Siemens Energy AG (ENR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Siemens Energy's Q3 Fiscal Year 2026 Analyst 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. At this time, I would like to turn the call over to your host today, Mr. Tobias Hang. Please go ahead, sir.

Thank you so much, [ Moritz ]. Good morning, and a warm welcome to the Siemens Energy Q3 Results Analyst Call for fiscal year 2026. We published our fiscal year '26 results this morning at 7:00 a.m. on our website. Our President and CEO, Christian Bruch and our CFO, Maria Ferraro are here with me. Christian and Maria will take you through the major developments during Q3 fiscal year 2026. This will take approximately 30 minutes. Thereafter, Christian and Maria are available to answer your questions. For the entire conference call, we have allowed 1 hour. Christian, over to you.

Thank you, Tobias, and good morning, everyone, and thank you for joining us today. Siemens Energy delivered another outstanding quarter with record orders, record revenue and further margin expansion. I'm very, very proud of the Siemens Energy team, our team, Purple, which is converting the strong demand environment into profitable growth, cash generation and sustainable value creation. A special achievement this quarter, after 15 quarters, Siemens Gamesa has closed a profitable quarter. And there are the 3 messages I would like you to take away from today's presentation. First, the structural drivers behind our markets remain firmly intact. Our -- second, our pricing discipline and project selectivity support profitable growth and third, our capacity expansion projects are executed as planned, allowing us to successfully convert our backlog into higher revenue and earnings. Our investment case is increasingly benefiting from the next phase of value creation, stronger earnings, cash generation and shareholder returns supported by our growing backlog capacity investments and structural market growth. The question is not only how strongly these markets grow, but also how effectively we translate these opportunities into sustainable value for our shareholders. And I'm pleased with the progress we are making. And let me now turn to the key achievements of the quarter. Supported by continued strong market demand, Siemens Energy delivered another record quarter. orders reached approximately EUR 17.9 billion, driven particularly by gas services and technologies. And at the same time, revenue reached a record EUR 11.4 billion, the highest quarterly revenue level we have delivered so far. And the investments in capacity expansions and operational improvements over the past years are really translating into tangible revenue growth and improved financial performance. Profitability strengthened considerably. Profit before special items more than tripled the year-over-year and the margin before special items reached 14.2% and this reflects the improving earnings quality and operational leverage we are building across the portfolio. As a result, basic earnings per share rose to EUR 1.28 from EUR 0.71 in the prior year quarter, reflecting the significant improvement in profitability and the value we are creating for our shareholders. As mentioned, I'm very proud of the progress that Siemens Gamesa has achieved. For the first time since the fourth quarter of fiscal year 2022, Siemens Gamesa delivered a positive quarterly result. And this is an important milestone and is based on the tremendous efforts of the entire team. While we remain focused on the work ahead, this achievement clearly demonstrate that the turnaround measures are delivering tangible results and breakeven for the full fiscal year is firmly on track. And cash generation remains robust. Year-to-date, free cash flow pretax reached approximately EUR 7.2 billion, reflecting disciplined operational execution and working capital management. This robust cash generation provides significant financial flexibility and enables us to translate operational success into tangible value for our shareholders. Execution of the second EUR 1 billion share buyback tranche is progressing well and is nearing completion. Together with the first EUR 2 billion tranche and our dividend policy of distributing 40% to 60% of net income attributable to Siemens Energy shareholders, this underscores our commitment to attractive and sustainable shareholder distributions. Including the dividend paid earlier this year for fiscal year 2025, we remain on track to return up to EUR 3.6 billion to shareholders during fiscal year 2026. Based on our performance, the continued favorable market environment, we reaffirm our fiscal year 2026 outlook with profitability trending towards the upper end of our guided 10% to 12% profit margin before special items. Before turning to the market environment that we briefly address 1 strategic milestone that also supports the next phase of our journey. Siemens Energy has started preparations for its transition to an independent brand. And going forward, Siemens Energy and Siemens Gamesa Renewable Energy, will be united under a single name and brand identity. The name will be Omterra and the transition will begin later this calendar year and will be implemented in phases. And currently, the existing license agreement remains in place. Let me now turn to our capacity expansion program, which continues to progress according to plan and is increasingly translating into revenue and financial performance. The investments we have made over the past several years are coming into operational execution with additional capacity brought online. And we are seeing a growing contribution to revenue especially in the second half of fiscal year 2026 and beyond. Starting with Gas Services, we successfully brought additional medium-sized