Good morning, ladies and gentlemen, and welcome to Siemens Energy's 2022 First Quarter Conference Call. As a reminder, this conference call is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on page two 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 Hagmann, Head of Investor Relations. Please go ahead, sir.
Thank you, Judith. Very warm welcome from my side also. As you know, all documents were released at seven on our website, and now I'm here with Christian Bruch, our CEO, and Maria Ferraro, our CFO, and both will take you through our results. That should take approximately 30 minutes, and thereafter we should have about 30 minutes for Q&A. With that, I hand over to Christian.
Yeah, thank you very much, Michael, and also good morning, everybody from my side. Thank you very much for joining Maria and myself for our quarter one, 2022 conference call. I hope you and your families started safe and healthy into the new year. The current wave, obviously, of Corona and Omicron appears to be more infectious than the previous ones. As we have not experienced these levels of the infection rates before, first priority for us is obviously caution on health and be careful of the safety risks. Like always, Maria will walk you through the financials later, and let me highlight some key developments up front.
We had a very solid start of Gas and Power into fiscal year 2022, and I am very pleased to say that I do see also all the activities and efforts in the energy transformation really paying off in our GP part. However, the development at SGRE is lagging behind our expectations, and this means that overall for Siemens Energy, quarter one was behind expectations. You can see the headline numbers on the slide. As you know, we had to adjust our guidance for Siemens Energy Group for this year, and we have to reassess the targets for 2023. As we have pointed out in our press release on January 20th, this is due to the developments at SGRE, particularly in the onshore area. GP is on track to reach its targets for this year and also for 2023.
Maria will take you to more details in a couple of minutes. Before I will walk you through my assessment of the situation at SGRE and elaborate on the recent developments there, let me talk briefly about sustainability. I have been pointing out that we place sustainability at the heart of our strategy, and we explain also what this means going forward for us and also on how you can measure us on this in our sustainability report, which we published on January 25th. At the Capital Market Day in May, we will also explain in more detail also going forward, what does it mean, what do we amend, and how do we reflect the sustainability focus in our actions.
One big action we are taking is obviously now to show this improvement step after step and also making sure that we have a measure of progress. When I'm looking at the current market environment, I'm glad to see that the boundary conditions globally have started to improve. The right targets are set to realize the energy transition. Even so, the politicians around the world certainly still need to increase the speed of implementation to reach the targets in time. At the same time, we are experiencing headwinds. You all hear it across the industries. Material availability, supply chain, and logistics provide challenges, and these require obviously a high focus in both segments, GP and SGRE, to manage these challenges. The supply chain elements have weighed higher on SGRE, on the profitability compared to the GP segment.
This is obviously due to the fact that wind comes with more material dependency and logistics compared to conventional technologies. As you know, SGRE management cut its guidance for 2022 and now expects revenue to decline between 2%-9% on a comparable basis rather than 2%-7%. SGRE expects that the adjusted EBITA margin before special items to come in between -4% to +1% rather than being between +1%- 4%. Due to the adjustments to SGRE's outlook, we had to revise our guidance for Siemens Energy for fiscal year 2022. We now expect SE's revenue development to trend between -2%- +3% on a comparable basis. This compares to -1%- +3% before.
We now expect the adjusted EBITA margin before special items between +2%-+4% versus +3%-+5% before. As we communicated before, we are also reassessing our targets for 2023. I would like to clearly outline for GP. We confirm our guidance for this year and next year. Now let me talk a little bit more in detail about SGRE. The ad hoc announcement absolutely was disappointing for us, full stop. I said in quarter four that we believe that the right measures have been taken, and I continue to believe so. It's also obvious that in the current market environment, the challenges in the onshore business could not be solved in a couple of months.
However, it appears that the management was too optimistic about the market, and processes have not been followed as rigorously as they should have been in the current market environment. In the actual situation, it's the highest priority for us also as a majority shareholder to stabilize the processes in project execution and in the fabrication to achieve the best possible predictability of the financial results. As you all probably heard, SGRE's board announced last Wednesday that Jochen Eickholt will succeed Andreas Nauen and take over as CEO of Siemens Gamesa Renewable Energy by March first.
Jochen has been working obviously on the Siemens Energy board, and has a long and proven track record across different companies, turning around businesses in challenging situations and with a strong focus on managing down on conformity costs, but also operational excellence, and has the skill set and experiences to help Siemens Gamesa in the current situation. I also would like to thank Andreas Nauen for his dedication and service to the company. Andreas will support Jochen over the coming weeks to ensure the transition as smooth as possible in this situation, and obviously now with a full focus on really making sure that onshore gets on track. At Siemens Energy, Jochen has been a member of the executive board responsible for Generation and Industrial Applications as well as the regions Asia Pacific and China.
I'm very glad to announce that we published today in the morning that Karim Amin has been approved by the supervisory board of Siemens Energy to succeed Jochen as of March first. Karim has been driving the turnaround at Generation. He leads today our largest division Generation and will take over Jochen's responsibilities, and I'm very happy with this addition to the executive board of Siemens Energy since Karim is obviously a long-standing and very experienced individual in the industry, but at the same time also has a fantastic customer focus and fantastic people management capabilities, and I appreciate that we have him on the board now. When assessing the loss at Siemens Gamesa Renewable Energy and the cut in guidance, we have to do two things. A, have to acknowledge the fact that the low level of profitability largely originates in onshore.
To underline that service continues to do well and as the impact of external factors on the offshore business is far more contained than in onshore. B, we have to differentiate between internal and external factors. You also heard from others that external challenges such as bottlenecks in the supply chain, increasing raw material costs and logistics are impacting the results. SGRE got hit harder because of the low margin in the backlog, but the whole industry is struggling and needs to adjust. That said, wind remains a key pillar in our strategy. It is key to the energy transition and the market offer strong growth potential.
