Good morning, ladies and gentlemen, and welcome to the Siemens Energy Q3 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 two of the Siemens Energy presentation.
This conference call may include forward-looking statements. These statements are based on the company's c urrent expectations and certain assumptions are therefore subject to certain risks and uncertainties.
At this time, I would like to t urn the call over to your host today, Mr. Tobias Hang. Please go ahead, sir.
Good morning and a warm welcome to the Siemens Energy Q3 analyst call. My name is Tobias Hang and I am very excited to host this analyst call for the first time in my role as the Head of Investor Relations. As always, all documents were released at 7:00 A.M. on our website. 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 third quarter of fiscal year 2025. This will take approximately a few minutes. Thereafter, Christian and Maria are available to answer your questions. For the entire conference call we have allowed one hour. From here, Christian, over to you.
Thank you very much, Tobias, and good morning, everyone. Also from my side, thank you very much for joining us today. The third quarter proved to be another successful period for our company, further demonstrating our path to profitable growth. In addition to our strong financial performance, we have accomplished important milestones to generate shareholder value in the medium to long term, which I'll address later. Let me mention one accomplishment right at the start, as we just released the information a couple of days ago. After exiting the Bund guarantees, the Bund now waived the condition that restricted us from paying a dividend for the fiscal year 2025. We are now in the position to pay a dividend for 2025 if the annual general meeting in February 2025 approves.
This is an important milestone achieved, and I would like to thank all employees at Siemens Energy for their hard work and commitment, which has contributed to our strong performance. This quarter's most notable achievement was a record-breaking order intake of EUR 16.6 billion. This reflects an increase of almost 65% in comparison to last year, supported by two large offshore orders at Siemens Gamesa and strong orders across all businesses, resulting in a book-to-bill ratio of 1.7x. Our order backlog has reached a new record high of EUR 136 billion. This was achieved despite negative currency translation effects of almost EUR 4 billion. Revenue demonstrated consistent growth, reaching EUR 9.7 billion in the quarter, and this reflects a 13.5% increase when compared to the same period in the previous year. Our profit before special items increased to EUR 497 million, driven by a strong performance from grid technologies, gas services, and transformation of industry.
Overall, Siemens Energy's profit margin was 5.1% for the quarter, which is an improvement of 450 basis points year-over-year . Our cash flow stood at EUR 419 million in quarter three, which is lower than in the previous year, however, well in line with our expectations and the fiscal year 2025 guidance. As everybody else in the industry, we experienced macroeconomic uncertainties during the quarter. These included the U.S. tariff discussion and geopolitical tensions in different regions. Despite these challenges, we were able to successfully manage operations notwithstanding the prevailing volatility in the market environment. The underlying demand and pricing trends remained favorable. In quarter three we recorded an impact of around EUR 100 million from tariffs, which is broadly in line with our previous statement and mainly driven by one-time effects related to long-term service agreements.
The E.U.-U.S. agreement on 15% tariffs effective late July is higher compared to our original assumption of 10%. Thus, it will have an additional impact of up to a mid double-digit million euro amount. In quarter four, our businesses delivered another strong quarter, continuing the solid performance of this fiscal year. This puts us on track to meet the upgraded guidance issued in the second quarter, and we are currently trending towards the upper end of the range. As previously communicated, a comprehensive update regarding our mid-term targets will be provided with the full-year financial results on November 14th at our Capital Market Day, which is scheduled for November 19 and 20 in Charlotte, North Carolina. We will present an in-depth overview of our business operations, their strategic plans for achieving profitable growth, and generating attractive shareholder returns.
Allow me to provide you with a brief overview of the factors that contributed to our record order intake in this quarter. The demand for electricity is continuously increasing, and it is essential to ensure a reliable and secure supply. From a global standpoint, the U.S. experienced the most significant surge in orders, accounting for nearly 35% of all orders in quarter three. This represents a threefold increase compared to the previous year, with a total value of around EUR 6 billion. Notably, demand remains strong despite the tariff uncertainties, underscoring the current resilience of the market. However, despite our success in the U.S., we were able to secure a globally balanced order book at Siemens Gamesa. We have received two major orders in Poland for offshore wind projects, both valued at over EUR 1.5 billion each, and these orders underline our excellent position in offshore wind.