gas turbine capacity online during the quarter. And this is an important milestone increasing annual production capacity from around 50 units in fiscal year 2025 to approximately 80 units this year and further expansion planned over the coming years, as we had shown in our last year's Capital Market Day. So we stay on the communicated plan. And this additional capacity is highly valuable in the current market environment. Medium-sized gas turbines are often selected for distributed power generation and data center applications that customers require reliable power solutions that can be deployed quickly. The key advantage of products such as our SGT-800 is their ability to operate in a combined cycle setup, significantly improving efficiency and making them a highly attractive solution for a wide range of electricity generation needs. The additional capacity enables us to capture this growing demand while maintaining the same disciplined approach to project selection and execution. And at the same time, our large gas turbine expansion program continues to be fully on track and will begin contributing from fiscal year 2027 onwards. It provides sufficient flexibility to support the demand outlook we have today. [Audio Gap] every gas turbine store today creates long-term service with substantial business opportunity in maintenance, upgrades and operational support throughout their lifetime. And as a result, the capacity investments we are making today not only support equipment revenue growth but also expand the installed base that will drive recurring service revenues for many years to come. Turning to Grid Technologies. We are executing our capacity expansion program across multiple product areas the first meaningful brownfield expansions are now coming online, adding capacity for products such as large power transformers and gas-insulated switchgear. We continue to execute successfully the brownfield and greenfield expansion projects, which we announced on the Capital Market Day to further expand our manufacturing footprint through the end of the decade. The increased capacity is needed to reflect the high level of demand visibility we experienced across our markets. And based on the increased capacity, the revenue growth in the relevant business continues to accelerate and Grid Technologies delivered another significant step-up in revenue during the third quarter. In short, the capacity we are adding today enables us to capture the market opportunities ahead of us. And let me now turn to the market environment. The overall demand environment remains very robust across our key markets and regions. And while the Americas was again a major growth driver, led by the United States, momentum was also solid in the other regions, and I'm satisfied with the balance of our project portfolio. And Europe, demand remains supported by structural trends, such as grid expansion, electrification and energy security and looking specifically at Europe, prior year order intake benefited from several large offshore wind awards. In contrast, and as discussed previously, we still expect a number of major offshore projects to shift into fiscal year 2027, impacting the year-over-year comparison in the current fiscal year. In Gas Services, market demand is still exceptionally strong. We booked 15 gigawatt of orders during the quarter, including conversion of previously signed reservation agreements into firm customer orders. Demand is being driven by the need for reliable and dispatchable power generation in the United States as well as by large combined cycle and independent power producer projects in the Middle East and Asia. In the Middle East, we see several countries investing further in additional generation capacity to strengthen security of supply. It is important to remember that the conventional power market is our primary growth driver. It represents the largest share of our backlog and benefit from strong structural demand driven by electrification, rising electricity consumption and the need for reliable baseload and dispatchable capacity. At the same time, our visibility is improving. Our backlog, slot reservation agreements and project pipeline provide a clear line of sight well beyond the current fiscal year, where volume stands at historically high levels. And while order intake might fluctuate from quarter-to-quarter, as we expected for quarter 4, my view remains unchanged. The project pipeline for fiscal year 2027 looks very promising. Pricing remains attractive. And at the same time, we prioritize value over volume, maintaining strict project selectivity and pricing discipline. This supports the quality of our backlog and laser foundation for further sustainable margin expansion as our service business is expected to make a larger contribution to profitability over time. Turning to Grid Technologies. The market environment remains equally compelling. Order momentum during the quarter was driven by the product business, primarily large power transformers, and demand related to data center infrastructure remained healthy and additional brownfield capacity investments supported further revenue growth. Regionally, growth was primarily driven by Europe and North America. Grid Technologies is really getting an execution machine. The business combines structural demand, improving margins, enhanced cash generation and exceptionally backlog visibility. So the overall message is straightforward. Demand across our key end markets remains robust, and the underlying growth drivers are structural rather than cyclical. And our focus remains on converting this opportunity into profitable growth, stronger cash generation and long-term shareholder value creation. And with that, let me hand over to Maria for the financial review.

