Siemens Aktiengesellschaft (SIE) Earnings Call Transcript & Summary

Hello, everyone, and welcome to our Siemens Smart Infrastructure Capital Market event here from the global headquarters in Zug, Switzerland. It's great to see so many familiar faces looking around here on site. Also welcome to everyone joining us live on the webcast around the globe. For those of you who do not know me, I'm Tobias Atzler, Head of Investor Relations of Siemens. You just saw this video. And if you ask me, I think this is a perfect example how smart infrastructure technology can be brought to life. This campus -- this emission-free campus gives home to 1,700 employees. And as I said, we will have a lot of chances throughout the day to show you the technology from Smart Infrastructure here. We have an exciting afternoon ahead of us. We will show you the great, great progress that Smart Infrastructure has done since the latest Capital Market Day in 2021. We will also talk about new midterm targets. And now let's have a look at the agenda for today. Smart Infrastructure CEO and member of the Managing Board, Matthias Rebellius; and CFO, Axel Meier, will be on stage and give an overview of market trends, strategic priorities and financials. Then you can be looking forward to a deep dive into the 3 business areas of Smart Infrastructure, buildings with Susanne Seitz; we will have electrification, Sabine Erlinghagen, Stephan May; followed by electrical products, Andreas Matthé. We will obviously also have sufficient time for Q&A for our on-site participants. Last but not least, 2 housekeeping items. First of all, please pay attention to the safe harbor statements at the beginning of all presentations; and second, please switch off your mobile devices, we really appreciate it. And now let's get started. We will see a video. And after that, please welcome Matthias Rebellius on stage. [Presentation]

So hello, and welcome from my side here also at our location in Zug, and thanks, Tobias, for the introduction and also showing the video. I'm, of course, very proud of as being also hosted here in Zug. Today, we are here to talk about Smart Infrastructure, how we combine the real and the digital world for sustainable infrastructure and in person. You remember at the Capital Market Day, 2021, the world was in a different place. I mean we're in a fully virtual event. It was totally different. So really glad that so many joining us here today in our live event and to see also and to talk about it as I. It's at a different stage of development. If you remember -- I'm sure you remember the commitments we gave at Capital Market Day '21, 4% to 6% growth in revenue; comparable profit margin, 11% to 16%; cash conversion, 1 minus growth. And the sentiment at that time was -- it's just one of many -- most -- like, well, like, isn't that too ambitious, where does it come from, how will that really work. So where do we stand today? And as you can see here, we have checkmarks all over the place. I don't want to steal away Axel's thunder, my CFO, talking about more details later. But the past 4 years have been a tremendous success story for Smart Infrastructure based on what we have committed. And as you see here, comparable revenue grew 9%; profit margin, 17.3%; and the cash conversion, despite the high growth of 0.97% for the fiscal '24. So commitments exceeded, I would say, in short. We promised and we delivered. We outperformed the market. We outperformed also direct competitors. We outperformed our commitment from '21. To a certain extent, we also exceeded our own expectations. Judge for yourself, how far our performance matured, experience and expectations. And also, there's no question that Smart Infrastructure is a strong contributor to Siemens' success. And so we are here to shine some light on our business. At Capital Market '21, we identified several growth megatrends, global mega trends, as you'll remember. We're bringing challenges and complexity to the world that need to be managed, but on the other side, also opportunities for demand for our business. And if you look at the global mega trends here, they are still intact. They haven't changed much. They're still shaping the world of today. So more people living in cities and aging population, global strategies, local supply chains, the climate change is everywhere and it's real. And digitalization is enabling and helping us managing the complexity of this world. We have positioned ourselves to drive sustainability and to leverage and harness the growth drivers, which are resulting out of those megatrends. And you can see that here, we are in a sweet spot of addressing those with our business so we can capitalize on the growth drivers. And all those drivers contribute to the sustainability transformation of our customers. And this is where we have positioned ourselves, because we have answers, we have scalable answers to the challenges customers are facing in all these areas. And if I dig a little deeper here into those, when you look into just how our portfolio is addressing those questions for the customers, for the humanity or even for the planet, if you may want to say. So to shift away from fossil fuels, so we have EUR 13 billion of electrification business supporting this, of course. We have mitigating climate change and its effect with our own decarbonization effects in our on-premises, but also with customer avoided emissions of 44 megatons. We leverage digital tools and AI to manage the complexity. We doubled our digital revenue earlier than expected and to use less resources in our own productions and manufacturing, but also as an example here, improving the grid efficiency by 20%, also, is a resource efficiency measure; and to transform infrastructures to ensure resilience and people centricity for billions of people around the globe. And that is where our portfolio has a huge impact. And you see here that we consider 90% of our SI business enabling customers to achieve a positive sustainability impact, and this is important. So the growth drivers all support the continuous evolution of our market. In '21 -- or for fiscal '20, we were showing a market of EUR 185 billion addressed market for us with a CAGR which was around the GDP growth at that time. Between '20 and '24 the market grew at 7%. We outgrew with 9% as you see, -- 8% to 9% or 7% to 9%,sorry, at the same time. And we expect the SI market to grow continue to grow at 5% to 6% in the midterm, at least twice the rate of the GDP. So our market has made a significant uplift going forward, and we have even outgrown the market, if you may remember. So we have the mega trends, we have the growth drivers and we have the impact on our market. So now let's look at our business from different perspectives, what we have prepared for you today. The one -- the first is to start at geographic mix, which, of course, this shows the revenue split by region of the world where we are active. And you see here, we have what we call a well-balanced mix with, also, value-add tailored to the regions and which we have local-for-local production and portfolio, a geographic diversity, which increases independence and resilience in those times, really important. What stands out here is, of course, the Americas. The Americas, we have increased our share of business tremendously over the past year to 42%. And this market is a robust growth engine, driven over proportionally by electrification and electrical products. The situation in Europe is a little bit different. There are more challenges around Germany, but not only, and entire Europe facing some structural challenges as well. But we do see also there opportunities to address market demand for energy efficiency measures, smart buildings, building infrastructure and energy transition elements. In Asia -- or let me start with China. We have a lower China exposure in our business, and we have a 14% share in Asia overall, where we do see more potential, especially also in India, and I will talk about this in a minute. But now let's start with a deep dive a little bit on the United States. Here, we just closed the books on another record year. Our revenue nearly doubled since 2020. And this is in the world's leading economy in our single largest market. We have a true U.S. company. We cover all regions. We have a localized supply chain. We have expanded our capacity to the booming data center market, but not only. We have also many other verticals in the United States and North America where we are growing significantly and above market. So we localized also the circuit breaker offering. We added more than 1,000 jobs in manufacturing and regionalized the supply chain. So a true U.S. company, doubling revenue since 2020 and driving also significant growth in data centers. So we work with all hyperscalers, but with 1 in particular, we have a multiyear commitment for lower medium-voltage. We invested in a particular data center factory for the Switchgear in Dallas, Fort Worth of EUR 150 million investment. And we have 1 of the 3, the largest data Center of Competence centers in the United States. So that's the power of scaling. Now to move it from hyperscale also to the broader markets where we are active, and I can tell you there is no better scaling than hyperscaling. On to India, the market with the biggest growth potential. That's, of course, a lot of hope on India, but we have also a good track record there. We tripled our revenue in the economic powerhouse. And if you may remember, India -- so we have outpaced GDP already there in terms of our growth. And we have a glocalization approach. So we have some global strategies and portfolios, but we have increased our localization share significantly with footprints of factories, R&D centers, centers of competence for data, AI and also data center. We work there with more than 450 channel partners, and this is important to spread around the huge geography of the country. And Siemens, overall, has 34,000 employees in India. And out of this, 6,000 in software and R&D and almost half of them are related to our business. So we tripled the business in an economic power that was formally known more as a manufacturing or offshore hub, but this is not how we see India anymore. We see the country, which is a fast-growth market on its own. And we are ideally positioned also to benefit and leverage from the government efforts to modernize and expand the infrastructure. Our aim is to remain one of the preferred partners for the critical premium infrastructure for them. And that, also, with local footprint, we acquired C&S Electric in '21, addressing the rising demand for low-voltage in India, but also exporting to other countries in Asia and in the world. So after this quick overview on the geographic footprint, we go to the second perspective, and that's the so-called business mix. So how are we splitting -- and we have the same in '21. So you can compare also products, system solutions software and services, so the mix of 3, how did this develop. So we committed to -- first, let me start with the digital revenue, which is therein. Of course, it is in software, it is in service and also in connected products. So the digital revenue, we committed to double until '25, and we already achieved it in '24, and overachieved. It's not just software. It's also a huge portion of digitally enabled services and offerings, driving higher profitability and better margin. So where does the better margin come from at the end? That's also one of the questions. It's about portfolio mix. It's also -- business mix is playing to this as well. So we are selling more accretive products. We've increased our digital share in services and in the offering, and we have a higher share of standardized systems and scalable solutions, which is very important for the low and medium voltage in particular, and Stephan and Andreas will talk about this later a bit more. So this is how the portfolio develops, the business mix develops. Now let's look at the portfolio. The portfolio is how we report also or how we talk about our business regarding buildings, electrification and electrical products every quarter in our earnings release. The simple and good message is we have grown above market in all 3. But you also see, with the potential -- with the percentages there that, of course, we have an overproportionate growth in -- by the trend, the growth driver from electrification of everything in electrical products and in electrification. But the balanced mix, what you see between buildings, electrification and products allows us also to be resilient and to leverage on all of the growth drivers that I've shown at the beginning. So what does the portfolio contain, and my colleagues will talk more about the details later, but you see buildings is, of course, building management, fire safety, security, energy efficiency solutions and service. And it's the largest single service business in Siemens, by the way and also a leading digital service from -- in this market. On the electrical products, this business has come a long way, and Andreas will talk more about it from a #4 position to a #2 in the addressed market, innovation leader in solid-state switching, as you can see later in the tech-at-work session. And it's basic comprising out of low voltage for industrial and low voltage for buildings and infrastructure application. And last, not least, electrification. So the electrification business area contains out of 3 pillars. We have -- one is the electrification and automation business, which is the #1 in medium voltage gear and protection automation for the I&C market and contains basically all of the medium voltage portfolio and Stephan will talk about [ it ] more. And we have the grid software from Sabine where we have a #1 position in grid planning and meter data management, but also addressing, of course, the full 9 yards from simulation, planning, operation an optimization of the grid with the digital twin and the new software there. And the third pillar is the e-mobility charging infrastructure. Where we are not going into detail today. We have recently announced that we have the intention to carve out the EV charging business to make it more agile and prepare for further growth in regional and focused markets and focus -- this focused portfolio as well. And Axel will have some more comments on this in his part later. So as the world is becoming more complex, we have the right portfolio, but what is important is how do we connect the portfolio to drive -- take the complexity away from our customers. And this is the Siemens Xcelerator platform. This enables us to execute on our strategy to manage to combine the real and the digital world, and we do this in all of our business areas. For all of them, we have an X. We have the Building X, the Electrification X, and the Grid Scale X, you will see more later in the tech-at-work sessions, how they're addressing to connect assets, manage the simulation and digitalization and driving better outcomes for our customers. This is the -- has a strong growth of more than 20%. We have 50% more offerings on our marketplace over the last year, and we have already 100 marketplace sellers with over 100 onboarded offerings. Most of them also from -- or half of them from our own, half from partners, because partnering is so important. Like, we use, for example, with Vigilent, also the AI-driven energy optimization for a data center in our white space cooling applications. And in this -- invest -- so we invest in our portfolio. One part is the digital part, the Siemens Xcelerator, as I was talking about. The second part is product innovations, which you can see out there in the truck. You will hear later, in the presentation, focusing around sustainability. With our Siemens EcoTech label, we have already -- Siemens has already 25,000 products, giving more transparency on the environmental footprint and living up to higher standards. One of these products is of the first SENTRON ECPD, electronic protection circuit device, which is based on fully semiconductor technology, fast and sustainable. And in first SF6-free blue GIS, where we were the first in the market for medium voltage switchgear are also being announced. And you've also seen today the edge-based automation for our building automation team, which will bring the next level of simplicity, scalable building automation systems also for the mid-market. So these are just examples on digital investments, product innovations. And the third pillar is M&A for investments. And we acquired Brightly, a software company in the U.S., 2022, for improving our offerings for asset and maintenance management software, which is a valuable part for our Smart Infrastructure business and a little bit suffering from the smaller growth in the commercial building market, but you also go into other verticals with this offering. C&S was acquired in '21, again, in India, I talked already about this. Trayer Engineering has just recently acquired, which keeps the grids, especially in the U.S. operation and also in extreme weather conditions with underground and underground-contained substations. And then for fire safety, adding to our portfolio in data centers for fire security with water mist/sprinkler applications. So these are just examples how we invest into our portfolio and continue. And the last perspective on our business is the vertical mix. So here we look into, and we report is also on a quarterly basis, how are we doing in our focus verticals, how is the business developing in there, and how do we do this. And it's really important we are focusing on those verticals. You see, 80% of our total revenue is in the key focus verticals where we have teams behind working and close with customers on offerings which are needed in those markets. But also we do this because some of those markets have higher growth potential. If you look into data center, for example, healthcare and also power utilities' higher growth than average in our markets, I would say, with huge potential and a dedicated offering. But also industrial verticals are interesting because even though -- perhaps the automation market's slowing a little bit down, sustainability and the production is a big topic also for our customers, and commercial buildings, as I said, a little bit more flattish. So how do we do this? So we create specific value propositions for our customers for building customers, grid customers and industries, driving leverage, understanding their problem better, their challenges, talking their language, and then translate it into scalable outcomes, scalable products that we offer with our dedicated teams who have knowledge about those industries. And this is very important. It will become more important for us and for Siemens, overall, in the future. Just a few quick examples. From power utilities here, Hydro-Québec, one of the largest utility providers in North America, have a high share of, of course, hydro energy and the electric grid. But also, still, 50% of the total energy needed in-hand is still with fossil fuel for transportation, heating and also other means. So there's still potential and they have a clear commitment to 2050, where we are their preferred supplier to support the energy transition with our fully equipped software suite to simulate and enable and operate the grid, more efficacy. But also, with our digital substations where we have plug-and-play solutions, to replace and connect the digital substation to make a full holistic digital twin of their network. And the digital twin is a little bit also the common theme of those. If you look -- just go into buildings, you have the Ministry of Energy and Infrastructure in the United Arab Emirates now announced they go with us as our partner to make their buildings more energy-efficient, saving up to 27% annual energy for example, or reducing 15,000 tonnes for only the 60 buildings. Now we are scaling this to hundreds of buildings or up to 4,000 in the country. And of course, the same scalable solutions, we then supply to other countries and other customers around the globe. And the next big thing is also connecting all of those to make them also during the operations remain energy efficient with our building digital twin solutions. On Pfizer here, from life science, an example with our industrial colleagues, because we are very much in the industrial verticals. We work close together with our DI colleagues. Of course, common market access here with process automation. In others, it's industrial automation. And so we bring the full optimization of the energy infrastructure, the building infrastructure and the process automation together, achieving not only 40% annual savings, but also an increased productivity outcome of now 140%. And even more important, with the digital planning tools, we are able to speed up the time to market, which is very important, especially if you remember the vaccine discussions we had just a couple of years ago in this market. And again, data centers, now data centers, of course, it's a strong market where we have a strong customer position with our hyperscalers. But now we're breaking it down to colocation, to industrial data center customers, to spread -- to increase our share also in this market. We have a fully dedicated supply chain. We have capacity expansions and portfolios, which are tailored to the needs of data centers, be it AI or be it cloud data center. So we deliver outcomes for scaling projects. And this is not the end. Now the AI revolution is continuing. The demand for data centers is continuing. And together with our partners, also for financial services, for example, SFS and Siemens, where we have more than 30 projects already done with data centers together. We have an enormous track record now with 60% order growth in fiscal '24. We have now EUR 3.6 billion orders last year. We tripled our revenue in the last 3 years, and we need to see how we continue this going forward. And with that, I hand over to my CFO, who will shed some more light on the figures and how we got here. Thank you.

