Good morning, ladies and gentlemen, and welcome to Siemens Energy's 2022 second 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 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. Good morning, everybody, and a warm welcome to our Q3 analyst call. As you know, all documents were released at seven o'clock on our website. Here with me are our President and CEO, Christian Bruch, and our CFO, Maria Ferraro. They will take you through the major events as well as the results of the last quarter. That should take approximately 30 minutes. As usual, we expect to have about 30 minutes for Q&A. With that, over to you, Christian.
Yeah. Thank you very much, Michael, and also good morning from my side. Thanks for joining Maria and myself for our quarter three 2022 conference call. I hope that you and your families are well and safe in these difficult times, and we are indeed facing unprecedented times and are going through a challenging and constantly changing environment. The war in Ukraine, several countries are experienced heat waves. We see still tight supply chain, so a lot of things which we have to manage. As Siemens Energy, we are continuing our journey while dealing with these challenges. Let me highlight how we continue to drive profitability and how we are shaping the company so that we will be able to deliver on our vision to become the most valued energy technology company in the world before Maria will take you through our results.
One highlight of this quarter was certainly our Capital Market Day on May 23rd and 24th in Berlin. It was the first big event where we were able to meet many of you in person. Thanks for joining. At the Capital Market Day, we presented our vision of Siemens Energy going forward, and let me recap the two major steps that we have presented at the Capital Market Day, which will allow us to maximize on the opportunities that come with the energy transition. First, we are giving Siemens Energy a new structure as of October 1st, so you will obviously also see a new reporting structure. It is much better aligned with the customer needs, and it will make us also more versatile in terms of how we act. It will have a lot less hierarchies and makes us more transparent and faster.
Now, the second element which we presented was the launch of the voluntary cash tender offer for the outstanding Siemens Gamesa shares with the intention to delist SGRE by the end of the year. There is a third step we have taken after the Capital Market Day, and which is reflected in our quarter three figures, and it comes obviously also with a heavy heart, I would say. At our quarter two result, we said that our GP business in Russia is under review, and now we have taken concrete steps to reach an optimal solution by the end of the fiscal year, which I will talk about later in more detail. Let's now take a brief look at our overall performance. GP had a very solid performance despite all the headwinds and challenges in the quarter, while SGRE continues to experience high losses.
In the quarter, we had strong orders of close to EUR 10 billion, which is up 60% comparable. GP had strong order intake across the board, coming in at EUR 6.4 billion, and SGRE was also strong. We now have a record order backlog of EUR 93.4 billion. Revenue was down 4.7% on a comparable basis, driven by SGRE. Revenue at GP grew, but because of the loss of revenue in Russia and supply chain constraints only slightly, and SGRE's revenue was down 13.8% comparable. Our adjusted EBITA before special items came in at -EUR 131 million.
Despite the negative impact from the loss of revenue in Russia and supply chain challenges, GP nearly held last year's level and came in at EUR 212 million, while SGRE's losses continued to be high at EUR 330 million. Cash flow was roughly break even. GP generated more than EUR 400 million in the quarter, which makes it a EUR 1.4 billion year to date, which is really an excellent number and once again, a very strong cash performance. As expected, SGRE had a cash outflow. Although further negative effects associated with geopolitical and macroeconomic challenges cannot be ruled out, we still expect to achieve the guidance for GP and Siemens Energy, which we provided in quarter two. However, for comparable revenue growth, we now exclude effects from lost revenue in connection with our business activities in Russia.
I already mentioned the Capital Market Day and the steps we announced just before the Capital Market Day. Let me briefly reiterate the key messages we gave at the Capital Market Day. Obviously, it is our vision to become the most valued energy technology company in the world, and we have taken major steps towards this vision. It only has been a little bit more than two years since the spin-off, but we have achieved substantial operational improvements and portfolio changes since the start of Siemens Energy. The market we play in, the electricity and energy market, is under significant change and will receive substantial investment over the next decades. We, as Siemens Energy, are very well-positioned to benefit from these investments.
This is also something we see currently, obviously, in our order book and the order performance in quarter three. Going forward, we apply five key levers to create value for our shareholders. The new group structure provides the basis on which the business areas Gas Services, Grid Technologies, Transformation of Industry, and SGRE will be able to deliver on their targets. Sustainability, as I always have said, is core of what we do and how we operate across our portfolio and, as we obviously strive with our operations for profitable growth. The new group structure which we announced will become effective as of October 1st, 2022. Our new board members responsible for Transformation of Industry and the global functions have been nominated and will be officially announced on September 1st.
Furthermore, I have to say I'm very satisfied with the current structure as current status of the preparation phase of the new group structure. The project is well on track. Most of the management positions have already been defined and filled, so we are fully on track to achieve the new structure in October 1st with, as I said before, clearer structures, unified go-to-market approach, and also more financial transparency for you to understand the different businesses. Let me now give you a quick update on SGRE. As you might have read before, I joined the board of directors of Siemens Gamesa on June 24th, replacing Tim Oliver Holt after he became the COO of SGRE. SGRE now has a record order book of EUR 34 billion, and this is a result of the strong orders.
