Siemens Energy AG (ENR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Siemens Energy's 2021 Third Quarter Conference Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens Energy presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties. [Operator Instructions] At this time, I would like to turn the call over to your host today, Mr. Michael Hagmann, Head of Investor Relations. Please go ahead, sir.

Thank you, Aurelia. Good morning, everybody, and a warm welcome to the Siemens Energy Q3 Analyst Call. For the record, all Q3 documents were released at 7:00 a.m. on our website. Here with me are Christian Bruch, our President and CEO; as well as Maria Ferraro, our Chief Financial Officer, and they will take you through the Q3 results. The call will be approximately 60 minutes. And after Christian and Maria present, we will have time for Q&A. Over to you, Christian.

Thank you very much, Michael, and also good morning, everybody, from my side. Thank you for joining Maria and myself for our quarter 3 2021 call. I hope you and your families are safe and healthy in these difficult times. Our thoughts are with all our colleagues who got to be affected either by the pandemic or by the recent severe weather events all over the globe where we have it. And I would like really to thank the whole team at Siemens Energy for their support and compassion working through all the items in these difficult times and also helping in a lot of areas to rebuild infrastructure, which had been affected by the weather conditions. While Maria will take you through the financials, let me highlight some key developments of the company in the quarter. There was a solid revenue growth, given the last year we had COVID impact. But also a stable market and market share gains in certain areas. EBITA before special items for Siemens Energy of EUR 54 million is to be straight disappointing, while GPs was absolutely in line. SGRE fell short of our expectations. Cash flow was yet again a very strong in this quarter. And let me address right from the start, the performance of SGRE, I have to say I'm disappointed with the performance at SGRE for 2 reasons. First of all, the turnaround in onshore business has not yet reached the speed and impact I expect. And second, the process is to identify deviations and provide the transparency to the Board level where we sit on, as a shareholder, have proven to be too slow. And let me be clear, project management is not an easy business, addressing faster rising challenges as raw material changes, cost increases or the local supply chain is a key, and the processes and governance culture needs to address this. And this is what I expect the management at Siemens Gamesa to tackle to really fix the issues now rigorously and do the homework in the onshore business. And this goes along with a lot of passion for detail, rigorous follow-ups and open communication. Andreas and his whole team absolutely share our view that really everybody at SGRE needs to be aware of their obligations and they address it step-after-step and working through this to really get to high and predictable earnings and cash flow. Let me also be clear that there is a lot of positive elements also with SGRE. I mean you have seen it from SGRE's call. There is a positive development in offshore and service where our midterm outlook on the business is very positive. The wind market is growing and attractive. 2020 was a peak year. 2021 to 2024 will be relatively stable. But from 2025 onwards, the market will excel, which is mainly reflected in offshore where we have a market-leading position. And it will continue to play a key role in the strategy of Siemens Energy to be successful in wind. It is paramount to our success also to achieve the stated CO2 targets. And if we really mean it as serious as a society, the speed of building new wind power generation will only accelerate going forward. And I believe SGRE is well positioned to capitalize on this growth. However, fixing current performance issue is absolutely the base for it. And in this regard, we are working together through our Board role with the management of Siemens Gamesa. Let me come to Gas & Power. I'm pleased to see the teams working successfully through the plans. It's absolutely on track for fiscal year '21, and we confirm our guidance for this segment. And we see obviously also stable or recovering markets in which we keep, in a lot of areas, our leading market position. Currently, one major topic in the industry overall are the increasing raw material prices. SGRE already has commented on this. Look on at GP, we are, to the extent possible covered by price escalation formula in our contracts and hedging activities. Since for GP, there is no meaningful impact on profitability in fiscal year '21. Looking beyond '21, it is a dynamic environment for new contracts with price increases versus cost inflation. However, it's also clear that if these material cost increases remain, end market prices for our goods must also increase accordingly. And this is what we are working on also with our customers. And in reference to COVID, we are slowly getting back to a more normalized working mode, but remain alerted, I would call it. All factories are open and running. This is also the first time in this call that we skip our special COVID slide. I have to say it has, unfortunately, a little bit become part of the daily life. So I think it is something which we simply need to take on board on how we manage the business. But we're seeing that we're able to perform services. We're seeing that we're able to act, and we also are confident going forward with the order pipeline, what we see in the different areas. On the guidance, we maintain our revenue guidance for SE, the 3% to 8% and the margin guidance for GP on a 3.5% to 5.5%. However, the decreased financial performance of Siemens Gamesa Renewable Energy had also an impact on our margin guidance for Siemens Energy. Since we're fully consolidating these results, we now expect a margin for the group in the range of 2% to just under 3%. Let me go to the next slide on executing our strategy. This is a slide, which you always have seen in the different calls, and we continue to execute on delivering on the fundamentals and to execute our cost-out programs. You'll recall the new program we announced on the reduction of the 7,800 headcount in the segment GP back in February. This is solidly executed and clearly on track. In a lot of countries outside Germany, this is really already either implemented or under implementation. The negotiations with the employee representatives in Germany, which covers roughly around 3,000 headcounts, were done over the past months. There were agreements on a lot of points, but not on all, which meant they have not been finally concluded and now escalated to an arbitration body, which is, let's say, not necessary but also not unusual process under German labor law. In comparison to September 30, 2020, more than 1,500 employees have left the company. And we manage this also to a Voluntary Leaver Program, which we already implemented over the past couple of months, also in Germany to really help us to work through the energy transformation and to improve