Ladies and gentlemen, good morning and welcome to the Siemens Energy Q2 Fiscal Year 2025 Analyst Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor Statement on Page 2 of the Siemens Energy presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. You can register for questions at any time by pressing star and one on your telephone. You can withdraw your questions by pressing star and two. For operator assistance, please press star and zero. At this time, I would like to turn the call over to your host today, Michael. Please go ahead.
Thank you, Moritz. Good morning and a warm welcome to the Siemens Energy Q2 analyst call. As always, all documents were released at 7:00 A.M. on our website. On April 16, 2025, we pre-released our Q2 fiscal year 2025 figures due to a better-than-expected quarterly performance. On this occasion, we also raised our guidance for the full year. Our President and CEO, Christian Bruch, and our CFO, Maria Ferraro, are here with me. Christian and Maria will take you through the major developments during the second quarter of fiscal year 2025. This will take approximately 30 minutes, and thereafter, Christian and Maria are available to answer your questions. For the entire call, we have allowed an hour. Christian, over to you.
Thank you very much, Michael, and good morning, everybody also from my side. Thank you very much for joining us today. During the second quarter, our performance remained strong. Reflecting the strong performance, we have raised our guidance for the full year across all KPIs. In our last quarterly call, I explained the resilient nature of our business model, and this provides us with confidence that we are well-equipped to deal with tariffs as they arise and continue to focus on profitable growth. We continue to benefit from strong markets and booked orders of EUR 14.4 billion, reflecting comparable growth of 52.3% against prior- year quarter. Almost half of our orders in the quarter came from gas services, which booked their highest order intake in history. With a 1.45 book-to-bill ratio, our order backlog grew once again to a new record high of EUR 133 billion.
At the same time, we managed to further improve our backlog margins. Revenue came in at EUR 10 billion, reflecting revenue growth of just over 20%. Growth for the first half was therefore close to 20% and well above our original expectations. Our profit before special items rose to EUR 900 million, including roughly EUR 100 million of timing effects at Grid Technologies. This corresponds to a profit margin of 9.1% for the quarter and an improvement of 700 basis points year- over- year. The first half-year profit margin was at 7.3%, an improvement of almost 5 percentage points year- over- year. Cash flow of EUR 1.4 billion yet again exceeded our expectations, taking cash flow for the first half-year to EUR 2.9 billion. The improvement versus last year was driven by better results, but also by customer payments and reservation fees. The underlying trends in our markets remain strong.
Globally, we see that our customers are keen to secure capacity, given strong growth in electricity consumption and the need to transform the generation base. As an example, let me point out the current developments in Germany. We expect that under the new German government, a pragmatic approach will be pursued for the construction of new dispatchable gas-fired capacity of roughly 20 gigawatts over the coming years. While the underlying market trends remain strong, we have to see that the outlook for the global economy has become more uncertain, also because of the potential impact of global tariffs imposed by the United States and other countries. We are closely monitoring the developments and continuously analyzing the potential impact. For the second half of the fiscal year, we are currently estimating a limited direct impact to our results of up to a high double-digit profit impact after mitigation measures.
In our Gas business, we had an order backlog at the end of the quarter representing 29 gigawatts and reservation agreements for around 21 gigawatts. We expect to convert these reservations into orders in fiscal year 2025 and in fiscal year 2026. Given the strong market demand, pricing remains favorable, which is reflected in a further improvement of our backlog margin. Business resilience is key in the current market environment, and therefore I'm very pleased that we have seen significant progress over the last couple of months. Our balance sheet continues to improve as we had EUR 4.7 billion in net cash on the balance sheet at the end of this quarter. Based on the excellent performance during the first half of fiscal year 2025, we have raised our fiscal year 2025 guidance.
For our fiscal year 2028 targets, we will provide an update with the full- year results on November 14. On November 19 and 20, we will host our Capital Market Day in Charlotte, North Carolina. We will not only showcase our biggest North American factory, but also provide further insights into our businesses and how we want to realize profitable growth. Let me elaborate briefly on the new fiscal year 2025 guidance. Maria will share more details later in the presentation. We increased our outlook for all KPIs: growth, margin, net income, and cash flow. Given the faster growth at Gas Services and the stronger-than-expected revenue development at Siemens Gamesa, we now anticipate 13%-15% growth compared to 8%-10% before. The 100 basis points upgrade in our group profit margin expectation is predominantly driven by Grid Technologies.
This is based on very strong execution and more significant cost regression than we had anticipated. This said, we also see Gas Services and Transformation of Industry progressing ahead of expectations. Driven by the favorable order trends, customer payment patterns, and better-than-expected profitability, we now expect another year of strong cash flow. Targeting around EUR 4 billion, we are doubling last year's cash flow level with very strong contributions from Gas Services as well as Grid Technologies. We are now expecting net income of up to EUR 1 billion, excluding the one-time gain related to the demerger of the Energy business from Siemens India Limited. Despite the fact that the debate about tariffs has led to economic uncertainties, the underlying market trends remain favorable. Electricity consumption continues to grow, and aging infrastructure needs to be replaced.
Growth in electricity consumption has been particularly strong in the United States, where we also see a big need to replace aging infrastructure. While tariffs would make certain projects in the U.S. more expensive and some projects may be delayed, we expect this to have only a temporary effect on the demand and to be offset by strong demand in other regions. In the Middle East, demand remains strong. Saudi Arabia and the U.A.E. continue to invest in sustainable and affordable electricity, and energy infrastructure in countries like Libya, Iraq, and Syria need to rebuild their electricity and energy infrastructure. In Asia-Pacific, the continuous growth in GDP and rising standards also support ongoing investments. We had strong orders in North America, with power generation and grid infrastructure investments being the main drivers.
