grow the digital business annually by around 10% by 2025. Fiscal 2023 was another successful step in this direction, achieving around 12% growth to €7.3 billion despite the ongoing PLM SaaS transition in digital industries. And we are confident to continue this strong growth trajectory in fiscal year 2024. While our businesses allocate significant resources to further develop and promote Siemens Xcelerator software and digital service portfolio, I'm very pleased with the continuing progress of transforming main parts of our DI software business towards Software-as-a-Service. After two years, we are fully on track to achieving our goal. ARR growth reached a very healthy level of 15% over the prior year, which we strive to sustain in fiscal year 2024. Cloud ARR share already stands at €1.2 billion equaling 30% of total ARR. And we expect to reach the 40% target one year ahead of schedule. Around 11,300 customers have signed on to the Software-as-a-Service business model with a vast share of small and medium enterprises. And among the SaaS consumers are 77% new logos underpinning our ambition to substantially expand the existing customer base. The quarterly customer transformation rate remained on a high level with 87%. Looking ahead, we will actively work on managing the skills transition as well as digitally selling further functionality and applications. Based on our assessment, we have surpassed the trough of the SaaS transformation of our PLM business and a small part of EDA. From here, we will gradually see higher profitable growth contribution. The largest part of EDA, which marks around one-third of digital industry software business, remains term license space. As indicated in Q3, we recently announced our plans to expand our U.S. footprint. This is the final cornerstone of our 2 billion global investment strategy to boost innovation, growth and resilience. In Dallas-Fort Worth, we will build a high tech manufacturing factory for €150 million, fully equipped with Siemens software and automation to produce critical electrical infrastructure equipment. The factory will start production in 2024 and is planned to gear up for full capacity in 2025. This investment specifically supports long-term customers in the data center space where demand is expected to grow by around 10% annually through 2030. We are gaining market share and achieved an extraordinarily strong order level of almost €2 billion in fiscal 2023. And we delivered revenue growth of around 25% for the second year in a row. Sales pipeline visibility into fiscal year 2024 is robust, driven by additional AI workloads and co-location demand. A key lever for further success is our strength in innovation. In fiscal year 2023, we invested around €6.2 billion to constantly upgrade and drive the connectivity of our strong hardware base and intensify investment in our software and digital portfolio. For fiscal year 2024, we plan to maintain R&D intensity at around 8% of revenue with further growth in absolute terms. It is our clear goal to extend leading technology positions and drive sustainability offerings. A great example for both is our Blue GIS switching technology without fluorinated gases for primary distribution. It helps our customers to drive the sustainable energy transition ahead of EU regulation. In addition, our central technology team is closely collaborating with all businesses to maximize the impact of once again investing more than €500 million in the advanced development of 11 core technologies. We see strong progress and mutual benefits in areas like artificial intelligence, advanced manufacturing, cybersecurity, connectivity and edge, integrated circuits, and power electronics or circularity. A further cost strategic lever is continuing portfolio optimization. In fiscal 2023, we announced some complementary technology acquisitions such as Avery Design Systems in the software or Heliox, a specialist in eBus and eTruck fast charging solutions, and we will continue this path of bolt-on acquisitions complying with our six strategic imperatives. At the same time, we executed several smaller divestments both in the industrial business as well as from our portfolio companies. After having reduced our share in Siemens Energy AG to 25.1% in fiscal 2023, we are working on an accelerated separation from Siemens Energy in India. Yesterday, we announced a set of measures including our intention to acquire 18% of the shares in the publicly listed company Siemens Limited, India for 2.1 billion in cash from Siemens Energy. With this, we agreed with Siemens Energy to accelerate the unbundling of the activities currently conducted in the Indian subsidiary of Siemens by the way of a demerger ultimately be targeted to return to a shareholding of 75% in Siemens Limited, India in four to five years from now. Siemens Energy is to become mature [indiscernible] shareholder in the 10 listed companies Siemens Energy India. These are important steps to simplify the structure and sharpen the focus, and we will continue this path. The new Innomotics brand as a leading motors and large drives supplier was successfully launched and is well perceived by customers in its more than 15,000 employees. Innomotics is performing strongly with good visibility based on a healthy order backlog. With these attractive prospects, we have decided to start as a next step further preparations towards the full independence of Innomotics. We will start preparations for a public listing by diligently evaluating all other options according to the best owner approach. We will pay particular attention to ensure a future setup which offers sustainable, growth-oriented and value-creating development. So as you can see, we further shape our leading technology company in many aspects to drive performance. And with that, over to you Ralf. Let us take a closer look at operation performance and our detailed outlook for the fiscal year 2024.