Gas services set a new order record in the third quarter with a quantity of 86 gas turbines. This encompasses the entire portfolio of frame sizes, ranging from 15 MW - 500 MW. We have booked around 9 GW of orders, which were mainly converted from our reservation agreements. Of these, 3 GW were related to data centers. Growth was also driven by orders from the U.S., which accounted for nearly 50% of the total gas turbine orders. With regard to the applications, around 60% of the orders were related to our core business including coal and oil to gas shift pica units and generally higher energy demand. However, 40% of these orders were driven by new applications including data centers, floating LNG, and power ship applications. This has also resulted in significant growth in medium sized gas turbines.
Year to date, sales for those have already exceeded the total sales from the previous two years combined. At the end of the third quarter, we had 21 GW of reservations agreements on hand. Considering the order backlog of 37 GW, we have now a total commitment of 58 GW. The favorable pricing trend continued in the third quarter across all frames. We anticipate that this trend will be maintained for the foreseeable future. Also, grid technologies continued their successful development in the last quarter. As indicated already in the last quarter, we see in addition to HVDC and large transformer projects, the demand for grid stock stabilization equipment on the rise to cope with the increased volatility requirements for the grid infrastructure. The third quarter, we observed for grid technologies an exceptional global market demand for our product business, particularly for power transformers.
Also here, it was supported by a strong order intake in the U.S. Our previously announced capacity expansions are therefore required to meet the demand for this market growth. At the same time, we are focusing on productivity increases to optimize capacities and reduce lead times in our solutions business. We benefit from our long term relationships with our customers, especially in Europe where we see the demand continuing. We were nominated preferred supplier for two large HVDC projects in the U.K. by National Grid and Scottish Power. In the U.S., we were awarded an HVDC project which constituted our largest order for grid technologies in this quarter. In Germany, our grid stabilization equipment FACTS has been recognized with an award for a significant bundle of three STATCOM stations. Particularly in North America, we were able to achieve higher pricing by offering competitive lead times to our customers.
The project pipeline has remained robust despite tariff uncertainties in transformation of industry. The demand came mainly from Germany, Northern Europe, and the Asia Australia region. The order growth can mainly be attributed to electrification, automation, and digitalization, but also industrial steam and generators. Our compression business maintained stable pricing despite macroeconomic uncertainty due to tariffs and the oil price volatility. We still see underlying long-term market trends remaining intact. We are committed to continuous improvement within our company, and I'm proud to share with you some of the milestones we have completed in this quarter. Let me first start with our onshore wind business. We have successfully received the first order for the revised 4.X wind turbine, and as previously stated, focus here primarily on the southern European market.
Siemens Gamesa will supply eight turbines for the Lab raza wind farm in Spain, Basque Country, and this project represents the first new wind farm development in the Basque Country for two decades. Siemens Gamesa also released the first tranche of the revised 5.X turbine for sale. This is an important step for our onshore business on the road back to a regular presence in our key markets. To ensure product quality and strong turbine performance, we roughly revised the machine architecture, main components, and production steps during the conditional market launch. We will continue to conduct prototype testing to validate the positive technical assessments obtained to date. Parallel to the technical evaluation, we will gradually expand the plant production volume based on the validation results. As I previously indicated, our substantial offshore wind orders this quarter have further increased our backlog.
Consequently, we are continuously working to strengthen the resilience of our supply chain. We have now signed a memorandum of understanding with TDK to source rare earth magnets from Japan, and with this, build an alternative of supply from China to address the significant increase in demand for power transformers. KONČAR and Siemens Energy are investing approximately EUR 260 million in expanding their large power transformer factory in Jankomir, Zagreb. The construction is scheduled to begin in 2026. The new investment will more than double the capacity by 2031 from the original capacity in 2022. Maximizing profitability remains a primary objective for us in the current market environment. Focusing on pricing opportunities remains key. At the same time, it is important to keep the focus on project excellence and cost consciousness.