What is important here is the fact that SGRE managed to push the average selling price for onshore wind turbines up again as we are seeing a sequential recovery in onshore. Losses at SGRE continue to be high. This is a reflection of poor underlying profitability for reasons discussed before, such as the ramp-up of the 5x platform, supply chain conditions, and costs driven by component failures and repairs, mainly in legacy onshore wind turbine platforms. The good news is that Jochen is taking decisive steps to achieve the turnaround. You may recall that the initiated Mistral program is now addressing short-term challenges and helps to deliver long-term profitable growth.
Staffing and footprint optimizations have been launched, and now he is planning, as of January 1st, 2023, to go live with a new operating model which he presented in his analyst call last week. The new operating model is designed to have a simplified and leaner company structure. Therefore, there will be one technology development team under the CTO and one manufacturing team under the COO across offshore, onshore, and service. While businesses focus on sales projects and the product roadmap and keep full profit and loss responsibility, there will be one standardized regional set-up across businesses. Procurement contracts of direct material will be transitioned to mid- to long-term, and there will be a stabilization of the product development and quality processes, which is a key lever really to turn around the company.
Taking the impact of higher costs from component failures and repairs, mostly in legacy onshore platforms in quarter three, supply chain-related costs and 5x ramp-up challenges into consideration, SGRE provided an outlook update for fiscal year 2022 and is now expecting a comparable revenue decline of -9% and an EBIT margin pre PPA and IR of -5.5%. Let me come to Russia. It is now six months since the war in Ukraine started, and as you know, we immediately stopped all new business activities in Russia, and as of July 10th, we stopped almost all business activities in Russia.
I told you before that we are reviewing our business in Russia in light of the sanctions, and we have now decided on restructuring measures for our business in Russia, and we have taken concrete steps to reach an optimal solution by the end of fiscal year. We have pre-agreements in place and are currently finalizing required legal steps in Russia to conclude the business, which means also obviously a discontinuation from our side. However, we might continue some existing activities in accordance with elements like, for example, the Nord Stream 1 maintenance pieces, what has been in discussion everywhere, to ensure also secure gas deliveries to Europe. Let me take you through the financial impact. We already gave guidance regarding the impact on our ongoing business with quarter two results.
Revenue impact this year will be around EUR 400 million, and the associated negative impact on our adjusted EBITDA before special items will be low triple-digit million euro. The special items related to the restructuring in Russia amount to around EUR 200 million. Looking forward, based on our current assumption, we currently do not expect any major negative impacts from Russia in the next fiscal year. I think that is always important to underline. That is something why we are trying to get everything done in fiscal year 2022, and for quarter four there might be smaller impacts. The big impact we have seen now with quarter three.
Let me talk briefly about the gas situation, which is also the other subject which keeps us very busy in terms of reduced gas flow into Europe and Germany and what impact this may have on our operations, on our suppliers, and on our customers. As a company, we ourselves, we do not require much gas during our own production. We mainly use gas for heating and testing purposes. Obviously, we're trying to save as much as possible. We are also expecting that some of our suppliers will be impacted. What helps us here is that we have a broad supplier network globally. We have already taken risk mitigation measures and reroute, if it is possible, sourcing outside of Europe for gas-intensive products. In case this is not possible, we have been building up safety stock.
That said, we have experienced rising raw material costs due to high energy and electricity prices since February. This is obviously reflected in our cost. If you look at our customers, we see that the fleet utilization, interestingly enough, so far remains stable in all regions, which is a positive sign for our service resilience. We have not yet seen any signs of a change in customer behavior when it comes to gas turbines. We see, however, upgrade opportunities because our customers need to increase efficiencies, reduce gas consumption, or consider a fuel switch, which is obviously now happening, particularly in Europe, that people switch back from gas to oil, for example, which is currently happening in a lot of installation.
When it comes to current orders, let me highlight just a selection of project wins in this quarter, like always, which demonstrate that our customers need our solutions today more than ever, and which once again cuts across our three pillars, which we always are underlining. The first project on the left-hand side in Mexico, we were able to secure four orders from CFE, one of the largest energy companies in the world. Siemens Energy will deliver four combined cycle power plants located in different regions of the country, and these additions to the power grid in Mexico are key to reinforce the power generation assets in areas with energy deficits, increasing the installed capacity by 2,600 MW . In the middle, you see the announcement with Amprion.
They just awarded us a turnkey installation for the converter stations and the service for what is called DolWin4 and BorWin4. We are talking here about the largest grid connection order in our history with an order value in the high three-digit million EUR range. DolWin4 and BorWin4 will be able to transport up to 1.8 GW of green wind energy from several wind farms into the German North Sea to land with low losses. The capacity of those two grid connections is equivalent to the demand of a major city like Hamburg with 1.8 million inhabitants. During the quarter, we also announced that Air Liquide will take a 25.1% stake in our electrolyzer factory in Berlin. This joint venture is dedicated to the series production of industrial-scale renewable hydrogen electrolyzers in Europe.
Production is expected to begin in the second half of 2023, with a view that we will ramp up the factory to an annual production capacity of 3 GW by 2025. We believe that this joint venture is really beneficial to both of us. Air Liquide gains access to production capacity, and we have a major hydrogen player dedicated to ramp green hydrogen capacity up as a joint venture partner. Obviously with this, we will be jointly a major force driving sustainable hydrogen economy in Europe and fostering a European ecosystem for electrolyzers and hydrogen technology. With this, I would hand over to Maria to give us an overview on the financial numbers.
