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.
At this time, I would like to turn the call over to your host today, Mr. Michael Hartmann, 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 on our website. Here with me are Christian Buch, our President and CEO as well as Maria Ferraro, our Chief Financial Officer, and Dave will take you through the Q3 The call will be approximately 60 minutes. And after Christian and Maria present, we will have time for Q and 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 twenty 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 The company in the quarter. There was a solid revenue growth given the last year we had a COVID impact But also stable market and market share gains in certain areas.
EBITA before special items For Siemens Energy of €54,000,000 is, to be straight, disappointing. While GPs was absolutely in line, SG and A fell short of our expectations. Cash flow was yet again very strong in this quarter. And let me address right from the start the performance of SG and A. I have to say I'm disappointed with the performance at SG and A for two reasons.
First of all, the turnaround in onshore business has not yet reached the speed and impact I expect. And second, the processes 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 The process is in 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 SG and A needs to be aware of the obligations, and they address it step after step and working through this to really Get to higher and predictable earnings and cash flow.
Let me also be clear that There is a lot of positive elements also with SG and A. I mean, you have seen it from SG and A's call. There is a positive development in Offshore and Service. 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 you really mean it serious as a society, the speed 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're working together Through our Board role with the management of Siemens Gamesa. Let me come to Gas and Power. I'm pleased to see the teams working successfully through the plans. It's absolutely on track for fiscal year 2021, 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, looking at GP, we are, to the extent possible, covered by price escalation formula on our contracts and hedging activities. So for GP, there is no meaningful impact on profitability in fiscal year 2021. Looking beyond 'twenty one, 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're 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 are fully consolidating these results. We now expect a margin for the group in the range of 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 Really, delivering on the fundamentals and to execute our cost out programs. You 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, We're done over the past month. 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 1500 employees have left the company, and we managed this also to a voluntary lever 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 We're improving the base that we not only talk about the cost side, but also the innovations side, which we continue 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're doing, really driving the energy transformation and partnering 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 the field of activity for us is the SF6 free High voltage transmission technology, which means replacing a gas, SF6, which is Which has a very high greenhouse gas potential, 23000 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 So Bichi on the joint developments of high voltage switching solutions with 0 global warming potential and also then to jointly, obviously, Further push us 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 plants, which are Normally, always system critical against cybercrime 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 refer 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 what 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 1st green hydrogen project under operation in Dubai, there in the Emirates, And this is a perfect example also for a future energy system where solar power Goes together with immediately that hydrogen production. Let me highlight a couple of awards.
Also once again To explain a little bit the 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 Life Haim, which is a great example for the need to deal with rising complexity in our power grid. Renewables play a more 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 As 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 best places 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 Zuid Ostlink project is contributing to solve this problem In Germany, we have now won the 2nd 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'm 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 automation and digitalization packages to the first of its kind biorefinery that produces green biochemicals without The use of fossil based raw materials in Loyne, Germany, together with our Finnish customer, UPM, Kumine, To increase also the ESS sustainable portfolio, that 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? 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 an SGOE 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 you over the last quarters that this is always something which I will every quarter bring up what we're 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 roadshow 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 And in this regard, I'm very pleased also that we signed only as a second company the partnership 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 Embassy I ESG rating upgrade To BBB from BBB, 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 And 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 percent or close to $3,500,000,000 to $5,900,000,000 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 We did finish the quarter with a very strong order backlog of $83,000,000,000 This is just shy of about $1,000,000,000 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 SG and A for the quarter. GP had a book to bill of close to 1.
Adjusted EBITDA before special items improved from an EBITDA loss of $213,000,000 to an EBITDA profit in the quarter of $54,000,000 This reflects a margin of 0.7%. I'll further elaborate on this in a moment. Free cash flow pretax came in at $328,000,000 a decline of approximately $100,000,000 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 SC.