our cost base. For me, it's also important once we talk about really improving the base that we not only talk about the cost side, but also the innovation side, which we continued to build on in close collaboration with our customers and partners. And like always, I want to give a couple of selected examples of what we are doing, really driving the energy transformation and partnering up with other companies. The focus area for us is to develop always more sustainable solutions. The Transmission business belongs to this and one key area, which has been in the past years always in field of activity for us, it's the SF6-free high-voltage transmission technology, which means replacing a gas, SF6, which is -- which has a very high greenhouse gas potential, 23,000 times compared to CO2. And we have launched already, let's say, new technologies, new products in this area. And we are currently conducting a feasibility study together with Mitsubishi on the joint development of high-voltage switching solutions with 0 global warming potential and also then to jointly obviously, further push this into the market. The second example from the recent quarter is from our digital solutions and cybersecurity area. It's an area which is nicely growing. Obviously, the resilience of our customer plans, which are normally always system-critical against cyber crime is critical. And we are collaborating with ServiceNow, which is a German start-up to create a bridge between cybersecurity experts analyzing anomalies and malicious behaviors and plant operators capable of acting on attacks and really improving the security across the operating environment. And this combined software solution helps to secure the energy transition really to enable also the adoption of digital distributed and low-emission solutions. And in this regard, cybersecurity is, for us, a focus area with new products. In line with our 3 pillars, which I always referred to, we are now also collaborating with Malta in the area of energy storage. The partnership will focus on the development of an innovative heat pump and heat engine components to support a utility-scale 100-megawatt system for midterm storage, so 10 to 24 hours. And this is all in light really of these activities where we say, how can we, on the one hand, produce power CO2 effective or without CO2, how can we distribute the power and how can we shrink the problem of energy consumption. And this is really the logic of the innovations we continuously drive. I also just wanted to highlight one other event we had in the quarter, which is the opening of a green hydrogen project in Dubai in the Sheikh Maktoum solar park, which is the first green hydrogen project under operation in Dubai in the Emirates. And this is a perfect example also for future energy system where solar power goes together with immediately then hydrogen production. Let me highlight a couple of awards. Also once again, to explain a little bit of logic what we are driving forward as a company in these different areas. I want to start on the right-hand upper side with the Project Leipheim, which is a great example for the need to deal with rising complexity in our power grid. The renewables play important role but gas power plants will be key for the stability and reliability of electricity supply and will remain an important contributor to electricity generation over the coming years. I will continuously repeat this always, we will need gas in the future energy system. And this project is a super example because, obviously, it has the ability to quickly kick in, in times of low green energy supply. And obviously, the modern service center and the modern design of the plant allows the full integration into the entire digital operation design of the plant and the system. The best place is to generate renewable energy resources are usually far from where the power is needed. This is why we need transmission, and this is why we need to transport electricity. The SüdOstLink project is contributing to solve this problem in Germany. We have now won the second power highway, I would call it after Ultranet this year. which is obviously a very successful track record. And with this, obviously, we want to continue to build out the transmission side. I will also continuously repeat to all politics, these processes have to get faster because we will need more transmission. This is where I am very positive on in terms of the business, but it also means that authorities and regulations have to get faster there. Siemens Energy contributes also with the supply of electrification, automation and digitalization packages to the first of its kind bio refinery that produces green biochemicals without the use of fossil-based raw materials in Leuna Germany, together with our Finnish customer, UPM-Kymmene to increase also their sustainable portfolio. This is part of our Industrial Applications business. And when we had -- when we started the discussion is where do we want to take oil and gas and further development in the process industry, this is exactly what we do, right? The driving electrification in the process industry, this is where we're good at and helping really to reduce CO2 at our customer side. I wouldn't want to skip SGRE project also as a win, which is a preferred supplier agreement in Taiwan, also on the offshore side, not only that is the newest state of the last offshore wind turbine, but it obviously also shows our strategy to grow in Asia. And in this regard, obviously, there were also positive notes around Siemens Gamesa in the current quarter. Let me briefly go to the ESG update. I also told you over the last quarters that this is always something which I will every quarter bring up, what we are doing there. We have been working really through the past months through our programs together with a lot of rating agency. We had an ESG road show in the U.S., Europe and Australia in June. And we are extremely pleased to see the high interest and the very valuable feedback from all of you and what we receive from the market. We want to be recognized in the market as a right partner and driver for the energy transformation. And in this regard, I'm very pleased also that we signed only as a second company, the partnership with renewable energy. There's only 2 companies worldwide, which have this close collaboration set up. And we are, together with IRENA, so the International Renewable Energy Agency organization, developing business cases for new technologies like green hydrogen, what can we do to drive decarbonization and heat generation and how can we really help this change process in the different societies. Furthermore, I would like to point out that we received a prime rating from ISS ESG and received an MSCI ESG rating upgrade to BBB from BB. After we now have a higher transparency at the point of the initial rating when our sustainability report was not yet available. I also would like to already flag up to all of you that we're going to have a more extensive sustainability report coming out early next year because, obviously, we will continue to drive further this transparency that you understand what we are doing. And with this, I would hand over to Maria for the numbers.

