Good morning, ladies and gentlemen, and welcome to the Siemens Energy's First Quarter Conference Call in 2021. As a reminder, this call is being recorded. Before we begin, I would now like to draw your attention to the Safe Harbor statement on Page 2 of the Siemens Energy presentation. This conference call may include forward looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.
At this time, I would like to turn the call over to your host today, Mr. Michael Hagerman, Head of Investor Relations. Please go ahead, sir.
Thank you, Jola. Good morning, everyone, and a warm welcome to the Siemens Energy Q1 analyst call. I hope you and your families had a good and healthy start into 2021. As you know, we published our preliminary figures for the Q1 already on January 24, and we confirmed our outlook for the current financial year. Therefore, we would like to use this analyst call to give you some more details on the results.
All the documents were out at 7 o'clock on our website this morning. Here with me are President and CEO, Christian Bruch and our CFO, Maria Ferraro. They will review the Q1 results. The duration of the call is limited to 60 minutes and after that Christian and Maria will be available for questions or after they present, they will be available for Q and A. And with that, I hand over to Christian.
Thank you very much, Michael, and good morning, everyone, and thank you for joining Maria and me to discuss our Q1 results today. I'm very happy to have you on this call and I hope that you and your families have been well, safe and had a good start into the New Year despite the challenges we all have of the pandemic. As you know from our pre release issued on January 24, we had a solid start in is fiscal 2021. Let me start with some highlights and I'm on the first page of our presentation. Revenue rose moderately with 3% on a reported base.
SG and A achieved a significant increase while GP posted a moderate decline. And I'm very pleased that adjusted EBITA before special items returned into the black with €366,000,000 as you know in quarter 1 last year, we suffered a loss of €74,000,000 Both segments contributed to the significant improvement and both segments are Significantly positive. As expected and in line with our usual seasonal pattern, we experienced a cash outflow of €388,000,000 We saw a decline in orders of 26% in the quarter versus the prior year, mainly driven by a sharp decline in Siemens Gamesa Renewable Energy, our order intake at SGRE reached less is half the level of the strong prior year quarter. Let me highlight 2 important milestones. We are happy that as of 21st this is December, we have been members of the EMDA and we published our first sustainability report at the beginning of December.
As you know ESG is a pillar of our strategy and we will continuously work on improving the transparency of the reporting. Looking at our markets, not much has really changed since our quarter 4 call. We see some stabilization in demand. Currencies remain a headwind. But as you know, these play out more in a translation than in a transactional mode.
We continue to experience impacts due to COVID-nineteen as we have seen some deferrals of projects and outages. So whilst we are coping well with the situation, we monitor the current resurgence in this is with some concerns. Boundary conditions in the energy market are changing as we see more government initiatives is to reduce emissions which are leading to more green technology funding. As you can see on our quarterly results are solid and we could improve the bottom line. Still, there's a long way to go before we are where we want to be in terms of profitability.
We have presented our levers to improve our profitability during the Capital Market Day in 2020 and we are now entering the next is the first phase of our improvement program and have initiated the discussions with the General Works Council for the regions where such a process is applicable. And I will come to this specific topic in a minute. Let me first provide you an update on how we are managing the COVID-nineteen this is a very clean situation. As before, the key priority for us is the safety of our employees, our partners, our customers And we have very diligently implemented all necessary precautions to secure health and safety in our work procedures. The good news is that all fabrication sites are in operation.
Only roughly 20% of our sites have slightly reduced capacities. Most office staff which is not urgently required on locations is working from home following guidelines from local authorities. As I already mentioned, there's still a continuing impact on our business due to some project delays and we saw that outages were deferred. Overall though, the impact of the pandemic on our business was limited and we therefore see opportunities for our digital services, what I also introduced during the Capital Markets Day and in the last analyst call. Let's now talk about the progress on our strategy.
Following the discussions we had on the Capital Market Day where we outlined our strategy Energy tomorrow a journey where we flagged up 2 phases. In Phase 1, what we called accelerated impact, we wanted to improve our business base step by step by 2023 and move into the 2nd phase leading the energy transformation with an increasing focus to play a leading role in the global energy transition from a higher level of profitability. The cost improvement measures comprise several levers such as procurement cost reduction, simplification of workflows or reduction of nonconformity costs. However, a certain amount of the measures will also lead to a reduction of the workforce. For the implementation of these measures, we have now started the discussions this is required for implementation.
As outlined at the Capital Market Day, we are is targeting to reach additional savings of at least €300,000,000 on top of the planned saving programs PG 2020 and GP 2020 plus in order to achieve our margin targets as presented at our Capital Market Day. The new program targets a reduction of the global workforce by 7,800 employees worldwide by the end of fiscal year 2025. Of these around 3,000 will be in Germany and around 1700 in the United States. The rest will be in other parts of the world. The majority of jobs affected are in administration, management and sales.
The reductions primarily relate to Central Functions and the Generation the Industrial Applications division. It represents obviously what we have presented as planned already back in September. We expect that the cumulative expenses for restructuring at GP will be in the mid- to high 3 digit €1,000,000 range by fiscal year 2023 And that is within the range also of what we had already guided for. This program is a necessary step seeing also the development of the energy market, But it is obviously also a very painful step for the whole organization. Another important topic on our transformation journey this is in this regard, obviously, also never to lose sight also of the future activities and technologies we want to go into.