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 $4,500,000,000 the run rate was A bit lower compared to the first half. We enjoyed very healthy order levels, predominantly due to Jen during the first half of the year. Orders at SGRE declined by $3,800,000,000 to just $1,500,000,000 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. In SGRE, revenue increased by 14% on a comparable basis. Now looking again at EBITDA before special items of CAD 54,000,000 This is a significant improvement from prior year and reflects an EBITDA before special items loss of $154,000,000 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 CAD 231,000,000 OR margin of 5.1 percent. This is an improvement of 6.40 basis points, of course, against Our Q3, which was a weaker quarter last year. For the 1st 9 months or year to date, EBITDA before special items at Siemens Energy improved From a loss of $87,000,000 to over $700,000,000 this reflects a 3.90 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 $178,000,000 of special items for the quarter. For the 9 months ended, we are at 392,000,000 Which is down substantially from prior year, which, of course, was impacted by the strategic portfolio decisions relating to the our AGT portfolio With an impact in last quarter of just over $700,000,000 Looking at GP for the current quarter, we have $95,000,000 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 $25,000,000 as expected in Q3 and takes the full number for the 9 months to just shy of $100,000,000 at 96,000,000 Strategic portfolio decisions are at $27,000,000 This pertains again to the ongoing analysis we continually review the Streamlining of our aero derivative 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 and Power segment due to the AGT portfolio. The financial result in this quarter came in at negative $9,000,000 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 $77,000,000 of income tax expenses due to non recognition of deferred tax asset at SGRE. As Jerry, 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 $26,000,000 in the current quarter. GP I mean, this is evenly shared. GP and SG We're both up around $12,000,000 Free cash flow pretax came in at $328,000,000 As mentioned before, a decline of approximately 100,000,000 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 prepayments 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 $473,000,000 in Q3. This improvement is mainly driven by the increase in loss provisions at For the 1st 9 months, the group's free cash flow pretax improved By $272,000,000 in the prior year to $373,000,000 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 $4,600,000,000 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 CAD100 1,000,000 Of course, looking then to our net cash, this increased from prior quarter at plus CAD250 1,000,000 We have our normal pension provisions, and there's a new amount here of credit guarantees of $62,000,000 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 current 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 20 So now, if we can please go to the next slide and look at our Gas and Power segment specifically.
As mentioned before, positive development across all KPIs in our Gas and Power segment, truly a solid result. Orders showed an improvement, rising 11% on a comparable basis year over year. For the 1st 9 months, we have $14,700,000,000 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 New units revenue rose by 9%.
For the 1st 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 $50,000,000,000 and this is roughly on par with prior quarter end. Again, our EBITDA came in strong For GP, at $231,000,000 or 5.1 percent, this is significantly up versus prior year for 6.40 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 $384,000,000 It's also important to note that GP generated close to $1,000,000,000 of cash during the 1st 9 months. And also to note, that 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 $450,000,000 Transmission and Industrial Applications contribute 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 our return to growth and operational improvements across all businesses. This is also in line, and we are on track With the $200,000,000 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 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 continue 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 10 100 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 observe 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 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 2021 and also the 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 SG and A Board on 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 'twenty three cost out targets As we communicated in the Capital Market Day last year, and we also confirm our fiscal year 2021 guidance for GP as well as the fiscal year 2021 Revenue growth guidance for Siemens Energy. Because of the shortfall at SGRE, we need to adjust the full year guidance for Siemens Energy now expect an adjusted EBITA 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 and A, we've got about just under 30 minutes. As a reminder, if you want to register a question, And I was just reminded that please don't use a speakerphone because the So the first question goes to Ben Uglow. Ben, if you please go ahead.
Yes. Good morning, everyone, Christian, Maria, Michael. I hope all are well. I had one question and maybe if I can slip in Follow-up. The first question is around pricing conditions.
You mentioned that you were implementing 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, Are all competitors at the moment doing exactly the same thing? So that was question number 1. Very quick follow-up, if I may.
It's really been a tale of 2 companies between Gas and Power and Siemens Ganesa. There's been a huge amount of press speculation, I stress it's unconfirmed that you're conducting some form of strategic review, etcetera. Can you just clarify what the state of play is in terms of the Siemens Energy thinking about Siemens Gamesa, please? Thank you.
Good morning, 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 The one thing is around price level.
The other thing is about the 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 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 take a look at the rest of the business because you said it across the board, let me a couple of words. So 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 So really our cost out measures and compensating this in transmission, I see a good pricing environment. It'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 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 yet effective turnaround in Enjou 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.
Thank you very much. And if you have some time, I'll pass it on for now. Thank you.
Thanks, Ben.
Thank you, Ben. And the next question comes Andreas Willi at JPMorgan. Andreas, please go ahead.
Yes. Good morning, everybody. Thanks for the time. My first question is on margin development. For Gas and Power, you appear well on track for this year and you have a 20 20 Three targets 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 the linear improvement? 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 to where you would expect it to see?
Or is there a little bit more to come 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 bill 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 and now Hitachi has been kind of The market leader there, so how do you expect to benefit in the U. S. From these potential support measures?
Andreas, good morning. 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 With that, I think the mix goes to service. With respect to service, Christian?