Thank you, Christian. Good morning, everyone. A very warm welcome also from my side. I'm pleased to share with you all today our Q3 results and also always happy to answer any questions you may have. So let's take a look at the group, please. First, as you can see orders declined by 37% or close to EUR 3.5 billion to EUR 5.9 billion in the quarter. This, again, in many aspects, our quarterly results are a bit of a mixed picture. So this is driven by Siemens Gamesa. On the other hand, GP had a strong growth in the quarter. I'll get to that in a moment. We did finish the quarter with a very strong order backlog of EUR 83 billion. This is just shy of about EUR 1 billion of last quarter, reflecting, again, the low order intake in the quarter. However, this still represents approximately 2.5 years of our revenue, providing a solid foundation for our business. Revenue rose by 9% on a reported basis. We still experience translation effects. So excluding the headwinds from currency and portfolio effects, total revenue rose by 11%. Book-to-bill for Siemens Energy was 0.82, reflecting a very weak book-to-bill of just 0.56 at SGRE for the quarter. GP had a book-to-bill of close to 1. Adjusted EBITDA before special items improved from an EBITDA loss of EUR 213 million to an EBITDA profit in the quarter of EUR 54 million. This reflects a margin of 0.7%. I'll further elaborate on this in a moment. Free cash flow pretax came in at EUR 328 million, a decline of approximately EUR 100 million. Although again, a bit of a mixed picture, we had strong improvement at GP, which could not offset a decline at SGRE. This said, the cash performance at both SGRE and GP was better than expected. On the next page, Page 11, let's take a look at the quarterly development of SE. Again, orders declined, that's depicted here. So looking at the orders at GP, they rose 11% year-on-year on a comparable base. At EUR 4.5 billion, the run rate was a bit lower compared to the first half. We enjoyed very healthy order levels as predominantly due to [ Jan ] during the first half of the year. Orders at SGRE declined by EUR 3.8 billion to just EUR 1.5 billion. They had a record quarter last year where they booked predominantly in the offshore space, 2 or 3 large orders that weren't repeated this year. Revenue rose 11%. At GP, we rose by 9%. Of course, it needs to be said that Q3 of last year was a weak quarter due to COVID. And SGRE, revenue increased by 14% on a comparable basis. Now looking again at EBITDA before special items of EUR 54 million, this is a significant improvement from prior year and reflects an EBITDA before special items loss of EUR 154 million at SGRE due to the significant onerous losses relating to raw material cost increases and, of course, due to the mentioned issues with the 5x and projects in Brazil. On the other side, we're very happy with the profitability at our GP segment, which continues to be on track to achieve the full year guidance. GP reported an EBITDA profit before special items of EUR 231 million or margin of 5.1%. This is an improvement of 640 basis points. Of course, against our Q3, which was a weaker quarter last year. For the first 9 months or year-to-date, EBITDA before special items at Siemens Energy improved from a loss of EUR 87 million to over EUR 700 million. This reflects a 390 basis point margin improvement driven by improvements, of course, at both segments, GP and SGRE. Now taking a look at special items on the next slide, please. For Siemens Energy in total, we ended up at about EUR 178 million of special items for the quarter. For the 9 months ended, we are at EUR 392 million, which is down substantially from prior year, which, of course, was impacted by the strategic portfolio decisions relating to our AGT portfolio, with an impact in last quarter of just over EUR 700 million. Looking at GP for the current quarter, we have EUR 95 million of restructuring and integration costs. This takes into account the further progress we are making on our restructuring measures inside and outside of Germany. We also assume a timely decision of the arbitration committee, which was highlighted by Christian, and we expect higher charges with relation to these programs in Q4. Stand-alone costs, of course, these are costs associated with the setup of the stand-alone company, stood at EUR 25 million, as expected in Q3, and takes the full number for the 9 months to just shy of EUR 100 million at EUR 96 million. Strategic portfolio decisions are at EUR 27 million. This pertains, again, to the ongoing analysis. We continually review the streamlining of our aeroderivative and small gas turbine portfolio. For example, as we review on a quarterly basis, we will continue to have small write-downs or adjustments in inventory, hence, the impact for this quarter. Now looking at our net income transition next. On the next slide, please. As in previous quarters and as expected, the PPA is slightly lower, driven by the impairments that were associated with our decisions last year in the Gas & Power segment due to the AGT portfolio. The financial result in this quarter came in at negative EUR 9 million. This is much lower than in the prior year quarter and due to the lower interest expenses versus prior year and higher interest income as a result of interest on tax credits and receivables in the current quarter. Net income was negative but sharply improved compared to the prior year quarter. It's also important to note that net income of the quarter includes EUR 77 million of income tax expenses due to nonrecognition of deferred tax asset at SGRE. SGRE, for example, incurs losses in some countries where it's unlikely that these losses will be offset by taxable profits in the near future. Accordingly, for these losses, no deferred tax assets and deferred tax benefit can be recognized. It's also important to note that if we look at the full year expectations for those same reasons as we've experienced here in Q3, we also assume negative income tax despite a negative net income before tax. So now going to our cash flow statement and net cash position. On the next slide, we should discuss CapEx. It rose slightly by EUR 26 million in the current quarter. GP, I mean, this is evenly shared, GP and SGRE were both up around EUR 12 million. Free cash flow pretax came in at EUR 328 million. As mentioned before, a decline of approximately EUR 100 