And in this regard, we also continue to push for co creation with customers and partners in the market. In the last quarter, we have started a cooperation with the Russian gas company Novatek to reduce emissions and to increase energy efficiency in LNG plants, this is the plan for the production of liquefied natural gas. We presented also relatively recently our project Haraoni in Chile. This is our project with several partners amongst these for example Porsche, which will be an integrated plant to produce climate neutral fuel based green hydrogen. The synthetic fuel targets, the mobility sector and the project is supported by the German government as is part of the National Hydrogen Strategy.
We also launched a larger development and demonstration project to develop hydrogen production off is also supported by the German government and I will provide some more details in a few minutes over this project. A selection of important orders from the past few months will testify the high level of customer trust in Siemens Energy. In Latin America, we received an order for 8 complete topside modules, allowing a more efficient and sustainable operations of a floating production storage and offloading unit. It is another good example where industrial application it supports its customers on its energy transition and is fully in line with their strategy. In the U.
K, our transmission business will supply 114 low loss transformers for the Seagreen offshore wind farm, which is Scotland's this is the largest source of renewable energy. In Germany, Stradberger Leipzig ordered the most modern equipment from us for the Leipzig Sud thermal power station. The order includes the delivery of 2 highly efficient gas turbines and 2 generators. The new facility is important for the decarbonization of the city's energy supply in 2 ways. On the one hand, the municipal utilities make themselves independent of a district heating from a lignite power this is a very important consideration.
On the other hand, operation with 30% to 50% green hydrogen is planned just a few years after commissioning. The long term goal is to operate with 100 percent hydrogen and this would then enable a completely CO2 free climate neutral operation of the system And is obviously in line also with what we presented before in terms of using really natural gas as a bridge Offshore hydrogen production. Together with Siemens Gamesa Renewable Energy, we are planning to integrate an electrolyzer produces green hydrogen directly into an offshore wind turbine. The green hydrogen should therefore be produced directly at the wind turbine and transported to shore through pipelines is time for further use. We believe that this solution can be more economical, particularly once hydrogen volumes increases and obviously also wind park volume in terms of amount of energy increases.
However, also to be very clear, this is really development work of new technology And we plan to implement a demonstration in 2025. At the end, the challenges of the energy transformation can only be resolved by innovations and engineers which turn ideas into reality. And on this basis, as mentioned at the beginning, we see ESG a cornerstone of really our strategy and our developments and innovations going forward. We have published our 1st sustainability report in December and this was the first step towards our long term ESG strategy. We contribute to the 17 sustainability goals of the United Nations 2,030 agenda with a focus on 5 call is including gender equality, affordable and clean energy and climate action.
We take ESG very seriously, which is why responsibility for ESG is anchored in the Executive Board, I have taken on the role of Chief Sustainability Officer and Maria is Chief Inclusion and Diversity Officer. We have set ourselves clear goals such as using only green electricity by 2023 and becoming a climate neutral this is an important component of our business. We will continue to increase the proportion of women in management positions from just over 20% at present to 30% by 2,030. Already today, we see more and this is Already today, we see more and more product developments in our product portfolio, which will support us is the intention to update you in the quarterly calls on the progress of our ESG activities. Now I would like to pass over to Maria, who will give us some more insight with regard to the financial performance of the company, in particular in the Q1.
Thank you very much, Christian. Hello, everyone. I'm pleased to share with you our Q1 results and what I think is important. And as always, happy to answer any questions you may have. But before we start, I want to draw your attention to our new disclosure level.
During my discussions with the capital market over the last couple of months, there was a recurring request from investors and analysts alike to increase our transparency. Today, I'm happy to share with you in addition to the past, 1, comparable numbers. So now we have comparable numbers on the top line for revenue and orders, I. E. Adjusted for FX and portfolio effects 2, a revenue split into service this is a new unit at SE and GP level and a disaggregation of revenue showing the nominal top line development of our businesses within GP.
This is a key. You will find this breakdown in the financial results section as a backup slide in our earnings release that was issued today. To be precise, it's the very last slide. For us, this is a major step in our communication. I trust you find it very useful in better understanding the dynamics is within our GP segment.
So let me take you back again to where I finished at the CMD. On my very last slide, I showed what we think is important to create shareholder value, this talked about things like our strong business foundation built on our large order backlog and our resilient recurring service business our path to margin improvement with our ongoing cost programs as well as the announcing of the additional cost out program, our accelerated impact program. And of course, lastly, but certainly not least, spoke a lot about asset excellence and our rigorous working capital management. I will address all of these areas and will do so consistently and show you the progress we have made in the last quarter. As you know, some of our key figures were already released on January 24.
So now I would like to walk you through the overall Q1 financial figures for Siemens Energy and the Gas and Power segment. So now I'm on page 15. As Christian already mentioned, looking at Siemens Energy Group, orders at the group level came in at $7,400,000,000 which was as expected is substantially below the high basis of comparison in the Q1 of the prior year. Nevertheless, we finished the quarter with a very strong quarter backlog of €79,000,000,000 close to prior year fiscal end in spite currency translation headwinds, which reduced our backlog is by more than €500,000,000 versus the end of Q4 fiscal year 2020. Book to bill for Stevens Energy was a strong 1.1 and it was even higher at the Gas and Power segment at 1.2.