Yes. I mean obviously, I mean on the margin in terms of cost of 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 2021. 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 there was particular in Jan also now Strong contribution there, which then will obviously look different in 2022, 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?
Thank you very much.
Thank you, Andreas. And the next question goes to Vivek Mitra at Citi, Vivek, if you please go ahead.
Thank you.
Thank you very much. Good morning. Thank you so much for taking my questions. 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 Are you with that, that 2023 target? Thank you.
Yes. Maybe, Maria, you want to take it because it's important to understand the
Correct. No, thank you for the question, Vivek. And I think exactly there's the process behind. And of course, The guidance for 2023 comprises the GP and SGRE segment. And at this point in time, we do confirm the outlook 423.
Of course, as you rightly said, we're looking at the developments and, of course, the sense of urgency is felt Within SG and A to fully address those topics and to assure that we get back online. But right now, there has been no 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?
Thank you very much.
Thank you. Thank you. And the next question goes to Gerd Debre at Deutsche Bank. Gerd, please go ahead.
Thanks very much. Good morning, everybody. 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 would 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 Looking into next year. Hi,
Gail. Sorry, Gail.
No, please go ahead. I have a follow-up.
Okay. Hello, Gail. 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 At the midpoint of that range, Gail, 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
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 1st 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 Clothe alignment with SG and A Board on the remediation measures.
Sorry to push again a little bit on this, but What does that mean in terms and what kind of role of different role can you play if the
Sorry, I guess you can hear me better now, Gil. 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, €1,000,000,000 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, Gail, that in Q3, we also saw a few Preponents of payments, which is interesting perhaps pre post COVID.
This went into Q3 and also may have impact from fiscal year 'twenty two. 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 three quarters, However, impacted by Q4, but a strong finish overall. Okay? Okay.
Let me comment on the measures with Gerry, 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. As Gerry 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 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 5x platform and the 3rd element is around the raw material prices. And this is where we can, Let's say, help also the SG and A management, also from the SE side to better tackle these issues. So there are possibilities, obviously, Going one, 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.
Okay. Thanks very much.
Thank you, Christian. 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 Chang at Credit Suisse.
Iris, please go ahead.
Thank you. Good morning, everyone, and thank you for taking my questions. My one question, if I can follow-up on the Ganesa And I do appreciate that you can't confirm or not confirm your intentions of to acquire or not acquire The full stake of KAMMSA, but would like to get some understanding of your thought process around this. So what are the potential maybe upsides or synergies or benefits that could be there if the 2 companies are run as 1? And on the other side, I mean, what are the maybe the pros and benefits of 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? Thank you.
Yes. Thank you very much. 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 projects 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, well, 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 turbines. So there will be a lot of mixed diverse solutions. And this is what we obviously Have to bring together synergies, whether we do it better in a 67% ownership structure or 100% ownership structure is a completely different question where I 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. It's a and it's honestly Yes, it's 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
Thank you. With that, the next question comes from Sean McLaughlin. Sean, if you please go ahead.
Thank you. Good morning. I just wanted to follow-up on Gael's question before. I understand you feel At the midpoint of the guidance range, but I just wanted to understand, should we interpret your leaving the Guidance range unchanged for Gas and Power as more of a stylistic choice rather than an implied Volatility in Q4. Thank you.
Sean, I appreciate your terminology of stylistic choice. And I think, again, we feel very comfortable with that range. We don't want to leave the impression that there's something So perhaps maybe it goes back to your stylistic choice as such, because again, we reconfirm the range. I think it's as simple as that. And we feel very comfortable, as I mentioned to Gail, on where we will land within that range.
So I maybe use that in the future to say it's a stylistic choice then, Sean.
Thank you. And if I could just understand what would the Implications be around the higher end of that range. What would be needed in order to get that review?
Yes. Sean, maybe to reconfirm and to make it to the point. I think we've had A few especially in GP, specifically talking about GP, we've had solid 3 quarters. But we do and we have indicated, you know, Consistently that Q4, we do see a mix issue. So I think it's important to note that, that mix issue will hit us in Q4.
So hence why, I mean, we did not change the range, but we feel very comfortable in the midpoint of that range. Yes? Sorry, go ahead. Thank you.
Thank you, Sean. So the next question goes to Sebastian Kroeve at Commerzbank. Sebastian, over to you.