I am proud how our teams are executing the demanding backlog and leverage the improved backlog margins to significantly drive the margin profile in this quarter. In the second quarter we announced our partnership with Rolls Royce on SMRs, which entails the exclusive provision of steam turbines, generators, and ancillary systems for small modular reactors. This partnership is already yielding initial results as Rolls Royce SMR has been selected by Great British Nuclear to construct three SMRs in the U.K. and signed an early works agreement in the Czech Republic for potential small modular reactors at the Temelín nuclear power plant. In this dynamic market environment, small bolt-on acquisitions are one lever to lay the foundation for additional growth. We recently acquired the remaining 50% stake in RWG, a company that provides maintenance, repair, and overhaul services for industrial aero-derivative gas generators and power turbines.
It is a strategic acquisition to strengthen our service capabilities for the growing aero-derivative market segment. In addition, we have acquired a transformer factory in Italy and this facility is used as a feeder plant for medium power transformers for the Trento and Nuremberg plants. I don't want to spend too much time on our strong balance sheet as Maria will discuss our last quarter's achievement in detail later. The most notable milestone as mentioned at the beginning of this quarter was the exit from the Bund guarantees, which will enable us to distribute returns to our shareholders in the future and now even already for fiscal year 2025. Capital allocation will be one of the primary topics addressed at our Capital Market Day event in November, where we will present a comprehensive plan outlining how shareholders will participate in our future success.
With this, let me hand over to Maria.
Thank you, Christian. Good morning, everyone, a very warm welcome from my side. As always, I'm pleased to share with you our quarterly results. Before I go into the performance of the business areas, let's start with a quick overview of the Q3 fiscal year 2025 at the Siemens Energy Group level. As Christian already mentioned, we had a record order intake and strong results this quarter, which puts us on track to meet the raised guidance, and we are currently trending towards the upper end of the range there. Also of note, due to the strength of the euro, we had some headwinds from currency translation. Therefore, I do want to point out that the spread between nominal and comparable growth for orders is 430 bps this quarter and for revenue is 270 bps in the third quarter.
Again, a nominal impact on profit because largely this is margin neutral. Looking at orders again, we reached an all-time high this quarter since the spin with EUR 16.6 billion, and this is the continuing strong demand which increased the orders by almost 65% compared to prior year. The improvement was across the board but primarily driven by an increase at Siemens Gamesa, where we booked two offshore orders each with more than EUR 1.5 billion on a geographic basis. As Christian showed, the growth was very broad based. All reporting regions recorded sharp increases with a remarkable performance. In the U.S., the overall improvement in orders was driven by a significant increase in the new unit business, growing with 137%. Looking at book to bill, 1.7x, really driving the order book again to a record high of EUR 136 billion.
As I just mentioned, this was partially held back by negative currency translation effects of almost EUR 4 billion this quarter. I'll review the backlog just in a moment. Now, moving on to revenue, EUR 9.7 billion, up by 13.5% on a comparable basis. Here, the improvement, very strong growth driven by GT by 26% and GS by 17% each, again growing on a comparable basis. Revenue therefore grew significantly and significantly in new unit at +21% comparable and also in service at 6% comparable. Profit before special items increased by roughly 10x year-over-year with all segments improving sharply and Siemens Gamesa as expected. Profit before special items therefore was at EUR 497 million. This is a 5.1% margin, and the profit increase here was mainly due to increased volume and corresponding fixed cost absorption effects.
Also, we continue to execute high margin projects driven by better pricing and, of course, also never to forget our strong service contribution of 33% this quarter. Therefore, we were able to compensate the majority of the impact resulting from tariffs, which, as mentioned already, amounted to around EUR 100 million in Q3. This is broadly in line with our Q2 statement and mainly driven by one-time cumulative catch effects related to our long-term service agreements. Now, looking at special items, as expected, the demerger of Siemens Energy India Limited led to an effect of roughly positive half a billion or +EUR 0.5 billion, resulting in a profit overall of EUR 956 million for this quarter. Just as a refresher, on June 9th, Siemens Energy India Limited was successfully listed. As previously stated, our target is to be the major shareholder in fiscal year 2028.