I'd like to start with where we left it off when we talked at the Capital Market Day 2021, followed by what we have achieved, how we achieved it, how we see ourselves compared to our most relevant competitors, what are the new midterm targets, and lastly, also what do we do in order to make sure that we achieve those mid-term targets. So reflecting on what was high on the agenda in '21 was pretty much saying, "Okay, look, we want to grow above the market. We want to gain market share. But even more important than that, we said, okay, we got to grow [ at ] accelerated profitability. At that time, we were experiencing quite a significant gap to the competition there, and we say we got to do something extraordinary. Obviously, this comes with putting the money in where the investment return is expected. And I think we have done well there. And then lastly, delivering on what we have committed to you and to the community, to the stake and shareholders and not only to deliver, but also with the aim of gaining the reputation of being a reliable performer. Now obviously, I think we have done well on that one, not only on an annual basis. You do know that over the last 16 quarters, we had a year-over-year, quarter-over-quarter improvement there, when it comes to profitability. And not only that, we also grew the business on a compound rate of 11% on a comparable basis. Yes, it's true. We had quite some nice market tailwinds in particular in the areas of electrification and electrical products. Nevertheless, that itself doesn't generate any kind of growth. So you got to understand what is it -- what the customer needs. You got to have the right portfolio, you have the right innovation degree behind this. And also most important is you got to have a supply chain which is able to deliver. And this was actually a stronghold when we had the COVID crisis that at a time where a lot of companies were struggling, our organization has been able to deliver, having an uninterrupted supply chain, using this actually to gain market share. Not every business had those nice tailwinds. If I look at the building business, the good news is they grew in a mid-single-digit area despite having an office market, which is kind of sluggish, and this is quite a big market for us. So overall, I would say we have done well on the top line. Bottom line, you can see it, we have quite some significant margin improvement from more -- 800 basis points. If you look at this, yes, there is some economy of scale with the growth, no doubt about this. There is a positive economic equation, which has been fueled by pricing. And then lastly, also the stringent execution of our competitiveness program. Now this is top and bottom line. Talking about strongholds, certainly, a stronghold in Smart Infrastructure is generating cash. We always said we want to generate 1 minus growth means profit -- or cash in ratio to profit. And you can see it over the cycle of 5 years, we delivered a conversion rate of 1:5, saying it's more cash than profits. And not only over the cycle of the 5 years we delivered, we delivered year after year after year. So that is certainly a stronghold. And obviously, we plan to continue this in this legacy. How do we do it? I mean, obviously, there's a lot of focus on net working capital. We worked on the [ thyssen scene ], sharpened it there. We worked on the overdues, inventory management. It's the classical recipe, just executed. It's quite -- this -- and there at the time, we also spent money to expand our capacity. Now I said it before, one of the drivers behind the improvement in profitability was also our competitiveness program. In 2019, at the first Capital Market Day as Smart Infrastructure, we said we've got to have something in place which will kick start and leapfrog the situation, because the gap was significant at that time. I would say regular productivity improvement doesn't do the trick. I'm happy to say that with the end of last fiscal year, we delivered about EUR 600 million, ahead of what we had internally planned. And I would also say we stopped with that, the official program, even though the spirit and the resources will continue to make sure that we will utilize each of -- very opportunity to improve our profitability. Now I don't want to go through the program again, but I want to highlight 2 topics. One is, again, process of showing automation. And you can see that little graph on the lower end corner. We have continued to shift resources and value chain from high-cost to best-cost countries in a factor of 3. You can see -- in -- a perfect example for that 1 would be, for example, in building business in United States, we took a full value chain out of engineering and transferred it from United States to India. So it's running completely on this backbone nowadays from there. But it's not only India. It is, of course, Eastern Europe, it is also Southern Europe, and wherever we find the skills that needed in order to have the economy of scale in those things and also obviously, the labor cost. The other topic is -- I also want to mention here is the EUR 2 billion portfolio optimization. I get the feeling it has been quite often misunderstood the way we have meant it. It was not EUR 2 billion cutting out of the portfolio. It was EUR 2 billion revenue, which was basically tracking on our profitability. And we said at the time, we will use the setting, the fixing and the shutting down levers in order to optimize this portfolio. So if I look into where we are today, about the EUR 1 billion of this EUR 2 billion originally, we fixed. From a low single-digit profitability, this is more than margin accretive in those days. We sold, already, for about 800 million businesses, and we have scheduled, for this fiscal year, '25, another EUR 300 million to go out. We're just executing as we speak. And there's obviously more planned activities. Matthias mentioned this. We have -- we are carving out the e-mobility business, and we won't stop here. But I also would say that EUR 2 billion, which we originally talked about, from our perspective, is a done deal and we will focus on new areas. Now this is all internally. What really counts is how do we compare compared to our most relevant competitors. So what we did is basically we go 1 level down below Smart Infrastructure because there is a different dynamic going on. If you look in the area of electrification and electrical products, which obviously has also a different market condition, you can see that index compared to 2020, we have outrun our most relevant competitors. And you know them, you follow them as much as you follow Siemens. So you can see we have done extremely well there. One topic, obviously, is the capability of delivering, understanding what the customer needs and also having an attractive portfolio, providing the solution, what the customer is asking for. On the building side, the way we would summarize it is, and those are different competitors, obviously, we are amongst tiers. And I think the colleagues in buildings have done a really good job in managing the top line, in focusing on the verticals they were focusing on and driving product, service and digital business up, because obviously, those have the higher profit pools. So there was a conscious decision not to maximize top line, rather than say, okay, the balance between growing the business versus also growing the bottom line. And yes, they have been focusing also on high-growth markets, which is the Americas and which is also Asia Pacific. Now even more interesting is when you look at the profitability, because there, we had quite a huge gap. I mean scale it further down, you can see we have differentiated in electrical products. We look at the electrification and we look at buildings. And compared to 2020, you can see, on the electrical products side, the colleagues there have done an outstanding job, 1,700 basis points improvement, bringing this business to the level where we believe this is best-in-class, together maybe with the best-in-class or being best-in-class, doesn't matter. From our observation and what we can see is that gap is closed. You can see what we did. There is multiple factors on this one. More important is we want to build on this. We want to continue to have an accelerated growth and really harvest on that one. Picture is slightly different on electrification. Electrification has come a long way, too. You can see it, 770 basis points, which is good, but there's still way to go. Obviously, a lot of good things have happened there too, focusing and fine-tuning, sharpening the portfolio, getting the performance up in underperforming levels, the same levers I talked before, overall, for smart infrastructure have been applied there. But you can also see, and we talked about this before, Matthias touched on it. One of the levers will be to carve out e-mobility and give a different meaning. Why do we do this? We feel that this business needs to be more agile. It needs to be closer to certain countries and selective on the markets there. Obviously, it will also give Smart Infrastructure the opportunity to put the focus and the investments more towards the core portfolio and continue to work on the margin expansion. But the dynamics of the e-mobility business is intact. Yes, in those days, the market is slow and everyone in this field is kind of suffering with stagnating or even declining volumes. That seems to be a temporary issue. The mid- and long-term outlook for the market growth in charging world is good. There will be double-digit growth rates, and you want to be amongst this with the right portfolio. We have done, over the years, I think, a good job in getting a competitive portfolio in place. We are focusing on DC charging. We're focusing on fleet and depot, means commercial vehicles. This is where we have decided on the marketplaces we want to be in. There was also the reason why we acquired, at the beginning of the calendar year, Heliox, because it will strengthen the portfolio in the DC world. It gives us even more geographical benefits, in particular, in the North American market. So we bring it together. We put this together as the new e-building -- or e-charging business there. And as -- we will keep you informed as we progress with the activities. Lastly, talking about buildings, 410 basis points improvement. Yes, visually, it looks like it has the biggest gap, but I want to make a point here, if I do compare us to most of the competitors, we're eye-to-eye. Since we said we compare to the best competitor, there are some way to go. So I don't want to minimize, this has been coming a long way with the levers I talked before, conscious growth, strengthening product, service, digital has driven up the margin quality. We will continue in this pattern. And Susanne will talk about it in more detail. Also, we'll continue to strengthen our partner business. But again, our yardstick is we compare to the best and it's a dynamic target. So if the best improves, the target is just higher. So it's not a static one, which we formed back in 2020, it is the new reality. So this is basically how we see ourselves if we compare to the most relevant competitors. We talked about the short-term guidance when we laid out the financials for quarter 4 in the fiscal year. Thomas shared with you that we aim for a 6% to 9% growth in '25 with a margin of 78 -- 17% to 18% point, and again, a cash delivery of 1 minus growth. I know there are more interested in the midterm because we already exceeded the old targets. So we said, okay, we see, also on the midterm of 3 to 5 years, that we will continue to grow in a 6% to 9% growth rate comparable. We see our margin then between 16% and 19%, and we will reconfirm the 1 minus growth. Now on the profit margin, I want to make the point. We do have the plans. We do have the commitment of the business areas, and we have the levers to safeguard that we will continue on an annual margin expansion. This is important for us because we want to maintain to be seen as a reliable performer. So this is very close to our heart that we continue to deliver on those things. How do we do this? Two areas: one on the growth side. We're experiencing right now a nice backlog of EUR 18.2 billion, which is the highest ever. 70% of that will turn already in '25. We get, once in a while, the question, how about the cancellation rate? Has been and is at a low of 1% point. So there is nothing extraordinary, what we see in regards of cancellation or whatever. So that's the one piece. The other piece is we will continue to have a book-to-bill ratio of more than 1. So there will be ongoing growth coming, which leads to the part of we have to continue to expand capacity. Matthias said, we already spent EUR 200 million. We started in '23. We'll spend another -- more than EUR 400 million this fiscal year. And we put it in the high-growth areas: in United States; we put it into India; and to some degree, we put it also to China; and to Germany. So this is compromising, basically, where --the money, to make sure that this reliability of the supply chain will remain. Verticals, it is important for us. It is the differentiator, understanding what the customer need is and coming with the solutions they need. We put investment in there, but we invest in a way that we reallocate the resources. So we don't plan to put additional money in, rather than say, okay, take it somewhere away and reallocate the resources with the focus on driving the vertical markets here. Looking at the bottom line. I said it before, while we formally closed the EUR 2 billion portfolio optimization, it will continue. As we move up in the margin quality, obviously, it will put stress and more light on elements, which might not be accretive enough anymore. There's always something going on. I mean, if you have a business which is operating in more than 60 countries and [ at ] different speeds there, there's always something where you can do better, so we'll do that. And obviously, also on the portfolio lever will also be -- whatever helps our portfolio to strengthen in regards of acquisition, we're looking at this, too, and execute if it makes sense. Business mix. What we have continued to shift towards higher profit pools will continue. So there is a clear understanding of how we want to get there and the businesses have a clear program behind. You'll learn about this during the day. And then lastly, positive economic equation has been a stronghold over the last years. It has been driven by pricing. Yes, we know this. But I also have to say we changed the pricing methodology. The way we did pricing in the past, your typical once-a-year, you do a list price increase, it just doesn't work anymore. You have your tools in place, you have your analytics in place. And with the methodology, you also have a different frequency. And so we're in a much better position nowadays to be fast acting on if there is a significant change also when it comes to the inflationary topics. But what also will happen is now that the focus comes more back towards productivity since we are coming more in a normal stage of doing business. And it is an actual element for us that we will continue on an annual basis of 3% to 5% productivity. So those are some of the levers. There is a lot of effort behind. But as I said before, I think with the new margin targets, we feel comfortable that we will accomplish them, that we will grow above the market in the range of 6% to 9%, continue to gain market share, moving up the curve and continue to close the gap to the best and best comparable competitors we have there and maintain our stronghold of cash flow. With that, Matthias, I ask you to come back on stage.