Ralf Thomas: Thank you, Roland, and good morning to everybody. Let me share more about our powerful finish of the fourth quarter and our outlook for fiscal '24. In digital industries, we saw a good close on top line ahead of market expectations and driven by an extraordinarily strong EDA software business. As expected, we recorded a continued normalization of order patterns in our short cycle automation businesses across all key countries. As Roland mentioned, end customers and distributors further reduced inventory levels due to back to normal delivery times and the rather muted industrial investment sentiment. Orders for the DI in total were down by 8% with a book to bill overall at 0.83. The software business achieved record order levels, up more than 30% on 13 large wins primarily in the EDA space, an unprecedented level for us so far. Order normalization was driven by the discrete automation businesses, while process automation was lower mid single digit. Therefore, our backlog in digital industries further decreased to almost €11.5 billion. Therein, the software backlog amounted to around €5 billion, a number that has grown gradually in line with the progressing SaaS transformation, which increases the share of recurring revenue. The automation backlog stood at €6.3 billion, around €1.8 billion lower compared to the third quarter largely as expected. While this is still elevated compared to our long-term levels, the development clearly shows that we are on the way towards levels of pre-pandemic order backlog reach. Customer cancellations remained on very low levels. Revenue for DI was significantly up by 11%, automation revenue rose 6% driven by process automation up by 13%, while discrete automation grew by 3%. Large order wins in software translated into brilliant software revenue growth of 30% to more than €1.6 billion by far the highest quarterly level we achieved so far. Whereas PLM was up mid single digit, EDA delivered a fantastic growth of around 75%. Since EDA is a lumpy business, we should look at the full fiscal year growth rate, which reached an impressive 15%. Profit of almost €1.4 billion marked a quarterly record high with an excellent margin of 23.1% strongly supported by an outstanding EDA software contribution. To reap the productivity gains related to the SaaS transformation, we set up a program to actively manage the required skill transition of our staff primarily in the U.S. This was the main driver for a severance program affecting the DI margin by 120 basis points. In the automation business, we continue to see stringent execution with strong profit conversion, however, with a less favorable mix compared to prior year. Price increases from previous quarters which materialized now through backlog conversion plus productivity gains enabled us to clearly over compensate cost inflation in the quarter. As a result, we again resolved the economic equation with a net positive in the fourth quarter. Cloud investments in Q4 accounted for 130 basis points of margin impact on digital industries, which was also the overall fiscal '23 impact. We are proud that digital industry once again achieved outstanding free cash flow of more than €1.3 billion close to previous year's high leading to a strong cash conversion rate of 0.96. The main driver was the automation business where we optimized inventory levels while the software business saw an increase in net working capital due to extraordinary volume growth. For the full fiscal year '23, digital industries generated more than €4.2 billion in free cash flow for the third year in a row combining very reliable cash contribution with strong double digit revenue growth. Now let me give you the regional perspective on the top line automation performance. As mentioned, automation orders were further broad-based normalization of demand against tough comps of strong growth in the previous two years. As expected, this was most visible in China and in parts of Europe where we see ongoing destocking which will continue into the first half of fiscal '24. Yet, in China we see some first signals of stabilization in current trading following a very soft fourth quarter. Clear revenue growth in automation was mainly driven by strong backlog execution in Europe, where Germany was up 18% and Italy 23%. China was 14% lower on tough comps and fewer fast turning orders. In the U.S., process automation was up double digit. Now looking at our key vertical end market for the next quarters, we expect rather muted growth momentum driven by effects from further destocking and fading effects from price inflation as well as softer investment climate due to higher interest rate levels. Our DI teams see this development as transitional and expect an improvement of sentiment beginning in the second half of fiscal '24 also driven by secular demand trends. On this basis, after three years with extraordinary double digit growth, we expect fiscal '24 to be transitionary in nature before picking up accelerated growth momentum again thereafter. We will execute targeted investments in vertical specific applications in a careful step by step approach to increase customer value and maximize growth. Looking ahead, we anticipate a soft economic development in the first half of '24 with sluggish industrial demand, especially in China and Germany, as well as ongoing destocking in key countries. We assume improving trends beginning to materialize in the second half of '24. As expected, revenue contribution from existing backlog will further normalize. Hence, the regular short cycle pattern of new fast turning product orders will gain importance throughout the year on mostly healthy lead times. Please note that as of October 1, the low voltage motors business was transferred from DI to Innomotics. Comparable key figures are distributed this morning and all forward-looking statements refer to the new setup of digital industries. For fiscal year '24, digital industries will again deliver a convincing performance with orders stabilizing throughout the year and the consistent revenue development on tough comps. Profitability will remain in the upper half of the margin corridor despite rather flattish top line and targeted investments linked to expected volume pickup. In fiscal '24, we again expect to outweigh wage and material cost inflation with productivity and trailing pricing effects from order backlog for positive economic equation. From today's perspective, we will start with the first quarter as the slowest quarter in fiscal '24 followed by a steady improvement thereafter. Therefore, in Q1 we still see orders well below prior year on further destocking and very tough comps for our automation business. We anticipate for DI revenue growth to be in line with the full year guidance of 0% to 3%. Automation growth is anticipated to be flattish on tough comps. Software is expected to be around prior year level with clear growth in PLM on successful SaaS transition compensated by lower EDA revenue on a seasonally lower start after the exceptional accumulation of large deals in the fourth quarter. Beyond first quarter, we expect clear revenue growth acceleration in the software business throughout fiscal '24. We see the profit margin for the first quarter to be approaching the full fiscal year guidance of 20% to 23% from [indiscernible] compared to a very strong prior year quarter with a very favorable automation product mix and a very high capacity utilization. On top, we expect substantial headwind from exchange rate effects at current rates of around minus 100 basis points. For the software business, we expect a seasonally slow start. Smart infrastructure again delivered like clockwork a truly outstanding fourth quarter performance across all metrics. The team achieved excellent top line growth in robust end markets and another proof point for consistent margin expansion trajectory. In total, orders were up 6% driven most notably by 16% growth in the electrification business. Orders benefited again from larger wins primarily from strong demand in the data center business. Buildings was up 6% based on strength in the solution and service business while electrical products was flattish on pretty tough comps. The order backlog remains at record level of €16.5 billion. Revenue growth was broad-based and reached 12% clearly ahead of expectations with the largest contribution from electrification business up by a remarkable 25%. Electrical products and buildings showed clear growth with 9% and 7% increase, respectively. Flawless backlog execution led to a margin performance of 14.9%, up by 70 basis points year-over-year. The business benefited from economics of scale and increased capacity utilization on high level revenue growth as well as lasting structural improvements from our competitiveness program. Headwinds from cost inflation, mainly merit increases, were overcompensated by productivity and in-time pricing actions. Currency effects had a noticeable negative impact of 50 basis points in the fourth quarter. The SI team very successfully implemented effective measures to reduce operating working capital, in particular