We will achieve this by swapping essentially the 6% ownership of Siemens India Limited and therefore purchasing the remainder from Siemens AG. The required cash out fluctuates with the relative share price development of both entities and, of course, the share price of Siemens Energy India Limited in fiscal year 2028. Again, this is taken into consideration in our business plans. Now, looking at net income, this came in at + EUR 697 million, which, of course, is a tremendous increase quarter -over -quarter. Free cash flow pre-tax stood at + EUR 419 million. There is a decrease there compared to previous year's quarter. This is mainly driven by changes in operating working capital and some timing shifts, as well as significant payments received last year, for example from Siemens Gamesa, which was not the case in this quarter this year.
I will talk in more detail about the drivers of free cash flow in just a moment. Now, let's look at our order backlog this quarter. As I mentioned, new high of EUR 36 billion, giving us transparency well into the future. I'm happy to report that our revenue coverage has increased and stands at 95%. Already for fiscal year 2026, our revenue coverage is at almost 80%, again with increasing resilience due to broad-based demand. We also see that the backlog project margin development continues to be positive year to date. Let's talk a little more in detail about free cash flow and the drivers of free cash flow. Looking at Q3, as I mentioned, we have a free cash flow pre-tax of EUR 419 million, and this is about EUR 300 million lower than in Q3 of prior year.
This is mainly due to, as I mentioned before, some timing shifts to Q4 changes in our net operating net working capital. This is driven mainly by a reduction in trade payables and also an increase in accounts receivable as well as a lower increase in contract liabilities. Again, additionally to note, the effect in special items from the demerger of Siemens Energy India Limited leads to an adjustment in the same amount in other items. Of course, as this is a non-cash impact item, both of these effects outweigh the significantly improved net income of approximately EUR 700 million. Of course, also in Q3, I think it's very important we have not seen a change in customer payment behavior and we still see a continuation of incoming reservation fees. I'd also like to give you an update on where we stand on the Siemens Gamesa quality cash outs.
This amounted to around EUR 120 million in the quarter. As a reminder, for the full year we had indicated a mid triple-digit euro million amount. Therefore, this is in line with our expectations. Also, an update when it comes to CapEx, we spent just over EUR 450 million in Q3, almost EUR 0.5 billion. This is to fuel our future growth mainly for expansion and capacity extensions. For example, the ramp up of our SG 14, our offshore business, as well as investments in expansion capacity for gas services and grid technology. With regards to the CapEx outlook, as you know, we provided this in prior year's Q4 fiscal year 2024 of around EUR 2 billion. Currently, we see some delays or shifts into fiscal year 2024 and therefore will remain slightly below the EUR 2 billion.
We still expect a significant amount for Q4 of this fiscal year to come in and then in total be just slightly below the EUR 2 billion. Now, looking at cash or cash bridge and net cash on the right-hand side of the slide, overall we have EUR 8.5 billion in cash and cash equivalents at the end of the quarter. We have a slight decline from the previous quarter. Again, looking at perhaps three things here I'd like to point out, we do have negative translation effects of roughly EUR 200 million. We also have the regular employee share buyback program of EUR 170 million. This was conducted in Q3 of this year. In addition, we had to pay cash taxes of just over EUR 150 million as well as interest payments, roughly the same amount we have here.
As you can see, slightly reduced financial debt with EUR 3.7 billion, of which EUR 2.2 billion is long term. Considering again our pension provisions stable at EUR 401 million, this brings us to a net cash position of EUR 4.4 billion at the end of June. This is compared to an adjusted net cash position of EUR 1.7 billion a year ago. With this, we continue to have a strong balance sheet commensurate with an investment grade profile, which is also reflected in our external ratings. Perfect segue. Some important milestones in the third quarter of this fiscal year 2025: on May 26, 2025, S&P revised their outlook to positive from stable and affirmed the BBB - rating for Siemens Energy. On June 17th, 2025, we received an investment grade rating of Baa2 with a positive outlook in its inaugural rating from Moody’s.