Revenue was moderately up on a reported basis. SG and A achieved a significant increase, while GP posted a moderate decline. Excluding currency translation and portfolio effects, total revenue rose by 7.7%. As I mentioned, we have introduced a revenue split into service and new units. Service revenue came in slightly below the prior year quarter due to a moderate is a nominal decrease at GP.
Looking at adjusted EBITDA before special items, this came in at 360 it's €6,000,000 back in the positive range. Q1 of fiscal year 2020 was negative 74 this is a substantial improvement versus the prior year quarter. I will give you some more insights on this in just a moment. Free cash flow pretax was negative at minus €388,000,000 as expected and this is in line with our seasonal pattern. We did have improvements at GP, which were more than offset by a strong decrease at SGRE.
So please moving on to the next page where we're looking at the quarterly development and some more insights on those developments. Orders were down 21% on a comparable base, which was, as mentioned, mainly driven by the sharp decline at SGRE. Order intake at SGRE was more is a significant increase in the year over year increase in the year over year increase
in the year over year increase in the year over year. We expect to
be in the range of $1,000,000,000 to $1,000,000,000 this is a very strong quarter and service in Taiwan, the U. K. And the Netherlands. Orders in the GP segment showed a solid development despite COVID-nineteen shifts and FX headwinds. Revenue was 8% higher in Q1 on a comparable base.
At GP, we see a stable development with a return to moderate growth on a comparable basis of 3%. In SGRE, the significant revenue growth was driven by the Offshore and Service business. On a comparable basis revenue for SGRE increased by 18.9%. Looking at EBITDA before special items, this was higher than expected and that was the reason why we published our preliminary results on January 24. The recent quarter benefited from operational improvements in both reporting segments and savings from restructuring measures driving lower costs.
However included also positive temporary effects. Such effects are resulting in GP from lower discretionary spend, hedging gains, positive one time customer settlements as well as cost phasing. This is where costs do not develop in a linear fashion. For example, projects, for example, in IT that were shifted to the following quarters. In total, these effects have a magnitude of a very high double digit amount.
Furthermore, from SG and A's perspective, they benefited from provision reversals. This was driven by positive effect of innovation and productivity gains on product failure rates and service costs relating to their warranty provisions. But even against this background, I am pleased with the development and this does indicate a good start to reach our full year guidance. Moving on to special items please on page 17. You see here Siemens Energy in total, we ended up at dollars 123,000,000 in special items in Q1.
The increase compared to prior year's quarter was mainly due to standalone costs, which makes sense. Expenses those expenses associated with the setup of the standalone company. Within of course GP and in SGRE, we had restructuring and integration costs. Just as a reminder, stand alone costs pertain to those costs associated with the spin off and include, for example, non recurring costs for the spin off incentive. The remainder are for things like various IT costs as we're migrating across this is a significant contribution to SAP to unify our systems and other similar items.
In Q1, the stand alone cost amounted it's $53,000,000 and we expect this number to gradually come down in the following quarters. Restructuring costs as well as strategic portfolio decisions reflect the actions we have taken in order to deliver that step up that we've committed to in the CMD in operational performance. In Q1, we booked $26,000,000 related to the streamlining of our aero derivative and small gas turbine portfolio. Now moving on to the next slide, I'd like to cover the net income transition. As you know, our profit and loss statement does not stop with EBITDA.
It stops at net income. So please let me take you through the below line items here on this is Page 18. You see that PPA is slightly lower driven by the impairments associated with the strategic portfolio decisions that we made in the prior in our Gas and Power segment, if you recall the write downs of intangibles related to our AGT or aeroderivative gas turbines. The financial results from operations is mainly driven by FX and is part of our adjusted EBITDA. So here, we need to adjust it in the bridge this is from a P and L perspective because it's included in our financial results.
Accordingly, our financial results in Q1 fiscal year 2021 came in at $37,000,000 similar to prior year quarter. The financial result is impacted by interest expenses, which we're lower than prior year and currency effects. In the current quarter, we had a negative currency effect in the magnitude of mid to high single digit €1,000,000 amount. Last but certainly not least, we had an effective tax rate of 22%. This is slightly below the expected medium term rate of 25% to So now if we move on please to the next slide, the cash flow for the group.
As indicated, asset managing cash this is at the top of my agenda, but this is something that we really need to work on each and every month, every quarter. It's a marathon and not a sprint. So the entire team continues to focus on this with diligence. And given the seasonal pattern that we inherently have experienced, Q1 did reflect a slow start in cash flow generation. But just currently for CapEx, it rose from €144,000,000 in Q1 prior year to €188,000,000 in the current GP was flat and the increase is exclusively driven by SGRE.
In GP's cash flow pretax, it was above prior year's quarter level at $101,000,000 This was supported by project related cash inflows and of course the ongoing focus on asset management. In SGRE, free cash flow pretax was significantly down year over year as the prior year quarter strongly benefited from customer events payments due to its high order intake. There's nothing more that I wanted to point out here. I think it's quite clear. So now we can just move on to the net cash position this is a very good question.
Next slide please. Next slide. So it is logical given what I just said. We had a negative cash flow in the quarter. So our net cash position it is somewhat weaker at the end of the quarter than it was at the end of September.