inventories, despite material revenue growth. Free cash flow showed an outstanding finish with an all-time high of more than €1.4 billion bringing full year cash conversion to impressive 0.95 well ahead of our target of 1 minus growth. Looking at the regional top line developments, we saw robust demand with strong order momentum driven by Europe and the U.S. on large wins in the data center and power distribution vertical. China was up by 2% on easy comps with bottoming out of domestic demand. Revenue showed strength in all regions, besides China, supported by strong backlog execution in Europe, while the U.S. achieved impressive mid-teen percent growth rates. The service business delivered 10% growth led by a double digit increase in Europe and Asia. We continue to see nominal and real-term growth in our main verticals fueled by backlog execution. Sustainability is a key business driver in many market segments. Only commercial buildings is expected to show modest growth going forward due to increased interest rate levels. As Roland said before, we see accelerated growth momentum in the data center vertical on higher adoption of AI-based applications. Expanding grid capacities and making them more intelligent is another resilient growth trend for which we are well positioned driven by renewables integration and electrification of everything. For the first quarter, we see the comparable revenue growth rate towards the upper end of our full year growth guidance of 7% to 10%, strongly supported by order backlog. We anticipate the operational first quarter margin to be at the prior year's level within the full year guidance range of 15% to 17%. Mobility closed the year with another strong quarter on top line. Orders at 3.2 billion up by 26% included two large orders for commuter trains in Germany totaling €700 million which drove rolling stock momentum, while infrastructure orders were substantially up on several midsized orders and good contribution from base business. The backlog stands at €45 billion, massively up compared to prior year after extraordinary order intake north of €20 billion throughout fiscal '23. Therein are almost €13 billion of service business. This lays the foundation for another year with strong revenue growth in fiscal '24, yet with a higher share of rolling stock business. Our sales funnel continues to look promising for fiscal '24 for a book to build well above 1 across all business activities. However, expected timing of project awards indicates an order level materially below fiscal '23 levels. Specifically on the Egypt project, we are progressing in the project execution of the Green Line extension with the first Desiro train recently arriving in Egypt. For the Red and Blue line, the contracts are effective and commencement date of both lines has been contractually agreed upon for the end of calendar year '23. The teams are working towards the financial close, which from today's perspective is expected earliest end of calendar year '24, after which the remaining order of around €5 billion will be booked. Revenue in Q4 was up 10% on broad based growth with a strong contribution from large rolling stock projects. Profit margin reached 8% in line with expectations on a less favorable business mix. Mobility delivered a remarkable free cash flow of almost €600 million in the fourth quarter amounting to more than €1 billion for fiscal '23. This led to a cash conversion rate of 1.19 for fiscal '23 well above the 1 minus growth target clearly differentiating Siemens Mobility from competition. Since mobility is a long cycle project business, this comparison is even more impressive when looking at a long-term time horizon since 2016. Mobility delivered cumulatively €7 billion in free cash flow with a cash conversion rate of 1.05 combined with an attractive asset-light business model. Our assumption for revenue growth for the first quarter of '24 is within the corridor of 8% to 11%, which we expect for full fiscal year '24. First quarter margin is seen towards the lower end of the full year margin guidance of 8% to 10%. Now, let me keep the perspective on below industrial businesses crisp. All details are in the earnings bridge on Page 35 in the appendix. SFS delivered a solid fourth quarter performance with a higher earnings contribution from the debt business on lower expenses for risk provisions. I'm very pleased with the portfolio companies showing a robust profitability, as expected. As mentioned, next strategic steps are underway while the team simultaneously executes their full potential plans. Siemens Energy investment continued to burden the bottom line due to material and equity loss, as you know. Tax rate came in at 33%. Now, let me briefly give you the perspective on a solid full year performance of Siemens financial services. Return on equity of 16.3% within the target range is a remarkable success, once again supported by the diversified portfolio, prudent risk management and a strong result from equity business. SFS has successfully supported the industrial businesses with excellent financing expertise and deep industry domain knowhow. The team is facilitating entry in new markets and ecosystems as well as developing innovative digital business models. SFS strongly supports sustainability business for the group along the entire technology lifecycle. Based on the current expectations, SFS will start with strong results in the first quarter positively impacted by the equity business. For [indiscernible] '24, Siemens financial services anticipates to further gradually improve earnings before taxes over prior year. Ladies and gentlemen, excellent and consistent free cash flow is the ultimate yardstick for performance. In the fourth quarter alone, our industrial business delivered free cash flow of €4.1 billion and an excellent cash conversion rate of 1.22. A new record of more than €10 billion for free cash flow all-in throughout the year and almost 13% cash return on revenue highlight our focus on stringent working capital management of the entire team around the world. We are very confident to continue this path also into fiscal '24 despite macro volatility, and for the fifth year in a row we strive for double digit cash return. Strong operational performance and cash generation is also reflected in further improved capital structure. Industrial net debt over EBITDA was 0.6x at year end providing headroom and flexibility for stringent capital allocation. With our strong investment grade rating, we are in an excellent position for refinancing in fiscal '24. The pension deficit is at a record low of €1.4 billion and we will have further opportunities for cash generation from portfolio simplification. Our strong free cash flow, capital structure and liquidity positions are also giving us ample room to provide consistently attractive shareholder returns. We will propose to the AGM a dividend of €4.70, clearly up by €0.45 from the prior year dividend matching our progressive dividend policy. This represents an attractive dividend yield of 3.5% based on September end closing share price of €135.66. At the same time, we are mindful of ensuring balanced capital allocation priorities. The current share buyback originally planned until '26 is 90% completed with a buyback volume of €2.7 billion at an attractive average buyback price of €118. Therefore, we decided to launch a new upgraded program of up to €6 billion up to five years right after completion of the current program. Now let me come to the assumptions for our outlook for fiscal '24. We assume a volatile macroeconomic situation, but no further increases of geopolitical tensions throughout fiscal '24. Under this condition, we expect our industrial business to continue its profitable growth path. We anticipate the economic equation of price increases in productivity versus cost and wage inflation to be again net positive in fiscal '24 for both digital industries and smart infrastructure. Building on our strength, we further maintain high levels of R&D intensity with a strong focus on connected hardware, software and digital technology. In addition, we will continue to selectively invest in go-to-market digital sales channels, vertical specific and sustainability offering. However, each decision will be taken with a stringent focus on strategic imperatives in resource allocation. To support midterm growth momentum, we will also increase CapEx in line with our strategic investment initiative to expand capacities, drive innovation and resilience. We assume severance charges below prior year level from today's perspective in a range of €250 million to €350 million. Based on current rates, we anticipate a negative effect of around 1 percentage point on top line from exchange rate and the burden on profit margin of around 30 basis points, primarily in the first quarter of fiscal '24. On Page 36 in the appendix, you can find all details as referenced for our outlook below industrial businesses. I want to point out here only a few important topics for your models. Portfolio companies, including Innomotics, we are confident to achieve an operational margin of more than 5% again. Fiscal '23 profit included a gain on sales of commercial vehicles of €148 million. Cost of governance, net of brand fee, will be materially lower in line with our intended path of consistently decreasing this item to net zero by '26 latest. The tax rate is expected to be in the range of 24% to 29%, which we see as a regular rate without extraordinary effects. Here you can see the outlook for Siemens group and for the businesses. Given the strong performance in fiscal '23, our guidance is based on tough comps, especially when looking at the order development. It reflects our confidence in the continued high value growth despite challenging framework conditions in fiscal '24. Digital industry expects comparable revenue development of 0% to 3%. This is based on the assumption that following destocking by customers, global demand in the automation business, especially in China, will pick up again in the second half of fiscal '24. The margin is expected at 20% to 23%. Smart infrastructure expects to achieve revenue growth of 7% to 10% with a further improvement in margin of 15% to 17%. Mobility anticipates achieving revenue growth in the range of 8% to 11% with a margin of 8% to 10%. On Siemens group level, we anticipate 4% to 8% comparable revenue growth and again a book to bill above 1. We expect this profitable growth of our industrial businesses to drive basic EPS from net income before PPA accounting, excluding effects from Siemens Energy, to a range of €10.40 to €11.00 in fiscal '24. This outlook excludes burden from legal and regulatory matters, as always. As you can see from our ambitious outlook, we enter fiscal '24 from a position of strength with the leading portfolio and stringent execution. However, we monitor the 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 Eva.
Eva Scherer: Thank you, Ralf. We are now ready for Q&A. Please limit yourself to two questions per person because we want to give as many of you as possible the opportunity to raise questions. Operator, please open the Q&A now.
Operator: Thank you. [Operator Instructions]. And our first question comes from the line of Ben Uglow, Morgan Stanley. Please go ahead.
Ben Uglow: Good morning, Ron and Ralf and Eva, and thank you very much indeed for giving me the question. Okay, so I've got two. Let's just do them in order. The first is really around the DI margin guide, it's an obvious question. But your 20% to 23% does imply that we are seeing slower margins, maybe 1 or even 2 percentage points in the first half of the year. What am I to understand is qualitatively big picture, what is behind that lower margin guide? My assumption, which may indeed be wrong, is that we're thinking about slower volume primarily in the big automation factories in Hamburg or Chengdu or wherever it might be, and that volume is typically quite sensitive with the automation product margin? Is that really what you're trying to communicate? And the reason why I ask is there a lot of -- well, there are a lot of theories in the market should we say about software mix and software mix materially improving your margin this year. It sounded like you downplay that in your opening comments. But are you really reflect what you think is going to happen to volume in automation products, or is it something else? That's my first question.
Roland Busch: Shall I start with that right away, Ben? Thanks for asking. You can probably imagine this was also on top of our minds when we have been forming and shaping the guidance for fiscal '24. And if I may walk you through the framework first and then conclude in the end, it's obvious that we do see challenges in growth markets like China. We do have all that what be discussed, and I'm sure we're going to discuss that also in today and later on when we get to London that the destocking and let me call it the uncertainty in the channels is playing a major role there. But if I may point out four areas to think about when you look at margin guidance of DI; first and foremost, just to get it off the table exchange rate will be unfavorable for us in pointing out first quarter is going to have a negative impact of 100 basis points on margin. No one knows obviously where we see the exchange rate to go on the way forward. But just looking at the current status and anticipating what that would mean potentially for us for full fiscal year, this is a material impact for DI mainly. Then you already touched on the mix. And when we talk mix, we have actually three dimensions to consider. The first is products and software. You’re right. Software momentum has been kicking in. We talked about the backlog, obviously, also reflecting the successful transitioning to SaaS models. That means that revenue recognition is delayed. You know all the mechanics, I don't need to mention that. So volume increase does not necessarily fully reflect the potential of earnings power in that business. And at the same time, just reminding ourselves, we continue investing in SaaS transition. Not to dig into that further at this point in time, but we have been highly motivated, let me put it that way, by the customer response. So the increase in ARR growth rate and the cloud portion in it have been very encouraging. So we feel we are on the right path. And as always, we will follow the voice of our customers we have been well advised doing so and will continue so. So seeing the bottom of the fish, so to speak, does not necessarily mean that we have a step change right away, but we continue investing as long as we hear the voice of the market. So software product mix or the software automation mix is the one dimension but also the product mix within automation is playing a role. Of course, I think you heard me saying that process industries have been benefiting from the latest development. Obviously, this is not the peak of our margin in portfolio perspectives and therefore there's a mix in the automation business that has been starting to be not unfavorable, meaning that it's not worth going for the business. It's quite the opposite. We are occupying the place at the customers and we are winning market share. But the mix and the resulting also capacity utilization you have been touching on is playing a role. Of course, this will be temporary in nature. So therefore, the mix in automation, mix between software and hardware and also third dimension of talking mixes geography, you heard us talking about growth rates in the past in highly profitable countries that do no longer provide for that massive growth. And therefore, there's also a geographical aspect in that mix. And I hope you'll forgive me that I don't get into the details of this one. Pricing is artwork these days, and we will stand firm, because the price increase that we have been pushing into the market for the win-win situation we create with our products needs to be defended now, and this is really try and work at the moment. It's reflected also a bit in the fact that we have a different pattern timelines in our economic equation, just quickly referencing back to '23 when we have been starting with a good positioning from a price increase perspective, so price increase of the prior year '22 was in the backlog has been worked on. At the same time, factor cost increased, in particular, wages have not been fully up to the levels we expect now for '24. So therefore, there will be a positive economic equation net for the full fiscal year for DI and SI. But the structure and the magnitude are not going to play the same league. So timelines, if you will, are less favorable than they used to be in '23, when it comes to matching price increase in productivity with factor cost increase mainly from merit increases. And it's obvious. We all know that productivity measures do not kick in from the very beginning on full impact. So therefore, there's also a natural timing in that that is geared to the second half of the fiscal year. And with that, I think I just want to repeat what I said before. Despite that slower momentum in this fiscal year on top line in DI, in particular in our automation in some key markets, we continue to invest in R&D, because we feel this is the golden moment to make a difference. We win market share. We get the customer response. We make a difference. And we are accelerating our Xcelerator. So from that perspective, it makes a hell lot of sense to continue investing. The assumption that we made and I think I spelt it out clearly is second half of the year, we expect a pickup in demand again. And we are also ready to pull the brakes if need be if that assumption doesn't kick in. All that together in a nutshell has been shaping our view on fiscal '24 for DI automation mainly and we of course will use each and every opportunity to grab market opportunities coming up and we will be ready to accelerate if we can. But we are mindfully watching circumstances and also the market sentiment, high interest rates and the question where will they end is not definitely encouraging our customers' investment sentiment at this moment. But you can be absolutely sure that we will be able to accelerate and we will also be able to pull the brake if need be.