If you just look on the annual onshore wind installation, they are expected to grow from close to 80 GW in 2021 to 100 GW in 2030, and this means the installed base will roughly double by the end of the decade. Wind turbines like gas turbines are also subject to wear and tear, which makes it a profitable service business. These are all elements where I believe that it's a very interesting business, and we have to do the things right to make it a profitable business for us. As I mentioned already at the beginning, we are seeing a change in boundary conditions. Key countries have taken concrete measures to reduce emissions, and if you want to reach 1.5-degree targets, more countries will have to follow.
In this context, I believe that the COP26 was an accelerator and hence is an important milestone for the energy transition. I always would like to hint to the three pillars, which I also have shown in the previous analyst calls on what we are doing and explain on how we do things. You know our strategy is based on three pillars: low and zero emission power generation, transport and storage of energy, and then third, reducing the CO2 footprint and energy consumption in industrial processes and with this shrinking the problem. Let me use the German coalition treaty as an example and show you how our three pillars support our customers as they need to invest in their existing infrastructure to comply with these government initiatives and to cut emissions. Let me start with the low and zero emission power generation.
According to the coalition treaty, Germany will phase out coal by 2030 rather than 2038, and also by 2030 wants to generate at least 80% electricity from renewable energy sources. This at the same time means that Germany will have to have 30 GW offshore wind capacity by 2030, which is a 50% target increase from before, and Germany will require highly efficient and hydrogen-ready gas power plants as transition technologies. In both areas, Siemens Energy is a market leader in offshore wind and a provider of highly efficient hydrogen-ready gas-fired power plants. Already today, we can offer up to 50% co-firing capabilities on large gas turbine frames and up to 100% hydrogen capability on medium-sized frames. Let me now look at transport and storage of energy, our pillar number two.
As you know, in Germany, we need to transport electricity from north to south, and even more so, we build out more offshore capacity, and we need to shore up the grid in order to deal with the rising volatility because of increasing share of renewables and consumers. The coalition is now making funds available and at least as important, it will accelerate planning and permitting processes for grid development so that we get out of the problem that it takes a decade to build a new power line, as it was the case for SuedLink, which required like 13,000 permits. As a market leader, we expect to benefit from these development. Let me also talk about our pillar three, reducing the CO2 footprint and energy consumption in industrial processes. Industries are responsible for roughly 20% of all CO2 emissions.
For them to cut emissions, it will require an incentive, and the coalition has identified CO2 pricing as an important instrument to provide this incentive for the various industries to reduce their CO2 footprint. We can provide solutions such as electrification of processes or the use of excess heat through heat pumps to reduce energy consumption in industrial processes. In this regard, let me highlight three projects wins out of the last quarter, which demonstrate that our customers already need our solutions now and that the portfolio of Siemens Energy aligns well with the energy transition. In reference to the low or zero-emission power generation, we have received yet another order for our highly efficient HL-class power plant technology in South Korea. That is already now the seventh order from South Korea within 24 months. This is a successful, really, market introduction of a new product.
You know the HL turbine. This is our largest turbine, which got introduced into the market two years ago. Since then, we are really ramping up the number of projects we win based on this technology. Following a change in the governmental and environmental policy in Korea, the decision was really to build such a highly efficient combined cycle power plant instead of a previously planned coal-fired power plant. If you look on the switch going from coal to gas, and you would look on this power plant particular, then with this new highly efficient plant, we would save up to 3.7 million tons annually of CO2 by switching from coal to gas.
SF6-free switchgear, this is the second example, is proving to be one of the technologies of choice to also reduce climate impact if it comes to transmission technologies. We have to decide to strengthen our capabilities in this regard by investing EUR 60 million in a new vacuum interrupter factory in Berlin to bring vacuum tube manufacturing competence in-house. What it does actually, this vacuum interrupters, and this is belonging to our what we call Blue Portfolio, it replaces climate harmful SF6 by a vacuum design, which is obviously now new in the industry there. The gases, if you look on SF6 as a gas, are more than 20,000 times more harmful to the environment than CO2.
Now obviously it will depend on the customers also to get into this technology, but to make sure that also on the transportation side or transmission side, we apply climate-friendly technologies. As the last example, I want to highlight the reduction of CO2 footprint by also co-injection of hydrogen in a gas turbine. It is something you may know from the EU taxonomy discussion we have at the moment as a vital part. But it's also important for us to demonstrate these type of technologies in countries like China, which today are highly dependent on coal. We are very proud to have the first hydrogen-run or hydrogen coal-fired plant running there at the moment at 15% hydrogen co-firing. It's supposed to go up to 30% co-firing by the end of the year.
This is obviously related also to the Chinese government initiative, with the 30/60 strategy to get to the carbon peak by 2030 and carbon neutral by 2060. This is also accompanied by our research and development activities out of Shenzhen, which we do together with Chinese partners. Let me now come to our quarterly ESG update. As mentioned at the beginning, sustainability is at the heart of the strategy of Siemens Energy, and I firmly believe that this focus will make Siemens Energy more successful going forward. We have published our sustainability report end of January, and what we are trying to achieve is that we make ourselves measurable also for yourself to follow what we are doing.
We have laid out our targets for Scope 1 and Scope 2, and we will achieve the targets we have set actually for 2030, five years earlier than originally expected, which means a 46% reduction in our own CO2 emissions, which we tracked. We also set the target obviously by using only renewable power until 2023. We have, like, a 71% rate today, and we're making fantastic progress there. With this, let me hand over to Maria for the financial numbers.