Here you see we have €4,400,000,000 on cash and equivalents and €119,000,000 receivables from Siemens Group for a total liquidity of €4,500,000,000 we also have €2,700,000,000 of financial debt and of that €1,600,000,000 is long term. We owe Siemens €133,000,000 for a net cash position, as you see here on the right hand side of the screen, of €1,700,000,000 during the quarter, SE's provision for pensions and similar obligations decreased from 1.057 dollars 1,000,000 as of the end of September to $1,026,000 as of the end of mainly due to positive planned asset performance. So I think that comprehensively wraps up the SE Group's financial overview. So please let's take a look now at the Financial segment Gas and Power on page 20. In GP, orders showed a solid development and were moderately down compared to is the prior year, but this is only due to headwinds from currency translation, otherwise it was flat better.
Excuse me. Revenue was down nominally year over year, but up 3% is comparable. Service revenue was down 2%, while new units revenue was down 4% nominally. However, excluding negative currency translation effects of 5.5 percentage points, revenue was up by 2.6%. Service revenue was down, but also slightly up excluding currency translation effects to approximately 1%.
It's important to note also that we do currently continue to experience impacts both on new units in service due to COVID-nineteen disruptions. It has led to deferral projects, site closures, as you know, prolonged site closures in some cases and outages. Orders exceeded revenue resulting in a positive book to bill of $1,200,000,000 and leading to the order backlog of $49,000,000,000 This is slightly above prior year's fiscal and including negative currency translation effects. Adjusted EBITDA before special items was sharply up. I will discuss this further in the next slide.
And we had a significantly improved free cash flow pretax of 101,000,000 So looking now at the quarterly development of the GP figures please on Slide 21. Here you see the quarters, last slide running. We see a slight comparable growth in orders, plus 0.3% versus prior year quarters and a sequential improvement versus quarter 3 and quarter 4. The order is a very strong improvement versus quarter 3 and quarter 4. The order development was supported by a significantly higher volume from large orders, including an industrial applications project in Brazil and a generation project in Libya, which totaled more than €500,000,000 combined.
All three businesses posted a reported order decrease with prior year Q1 fiscal year 2020 with the strongest decline in transmission given very difficult high comps or a very high basis of comparison. In our rotating equipment new unit business, we were in Q1 at a low level for our large gas turbines. Those are greater than 100 megawatts with 3 booked units. Whereas for our industrial sized gas turbines, we were able to confirm again our strong competitiveness with 23 gas turbines sold in the range between 10 megawatts 100 megawatts. For revenue, this was moderately down year over year as a slight increase at generation could not offset decreases at the 2 other businesses.
Negative currency translation effects impacted the top line with 5.5 percentage points. This is mainly due to the U. S. Dollar. If you exclude the negative currency translation effect, revenue for GP was up by 3%.
So adjusted EBITDA before special items, this increased across all of our three businesses year on year, Generation, Industrial Applications as well as Transmission. As I mentioned before, it is really a combination of operational improvements such as savings from restructuring measures, ongoing programs, etcetera, leading to lower costs, as well as positive temporary effects as I mentioned. In terms of the temporary effects, for example, 1, we have hedging transactions 2 lower discretionary spending, which was prominent in Q1, because remember, it compares to a pre COVID quarter in 2020. We see a decrease accordingly of travel and entertainment due to ongoing travel and overall restrictions for one time cost customer settlements, which again to mention they're one time in nature and again cost phasing. So this again relates to timing differences and internal spend to come later, which are cost to come, but not necessarily linear in nature.
So before I hand over to Christian, please let me summarize all aspects, which I think are in the 3 key focus areas. In SE, we had a strong book to bill of 1.1 in Q1 and finished with a strong order backlog of €79,000,000,000 with a strong balance sheet providing our solid business foundation. Both at the group level and in the Gas and Power and SG and A segments, we showed a strongly improved profitability even when you adjust for temporary effects. We continue to take measures to improve our margins as Christian explained earlier, we made further progress in our asset management initiatives, notably in the Gas and Power So overall, once again, I'd like to point out this, I think, was a very solid Q1 as another signal that we deliver on what we promise, even in a market environment that does remain challenging. And so with that, I'd like to say thank you for your attention and hand it back over to Christian.
Thank you.
Thank you, Maria. And to close it out for today, So what is important really for the fiscal year 2021 and just leave you with a couple of key messages. Key message obviously is also we confirm our targets for 2021. And as you pointed out also in the earnings release that we did not account for COVID-nineteen recovery nor deterioration. So we look on the situation As it is today more or less and this is what we take into account and this is also on how we judge there on our guidance.
We will execute our accelerated impact program and take the respective necessary measures to achieve a step change in operational performance. This follows really everything what we have explained to you on the Capital Market Day. This goes step after step. I always said it. It's really a long term process, but I have to say I am very pleased on how the organization is coping with this very challenging situation, managing so many different things, driving for profitability.
It will take time, but I'm very confident that step after step we really built here a fantastic company And we are committed to keep the lights on. With this, I would hand back to Michael.
Thank you, Christian. Thank you, Maria. Jola, as you know, we would like to open for questions now. And please, everybody, if you could limit yourself at least at the beginning to 2 questions. And with that, I would hand over to Ghedebre.