Thank you very much, Christian, and good morning, everyone, from my side. It's a pleasure to be here with you. As Christian mentioned, Q3 was another very strong quarter for Siemens Energy, and I will now take you through the group financials, the order backlog, cash flow and capital allocation and then briefly comment on the individual business areas and the outlook. . So starting with group performance. Q3 was a record quarter across all key financial metrics. Orders reached EUR 17.9 billion, supported by strong demand in Gas Services and Grid Technologies. This translated into a book-to-bill ratio of 1.57 and lifted our order backlog to another all-time high of EUR 162 billion. Over the last 12 months, our order backlog has grown by almost 20%. Revenue reached EUR 11.4 billion, up 19% year-over-year on a comparable basis. Growth was broad-based across all segments, led by Grid Technologies and Gas Services. Q3 included only minor foreign exchange headwinds primarily driven by a weaker U.S. dollar, weighing on revenue by roughly 50 basis points year-over-year. To clarify, currency movements continue to have no material impact on our profitability. Again, this is due to our global footprint with strong local for local sourcing and effective hedging strategies. Profit before special items more than tripled to EUR 1.6 billion, corresponding to a margin before special items of 14.2%. This is the highest quarterly group margin in our history and a 910 basis points improvement year-over-year. This very strong development was driven by excellent project execution and supported by improvements across all segments. And again, noteworthy with Siemens Gamesa making the largest year-over-year contribution to the improvement. Net income also rose by more than 70% year-over-year to EUR 1.188 billion. Free cash flow pretax stood at EUR 2.3 billion, again, very strong, more than 5x last year's level. This was supported by improved cash effective profit and a higher cash conversion rate as well as customer advanced payments, including reservation fees associated with the strong order intake. Now let us take a closer look at our order backlog and move to the next slide. So from Q2 to Q3, we added EUR 26 billion to our order backlog. And at the end of Q3, our order backlog, as mentioned, reached EUR 162 billion. This provides an exceptional foundation for future growth. It also provides very high visibility for fiscal year '26 and fiscal year '27 with a significant portion of expected revenues already covered by existing orders and visibility extends even further across parts of our portfolio, lead times are now 3 to 4 years and beyond, providing a clear line of sight well into the end of the decade and the beginning of the next. This highlights the strategic importance of the capacity expansions announced last November at our Capital Market Day. These investments are already contributing to revenue growth today, and they also ensure that we are well positioned to capture the substantial service opportunities that will emerge from our expanding installed base and record backlog in the years ahead. In Gas Services, our long-term service agreements now have an average duration of 17 years, underpinning highly recurring and predictable revenue streams. However, it's not, as you know, only about backlog size. It is the combination of size, duration and improving market quality that count. New orders in almost all businesses continue to enter the backlog up margins above the historical portfolio average, supporting future earnings expansions as these executors -- orders are executed into the future. Together, these factors strengthen our confidence in the durability of Siemens Energy's energy profile well beyond fiscal year 2026. Again, we look forward to providing further details on our order backlog quality with our midterm ambitions in our end-of-year call in November. So now let us turn to our cash generation, capital allocation and improved credit profile. So over the past years, Siemens Energy has significantly improved its free cash flow generation. For fiscal year 2026, we continue to expect around EUR 8 billion free cash flow. Cash generation is a key pillar of our strategy. It provides us with the flexibility to invest in profitable growth, strengthen our balance sheet and deliver attractive shareholder returns. The substantial progress we have made continues to be recognized by our rating agencies. In June, Moody's reaffirmed Siemens Energy's Baa1 rating and changed its outlook from stable to positive. In July, S&P upgraded Siemens Energy to BBB+ with a stable outlook. These ratings reflect the improved quality of our earnings our substantial cash generation and our significantly strengthened balance sheet. They further enhance our financial flexibility and support efficient access to capital markets. Again, at the same time, returning capital to our shareholders remains a clear priority. During fiscal year '26, we expect total shareholder returns of approximately EUR 3.6 billion, this consists of our share buyback program in 2026 and the dividend paid in March of this year for fiscal year 2025. Our dividend policy remains unchanged targeting a payout ratio of 40% to 60% of the net income attributable to Siemens Energy shareholders. As Christian mentioned earlier, execution of the share buyback remains firmly on track. We successfully completed the first EUR 2 billion tranche in May and expect the second EUR 1 billion tranche for this fiscal year to be completed within the coming weeks. Our capital allocation framework is balanced, disciplined and focused on long-term value creation. We invest where we see attractive returns to strengthen our financial position to create sustainable value and return capital to our shareholders. An update regarding Siemens Energy India. On June 8, 2026, we completed the second and final Siemens India Limited and Siemens Energy India Limited share swap increasing our stake in Siemens Energy India Limited by 1.02%. In addition, on June 23, 2026, we acquired a further 3.98% stake from Siemens AG for EUR 428 million. The transaction was structured to adhere to India's 5% annual acquisition threshold. As a result, Siemens Energy ownership stake in Siemens Energy India Limited now stands at 16%, again, further strengthening our position in one of the most attractive growth markets for energy infrastructure globally. Our strong cash generation, investment-grade credit profile and disciplined investment in growth opportunities and attractive shareholder returns underscore the financial strength of Siemens Energy and remain a core pillar of our equity story going forward. More to come in November. So now moving on to our BAs. Let me start, please, with our Gas Services business, which delivered another outstanding quarter and continued its exceptional momentum across all key performance indicators. Orders were up by 62% year-over-year to EUR 10 billion, making another record for this business. This resulted in a book-to-bill ratio of 2.7 and drove the order backlog to an all-time new high of EUR 73 billion, again, providing excellent revenue visibility for the years ahead. The market for gas turbines greater than 10 megawatt, again, exhibited remarkable strength during the third quarter. This quarter, in total, Gas Services booked 73 gas turbines