Thank you, Christian, and good morning, everyone. A very warm welcome also from my side. I'm very pleased to share with you our Q3 financial results, as always, for the group, Siemens Energy, and the segment Gas and Power, and happy to take any questions you may have afterwards. Before we start into the financials as such, let me give you a quick overview of where we stand regarding the voluntary cash tender offer and the related funding. If you go to the next slide 12, please. As you know, on May 21st, we announced our intention to launch a cash tender offer to acquire all outstanding shares in SGRE, approximately 32.9% of which we do not already own.
Since then, we have subsequently submitted the necessary documents and have been and continue to be in dialogue with the Spanish Stock Exchange regulator, the CNMV. The CNMV must now confirm the offer. It's not possible to say exactly how long this will take or how long they will need to do their proper due diligence. However, we are and have a very constructive dialogue with the CNMV and expect, as per our tentative timeline, a decision post the summer holidays. Once we get the approval, the acceptance period will start essentially pretty much right away, and we intend to keep it open for approximately 30 days. However, again, this will depend somewhat on the approval or take-up.
If we achieve our first threshold of more than 75% of the shares by the end of the acceptance period, we would then call an extraordinary general meeting or an EGM to start the delisting process. Up to now, everything is progressing as planned so that we should be able to keep the tentative timeline and close the transaction before the end of the calendar year as planned. In the meantime, as part of the transaction, we have provided EUR 1.15 billion cash collateral to the CNMV. This is as expected and part of the transaction to guarantee the offer. This collateral, which represents the cash portion we have anticipated to use for the offer, has been provided before the end of the quarter.
You will see this when I talk to you or when I talk you through the balance sheet a little later, that now accordingly, we have a lower cash balance. As a consequence, however, the guaranteed bridge facility then was reduced to EUR 2.9 billion. We believe that the offer price of EUR 18.0 per share is fair and equitable and attractive to the SGRE shareholders. In the current market environment, we expect this to be the case when looking at the acceptance period. All of these steps are part of the process, and this is reflected in our planning. We have consistently said that we are and remain committed to a solid investment-grade credit rating, and the financing package, which we also have discussed and pre-aligned with S&P, is designed to support this key objective.
The funding of the acquisition is fully underwritten by Bank of America and JP Morgan, and the guaranteed bridge facility is in place for up to two years. Assuming a full acceptance of the offer, we intend to replace the bridge facility and raise up to EUR 2.5 billion in equity or equity-like instruments. That's the update thus far. As mentioned, everything's progressing as planned. Now I'd like to take you through the financial performance in Q3. Today, again, as mentioned, this will go through the group level first and then go to our reporting segment, Gas and Power. Starting October first, we will report in our new structure, so therefore providing the increased transparency. Starting now with an overview of SE Group today, I think we've achieved a solid performance overall, and especially in Gas and Power.
Orders on SE level continue to be very strong, with a remarkable growth of 60% year-over-year on a comparable basis. What's also very positive is that both segments contributed to this increase, with GP and SGRE contributing there. This results in third quarter orders of almost EUR 10 billion, EUR 9.8 billion, which then drives the order backlog to another record of EUR 93.4 billion. Again, this is also supported by some currency translation headwinds of around EUR 1.9 billion versus the end of Q2. Please remember, this extraordinary amount of EUR 93.4 billion, this backlog represents a bit more than three years of our revenue, which provides a very solid foundation to deliver and underpin the profit improvements we are striving for. Now it's key to execute with excellence, and this remains our priority.
Looking at revenue in the middle of EUR 7.3 billion, this was moderately down by 4.7% on a comparable basis, as growth at GP was more than offset by decline at SGRE. At SGRE, the significant revenue decline compared to prior year's quarter was due to continued in-house quality and operational problems, as well as supply chain constraints and disruptions. Across the SE level, the decline was driven mainly by new units, while service revenue rose year-over-year by 5% on a reported base. Book-to-bill for Siemens Energy, again, very, very strong at 1.35. This reflects a book-to-bill of 1.31 at Gas and Power and 1.45 at SGRE. Very positive on both segments. Adjusted EBITDA before special items, this was - EUR 131 million.
As in the past quarters, the significant loss at SGRE outweighed a strong contribution from the Gas and Power segment. Gas and Power reported a positive adjusted EBITDA before special items of nearly EUR 212 million, which is essentially on par with prior year's quarter level. I will talk about this just in a moment. At SGRE, the EUR 330 million loss was due, again, to continued operational problems, as well as pressure on material and logistics costs. Free cash flow pre-tax came in at EUR -25 million, but again, diverging developments between the segments. On one hand, a very solid and good performance at GP with a free cash flow pre-tax of EUR 432 million, which was more than offset by a cash outflow pre-tax of EUR 514 million at SGRE.