Thank you very much. Good morning everybody. So two questions please. The first one is really on the cost cutting program. If I do some simple math, I think the 7,800 job cuts alone it should probably deliver about €400,000,000 maybe €500,000,000 of savings.
So I was wondering why the group's cost cutting objective is not bigger than what you officially announced in total. And in addition to the personal reduction, I mean, that'd be great if you could help us to quantify to a degree the gross savings potential you see in areas like optimized logistics, centralized purchasing, portfolio streamlining, all what you've been talking about also including the reduction of non conformance costs. And the second question is about the kind of one offs you mentioned for the quarter. So it seems that you perhaps had about €50,000,000 €60,000,000 of lower discretionary Spent this quarter. So how firstly does it compare to the prior quarter?
And then how much of that would you expect to come back once the traveling environment gets back to normal? I mean is this really a one off? Or have you been able to learn new ways of working and interacting with customers during the pandemic. Thank you.
Thank you for the questions. And I will take the first one. Maria will take on the second one. On the reductions with the 7,800, Obviously, we encountered for these measures when we were planning also for the guidance also back in the Capital Market Day, we detailed now our plans. Never forget there's obviously also headwinds in the industry, which we need compensated what we communicated on the Capital Markets Day is that we have from the additional programs €300,000,000 impact really on the bottom line straight to go through.
This obviously requires that the cost measures are higher Because we also have to compensate for additional headwinds. However, as you rightly also indicated, there's a lot more actions that we do. Procurement is 1. The non conformance costs are the others. So roughly, roughly rule of thumb, you could say that the personal measures roughly represents 20% to 25% in terms of the overall cost reducing measures And which we now bring to deliver.
And just to remind you from the discussion we had at the Capital Markets Day, we said we're going to deliver €500,000,000 from the old programs and €300,000,000 from the new program. And this does not change. This is really what we reflected also in the current improvement program. Maria, do you want to take the second part? Sure.
Thank you. Hello, Gil, and thank you. Let me unmute myself now. Thank you for the question regarding the one offs for the quarter. So as I mentioned, I mean, there's multiple facets To that, of course, there is, as you said, the lower discretionary spending.
I'll get to that in a minute. Of course, as I mentioned, we did have a positive customer settlements, hedging gains and also costs that are going to come just didn't come in Q1 as expected and that were shifted into next quarter. But talking about specifically the discretionary, I think Yale your estimate is a little high, but certainly we do see 2 things. 1 is, of course, the comparison to Q1 of last year where it was pre corona and everything, we do have a high level high basis of comparison. And we see that essentially pretty much half of what we saw if you'd like for last quarter in terms of those discretionary costs.
However, and this is something that goes to your second part of the question in terms of learnings and assumptions based on that. You're absolutely correct. I think now in terms of how we are the ways of working within Siemens Energy is working very well in a virtual environment. Some of those assumptions were taken into this year knowing that we would come out of COVID, let's say, in a stagnated manner. This is what we also said both at the Capital Market Day and last time we spoke.
So of course, Q1 was anticipated that this would happen. But I think the fact that certainly prolonged closures, additional travel restrictions, this was something that of course was a bit of a positive surprise. However, I do want to state that we do not expect this to continue. We don't think this is sustainable also for us as a company. Travel for us is not just it's customer related.
It's actually driving revenue on the service side. So this we foresee increasing in the next quarters and certainly also to take into effect that or impact that of course in December we have Christmas etcetera. So I hope that answers your question. And thank you for the question.
Yes.
Thank you. Yes. Thanks very much.
Thank you, Maria. And the next question goes to Ben Ublot. Ben?
Yes. Good morning, everyone, and thank you for taking my questions. I had a couple. The first one was for Christian. First of all, we very much appreciate the revenue breakdown.
And if I look at service, if we exclude FX in Gas and Power, it's basically stable to slightly up at about €1,700,000,000 I was hoping that you could give us a little bit more color As you did at the Capital Markets Day, in terms of utilization rates and unit growth in the sort of thermal generation area, how have those been trending over the quarter? And if there's any sense you can give us on the service margin, I would appreciate that very much. For Maria, I guess my question is really in terms of just qualitatively understanding working capital. And I guess the working capital issue this time is around SGRE. I take on board the fact that this is there is seasonality here.
But at the same time, we've got this issue of customer prepayments and then a ramp up this is the first question of the company's name. In simple terms, Mir, is this going to be the sort of peak working capital requirement is this the year over year? Or how should we think about the cadence of working capital over the balance of the year? Thank you.
Thanks Ben for your questions and good morning also from my side. And we do the same procedure. I take the first question and Maria tackles the second one. Thanks, first of all, to your comment with the further disclosure. As we always said, we want to give you gradually more transparency that you understand the businesses.
So we are working on this and to provide you more insight. With regards to utilization, Our fleet is slightly up in every region except Europe. That is more or less a key statement on how I would put it. So in this regard, obviously, for us a positive development. In terms of the unit count, I think I said it also in the the last analyst call that we have still currently, obviously, units count going up and which obviously also supports the service.
The service margins turn out to be stable also in line with what I said in the recent calls. The team is doing an outstanding job really on compensating for headwinds and keeping the margins stable currently. Maria, if you would tackle the working capital.