for power generation and oil and gas including 25 large gas turbines and 48 industrial gas turbines. Driven by the strong momentum in large gas turbine orders, our market share in gas turbines above 100 megawatts reached 42% in Q3. Revenue for Gas Services grew by 21% year-over-year to EUR 3.8 billion, representing the highest ever quarterly revenue for them. Growth was supported by strong execution in new units, while our service business continued to deliver healthy double-digit growth with both a key contributor to profitability. The service share revenue stood at 60%. This was slightly below last year's level, but again reflecting the higher volume of new unit deliveries. As we indicated before, this is expected given the very strong new unit bookings in previous quarters. Profit before special items improved significantly by 60% to EUR 648 million, resulting in a margin of 17.3%. This is up 420 basis points versus the prior year. This demonstrates Gas Services' ability to sustain strong profitability throughout the year, underpinned by solid execution and a favorable business mix. Free cash flow reached EUR 1.7 billion, significantly above last year, benefiting from strong operational performance, reservation agreements and advanced payments on large customer orders. The combination of sustained market demand, expanding capacity, growing the installed base and long-term service revenues makes gas services one of our most attractive businesses and a key driver of sustainable value creation. Moving on now to Grid Technologies. Now Grid Technologies once again delivered an outstanding quarter. Orders increased by 28% year-over-year to EUR 5.4 billion, Growth was broad-based across all the businesses with the strongest contribution coming from the Transformer business. The book-to-bill ratio reached 1.48 and order backlog grew further to a record EUR 51 billion. This backlog again provides exceptional visibility and reflects the structurally attractive demand environment, we continue to see across electrification, grid expansion, renewable integration and data center infrastructure. Revenue reached a record EUR 3.6 billion, up 29% year-over-year. This is driven primarily by the product business. And profit before special items reached EUR 722 million. This is a corresponding margin of 19.9%, an improvement of 400 basis points year-over-year. This was driven by higher volumes an improved margin profile with the executed order backlog and the positive effects of disciplined execution. This strong performance is the basis as you know, for raising our full year margin guidance to 18% to 20% at the half year for this business. Free cash flow pretax amounted to EUR 896 million, again supported by strong profit and milestone payments. So now moving to transformation of Industry. This business delivered a strong quarter characterized by solid order intake, continued revenue growth and an improvement in profitability. Order intake reached EUR 1.8 billion, up 32% over year-over-year. The main contributor here was new units in compression, which benefited from large orders in the Americas and in the Middle East. As a result, the book-to-bill ratio reached 1.19, while the order backlog remains stable at around EUR 8 billion. Revenue increased by 12% to EUR 1.5 billion with all businesses contributing. Growth was supported by both the new units and service businesses, again highlighting the balanced nature of the portfolio and transformation of industries. Profitability strengthened in the third quarter to EUR 218 million. This resulted in a margin of 14.3%. Free cash flow pretax amounted to EUR 180 million, broadly in line with the prior year level, reflecting continued cash conversion and disciplined execution. And overall, transformation of industry does continue to demonstrate its ability to generate reliable earnings and cash flow while capturing opportunities in attractive end markets. So now turning to Siemens Gamesa. Here, the third quarter marks an important milestone in the turnaround journey. For the first time since Q4 fiscal year '22, as Christian mentioned, Siemens Gamesa delivered a positive quarterly result. Reaching this point has required significant operational improvements, disciplined execution and tremendous commitments from the entire organization. While the turnaround is not yet complete, the improvements delivered over the past quarters are clearly visible in the financial performance [Audio Gap] is for the quarter amounted to EUR 1.1 billion, and we're below the exceptionally high prior year level. It's important to note that Q3 last year benefited from 2 large offshore orders with a combined value of more than EUR 3 billion. While the current quarter did not include any comparable awards. This has resulted in a book-to-bill ratio below 1. Order backlog, however, stood at EUR 31 billion at the quarter end and now looking at revenue, this increased by 14% year-over-year to EUR 2.7 billion, driven primarily by the offshore business. Growth was led by higher service revenues, while the new unit business also delivered a clear increase. Profitability, as mentioned, improved substantially. Profit before special items reached EUR 75 million compared to a loss of EUR 430 million in the prior year quarter. The margin reached positive 2.7%. This is representing a year-over-year improvement of more than 20 percentage points. So free cash flow pretax was negative EUR 518 million compared to negative EUR 758 million in the prior year. As discussed previously, cash flow developments remains influenced by project and milestone timing effects. While we are encouraged by the progress, and we're very proud of that, we focused and keep our feet on the ground. Execution discipline in Siemens Gamesa quality management and cost efficiency remain key priorities as we continue to improve the business. That said, the direction of travel is clear. The return to positive profitability in the third quarter is a proof point that the turnaround measures are delivering results. Siemens Gamesa's continued improvement is becoming an increasingly important element of the Siemens Energy investment case. As profitability improves and execution risks continue to decline, Siemens Gamesa will now contribute to the predictable, resilient and high-quality earnings profile of the group. So now with that, please let me take a look at the outlook. So following the strong performance in the first 9 months of the fiscal year, we are reaffirming the outlook that we just raised after the first half of the fiscal year. For Siemens Energy, we continue to expect comparable revenue growth of 14% to 16% and a profit margin before special items of 10% to 12%. Based on our performance year-to-date, we now expect to land towards the upper end of the margin range. We also continue to expect net income of around EUR 4 billion and free cash flow pretax of around EUR 8 billion for fiscal year 2026. The progress we have demonstrated throughout fiscal year 2026 is increasingly validating the assumptions that underpin our midterm and medium-term ambitions. The operational proof points are becoming visible and again, we will discuss the full financial framework in November. So with that, thank you very much for your attention. And let me hand now back to Christian for the closing remarks. Thank you.