Next, I'd like to take you through the group cash bridge, which as I just mentioned before, giving the overview of the transaction, has been impacted by the EUR 1.15 billion cash collateral transferred to the CNMV. Looking at the left-hand side, we have EUR 4.4 billion in cash and cash equivalents and EUR 107 million rather receivables from Siemens Group for a total liquidity of EUR 4.5 billion. We have EUR 4.1 billion of financial debt, of which EUR 2.2 billion is long-term. This is EUR 720 million odd higher than at the end of the second quarter, and this reflects a rise at SGRE, which accounts for the majority of our long and short-term debt.
We have a financial liability to Siemens for EUR 76 million for a net cash position of EUR 422 million, which is EUR 1.2 billion lower than at the end of the second quarter. During the quarter, our provision for pensions and similar obligations decreased from EUR 725 million in last quarter to EUR 623 million in this quarter, driven by higher discount rates. Credit guarantees remained at the same level and again there is no change there to a bank financing of an associated company for which Siemens Energy has issued credit guarantees. Taking into account pensions, we have a net debt position of EUR 273 million. This is the first time that we've had a net debt position and is EUR 1.1 billion lower than after Q2.
As mentioned before, this is mainly a reflection of the EUR 1.5 billion cash collateral transferred to CNMV and the fact, of course, that the free cash flow generation at the SE group overall was basically flat in the quarter. Overall, we also continue to have a very sound liquidity. As per the end of the third quarter, Siemens Energy Group had a total available liquidity of EUR 9.3 billion, again comprising of the EUR 4.4 billion of cash and cash equivalents and EUR 4.8 billion undrawn credit lines. Furthermore, we have a EUR 2.9 billion remaining guaranteed bridge facility, of course, related to the cash tender offer. Next, please, let's look at our Gas and Power segment in Q3, which has been and continues to deliver in line with our expectations.
I'm very pleased to say that Gas and Power continues to be resilient despite a variety of headwinds, macroeconomic issues, including supply chain disruptions and geopolitical difficulties. I always say we're not immune to the challenges also in GP. However, we continue to take advantage and fare well of the growing demand for our energy and technologies that facilitates the energy transition, and this is demonstrated by sharply higher order volumes. In the third quarter in Gas and Power, we booked EUR 6.4 billion, an almost 37% increase comparable. For the first nine months of the current fiscal year, we also see an increase in orders of just over 25% comparable and almost 30% on a reported basis.
To put these numbers into perspective rather, in the first three quarters of fiscal year 2022, we won orders almost EUR 19 billion, which equates to approximately one full year of revenue for Gas and Power. This strong growth resulted in a strong and healthy order backlog of almost EUR 60 billion, EUR 59.6 billion to be exact, again exceeding previous quarter and record. This remarkable order growth at GP in Q3, which is also important, was supported by double-digit increases across all businesses and across all reporting regions. What's also very positive is we saw increases in both the new units as well as the service business. When it comes to gas turbines, and to provide a little further insight, we booked in the third quarter 2022 gas turbines greater than 10 megawatts.
There are seven large gas turbines and 15 industrial gas turbines in the range between 10 MW and 100 MW. That's for orders. Now looking at revenue. Revenue remains on a growth track and grew by 0.7% comparable and just over 6% on a reported basis. This is despite the sanctions against Russia and continued supply chain constraints. As mentioned, the negative revenue impact from the sanctions against Russia was around EUR 170 million in Q3. However, the nominal growth benefited in the third quarter from FX tailwinds in the magnitude of approximately 5.6 percentage points. This is mainly due to the strengthening of the U.S. dollar. From the disaggregation of revenue table, you can see that in Q3, all businesses contributed to growth, as I just mentioned.
Generation increased by 2.6%, IA by just over 10%, and transmission by 7%, just over 7%. For the first nine months of the current fiscal year, revenue development was basically flat on a comparable basis and grew moderately on a reported basis. Now looking at book-to-bill for Gas and Power, as I mentioned earlier, again, very strong at 1.31, and particularly strong in all businesses, but particularly in transmission. Adjusted EBITDA before special items came in strong again at EUR 212 million, nearly on prior year's level or 4.4% margin. I think we can all be very proud of this achievement that took a lot of hard work.
Please remember in Q2, we have highlighted that we are confronted with significant challenges, such as the war in Ukraine, where we indicated high double digit, low triple digit impact and supply chain constraints, roughly EUR 100 million or so headwind on profitability, which predominantly burden our adjusted EBITDA before special items in the second half. The adjusted EBITDA before special items impact of sanctions against Russia in Q3 amounted to EUR 55 million in the third quarter due to the loss of revenue based on the sanctions and other operational effects. We managed to mitigate most of these headwinds with a strong operational performance and to continually and very prudently deliver on our cost savings programs. This is hard work, as mentioned, across all divisions.
For the nine months or year to date, we are now at an adjusted EBITDA margin before special items of 5.4%, which is an improvement of 20 basis points versus the 5.2% in fiscal year 2021. Again, despite the headwinds from the war in Ukraine, for example, which burdens the profitability in the first nine months by about 60 basis points. Of course, notwithstanding things like the supply chain constraints and disruptions therein. For special items, as Christian mentioned, we have started to restructure the business activities in Russia, so therefore the recent quarter reflects this, in total approximately EUR 200 million. Also as a reminder, this is reported as a strategic portfolio decision under special items, so therefore has no impact on adjusted EBITDA before special items.