Hi, good morning. Just two questions, if I sorry, for the 2. But the one on onshore, you said in the earlier interview today that synergy potential Between onshore and offshore needs to be better exploited. So can you tell us what the key areas should be for that? And what are you undertaking as a shareholder to do better in this The other one, just a clarification around Andreas' question on the midterm guidance.
My understanding from what you said and keeping that guidance alive would be that So GP is simply running ahead of your earlier plan, so that you take a more comfortable stance eventually on that guidance. I see if you use an Onshore. Would that be Proper reading or fair reading at that point?
Thanks, Sebastian. I hope I heard the last part of the question right because the voice quality was not good. On the synergies between onshore and offshore, I made this in the, let's say, in the conjunction with There was a question whether it makes sense to disregard onshore. I don't think so because at the end, size matters and really combine, Obviously, procurement efforts, hedging efforts and all these likes. And we see it, obviously, that Siemens It has not been done good enough.
Otherwise, we would not have certain headwinds there. And I think there's potential, and we can obviously also Help Siemens Gamesa with even more deploying, let's say, going a level deeper and deploying processes, tools And I'll say detailed support to Siemens Gamesa to achieve this. On the Midterm guidance, I hope I heard your question correctly. But if the question was, am I satisfied in this GPU, a little bit of running ahead of their plan in terms of By delivering, I would say we are fully on track with what we wanted to deliver. That's my message.
The midterm, I feel absolutely comfortable with. And I also always said it's a multiyear exercise, step after step improving, and I see us in GP on this track.
Okay. Thank you.
Thank you. And the next question comes from Simon Tennyson at Jefferies. Simon, if you go ahead, please.
Yeah. Good morning, everybody, and thanks for taking the question. Christian, can I just ask big picture again? And Apologies for going back to SG and A, but it's, I guess, the number one questions for investors right now. I mean, you're not Too far away from 1 year listed as a separate company.
And within GP, you're generating close to €1,000,000,000 of free cash Now in the 1st 9 months, but your shares are basically moving and underperforming the sector in line with SG and A certainly year to date. And I guess with the issues at SG and A recently, the market will argue that it's going to be even more difficult for GP to realize What is a fair value, I guess? So do you think you can create value for GP in the current company structure? And as a follow-up maybe, do you think the fact that your stock is moving in line with SG and A is just SG and A related? Or do you think it's The lack of, I guess, ESG story maybe at GP, we've talked about, obviously, the steam for a while.
We've talked about the oil and gas business in the past. So just trying to get your views on that and what management do you think can do to see a better, I guess, reflection of the fair value of GP?
It's an interesting way to ask a similar question, but I will try to answer this. Obviously, The overarching picture, let me first start with the stock price development where I'm not satisfied with because it's not fully understood in the market how important Siemens Energy is for this energy transformation. This is why I also continue to bring up the examples from the different areas. And I think it's twofold. The one thing is I think also the market is too simplistic to understand the energy transformation, to be honest, right?
We will need this diversity in the portfolio what Siemens Energy offers To master the energy transformation, you will need transmission, you will need storage, you will need gas turbines, you will need wind turbines, you need an Entry into also electrification of the businesses. And I think that's not well understood, and this is where we will continue to try to that this diversity is a strength because very few companies can do it. And this is why I continue to elaborate on these three pillars of the Company, because these you're going to see also going forward continuously, we need this because the market and the energy transformation are going to need it. And this is something where we are at the starting point in terms of explaining it also to the market. At the same time, I have to say, look 1 year back on how the market has looked on GP.
I mean, then we everything everybody was talking about It's the old business. It's not interesting. And I think the market starts to understand that there is a lot of value in GP, Which is not yet appreciated in the stock price. And this is something where we continue to work on with all measures we can identify. That is my ambition level, but I it doesn't change my long term picture on how I want to shape the companies along these three pillars.
But obviously, I cannot be satisfied with the stock price development at this point in time because there's more value in GP which is not appreciated, But step after step.
Thank you. If we can keep the questions now really brief and the answers just as much. Next
Yes. Hello. Thanks for taking my question. My question is on transmission. In order to expand your product portfolio eventually Would you think about going into the low voltage segment?
Or to put it differently, are smart city applications of interest for you in the mid run-in order Provide full scale products and solutions for your clients. And if not, why not? Thank you.
Yes. Thank you very much. I mean, we're coming from the high voltage side, so I would not, At the moment, looking to the low voltage side, but obviously, there is an extension to the portfolio. I always said it, which could be interesting coming from where we are, obviously, also And the TSODSO area, in terms of how is grid managed, what do we need for grid stability And what is the right voltage level to be? That is something which we will continue to look on.