Ben Uglow: That's understood and very helpful. Thank you. My one follow up is just about the distribution channel. Ralf, you always give us an interesting kind of view on the so called artifacts and where we are in the destocking process. If we look around the world, I think we all sort of know what's going on to some extent in China. But how do you see the relative degree of destocking between China, Europe and the U.S.? Where are we sort of globally in that process in your view?
Ralf Thomas: If you allow, I just have a short look at macroeconomics for China before I come to discussing the China channel situation. But geographies around the globe, if you compare them, it's obvious that China is the biggest challenge at the moment. And it's also obvious that in particular Germany, to a certain extent, correlates with China from the export perspective. So I would see a distinct connection between the two of them. They are not fully independent. This dependency is, of course, on far lower levels in our industries. When it comes to the U.S., the U.S. we see a market that is driven by process industries mainly and is also giving us opportunity to grow into market shares. We are not that strong in the U.S. yet and we are working on that, as you do know. So there's a natural set up that China is destocking -- China's destocking impact is bigger on us than in the U.S. where we don't have that -- didn't ever have that magnitude yet. So priority China, therefore, let's have a quick look at China. From a macroeconomic indicator perspective, I'm sure you follow them as I do, in October there were no real tangible signs of markets sustainably recovering. And there was also a drop in exports PMIs have been falling below 50 and declining PPI and CPI do not suggest recovery anytime soon. So good order intake in the first couple of days of the new fiscal year, which we had, but a real true and solid signal for recovery. That's why we are carefully and also I think we are prudently observing that in our outlook we are giving for the first quarter and the second quarter of the fiscal year. So talking to our channels, when you look at the distributors that we have, there’s still high levels of stock on their shelves. The outbound deliveries of our distributors do rather indicate a slow backlog conversion and destocking speed. This may change quickly. You do know that from the past, if momentum is kicking in, in China, you need to be ready to deliver. And that's why we need to strike the best possible balance between those two different scenarios being close to the market and to our customers is of the essence. And we of course also have a very mindful view on the local competitors there. So taking all that together and concluding, my gut is telling me that we won't have a clear picture before Chinese New Year. And even though I don't like it, we need to be patient with more detailed estimates on the development there. For ourselves, looking a bit just as the numbers, you do know and I need to say that again, we don't have a complete closing process for October, because we are busily closing the fiscal year and doing all that what took us to the position to talk to you today. So no firm closing in October means only indicative figures also for myself. And there was a positive signal to be honest in the new orders in automation in China in October. It was a clear pick up over very weak September and also August and in July you know that have not been really stunning in that field. So one month too weak of a signal to draw conclusions on looking at revenues. Typically, the first month in the quarter is anyhow a bit weaker. If you compare the first month of the quarters behind ourselves, I think that was also on level. So I would say there is hope but no firm conclusion possible at that point in time whether the unwinding of the backlog will be accelerated or whether it will take us those two to three quarters that I had mentioned a couple of times before. So on a work level, finally when we talk new orders, October figures as preliminary as they are, unaudited and not a full closing cycle, as I said before, they are pretty much on level of September, August and July. So therefore, there seems to be the trough that has been reached. And we are very carefully looking at that. We stay close to business sentiment as possible, talk to customers and we are ready to react. That's the only thing we can do at that point in time.
Ben Uglow: Understood, very helpful. Thank you very much. And I'll pass it on. Thank you.
Operator: Our next question comes from the line of Andrew Wilson, JPMorgan. Please go ahead.
Andrew Wilson: Hi. Good morning. Thanks for taking my questions. I've got two. I think the first one is something of a follow up to Ben's. I guess I'm interested in terms of the information you're using to talk about a trough in on the automation side. Obviously you've alluded to some of those kinds of early numbers I guess from October. But in terms of how confident are you that your visibility of that picture has improved versus earlier in the year where obviously it proved to be a very difficult market to call. I guess just trying to understand sort of that information flowing whether I guess we sit here with better confidence today on the understanding of what are clearly a lot of moving parts there, if I start there?