million, but a very strong improvement at our GP segment versus last year. This was due to higher project-related cash inflows. Some of those actually were preponements and improvements in payables. The positive contribution, others, this mainly refers to the cash flow line item change in other assets and liabilities, which shows a positive contribution of EUR 473 million in Q3. This improvement is mainly driven by the increase in loss provisions at SGRE. For the first 9 months, the group's free cash flow pretax improved by EUR 272 million in the prior year to EUR 373 million. A very good effort. Next, the net cash position on the next slide. No change to the similar format that we have each and every quarter. We see our cash equivalents on the left-hand side of EUR 4.6 billion. We take, of course, into account the receivables from the group, looking at also our total liquidity. Just in terms of our long-term and short-term debt, this decreased about EUR 100 million. Of course, looking then to our net cash, this increased from prior quarter at plus EUR 250 million. We have our normal pension provisions. And there's a new amount here of credit guarantees of EUR 62 million. I do want to highlight this. This refers to bank financing of an associated company for which we, Siemens Energy Group, has now issued credit guarantees. Before the spin-off and up until Q2 of this fiscal year, Siemens AG had guaranteed these amounts. And now we have properly taken over this credit guarantee and has been replaced in Q3 of this fiscal year. It is also important to note that this will only run until July of 2022. So now if we can please go to the next slide and look at our Gas & Power segment specifically. As mentioned before, positive development across all KPIs in our Gas & Power segment, truly a solid result. Orders showed an improvement, rising 11% on a comparable basis year-over-year. For the first 9 months, we have EUR 14.7 billion in orders, up 2.5% comparable with a strong book-to-bill of 1.12. For the full year, we expect a book-to-bill greater than 1, despite a seasonally weak book-to-bill, which is normal in our Q4. Revenue also increased by just shy of 7% nominally year-over-year and 9% comparable. Service revenue therein rose moderately by 4%. This is due to our solid outage season seasonality that we have in the U.S. within generation and very important to recovery of the transactional services in our IA division. I think it's also important to note that service revenue was negatively impacted by currency effects of more than 4 percentage points. So therefore, the quarter-over-quarter growth is greater than 8%. New units revenue rose by 9%. For the first 9 months, revenue declined just by 2%, but rose by 2% comparable. So as you can see, the CTE, or the currency translation effect, was quite sizable. We do and we will have a strong finish to the year in the end to be in the guided range of 2% to 6% on a nominal annual growth. The book-to-bill stands at 0.97. We have an order backlog of EUR 50 billion, and this is roughly on par with prior quarter end. Again, our EBITDA came in strong for GP at EUR 231 million or 5.1%. This is significantly up versus prior year for 640 basis points. For the 9 months, we now sit at a margin of 5.3%, which is comfortably within the guided range of 3% to 5% to 5.5%. As indicated before, our margin will be weaker in Q4. But of course, we reconfirm and expect to end up comfortably within the range. In our GP segment, we're doing very well in cash. Free cash flow pretax ended at EUR 384 million. It's also important to note that GP generated close to EUR 1 billion of cash during the first 9 months. And also to note, we do continue to expect an adverse shift in our contract assets and liabilities in Q4, and we also expect higher restructuring. Very quickly, looking at the quarterly development. I think a lot of the messages hold true. Looking at orders, it's important to note that the growth we see here is predominantly in the EMEA region. Orders in Germany, for example, more than doubled, supported by 2 large orders at our Transmission group, and this was greater than EUR 450 million. Transmission and Industrial Applications contributed to the growth. Generation orders rather were slightly lower in Q3 versus the run rate for the first half. This being said, generation has been trending at a book-to-bill of above 1 over the last 3 years. Revenue very clearly up compared to prior year quarter, all businesses posting increases here and contributing to that growth. The strong increase rather in EBITDA, this reflects a return to growth and operational improvements across all businesses. This is also in line, and we are on track with the EUR 200 million commitment we made for savings in this fiscal year. So just taking a little bit of a deeper dive and some general observations on the trends in our businesses. As Christian mentioned, we maintain our leading market position in stable or recovering markets. The total market for gas turbines greater than 10 megawatts without oil and gas is stable based on stable large gas turbine demand and a continuous strong small and medium gas turbine market. In Generation, we managed to gain back market share in the large gas turbine market, heading towards our aspired market share above 20%. This quarter, we booked 3 LGTs, and we continued to see a stable market for generation overall, and we are seeing a market at the upper end of our expected range of 60 to 80 large gas turbine units. In the industrial gas turbine range, which is between 10 and 100 megawatts without AGT, we booked 6 units in the quarter to book a total of 34 units already this year. Also as anticipated, Industrial Applications see some recovery in the transactional service business in total plus 70% in service orders and a return to growth on the top line in Q3, although still slightly below pre-COVID levels. New equipment in the IA market continues to lag since a market upswing, for example, due to increasing oil prices triggers an order growth early as 6 to 9 months later. In Transmission, I mentioned this earlier, we really observed first signs of increased market demand. This is based on the numerous stimulus programs across the globe in Europe and in U.S. And grid stability projects and grid upgrades are driving this demand. So with that, now I turn it back to you, Christian. Thank you.