Yes. Hello, Ben. Good morning. So first relating to your question regarding SG and A, I think you're right. I mean, of course, Q1 of last year versus Q1 of last year, this is expected for SG and A with the order decline, of course, quarter over quarter, your thought on whether we see this as a peak, I would say no, we don't see this as a peak And I just want to remind everybody our guidance in the annual report was regarding free cash flow.
We foresaw some of this for the entire group, SG and A included, we would be sharply down from last year in free cash flow. With respect to GP, I think also we expect to remain stable or in line. Of course, we continue to work on the regulars if you'd like AR, AP and inventory. But I have to say we've made really good progress as has SG and A by the way in terms of overdues. And I know that SG and A for example is working on payment terms on their payables and they're making good progress as well.
In both cases, contract assets and liabilities, they work against us, But this is something that is part of the business model, but I do not see a peaking as such. I just see that this is has as anticipated, this is the stability that we see for the year in working capital.
Understood. Thank you. I'll pass it on. Thank you.
Thank you.
Thank you, Maria. Next question goes to Simon Tonneson. Simon?
Yes. Good morning, everyone. I was wondering if you could talk a bit more about the development in the transmission business. Orders were down double digits. I'm sure there was a comp effect here.
But from a capital markets perspective, transmission was always seen as a kind of structural growth area for you around grid connections, it's Smart Grid, etcetera, and wondered what are the drivers been in the quarter and whether there's been Any development around orders and why they've been down at this level? And then secondly, Maria, on cash and obviously, I appreciate the comments on working capital so far. Obviously, Q1 was down a lot more than last year. And you mentioned last year already that inventories might come back and have some working capital movements. But is it fair to assume that free cash flow could still be positive for the year?
Or is that going to be quite an ambitious target from a Q1 perspective?
Thanks, Simon, for your question and we stay with the work pattern here. I start and Maria then continues. On transmission, Always keep in mind, I mean, our business is a project business, which obviously is not running exactly stable over the quarters. There is a volatility in this. You recall that by the end of 2020, we had in transmission From larger orders, I stay positive really on the total fiscal year 2021 in terms of the transmission business.
We have currently biddings in the making where the question is okay when it's finally going to be decided. So I think this is rather a normal development which is classical in And the project business, you should keep in mind that in transmission in particular, obviously, the orders, Especially if it comes now to the high voltage direct current, so the big Renewable parts and so forth equipment are bigger orders. And then obviously this is a little bit more bumpy. So Transmission I stay confident on, it is more than the quarterly distribution of the order intakes. Maria?
Yes. Thank you. Of course, relating to free cash flow and yes, you're correct Q1 versus last year. And hopefully, I gave some color around the working capital as you mentioned. Again, we do see we see it as we guided in our annual report.
So we do see that free cash flow will sharply decline versus last year. And everything we see at this point confirms that guidance.
Thank you.
Thank you. And the next question goes to Alex Virgo. Alex, if you go ahead please.
Thanks, Michael. Good morning, Christian. Good morning, Maria.
I guess, I wondered if you
could talk a little bit just around the headcount and the phasing, I More than anything else, I'm just trying to understand, if I look at the headcount numbers end of 2019, end of 2020 And today, it doesn't look like there's an awful lot of movement, if I've got my numbers correct. So I'm just wondering how we can see the phasing out of the I guess the original €9,000 or so originally started in the context of the first €1,000,000,000 of savings And then the new 8,000 that you've outlined this morning. Just so we get a better idea, I suppose, of the trajectory of the margins, because it feels to me like The margin strength that we've seen so far is being very much driven by the underlying margin improvement in equipment, Generation equipment in particular I guess. So just wondering if
you could give us a little bit
more color around the dynamics of that would be really helpful. Thank you.
Yes. I'll start and Maria if you want to add anything then. Thanks for the question. And you're absolutely right. I mean if you look on the numbers 2019 versus 20, you see that the headcount total headcount number has been relatively stable, impacted obviously by the carve out and transitions obviously also of people of what have been not flagged up really there before.
So this is also why with the headcount reductions and you may have seen it in In the press release, we also tackled particularly the administrative areas in this regard where we obviously, try to get a cost competitive setup. So you will see that is our expectation the largest impact of the programs until 2023 that is really the target by and large. And obviously really As a net impact, there are at the same time obviously yes in certain areas happening this is relocations of work that is definitely having to better cost regions, but this is the smaller amount of this. So I do expect the net number on a same business level to reduce. That is our current assumption.
Rui, anything to add?
No, nothing to add. That was perfectly stated.
Thank you. So the next question comes from Supriya, Supriya, if you go ahead please.
Thank you, Michael, and good morning. Just a couple of questions from my end as well. One is on the growth trends, especially on the sub divisional basis for Gas and Power. So in the 2% to 11%, let's say revenue guidance for FY 2021, how do you see contribution from the transmission generation and industrial application business? As well as maybe over the next 2 to 3 years, how do you see these markets trending?
And second was on raw material costs. Given the inflationary trends you've seen in underlying materials, any impact on costs or margins? Or is it all hedged out for this fiscal and if so, then any indications for margin for next fiscal? Thank you.
I'm so sorry, Supriya. There was a technical issue. We couldn't hear your questions. If you can please repeat. I apologize.