Several data center-related orders for gas turbine-fired power plants and a lifetime extension of a nuclear steam turbine in this quarter support our view that data centers provide upside in demand and that we are experiencing a nuclear renaissance. In the Middle East, we booked two large orders in Saudi with a total contract value of roughly $1.6 billion, as we already announced during this quarter. In Saudi, we are seeing an oil-to-gas shift, and these two power plants are replacing oil-fired power plants and reducing emissions by up to 60%. A highlight in Europe was the Grid Technologies project, which connects Norfolk-Wengart West and East, an RWE project where Grid Technologies is responsible for the onshore station and the high-voltage equipment in the offshore substation.
During the quarter, we also received an order in Taiwan for two gas turbines and related components for the Kwu Kwang-2 power plant in Taiwan. Let me now give you some current examples to underline our focus on profitable growth. Our ongoing capacity expansions and ramp-up activities across all business areas are well on track. Besides our capacity ramp-up for large gas turbines in Berlin, which will materialize in fiscal year 2027, we are also expanding our capacities for medium-sized gas turbines. This means we will be able to cope even more efficiently with a strong market demand. During the quarter, Siemens Gamesa started to deliver our flagship SG-14 turbine to the Sapphire side of the U.K. coast in the Baltic Sea and successfully installed the 5,000th offshore wind turbine.
This means that Siemens Gamesa has now delivered an offshore wind turbine capacity of 27 gigawatts to sites in 14 countries. We continue to develop our training programs to attract young professionals, and I'm very pleased that we are successfully competing for talents in our industry. I mentioned that the pricing environment remains favorable. Despite that, we continue to apply strict selectivity on the projects we take into our order backlog. Additionally, our teams focus strictly on cost-out initiatives and productivity measures to remain competitive. I already mentioned the cost regression effects at Grid Technologies. These show that we are effectively limiting the overhead costs in the factories and in the functions in this growth environment. At the same time, the integration of Siemens Gamesa into Siemens Energy is well on track to achieve the targeted cost saving.
Considering our position in the nuclear market, we entered into a partnership agreement with Rolls-Royce in February, which is expected to lead to the exclusive supply of steam turbines, generators, and other auxiliary systems for small modular reactors. At Siemens Gamesa, we execute our strategy to focus on selected core markets in our onshore wind business. We agreed to materially divest our wind business in India and Sri Lanka to a group of investors led by TPG. Closing of the transaction is expected latest by the beginning of fiscal year 2026. Let me briefly address our situation in the U.S., including the tariff debate, which has been one of the most discussed topics over the last weeks.
Siemens Energy has been present in the United States for more than 100 years, and some major acquisitions, such as the Westinghouse power generation business in 1998 and Dresser-Rand in 2014, have increased our footprint significantly. Currently, we have eight major manufacturing sites and a total of around 12,000 employees working in the U.S. It is one of our most important markets, with EUR 7 billion of revenue in fiscal year 2024 and orders of more than EUR 10 billion, which are currently significantly increasing, as you could see a couple of slides before. The order backlog at the end of fiscal year 2024 stood at around EUR 24 billion. Based on the great potential we see in the United States, we continue to expand our footprint in the U.S. We will have invested roughly EUR 500 million in the United States by the end of this fiscal year since fiscal year 2023.
With the potential tariffs impact in the U.S., the outlook for the global economy has become more uncertain. We are closely monitoring the developments and continuously analyzing the potential impact. At the same time, we are taking proactive steps to mitigate those. We are, as Siemens Energy, not immune to tariffs, as we have a global supply chain and trade flows into the United States from the rest of the world. It is also important to get a better understanding of the secondary trade policy effects on GDP and energy demand and tertiary effects such as potential changes in customer behaviors. Besides the direct financial implications, those new tariffs and regulations will add bureaucratic hurdles to the import process for authorities and importers. We have set up a global task force to assess the best approach for Siemens Energy, acknowledging the complexity and fluidity of the situation.
This is an ongoing exercise, and we focus on what we can control. When it comes to existing protections, we have contractual terms such as change- of- law clauses, which largely protect our equipment backlog. According to those, the import and the cost associated with the import are charged to the customer. When it comes to the service business, the picture is more mixed. Contracts differ widely, but service contracts have in common that the cost base is more local and that escalation clauses are embedded in these contracts, which provide us with a certain degree of protection. Keep in mind that we operate a very decent local footprint, as I said before, with eight factories in the U.S.
Although we are to a large degree covered through the duration of our backlog, we are working on further mitigation measures with a target to raise further our local content in the United States. This accounts to the supply chain as well as our own production. This will take some time, and we are taking it step- by- step. In our raised guidance for fiscal year 2025, we have anticipated what we know as of today with respect to tariffs. For the second half of the fiscal year, we are currently estimating a limited direct impact to Siemens Energy of up to a high double-digit million euro impact after mitigation. Again, this includes already existing protection as well as the shorter measures we have at hand.
As always, we will revisit our business assumption in our mid- to- long-term planning over the summer months, and hopefully the picture around tariffs and feasible further mitigation measures will be more stable then. Based on that, we will provide you with an update on fiscal year 2028 targets with our quarter four results. With this, let me hand over to Maria.
Thank you, Christian. Good morning, everyone, and a very warm welcome also from my side. I'm pleased to share with you our Q2 financial results. Let me start straight away with the Siemens Energy Group figures. As indicated, we had another very strong quarter, exceeding basically all major KPIs compared with expectations. We therefore had the announcement on April 16, pre-releasing our key figures, upgrading the outlook for fiscal year 2025. Let's get right into orders. Orders, as mentioned, reached EUR 14.4 billion for the quarter.