Thank you very much, Maria. And let me conclude the presentation with the most important messages of this quarter. First, GP is delivering as planned, and we are on track to reach our fiscal year '21 and also the fiscal year '23 targets. At SGRE, offshore and service business is performing well, but we are disappointed with the onshore business. Therefore, we will now closely align with the SGRE Board on the remediation plans. And the fact that onshore is currently underperforming does not change our view that wind has an important role to play in the energy transition and with this also at Siemens Energy. Our restructuring program is showing a solid progress outside of Germany. The negotiations with the German workers' council have ended. It may take the arbitration time -- the Arbitration Board some time to reach a decision. However, we still expect to reach our fiscal year '23 cost-out targets as we communicated in the Capital Market Day last year. And we also confirm our fiscal year '21 guidance for GP as well as the fiscal year '21 revenue growth guidance for Siemens Energy. Because of the shortfall of SGRE, we need to adjust the full year guidance for Siemens Energy and now expect an adjusted EBITDA margin before special items of 2% to below 3%. Overall, the opportunities and the midterm outlook in the electricity and energy market is intact, and this definitely supports our long-term strategy. And with this, I'm happy, and Maria also, to take your questions.

Thank you, Christian. Thank you, Maria. As we go into the Q&A, we've got about just under 30 minutes. [Operator Instructions] So the first question goes to Ben Uglow.