Thank you very much, Christian. Good morning, everyone, and a very warm welcome from my side. I'm pleased to share with you our Q1 financial results for the group, Siemens Energy and Gas and Power. I'm happy, of course, to answer any questions you may have. As you're all aware, we already published early results on January 20th, but I thought I'd like to take the time to go through some more details in the following slides. Going to Siemens Energy Group at a glance, before I take you through the development at Gas and Power, which Christian already mentioned a few things, we had a very solid start to the year. As you see here, our group orders increased by 10% comparable and 12% on a reported basis. What's important here is both segments contributed to that growth.
As you can see, we did have some tailwind or the currency has swung in our favor, which was not the case last year. We also finished the quarter with a record order backlog of just over EUR 87 billion. This is EUR 3.3 billion higher than the backlog we had at the end of September. Again, simple math, the 87 represents essentially around three years of revenue. Again, going to our sustainable value creation, it's all about building that solid foundation to deliver the profit improvements that we're striving for into the future. Revenue declined by 11% comparable and 9% on a reported basis. It's important to know that this decline was expected due to normal timing effects associated with the execution of our large projects.
We are a large project business, and so therefore, we will have volatility quarter over quarter, which we'll see in a moment when we look at the quarterly development. At SGRE, however, it should be noted that of course, the decline was slightly more pronounced as a result of the Q1 call. It's also due to things like lack of material availability and supply chain constraints, which is of course impacting conversion of backlog into revenue. We also saw this in Gas and Power. I'll touch on that in a moment to similar impacts, but to a lesser degree. Book-to-bill, you see here a very strong greater than one, of course, at 1.4. A very strong book-to-bill for the group. Both segments also have greater than one book-to-bills. Adjusted EBITDA before special items was - EUR 63 million.
It was lower than expected, and as I just mentioned, that's why we had our early announcement on January twentieth. Reason being was due to SGRE, as you're aware. However, GP actually did better than expected, and I'll talk about that in a minute. There's a few reasons for that. However, it could not compensate the sharp year-over-year decline, which was almost entirely driven by the swing at SGRE. Free cash flow, also a mixed picture here. It came in at -EUR 69 million versus -EUR 388 million, so a substantial increase versus prior quarter. Again, as I mentioned, diverging developments between the segments.
On one hand, we did get a better than expected performance at GP with free cash flow pre-tax of EUR 722 million, but unfortunately was offset or more than offset by the negative cash outflow, of which most of that was expected at SGRE for the quarter. Let's move on, please, to the next slide, where we would go through the quarterly development. Again, I really appreciate and want to share with you this quarterly development. I think it shows the volatility that we have in order intake and also in revenue. This again goes hand in hand with our large project business and, on the revenue side, things like project phasing, as I just mentioned.
Looking here again, EUR 8.3 billion for the first quarter of this fiscal year, almost EUR 1 billion above prior year quarter level. GP increased by almost 12%, SGRE 7% comparable. I think it's also important to note that both segments benefited from a higher volume of larger orders compared to prior quarter. Group revenue decreased by 11.4%, comparable. While the GP revenue declined as expected, it was negative just shy of 6%. SGRE's revenue was down by negative just over 23%. This is driven by a decline in the wind turbines business. At the SE level, the decline overall was driven really by new units. What's important there, what I'd like to stress is that the service revenue rose year- over- year.
We also see a sharp decline in the adjusted EBITDA before special items from EUR 366 million profit to -EUR 63 million. Again, not to repeat, this is, of course, the loss at SGRE, which has countered the strong performance at Gas and Power. Let's move on to the net cash position, please, on the next slide. This is the group cash bridge. I take you through this each and every quarter. It shows, of course, it goes from our cash and cash equivalents. And here you see we have EUR 5.2 billion in cash and cash equivalents. Of course, the regular receivables from Siemens Group, putting us to a total liquidity of EUR 5.3 billion. This is higher than at the end of the first quarter last year. We then have EUR 3 billion of financial debt.
This is up from the last year, of which EUR 2.2 billion is long-term in nature. This is higher than at the end of the first quarter last year and does reflect a rise of just over EUR 400 million at SGRE, which accounts for the majority of our long and short-term debt. We then have a financial liability to Siemens of EUR 190 million for a net cash position of EUR 2.1 billion, slightly higher at EUR 388 million higher than at the end of the first quarter last year. What's also important here, it's an important position for us, is the provision for pensions and similar obligations. It's increased slightly, but has remained quite stable as compared to prior year and to the September 30th or last fiscal year end. Credit guarantees are also at the same level.
It's also important to note that this is for an associated company for which we as a group issued guarantees and will only run till July 2022. Taking into account everything that I've just mentioned here, then we have a net cash position of EUR 1.2 billion. I just want to kinda underpin this. This is a healthy cash balance. It's unadjusted net cash, unadjusted net debt, and gives us the confidence that we have the funds required to invest into those three pillars, as Christian outlined for us. Of course, and also as I highlighted here, we do have some expected cash out. We mentioned that already to you. And things like, of course, dividend restructuring and non-carve-out or, let's say, post-carve-out activities that we will need to settle this year.
We're confident with all of this, we'll still be able to ensure we pay dividends and keep our solid investment grade rating. Moving on, please. Now let's take a look and dive a little deeper into our Gas and Power segment. Again, have to say, we're very pleased, it continues to deliver in line with our expectations and is on track. We did not amend the guidance for Gas and Power, as Christian mentioned, so we are on track to reach our 2022 guidance.
Looking at Gas and Power, we see here the major KPIs, and it's important post-pandemic, we're taking advantage of the improving market environment, and we booked strong orders, as mentioned, EUR 5.9 billion in orders during the quarter, a 12% increase rather on a comparable basis and on 14% on a reported basis year-over-year. This results in a very healthy almost EUR 54 billion, EUR 53.6 billion to be exact, of backlog, which is higher again than at the end of September. What's also important, and I'm often asked questions about that, it's not just the fact that we're growing our backlog. Of course, we want to grow our backlog, but that we're also improving the margins in the backlog. I think that's super important. I've indicated before that this is necessary in order to support our mid-term targets.