Thank you, Maria. And let me close with a broader message of today's results. Quarter 3 was another excellent quarter for Siemens Energy with record orders, record revenue, record profitability and excellent cash generation. But for me, the most important point is not only the level of these numbers, but what they demonstrate about the development of the company. We are seeing more consistent performance across the portfolio Gas Services continues to benefit from a highly attractive market environment and disciplined execution. Grid Technology is translating structural demand into higher volumes, stronger margins and robust cash flow. Siemens Gamesa has reached an important milestone in its turnaround, reducing volatility and execution risk for the group and transformation of industry continues to show strong and consistent performance. And taken together, these developments show the transition we want investors to recognize. Siemens Energy is driven by structural growth, stronger execution, improving earnings quality significant cash generation and disciplined capital allocation. And our focus is clear, converting backlog into revenue, revenue to earnings and earnings into cash flow. And this is translating into higher earnings per share and tangible value creation for our shareholders. And our backlog gives us visibility. Our capacity investments support future growth and our service base creates long-duration earnings potential and our cash flow generation gives us the flexibility to invest in the business while returning capital to shareholders. And this gives us confidence for the remainder of fiscal year 2026 and provides a solid foundation for the medium-term framework we will discuss with you in November, as Maria has underlined that we will provide more detail on the next phase of Siemens Energy's value creation journey. I would like every quarter but this quarter, in particular, to thank all our teams across Siemens Energy, great job, Team purple. And the progress we are discussing today is the result of their commitment, their operational focus and their execution discipline. We're entering the next phase of Siemens Energy's development from a position of strength, and we look forward to discussing that next chapter with you in November. Tobias, over to you for questions and answers.