To be crystal clear, the negative impact relating to the restructuring in Russia is part of the special items, and the negative impact related to lost business in Russia is not part of special items. The restructuring activities are expected, as mentioned, to be concluded by the end of the fiscal year without further significant impact, i.e., the majority of the impact is already included in our Q3 results. Switching a little bit to free cash flow pre-tax, again, very strong at EUR 432 million and slightly above prior year's quarters level, supported by a strong top-line development, so therefore advanced payments from customers. Of course, but unfortunately, this was more than offset, you know, in light of higher outflows from inventories, and inventory in GP went up. In part related to the buildup of safety stock.
I mentioned that already in Q2 in certain areas where necessary and where appropriate. We are building up safety stock to ensure that we limit disruptions and are able to meet customer requirements, and I think this is exactly what we continue to do on an exceptional basis, going forward. Therefore, to sum up, in Q3, GP progressing, absolutely in line with expectations. Very strong order momentum, with growth on the top line, strong profitability and cash flow. The measures that we've taken to improve the operational performance as well as our cost out initiatives are showing effect. Therefore, we are on track to reach our fiscal year 2022 and fiscal year 2023 targets. Last but not least, let's take a look at the financial outlook, which remains unchanged for GP and Siemens Energy.
For the gas and power segment, we still expect comparable revenue growth and adjusted EBITDA margin before special items towards the low end of the guidance ranges of +1% to +5% and +4.5% to +6.5%. For the comparable revenue growth, effects related to the restructuring of Russia are excluded. Yes. According to SGRE, just to reiterate, for fiscal year 2022, the company now is working to achieve a comparable revenue growth near the low end of the previous target range of -9% to -2%, and an EBIT margin pre PPA and Integration and Restructuring costs of approximately -5.5%.
For Siemens Energy, we expect results still towards the low end of the guidance ranges for comparable revenue development, again, -2% to +3%, but excluding the restriction Russia-related effects and adjusted EBITDA margin before special items, which is +2% to +4%. We now expect the net loss for Siemens Energy in fiscal year 2022 to exceed prior year's net loss approximately by the impact from the restructuring of business in Russia that is currently reported as a special item. We still assume free cash flow pre-tax to be in the range of positive to mid-triple-digit million . With that, I now hand back to you, Christian, for final remarks.
Thank you, Maria. Let me conclude with our key short-term priorities in particular. Siemens Energy success obviously is built and has been built on the fact that we support our customers, especially in these challenging times. It is hence key for us to support our customers as they navigate through the current market challenges and geopolitical tensions. We have experienced similar challenges. It is also key for us that we manage these challenges in our own organization, that we deliver on the fiscal year 2022 targets, and that we execute our cost out programs, and that we build the foundation for a successful start into fiscal year 2023.
Our new group structure and the delisting and integration of Siemens Gamesa Renewable Energy is key to our vision to become the most valued energy technology company in the world, and the successful implementation of the new operating model and the successful execution of the cash tender offer are also on our priority list. With this, I hand over to Michael again, and Maria and I are looking forward to your question.
Thank you very much, Christian, and thank you very much, Maria. We now come to the Q&A. We've got about 25-30 minutes. If you want to post a question, please press zero one on the keypad. We do have a full list of questions, so please, if you could stick in the first round to one question. The first three questions, so you can prepare, are from Andre Kukhnin, Vivek Midha, and Gael de-Bray. We start with Andre Kukhnin from Credit Suisse. Andre over to you.
Good morning, everyone. Thank you very much for the opportunity to ask question. I'll stick to one. For me, really, the key one is that, margin bridge to the 6%-8% that you upheld for the fiscal 2023. Could you just walk us through some of the key moving parts there? I guess there's EUR 300 million from the current restructuring program, but maybe how much should we expect from the new simplification kind of management role reduction program in there? Should we think about that 60 basis points for Russia for full year and as a complete non-repeat as well? Thank you.
Maybe, Thanks, Andre. Good morning. I start, and Maria, maybe you also chip in there, in terms of the outlook. Obviously, at the moment, we're all missing the guidance for 2023 of Siemens Gamesa. We obviously have to clearly state this. What kicks in in 2023 is still a lot from what we call Accelerated Impact Program. This is still obviously under delivery. The new operating model I just would like to highlight that, is not assuming at the moment additional contributions there.
This is more to make the company clearer also to tap into the growth elements. There might be here and there potentials for further savings, but this is currently not reflected and considered. Also Russia is for us something which we target to digest in 2022 and do not expect a negative impact in 2023. That said, we are obviously also still expect the supply chain constraints to continuing in 2023 and this is what is the underlying base for assumptions. Maybe Maria, any additions from your side?
No, I think very well summarized, Christian, that of course the margin bridge does have the remaining portion of the Accelerated Impact Program. This is very important for us. Of course we still see supply chain headwinds, and those are needing to be compensated, of course, with our ongoing mitigation measures, which are proving to be quite successful. We do still see those, let's say, continuing into 2023. The new operating model, it wasn't meant to be a cost-saving program. It was really meant to ensure that we become quicker, more agile, flatter within the organization and this is exactly what Christian has outlined. Nothing further to add.