I'm glad to report that we are seeing continual improvement in the margin in our backlog. So that's a very great job on behalf of the team. Looking at revenue, slight decline, as mentioned, 6% comparable, 3.6% on a reported basis. Again, this decline was expected. Again, we do see that volatility quarter-over-quarter in our business. It was not a surprise. We have been planning for growth to be skewed towards more of the half, second half of the year. This is normal and based on timing effects associated with the execution of our large projects in our order backlog. Also important in, as I mentioned earlier, also at a group level, but certainly here in GP, the service revenue was resilient. On a reported basis, it increased by roughly 1%.
New business or new unit business rather declined by 5%. This of course, as I mentioned, was slightly down due to the phasing of the projects and of course also selectivity. Book-to-bill, very strong, over 1.4. Again, this solid foundation that we continue to build on. Looking now at adjusted EBITDA. Before special items, we came in at a strong two, just over EUR 240 million or 5.8%. As Christian mentioned and as I already mentioned, GP really did have a solid start into the fiscal year. Also, if you recall last Q1, so Q1 of prior year, we did benefit from quite some positive incidentals. I even outlined that it was things like delayed spend, reduced discretionary spending, hedging, etc. One-time project effects that were positive. This quarter, we always have puts and takes.
We always have incidentals, but there were no significant incidentals or more like one-time or temporary effects in the current quarter. What does this mean? This means that on an underlying basis, our EBITDA before special items as well as our margin improved, of course, driven by our operational improvements, our cost out measures, and we also did have some tailwinds from FX and mix effect. Of course, as I mentioned, the ongoing execution of our projects, this has actually been going smooth. There wasn't anything critical in Q1 as well. This is also important and has a positive impact on our EBITDA.
Last but certainly not least when it comes to EBITDA, I do wanna mention that we guided that we will continue to deliver and have committed to EUR 200 million savings in the financial year of fiscal year 2022. If you recall, we also had a similar commitment last year and delivered on that commitment, and it looks like after Q1, we continue to remain well on track with our measures there and see that we're on track to achieve that additional EUR 200 million savings in the financial year 2022. Free cash flow, clearly a highlight of the first quarter, and free cash flow pre-tax of EUR 722 million. This of course is, you know, relating to our business model. We do get project-related advance payments.
This, of course, is also CCR of over 2.8% to be clear. Let me explain a little bit about how the cash flow worked this quarter. The strong cash flow in Q1 had some tailwinds, such as strong order intake, which of course also drove a favorable shift in relation to contract assets and contract liabilities. In addition, we did have relatively low restructuring cash out. I am pleased with the performance in GP. I think it's important to kind of give a view for the rest of the year. Looking at the cash profiles of the projects that we have under execution, we do expect that the contract liabilities will turn as we execute through the rest of the year in the remaining three quarters.
Nonetheless, as per our confirmed guidance, we continue to expect for Siemens Energy for the full year 2022 free cash flow pre-tax to be in the range of positive to mid triple digit. We reconfirm our guidance. Okay, again, going into a quarterly perspective, we see here the significant order growth. One thing I do want to mention also, it's very important that the order growth was supported by increases across all businesses. Generation, IA both grew double-digit. Transmission was slightly below, but please remember they grew almost 50% in Q4 of prior years. Excellent momentum still across all businesses. In Generation, for example, we booked 24 gas turbines greater than 10 MW. Therein, seven large gas turbines and 17 industrial gas turbines, which are in the range of between 10 MW- 100 MW.
Also good is that from a regional perspective, the growth in Q1 came from various regions. For example, Americas, where we see a nice increase year-over-year. In Asia, Australia. Again, looking at the quarters, we do see a dip in Q1 as expected, a decline of 3.6% on a reported basis. You see here when we're looking at the disaggregation of revenue, Generation decreased by 8%, just shy of 9%, IA by just over 1%, and Transmission grew by almost 4%. An even better development in Transmission, as I hinted before, was held back by the lack of certain material and supply availability. What does that mean? That has affected our ability in certain times to convert revenue.
Important to note in this case, it's not lost revenue, but it's revenue that has shifted to the upcoming quarters. Looking at the full year, we continue to expect Generation to be moderately down or stable. This is given, and as we already discussed before, this is given our market expectations, including our selectivity or our internal hurdle rates on project and orders. As anticipated, we absolutely expect that Industrial Applications continues to see a recovery post-pandemic. In Transmission, we can see increased market demand, as alluded by Christian. Things like grid stability projects and grid upgrades. This is all activity that we certainly see picking up. Important to note for both Industrial Applications and Transmission, we expect healthy growth rates in fiscal year 2022.
Now, of course, last but not least, our adjusted EBITDA margin before special items stood strong at 5.8%, which is just slightly below the midpoint of our 4.5%-6.5% guidance range. To sum it all up, progressing very well in GP, a solid start to the year in line with our expectations. We see this in terms of consistency, strong orders, strong cash flow, good profitability. Makes us to remain confident that we remain on track for fiscal year 2022. Next page is just touching again on the financial priorities we have for fiscal year 2022. Nothing has changed since the full year results call. I think one thing that I also want to ensure that it's absolutely a priority for us to stay on top of our costs. What does that mean?
We made a lot of efforts to take costs out of the organization, and we want to ensure that we continue to retain those savings, that we see that sustainably impacting our profit in terms of improvement. Of course, as always, we're looking at our net working capital, and I think in light of the supply chain constraints, it becomes a little difficult, and I think we need to continue to watch inventory levels, including things like safety stock, for example. We'll have to balance here because of course we have customer requirements, but certainly we don't want to build up inventories for all the obvious reasons. Here's where our customer focus needs to come in, and we need to make sure that we continue to collect and focus on our down payments and our progress payments. Last but not least here is transparency.