Roland Busch: Thanks, Andrew, very good question, of course. And what I'm referring to is typically four different sources. We are looking at macro, as you do. There is an abundance of use out there, when and how a potential pickup can take place. So we are just clinging to the numbers that I have been quoting before. Then we, of course, are looking at the market. We see the dynamic. We talk to customers. We conclude. We also draw our own conclusions. When it comes to interest rates, you typically know what the reaction in which part of the market is going to be if there's uncertainty or not. So that's the second source, the market, if you will. And then it's our current trading. And this is unfortunately, as I said in the other quarters, I have firmly booked figures for the month that lies behind ourselves, when we talk to you typically in November as we are, and as we speak, October figures are not that firm. That's why I had to put that indicator. Our own current trading is a third source. And then, of course, we are talking to our channel partners. They have their own use. They are combining, so to speak, in particular in China, the conclusions you would draw from interest rates, market sentiment, and also their own stock level policies, if you will. And I used to call it artifacts in the past. And I apologize if that sounded disrespectful to them. They do a meaningful job for themselves. But it's hard to conclude on a broader level what that means to the market because some of them may opportunistically look for opportunities to grab them. Is it pricing? Is it their own customers? And others are more strategically allocating their resources, so it's hard to take a pattern from that. But it's a very valuable source to conclude, because the change in that what they do is giving you indications. That's the reason why I said the stock levels at our distributors in China didn't change a lot. That means their outbound flows are not increasing. And that's why we believe at the moment, we may rather be at a bottoming out process than in an early pick up pattern. This all concludes from our point of view that at the moment, we shouldn't be over optimistically looking at change in momentum. But they are clear. Those long-term trends and indicators that have been leading the market in general, and they are still intact. And we also hear that from our Chinese partners and our Chinese sales force that it is not a structural lack of demand. It's rather that unwinding of this complex situation that has been building up throughout the last two and a half years.
Ralf Thomas: Let me add just one comment, which we didn't talk about yet, which is there's kind of a transformation in the market itself. China and the Chinese companies are pushing very hard also into sustainability kinds of solutions. Is it efficiency? Is it any kind of new technologies? You can now count it down; batteries, hydrogen, stimulating any kind of affordable type [ph], whatever it is. And that's another shift within the Chinese market. Along with a second one, which is I would use the words of the government. They call it high-tech manufacturing in times where the world is competing for direct investments and China is fighting obviously against this resilience strength. So they have to defend their own manufacturing strengths. Obviously, they have to drive for higher productivity level, while using less resources, which is really a very, very strong push into high-tech manufacturing, also in particular for roughly 350,000 small and medium-sized enterprises. That happens, as we speak to rebuilt so to speak. And we live to say that this is also a good tailwind and potential for us.
Andrew Wilson: That's very helpful. Maybe for the second one, it's still on DI, but on the software side. I guess I just wanted to make sure that I did understood rather the comments on the sort of demand picture I guess for '24. It sort of sounded to me that there was a good deal of optimism with regards to demand on the software side and obviously that’s continuing. On EDA as well, Q4 was clearly fantastic, absolutely fantastic. How should we think about the pipeline for activity on EDA in terms of '24?
Ralf Thomas: So thanks for appreciating the development of our software business. There's three aspects about it, and Roland has been touching on two of them. First, there was a huge unseen accumulation of large contract wins in the fourth quarter, which had an impact that we never saw before. I wish we would do that quarter-over-quarter, but unfortunately it won't. The reason for that we discussed a couple of times, projects of our customers finally taking them to the decision to change to Siemens or to use our software is driven by long-lasting preparation effort before they conclude. So we see them building up. And sometimes it happens that some of them accumulate. So we do see more projects ramping up, unfortunately not in the first quarter of fiscal '24. But this is not embarrassing us. We do know the nature of that business. It's lumpy and we would not ever step into the trap of trying to push our customers. This is not advisable in no business at all. So the other one is that parts of EDA may also be subject to subscription type of transitioning. It's hard to predict. As always, also for the PLM business, we are following the voice of our customers. They set the pace. So therefore, there will be momentum picking up. Is it going to be material or not, I don't think it's going to be material in '24. But it will be in the long term. Now the third element, PLM transitioning to SaaS, I hope you agree that it's really impressive how we have been picking up momentum, how our sales force and our delivery forces are getting that onto the ground and obviously reaching exactly that part of the market that we have been wishing for. Meaning 80% of mid-sized companies that are buying Siemens now is a huge opportunity for us and the momentum we have been creating with the numbers of customers being addressed, more than 11,000 with the portion of cloud-based solutions are growing faster than honestly I personally expected. This is giving us opportunities. At the moment, however -- and I mentioned that when I tried to answer Ben's question, at the moment, however, this is not popping up in top line and not in income at the moment because the transitioning has a burden. That's why we stay very transparent in sharing those KPIs with you that we believe are giving you best possible transparency. And as Roland has been putting it into a nutshell, I think we are right at the bottom of the fish transitioning as we call that. But that doesn't mean that margins are already visibly improving on a level that it has impact on DI overall. So in a nutshell from a seasonal perspective, you saw us in last fiscal year '23 talking about seasonality, where we were backend loaded, we said that from the very beginning for the software business. And from today's perspective, it looks to me it may not be that dramatically in its extent as it was in '23. But again, we will be backend loaded in particular when it comes to the highly profitable EDA business.
Andrew Wilson: That's very helpful. Thank you for the time.
Ralf Thomas: Thank you.
Operator: The next question comes from the line of James Moore, Redburn Atlantic. Please go ahead.
James Moore: Good morning, everybody, and thank you for the opportunity. Could I ask a DI margin question and return to that and follow up on the buyback, if I could? Thanks for all the answers to Ben's question, Ralf. I just wondered if we could unpack it a different way. In terms of the currency, could you give us a rough idea for the year at current rates, what that could look like? And on investment, could you size that '24 cloud investments and say if we should expect anything outside of that in [indiscernible] or R&D intensity that could be impacting margin? And I guess my core question is away from Innomotics and currency. When we look at the organic margin in software, I hear what you say about the bottom of the fish doesn't mean margin visibly improving to the degree that it moves to DI margin. But do you still stick with the original plan laid out two, three years ago? And on automation, I would have thought that the economic equation would have offset the volume and wage scenario. If we had neutral mix, would you expect the automation margin to progress? And is the topic just entirely mix, China, or et cetera?