I had one question and maybe if I can sneak in a follow-up. The first question is around pricing conditions. You mentioned that you were implementing actions to compensate for raw materials, that's not always straightforward in your business. Can you talk about the customer conversations, how are customers receiving price increases? And is this something that you're seeing across the board, i.e., are all competitors at the moment doing exactly the same thing? So that was question #1. A very quick follow-up, if I may, it has really been a tailored 2 companies between Gas and Power and Siemens Gamesa. There's been a huge amount of press speculation, and I stress it's unconfirmed that you're conducting some form of strategic review, et cetera. Can you just clarify what the state of play is in terms of the Siemens Energy thinking about Siemens Gamesa, please?

Ben, good to hear you. First of all, on the pricing, and I think we have to -- I think it hints more to the wind business actually in terms of the comment. And obviously, Andreas already made some comments about the discussion on the wind side. And don't forget, it's always 2 things. The one thing is around the price level. The other thing is about commercial conditions in the contracts in terms of indexation and both need to be tackled. Over the past month, these have been addressed and implemented. So we see progress there. And I think this is, if I look on wind, something which the industry itself really has to onboard and tackle and we see the willingness to discuss it. Absolutely not every customer is happy to talk about price increases. But you also see it in the wind side, obviously, in the -- I think, across the market with earnings conditions. At the end, you need to be able to earn proper money with this business. Otherwise, nobody would invest into innovations. So I think it's something where I see the understanding in the market, but it's not an easy process. If you allow just to tackle also the rest of the business because you said it across the board, let me say a couple of words to the pricing environment from my view. Gen relatively stable in terms of pricing. It will remain, let's say, a tight market. That's not the question. but I see a stable environment. I see some, let's say, pricing compression on the IA side, but we're, let's say, well ahead in terms of really our cost-out measures and compensating this. In Transmission, I see good pricing environment. There's a strong market and also the ability to address broad price increases in this market. With regard to the speculation or you said yourself speculation around SGRE, we are, at the moment, working as a shareholder through our Board role to tackle the things which dissatisfy us. And the one thing is obviously the non-net effective turnaround in onshore. And the other piece is also the transparency of deviations, which I don't like, right? I mean it was not visible enough in terms of the challenges and this has to get better. All the rest around it is speculation, and I would also refrain from commenting on it.