As you can see, we continue to provide additional transparency and will provide more as we go through the year wherever possible. The financial framework is on the next slide. I don't want to repeat what Christian mentioned earlier. As you know, we revised our guidance for fiscal year 2022, but it's important to state that GP stays on track, not only with respect to fiscal year 2022, if I wasn't clear, but also for fiscal year 2023. We did say that we'll reassess our expectations for the Siemens Energy Group, adjusted EBITDA margin, our goal or guidance rather for fiscal year 2023.
This reassessment of course will be done in close alignment with our colleagues at SGRE and our colleagues of course within GP and of course the new CEO of SGRE who starts on first of March and will ensure to give a new profitability target either with our Q2 results or at the absolute latest at the CMD in May. With that concludes my portion of the presentation, and I send it over to you, Christian, for some final remarks. Thank you.
Thank you very much, Maria, and let me wrap up with management priorities for the fiscal year 2022. We addressed it throughout the talk today. First, obviously, continue to deliver really on the fundamentals of GP and SGRE. Good progress at GP, as Maria pointed out, and obviously SGRE is trailing its targets because of onshore, and the management now needs to address it and get it blended. Second, the supply chain will continue to be with us throughout 2022. This is at least what we see. So far, I think I've seen, let's say, a lot of focus on it, and we need to make sure that the impact remains limited.
Third, obviously, is now making sure that the organization continues to become better, leaner, faster, sharper, and all what you would say to it and refine the operating model really to follow as best as we can, the energy transition. This is also which will be one of the management focus areas in 2022. Fourth, obviously building the company with a focus on sustainability. I mentioned the sustainability report, and we will continue to explain on the Capital Market Day really on how we further shape the company towards that goal. With this, I really would like to invite you for the Capital Market Day on May 23rd and 24th in Berlin, and I'm very much looking forward to see all of you in person. Let me with this hand over to Michael for Q&A.
Thank you, Christian. Thank you, Maria. We're coming now to Q&A. As Judith mentioned, if you want to add yourself to the question queue, please press zero one, and if you want to remove yourself from the queue, press zero two. We do have quite a large number of questions, so if you could please stick to just one question. If we have time at the end, we will, of course, take a second one. Otherwise, we can take it in calls thereafter. The first question goes to Vivek Midha at Citi. Vivek, over to you.
Thanks very much, Michael. Good morning, everyone. I just wanted to follow up on the question last quarter on group free cash flow in light developments at SGRE. You've kept the cash flow guidance unchanged. You've had a good Q1 in GP. Thank you for the comments there. SGRE is seasonally weak, but there are also potentially some cash headwinds for the rest of the year. How should we think about the contributions of the two divisions to that guidance? Is that guidance including expected proceeds from SGRE's planned asset disposals? Thank you.
Sure. Thank you. I'll take that one, I assume. Thank you. Hello, Vivek. Good morning. Thanks for the question. Yes. Maybe to go back to the guidance again, just to reiterate, we reconfirm our guidance, mid-triple-digit millions for the year. That, of course, GP continues to support that cash flow. SGRE, I think it's, as you know, Vivek, that first quarter, and I mentioned it earlier, there was the anticipation that it would be a negative free cash flow quarter, but of course, they do expect to generate cash in the coming quarters. In order to understand our forecast does include SGRE. It's at the group level, our guidance includes that.
Of course, the comments that were made by Beatrice at the earnings call all supports also what she says with respect to cash generation for the fiscal year for SGRE. Any activities that she mentioned are also included in that free cash flow guidance. I hope that answers your question.
That does. Just to confirm, that does include expected disposal proceeds?
Correct.
Thank you. Thank you very much.
No, thank you.
Thank you, Vivek. The next question goes to Andreas Willi at J.P. Morgan. Andreas, please ask. Our next question goes to Andreas Willi at J.P. Morgan. Andreas, if you please go ahead.
Yeah. Good morning, everybody. Thank you for the time. I have a question on SGRE. Obviously, you changed the CEO there, and you explained that. I would like to focus what you can change from a governance perspective as well in terms of your control of the board. Obviously we've had four CEOs, five CFOs since the merger. Kind of what's your view in terms of what's gone wrong there on the governance side and what you can change going forward? Has there been maybe too much pressure on short-term turnaround and preserving cash, given the balance sheet, which may have been counterproductive? Or how do you approach this going forward?
Yeah. Thanks, Andreas. Good morning. I think it's also a lot about what is the key element to focus on at the moment. I think the key focus area is really onshore and now delivery on projects and reduction in non-conformity cost. There's no question that we have to look on the elements is also on the oversight, is it working? I think it's more a question on, are we fully focusing the operative management on the single highest priority at the moment? I think this is where I believe there have been probably too many things in parallel, with a fast-moving industry and not to forget a difficult market environment. For me, it's now really about focus, focus, all hands on deck on operational excellence and non-conformity cost measurement.
As we discussed multiple times, it's at the end, passion for detail. It's not always one person. I do always agree also it's not only the CEO, but it's an important element to have now a very proven person in particular managing these critical situations in companies to stabilize operations and non-conformity cost. With regards to the overarching board, I mean, this is nothing that I can, let's say, comment on this at the moment. Definitely, we will continue to look at this. Is that really the right, best setup that we're having? For me, it's also now really the question, how can we help SGRE best by individuals, and also supporting projects or whatever?
Because it's now really getting the basics delivered and I'm very aware that, I mean, this continuous change is also creating instability, which we do not like. I think it's the right measure now, but there is, at the moment, nothing else planned except that Jochen will look in terms of where can he also need further support along the lines of really helping him together with the SGRE organization to deliver.
Thank you very much.
Thank you, Andreas. The next question comes from Gael de-Bray at Deutsche Bank. Gael, if you please go ahead.