Yes. Thank you, Axel. Put it in my words, I think it's pretty simple. We continue to grow above market, and we continue to improve profitability year-over-year or quarter-over-quarter and this is important. And we do this also with leveraging the strength of Siemens. And we do this also with contributing to the strength of Siemens as Smart Infrastructure. This is our role to be a strong, predictable and reliable pillar for the ONE Tech Company. This is the program that we recently launched, as a Managing Board, to support more -- stronger customer focus, faster innovation and fast -- and higher growth. And with our competencies and our market access, we play a major role in that. And that just give me -- let me give me 1 example on -- talking about buildings again. So if we -- there, we are pursuing also a new go-to-market way, where we say, across all of the different businesses, like, products, software, solutions, service to balance the mix and make the right business mix decisions in the country, having this with a more verticalized approach, as I was talking about before, combining those to make us even stronger. And this is a little bit also spearheading what we understand or what a ONE Tech Company go to market is all about, being closer to the verticals and getting the best business mix out of this. But on the other side, we are benefiting from the foundation technologies, for example, which we have centrally, and also for our digital business in Smart Infrastructure for software, but also for software-enabled services, which make -- increase our faster way market and also a higher competence that we can build upon. So this is what a ONE Tech Company is all about. And we are well-positioned with the right strategy, the right portfolio and the right people as you see. And this is my -- I'm proud to present here my leadership team, some of them speaking today or some of them here today, not all of them. We are pulling together in 1 direction. And to -- for our customers, for our shareholders, for combining the real and digital worlds for sustainable infrastructure. But they stand for more than 79,000 people out there who are now eager and who have a passion and an ambition for our business, because they understand the market, the technologies and also the role that we play to enable our customers to be more efficient and more sustainable. So we get up every morning with a commitment to get those things done and how we can contribute to our company's vision and support and be a strong and reliable performer, as we say, but not only. We also want to remain the powerhouse for cash generation and profitable growth. Thank you very much.

Thank you, Matthias. Thank you, Axel. Now it's time for our first Q&A session. As always, we have microphones here in the room. [Operator Instructions] The first question comes from the first row, Alex.

Alex Virgo, BofA. You talked about a shift in focus from pricing to productivity. I wondered if you can give us a sense of how much price has actually contributed, particularly, I guess, if we look at that 1,700 bps increase in electrical products. And then second question, just on the margin range. What scenario drives the margin down to 16%? And what does the top line looking at, [ the ] environment?

Okay. Maybe I'll start with the latter one. Do I understand it correctly, you asked what the threat would be coming down to 16%? I would say, it's not so much internally related rather than saying looking at an overall market condition, although it would be probably more a theoretical approach because what we see is that our markets we are acting in, if it comes to electrification and the need for electricity and also to shift towards a higher degree of electrical offerings, that, in combination with the sustainability targets, it's hard to see that the growth momentum will go away. So you can ask, of course, why don't you go to the 17% or 18%? But I think we both know that we are rather [ on the ] conservative side and deliver than maybe other way around, so that's the 1 comment. Then on the pricing fees, it's true that over the year and in particular, right after COVID when inflation kicked in, we raised prices which was accepted at the time because there was a big need of getting products and services. We still have some backlog left with let's say, a raised pricing there. Having said this is -- while it used to be more than 300 basis points coming out of this, I would say the pricing impact nowadays is backed with -- it used to be, ballpark, 100 basis points on average. So nothing where you generate any kind of further margin expansion from, which leads them to the need of shifting towards the productivity.

Next question, James, second row here.

Maybe I could ask 2 about data centers. It's an incredible growth story, and you've exceeded the larger and principal peers in the market. To what degree is the expansion in orders something that can continue? Or are we where we were 2 years ago with DI automation, a prebuy, people taking orders out to 2028, 2030 with an air pocket coming? And have you done any work on training versus inference? We've been in a significant LLM training phase, which is very energy intensity -- energy intensive, pushing rack density up. Do you think as we move into a training phase that, that energy intensity comes down and that, that could create space in fungible AI data centers? Or will we just have more retraining and retraining pushing it forward?

Yes. Thank you. That's, of course, a very important question, and we're also looking into this very, very carefully. If you see, of course, we cannot have a 60% order growth every year. So -- and that's also where we say we see some normalization in the market. But we also do see not a cool down in the next 2 to 3 years, but on a normalization. Then what is happening to AI. First of all, the AI hype perhaps it will also -- if it comes to a little bit of a normalization there, still we have enough growth in this market, not on that level as we have it today. In addition, the cloudification and the IoT development also requires -- it's a baseload for data centers, which will remain. So the market is a lot more predictable from my perspective, if you not only look at AI and not only look at the one particular trends. What are the remaining factors there is about where to get the energy from. How much energy? Today, AI data centers use 10x more energy than the regular data centers. So if that technology was the same with Bitcoin at the beginning or with the technology behind 10x more energy, now this will change, of course. So -- but where will the energy come from? Do we have enough investments into the grid? And therefore, I do think that all of this -- the secular growth drivers in the data center markets, they have also -- there's a second tier growth drivers, which is then investment into renewable energy, investment into the energy grid and energy savings. And this is all part of our growth drivers in particular. So even if there would be a dehyping of the data center growth, there is enough secular growth trends underneath who support us to commit to also do see a double-digit growth in data centers also for the years to come.

Next question. This first row here, Martin.

Martin Wilkie from Citi. The first question I had was on the margin expansion again in the products business. If you could talk a little bit about medium voltage and low voltage there. My impression is that for the industry, profitability in medium voltage has come a long way over the past 4 or 5 years and how big that was in terms of improving that profitability? I guess there was some also in low voltage, but if you could talk a little bit about that. And the second question was then on the data center growth. Your products, I think, are much more heavily skewed towards switchgear and pure electrification as opposed to cooling and things like that. Does that hamper your ability to win in data center? Are you thinking about portfolio there? Or are you comfortable with the product portfolio you have in data center?

You should never be too comfortable, but how can I be not comfortable if I grow 60%? First answer. The second is, of course, we are looking into portfolio. I think also our accelerator strategy is about partnering. It's not that we have to do everything on our own. If you integrate it into our offering in a scalable way, we get also sometimes good to have technologies from partners and then focus on optimizing it, making it digitally enabled and have algorithms and AI-driven algorithms running on it and making it even better. So I would not look into that we have to own each and every component. But of course, in our growth markets, we are continuing to look into M&A opportunities as well. And on the margin improvement on products and systems, I think I made one comment before and perhaps Andreas and Stephan will also talk later or Axel wants to add something. But I think -- what I think is really when I compare 2020 or '19 to today, and I said this before, we have a lot more standardized systems and scalable solutions. And that you should not underestimate, it's not only a product. We have a product comprises a system comprised of different products. If you have this in skids and e-houses where you can deploy it in a modularized way, this makes such a difference than rather than doing one-off solutions or one-off systems by customer. And this, I think, is a big lever of improvement. And then, of course, scale also improves profitability.

Maybe we go to the other section again, Gael in the back. Microphone is coming.

Gael de-Bray from Deutsche Bank. I think you mentioned earlier that you still have around EUR 300 million of revenues, probably low margin or loss-making revenues to be addressed in the course of 2025. So just checking, is this only or mainly related to the e-mobility business? And if you carve out the business, I don't know, this year or next year, I guess it will have a positive impact on margin. So is this something that's already embedded in the targeted margin range? And maybe could you provide what the margin would have been on a pro forma basis in 2024 without the e-mobility business?

Okay. On the EUR 300 million, which we have tapped for this year, it's not e-mobility. You might recall, we communicated last year that we are selling our wiring accessories business in China. So that's a big part of this, not only, but it's a big part of this. So the e-mobility number-wise is not considered in those EUR 300 million. Talking about e-mobility, yes, once e-mobility is out, we have to some degree, consider this in our margin commitment. So not to the full year's extent, but to some degree. And the last question, what's the profitability or what's the track of this business? That's something we would not disclose.

All right. Next question, first row. And even though you told me not to mention it, but happy birthday, Daniela.

Daniela Costa from Goldman Sachs. I just wanted to ask 2 questions. One, you mentioned CapEx investments and the need to invest to keep with growth. Are there any areas where you're feeling like you're being capped by -- that you need more CapEx? Maybe you could give us some scope of where do you expect to do more CapEx investments? And then I'll follow up with the second after.