I only caught the tail end of your second question regarding raw material costs. We do apologize. Can you repeat?
No worries at all. And look, the first question was around end market trends, especially for Gas and Power. So in the 2% to 11 this is the 2nd guidance for the year. What do you see or how do you see trends within the transmission, industrial applications and generation businesses? And also the same over the next 2 to 3 year, year history to FY 2023.
And the second one, as we said, is basically given the underlying
the movement
or inflationary trends that we've seen in raw materials over the past few months, how do you estimate that likely to impact your cost or margins? Call is at all hedged out and if so potential implications for FY 2022? Thank you.
Thank you. Okay. So Christian, you take the first one. Yes.
I think the trends I hope that we understood your question correctly because it's continuously interrupted the connection. It's very difficult to hear. I heard that you asked for the trends in the different businesses in terms of transmission, industrial this is actually from what I can say today very much follows what we had said on the Capital Markets Day and what we also had said on the same in the last analyst call, we do see obviously, let's say going forward a slight Growth in the transmission business, we see a stable business In generation, they have started well into the year. Industrial Applications since if you recall, this is a business with the largest service portion it will obviously depend on how is now the service piece coming back. I think in general, I would also be Positive on a stable development industrial applications.
I think there's a lot of signs also what you hear from others that I mean the industry itself is intact. We obviously have a transformation there, but the order intake level will depend very much on how does the service business now develop dependent on the pandemic going forward. And Maria, on the second question?
Yes. On the second question, I hope I got it right as well. It's regarding the trend that we see in the raw material costs or the underlying, let's say, conditions there, we see a bit of a mixed this picture high level, I'd say in terms of things like copper prices, this does this is impacting us and on the increase in copper prices, this affects our hedging. On the other hand, we're seeing some good progress made in terms of e auctioning. But if I can, perhaps I'll defer that to Michael and his team to get some a bit more detail for you and get back to you on that.
Thank you for the question. Thank you.
Next question goes to Jonathan Mounsey.
Hello, good morning. Thanks for letting me ask I wonder just I think you talked in the past about the relationship with China. Obviously, you have a partner there. If you could just give us an update on how that's going. Have you got any kind of feeling or outlook for what the new unit opportunity might be over the next 3 years or so.
And then more broadly on generation, I think at the CMD, you talked of 70 to 80 units per year for large Gas Turbines, obviously, the world is still stricken with COVID-nineteen. And against that backdrop, are you still sticking to that? Or is this year, is next 12 months or so likely to be a weaker year because of COVID. What are your thoughts on that?
Thanks, Don. And To China, no actual development what we could announce in this regard. I mean, you know that we discussed the joint venture what we had in China and so forth, so there's nothing really as an update. Discussions are ongoing. Obviously, pandemic and COVID does not accelerate these type of discussions and processes unfortunately, But really no news compared to before.
On generation in terms of LGT's a number of that, our current planning is slightly this is slightly more conservative. So let's say roughly, roughly around 70 units per year. Could say in this order of magnitude, it was around 80% last year. So let's say the flight level as I've said, I believe is stabilizing now On this lower level and this is still our assumption. And also let me be crystal clear with regards to the Efficiency program what we do.
We do these efficiency programs because we want to stay in the gas turbine business, right? And we believe we have great products and this is a defensive business and we want to earn money with this. And this is why we do it. And I still see it as a business which will be there for a long time and required as an interim technology in the energy transformation. Is acquired as an interim technology and the energy transformation.
Thank you.
Thanks, Christian. Next question goes to Sebastian Growe. Sebastian, please.
Yes, good morning. Thanks for taking my questions. The first one is on GP and the order trend in the quarter one, you mentioned that there were some deferrals of orders on projects. So can you quantify the related impact in the quarter and which types the business within GP were affected the most. And the second question is more when looking ahead and then looking at the pipeline, how has the pipeline recently developed both from a volume perspective and if you can also comment on sequential pricing trends both for new units and service fees?
Do you want to do? I can do the first one if you'd like. Yes. So thank you, Sebastian. Good morning.
With respect to the order trend in Q1, yes, we mentioned that there were some deferrals. And let's just say, as Christian mentioned, COVID doesn't help, let's say, in terms of some of the discussions. So far, I would say that deferrals on the service side, for example, have been to future quarters. So we have had that. Some of that is business as usual by the way.
However, I would say 20% of that is related to COVID, but that's been shifted to future quarters. I think it's still a little early to say whether that's going to shift further into 2022 and beyond. So this is the kind of this is the assumptions that we have at this point. And on the second part of the question, Christian?
Yes. John, this is Aldok. I can only repeat myself. I mean, we see it, let's say, relatively stable as before. There's really not a lot of news we can bring at this point in time and To both sides, not more negative, not more positive.
It's really, as we have said before, relatively stable in terms of the outlook.
And that goes for both for the volume and for pricing, if I may just follow-up on this.
Yes. I think I said it before on the pricing, obviously, there you have to really differentiate on what part of the product you're looking at we obviously have and you see it in the numbers. If you look, for example, on the gas turbines, we have some very successful areas where also the pricing it looks stable and is good. I do see obviously and I think I've said it before on the very large gas turbines always this. How shall I say, volatile price environment sometimes good, sometimes not so good.