This is on the back of very strong demand, which continued by more than a 50% increase versus the prior year. The improvement was primarily driven by an increase in our new unit business, growing significantly by 67% and supported by a substantial rise in the service business with 30% compared to Q2 of fiscal year 2024. Service share for the first half of fiscal year 2025 stands at 37%. Our book-to-bill ratio, 1.45, again driving our backlog to our new high of EUR 133 billion. Margin quality, which is very important in our backlog, continues to improve. This reflects a number of factors, for example, positive pricing, developments above cost inflation, of course, our execution, and this all supports our mid-term profitability targets. Revenue stood at EUR 10 billion. This is up by just shy of 21% on a comparable basis.
This is the highest or a record quarterly revenue since the inception of Siemens Energy. All segments grew double-digit to support this revenue. It was also supported by better pricing across all business areas. Revenue grew significantly in both new units at 23% and service at 16% comparable. Profit before special items increased by more than five times year- over- year, with all segments improving and contributing to this result. Profit stood at EUR 906 million. This is a 9.1% margin and was mainly due to a couple of factors. Firstly, increased volume, corresponding fixed cost absorption effects, as well as execution of high-margin projects also driven by better pricing. Additionally, it should be noted in our profit for Grid Technology, we benefited from positive timing effects of approximately EUR 100 million.
This mainly refers to a project where we did some preliminary work and based on a limited notice to proceed from the customer. As a result, the cost at that time for the preliminary works ran through the P&L without any profit as the zero profit margin method was applied. In Q2, we then accordingly received the final notice to proceed. This led to a catch-up effect, and the underlying margin was realized. Looking at net income, this is positive at EUR 501 million. Just a reminder that for the full year, we now expect, based on the unchanged guidance, rather, a net income to be up to EUR 1 billion, again excluding any assumed positive special item effects subsequent to the demerger of the Energy business from Siemens India Limited. This is expected to lead to a positive special items in a mid-three-digit million euro range in the third quarter.
Free cash flow was again stronger than expected at EUR 1.4 billion and improved by just shy of EUR 1 billion year- over- year, driven again by increased profit and positive working capital benefit, namely project advance payments as well as reservation fees. I will talk a little bit more about the drivers of cash flow on Slide 12. Looking at order backlog on the next slide, here we see our new high of EUR 133 billion. Of course, as we indicated in previous quarters, this really provides us transparency well into the future, as you see per annum. Fiscal year 2025 revenue coverage now stands at around 94%. Fiscal year 2026, we are already sitting at approximately 77%. We continue to see an upward margin trend across all business areas, driven mainly by pricing above cost inflation.
Again, our growing backlog provides a strong foundation for our fiscal year 2025 outlook and our mid-term targets. Moving on to cash flow. For Q2, we see free cash flow pre-tax of EUR 1.4 billion, again around EUR 900 million higher than in Q2 of prior year. This is mainly due to improved profit across all businesses, strong orders, which yet again drove project advance payments. This is reflected in the positive change of net operating working capital, as well as reservation fees. Please keep in mind that the EUR 501 million net income in Q2 also includes a negative EUR 265 million non-cash impairment related to the disposal of the India wind business, which has been added back in the cash flow statement. This is mainly reflected in the increase of the amortization, depreciation, and impairment line item. Quick update on the quality cash outs with respect to Siemens Gamesa.
This amounted to EUR 84 million in the quarter. As a reminder for the full year, we've indicated guidance here of a mid-triple million amount. When it comes to CapEx, we confirmed the outlook we provided in Q4. This is approximately or around EUR 2 billion, but clearly with a weighting or a hockey stick towards the second half of the fiscal year. Now, looking at net cash on the right-hand side of the slide, overall, we have EUR 9 billion in cash and cash equivalents, which is the highest ever cash balance since the spin or since the inception of Siemens Energy. We have stable EUR 3.9 billion in financial debt, of which EUR 2.9 billion is long-term. Considering the pension provisions, this brings us to an adjusted net cash position of EUR 4.7 billion at the end of March.
This is compared to an adjusted net cash position of EUR 1.3 billion a year ago. With this, we continue to have a strong focus on our balance sheet. We want a strong balance sheet that, of course, is in line with our strong investment grade profile. As mentioned in the Q1 call, the exit from the Bund- Backed Guarantee Facility is a priority. We are already preparing the replacement of the Bund- Backed Guarantee Facility and remain committed to exiting the facility as soon as possible, particularly in this fiscal year, if possible. Now, let's take a look at the business areas, and let's start with Gas Services. A very strong order for our Gas Service business in a half-year development. This is a record quarter for GS, with orders of EUR 7 billion. This more than doubled from previous year.
This outstanding result was due to many large orders booked in different parts of the world. We have a book-to-bill ratio here of 2.22, a record order backlog of EUR 52 billion. Again, Q2 was characterized by a very strong gas market for gas turbines with greater than 10 megawatts, with the largest markets being in the Middle East and the U.S. In Q2, we booked 61 gas turbines greater than 10 megawatts for the power generation oil and gas. 18 of those were large gas turbines. Our gas turbines greater than 10 megawatt market share for power generation stood at 40%. Looking at revenue for GS, this was EUR 3.2 billion. It's just shy of a 19% increase on a comparable basis. Here we see service business showed significant growth of 22% and new unit business of 10%.
The service share as a percentage of revenue in Q2 was 67%, very stable versus a 66% in prior year, supporting a margin expansion, again in a favorable business mix. Q1 profit stood at $511 million, an increase of 34% year- on- year, resulting in a margin of 16.1%. This is the highest quarterly profit for GS ever since spin. This is an improvement of approximately 175 basis points, driven by higher volume in the service business, as just mentioned, and better margin quality of the processed order backlog, again driven by better pricing. Just a friendly reminder after a very strong first half.