Ralf Thomas: Wow, that was quite a lot of topics you have been putting onto our plate. Let me start with the easiest one, software transitioning, SaaS transitioning. Yes, we stick to the commitments we made. We don't know the timing exactly as we said, but we feel very much encouraged that the momentum we have been creating is very strongly supporting the commitments we gave. And the pattern of the fish or the fact that we use the form of a fish to describe the business is also showing that once you then pick up with volume and have less incremental burden on your P&L, it will still take six to eight quarters before you see the full beauty of the impact. When it comes to automation and the economic equation, it's about timing, if I may put it that way. What we saw and I’ve tried to describe that we had, thanks God, very early touching the pricing levers in the beginning of the inflation, high levels of inflation kicking in. At that point in time back then, unfortunately, delivery times have been extended because there was scarcity of material in the market. And therefore, a lot of the orders with good pricing have been shifted into '23, even though they have been originating in '22. At that point in time in '23 then when we executed, there was a wage increase expected but not fully effective yet. Now in fiscal '24, we see the full year effectiveness of a wage increase of give or take 6%. While pricing doesn't create incremental levers anymore, I would be happy if we got along with a pretty stable global pricing tech. There will be challenges in some markets with local competitors, which are trying to use that opportunity, of course, like in China, so therefore not a lot of opportunities to counteract with pricing. Now, what do you do if pricing doesn't do the trick? You turn to more productivity measures, which have a certain lead time before they come effective. So again, timing difference. And if you add all that together, you come to a point that you see no further impact incremental from a pricing perspective, heavy impact from wage increase, productivity measures being on their way, but not fully effective yet before the second half of the year, I wouldn't expect them to be in a degree of implementation that are materially having impact on margin development. This is not rocket science. I know it sounds a bit complex to you guys. But this is our normal course of business here in trying to lead this company that you accept that, you push. But if you push too hard, you may end up in wishful thinking. And this is not the territory, Roland and myself want to be, so therefore we are facing the brutal facts of the pattern and we are managing as well as we can. Talking to your question about exchange rates, we don't speculate. What we do is we just take the exchange rate as it is, anticipate with forward points in the market, then what may happen. And at the moment, the average rate for U.S. dollar we see for fiscal '24 is around 106 and for China, it's about 7.7 give or take. So this is what we see at the moment. And therefore, it's unfortunate the effect that the first quarter will be hit hard. I know you wanted to talk about share buyback, but you didn't ask a question yet.
James Moore: Maybe I could just ask on that briefly then. And thanks for those answers. Great to see the intensity of that doubling. But given your impressive free cash flow and the prospects on that front and your strong balance sheet, can you talk a little bit about the discussion of how you came to that as a size? And why not say 2 billion a year?
Ralf Thomas: Yes, that's easy to explain. You know that I have the pleasure to do this for 10 years now. The first two buybacks, we ran into the trap that we have been taking a timeframe that has been pushing us then and it didn't help because share price was not ideally developing in a relatively short period of time. We made a couple of bankers happier than they should have been. And we learned from that. And the execution of the current plan, as it is, is pretty much encouraging that we have been moving into the right direction. We deliberately are picking a longer period of time. We said current plan 3 billion for five years. We have been then opportunistically using the opportunity. It's hard for me to say this is an opportunity if you have a low share price. But that dip that we all took has been allowing us to accelerate swiftly. You could see that we have weekly disclosure on that matter. And we use that. So the output of this process of acceleration is, I believe, a meaningful average buyback price of €118. So 3 billion in five years, ending up in 3 billion in two years give or take is quite encouraging I think. And if we now do 6 billion in five years, and again use opportunities that the market may provide, ending up with a shorter period of time, I would then be happy to announce another plan rather than committing myself at this point in time to buy back higher volumes in a shorter period of time and then being trapped in an unfortunately set up in the market.
James Moore: Very helpful. Thank you very much.
Operator: The next question comes from the line of Alexander Virgo with Bank of America. Please go ahead.
Alexander Virgo: Yes. Thanks very much. Good morning, everybody. I appreciate the opportunity to ask you questions. I guess the first one would probably be on the smart infrastructure margin guidance. Very, very encouraging to see that now well above 15. And I wondered if the time has come to review the medium-term margin targets there. And whether you could give us some qualitative comments perhaps around the profitability across the different verticals in smart infrastructure, particularly given the support you've got from backlog there? And then I guess the second question, just sort of a follow up really on free cash. Would you sort of start to think about being able to guide on free cash or at least start to talk about it with greater consistency, and thinking about the consistency of conversion now particularly across DI and SI and thinking about how we should be forecasting your free cash flow generation over the next couple of years? Thanks very much.
Roland Busch: Thank you. And we are very happy about the development of SI, as you can imagine, too. So it's driven basically by a very, very strong demand from the market for the portfolio, which we have, obviously in the whole electrification space but also in the building space when it comes to building products and the like, and the sustainability demand. So just to give you -- you know that electrification group by 25%, electric products by 9%. This is a very strong demand. And this is also driving, obviously, a conversion. And I will quote, Matthias [ph], when he talked about the development of the electrical product and he compared it with the competitors and competitors we have, and he said we closed the margin gap. So that gives you an idea how we are working on productivity in our manufacturing sites. Needless to say that we use our own technology there and we are delivering better than others. This gives us the confidence to invest 150 million in a new electrification plant on the back of order from hyperscalers. And there are more to come. So therefore, we are extremely strong and obviously also in our very strong portfolio that we renewed portfolio, switching [ph] portfolio core technologies as well as the related tools around it. And there's another element in it. We are very good in translating customer demand in let's say specific switchgears, which are then running in high volume in manufacturing. This obviously gives a high conversion. So another one is they worked extremely hard also on the economic equation. I think at the end, the economic equation of SI was even a notch higher in fiscal year '23 than that one of DI, just recognize it, so very well booked. Everything what Ralf said is also true. Obviously, for SI we see a little bit of a moderation in the market but still a strong trend in electrification. We see the salary increase kicking in fully, pricing is still I would say a little bit better than for SI. Therefore, if you take all this together and look in the growth perspective, which we have, this suggests also that we bring another conversion which links us also to the guidance. Last point, you obviously recognize that we have a financial framework, which is getting a little bit tight for SI, we are looking into that.