Okay. No, I don't feel that we are capped by someone. If there's a cap, then we do it to ourselves and a combination of we don't want to overinvest there, right? We take the risk that we might fall tightly short than having overcapacity. I hope it answers in the direction you were asking.

And then just in terms of understanding, is the manufacturing between the 3 business units shared sort of how are actually the operations, how entrenched, and the synergies between them?

So we have -- so first of all, we have all the businesses have their own manufacturing, but we share some locations, and we definitely share the same tools and processes. Also with others, we have also factories where we have also products from digital industries and vice versa, which we share. But in general, the manufacturing strategy or the supply chain strategy is part of the business area.

And let's go to this one again, first row.

One was a follow-up to James' question about this kind of normalization of the growth rate in data centers. Could you say a little bit about your customer inventory? What surprised us, I think, in Digital Industries was not that it slowed down. It was just a massive kind of prebuy where the customers were essentially in a land grab situation, right? And they basically jacked up their inventory to a completely unsustainable level. What confidence do you guys have or what -- when you talk to your customers, either hyperscalers or colocation, that they're not doing exactly the same thing. We know there's demand and the demand will be ongoing. But are we sure that they're not about to do the same as it were that we saw in -- nobody wants to see the same thing as DI.

Yes. So I would say definitely with the hyperscalers, this is not the case. And why is that not the case? Because we have a one-to-one relationship. We have frame agreements. We even have plans on how we invest into CapEx to be able to serve them for the next years, and there's long-term agreements also behind partly. So -- which gives you more the impression that everything which comes out of our factory is immediately brought to the data center, not put somewhere in stock. Did we have also for some smaller components, some stock levels in the low-voltage business? Yes, but on a much smaller scale, and we are monitoring this also very continuously.

Just quickly on the capacity side. Everyone is expanding capacity. It's really difficult to know what that means in terms of percentage either in volume or capacity or yes, I don't know how you measure it. But if you look at the U.S., are we expanding capacity 10%? Are we expanding capacity 50%? Just some kind of sense. And yes, are you sure that $150 million is enough? Why not do $300 million in the U.S.?

I can start answering it, but I also would refer to take this question up when you come to the Q&A of the businesses because it is different business by business. So if you talk to electrification automation versus electrical products. So overall, I would say the capacity increase we're gaining just in revenue enabling, I would quantify in a ballpark of 30%.

Maybe at second row here, Max. That's okay.

It's Max from Morgan Stanley. Could you talk a little bit about the SF6-free switchgear opportunity? How much of your portfolio today is these products? And how much more -- what could be the price or margin uplift on these new products?

I think I don't want to steal the thunder away from Stephan because that's part of the -- major part of his presentation and also then for the Q&A in that part of you. It's important for us. We were the first. and it's increasing also now in the completeness of the portfolio. But I think listen -- if you agree, listen to the presentation and then have the question.

Okay. And maybe one quick follow-up. We've obviously sort of learned about the ONE Tech initiative. It's maybe a little bit hard from the outside to understand kind of exactly what it is, how it applies to your business. So I'd love if you could give sort of a couple of really concrete examples of how you're -- what it means for your business and how you're actually going to track that this meaningfully kind of -- you get a return on this investment.

Yes. I think, first, it's also it's a commitment of -- it shows the direction the North Star of where the company is heading towards. So ONE Tech company, this sense that we act as one company in front of the customer that we have also that we trust each other and have this leverage the same technology across the different businesses even more than today. And as a long time, I can tell you, we have never been that close than now. Because if I remember when we were 10 or 11 totally independent business and we had a One Siemens initiative, that's something totally different. This is the ONE Tech company. We are using a common technology stack, but we differentiate wherever necessary and where it creates benefit for the individual business areas or business units. But we leverage the same, which will speed up and makes us a lot more consistent. And we not only do this in technology, we also do this in sales. In front of the customer, having transparency across all of what we do, having the same set of tools and a vertical market addressing really the full 9 yards of our company. This is where it makes a difference. And the examples that I was giving, they were in different areas of these vertical markets, but you could also see who else can address an industrial customer optimizing the electrification, the building infrastructure and the industrial or the process automation at the same time holistically and put it into one system and have everything of this speaking to each other? This is what I call a ONE Tech company.

Stay in this row, Jonathan.

It's Jon Mounsey from BNP Paribas Exane. You touched on capital allocation in regard to CapEx. And I think the release talks about M&A that you've done since the last CMD. But what about going forward? Obviously, divisions called smart infrastructure, DI is buying a lot of software. What might your ambitions be there, thinking particularly maybe in building electrical infrastructure design, potential size you might be willing to spend? And if not, to what extent then does digital industry sort of automation portfolio give you the technology stack to deploy in smart infrastructure? And where are we on that? And does it go beyond the sort of industrial vertical?

Yes. So first, it's Siemens investing into digital and into acquisitions. And why I say this is also part of the ONE Tech company. When I say we are leveraging this more, of course, the particular simulation software from Altair is something which is mainly used in the industrial processes of designing a product or components. But tools of this or APIs or functionalities can be used in our foundational technologies also across SI. Are we not -- but we are not stepping away or stopping in our own acquisition activities, as I said, in our core markets for verticals, but also for products and also, of course, on software, but we have been looking more on software, which is driving benefit for vertical customers. What is the difference if you look into the workflows of industrial customers compared to the building infrastructure, for example, where you do not have one tool which covers all the 9 yards from the planning to the build and the operation phase. There's several splits in the supply chain evaluation, even though we have BIM and we have -- which is more a process rather than a tool. So we will look into acquisitions across those different areas, but we do not need one underlying platform covering all of it across the entire 9 yards. And -- but in grid, for example, it's different. And Sabine will talk about it later.

So we have time for one more question. Maybe the last row or the fourth row. Andre?

It's Andre from UBS. I have one question on the markets. In the outlook that you gave within that 5% to 6% growth, electrification is expected to slow down to 6% from 11%. Could you just talk a bit more about that, whether we should really see a slowdown in the grid spending here? And then a couple.

Yes. And this is what we see, and this is not my numbers, this is the market numbers, which are also reported and consulted and put together. This is what I would call the normalization. We had -- we're coming from markets which were growing 3% to 4%, if you remember well before COVID. Then we had certain growth drivers accelerating and perhaps also overhyping and now it's a little bit more the normalization, which is also kicking in. Part of it will also depend on the -- of course, what -- how is data center continuing. If you have -- if everybody has a 50% growth, then the markets in electrification will be higher. But as we say, we do not see this for many more years to come. And therefore, that's what we call the normalization.

And just one on margin or kind of 2 in 1. Firstly, the productivity that you cited of 3% to 5%, is that on top of operational gearing that you expect in volume growth or included? And then you talked about margin target being somewhat dynamic versus the best-in-class that if they go up, you go up. If they go down, do we have a floor or...

This equation from our perspective goes only in one direction. So if whatever the best competitor would come down, we're not coming down. That's not the aim. The 3% to 5% is the business as usual part. But where we put a lot of emphasis in is and say, okay, we do a lot of investments in those days, and we're going to make sure that those investments have a return in a way that is accretive to the business. And as you can imagine, not every investment you're doing is paying out the way you wish for. So this is the longer lever, which is then also accelerating margin expansion and just the ordinary productivity. I don't want to minimize it. It's a lot of effort behind to get 3% to 5%. But we have other levers also, say, on we did a conscious investment, and we're claiming also the return on it.

Perfect. All right. Thank you, Matthias. Thank you, Axel.

Thank you. See you later. Thank you.

We will now start with the second block of presentation focusing on the SI business areas, and we will start with buildings. And therefore, please, Susanne, join me on stage.