I do want to remind everybody about the seasonality, particularly in our Gas Services business, is such that the mix in the second half, and this is particular also in Q4, this shifts towards more new units and less service business from a mix and therefore has a downward impact on the margin. This year will not be different from prior years. Now let's look at Grid Technologies, please. Yet again, GT, well done, delivered significant improvements across all KPIs. Q2 orders of EUR 5.2 billion. This was driven by a strong, broad-based demand across products and solutions, as well as, also mentioned earlier, in different regions, particularly increased volume from large orders in Europe. Orders include HVDC orders of approximately EUR 1 billion, as well as several other FACTS orders with a total volume of approximately EUR 500 million. Book-to-bill ratio 1.82.
Order backlog for GT, just like GS, also a new record high of EUR 38 billion. Revenue for Q2 grew by just shy of 34% on a comparable basis. It increased both in product and solutions business. I think that's important to note. Q2 profit was EUR 575 million. This more than doubled compared to prior year and resulted in a margin of 19.9%. Also for GT, this is the highest quarterly profit since the inception of the company. Improvement here was driven by strong operational performance, higher volume, including corresponding digression effects, operational improvements, and the higher margin in the processed order backlog. The strong underlying profitability of around 16.4% was further elevated by those positive timing effects I just mentioned of EUR 100 million, approximately. Now, looking at transformation of industry, orders for the quarter were at EUR 1.6 billion.
This was essentially flat or a 2% decrease, relatively unchanged versus a high prior- year comparable base. There was one large order that was booked last year. Taking that out, actually underlying the orders grew this year. Service orders grew and increased by 17%. This was supported by an increasing share in mods and upgrades. Book-to-bill was above one at 1.11, and order backlog at the end of the quarter amounted to EUR 8 billion. Revenue grew by 10.5%. This was driven by all businesses. The strong growth in new units and service both grew. The biggest contributor in Q2 was the compression business for revenue at + 21% year- over- year. Profit was EUR 155 million. Again, for TI, this is almost double from prior year. Margin was 11% correspondingly.
Improvement was mainly due to volume growth, particularly, as I just mentioned, in the service business and improved margin quality of the order backlog. Moving on to Siemens Gamesa. This quarter was in line with expectations. Q2 orders stood just shy of $1 billion, essentially on prior year's level. As expected, there were no large orders in the offshore business, and onshore orders continued to be affected by the temporary interruption of sales activities. Book-to-bill ratio accordingly came in below one at 0.32. The backlog at quarter-end stood at EUR 36 billion. Revenue here, we see Q2 revenue grew significantly by 16% to EUR 2.7 billion. This is due to the growth in the offshore business. The offshore business, including service, experienced growth of 51% for revenue in the quarter. Q2 profit for Siemens Gamesa before special items came in at negative EUR 249 million.
This marks an improvement of around EUR 200 million year- over- year and keeps us again on track. We reconfirm our full year guidance of a loss of around EUR 1.3 billion. Again, improvement was based on offshore, excuse me, due to higher volume and corresponding fixed cost absorption effects. In addition, very typical in project business, we see project-related one-offs. Some are negative, some are positive, but in this case, we had some tail one from project-related one-offs from a positive perspective. In onshore, we saw moderate improvement year- on- year as we continue to work through the onerous backlog, as we've reported quarter over quarter, as well as the quality issues.
Just again, additionally, to shed a bit more light on the Siemens Gamesa India business, on March 26th, we announced the divestment of the majority stake of this business in line with our objective to focus and de-risk the onshore business. This led to an impairment of EUR 265 million, which is included in special items. We expect deconsolidation by the end of this fiscal year or beginning of next fiscal year. Let me now move to our revised outlook for fiscal year 2025. Overall, Siemens Energy now expects 13%-15% comparable revenue growth, previously 8-10%, a profit margin of 4%-6%, previously 3%-5%. Again, this includes a limited direct impact from tariffs on Siemens Energy profit of up to a high double-digit amount after mitigation measures.
Net income of up to EUR 1 billion previously was at break-even, again excluding any positive special items from the demerger of the energy business from Siemens India Limited. Free cash flow pre-tax of around EUR 4 billion. This was previously up to EUR 1 billion. Almost all of the assumptions for business area have been raised. You see them there in front of you. They have been detailed. An update of the midterm targets will be provided with the full year results in November and further elaborated at the CMD straight after. With this, thank you very much for your attention, and I turn it back to you, Christian.
Thank you, Maria. Let me keep it very brief and leave you with some key messages before we go into the question-and-answer session. Message number one, we are executing better than expected, which allowed us to raise our guidance for this fiscal year across all four KPIs: growth, margin, net income, and cash flow. As Maria said, we will update our fiscal year 2028 targets in November. Message number two is that demand for our products, solutions, and services remains strong because of strong growth in electricity demand and the aging infrastructure. The debate about tariffs has led to economic uncertainties, but we expect that in case of a temporary weakness in the U.S., that can be offset by the strong demand in other regions.
Message number three is that we continue to invest in our ability to execute and that we continue to strengthen our resilient business model and to grow profitably. Message number four is that despite the fact that we are investing in the business, we enjoy excellent cash conversion and continue to strengthen our balance sheet further. We are all well placed and fully committed to deliver value to our shareholders. With this, I am looking forward to the question-and-answer session.
Thank you, Christian. Thank you, Maria. We have just under 30 minutes now for questions. As the operator was pointing out, if you want to get into the queue, please press star one. If you want to remove yourself, press star two. Initially, please stick to one question. If there is time at the end, we will, of course, then also take second or potentially third questions. The first three questions go to Alex Virgo, Max Yates, and Sebastian Growe. Alex, if you please go ahead.