Yeah, thanks. Thanks very much. Good morning, everybody. The question I have, and hopefully I might have a follow-up, if you allow me. The first question is on the current structure of the group. Quite obviously you inherited a basket of separate listed entities from Siemens AG at the time of the spin-off, and this structure has clearly shown its limits. I mean, it now looks increasingly inefficient, both from a valuation and perhaps from an operational perspective. Is there any sense of urgency on your side about the group's organization and how quickly you need to reshape the structure? What do you need or what do you expect basically to reshape the organization and fully integrate everything?
Yeah, first of all, the urgency of the priority is on fixing the operational problems, and this is, let's say, always discussed over the past quarters, and I can only, let's say, repeat what I said over the last quarters, and there's really no additional comments on that one. This is why it still never changes that first, obviously, these operational elements are key. On the valuation point, I also always said there's two elements.
The one thing is obviously, the SGRE piece, but also getting more visibility on the valuation of the other part of the company, and also there more transparency will be one lever we are trying to provide on the Capital Market Day in May, that also the growth rates in elements like Transmission or where we transform the industry gets more visible, which is also an important element. For me, first and foremost, the priority is really making sure that the operations at onshore get stabilized.
Understood. Can I just follow up on the transparency you intend to provide? Maybe regarding the gas turbine business. I mean, if I look at the German decarbonization target, I mean, there are various studies showing that Germany probably needs at least 25 GW of new gas turbine capacity by 2030. This would obviously be a huge step up compared to the current size of not only the German market, but the European gas turbine market. Could you give us a bit more color on the discussions you're having or not with some of your customers and more generally on the opportunity and on the potential timing for you?
Yeah. First of all, we definitely had a good start in the year with good orders at the gas turbine side. I mean, you've seen maybe the numbers on McCoy. We have a very strong market position. I see also a good order pipeline for the rest of the year with customers. People are investing into gas. We always have to be aware also with the 20 GW-30 GW we're currently discussing in Germany. It also has to happen. You know the EU taxonomy discussion probably, which is good that its gas is included, but at the same time, obviously, it's a relatively stringent and narrow window in which to apply. I think it's also something where we need to watch how this is gonna develop finally.
There's a lot of positive signs underlining the natural gas market. I also would say a lot of the statements I made before fundamentally have not changed. For us, it is really driving service. I would also. I always have said we plan on the conservative side on the numbers of the gas turbine units, and I would continue to do so, to really also plan our financials, and then it's really maximizing our impact from service. Everything what I hear and see at the moment also would. I would not change the picture currently, but it underlines that the natural gas turbine business is a sustainable business for the years to come. I think this is a positive message we can take from it, and I think the market understands this. We have said this right from the beginning.
I believe it was a long time not believed, and in this regard, I think that is a very positive development because it really stabilizes a fantastic business in which we have an excellent position.
Okay. Thanks very much. I'll get back in a queue.
Thank you, Gael. The next question comes from Ben Uglow at, Morgan Stanley. Ben, over to you.
Thank you, Michael. I still appear to be at Morgan Stanley. Anyway. I guess the question. I have a conceptual question around the sort of the
The relationship between the parent and the subsidiary at the balance sheet level. I'm not asking for a projection or what you guys are going to do, but if we go back to the time of the separation, there were a lot of conversations about, in principle, how much net cash does Gas and Power need as a sort of EUR 20 billion business, and then how much is required at the SGRE level. Obviously, what we've got is an excellent liquidity position at the holding company level, you know, EUR 2 billion+ of net cash. Obviously, we've now swung into this EUR 1 billion+ net debt position at the Siemens Gamesa level.
My question is, in an ideal world, not necessarily in the next three or six months, but in an ideal world, how would both balance sheets, in principle, need cash? If we think about the size of the two businesses, EUR 20 billion on the one hand and EUR 10 billion on the other, how big a buffer do you need in each? That's my question.
Maria, I think that's your.
Christian is clearly handing this one to me. Hello, Ben. Good morning. Thank you for that.
Hi. Good morning.
Very conceptual question on obviously one of the key topics, which is our balance sheet and our cash. So first of all, I think going back in time, as you rightly mentioned, we always indicated that even at a group level, so comprising both, that we would be generating operating cash flow sufficient enough to take care of our own capital needs. You always remember that our starting capitalization actually enables us to do that, and this is what we foresee. There's no doubt, of course, that looking at the two businesses, and certainly, as I mentioned, for this quarter, we do see the need of cash in SGRE. I think Beatrice and her team really did outline that nicely at their Q1 call to say, "Look, of course, this is our quarter one.
It was anticipated as such. They're doing everything in their power to ensure that as they progress through the quarters, that they're reviewing each and every opportunity on where to use cash. You also know, Ben, I mean, in that business, they have right now a record order backlog, and that record order backlog requires investment, right? To fuel the growth into the future. But what they've indicated, and we are separate, Ben, so right now we need to be in the real world versus the conceptual world. Right now we do have separate treasury, separate cash management, and I think that they have indicated they have sufficient, they will be generating cash flows from operating activities, of course, for the rest of the fiscal year. This is what they anticipate.
Of course, have sufficient facilities available to manage any swings if necessary. I think that's how you have to view the two worlds at this point in time, and certainly for this quarter. Going forward, the intention is that we would generate cash flow to ensure that we stay in that net cash position. That's the intent.
Understood. One quick follow-up if I can. Really, and again, forgive me if I'm simplifying this to a ridiculous extent, but what you're basically saying is that at the HoldCo level, we have sufficient cash to cover all group needs, but that is based on the assumption at the moment.
Correct
That SGRE's cash is gonna get better over the course of the year. Is that a fair summary?
Sure. Yes. Exactly. Of course, like, I think Beatrice mentioned that they, this is a. I think I mentioned earlier, too, right? With heavy order, we need to execute, so the cash needs are coming. Certainly in the short term, we're doing and monitoring that very closely on both sides. Certainly your comment is correct for the midterm.