Thank you.
Thank you, Christian. Maria, t he next question goes to Vivek Midha at Citi. Vivek, please go ahead.
Thanks very much, everyone, and good morning. I just wanted to follow up on the cash tender offer if I may. To the greatest extent that you can comment at this stage of the process, what is the latest color you can give on the timing or milestones for your equity raise or raises to fund the cash tender offer? Thanks very much.
You-
Yeah. Maybe up front where the offer stands. I mean, first of all, we are still on the timeline which we laid out, right? Everything as planned. On the equity raise, maybe Maria, you want to comment also there. It will obviously depend on the market conditions, but...
Yeah, absolutely. No, thank you, Vivek, for the question, because this is exactly what we indicated when we announced the transaction, is that of course, we would look to be perhaps doing an equity raise in a couple of steps, and even one, let's say, in short order. Of course, this was, you know, underpinning the market conditions. We have all options available to us. We continue to look at that, let's say, in the next windows as such. That's clearly our intent. It's progressing as planned, but of course, market conditions continue to be a bit erratic.
Of course. Thank you very much.
Thank you both. The next question goes to Gael de-Bray at Deutsche Bank. Gael?
Yes, good morning, everybody. Thanks very much for the time. How can I reconcile the two to four percent margin guidance for the group with the other indication according to which GP margin will be at the lower end of the four point five to six point five percent range? I mean, because if I do the math, you need GP margin to be at least five point five percent to deliver the group's guidance. What am I missing here? If I may, can I squeeze in a second question on gas?
Because go ahead.
Of course.
Yeah. Thanks very much for this. Well, I was just a little bit surprised by your comment that fleet utilization was stable in all regions. Is this really the case for Europe too? Could you give us some color, a bit more color on the shift from gas to oil and the implications on your business?
Yeah.
Thank you.
Thanks, Gael. I take the second one, and Maria-
Yeah.
... then obviously gives-
Yeah.
The margin arithmetic explanation. First of all, yes, I confirm that, I mean, let's say, in light of the normal fluctuations which you have between the quarters, the utilization rate is relatively stable. This was also during the time when the gas price, since the gas price is relatively high. You have to keep in mind that only roughly 20% of the gas consumption goes into power, and half of it, or more than half of it, goes into combined heat and power plants. Actually, there is a high need to run these units. This, I believe, also will continue to prevail. We also have seen, even in the last quarter, good orders coming in from Europe in the gas side.
These are areas in Europe which have good access to LNG potentially then also. In this regard, yes, this is what we're seeing. If you talk to our customers, obviously it depends all where the units are placed, but we get still I would say a resilient feedback from the market on the usage. The other element, what you have to keep in mind in terms of service in the gas turbine, there's a decent amount of activities, particularly in Germany, ongoing at the moment to refurbish gas turbines to different fuels, like for example, switching them from gas to oil. That is obviously an additional revenue stream which comes in on the service side. So far the answer is yes, I would confirm this.
Yeah. No, hello, Gael, from my side, and thank you for the question. I think, you know, if we look at this quarter by quarter, even perhaps to the nine months, year to date, we've had three solid quarters, for GP. We sit at a nine-month year to date EBITDA of 5.4%. You're absolutely correct in terms of Q3, this actually was even better than expected. There's a few reasons for that. In terms of the underlying business mix, we had a strong service contribution, a strong outage season, not only in the long-term program but also in the transactional side. We see this also again picking up.
You're right, we have a solid Q3 showing, if you'd like, on GP, and we would expect with some of this volatility, and by the way, some of that service that we saw even in Q3 was preponed a little bit. I would expect a bit of a landing into Q4 in line with what I said at the second half, which was we will have a more challenging last six months. Again, you know, we do see seasonality and some volatility, but we've had a solid nine months so far for the year. That's a good basis to go into Q4 with. Thanks.
Well, maybe I should rephrase the question if I can.
Michael?
Sure.
Yeah. Michael's the referee, so yes, Gael, go ahead.
Thanks very much. I was just, you know, the question was obviously on, you know, why you stick to the 2% margin guidance for the group and still see obviously a pretty low margin for GP for the full year. Maybe if I try to rephrase the question, I mean, does the guidance includes the negative impact of the exit from Russia, both or d oes it exclude it both on the revenue side and on the EBIT side or only on the revenue side?
Yeah, no. To be very, very clear, the restructuring activities from Russia are excluded on the revenue side and on the EBITDA side. It was a very precise question with a precise answer, yeah? Therefore, as mentioned, that is looked at as a special item, and the majority of that has already been taken in Q3.
The restructuring aspect of it, yes. The negative impact on EBIT coming from the lost revenue in Russia is within the adjusted EBITA, right?
Correct. It's also been addressed.
Do you take it out for the guidance or not?
Yes. Oh, sorry. Let's, and Gael, maybe to be very precise, the ongoing operations of Russia is included in, negatively in our operating results for the nine months ended to this date. The restructuring activity, so the EUR 200 million and the revenue that's related to that, are excluded from our guidance due to it being classified as a special item.
Okay. Thanks very much.
Thank you.
Right. The next three questions go to Supriya Subramanian, Akash Gupta, and William Mackie. We start with Supriya at UBS. Supriya, please go ahead.