Thanks very much, Michael. Morning, Christian and Maria. Thanks for taking the question. I wondered, could you just talk a little bit about the dynamics in this slot reservation situation in GS for us? I wondered with the context of that answer if you could talk to the pricing dynamics and whether you're presumably still signing contracts at a higher price than is in the backlog and obviously in the P&L, and whether or not you could just talk a little bit to the customer composition of those slot reservations and whether or not you've seen any kind of movements as people, I think you referred at the conference back in March to some concerns around people putting slot reservations with you and with your immediate competitors. I wondered if you could just talk a little bit about how that has sort of evolved Q-on-Q and whether the number is the same, right? 20 to 21 gigawatts. Presumably you have converted some and taken some new ones. If you could talk about that, it would be great. Thank you.
Yeah, thanks, Alex. Thanks for the questions. You more or less have said it already, right? I mean, it was really we converted eight gigawatts from the first quarter into orders, and we took on in the delta nine gigawatts. There is a delta of one gigawatt. It is really like a rolling machine at the moment. I see this continuing also in a good pricing environment. There has been a pricing improvement or margin expansion between last quarter and this quarter. In that regard, all very positive as we look on it. We see this continuing in terms of the appetite to discuss agreements, also broader agreements, which obviously then always cover multiple trains of gas turbines.
In terms of customer composition, it's still a mixed picture, as I always said. I mean, we are talking to utilities, classical energy companies, investors, technology companies. It's still mixed. It's also mixed if it comes to the reservation agreements. I would not yet see a particular pattern, but obviously still a very high appetite and turnaround on these different reservation agreements. If I look on it and also for the next years to come, 2026, 2027, 2028, obviously you see that the slots we have open are all backed up by a good bunch of reservation agreements each. This is obviously the interesting piece. It's a revolving pattern what we're seeing.
Very helpful. Thank you.
Thanks, Christian. Thanks, Alex. Next question goes to Max Yates at Morgan Stanley. Max, please.
Thank you. Good morning. I just wanted to dig in a little bit on the aftermarket growth that you're seeing in gas services, because that, I mean, that to me is probably the biggest step, one of the biggest step changes we've seen now growing kind of over 20% in terms of sales. Could you just give us kind of in whatever way you think is best some detail around kind of what's driving that? I guess the reason for asking and what I'd really like to understand is maybe how much of that is pricing versus volume. That number is also well above, I know we're now seeing load growth increasing and electricity demand growth is now kind of 2%-3% depending on the region, but these growth rates are much, much faster. So just really any color of how we kind of square those kind of 20% growth rates with the sort of volume growth and load growth that we're seeing in the market. Thank you.
Yeah, thanks so much for the question. Always keep in mind this is not a half-year picture and over the second half, it might change a bit, but fundamentally, aftermarket growth is also driven by good utilization. We see that across the regions. That's strong. That helps, obviously. In that regard, obviously, it's more volume than pricing, how we look on it. As I always also said in comparison, if you look on the backlog margin, this has been much more driven by the new unit margin improvement than by the service margin improvements.
Keep one thing in mind, if you look on the Gas Services side, this includes also on the aftermarket or service side elements like the nuclear service agreements, the big turnarounds. As you know, I think total installed fleet around 80 gigs or so. Obviously, if you do a relive of that, that also contributes to the aftermarket growth. This was, for example, in this quarter, a strong one.
Okay, that's helpful. Thank you.
Thank you, Christian. Next question goes to Sebastian Growe, BNP Paribas. Sebastian, please.
Yeah, thanks, Michael. Hi Maria, Christian. I would also like to ask around pricing and like to discuss the dynamics here and then linking that one to on developer's decision to cancel offshore wind from yesterday. They made specific reference to value over volume. The question that I'm having on a higher level is simply what you see in the overall discussions with customers. Are we seeing a situation where it's getting more difficult to push through pricing? If you could also help us probably with just a bit of a quantification in how much the order backlog pricing has changed. I think you provided some ranges across the segments with a quarter four release, so around 1-3 percentage points higher. How has this changed since? Thank you.
Yeah, thanks, Simon. Obviously, we have seen the pricing momentum in 2025 is, let's say, less pronounced than in 2024. I mean, very clearly, there has been a substantial uplift in 2024. This is what we also shared with you in the quarterly result and showed you the development. Pricings are still improving.
We do see, obviously, projects getting prolonged sometimes in the discussions, which obviously shows also that it's getting difficult in terms of the overall project investment decision. I would expect this to taper off to a certain extent. We always said this. This is why we continue to work also now on, obviously, cost- out measures, making sure that we remain competitive. Obviously, the general net pricing in GS remains on a high level, GT as well, but somewhat stabilizing is what you see. We see continued improvement if I look on compression in the TI side and onshore and offshore and wind, I see rather stabilizing.
What you have seen, because you're referring to yesterday's news, I think is less driven by price increases on the offshore turbine side, but the general infrastructure which is around it, that is obviously in the wind offshore market, something what needs to be watched. Fundamentally, still a positive pricing development, but less pronounced than in 2024.
Thank you.
Thank you, Christian. The next three questions go to Gael De Bray, Ben Uglow, and Akash Gupta. Gael, if you please go ahead.
Yeah, thanks very much. Good morning, everybody. Actually, I had a couple of questions, but let me stick to just one and maybe get back to you at the end. The question I have is on the tax development. It seems you've started to use some of the tax loss carry-f orwards at Siemens Gamesa this quarter, and this led to lower- than- expected taxes. I was wondering, what's the potential here? I mean, what's the amount of tax loss carry- forward that can still be used?