So of course, you're expecting to be surrounded by building technologies when coming here to our headquarter in Zug. But chances are actually quite high that you are at one of our customer sites every day in an office building, in an airport, in a hospital or even driving through a tunnel on your way to work in the morning. My name is Susanne Seitz, and I head up the Buildings business for Smart Infrastructure. For those of you who are not that familiar with our offering, we cover 3 domains. We cover building automation, so building control and automation. We cover fire safety, which includes detection and suppression, and we cover building security. And we serve the markets with 3 different business types. We serve them through product. We serve them by solutions, and we also serve them by services. And in the solutions space, we do everything from design to engineering to commissioning, and we keep a very close eye on product pull-through and also a high service capture rate later on. That's the nature of this business. There's still a lot of tying of the service to the solution business you do, and there's a lot of pull-through, of course, in the solution for the product business. In the service business, we offer maintenance, we were often remote, and we also often data-driven services. The software that we have enables all 3 business types. It's either embedded in our -- as firmware into our hardware or it's leveraged to build our digital solutions or it's also used for our services to support the whole digital services. You might be familiar with some of the product names, Desigo, also [indiscernible] and now Building X that has been in the market, and we've made some quite some noise about that. We also serve the market through different verticals. And these verticals, we don't only serve directly. We also serve these verticals through partners. And you actually see that we consider buildings a horizontal. We serve many more customer types than just commercial building. You see that we have a significant share in industry. Often, we go together with our industry colleagues, Digital Industries. And the major part there is actually in the life science space, pharma, but also food and beverage. Then you will see obviously, commercial buildings. We're also strong in public buildings, but we also have participated and grown quite nicely in the health care space, where we see quite a lot of investment going in across the globe, by the way. And then you will see there also data center that we address together with our colleagues from electrical product and also our colleagues from electrification and automation. We have albeit though not grown as quickly in the data center space as the other business areas have. This mix according to the different verticals and the different business types makes our business very resilient. We see 3 main market drivers for the building market. One of them is economics, one of them is regulations and one of them is around corporate agenda. So coming to economics, building operations need to be reliable at low cost and the buildings need to deliver a solid return to their investors and owners. Now having reliable operations is actually quite a challenge today. Why? One, because having qualified workforce is a challenge. And the second is also that a large number of buildings are not automated. They don't have building automation systems. So the level of standardization and automation is very, very low. There are studies out there actually saying that 10% to 17% of your operation costs can be saved if you would digitize your buildings. Now some statistics. In the small- and medium-sized buildings, only 1 in 8 buildings have such a building automation system. So that is a large market potential to tap into. Coming to regulations, I'll just name the major ones, EPBD in Europe that actually targets to have all emissions to zero by 2050 for the whole building feet in Europe. There are numbers out there actually saying that this will cost us $150 billion per year just until 2030. And then also the U.S., you have quite a fragmented landscape. You have IECC that has been adopted by the states of Washington, New York and also California. They look at how buildings are designed and how they're constructed, also looking to optimize and massively reduce the emissions. On the corporate agenda side, very interesting. Many companies are voluntarily promoting decarbonization targets and committing to those. And these are not only stock-listed companies. There's also many others out there. And they also voluntarily report their environmental data. So there's a large drive also around the decarbonization and energy efficiency. Looking at the market, we see a growth rate continuing of about an average 5% CAGR over the next 5 years. That's also what we've seen in the last couple of years, but we see a different range in the different market segments. If we look at more the classical building, fire detection, building automation, also building security and standard traditional services, we see that growth about 4%. You will see on the chart that we believe that the software space and the digital service space, that will grow with slight more than 10% over the next couple of years. Also, the way that the markets grow are different. We see significant growth rates in Europe and in U.S.A. around the brownfield, so refurbishing of existing buildings. But of course, if you look at ASEAN and also the Middle East, you see a lot of new builds or greenfield solutions also coming up that are investing in the latest technologies right from the start. So there is a need to transform millions of buildings around the world to become smarter and more sustainable. I'd like to share with you 3 different customer projects ranging from different value propositions we've had. One of them is the Ankara City Hospital in Turkey. It's actually the largest hospital campus across the whole world. It has 30,000 patients per day, per day on this site and it actually has 130 surgery rooms. And you can imagine how difficult it is to operate and maintain a facility of this site. So we put in a whole building operations platform that actually also manages all the electrical and the mechanical subsystems. We've connected there with 800,000 data points, including everything that you can imagine in a building. And we actually operate and maintain that and keep an eye on the building operations efficiency. What is also important to know is that Siemens Healthineers delivered all of the lab equipment and also Siemens Financial Services, so SFS also provided a financing solution for that customer at that point in time. Then coming more to Asia, Korea Soul. We have there a real estate owner, IFC. The towers you see there range between 29 and 57 stories tall that you get a feeling for the size. They're actually multi-tenant and multiuse. So they have shopping malls in there, they have hotels and also office buildings. That has been an existing customer. It's what we call a brownfield project later on. They came back to us with also rather aggressive targets, one around decarb, but also around significantly reducing their operational costs for the building without a negative impact on their tenant satisfaction. And we also -- there, we worked on a cloud-based energy monitoring system that we put in place. We took down their overall operating costs by 45% and overall energy savings that we've now observed over the last few years of 25%, which is a significant saving for this customer. Then coming to the last one from the U.S. from Pennsylvania, Coherent. They are a leader in materials, in networking and in lasers. And they set themselves very high targets with regard to net zero. So they want to be net zero by 2040 for all of their 130 sites across the world. Those sites include R&D, labs, manufacturing, also, of course, office space. And what's interesting now about Coherent, so they were a new customer of ours is that they co-created with us, Building X Sustainability Manager. So we started off with ESG consulting, looked at all of their decarb levers, put together a CapEx program for them to say what kind of investment would pay off when. And of course, then they wanted to track how these investments were paying off and what the results were. So from the first co-creation workshop we had with them to the deployment of the software was only 6 months. This is really fast, and this is also leveraging the strength of our Building X platform to have afterwards these scalable products. Now of course, the sustainability manager is now also -- it's an offering that we also sell to other customers. So this is a small example of customers where we don't only support on creating smarter and more sustainable buildings, but also improving the business outcomes for them in their business. Now what have we done over the last 4 years? Matthias said it before and Axel, significant improvement. We still lag a little bit behind the best. So what we've done is we've significantly grown the share of IoT-enabled hardware, so it's doubled actually the share. And we also just recently did the Danfoss Fire acquisition. Now some of you might think, well, hold on, that doesn't sound really digital, right? So why are you buying something? We combine the real and digital worlds. A large part of buildings is still around hardware, around products, around IoT devices. And this fire acquisition is important for us for 2 reasons. One, we finally have a suppression agent that is actually sustainable. It's water. So it's like sitting under a very fine fog shower in the morning. This is especially targeted at data center battery manufacturing where it gets really, really hot before it starts burning. So this is a specific application that is also targeted at some of the focused verticals that you just saw before in the presentation. We've significantly improved on the material cost improvement, and we've also been diligent and very strong on pricing execution in the market. On the solution space, we've been increasing our content around the digital solutions, and we've also been looking at, I'm going to say also the margin quality of these solutions, also driving a high capture rate later on. We've digitalized a number of our internal processes, and this has led to an offshoring of an equivalent of about 1,000 roles by automating and also by going to best cost countries. Service for us is a main margin driver as is, by the way, also product. We have single-digit growth rates in service, but we have double-digit growth rates in the digital part of this and also in service agreements. And next to this, we've -- by improving this business mix, of course, you can also see that we've improved our bottom line, and we will continue to also drive the remote part of this to avoid rolling the trucks, reducing our cost base and also, of course, increasing the margins toward the market. We've outgrown the market. I'd like to highlight 3 verticals here. We've grown 2.5x the market in higher ed and in commercial building and 1.5x in the health care space. So those are the verticals where we differentiate. And again, we don't just address them with our direct channel. We also go through partners. We've also improved our profitability over the last 4 years by 410 basis points. Now of course, you're interested in what are we going to do in the next 4 years. Some of the initiatives we're simply going to continue and be very diligent around the execution. One of them is, of course, around the whole operational excellence. We will continue to do what we've done well. We're going to drive standardization, continue to automate our processes in offshore. And we will also keep diligent cost control in the overall business. Then we will continue to drive our Building X. We launched it about 2 years ago. It's getting a lot of traction now, and we'll come to that a bit later on. And this building X, again, it enables our digital solutions and enables digital services, not only for our own business, but also for partners. We will continue to scale our service business. And then we've added 2 new focus topics being that we will now adapt our go-to-market. We have been very either/or either direct or indirect. We're going to adopt that go-to-market a bit more later on. And then we're also going to drive a lot more of our product market share, specifically in the media market segment. Building X. Building X is our leading IoT cloud-based building operations platform. It is a significant portfolio in the whole Siemens Accelerator portfolio that Siemens has. And we have just recently won some awards that we're really proud of. So one of them is around the Software as-a-Service, around the cybersecurity, which is really important when you go into this IoT space. And the second one that is basically 3 weeks ago, where we won in the Verdantix, the green quadrant is what they call it for IoT digital building operations. So we're proud of that. What is important about Building X is the way that we've built it is right from the onset, we wanted to see this as a platform, a core platform with a data lake with very strong southbound integration layer. And why is that important? Because you see a heterogeneous installed base and you need to connect a lot of different technologies to this platform. So often, the limitation of these building operations platform is you simply cannot connect everything. So this is something that we've put a lot of emphasis on. And then there's a number of applications that we've built on top with all the new ones, by the way, AI included in this. And you can see on their energy management, the sustainability manager I just spoke about before, and operations manager, and this is sold as a SaaS application. We either sell that through a solution or we sell it as a digital service. There's also a whole range of digital services around energy optimization, event resolution and standard monitoring that we do for buildings. Why is this important? We see a pickup in digital service simply because many people are no longer able to deal with the complexity of this technology, and we see a lack of skilled workforce. So a lot of this manual work is being actually handed over to services. So this is our Building X platform. You have the chance later on to go see this at the tech at work in the whole accelerator view. And by the way, this platform is also the base for what Stephan May is going to present Electrification X. It's based on the same platform. Let's come to service. Our service portfolio is driven purely by customer requests. So when they see that they have a need, we basically support them. And it's around the 3 main areas. One is around world-class building operations, but one is also around world-class business operations. In many businesses, the building is tied to the core process, hospital being one of them, clean room and lab applications being one of them. So many of the building process are actually key for a number of businesses out there. And of course, around the decarbonization of the whole energy efficiency space. The backbone of our service business are digital service centers. So we serve more than 40 countries around the world with a range of digital service centers, and we have more than 140,000 systems connected. And there's still a large installed base out there that, by the way, is not connected. And in this space, our digital service centers, we are more and more driving standardization with regard to the tools, standardization with regard to the IT and OT background and more and more pushing to move everything to remote and also include also analytics in that to increase the resolution time or decrease it. One of the new things is our go-to-market. You saw the business mix on one of the slides before. We would like to increase also our product share, and we don't want to just go for a larger solution business. So we need to build up also partners. We are extremely strong in the direct channel. We have a range of field offices across the world. We have very strong national accounts. We're very driven by global accounts in the vertical markets. Where we see big potential is especially in the mid-market and especially going through partners and the indirect channel. I mentioned before that only 1 in 8 buildings has such a building automation system. There is no way that through a direct channel from buildings, we are going to be able to address that market potential. So we have now developed a number of portfolio bits that actually make it easier also for partners to go after that segment. Now what do we actually want to address? One is to also look a bit at the geographic mix. We see big potential, especially in the U.S. and in Asia to go also for more in the indirect channel. And we also specifically see this in the mid-market segment. Now I spoke a lot around product and business mix, but many of our partners lack the whole digital service center, lack the whole digital services. So we see many high-level customers and partners now coming to us also requesting more of our digital services. So one of the recent decisions we've taken is also to make that offering available also to stronger partners out there in the market. To be able to address this mid-market and make it attractive for partners and grow with the rate that we would like to grow, there's 2 things that need to be in place. One is, of course, the offering that we have, the portfolio and the other is also the sales enablement. Let me highlight 3 portfolio bits and one of them you can also see a bit later on in the tech at work. So the FS30i is a very simple fulfilling the regulation, extremely easy to plan, to design, to deploy and to install. So that's very simple plug-and-play type of putting things together that is going to get wide acceptance in the market, we're sure of this. The next one is a wireless plug-and-play automation that is bundled with Building X offering, and you will see that later on. It is based on edge-based controllers afterwards adding intelligence into the controller and being able also then to communicate with Building X to be able to optimize that. You will also see the improvement that we have around the workflow of the engineering and design because, of course, partners are interested in getting this thing done as soon as possible and get it right the first time. Then something that's maybe special, and this is the advantage of us also being very strong in verticals and also in the solution business. This last portfolio is actually based on a digital twin. And it's based on a digital twin that we developed for ourselves because cooling plants, you need a cooling plant for air conditioning in case you're not familiar with the term. These are the biggest energy consumption that you have in buildings. And of course, U.S. is known for air conditioning, Middle East and Asia. But mind you, last summer and the summer before, a lot of European hotels would have also wished they would have had an air conditioning. So we see a growth rate also in this space, and we see that this is a big energy consumption. So what we did was we developed these decarbon energy efficiency optimization programs for our customers, and we created this energy digital twin that we can now use as a tool that we've patented, by the way, with also energy engineering services that also partners that can go out there and actually scale this because this is a significant need out there in the market. So the advantage is we're in solution. And afterwards, we can also ramp up with actually scaling the portfolio that we've developed. So summing this all up, we serve a market that is in the center of a major transition. There is the opportunity or even say the need to transform millions of buildings to becoming smarter and more sustainable. We are well positioned not only to participate in this growth, but also to drive the market. We have a comprehensive portfolio of products, solutions and services, including also the software there to enable these different business models. We are globally active with very strong local presence, allowing us to serve not only local customers and local partners, but also global accounts and follow them around the world. We've demonstrated that we have a strong foundation. We have a large installed base across the world. We have a strong direct business, and we also have a very resilient service business. We will continue to execute our strategy diligently, and I mentioned all the points of the main levers. We will continue to drive operational excellence. We will further expand our Building X. We will continue to drive our services and increase the share of digital services therein. We will continuously evolve our go-to-market, strengthening our partner network and also addressing the mid-market. We aspire for more, and we will continue to build on these strengths and the target increased profitability is 300 to 400 basis points over the next 4 years. This will come, yes, from an optimized business mix, but more importantly, from focusing also on the individual parts of our business to come up with this improvement. So think about all the market opportunity next time you're in a building, in a shopping center looking for the perfect present, in a museum with a family or possibly your well-deserved vacation in a hotel that is relaxing and hopefully also perfectly automated. With that, I'll hand over to Stephan and Sabine.

The business area of electrification has been a strong pillar in the success of SIE. My name is Sabine Erlinghagen, and I'm the CEO of our Siemens Grid Software business, and I'm co-presenting this session together with my colleague, Stephan.