On June 5th, we announced the planned replacement of the EUR 11 billion facility backed by the German federal government and the additional EUR 1 billion guarantee backed by Siemens AG. The new EUR 9 billion syndicated facility together with existing guarantee lines will fully support large scale project business and related guarantee demands for the years to come. Very pleased with that. Additionally, as mentioned already, the termination of the government’s counter guarantee relieves us from the annual financial burden. I mean, this cost us approximately EUR 100+ million from fiscal year 2026 onward and in addition lifts the restriction on bonus payments to the executive members 2026 onwards. As Christian already mentioned just a few days ago. Very pleased with this. The Bund waived the restriction for dividend payments already for fiscal year 2025.
We are very pleased with this decision as it gives us the ability to pay a dividend to our shareholders earlier than expected. This is the next progressive step and an important milestone for us. Now we revert to the relevant governance process and appropriate steps to approve a potential dividend payout for fiscal year 2025. As a reminder, Siemens Energy has a dividend policy to distribute 40% - 60% of net income attributable to shareholders of Siemens Energy. All right, this again is a good segue and Christian already mentioned it. We receive very often from investors in the last weeks regarding capital allocation and structure and maybe just to reiterate, as always stated, we are committed to a conservative capital structure.
This prudent financial policy is essential to navigate our industry cycles, project volatility, managing our working capital, and of course to meet our future financial commitments, all while preserving the flexibility as you see this year and in years to come to invest in the growth of our business. We will use the time now over the next couple of months to work on our midterm business plan, review investments such as CapEx R&D requirements for growth, and analyze our capital structure accordingly. What we do know is we will continue and will maintain our dividend policy. Please stay tuned for this and at our Q4 call respectively. As you heard, Christian invited you all to our Capital Market Day on November 20th, 2024, in Charlotte, North Carolina, U.S. Just also lastly as a reminder, our mandatory convertible bond is scheduled to mature this year on September 14th.
Given the current share price, we do expect this to trigger the minimum conversion ratio, which will result in the issuance of approximately 62 million new shares, which has been also accounted for. Now let's take a look at the quarterly financial performances of our business areas and let's start with gas services. Overall, a very strong quarter for our gas services business, orders of EUR 6.2 billion, up more than 20% from prior year quarter. This is driven by a very strong new unit business, which was up 144% compared to prior year, book-to-bill ratio just shy of 2x at 1.98x, and backlog record of EUR 53 billion. Q3 was characterized by a very strong gas market for gas turbines greater than 10 MW, with the largest markets being in the Middle East and in the U.S.
In Q3, we booked a record of 86 gas turbines for power generation in oil and gas. 18 of those were large gas turbines. Our gas turbines greater than 10 MW market share for power generation stood at 37%, in large gas turbines therefore greater than 100 MW at 39%. Revenue for gas services for Q3 stood at EUR 3.1 billion. This is just shy of a 17% increase. On a comparable basis, new units showed significant growth of 47% and service business of 14% growth. Looking at profit before special items for gas services, EUR 406 million. This more than doubled year-over-year , resulting in a margin of 13%. This improvement of over 600 basis points was driven by better margin quality of the processed order backlog and of course underlying with better pricing in Q4.
I have to say this, you know, gentle reminder of the typical seasonality that we have in our gas services business and the mix effects, but overall a very strong Q3 for our gas services business. Moving on to grid technologies, yet again grid technologies delivered significant improvements in order intake, revenue, and profitability. Orders were at EUR 4.2 billion, up 24% year-over-year , driven by strong broad-based demand, specifically from the U.S. and high demand for the product business. Book-to-bill ratio for grid technologies was 1.5x and a backlog of EUR 38 billion. Revenue for Q3 grew by just shy of 26% on a comparable basis to EUR 2.8 billion. Revenue here increased substantially. This was driven by increases in both product and the solutions business. Profit before special items came in at EUR 448 million, again almost doubled compared to Q3 of prior year. This results in a margin of 15%.
Here, the improvement is driven by continued strong underlying operational performance, higher volumes including corresponding digression effects, and operational improvements coupled with the higher margin of the processed order backlog. Again, a very strong quarter for our GT business. Moving on to transformation of industry, here we see another solid quarter for TI, especially with regards to profitability. For Q3, we see orders of EUR 1.4 billion. This is an increase of 23.4% versus prior year comparable basis and driven by new unit orders with an increase of 35%. Book-to-bill ratio was 1x and the backlog at the end of the quarter amounted to EUR 8 billion. Revenue grew by 6.1% across all businesses with strong growth in service and new units as well. The biggest contributor to the revenue growth in Q3 was our compression business with over 11% growth comparable. Looking at profit before special items, EUR 157 million.