Yes. Hi, good morning, and thank you for taking my question. I just wanted to elaborate a little bit on the margin and the guidance or the outlook into 2023 for the Gas and Power business. Wanted to get your thoughts on what the underlying assumptions here really are, because you're talking about if we reach the lower end of 2022 guidance, 4.5% to midpoint of next year guidance would be 7%, so 250 basis points improvement. You know, what are the drivers for this from an external environment perspective? What are your assumptions going into from a costing as well as in a supply chain perspective? Yeah, just wanted to get your thoughts on that.
Mm-hmm.
Quickly, maybe, you know, just on the previous point, again, just re-clarifying. The guidance that we have for the full year, that is the low- end 4.5%, that includes the negative impact from Russia business, from the business perspective, but not the EUR 200 million restructuring. Is that correct?
Yes.
From the EBITA-
Yeah.
Guidance. Yeah.
Let me just answer that one very clearly. Yes. 'Cause you said it clearly.
Yeah. Okay.
Let me make sure. Then, maybe I start on the first one regarding the guidance again. Maybe to be clear, we also have had headwinds from supply chain this year, and I think we talked about that in previous quarters, that it was mainly related to transmission, not also in the other businesses, but mainly related to transmission and mainly related to their short-cycle business. On top of our cost-out programs that we continue to see, of course, having the effect that we require for fiscal year 2023, on top of the ability for us to continue to execute on our backlog, again, with a step up in margin quality, as I've indicated in other quarters, as those legacy projects, as you will be converted completely.
Assuming that the majority of that supply chain, although it still carries into 2023, but a lot of this on the short cycle business has now been remedied, if you'd like, either with different suppliers or with price escalations, et cetera. This we see still having an impact, but a smaller net impact in 2023 and then in 2022, all things remaining equal. Hopefully that further, let's say, underpins at least, for your question regarding supply chain and the impact for 2023.
Okay.
How that is factored into our guidance.
All right. Great. Thank you very much.
Right. If you can really stick to one question from here onwards, because we've got five more callers with questions. Akash, if you please stick to one, and it's, Akash Gupta, of course, at JP Morgan.
Yes. Hi, good morning, everybody. My one question is on gas and electricity prices and maybe if you can talk about the headwinds that you see on margins. Can you talk about how you are hedged and if you have any contracts where you can pass through these higher energy costs to your customers given the increase we have seen in German power prices, but I guess it's not in Germany, it's also in elsewhere in Europe as well.
Thank you, Akash. No, I think across the board, across all business areas, the pricing regime has been good, positive. I mean, price increases really across the board also from our perspective, reflecting what we have seen in the inflation environment. This really holds true for generation as well as industrial application and transmission. In this regard at the moment, in terms of the price increases, even so painful, I clearly have to say, currently we also see that it's possible to forward these into the market.
The element we are looking into very carefully at the moment if it comes to gas, particularly, obviously in Germany, as I said, is mainly about general availability because we have some testing facilities here in Germany which need to operate on gas and to have workarounds around that. In terms of pricing environment, this has been positive across really the different product areas.
Thank you.
Thank you. The next question goes to Will Mackie at Kepler Cheuvreux. Will, please go ahead.
Good morning. Thank you very much. My question relates to the order trends across transmission generation industrial applications. After you strip out a number of the major orders that you called out in the slide deck, could you just talk to the underlying demand trends you see in each of the business segments, and perhaps discuss what level of pricing you're able to incorporate to mitigate the pressures through the supply chain?
Yeah, happy to do so. Maybe on generation, if you take which is obviously strong across the board. I mean, it's. They're on a trajectory which we would not have expected beginning of the year, and this is really also cutting across different regions, China, Asia, you have seen Central America and the DACH. Europe has been a strong contributor to generation order intake, and also widely spread in terms of customers. So really, a healthy base. As I said before, also price-wise, we do see the increases which reflect the inflation environment into the end prices, so that is positive. On industrial applications, key driver, I see two key drivers at the moment. The one thing is LNG.
The one example was LNG, but there have been more than this, and it's not just large scale LNG, it's also a lot of mid-sized LNG plants, where we provide either the boil-off gas or the main refrigerant compression side. The other element in industrial applications, what I do see is obviously everything around what I would call optimization of industrial assets. I always mention heat pumps. We see, let's say, a couple of success stories there, and further electrification elements which cut across there. Also, their pricing environment is intact. It's possible to increase prices. Obviously, also in this area, it's very often based on the SGT-800 and 700, and these are very, very good products which allow also a strong pricing environment.
On transmission, the outstanding element on transmission really has been HVDC over the past couple of months, and also continues to be so going forward. The demand is really substantial, and also there, the pricing has been increased, to reflect really the developments in the markets, and in this regard, very successful, and I expect this for some more years to continue, and this is really sticking out compared to the rest of the business.
Thank you.
Right. The next question goes to Sean McLoughlin, followed by Ajay Patel and Philip Buller. Sean, over to you.