And I'm Stephan May, heading Electrification and Automation. Jointly with Sabine, we will walk you through the business area of electrification. I will dive deeper in electrification and automation. Sabine will walk you into grid software. Now let's start with an exciting market, a secular market development, what we're seeing, driven by decarbonization and electrification. We see doubling the power demand, power consumption by 2050. Decarbonization triggers renewable integration 3x by 2030. And that ultimately has an impact on the grids. Different dynamics, and we heard one question, different dynamics on the electrification part and on the grid software part. But it will do the combination. It will require the combination of upgrading the grids on one hand, but making them more smart and more intelligent and more dynamic. Now why are we well and superior positioned? We understand electrical grids. We can plan them. we can operate them, we can simulate them, and we have a digital twin over grid. So we will show you this also in the tech of work sessions. We have, on the other hand, on the hardware side, the entire medium voltage and low-voltage portfolio, not only at the hardware, you will see from Andreas Matthé components on the software side, you have seen from Susanne, the buildings part. So we can combine the digital and the real world end-to-end. We understand grid efficiency and we understand how to keep grids secure and also affordable. Our track record over the last 4 years shows a significant outperforming of the individual markets, which we did in all 3 regions with the majority, of course, in the U.S. and the dynamics, 65%, I believe, it's extremely well performance. Now diving into electrification and automation. From '20 to '24, we have doubled our orders. We have doubled the profit margin by a cash conversion, larger one. So how did we do that? We started very early looking into our portfolio. We are a technology leader in the fluorgas-free portfolio. And we started -- as I run the business for more than 10 years, we started more than 10 years ago to get into this. And we are absolutely prepared now to serve the market. We are also on the protection automation side, we are the only and the first one who can simulate a digital twin of a protection layer. And I give you a concrete example, what does it do for our customers. We did a very stringent execution. We increased capacity at an early stage depending on the brownfield, but in parallel, of course, standardized, modularized our portfolios. And we have a resilient supply chain, which is important and has been addressed earlier. Solutions business, always a question, do we -- should we do solutions business? Isn't it dilutive? No, it isn't. And we even grow into this on an accretive level. We have grown the data center business by a factor of 8. And we have a smart substation for charging infrastructure, which is also the blueprint for an intelligent substation in the distribution grid. Our business is quite a resilient business. Why? Because our know-how, our portfolio is agnostic, quite agnostic to the industrial applications. And there will be application engineering done, but the core is the same. And that makes our business participating in booming market and other markets benefit from this. We have also a quite well-balanced vertical mix across and the power utilities market, which is the key driver because all the energy demands need to be distributed to the prosumers, to the consumers and regardless what are these technologies are. So we have a very resilient business, and we participate from all grosses, whether it's high-speed growth on the data center side, on both, on the cloud services as well as on the artificial intelligence. Now let me go one level deeper when I say we understand the technology, and we have the technology. So we have the domain know-how from switching performance in vacuum interrupters. So that does everything in the electrical grids of medium voltage and also on the high-voltage arena. So we have products. We have components, which we sell via partners, via panel builders or we bring them into our switchgears. And they are here one modular design, which we bring into air insulated switchgears, but also fluorgas-free portfolio. So a high scalability. We bring them into the market in the utility market where you have your frame agreements or into our solutions where we deploy them with other portfolio elements, either in-house within Siemens or external partners. We have the IoT portfolio and here, our accelerator platform, you will see that how that plays very well together between grid scale X, electrification X and building X. And we have our service business around this. So anything regardless, it's just for a system or a switchgear as an industrial customer or complete services to do complete maintenance contract. So we serve product, systems solutions, service via all channels into the market. With that global presence, of course, it allows us also to be beneficial for our customers, for the individual requirements, not losing the scalability. Let me give you a little bit more details about the portfolio. On the left-hand side, you see the blue portfolio. That's a fluorgas-free. I want to be very clear. It's not a SF6 free, it's a fluorgas-free because that's very relevant as fluorgases are banned also in the EU, and we need to be very straightforward in this portfolio. Then you see a bushing that replaces inductive transformers. It's standardized. It eases the supply chain. It reduces the costs, and it makes it scalable on a dimension that the application is much faster to deploy for different customers, different customer groups. So we ease the supply chain, we reduce engineering efforts, make it faster. In the center, the SIPROTEC Digital Twin, we can simulate all settings. So we can preconfigure in advance, we can simulate and we put then the configuration into the real world. I'll give you a very concrete example from a customer, significant savings, but also helping our customers to cope with the workforce, which is a challenge, I think, for everybody. On the right-hand side, Electrification X. You will see at the tech at work, a clear deployment, but you have also -- will have a chance to see our short deck outside what does Electrification X do from the switchgear, which is on the left-hand side via our protection relays and then into Electrification X, completely modular deployable. Now our global mix and global presence, I shared with you that we have grown 65% over the last 4 years. And we have outgrown basically every regional market. If you see in the U.S., we grew by 45% against the 30% market growth. In Germany, we grew 20% against 10%, in India 35%. And even in a very challenging market in China, we outgrew the market. Why is that? We are completely local. We have local portfolio. We have local R&D, we have local supply chain. We increased our portfolio. Matthias mentioned it already, with Trayer portfolio, and that's submersible also to participate in the growing market in the U.S. of bringing overhead lines down on the ground to make them more resilient and long term more cost efficient. We invest in new capacity. The question was answered, and we do that also in all the regions. And we have executed a larger part of it because we started early. And of course, depends -- the investment depends on your brownfield, but the investment also depends on how scalable is your solution, what you need to invest, so you can do it in a smart way or you do it the old-fashioned way. Now we are #1 in medium voltage switchgears, and we are #1 in the protection automation systems in the IEC world, and let's see where we can go. Now let me give you a concrete application and that's the intelligent substation. We have around 300 already deployed with ARAL and BP and also a smaller portion already with E.ON Drive. That's an intelligent substation with active load management directly out of the cloud. This is the blueprint for a substation in an electrical grid of tomorrow. So we can do active load management. And the lower part in the grid, there is where the most dynamic is, where you see the charging infrastructure, where you see the heat pumps, where you see, as Susanne said, maybe also more air conditions with global warming in regions where we don't have that yet. Scalable solution, fully deployed, and what I also want to highlight is it fulfills the cyber security requirements of the oil and gas industry, which is on the highest level because it's one company, BP and ARAL one company. They have one cyber security standard, not 5 cyber security standards. So, we're very well on track and ready to scale. Now there's one example I would like to give you about very concrete savings about the digital twin of the SIPROTEC 5 relay. But before I tell you all this advantages of cost saving of sustainability, of time saving let's hear the customer. [Presentation]

Connecting the real and the digital world really starts with the asset perspective. Connected assets, as [indiscernible] funds and also our customer in Australia have just shown in a very impressive manner. Now let's talk about software. Grid software. We have a very strong portfolio, starting with the planning software. That's the technical simulation. Grid control software, that's the ADMS and EMS and even data management software. And we complement this portfolio with power system consulting services. From already very strong positions in the market, we've been growing our software revenue by 25% every year for the last 4 years. And we've reached a share by now of more than 50% ARR, annual recurring revenue. And that speaks to our strategy to relentlessly shifting our revenue mix from customized solutions, which you've seen traditionally in the grid control markets, to truly scalable software business. Essential for the success is the people, the management team of experienced leaders from native software companies including, by the way, our colleagues from BI software and, of course, a sales team of by now more than 200 dedicated software sales professionals. And then cloud native developers. We've reached a share of more than 40% of total R&D invest into cloud-native technology. For our industry, this is very significant. And why is it so important? Power Grids have been operated and planned the same way for many decades. All the systems, SCADA, ADMS, the planning systems are all centered around a paradigm of a large central conventional power plants. With intermittent renewable energy sources taking over. And with millions of millions of DRs getting to the system, this approach is coming to an end. We need an entirely new approach and we shape the vision of autonomous grades, actually a digital twin based approach to grid management. And we've given it a name, GridScaleX. Before I tell you where we are on that journey to assist it and then autonomous grades, let's look at what I would call a concept car view of that vision of autonomous grids. [Presentation]

So up until today, grid operations, that's the large 24/7 control room and grid planning are really done into totally separated siloed expert applications. For transmission grids, the high-voltage, we've been bringing those together with a network model management, one digital twin approach, years ago. For distribution grids, however, we concluded that an incremental approach to innovation doesn't do a track. It's just not enough to conclude on the challenges that we are seeing. That is why 4 years ago, we've decided to invest into an entirely new cloud-native tech stack. An open and modular software platform integrating natively both operations and planning. And the beauty of this approach really is that it allows us now to innovate faster. Because it has AI and Copilot functionality really natively built in. For customers, the beauty is that it accelerates their digital transformation and it allows them to leverage on their past investments, for example, into ADMS. Because the platform is open and is modular, it's not only into investments they made with Siemens or our own installed base, but really anybody systems third party. Gridscale X allows our customers to operate their grids closer to the physical limits, enhancing usable grid capacity by up to 30%. And thanks to the co-pilot functionality, it's managing the complexity of a 7x DER, distributed energy resource growth. And all of that with keeping the economics in mind, which is 45% reduction in CapEx investment. And with network tariffs really being on the rise, this is a very healthy contribution. You can see later at the Tech at Work station, the full demo of our platform. But now let me translate into how that translates into growth. I want to highlight three growth levers for you. One, of course, scaling the platform. We've released the first version 18 months ago, and we are seeing a strong track record already and have gathered strong proof points. Just want to highlight one example, and that is Alliander. Alliander in the Netherlands is operating one of the most congested grid in Europe. And their recognized digitalization leader, really recognized among utilities in Europe. With adopting Gridscale X, they are planning to increase their grade capacity by up to 30%. And for the economic minds in the room, that translates into EUR 10 billion to EUR 40 billion mitigation of social economic impact by admitting renewables, data centers and schools to the grid much faster. So that is growth lever number one. Number two, we continue to see a long-term double-digit growth opportunity with grid planning. Thanks to [ 2x ] expansion plans and renewable integration in the market. And thirdly, we see a significant growth also in metadata management, with AMI to the 0-meter data is becoming even more used and valuable. And simply of our own installed base their 70% of meters, smart meters, yet to be rolled out, translating directly into software revenue for us. Now let me bring it back and sum it up for electrification overall. Both Stephan and I have shown to you that we are in the sweet spot of a secular market growth. We are already market leaders in many of our fields. That's medium voltage switchgear, the protection and automation in IEC grid planning metadata management. But we are not resting on our laurels. We are the thought leaders with Blue GIS, with digital substation with Gridscale X and Electrification X. And we are investing to capture on those growth opportunities. That's both by capacity expansions as well as investing in entirely new tech stacks towards autonomous grades. And that taken together puts us in a position to continue our profitable growth, continue to outgrow the market based on a record order backlog and an increasing software AR. Thank you. And with that, we hand over to Andreas.