Understood. Thank you very much indeed.
Thank you, Ben.
Thanks, Ben. The next question comes from Alexander Virgo at Bank of America. Alex, if you go ahead, please.
Thanks, Michael. Morning, Christian. Morning, Maria. I wondered if you could give us a little bit of color around the margin improvement in Gas and Power year-on-year, just to flesh out the different divisional dynamics around equipment and service, and I guess also the benefits of the restructuring that you have done so far. Thank you.
Thanks, Alex. I'll take that one. I think, so clearly, you know, all of the measures that we've taken, and you know this, we spent quite a lot last year on not only restructuring, but other not only personnel related, but other restructuring measures last year. As I mentioned, we do see the cost improvements coming in this year as expected. I think, Alex, to underline again that we made a commitment to have an additional EUR 200 million of those savings coming in this year, impacting positively our bottom line. In Q1, we see that this is coming to fruition. That's the good news. Also, it's important because again, in Q1 of last year, we did have a number of one-time positive incidentals.
In comparison, of course, the 6.1% versus 5.8% for Gas and Power, for example. Certainly in this quarter for Gas and Power, I mentioned we had a little bit of FX tailwind, but we also did have a good mix. Like I said, we continue to see that across the board in all three divisions, to answer your divisional question, that improvements are being made step by step in line with our expectations.
Okay, great. Thank you.
Thanks, Alex. The next question comes from Supriya Subramanian at UBS. Supriya, if you please go ahead.
Hi. Good morning. Thank you for taking my question. Just had a question on the supply chain constraints. You shared earlier that, you know, gas and power to some extent, of course, is a little bit more protected than the wind business, but the transmission business seems to be a little bit more hit. Just could you tell us what are you seeing there? What are the challenges? Do you see any impact on the numbers yet? How do you see this, sort of going forward through 2022? Thank you.
Yeah, thank you very much. Yes, I mean, this is obviously we see it obviously across all divisions as an area which we need to manage very carefully. As we said before, Transmission is the area where we see the most challenges. This comes from the fact that, let's say, sometimes relatively simple things are missing also then in the supply chain, which means we have to rearrange the fabrication. This is a very, let's say, factory-driven business, obviously, particularly if you look on, for example, for transformers. Then the consequence out of this is that because of a gap in supply chain, not everything is available then in the factory, which then has an impact on the factory load, which then has a financial impact.
This is obviously something which will continue to keep us busy. This is also why we see it the most in Transmission. Yes, we do see a financial impact on the Transmission performance towards what we planned, but we are able to balance it out and manage it across the different divisions, such that we can obviously keep our annual targets for GP. I think that is important to underline. The organization does an excellent job. I mean, just give you an example, I mean, of a funny thing there. We have the first, obviously, deliveries for supplies from China to Germany by truck coming from China, right? I mean, just giving you an example of what we're trying to manage at the moment, because logistics didn't work out in time.
It is something which we are able to manage. Even so, Transmission is the area with the highest impact due to also their factory interconnections.
Okay, great. Thanks. How do you see this, sort of going forward through 2022? You know, when do you see things easing out? I know you don't have a crystal ball, but just wanted to get your thoughts on that.
Yeah, no, thanks. I always said I believe this continues until 2022, and I still believe that. It is changing what the struggle is, but it is always a struggle. This is at least what we anticipate at the moment, that this will keep us busy throughout the whole fiscal year.
Okay. Got it. Thank you.
Thanks, Supriya. We still have quite a number of questions, so we have a little bit time at the end, and we'll extend a little bit beyond eleven o'clock, but if we can keep it brief from here onwards, that'd be great. The next question goes to Andre Kukhnin at Credit Suisse. Andre, please.
Hi. Good morning. Thanks very much for taking my question. I wanted to ask about the kind of the lower margin projects that you cited before in Gas and Power, I think related to some of the HL-class contracts. Could you say if that was a normal impact in Q1 or was it maybe abnormally positive? Secondly, how much do you expect that to weigh on margins in fiscal 2022 overall, and whether that'll be done in fiscal 2022?
Yeah. Hello, Andre. Thank you for the question on the order backlog. Very important. First of all, looking at the quarter, I did mention, because we did have a dip, let's say, in our Generation business and revenues in certain projects. We had a favorable mix with a stable service revenue and therefore profit for the quarter. That's number one. Number two, your question, more importantly, is relating to our ongoing conversion of backlog. I've mentioned that before. We still do have legacy projects, first-time introduction projects sitting in our backlog that we're going to continue to convert through for the rest of this fiscal year and into 2023. What I also mentioned is it's about an 18-24 month maximum and almost with a descending tail, if you'd like.
We do expect that still, and that's as planned, by the way, so nothing abnormal. That's included in our guidance. We expect to convert through that backlog this fiscal year and then the tail end to come in in 2023. What's also really important, as I mentioned, is that we're seeing the step-up necessary in the margin quality of our backlog that underpins our midterm target. I think that's really important and something that we watch very closely. Thank you.
Thanks. Impact from those projects, if possible?
Sorry, I didn't hear that question.
Just rough order of magnitude of the margin impact from those projects for 2022.
Well, no. I only give indications, like I mentioned. In any case.
Right.
Andre, it's fully embedded in the guidance. So again, for the quarter, right in the mid of the guidance of the 4.5%-6.5% at 5.8%, and it's fully embedded in the guidance which we confirm for the fiscal year.
Thank you.
Thanks, Andre. The next question comes from William Mackie at Kepler Cheuvreux.
Good morning. Thank you. My quick question comes to the margin guidance for GP for the year. You're actually above the middle of that guide. As you look to the rest of the year, is there anything that would pull you back towards the bottom end of that range? Or should we take the combination of your positive commentary on productivity, execution, volume growth and service stability to imply that you know, you're confident actually you should be moving or tracking towards the top of that range?