Thank you. Good morning. If I could just build on Will's question, and just thinking about the visibility you have now on your backlog and your comments around pricing, and clearly the volume has been very strong. I mean, looking beyond 2023, in terms of midterm target, I mean, do you see a clear path to continuing margin expansion, or should we take the 6%-8% as a steady state normalization range going forward? Thank you.
First of all, I would always say step after step, right? I think it's important that we deliver what we promise, but I'm, let's say, confident about the GP side, and I'm more confident than I used to be when I started here at the company. Order book looks really good. Backlog is healthy. So there's a lot of good things in it. In terms of the midterm expectation of this business, I think it is more a question on how do we finally shape the portfolio, what elements we pick. There's definitely enough elements in the portfolio which also justify a higher margin range. It is a question how do we shape it gradually year over year, but I would say, let's take it when we get to this point. First of all, I think it's really important to deliver on 2023.
What I really like about the business is what you do see at the moment across the board, how the different type of technologies tap into the energy transformation or energy transition, and why it's needed. The other piece is really you recognize that this ability to convert technology into projects and product is really appreciated by the clients. In this regard, I think we have an actually a very good market and portfolio to be active in, and we will continue to fight to get the margins up, but I would not promise anything at this point in time.
Right. The next question goes to Ajay Patel.
Good morning. Thank you very much for the presentation. I guess might put one question just on the order backlog as well. Is there any indication you can give of what percentage of that EUR 60 billion order backlog for GP is consistent with the 6%-8% margin, o r maybe, you know, put it another way, what percentage of that backlog is below that level? Just trying to understand how much work has to happen on the cost-cutting side and other parts of the business to kind of drive those margins up.
No, let me maybe make it much simpler, right? I mean, we feel confident with the targets we have put out, supported by the backlog, what we're seeing. It fits together. There is, let's say, not an additional cost-cutting program required other than what we anyway do with the productivity increases and the implementation of AIP. We are on track. That is the key message here, on the GP side. Obviously, also the quarter three, particularly if I look also on the generation side, has been margin-wise extremely good, right? This is something where I feel comfortable with the current backlog in its entirety.
Yeah. No, AJ, maybe just because this is something we talk about quarter-over-quarter is the selectivity. I mean, just because we don't always mention it still continues that we have very high thresholds within Gas and Power specifically. When it comes to projects, we look at that with a high level of scrutiny to ensure, as Christian mentioned, that we feel very comfortable with the backlog as such. Again, couple that, AJ, with what I've been talking about in the last quarters also with those legacy projects where we really do see the tail end of that in this fiscal year. Hopefully, again, having that step up that you would expect. Couple that with the selectivity processes that we have in place, this is what makes us confident with the order backlog going forward.
Okay. Thanks. Very clear.
Right. The last question goes to Philip Buller at Berenberg. Phil, over to you.
Yeah, thanks. Good morning, thanks for the question. Obviously, the GP order momentum is very strong. I just want to ensure we're not over-extrapolating. So what of that growth is coming from price, please? If you can disclose that, and how is the funnel looking? Do we expect a continued book-to-bill above one in the coming quarters? Just slightly broader, I was hoping you could talk about the opportunity embedded in the U.S. climate bill as it pertains to your business. Thanks.
Yeah, thanks. Maybe to the U.S. climate bill, I think it's a good starting point now, and other things have to fall in place as well, right? To really then bring projects to the ground, because also there, like in Europe, approval periods on projects have to accelerate and that really things are invested. I think it's a good step, and it will, for us particularly, be interesting in terms also there of the transmission environment. There's also obviously certain gas investments still happening in the U.S., so that is positively. In terms of midterm growth expectations, I would go back to the Capital Market Day, what we said. It is not our expectation that we continue to drive the gas turbine business to the utmost. We have not said it.
We have an extraordinary good year in 2022. That's positive. This gives us a lot of freedom for the years to come, but we expect it to be flat. I would not expect that to continue into 2023 in the same order of magnitude. That's not our aspiration because we, as we said, we rather want to keep it stable and push the margins. On industrial applications, I think it's a little bit mixed picture because I do see LNG investments, but I think in everything related to oil and gas, we're looking into a high volatility, which is a little bit unpredictable. You have a lot of companies earning a lot of money, but you have an insecure investment environment. I would also caution there a little bit.
Where I'm really confident on the midterm growth year after year is really on the key portfolio elements on the transmission side, things like HVDC, as I said before, FACTS, so grid stabilization. Because the demand is just absolutely needed in the next couple of years to reach a change until 2030. A lot of these revised infrastructures do not work without the grid. I think there is no other opportunity but to invest. In this regard, I would still see this positive. As I said, particular on generation, I would see it for 2023 not continuing on the same growth path, and that's absolutely okay. This is what we have planned for.
Thanks very much.
Right. Thanks, everybody. That concludes the Q&A. Some closing remarks from Christian before we let you all go into holiday season.
Yeah. For those of you who have not been on holiday, I wish you really a nice holiday season. For those of you who have been already on holiday, I hope you got back really fully recovered and recharged. I look forward to the next quarterly call. Stay healthy, first and foremost, and safe, and looking forward to speak to you in the next quarterly call. Thank you very much for your time.
Thank you, Christian. Thank you to everyone on the call. As always, you know, do reach out if you have further questions. Yeah, happy holidays. 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/investor-relations.