Thank you so much, Christian and Maria. So now we will start our today's Q&A session. [Operator Instructions] So first 3 questions, go to Max Yates from Morgan Stanley, Philip Buller from JPMorgan and Gael de-Bray from Deutsche Bank. So Max, please go ahead.

Thank you, Tobias, my question is just around the gas margins. So it's a really good step change this quarter in terms of the profitability. I just wanted to ask kind of bigger picture, if we look at kind of the margin progression that you've been seeing in 300 base -- more than 300 basis points in 2025, it looks like you're going to do another 300 basis points margin improvement this year. Just when you think about kind of the composition of the backlog, how pricing has evolved in the last sort of 2 to 3 years and what you're going to be delivering in the next 2 to 3 years. I guess my question is, is there any reason when we think you leverage in the service business, the margins in the backlog that, that kind of progression can't continue at these levels. Is there anything as to why the margin progression should have been particularly front-loaded in '25 and '26 and basically why we shouldn't continue at these kind of margin expansion levels?

Simple words, I would say no. I think this is our expectation that we really continue on this margin progression. We see it obviously embedded in the backlog, and you have seen the margin backlog continuously growing over quarter by quarter by quarter. And this is why we hammer so much also on execution and operational excellence because it's important that we unleash this potential that sits in the backlog. And that is obviously something which is, let's say, in the plan, and we share this obviously, on the November quarterly call, the execution of the project and all the backlog, you always have to keep in mind, it takes 2 to 3 years. And in certain areas with the bigger turbines no even longer. So it will obviously give us a good base really to continue to expand margin.

And maybe just to add to that, Max, because looking absolutely in terms of midterm, but again, just to underline, we still do see seasonality in Q4. As mentioned at the half year, we see that less pronounced, of course, as new units even proportionately are higher as a percentage of revenue. But don't forget, I think absolutely, as we continue, we see absolutely margin expansion see that orders we're booking today have higher margins than yesterday. But just again, just to underline that we do see some seasonality in Q4. .

Next question goes to Philip Buller from JPMorgan.

I'd like to explore this demand topic a little bit further, please, beyond what's already you mentioned, Christian, the 2027 pipeline looks very promising, and I hear you on the operational execution side. But can you share any subtleties on the nature of the discussions you're having on that 2027 pipeline. Is pricing still trending positively? Are the payment terms, the slot reservation agreements still favorable. Maria, I think you mentioned that the service contract duration is now 17 years. I think it was 15 years, a year ago. So is there anything at all that's trending backwards as you look at 2027 at a contractual level?

No. At the moment, it's really not, right? And this is where we see positively into 2027. What are the things we're talking about, one thing that, for example, is the German coffee strategy, right, the power plants to be built in Germany. Obviously, this is an alignment agreement phase or reservation agreement phase now is not converted into orders yet. This will come into 2027. But these are these examples, right? And as I always said, I mean, absolutely, we had seen over the last quarters, a lot of capacity going into data centers and the U.S. But also keep in mind that this led to the situation that a lot of other applications are have pushed out decision-makings. And this is why we see Asia coming up. We see the Middle East things coming up. And absolutely, this supports our positive view on 2027.