This is an increase of roughly 50% compared to the previous year quarter. This is a margin, like I said, of 11.5% and the improvement here of 370 basis points was mainly due to sustained volume growth, particularly in the service business, and improved margin quality of the process order backlog. Biggest contributor to the improvement is our industrial steam turbine business with + 350 basis points versus last year and compression with 530 basis points. A very well done to the TI team. Moving on to Siemens Gamesa. Extremely strong order intake this quarter and all other KPIs in line with expectations, orders here came in just shy of EUR 5 billion which is roughly 7 x prior year's order. As mentioned a few times we have our two large orders in Poland and offshore were booked this quarter.
Onshore orders continue to be affected by temporary interruption of sales activities. However, as Christian already mentioned, the first 4.X order was booked in Spain. Book to bill came in at a strong 1.95x and our order backlog in Siemens Gamesa stood at EUR 38 billion. Revenue for the quarter was EUR 2.5 billion on essentially the comparable level of prior year. Offshore business including service almost doubled year-over-year but could not fully offset the expected decline in the onshore business due to the sales stop. Profit before special items came in at a - EUR 438 million. This is nearly on par with prior year's level. As we've always indicated, Siemens Gamesa remains in a transformation or restructuring mode with puts and takes remaining somewhat volatile throughout the quarters.
For example, the first half of this fiscal year was trending positively versus prior year and in addition an underlying operational improvement in Q3 was offset by mainly two effects. Number one, tariffs. They had an impact here of a mid double digit amount which accounts for almost half of the impact of Siemens Energy so far. Secondly, as per usual, we had the annual regular update of the statistical models and this is for the evaluation of the entire wind turbine fleet of over 100 GW or approximately 100 GW of maintained fleet. In this regular update, it is with respect to failure rates and truing up and looking at cost assumptions. This had also high double digit impact but again was well within our expectations.
Also something to note that the 4.X and 5.X provisions remained basically stable, so overall a very strong or as expected quarters for all of our businesses. Now moving on to the next slide please, looking at our financial outlook for fiscal year 2025, as indicated the outlook for this year is reaffirmed, trending towards the upper end of the guided range and we are for Siemens Energy. Overall we continue to expect 13% - 15% comparable revenue growth, profit margin between 4% - 6%. Again, this includes the already mentioned direct impact from tariffs after mitigation measures of approximately or around EUR 100 million. This is stemming from global impact of tariffs, also including China and specific raw material tariffs based on the recent E.U.-U.S. agreement of 15%.
Excuse me, for tariffs effective late July, we do expect a further negative profit impact of up to mid double-digit euro millions in Q4, and this is also embedded in our guidance. Net income of up to EUR 1 billion, excluding the positive special item from the demerger, as we excluded that from the onset of the year. As we know today, that is approximately EUR 0.5 billion. Free cash flow still confirmed around EUR 4 billion. When you look at the assumptions per business area, the same applies for the Siemens Energy Group, where we reaffirm our assumptions which we have raised already in the second quarter, with a tendency toward the upper end of the guided ranges. For Siemens Gamesa, we stick to our commitment to around the EUR 1.3 billion loss.
Lastly, again, an update of the midterm targets will be provided with full year results in November and further elaborated at the Capital Market Day shortly thereafter. With this, this concludes my part and I shift right back to you. Christian, thank you very much for your attention.
Thank you very much, Maria. As usual, I will conclude the presentation with a summary of the key messages before we proceed to the question and answer session. First, our good operational performance continued as expected, so that we reaffirm the raised outlook issued in the second quarter with a tendency toward the upper end of the guided ranges. We will provide an update on our midterm guidance in November. Secondly, despite the macroeconomic uncertainty, the demand for our products, solutions, and services remains strong, resulting in a record order intake. We anticipate that demand will remain strong in the near future. Next, we continue to invest in capacities, innovation, and partnerships. These investments will strengthen our operations and portfolio, preparing us for future profitable growth. Finally, our stronger performance is acknowledged by the rating agencies.