This would not apply to like low voltage Distribution, but obviously, there's more things in transmission around this where we could still extend our portfolio, and we will continue to look into this. If you want to Exploit the full beauty of the infrastructure spendings, I think we It makes a lot of sense to look into extension of the portfolio, but this is partly done on own developments, partly obviously, we're What else we can do outside this more unorganically, but this is too early at this point in time.
Great. Thank you.
Thanks, Christian. We've got time for, well, 3 more short questions. So next one comes from Rajesh Singla At SocGen, Rajesh, please go ahead.
Yes, hi. Good morning. Thanks for taking my question. I just have one question in terms of Your view on SGRE, do you really think like SGRE could do a better job in dealing with whatever crisis they had in the last quarter? And also like what kind of control do you enjoy on the strategic initiatives?
Yes, thanks, Anna. I think it's also important to give some credits also to the new management team which is just also addressing it. Don't forget the management team which we have now installed over the past 12 months, starting off with the CEO, But also going down in each and every businesses where there's new people in place, some of the last one joined back in March. So They're working through this. And yes, I think they can tackle it and they can do it.
And this is something which We also have to see as unsatisfied I am with the results, we also have to see that working through it, some of the issues which Some of the time's results from some time back take some time. We do have, obviously, the abilities which a Board member has in terms of through reports, through transparency, through questions to look into this, we are also as board members Part of the strategic positioning and strategic revision under Spanish law, this is role of the board, the strategy. And this we can influence from a strategic point of view on where to go and what
Thank you. And the next question comes from Supriya Supriya at UBS. Supriya, if you please go ahead.
Yes. Hi, good morning. Thank you for squeezing me in. I had a question on the transmission business, maybe a follow-up of the previous question. It's related to If you look at transmission spends right now, the main growth area seems to be around the Digital Grid or Digital Products segment.
Wanted to get your thoughts on one is what is Siemens Energy's exposure to digital side of the grid investments? And yes, your outlook on that as well as traditional network spends as well. Thank you.
Yes, thank you. Yes, we're building this up. And obviously, I'm not sure whether you have seen earlier this year, we announced also our approach with Edge Solutions and Digital Grid. And we had the and trying to build really an IoT based, let's say, platform around our installed assets. Overall, with what we call digital solutions comprises everything in GP side, not only transmission but other others.
This is a little bit ahead of €1,000,000,000 Business which we will continue to build. We obviously want to benefit from the situation that the grid has Get smarter, no questions. So it's more about IoT. It's more about Edge. It's more about Digital Solutions.
We will continue to build on this. I see us well positioned in this, but it also means that we will continue to explore opportunities to either partner, Co develop, self develop or even find onorganic solutions to continue to extend this.
Okay, great. Thank you.
Excellent. And the last question comes from Jonathan Monsey at Exane BNP Paribas.
Yes. Thanks for fitting me in, guys. This one Relates to the China JV, if I remember rightly, I think from the annual report, you don't actually own it. I think Siemens had to retain it because I think Spik had first refusal on an ownership transfer. I think it refers to maybe $220,000,000 you have to pay to buy that at some point in the current fiscal year.
Has that now happened? If not, is it still going to happen this year? And also, is it still EUR 220,000,000?
Yes, thank you for the question. Yes, this is a setup in there. This has not yet happened. Obviously, also A little about the current situation in China, in particular also around, let's say, the joint venture partner. I do not expect this to be concluded in 2021.
I In the carve out to pay for this buyout, if not, it needs to be retransferred. So I think the numbers remain the same What you have to consider, but it will be rather 'twenty two what I would look for.
Understood. Thank you.
Now thank you, everybody, for all your questions and dialing in. I'll hand over to Christian for some closing remarks.
Yes. Thank you very much, Michael, and thank you Thank you very much really for anticipating the call. I can only, let's say, reconfirm our view GP on track. As GLE work to be done, we will continue to do so. And the overall energy market Looks for me promising, and I see, obviously, the all the initiatives globally to tackle it and tackle the infrastructure, which It leaves the overarching picture for us intact as a company.
But definitely, in this regard, we look in the mix quarter. And as you we are dissatisfied with the SG and A results, But at the same time, happy with that the rest of the business is delivering what we promised, and we will continue to work on this.
Thank you. Thank you.
Thank you. Thanks, everyone. Happy holidays. Bye, everyone.
Thanks. Bye bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the Investor Relations section of the Siemens Energy website. The website address is www.siemansenergy.com/investorrelations.