Christian, maybe you want to make a comment?
Yeah, no, I think, I mean, generally we want to underline our confidence in the GP sector. Maybe Maria, I mean, if you, let's say, would want to add more details, but.
Yeah
I think this is what we want to underline.
No, absolutely. Again, we've reconfirmed our guidance there, so I think that's also important. We should not forget what Christian mentioned earlier. Something that we continue to watch, it's our largest risk, is the supply chain and logistics disruptions. We do see it across all businesses. I mean, SGRE goes without saying, but also within GP. I mean, this is something in certain cases out of our control. What Christian says remains, that the team is doing a great job to mitigate those risks. Certainly, those do pose risks to our business. We'll see. We'll have to see how that develops throughout the rest of the fiscal year. Other than that, I think we're on track, as I mentioned earlier. Thank you.
Thanks.
Thanks, Will. The next question comes from Rajesh Singla at SocGen. Rajesh, please.
Yeah. Hi, can you hear me?
Yes, we can.
Yeah. Hi, thanks. Good morning, everyone. Thanks for taking my question. This is again on SGRE. I think there are many speculation in the market that maybe Siemens Energy is looking to buy out the minority stake in SGRE. Maybe just for the clarity for everyone that currently there are no plans as of now. The first priority is to fix the problems at SGRE and put it back on track. Can you please confirm the same?
Well, I said before, no comment, and I would stick with the no comment at the moment. Actually nothing else to add on this.
Okay.
Thanks, Rajesh.
Thank you.
Next question goes to Alex Hauenstein. Alex, please.
Yes. Thanks. Alex Hauenstein with DZ Bank. I have a question with regards to the restructuring at GP. With Mr. Eickholt moving on to SGRE, should we conclude out of this that the restructuring and turnaround of GP is far progressed or even close to finish, or what is the path you're going forward for working here?
I mean, first of all, I think the measures which we implemented over the past one and a half years are well on track, and that is very positive. You also have to see that a big part of the measures have been implemented in the Generation business, and Karim Amin obviously has been the one delivering on this. These are people now stepping into the shoes of Jochen Eickholt, who exactly know about the accelerated impact and have actually developed and executed it over the past 18 months. The other part, obviously, which is Industrial Applications, also a business where Karim is, let's say, well aware of. We have obviously also good leadership there who is delivering on this. With this regard, I'm obviously also very confident that we continue on this delivery on that.
It is well on track, but it's not finished, and we will continuously look into what else we can do and how can we improve. In this regard is simply continue execution, and I'm confident that the organization is well set up for that.
Okay, great. Thank you.
Thanks, Alex. The next question comes from Nick Green at Bernstein. Nick?
Good morning, everyone. Sorry, I was on mute. Thanks for taking my question. It's Nick Green at Bernstein. It's a question for Maria. Can you talk through the net working capital at Gamesa over the medium term, please? Gamesa has had a significant reduction in working capital over the last three years, about 70 days worth of benefit. It has brought something like EUR 2 billion cash into the business. Can you talk through what you think is a normal level of working capital for that business? The 10-year average was positive nine days, so that would suggest a major swing back to major cash outflow as it swung back. Could you talk through whether you see there's a threat of this, a fairly large cash outflow having to hit Siemens Energy, probably in the period outside of the current guidance? Thank you.
Yeah. Thank you very much. I think, with respect to, you know, midterm working capital, discussions for SGRE, I think, Beatrice would be best suited, or, of course, SGRE management would be best suited to address those questions specifically. I mean, just to reiterate, of course, as you mentioned, there is a benefit. There is in terms of their balance sheet contract liabilities and contract assets, that's embedded as part of their business model, as you know. We see that continuing in the short term. Anything further, I certainly can't comment. Yeah. Thank you.
Thanks, Nick. The very last question now comes from Sean McLoughlin. Sorry, the last question comes from Sean McLoughlin at HSBC. Go ahead, Sean.
Thank you for taking my question. Just one question on demand. Strong momentum in Q1, how is that looking in Q2 and H2 across the three divisions within gas and power? Also thinking about margins and cost inflation. I mean, it's clear that you sound confident that you're able to pass through fully the higher cost through higher pricing. I just wondered, a general comment around some of the pricing environment and how your current pipeline is looking in terms of profitability levels.
Thank you very much, Sean. Maybe with the two things, the general, obviously, what is the volume across the different businesses? You have seen in the order intake that it's geared at the moment actually more to new units than to the service piece. That is something which is special. In this quarter, generally we remain positive on the pipeline of the projects across the board and across the really different divisions. With this regard, let's say, we'll say the good start. Normally, the quarter one was a weaker start, but I think this is now different. There's already good start. I would also. I do see also good pipeline throughout the year.
There's a couple of bigger projects depending on the division, what you're looking at, which can swing when you talk, then easily about a couple of hundred million EUR for one project. This will determine a lot on how the order intake looks like. In general, we are very positive to have a sound order intake or solid order intake in 2022. On the margin side, we see across all businesses abilities now to pass on material price increases towards the end customer, not everywhere to the full extent. I also clearly have to say I think this is something where we continue to work on. We see the willingness in the market to discuss this underlying material price increases also on the final pricings.
Thank you.
Thank you, Sean. Now for some closing remarks over to Christian.
No, thank you very much, Michael, and thanks very much. Obviously looking very, very much forward to meet hopefully all of you, most of you in person on the Capital Market Day, end of May. Stay first and foremost healthy. I would always say Michael and our team are always available for you if you have any question in this regard. Thanks very much. Stay healthy. See you soon.
Bye-bye.
Thank you, Christian.
Thank you.
Thanks everyone. 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.siemens-energy.com/investorrelations.