So next question goes to Gael de-Bray from Deutsche Bank.

It's obviously great to see Gamesa back in the green this quarter. But I'd like to get your thoughts on the recent new merger guidelines from the European Commission, which emphasizes benefits from corporate scale. So do you think further consolidation is required in the wind industry?

Could you repeat the last sentence because you were cut off in the middle and we had a glitch here?

Sorry about this. I was just asking about the merger guidelines from the European Commission, the new 1 on the wind side and whether you think that some further consolidation would be needed eventually in the wind industry to better compete against the Chinese.

Look, I think this discussion is on, at least since I'm with Siemens Energy and rightly so because obviously, competition is particularly on the onshore side, super aggressive. It depends on the region in the world. And I do not see the boundary conditions at the moment in Europe on this discussion like the wind Airbus, which you sometimes hear, right? I mean consolidating the whole industry, is that something was going to come? I don't know. That is more a political discussion than a business discussion that we need to think about how to position ourselves in a very aggressive market onshore and offshore, absolutely clear. But I do not see anything at the moment changed from a regulation environment in that regard. So this is not where we are at the moment. And I also would see it a bit different in offshore and onshore and offshore very clearly. And I think you indicated it, we are really trying also to convey to regulators and governments, you need to get these offshore projects off the ground. Projects are slipping. That's not good. This need to come. And in onshore, it's more about really what is the most competitive setup, not only from an onshore new unit perspective but really also from a service perspective. This discussion will be with us for the next years to come, I would say. But at the moment, I don't see the environment yet in the regulatory market.

Thanks so much. So the next 3 questions go to Alex Jones from Bank of America. Sebastian Growe from BNP Paribas and Ajay Patel from Goldman Sachs. Alex, please go ahead.

We talked a little bit about capacity, please. You seem quite emphatic this morning that you're not adding more gas capacity, but your messaging today and in prior months has been the demand is higher than you expected at CMD last November. And clearly, your 2 largest peers have reacted to that by announcing more capacity. Is there a reason why you wouldn't follow them in announcing a little bit more debottlenecking or brownfield expansion into 2030? And can you comment on how much of the capacity you're already adding to 2030 will be required for aftermarket needs as you move into fifth next decade?

Thanks, Alex. We always convey a clear message. We're expanding existing sites. And the other thing is on gas. And we are strengthening the supply chain in the sense of a vertical element look on this. And this journey, we continue. As we communicated in the Capital Markets Day, and I see no reason to change that. Absolutely, we're trying to squeeze out everything out of existing sites in terms of driving productivity measures. We do a lot about robotics at the moment and thinking about application of AI on the shop floor. And these will obviously be things which hopefully drive more productivity. And with this, we get 1 or 2 more turbines out, but this is all about productivity, productivity, productivity and leveraging the existing footprint what we have. We do investments, obviously, in the gas service as we announced in the Capital Market Day, but this is all about making existing sites more productive. And that is an important pillar to keep, and I see at the moment no reason to change that.

The next question goes to Sebastian Growe.

On the segment as opposed to the group margin guidance for the year. So the 10%, 12% range has been confirmed. I was wondering if you could provide more color with regard to the views on the assumptions for the 4 segments, which I think will be a bit more heterogeneous year-to-date as what you have been guided for the full year, particularly, if you could comment on Grid Technologies and what you see for the fourth quarter.

Hello Sebastian. I have to admit the quality wasn't good. I hope you hear, do you hear me? .

Clear .