And this is why we also deliberately said in certain bids, we will not, let's say, fight to the very end. So I think the large gas turbine business is always more challenging than the midsize and this is same as I said in the quarter 4 last year And I still see the same.
Okay. That's helpful. Thanks.
Thank you. We now have to really limit ourselves to one question, if that's okay. So the next question comes from Andreas Willi. Andreas, if you go ahead please.
Yes. So if I can have one please. Thank you very much for letting me on. In terms of your large gas turbine business that you just mentioned, your market share has declined quite a bit in 2021 2020, is it sustainable to run this business at current market share levels? Or do you expect the market has to normalize again and it was just a function of basically large projects and timing of those in 2020.
So do you believe that the market share should be still relatively similar to what we have seen historically? Or has your strategy to be more selective basically meant that we should look more at 15%, 20% market share rather than the 30% -plus that we have this is
Good morning, Andreas. Thanks for your question. And very clearly, if you look on 2020, this is a low for us in the large gas turbine and this is nothing what I would going forward. So in this regard, if you compare to 2020, I do expect our market share getting back up again and this is what we fight for. This is why we do these programs.
And I'm confident that let's say we have the right products And the right teams in the to really get this market share up again. Very clearly 2020 was for us A disappointment on the large gas turbine and we all fight for changing this in 2021.
But is the disappointment in terms of just timing of larger projects where you may have had an edge versus somebody else or is it disappointment that you couldn't with your margin criteria win these orders?
Well, you We have seen probably the total numbers of gas turbines throughout the years. You know that in the row. You can see 18, 20 19, 20, they have been valid in all in the 80s in terms of total global numbers. And our, let's say, portion of this went down. In this regard, I'm, let's say, obviously, disappointed with our success rate and we want to win more.
And this requires to make sure that we pull every lever to get competitive in terms of pricing levels and close to the customer. And in this regard, this is what we want to drive up now going forward to get back to a reasonable market share.
Thank you very much.
Thank you. We've got 2 more questions lined up. So first one goes to Iris Chang. Iris, if you would go ahead.
Thank you for squeezing me in. So can I have just one question on maybe Energy Storage Business because you've announced a new kind of pilot project just last week? And then if we think about your business portfolio, then it makes a lot of sense. Now you have renewables, you have gas, you have storage and you have hydrogen to have all of those businesses bundled altogether. Now Fluence is one of the biggest is players, but it has stayed with the Siemens Group.
So I want to know a bit more of your plans around your business portfolio around storage business and how it can develop into maybe next 3, 5 year RMB?
Thank you for the question. And I also said on the Capital Markets Day and I would repeat it that we are interested to really explore the opportunities in storage. As you rightly said, Through the Siemens Group, we have ability to tie in Fluent into our projects. So we would integrate, we would do the stuff around it and Fluent would provides a storage. We also have, let's say, the blue volt systems, which we also provide as storage systems on the battery side there.
And we are exploring also obviously certain thermal storage opportunities. We continue to do this and we look into this field. We believe particular our contribution is really also on the overall integration and load management piece. But as I said, storage will be a key piece for me. Grid stability belongs also to storage and load management and this is something where we continue to explore what type of either technologies we can develop ourselves or what type of partnerships we can drive, could even obviously go into terms of where we would Could there be potential inorganic growth opportunities, but this is too early today.
At the moment, we are really working along these partnerships in terms of integrating storage into our systems.
Thank you, Christian. And the very last question comes from Will Mackie. Will, if you go ahead please.
Yes. Hello. Good morning. Thank you for the time. My question, it turns to your this is Longer term plans for development of the innovation sort of structure for the group.
I noticed that you've recently expanded your hub of innovation centers in China in Shenzhen. Could you perhaps describe what the longer term pathway is for the transfer of technologies and capabilities and what transfer of technologies and capabilities are expected to take place in the next 3 to 5 years in the partnership that you've established.
Yes. Thank you very much for the question. And obviously, we aspire to drive innovation closely to our customers and closely in the market. This is why we inaugurated the Innovation Center in Shenzhen, which is obviously focusing also on the technologies which will be required locally in the market. It's about also hydrogen driven gas turbines, efficiency improvements and so forth.
In principle, what we are building up at the moment in Siemens Energy this is a limited amount of what we call customer innovation centers where we're trying to bundle our innovation activities. We obviously want to drive regional setup and then have different technology satellites if it comes to specific technologies. The idea is really to be present in the most important energy regions and once again driven by the fact of collaboration. I believe I said it on the Capital Market Day, the key change for us is really collaboration, collaboration, collaboration. We want to continue to spend roughly as a company Siemens Energy the €1,000,000,000 in R and D and we identified 5 obviously field of actions in terms of the energy transition around storage, decarbonized heat and power, Power to X, service business and digital and resilient grids.
And this is what we're driving forward at the moment. And as I said bundling this also then more and more going forward in regional development centers close to customers.
Right. And with that, thank you all for dialing in. Thank you, Christian, and Thank you, Maria. As always, if you haven't been able to ask a question, but we did take all that were visible, please call on us at the IR team. We are obviously available and as you know very approachable.
So thank you very much. Bye bye.
Thank you everyone. Bye bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the Investor Relations section of the Siemens Energy website. The website address is www.ziemensenergy.com/investorrelations. Thank you.