And the next question comes from Andreas Willi at JPMorgan. Andreas, please go ahead.

My first question is on margin development. For Gas & Power, you're well on track for this year and you have a 2023 target out there as well. What do we need to take into account when we look at the improvement during 2022? Should we think more about a linear improvement, also you mentioned price earlier or price cost, but also on the service side, have we fully recovered in terms of mix? Has the mix normalized where you would expect it to see? Or is there a little bit more to come as some of the service elements come back to normal, which obviously help your profitability? And the second one, just on transmission. We have seen in the U.S. infrastructure build proposal from the Senate, quite a bit of support for transmission. Maybe you could just highlight a bit what your exposure is to the U.S. within that business. I think ABB now Hitachi has been kind of the market leader there. So how do you expect the benefit in the U.S. from these potential support measures?

Andreas, it's Maria. So I'll take the first part of that question regarding margin development. You're correct. We're on track. Of course, remember, we do and we have launched our cost improvement initiatives, the AIP program, for example, and we're continuing to execute on that into next year. So as a result, you can kind of take, as you said, a linear approach, if you'd like. But please bearing in mind that, of course, some of the restructuring activities will continue into next year. With that, I think the mix goes to service with respect to service cushion.

Yes. I mean obviously, I mean, on the margin in terms of cost-out measures, we are well on track. The mix will, let's say, on the service side look more challenging a little bit because we also pulled forward certain services in '21. But I'm confident, obviously, that also with the improvement on the operational performance, we are, as I said, well on track. But this is obviously, as rightly said, always a question of the mix, and we have to see that was particular in gen, also now strong contribution there, which then will obviously look different in '22, but I look on the overarching picture. On the U.S. infrastructure bill, with the Transmission, yes, I do view this as a good opportunity for us. Also, you do see now really the offshore wind plus HVDC discussions also now slipping over to the U.S., which is for us a stronghold and which we want to continue to build. You know we have, let's say, also factories on Transmission side in the U.S. But we will continue to look and with the development of the bill, what else to do there because that is definitely a key market where we want to really exploit our strong position. We have to see a little bit, obviously, how fast certain things are coming. But we are looking into this, how can we make sure that we get a decent amount of growth in transmission or what can we do more.

And the next question goes to Vivek Midha at Citi.

I just have one question really on the Siemens Energy Group margin target for 2023. I noticed that you maintained that at where it was before. So given the continued drag from Siemens Gamesa potentially going forward, how comfortable are you with that 2023 target?

Yes. Maybe, Maria, you want to take it because it's important to understand the process on that.

Correct. No, thank you for the question, Vivek. And I think exactly there is the process behind. And of course, the guidance for '23 comprises the GP and SGRE segment. And at this point in time, we do confirm the outlook for '23. Of course, as you rightly said, we're looking at the developments and of course, the sense of urgency is felt within SGRE to fully address those topics and to assure that we get back online. But right now, there has been no change. I think it's important at this point in time, there's no change to the guidance. But, of course, we're reviewing some of the remedial actions and ensuring that those from -- as swift as a response as possible is necessary, okay?

And the next question goes to Gael de-Bray at Deutsche Bank.

The first question I have is on the GP margin side. The new margin guidance for the group of just under 3% implies apparently a margin of just around 4% for GP in fiscal Q4. So that will be significantly down compared to Q3, obviously. So could you once again elaborate on the reasons behind the expected sequential decrease in margins? And I also wondered if the Q4 margin would actually be the new kind of run rate we should have in mind looking into next year...

All right now -- sorry, Gael, go ahead.

No, please go ahead, I have a follow-up.

Gael, nice to hear you. Yes. So I'll take the first and the second question there. And Christian, if there's anything to add. So with respect to what you indicated with respect to margin. Yes, maybe it's important to recall that the GP EBITDA is 3.5% to 5.5%, yes? So we do feel comfortable in that range, yes, and perhaps even, let's say, at the midpoint of that range, Gael. So I'm not sure where you're seeing that. So perhaps that's something to think about. In terms of Q4, we've indicated this, we are going to experience a mix issue. So we have a lot of the large projects revenue coming in, in Q4. The legacy projects but also in other areas where we have a large solutions revenue coming into Q4. So it is a mix issue also that we will experience in Q4, as we indicated already, and we do see that coming to fruition.