Hello, Gael. I'll take that question, Christian. Thank you. I hope you're doing well. And thanks for the question on that. I'm glad that you noticed that our tax, let's say the tax line is moving well or into the goal that we had for ourself of 25%-30%. But you're fully right. So your assumption is correct. This is something that we've been working on. As you know, in the past, we were not able to benefit from the losses that are incurred by Siemens Gamesa in all countries. This has changed in this quarter. To your point, there's a bit of a catch-up effect that you see in this quarter, specifically in that matter. We would like to see, I mean, perhaps it won't be like this every quarter, but we are moving towards, again, our target effective tax rate range of 25%-30%. This is our goal.
Any specific amount you would like to share in terms of the total tax loss carry- forward you have recognized so far and maybe not yet recognized?
I mean, as you can imagine, based on the past few years, the tax loss carry- forwards are quite substantial. They vary by country, as you could also imagine, you know, in countries like Spain and Denmark and the U.S. What we're looking at this year is, let's say, a low triple-digit amount in a specific country. Other countries are a little bit more difficult, Gael, but rest assured we're looking at that and trying to do everything possible to see if we can further utilize. We will not be able to utilize to the extent of the amount that we have available, but we're looking at that stepwise. Like I said, for now, it's a low triple-digit.
Okay, thank you.
Thanks, Maria. Next question goes to Ben Uglow. Ben, please.
Morning, Christian, Maria, and Michael. Thank you for taking the question. I guess what I'm trying to think about is the sort of medium term, the five-year margin progression. Obviously, we're all reading fabulous data points about pricing and market conditions, etc. Really, what I'm trying to think about is the 21 gigawatts of reservations versus the 29 gigawatts of backlog.
I do not know the right way to think about it, but if I look at where your margins were for gas services in 2024, we were about 10%. As far as I can see on a year-over-year basis in the first half, we are tracking ballpark, let's say, two to three percentage points higher. Is there any reason why the progression of the margins should not just be somewhat linear? The reason why I say that is in the past, we have definitely seen high teens and even 20% margins in this business. Should I basically draw a straight line, bottom left to top right, and build in two to three percentage points per annum? If not, how should we all think about it? Thank you.
I am thinking about your straight line on how to best express as high, Ben. Good to hear you. Obviously, I think your fundamental logic in terms of the margin improvement is not wrong, right? Obviously, there will be a progression in there. What you always have to keep in mind, there are some puts and takes always, and this might come or not come in the next years. That gives some volatility around this margin expansion. Fundamentally, obviously, there is a, let's say, nice margin pocket in the backlog to bring to the bottom line. As you know, we also look on it carefully, seeing the boundary conditions, which we believe we have all anticipated as we know today. This is also why we said we're going to give the midterm outlook only after the summer when certain things have more clarified. Fundamentally, logic not wrong, and we are very comfortably positioned with the backlog. Maria, anything from your side?
No, absolutely. I would just underpin what Christian just said. I think we also showed it in Q4, right, where we showed that all of the businesses continue to show year-on-year development. Certainly in gas services, with the momentum we see, your assumption is not wrong that the orders that are being booked today continue to show that positive development. Now, Ben, I know you've said this a few times. Can we get back to what we've seen? How many years ago was that? The upper teens. I think this is still stepwise, given the boundary conditions, as Christian just mentioned.
Thank you. That's very helpful. I'll pass it on. Thank you.
Thank you.
Thank you. The next question goes to Akash Gupta. Akash, please.
Yes, hi, good morning, and thanks for taking my question. My question is also on the Gas. At full year results, you presented your market outlook that you were expecting 70 gigawatts of market with some upside from data centers. If you look at in the last couple of quarters, I think gas turbine orders have been on the higher end of what people were expecting. When we look at these framework agreements, clearly that also provides a visibility on future as well. My question is, has there been any change in your assessment of how strong this market can be? The question that is linked with that is, is there any need for further capacity increase? I mean, today you announced you are raising capacity for medium-sized turbines, but maybe for large gas turbines, what's your latest thinking on potential capacity increases given how strong is the demand that we are seeing today? Thank you.
Yeah, thank you, Akash. I would say, obviously, we see it continuing on this elevated level, but I also would not, let's say, go so much higher than this in terms of expectations. Obviously, the wild card is a bit the data centers in it. Fundamentally, good market for the years to come on an elevated level. On the capacity expansions, as you know, we have this roughly 30% expansion. We try to pre-pone certain things and make sure that we also get it into the market. As I said, we also decided on the mid-size now to also use the spare capacity we have in the existing infrastructure really to increase the capacity. What we will not do, and I said it before, I do not see us pushing all the existing sites, what we have, including the blades and vanes, right, in terms of investing.
I would not see us building a greenfield new facility. That is not on our list at the moment. Everything else, what we can do on the gas turbines, we are doing. This is what gives us a good expansion, whether it is at the end 30%, 35%, or whatever, will depend also on the frame composition. Never forget this. As I said, the message I wanted to lend today was really also the expansion on the mid-sized gas turbines.
Thank you.
Thank you, Christian. The next three questions go to Ajay Patel, Will Mackie, and Gael De Bray has a second question. Ajay, over to you.
Thank you. Thank you for the presentation. Congratulations on the results. I guess my question is just on capacity. It seems like if you look at the gas turbine business, the demand there is sort of broadening out. The smaller side of the turbines are getting increasing traction. I'm trying to understand what spare capacity you have as an. I'm trying to understand how these orders translate to revenue because if you're. Twenty-eight is largely for the larger scale gas turbines and really it's twenty-nine and thirty game. How does that sort of mid-range feature? Is there a lot of capacity that we can still work into and therefore we could expect stronger revenue outlooks in 2026-2027? Or is it further down the line? Thanks.
Yeah, thank you very much for the question. First of all, what I'm really pleased with is that we were able to leverage our portfolio from 15 to 500 megawatts on the turbine side. Really the whole breadth of the portfolio. That's a good one, right? That's very helpful.