Thank you, Sabine. Thank you, Stephan. Now we come to the final business presentation here. My name is Andreas Matthe, and I will speak about electrical products. Let me start with what is electrical products all about. We provide products, type tested systems and related software to protect people, to bring assets, to distribute electrical power and to control electrical equipment. We do that in buildings, in utilities and infrastructure and, of course, wholesale industry. And if you had a chance to see our products or some of our products in the trucks outside, you will have recognized that most of our products are connectable. It can be connected into IoT systems, for buildings, for data centers, for industries or utilities. With that, our customers get more transparency about the energy flow, about the energy consumption. They can identify they can say where they can save energy, save costs and become more sustainable. Focus of our business is, of course, in value creating for our customers, or I call it tech applications. We in electrical products, we do not focus on installation commodities. Plastic pipes, cable trays, switches and sockets or industrial plugs. Our focus is on value creation for customers. Before I now speak about the markets and how we approach the market and why are we successful in the business, I want to reflect a little bit of our achievements since last Capital Market Day in 2021. We have grown our business -- we have grown our business by 70%. How did we do that? With an innovative portfolio, with a strong sales team. Hence, we also increased the number of our customers, especially when it comes to distributors and franchise panel builders and important point with an excellent logistics. But we did not only grow our business by 70%. We also significantly improved our profitability in our business. We are now on par or we are now defining even the benchmark in our business. We have done that by consequent implementation of our competitiveness program. We have optimized our global manufacturing footprint and with value creation, we also are in a position to get better prices from our customers. And of course, we also benefited from scale effects. So we did not only improve on profitability. We also delivered cash and our cash target, 1 minus ROCE for full debt in all years since 2020. With our significant growth, we also improved our market position. We improved from a market position, #4 to now #2 in what we call the electrical product addressable market. The acquisition was also mentioned by Matthias, the acquisition of CNS to gain better market share, better market presence in India and in neighboring countries and also to complement our portfolio. That acquisition is fully in line with our plan. And finally, also on the sustainability side, we introduced an Ecotech level to provide our customers more transparency about the sustainable contribution of our products. Now the market. We address the all electric markets and the world has to become more electric also to fulfill the sustainability targets set around the world. We see that market growing 5% to 6%. But we do not only address that all-electric market, we focus specifically on market segments where we see higher growth potential like in energy transition wind, solar in combination with battery storage, there we see growth rates of 10% to 13% or in transportation, partly together with our colleagues from Siemens Mobility. Not only in trains, but also for infrastructure for trains, growth potential there, 8%. Again, the increasing demand for semiconductor factories here, together with our DI colleagues. We also addressed that market and we see that market growing at a rate of 9%. And of course, we're also addressing data center markets. increasing traffic, data traffic and cloud services and artificial intelligence, and there we see a potential market growth of 15%. So these are the markets and particular market segments we are addressing with our Electrical Products business. Our business is, of course, a global business. But even there we see regional differences, regional standards, regional requirements and retail opportunities. Because of that, we structured our business into four business segments. They run their business close to market, close to their customers with their own P&L responsibility. And they know what's best for their customers, and they also understand what's best for the P&L. For example, in North America, we do invest in capacity for data center projects. Just to fulfill already signed long-term contracts with big data center companies. At the same time, the colleagues also developing a portfolio to serve smart residential markets, we call it in-hub portfolio, inhibitors. Because we see a trend of changing energy supply in residential markets with more solar storage, eCar, all that combination requires smart solutions. In the European, Middle East, South America segment, this is one segment because it fulfills the same technology standards. We focus on increasing demand for digitalization and automation. At the same time, we're also building a partner network to serve more infrastructure customers, infrastructure projects, and we see them very much in the Middle East region, particularly in Egypt and Saudi Arabia where we see significant investments in infrastructure. China, East Asia, here with our strong local footprint in manufacturing and R&D, and our China for China portfolio. We are able to grow the business in the industry, utilities and infrastructure, even compensating the significant decline we saw in the market -- in the building market in China. And then in ASEAN, we used the acquisition of CNS as the portfolio of CNS to address more price-driven markets in India and also neighboring countries in ASEAN. Price driven market, that means customers expecting quality products with less functionality and a different price point. And here, the acquisition of CNS helps us to have a second portfolio besides our original Siemens portfolio, more addressing the high-end, more functionality markets. You see on the slide also that we have a rather balanced business, regional balance business, in line with the size of the market. And what is also important, our high local for local content. That local for local content is between 85% and 95% that makes us independent -- largely independent from logistic challenges, logistic crisis as we have seen them during COVID or even during the Suez Canal crisis. And makes us also independent from whatever global geopolitical issues you might see in the future. Let's talk about regional balanced markets. But it's not only regional balance. We have also balanced structure when it comes to our customers and the verticals we address with our business. And why are we're now successful in these verticals, why are we winning in the industry? In industry, we benefit very much from our strong access to the markets, the DI, the digital industry. Here, we serve the demand of industry for more automation for more digitalization and combining the solutions and the offering from DI with our products for industry customers. On commercial and public buildings and commercial billing is a hotel, the shopping mall, an airport. While public buildings is university schools or government buildings. Here, we also benefit from the collaboration in SI with our buildings teams. We provide safety, protection and transparency about the energy flow by the colleagues from SI buildings, they manage the buildings. On residential buildings and residential billings does not only mean family houses, residential building also means a high-rise apartment building. For these high rise apartment buildings, we provide safe, effective energy distribution in these buildings. While on residential buildings, family houses, we work more on smart resolutions, smart solutions and applications for these family houses. And data centers, of course, in data centers, we work together with our partners, internal and external partners to address that market. and integrate also our products into power management systems. And we all know data centers are huge consumers of energy. And therefore, energy management is so important and that's how we integrate our products in these management systems. On the power utility side, we work together with our colleagues from electrification, and we provide protection and transparency about the low-voltage power distribution, and integrate that also in electrification. At the same time, we also use our strong panel dealer partner network to address utility markets. And we're also addressing the upcoming market for DC direct count applications coming from solar and from storage for utilities. I addressed also the synergies we see in Siemens with DI and in SI, but that's not all. We also employ a strong partner ecosystem to address really all channels into the market. The biggest partners are there, distributors and panel builders. The distributors and panel builders, we win because we provide excellent logistics -- they need the product when the customers are asking for the products, they need the product when they have to apply to win their projects. At the same time, we also provide technology license to panel builders. [indiscernible], type tested technology license for panel builders so that they can serve their customers. On the OEM side and electrical contractor side, we win there because we provide innovative products. They need innovation from our products to make their offerings to their end customers also more innovative and win also with their customers. And then on the direct sales side, we do also direct business, and that's also increasing and currently also with data centers because we develop specific solutions for data center customers to comply with their requirements in data centers. We also create pull. We create pull for our products by influencing specifications. We provide engineering tools like SIMARIS design for the IUC, this is more European standard or Compas UL, is more the U.S.-driven standards. We provide engineering tools for electrical planners and automation planners. And that brings our products, our solutions into their design. And then finally, it goes also into the projects of end customers. As I mentioned, we provide [ SIVACON ] technology license for panel builders to serve their markets. Go to market is in our business, of course, important, but it's not all. Our customers expect from us high-quality products and they expect innovation. And we are leaders when it comes to innovation, particularly in digitalization, connectivity. And I also can say that we are spearheading when it comes to application of semiconductor technologies. And we have a huge pipeline of innovative products. I just want to highlight a few which we introduced to the market in recent times. ACBs. First one, ACBs are big power breakers, which are used to power buildings like this one, and you will also see them in Tech at Work later or in data centers. And here now, we provide solutions of lifelong remote update of software for these breakers. On the one hand,that expect -- that extends the lifetime of these breakers and on the other hand, it makes sure that the protection algorithms of these breakers are always state-of-the-art. This new offering we introduced in the Hannover Fair in 2023. And I mentioned the in-hub portfolio, here we introduced on the Consumer Electronics Show in Las Vegas beginning of this year, we introduced that solid-state semiconductor-based offering of controllable breakers for smart applications, the residential markets, particularly for the North American market. Then industrial automation. One example, is intelligent load feeder. This is a solution for combined conventional motor starters and conventional related by a plug and play solution to connect them directly into automation systems. Also here, we received positive feedback. When we introduced that product on the Hannover Fair '24. And just recently, on the SPS in Lundberg, a couple of weeks ago, we introduced the first solid stage semiconductor, motor starter, e-motor starter, fully integrated into SIMATIC automation systems. That electronic motor starter avoids in-rush currents, avoids also mechanical interruptions in motor starting processes, and it's a fully integrated semiconductor base, wear-free motor starter into our SIMATIC Systems. But we do not only innovate products. Of course, we also innovate our software. I mentioned the planning software for different centers. On SIMARIS for example, now we offer the service that customers can download samples for their applications for their requirements from the cloud, modify it according to their need, they have to complete training ready or BIM power. Now the ground breaking out to get plugged in, which enables customers to do a complete 3D planning for the electrification of projects, of buildings, of data centers, whatever they need. These are some innovations and some highlights we introduced to the market recently. But I wanted to one more thing, I want to introduce to you also really groundbreaking innovation, the first of its kind, electronic circuit protection device. The first of its kind, solid-state semiconductor protection device for electric installations. It's an ultrafast product. It's 1,000x faster than conventional circuit protection. That means you normally have a short circuit, you have a lot of energy there. You see that flash and here, with that product, it's so fast that there is no short circuit energy anymore. It's multifunctional because it combines the function, don't know if you can see that here. The functions up to 10 different units, 10 different single devices into that one device, and it's fully [ parameterizable] that means customers can parameterize it according to their needs, to their specific requirements of their projects. And as they can combine the functions of the 10 different single devices, it's also very sustainable because we save 80% of electronic components, 80% of metal, 90% of packing. So a lot of savings of materials with that new product. And because of that, it's also a Siemens Ecotech labeled product. We introduced that with great feedback from customers on the Light & Building show this year in March '24. So we just introduced it on the Life & Building, but we already have several applications for the product. And just to highlight two of them here. One is in LED lighting. LED lighting is more and more used in stadiums and wherever light is needed because LED lighting is saving energy, but they have a high inrush count. That high inrush count sometimes leads to trips and then light is off. So somebody has to go there and fix and find out what is the root cause. With our [ ECPDs], we can ramp up the inrush currents and light will maintain, light will stay, no blackouts or another application Event panel boards. Event panels boards are used for example in concert halls. And with our ECPD, we are in a position at an early stage to identify potential overloads. Potential overloads might lead to trips and these trips might lead to blackouts. And for sure, nobody wants to have a blackout in concert hall. So that product improves also safety and reliability. It supports fast and remote forward analysis -- for diagnosis and analysis. So this is really a groundbreaking product. And this will also change our markets because of its outstanding performance and features. Let me try to sum it up for electrical products. We have a convincing track record with 70% growth, improving market position from #4 to #2, we know how to grow our business. And we serve the right growth markets. We speak all electric, we speak about digitalization, data center, Asia to support also smart infrastructures, growth ambitions. We lead in technologies, semiconductor connected products, connection into IoT world or direct current applications. And with that, we create more value for our customers, and that will also make sure that we keep our benchmark profitability. We invested in the right places, invested in capacity for data centers. We invest in technology, semiconductor as one example, we also invest in products for more price-driven markets to ensure also top line growth for electrical products. And then we have our customers -- this product like Sentron ECPD, with an Ecotech product portfolio in an all-electric world to be sustainable, safe and of course, also productive. With that, I want to close for electrical products. We combine the real and the digital world for sustainable infrastructure. Thanks for your attention.

Thank you, Andreas. We now have our second Q&A session for the business areas of smart infrastructure. And therefore, please join us on the stage again. Sabine, Susanne and Stephan. So again, whoever wants to raise a question, please raise your hand, and then we start in this section third row.

Sean McLoughlin, HSBC. A question, I guess, for Susanne. It's clear that buildings is the area that requires the most improvement. Just not sure and understood exactly why you've not managed to close that gap to best-in-class? I mean is this geographical? is this offering. So any clarity there I think would be helpful. And ultimately do this 300 to 400 basis point expansion bring you up to speed with best-in-class.

Thanks for the question. Our competition or the basket, if you so say they all have different business models, I'm sure you're aware, right? So you would see one competitor focused on solution service, which gives them a higher top line, but significantly lower percentage of the profit. Then you would see others that focus a lot more on the product business, which gives them a much smaller size and a much higher profitability bottom line. So I said business mix, to a large extent, drives that profitability. We try to take a part, the competitors and look at, I would say, the parts that you can indeed compare. I would say that the Buildings Group in Siemens has made significant progress over the last years in streamlining, but also again, doing a lot of automation. Automation as in internal processes. Yes, competition moves, we move, right? I think also said it before, they grow, we grow as in also profitability. We believe that EUR 300 million to EUR 400 million will bring us closer to competition, but they move as well. Mind you, again, you can't compare one-to-one because of the business mix.

We take the next question in the first row here.

It's Andrew Wilson from JPMorgan. A quick question on R&D, and it's maybe just to try and provide a little bit of context. Can you talk about R&D across the three different segments? And I think from memory, it's about 3.7% for SI as a full. Very simply, when I look at some of the peers, it feels like those numbers are bigger as a percentage of sales. Now appreciating the earlier comment on business models are not necessarily all comparable. So can you try and help us kind of frame those numbers and how you see the comparability of what you spend versus the more relevant peers.

Well, we don't disclose the figures, the R&D figures for the business unit. But I think, overall, if I have the right figure that 6% we spend on R&D. And of course, we have to differentiate for products let's call it, commodity products, you spend less, but then you spend for software and the more you go into software and IoT and connectivity, the more you spend for R&D. If I look into electrical business, I think we are balanced. We have, of course, in development hubs in Europe, Germany. We also have development hubs in Czech. We do a lot of development also in U.S. and in China and increasingly also in India. So also, that is in line with the business I have shown in the figures in the business share from the regions. And so similar share we have in R&D development for electrical products.

Yes. Maybe from the technology perspective, of course, there are vertical core technologies, which we run in our individual business units but on the software side, for example, and you will see this on the accelerator. We, of course, do that jointly together, so we have scales in that. Then with Electrical Products, we have some low voltage switch gear, switching materials, that one, we also do jointly together. So they are scales. But when it goes in the individual core technologies, we have our own budget where I believe we are good on track. And with the technology leadership, which we have, we invested at the right time.

Yes, I think to add on that one also, as was discussed earlier on about one tech company. And so particularly, when it comes between electrification and electrical products, we share a lot of development when it comes to system development for low voltage, medium voltage switch gear. So there, we work closely together in a one tech company spirit.

Next question, we stay in this row, third row. Will?