Okay. Understood. And then on the free cash flow guide for GP, I mean, it seems pretty clear that Q4 should be negative. But overall, for the full year, given the much better-than-expected performance so far in the first 9 months, do you still see GP free cash flow down compared to last year? And then the final question I have is on the indication you provided about the fact there would be a closer alignment with SGRE Board on the remediation measures. Sorry to push again a little bit on this, but what does that mean in simple terms? And what kind of role -- of different role can you play if the current capital structure is here to stay?

Sorry. I guess you can hear me better now, Gael. Yes, looking at the free cash flow, and I think I mentioned it when I went through the presentation, we had a very strong free cash flow performance from GP side, EUR 1 billion year-to-date, and this is what we foresee. We also, again, to underpin that we did indicate that Q4 would be slightly, let's say, detrimental to the cash development. It's also interesting, Gael, that in Q3, we also saw a few preponements of payments, which is interesting, perhaps post-COVID. This went into Q3 and also may have impact from fiscal year '22. So overall, I would say, again, that overall for the group, we do see a decline in cash, and in GP, we see a strong first 3 quarters, however, impacted by Q4 but a strong finish overall, okay? Second question?

Let me comment on the measures with SGRE in terms of what we can do. I think it's always important to underline also that it's a diverse picture across the company SGRE. I can only repeat offshore and service is ahead of plan, delivering better results. Onshore, there's also good projects in onshore. And then you have selected projects which are really deteriorating. And this is absolutely unsatisfactory. But there's also identifiable reasons for that. And I think Andreas alluded to this in his call. One thing is the fact managing the project in Brazil. The other one is the rollout of the 5.X platform. And the third element is around the raw material prices. And this is where we can, let's say, help also the SGRE management also from the SE side to better tackle these issues. So there are possibilities, obviously, going on, let's say, level further and deeper, and this is what we're working through at the moment to make sure that we, as fast as possible, really get an impact to clean up these problems.

May I please ask everybody just to ask one question. We've got so many questions that we won't get through easily. So please stick to one question. The next question comes from Iris Zheng at Credit Suisse.

My one question if I can follow up on the Gamesa stake. And I do appreciate that you can't confirm or not confirm your intention to acquire or not acquire the full stake of Gamesa. But I would like to get some understanding of your sports process around this. So what are the potential maybe upside or synergies or benefits that could be there if companies are around F1. And on the other side, I mean, what are the maybe the pros and benefits if the 2 companies just remain as the status quo. I mean, both from kind of a shareholder base perspective and also financing and also any maybe potential synergies that can be achieved?

And obviously, also with the -- I said it before, I think in one of the prior calls, also with a 67% ownership, we're trying to leverage already synergies. I mean, this is why we have 3 people from our organization sitting on the Board of Siemens Gamesa. For example, also in the area of customer access, where we try to combine offerings. But obviously, also in the term of innovation, you've heard about the project where we do hydrogen and wind together. So there are elements which we today can do in terms of bringing things together. I think afterwards, if I look on where the energy market is going, it will go to more renewable and it will go to integrate -- more integrated solutions. So the solution is going to look more, let's say, complex, wind and storage, wind and transmission, wind and solar plus gas. So there will be a lot of mixed diverse solutions. And this is what we obviously have to bring together as synergies, whether we do it better in a 67% ownership structure or 100% ownership structure. It's a completely different question where I can only repeat, I wouldn't comment on this at the moment. But the key issue at the moment is to fix simple project problems. How do you execute a project. It's a passion for detail and it's honestly -- yes, project management. It's getting things really built in a profitable way. That is our key task at the moment with SGRE. Going forward, I always stress that wind is an indispensable part of our core strategy at Siemens Energy. We want to be the driver of the energy transformation. We will continue to do so. Wind plays a role. The question whether this is better done in 67% or 100%, as I said, it's not one I would comment on at the moment.

With that, the next question comes from Sean McLoughlin.