If you look forward, we always said we are, let's say, largely sold out in up to the 2027 and then into 2028. That means that also there are open slots in 2026 and 2027 with reservation agreements behind it. This will always be the key questions: Are they all converting? Are they not converting? There are slots which could become free. However, you also have to see that the slots are covered by more than one, let's say, project at the same time which could potentially realize. I would say 2027 largely sold out, 2028 more slots available, but really then you look already quickly into 2029, particular for the large gas turbine sites.
Okay, thank you.
Right. Next question goes to Will Mackie. Will, please.
Yes, good morning, Christian, Maria, Michael. Thanks for the question. I would like to ask about Grid Technologies, please. I mean, you're sitting with now a EUR 38 billion record backlog. Margins and selectivity have improved. Your guidance for the year is now above your midterm targets for profitability in Grid Technologies. I understand there can be mixed effects between solutions and products, but maybe can you walk us through where you are on the capacity expansion program, how you see the margin evolving? Is there any reason why the margin should go down from here due to mixed effects or some other things that we can't see underlying from the 16.4%? And how is the progress towards reaching the full targeted capacity for the business?
Yeah, thank you very much for the question. As you know, we are expanding capacity on the transformer side as well as on the switchgear side and also expanding capacity on everything which is related to syncons, which has been also in the last quarters a more and more demanded product. Expansions of the factories are going well. You know, we have Austria, we have Germany, we have China, we have India, we have the U.S., obviously, as an expansion ongoing on the transformer side. This is as planned, I would say. We are looking here and there, obviously, also what else we can do to further increase productivity or output on existing sites. This is not always a new factory. This is then a new machine, a new test stand. On the transformer side, you are very often limited by your test bench at the end to make sure that you unlock that.
Also on the switchgear side, we have expanded investments into Saudi Arabia and Mexico. That is continuing. In that regard, I think we are well set up to digest that backlog, but we are also very respectful for doing this in terms of going forward. There was a second half of the question, which I know. Oh, the percentage. I do not see fundamentally a change on the margin line. What you have to keep in mind, and you mentioned it, you have a bigger effect of the Solutions business now coming in. This is by definition volatile because it is really then when exactly you now complete a certain milestone in the project. You could see volatility across the quarter, but fundamentally, I am not seeing this in terms of this improvement towards the midterm pieces they are changing.
Super t hanks.
Right. We've got a follow-on question from Gael De Bray. Gael, please.
Yeah, thanks very much for the follow-up, which is about tariffs. I know that the net effect is expected to be up to high double- digit in the second half, but I'm trying to think about the gross impact now. So any color, any granularity you could provide on the breakdown of your purchasing volumes in the U.S.? I mean, how much come from overseas? How much specifically from China, Mexico, Europe? If I may, also I'd be interested to hear about which division do you see as potentially the most impacted by the tariffs?
Yeah, obviously, this is really a moving picture. I always have to say, and I'm a little bit careful to nail certain things down as long as so many things are changing. If I look on today's picture, let me take your last point first. It is for the impact in 2025, relatively evenly distributed. There is not one sticking out and completely different. Obviously, it depends on the size of the business, but this up to double-digit million euro impact, it is relatively well distributed over all business lines. If you look on it in terms of our volume, roughly, if you take last year, it has been around EUR 2.5 billion-ish in terms of procurement volume in the U.S., what we saw from the outside. Roughly 5% of that is only China. This is what you have to see. The rest could be either NAFTA, could be Europe, where it comes from. Our current assumption, what we do in the tariff impact, is obviously based on that and what we know and assuming what is announced today.
But then we have to see on how the things work out. We continue to work on localizing more, but this will also not impact in a quarter. This is the base from which we're working on at the moment.
Very helpful. Thanks very much.
Right. There seem to be quite a number of second questions now, but Vivek had not asked the first question. Next question goes to Vivek, and then Alex Virgo and Akash Gupta have second questions.
Thank you very much, everyone, and good morning. My question is also on Grid, just looking at the strong underlying improvements in Grid margins over 600 basis points over the space of two quarters in what is to a large extent a longer cycle business. We understand the drivers that you've highlighted, but could you maybe quantify how much of those was coming from each one? The cost regression effects, pricing, and so on. And within the pricing, should we think of that as coming from the longer cycle pricing within Solutions, i.e., has there been any changes on the shorter cycle pricing? Thank you.
Thank you for that. Let me further perhaps provide some granularity. Look, I think, again, the one-time topic of EUR 100 million did impact Grid Technologies. If you look at it without that, more or less, we are at the 16% mark. Of course, this is in line with at the top end of the new range of the 14%-16%. Do not forget the first quarter was 12.5%. It kind of shows that this is progressing, if you would like. But as just mentioned by Christian, it also does depend on when the revenue flow from the various solution orders, large orders, comes in on a quarterly basis.
Are we going back to the single-digit margin from before? No, that's not even reflected in the range for our margin. I would just want to caution that we're not seeing each quarter at the 16% or higher. Hence why we've put the range of the 14%-16% for Grid Technologies. If you look at the factors, one clear factor is the digression effect or the ability, as Christian mentioned, we're looking at capacity expansions. We're looking at how we do things smarter within the facilities we have. I have to commend the grid technologies team. They've done an outstanding job of having that kind of revenue and essentially pushing that through their manufacturing network with not increasing costs exponentially.
Again, looking at the mix, we have in Grid Technologies, we have what they call product that's more short cycle in nature that's also churning through. When you look at the large solutions, HVDC, for example, we also indicated that the step-up improvements or improvements will continue towards the end of the decade. Maybe those are the different categories if you could put your mind around it. Again, we feel confident of the 14%-16% margin range that we've put in for GT.
Thank you.
Okay, let's hope for short questions and short answers as I hand the next question to Alex Virgo. Alex, please.