As a result, we could exit the Bund guarantees in an early manner and can even pay now a dividend for fiscal year 2025. I would once again like to mention the Capital Market Day in November. We really, really look forward to welcome you there and hope you can make it, and hopefully many of you in person in Charlotte. It will definitely be an exciting event. If you have not registered yet, please do so. Now let me hand over to Tobias for questions and answers.
Thanks a lot, Maria. Thanks a lot, Christian. Now we will start today's question and answer session. If you wish to ask a question, please press star one on the telephone keypad. Again, please press star one on your telephone keypad. If you no longer wish to ask a question, please press star two. As I already see that there are quite a lot of questions in the queue, I would ask you to limit your question to one question per person. The first three questions will be coming from Sebastian Growe, BNP Paribas Exane, Alex Jones, Bank of America , and Akash Gupta from JPMorgan . Sebastian, please go ahead.
Yeah, thanks Tobias . I'm Maria. Hi Christian, thanks for sending me the opportunity. It was around gas services and the capacity planning and visibility. You said on the last call in quarter two that you were well covered for 2028 and with a backlog now at 37 GW you must apparently start taking orders for 2029. Against a backdrop and your positive comments on the press call earlier today that the margin quality continues to expand in the backlog, my questions are to what extent can you continue to benefit from better pricing thanks to the attractive delivery times that you offer? How does a strong demand environment impact your capacity planning as today's demand appears to really outpace the earlier 70 GW market focus that you shared with us?
Hi Sebastian, I hope I have understood your questions correctly because the quality was very poor. If I understood it, it's based on really the quality on the margins on the gas side and also the capacity implied. First of all, I mean it's as you, if I heard you correctly, indicated, very much linked also to timely delivery. Obviously we are able to do it. We see it. The big element for us is also we see it across the different frames. I think that is the one key message I want you to take home. We have been very successful to balance the demand over the different frames. We see pricing trends also in that regard relatively intact or intact in terms of continue also going forward to help to drive the backlog margin. It's obviously tapering off at one point in time. That's very clear.
In terms of capacity expansion, as you know, we are expanding both the mid sized and the large size. The mid sized kick in 2026 and the large gas turbines kick in 2027 with the additional volume. If you look on next year, roughly we are looking on a flight level capacity around 20 GW and then obviously further increasing in 2027.
The next question comes from Alex Jones from Bank of America.
Good morning. Thanks for taking my question. Can I zoom in on grid tech a little bit? Sequentially, orders are a little bit weaker, although I understand that they're lumpy. One of your peers has also talked about weaker momentum in European HVDC projects due to affordability concerns. Could you indicate whether you've seen anything similar in that regard in your conversations with customers, and more broadly, whether the sort of strong momentum in grid tech demand continues into Q4 and 2026 in your view? Thank you.
Yeah, thank you very much for the question. Obviously, if you look also on our order intake, this is very much driven by transformer products, and we also expect a good order intake also in the coming quarter on the larger projects, HVDC solutions type of piece. What you have to always be aware of is that's a large project business, and it comes a bit more bumpy in terms of decision making of customers and absolutely cost in or investment into the grid infrastructure. Cost of the grid infrastructure are a concern to customers, and we work very closely with our customers to help really to improve this cost level. Despite that, I see this continuing demand for HVDC projects, and this is why also the two projects mentioned in the U.K., we see additional projects in Europe which could very well land in quarter four.
You know, it's always as it's project business, they can slip a month or two. The discussions are ongoing. There is an underlying need which we see continuing, but very clearly also in terms of the pricing, and this as I said before, it has to normalize a bit. We are working also closely to find other ways to improve the cost base for the customers, like standardization, other setups, and we will continue to drive it, but fundamentally we see the demands continuing.
Thank you.
Thanks a lot. The next question goes to Akash Gupta from JPMorgan .