Yes. Will Mackie, Kepler. A couple, please. First of all, when we -- can we just sort of specify or outline the split between the grid software and the electrical automation? Is it in line with your market projections, so roughly 90% product, 10% software and service in terms of the split in the division? And then specifically with regard to group software, just conceptually, to what extent does the growth and application of digital and smart software in networks, both in for TSOs and DSOs, reduce the demand for hardware through smart applications of your technology.

So let me answer the second question first. If you look at reports from Euro Electric, for instance, they predict that the grid investments is actually going to double the annual grid investments. So that's going from EUR 33 billion annually to EUR 36 billion annually. And the impact that software has is reduced that doubling by EUR 12 billion annually. So what we do is not compensating all the demand, but rather reducing the demand, which is at unfeasible levels. I mean doubling the grid capacity in 10 years is doubling a grid that you've built over 10 years. Over 100 years, now in 10. So that's just easening the pressure that we see on those grid expansion plans. On the relative size of our businesses, think you can think about the grid software business as a mid-triple-digit million number.

And a quick follow-up, sorry, related to the commentary you've made about data centers. You've provided a CAGR of around 15% for electrical products. Is that the sort of framework we should be thinking about with regard to the data center opportunity for the group for smart infrastructure.

I was referring, of course, to electrical products, but the first smart infrastructure will be in the same range.

Question on buildings for Susanne. I'm trying to understand within that mix between this product, software solutions, systems solutions. Is it -- I understand that you've got more solutions than others. But if we benchmark products, apples-to-apples, are your product margins exactly where you would like them to be? And can I ask a sort of related unfair question, and it may also be wrong. Is it that you just got too much of the commodity stuff. And by that, I mean, HVAC controls and boring oil stuff that's been around for, well, 100 years. Is it that we're too weighted in that? And if so, why couldn't you get rid of it? What would prevent you -- is it so integral to your solutions offering that you have to have that?

Okay. So First of all, our product margin, if you refer to HVAC controllers, it's accretive to our business. So I'll be clear on that. So -- but indeed, you have a point in besides the product business, you've seen the numbers in the business mix. There's, of course, a wide range. You can just imagine everything between fire and also the whole building automation space. There R&D portfolio bids that, that we would stay on the lower side and things that are much more on the higher side. I don't want to disclose the details, but it's also some market knowledge. Yes, a number of those -- I wouldn't say 100 years, but although we're 176 years old might indeed be. But no -- but indeed, if you look at sustainability projects and what you actually have to do in that space often if you consider now valves actuators being old-fashioned, it's still something that is a growing market. But indeed, I've just taken over the role recently, indeed portfolio management and looking at everything is one of the tasks that I have on my list. I would not go so far to say divestment isn't an option, but I would not be able to answer the question today with the thoroughness that you would require.

Is it important for you to have certain products in order to go to market solutions? Or could you buy them in from others.

And that's a very specific question. So we would not go to -- let me give you fire as an example. We would never go to market with a solution without having our own fire portfolio. Security, we do the opposite, right? So security, I'm not sure you're aware, we actually have our own software, a very strong software suite. We sold off our products many years ago, and that actually works for us because you differentiate with solution design and with the know-how to understand how to put something together. So actually -- and that works for us. And also, of course, significantly high capture rates and service because that's just the way the market functions. I would say a number of HVAC and building control topics is key to understanding how that works to be able to deliver on energy efficiency, eCar programs and so on. But each of the portfolios has to stand on its own feet with regard to our margin already.

Next question. We take the second row. Next, I think there was a follow-up from the first question, right?

Yes. I mean maybe if I could just ask that question on SF6 free switch gears again. And I guess what I'm really keen to understand is how much of your portfolio is it today? And what could be the sort of price and margin uplift assuming you're going to sell nothing but the stuff in Europe in 3 years' time, given the regulations?

Well, first of all, thanks for the question. The proportion of the [ flue gas ] free portfolio is depending on the regions. In the Europe, there's a very clear regulation in place. So from 26 onwards, you can't deploy anything below 24 kilowatts anymore. And from 2030, and that goes 40 to 60 kilowatts. In regards of numbers, currently, our largest market is China. So that's also where we have the most quantities in the market already. And we see that from the especially from the data center market and our hyperscalers, they are looking for deployment of flue gas free portfolio, also on their CO2 footprint. So when you ask about the percentage, might, I would see that in the Europe, around by 2030 would be around 50, 55-ish percent. It depends on the order state. And the margin,it's not homogeneous, I have to say because in the circuit breaker technology where switching was always done in vacuum interrupters, the cost position relates to the cost increase more on the dielectrics and then also keeping temperature rises under control. On the load break switch, we have a completely different switching mode. So the costs are automated. I would not see that we go on a long term in a margin increase, but keep the same margins as we have today in SF6.

And could I ask a very quick follow-up. You announced quite recently in order from Compass on the data center side. I think your competitor, ahead of FMD, I think it was a EUR 3 billion order they announced -- is there any way you could give us a sense of the size? And I guess, I mean, you're selling a very specific product, there's is a kind of modular selling everything. So do you think there's something shifting when you speak to your customers of companies wanting to pick sort of cherry pick the best products as opposed to maybe doing more of these kind of modular data centers.

Well, you will see that's a great example also here. we deploy skids. So it's completely prefabricating, and that is, I think, where we have a competitive advantage of being able. So we have a digital trend of it, we can simulate it. It's pre-factory tested and you'll just bring it to a building. And it's the Compas deal, which we signed is on the medium wattage grid, connect and those skids.

EUR 3 million.

No, because it was below EUR 3 billion. And as I said, it covers the medium voltage skids.

I think there was another question, second row.

James from Rothschild, if I could, two on margin, one on technology. We've given a 300 to 400 bp expansion for one of the businesses. Can you talk about the other three? And what do you expect over the time frame for EA, EP and software. Also on that medium voltage electrification and automation margins for everybody in the last decade have done very well. We had a time 10, 15 years ago when the Koreans and the Chinese came in, and there was a lot of pressure, particularly on the West Coast and in the U.S. Are you of the view that there are new software and automation complexity content that will prevent that group taking margins back down if the market normalizes over time. And then I'd love to tag on a question about Solid State and your comments about new solid state products. I think Siemens, a long time ago, went from incandescent lighting to solid-state lighting. We went from a triopoly to thousands of players and crushed margin in lighting. I understand the material science of existing low voltages is quite tough to replicate. Does the transition to solid state hurt profitability in the long run?

I haven't got that -- we haven't got the last question.

Can you just repeat it, maybe, james? The last question, please.

My last question is, if we're adding -- if we go from analog to solid state in circuit breakers and other low-voltage products, does it change the barriers to entry the moat, the profitability? Could it create a lower barrier to entry with other players from Asia in the next 10 years, coming in and hurting margins in the way that we saw when lighting transitioned from traditional lighting to solid-state lighting.

Maybe to answer that part of the question. I think the more value we create for our customers, the better pricing power we have behind it, the better price we get from our customers. The transition to solid-state semiconductor technology was in -- of course, it's not really a transition that we replace today's, let's say, MCB, solid-state breaker. We address markets where we have more complex applications. I mentioned these events distribution boards. We have applications in tunnels, in parking lots or when size really matters, for example, in ECA charging boxes and wallboxes, where you have a lot of functionality, that product combines the functionality with a limited space. So we address areas where we really create additional value for customers. When it comes to entry barriers for others, of course, we protect our development with license, with technology licenses. And yes, always try to stay ahead of competitors by improving and investing in technology.

On the electrification automation, I believe that it would be a very naive not to look into productivity even the market is at the moment quite hot. And during my presentation, I have shown you about our portfolio from the technology from vaccum interruptors, over-switching devices into individual gears, whether it's ancillary technology or SF6 or flue gas-free technology. So we scale and I'm very confident that we are competitive. This one also is the market would slow down. On the other hand, the integration of our sensors and our IoT portfolio, I believe you can also differentiate and we are also in critical infrastructure with all the related cybersecurity initiatives. I'm also confident that we can differentiate over there. So to [ flex ] our markets.

So we have time for two more questions. Maybe one in the back, Andre, then we take...

It's Andre from UBS again. I just wanted to ask about your kind of combined go-to-market and how do you ensure that the whole of Siemens infrastructure is represented to every customer -- how do you run this at country level or regions level, maybe starting...

I can take that one. Yes. So I think you've heard a comment right across all presentations has been around the vertical. And of course, one of the points is that we have all the vertical market setups that we have ahead of verticals. We have products and solution designers behind those verticals. And of course, in the field, then we have salespeople who actually represent Siemens, be those either key account managers or national account managers for those own verticals. They also work together with consultants and partners to create a pull in the market. and they are actually trained on the different value propositions. What you're going to see in here later on in data center, if you have the time, you will see the whole portfolio actually Siemens coming together in that data center. So we spent quite a bit of effort on the sales enablement and how we actually train. Now in the end, let's also be clear on the customer side, it's not always the same person taking the decision for the whole portfolio. The challenge is to get it in at the right point in time, influence early and to be able to make it easier then for the different decision makers to actually come back to Siemens then.

So the salespeople come in as one Siemens and incentive is to push as big a package as possible to them.

We don't only -- I'll speak now for buildings, but my colleagues speak differently. We don't only incentivize on top line. we also incentivize on margin quality.

And if I may, just on that last product, the ECPD, the solid state. I think in the past, we've seen some of these innovations coming in and eventually becoming standards as you obviously sit in a lot of committees and represent yourself there. Is there a chance of that happening with this down the line?

Yes, that product is, of course, in line with the standards and regulations. It's approved for applications in the IEC markets. We have a similar development also for the UL, for the more American standard markets. So that product is fully in line with all regulations and standards applied in the electrification markets. But can it get regulated in.

But can it get regulated in. So that there's no other option, but with this kind of product because it's very fast and eliminates the flash, does it?

Potentially in certain applications, yes. Again, I have to say that again, this is not really a product to replace a simple fuse. This is a product for more complex applications. And there might be cases where we can really set it as a standard as can get the regulations to us specifically for that kind of product.

So we take the last question, Martin?

It's Martin again from Citi. I just wanted to come back to the software and digital services, the EUR 1.7 billion. So I think you said a triple-digit million is the grid software business. Just to clarify, where is the rest of it? Is it mainly in buildings -- and is that a sort of bundled offering with product or is it a distinct software offering?

We sell our software either in digital solutions or in digital services. So the largest part of the service business we have within buildings where a significant portion of that is digital services, but we also still offer traditional maintenance, as you know it from before. So the large part is. Yes, it is software supported. And I also showed you, part of it is Building X. Part of it is other software that we have. So, yes. It is in buildings.

Thank you so much. Thanks to the four of you. Now may I call Matthias on stage to wrap it up and give us his final remarks.

So thank you, Tobias. We are coming to an end, but I trust we brought across our key messages for today that we are indispensable when it comes to sustainable infrastructure. But we are also a strong and reliable pillar of Siemens. And that we also absolutely committed the entire team, everybody is behind to achieve -- to continue to achieve our financial commitments and also the upgraded run that we have given -- that we have given today. And as a leading tech company, we're also here to transform the every day for everyone to create sustainable infrastructure, we play a crucial role in the transformation of our company, the transformation of the energy system as well as the transformation of the infrastructure in the world in tackling these megatrends that I was talking about, creating growth drivers, creating opportunities in the markets that we are addressing with our portfolio on a huge scale. And there was also someone as a guest in Holland, had him on stage in our Siemens business conference, he was addressing exactly that. It was Bill Gates talking about the emissions, where they come from. And at Siemens is very well positioned because we are actively involved with our technology to tackle those in transportation and buildings, electricity and industry, perhaps less in agriculture or more indirect with our vertical market customers. So innovation is needed, and that's what we are up to. And to make a big difference to the world and our Chairman also put it at the same event very nicely and said, we have an opportunity at Siemens to change the fabric of the world. We are up to this. I would like to thank everybody for joining us here in Zug in our headquarters as well as on the live stream. Thank you very much for your interest, and I hope you could shine a little bit light on our business. Thank you.

Thank you, Matthias. Also, thanks to everyone joining us via the webcast online today. If you have any further questions, please reach out to the Investor Relations team. And this concludes today's webcast. Goodbye, and have a nice rest of the day.