Thanks, Michael. I'm not sure I'll keep within that. It's a grassy question. I wondered if you could just dig into a little bit of the moving parts in here, Maria. Can you give us a sense of the magnitude of these one-offs or the tailwinds? Just give us an understanding of what we might be thinking about on an underlying basis. I wondered within that, if you could talk about the evolution of the offshore business because obviously that sort of growth is very, very good. It is profitable. I wondered if you could give us a sense of how we should be thinking about how that evolves through the balance of the year and into next. Thank you.
No, happy to do so. I think, I mean, maybe to look at the moving parts just to give a bit of an underlying basis. We have clearly indicated that the first half of fiscal year 2025 is far stronger than expected All of the factors that are included in that are ones that we see each and every year, like the service business. We have seen a very high utilization, as Christian mentioned, and thereby have experienced a very strong service season. If you look at the operational excellence of each of the businesses, and that goes GS, GT, and TI. I mean, we have done a lot of work in the past to ensure that we are able to put productivity at the front end, if you would like, and ensure that we have operational excellence. That is also showing up in its underlying margin. Of course, it has to do with the backlog margin.
I showed that, if you can recall back in Q4, I showed the progression of some of the notches up in margin that we're seeing, the 6% at GT, the 3% at both GS and TI. That continues as one of the parts, if you'd like, to fuel the underlying margin being higher in this fiscal year. I think those are the moving parts. Do not forget, we also have seen, and I also not only with GT, I also mentioned that for Siemens Gamesa. We've had in project business, we have one-time topics, both puts and takes, or positives and negatives. In this particular, for the first half year, we've seen some positives in that regard. Again, we stick to the revised margin ranges, profit margin ranges by business. Christian?
Yeah, just maybe because you asked on the offshore revenue also. I mean, you have seen the big improvement now in Quarter one to Quarter two. That is a productivity uplift in the factories. Do not expect the same improvement in the next quarters, quarter- on- quarter. It is roughly now stabilizing there, obviously, in terms of the revenue which we get through the factories. It is on a good fight level now. It is coming. It is working. Do not expect the same % improvement on the revenue side in the offshore.
Okay, that is helpful. Thank you.
Right. Next question goes to Akash Gupta before the last question then goes to Will Mackie. Akash, please.
Yes, thanks. My follow-up is on Siemens Gamesa onshore orders. I mean, we have seen a low level of orders in the last couple of quarters. Maria, you said in your prepared remarks that orders were impacted by temporary interruption of sales activity. Maybe if you can elaborate on that because my understanding was that you were back in the market on 4.X last year and you were looking to come back on 5.X as well. It looks like your commentary is indicating you may be behind that plan that was communicated previously. Anything you can add on Siemens Gamesa onshore orders and how that will change potentially the turnaround of onshore business? Thank you.
Thanks, Akash. No, let's say we are in plan, I would say, in terms of what we wanted to do. We have not signed physically an order for the 4.X yet. This is why you do not see it in the books. Obviously, we would have loved to sign it three months earlier or so. The plan was always to have a very limited number of 4.X turbines and to, let's say, make sure that we keep some work in the factories and then the 5.X launch within this fiscal year. This is all in plan at the moment. I also always said my main target in onshore is de-risk and make sure that we manage the business going forward carefully. In that regard, nothing really different than we expected it.
Yeah. Just maybe to clarify, I said the ongoing stopped sales activities. If I missed that word, ongoing, that is a pretty important word. Yes, exactly. Thank you.
Thank you.
Right. Last question. Will, please.
Thank you very much. I just want to come back to the cash flow, please, and to just ask if you can throw some more color around the key levers that drive the change in the free cash flow guide from EUR 1 billion up to around EUR 4 billion. Is that everything that we've seen largely in the first half, or are there other key drivers that we should expect in the second?
Thanks, Will. I think, of course, the key driver for the cash flow is essentially the three categories I mentioned earlier. One is the order intake value. Of course, we're seeing a lot more momentum in order intake across the businesses that generally follows with advance payments. As Christian mentioned, also in our case now is also with reservation payments. That's one factor. Of course, the increased profit. Again, all of the ranges by businesses have been increased, save Siemens Gamesa.
That also contributes. Of course, again, the underlying cash momentum, if you'd like, even in terms of how we continue to manage the balance sheet in light of some of the growth that we have, that coupled with the factors that I mentioned is really what is driving that cash up to the around EUR 4 billion mark. Again, there's also some timing effects, Will, but I think those categories are the main categories.
Thank you. Appreciate the color. Thank you.
Right. Thank you. I hand over to Christian for some closing remarks.
Yeah, first of all, thank you very much for your time here being with us on the call. I do not want to close today's call without thanking Michael Hagmann, our fabulous head of IR in the first five years of the company, but not anymore with May 1st because Michael moves to a new job in the company and really having helped us to explain the start of the company very successfully. Thank you, Michael, for being with us in the Investor Relations. I welcome Tobias Hang picking up from here, also a very proven person in our Investor Relations department. I look forward really for the next call to come. I would like to thank Michael for a tremendous amount of work in the last five years. Great job.
Thank you, Michael.
Thank you, Maria. I would also like to, of course, thank Christian and Maria for all the support that I had during that time. Obviously, I also want to thank the team, but also want to thank all of you within the analyst community because I had a great time. I really enjoyed those last five years. They were not always easy, but it was always rewarding. I hope that I will stay in touch with hopefully all of you also in the future. Big, big, big, big thanks. You know Tobias already. You know Harald and you know Tobias Marx. I am sure that they will do an even better job going forward. I think you are going to have a good time also with the team going forward. Thanks to everyone and goodbye.
Thank you. Goodbye.
Thank you, Michael. Bye-bye, everyone.