Okay. So I think your question was regarding the overall margin development looking at Q4. And based on what we've seen so far this year and essentially what to expect. I think, again, correct, and what I said earlier is that we do expect Q4, again, to have a bit of a moderation effect rather than -- if you think about it, Q3 was quite strong, exceptionally strong, let's say, based on a number of factors. And if you look at Q4, we're looking at it rather around the level if you have from the first half. And I think this reflects more of this phasing and mix effects that we've discussed year-over-year, but as I mentioned, it's a little more moderate this year. And Q3 did benefit from a few favorable project timing, and this is typical in our business, as you know, for example, in TI and/or in other areas, and of course, don't forget, we do have the seasonality in the service environment and Gas Services predominantly where we see typically a weaker Q4. And also, there's also other seasonality not to get into more detail, but things like corporate costs, Also, with respect to cash, right? I mean CapEx is a lot of it's back-end loaded. So all of these factors, if you'd like, kind of come into play in the current quarter again, but I do want 1 last point, please. Q3 is by no means a peak. That's not what I'm saying, and there's more in full, of course, to come in November. Again, we see margins further expanding. We absolutely see the orders that are being booked today with margin expansion. And of course, that will come into play in the next quarters and years. But again, as mentioned, more to come in November.

Thanks so much. So the next question goes to Ajay Patel.

In just on the cash flow. I was looking at the cash flow statement at the back of the presentation. And there's an other line of about EUR 1.1 billion of positive cash flow just under half of the cash flow you delivered for the quarter, I just wanted to know what that was and then you delivered 90% of free cash flow for the full year. So I'm just trying to understand what reverses maybe could happen in Q4 that keeps you to that EUR 8 billion target? Because on the performance you're delivering, I would have maybe expected to even have a shot.

No. Again, I hope I got everything. But again, when you look we're in a very good position on cash, no doubt, right, at EUR 7.2 billion year-to-date. But don't forget, there are other things in there. that from Q4 perspective that are still to come. I mean, on CapEx, I do have to underline, we have a very heavy and of course -- and don't forget there's also in the other line in the cash flow statement. We have things like reservation fees included, et cetera, and things like other related accruals, which perhaps or profit negative, but not cash effective, like personnel-related accruals and so on. So it is a bit of a mixed bag. But again, when you look at cash for us, I've said around EUR 8 million. Yes, we're in a good position, all things remaining equal, around EUR 8 million also means above EUR 8 million. So maybe that kind of puts it into perspective. But we do have some, like I said, puts and takes to consider. .

And that EUR 1.1 billion in Q3 and the Q3 numbers on the other line...

That's what I'm saying, the EUR 1.1 billion, again, in the other line, you do have reservation fees included and also other personnel-related accruals, like I mentioned, again, having a profit impact, but not cash effectiveness, not cash...

So the next 3 questions go to Chris Leonard from UBS, Vivek Midha from Citi and Will Mackie from Kepler Cheuvreux.

Can I focus maybe on the slot momentum you showed incremental new slots Q3 up to 11 gigawatts. And could you maybe update us as you spoke to a strong pipeline for order growth into 2027. How do you anticipate those slots will perform through Q4 and how it's going to date in Q4? And equally, any further commentary on sort of pricing and how that's progressing on those slots between the quarters so far this year?

I'm not sure whether I understood everything because honestly, it was very difficult to understand. If it's about -- I hope I interpret correctly. I mean, obviously, looking on the fourth quarter, we believe the fourth quarter will be lower, not unexpected. And then we look positively into the first half of '27 in terms of orders, but definitely with all the trajectories that we've seen quarter 4 little lower than we are, let's say, somewhere around, what is it, 100 gig right towards the end of the year. This is what we're trending towards. And as you also look into our bookings, what you potentially notice is that, obviously, we try to keep the, let's say, reservation agreements in terms of [ gigament ] relatively Limited is a wrong word, but we obviously more look on orders than on the filing of the reservation agreement, and this is how the structure looks like. I hope I got everything because as I said, quality was not good. .

Yes. I was focusing on the slot reservations and how you expect those to trend into Q4? And I guess you sort of answered it there, but equally .

Yes, it's a little bit honestly, looking out of the window, right? I mean it's -- I don't see any different trends in terms of the reservation agreements as we have seen in the last quarter. It depends more in terms of, okay, when finally decisions comes, so I would not really quarterly plan this.

Now going over to Vivek, please. .

My question is again on gas. I was just wondering if you could elaborate on rough split between new units and service orders in the quarter. You said in the report that in both new units and service orders grew substantially in the quarter, but I was hoping you could give us a rough indication as well as around the pricing within the new units you've booked and any mix effects that may have been within that.