Ralf Thomas: Then let me take the point around free cash flow. First, thanks for appreciating the consistency that has been also accomplished over the last couple of years. We are very proud of our teams that they manage to really get a grip around asset management in daily business life. It's not that easy for some of them. And I think the teams have been getting really firm grip around the different levers when it comes to managing working capital. There will always be ups and downs of course and the team is getting also more and more experienced in managing those ups and downs. That’s what we then see also in the seasonal structure of the free cash flow. You have been asking whether or not we would dare to start guiding on the matter. And I thought I heard myself saying that we are very confident to continue this path that we have been embarking on in '23, also for fiscal '24 despite macro volatility and for the fifth year in a row, we strive for a double digit cash return on sales. It was not part of my speech in the guidance piece but I still believe this was a strong indication where we want to go before we really come to commitments on that matter. I think we need to be mindful also of what's happening below industrial business, because as well as they are managing their working capital there's quite a chunky impact below the line of industrial business when it comes to tax payments. You may get a tax audit and the cash in or out from that is completely unperiodically [ph] hitting your free cash flow statement and your balance sheet, the same also for derivatives from hedging. You do know -- the better your hedging is getting, it beats risk -- the exchange rate beats risk. On the interest side, it's always derivatives in place and the better you get the more you can resolve and that does not necessarily mean that you hit the perfect timing for that. So there's volatility that goes beyond control. Therefore, it's very hard to give guidance on that one in a very specific ideally cordially way, but we are working on that. And the fact that we commit ourselves to that what I mentioned before, again, I think that's a clear signal how committed Roland, myself and the entire Managing Board and the leadership team of Siemens globally is committed to this pattern continuing on the way forward.
Alexander Virgo: Great. Thank you very much.
Eva Scherer: We'll take one last question.
Operator: Today's last question comes from the line of Gael de-Bray with Deutsche Bank. Please go ahead.
Gael de-Bray: Thanks very much for squeezing me in. Good morning, everybody. I've got two please. Maybe the first one is around mobility. Some of your peers have had some issues in ramping up production in the past few quarters or even years, maybe not as much as originally planned. So I want to talk a bit about this around the potential supplier issues and capacity constraints you might have had or think you may have in the future. I think that's an important topic, given the very big backlog you have. And then the second question is around Siemens India. So you're putting 2.1 billion to get a higher share. But, of course, the transaction is not completed yet. And I wonder how much you think you will eventually recap from the sale of the Indian energy business to Siemens Energy in -- I think the timing is around five years, if you could elaborate maybe on the terms and conditions for this transaction?
Roland Busch: Thank you. So let me start with mobility. As you can imagine, we are very happy with the development that we see in mobility. A 20 billion order intake, meaning we are capturing market share in a very attractive market, it's growing. And this is fired by rolling stock as well as rail infrastructure, very nice. And then we also see this business delivering cash flow, 1 billion, which is not that obvious and not that easy, if you compare it. So we see the supply chain is almost back to normal. The only limit is some electronics response to rail infrastructure. It's normalizing. We are watching that closely. But from that perspective, and you can see also our revenue development, we are not really holding back from supply chain anymore. We have a very strong order intake that turns into revenue. So you see us also investing in new manufacturing sites or some of these sites in United States in a strong market. We are gearing up now in our activities in India, which is very interesting. And obviously, we're looking also for capacity improvements in Europe. All-in-all, this is a very, very strong, very good development. There's another element in it. Customers are tending more and more to look into the sustainability aspect, meaning buying the highest efficient drives, but also the way how you maintain your assets and have basically a longer lifecycle of assets, which goes back to a very strong maintenance, and we are extremely good at it. Our [indiscernible] platform gives us visibility on all our trains. All of our trains are connected, which we deliver. And then the last thing is underinvested rail infrastructure and this isn’t only Germany. It’s in all other places requires for more and more investment. Needless to say, this goes -- definitely flow into high technology, so also signal in the cloud. The first test in the market in Austria was very successful, others will follow, India in a leading position, there's no other player in that market who can deliver this kind of technology. So you see us quite bullish on this one. And we have to say that Siemens ability is the champion in the market, and we will be expanding our leadership there. On the SIL deal, the mechanics are actually quite simple. We are buying 18% with a discount of 15% from Siemens Energy. And obviously this 18%, they continue anyhow, 75% of our own business. It's only the smaller portion which contains the Siemens Energy share. Once we have that, then we can go into -- some people call it autopilot, which meaning triggering then number one the split between these two businesses within SIL, finally spinning those apart with a mimicked shareholder structure afterwards which allows us then to sell our shares of the energy part into the market. Ending up then finally selling the share which energy would still have in the Siemens India Limited AG back to us and vice versa, which will end up then in after timeline of something like four to five years and us owning 75% of SIL AG and Siemens Energy holding 51% of SIL SE, so energy. This is the plan. We do have in the contract a kind of a breakup fee. So it really makes it extremely high barrier for Siemens Energy not to do this buying back. So we want and actually they want and anyhow they want this business back, because it's India. It's a growing market. So for us it's a very smart combination of number one, allowing us to accelerate the decoupling in India and at the same time, supporting Siemens Energy with 2 billion cash. And again, I can reemphasize that we have a discount of 15% on that deal.
Gael de-Bray: Thank you very much.
Eva Scherer: Thanks a lot to everyone for participating. As always, the team and I will be available for further questions. And we look forward to meeting many of you at the sell-side meeting in London later today and during our upcoming road show. 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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