Yes, hi, good morning and thanks for your time. My question is on capital allocation and I appreciate you are going to give us more details at the Capital Market Day. Just looking at where we stand right now on the balance sheet, you have EUR 4.4 billion of net cash, but then you are sitting on EUR 17 billion of net contract liability, which is up from EUR 14.7 billion at the end of last year. You still have EUR 4 billion roughly potential outflows in the Siemens India transaction, assuming spot prices. My expectation, my question is for Maria, like you know, we do hear from some investors who hope for share buyback, maybe just wanted to ask any high-level thoughts you can share on prospects of share buyback in your capital allocation policy. Thank you.
Thanks, Akash. Thank you for outlining the balance sheet movements. You're absolutely correct, of course, in line with the demand as we see for our orders, which has, as you know, a direct impact on our contract liabilities with respect to our short-term priority. Maybe to give a bit of color, you know we're in a very solid net cash position, and we would like and we would have that net cash position maintained. Yes, in the midterm we see that, and we will see that the strong annual cash flow does look at or offer opportunities. That's exactly what I stated earlier, that those are the opportunities that we're looking at in line with our new business plan, in line with things like a book-to-bill ratio greater than one continuing and that order demand continuing.
This is exactly what we'll put together and put some color around that for you in Q4, but even more so at the Capital Market Day. Hopefully that gives you a bit more color. Akash, I know you really want to know, but we will provide those details in November.
Thanks a lot, Maria. Thanks a lot, Akash. The next three questions go to Max Yates from Morgan Stanley, Ajay Patel from Goldman Sachs, and Gael De Bray from Deutsche Bank . Max, please go ahead.
Thank you. Maybe if I could ask a question on the wind business. Maybe sort of two parts to it. I guess to get to the EUR 1.3 billion guidance, I guess for this year you need to get to sort of, I think, EUR 239 million loss in Q4. I understand the kind of EUR 100 million provision will drop out, but is there any other kind of levers to give us confidence on that rate of improvement? I guess when we think about next year, is there any way, when we think about kind of the trajectory from a EUR 1.3 billion loss to break even, we can sort of think about buckets of improvement?
Like when we think about the offshore ramp, when we think about the sort of cost cutting in the 4.X and 5.X, and then we think about the improvements in the margin, improvements in revenue margins as some of the lower margin stuff drops out. How do we sort of separate that to maybe give us a bit more visibility where possible around that? That's sort of what is now quite a big jump from EUR 1.3 billion to break even. Thank you.
Christian, you can take the overall buckets of improvement.
I'll talk about this year.
I'll talk about this year.
You're taking this year? Okay.
Yes , absolutely.
Hey Max, good to hear. Obviously, I mean you mentioned the levers by and large and this is still consistent with what we said before. There is a substantial lever coming from the offshore productivity improvement and we see it really continuing in terms of going up in productivity. It's mainly the Mark VI delivery now and this is ongoing. This will be an instrumental lever for us also next year. Obviously the team is driving also the improvement in service onshore which will be instrumental to get it really to a profitable business that was heavily impacted by the 4.X and 5.X elements. It is currently the target that we are deploying until the end of 2026 or let's say most of the measures for the 4.X and until the end of 2027 most of the measures for the 5.X.
That obviously also should impact then afterwards the profitability on the service side. The other thing is, I said it before, one thing which we will need to continue to look into going forward for 2026 is additional cost measures. Seeing that the revenue in onshore new units is lower than we anticipated, the team is continuously working on this to ensure that we can really bridge this EUR 1.3 billion to a break even. This is mainly really the key levers on top of it at the moment. Really the management has a very, very rigorous focus on cost left, right and center. This is not only expenses but also includes very diligent CapEx deployment. Also seeing the outlook into the market. This is mainly the levers, Max.
Thanks, Max. Also, for this year you're fully right looking at the Q4 because of course we've reconfirmed the around EUR 1.3 billion. That's exactly what we're aiming for. As Christian said, the team in Siemens Gamesa is really very laser focused on all potential to ensure that we get there. I think it's important that maybe I outline a few things even relating to Q3. There is the one-time tariff impact, and it is one-time in nature because this is related to service agreements whereby their legacy service agreements we can't really pass those costs on. That is one-time in nature again, kind of showing the dip, if you'd like, in Q3. The second is the regular annual update that happens in Q3, of course also impacted, like I said, with a high double digit.
If you take those two out, there is an underlying operational performance improvement based on the productivity measures and what's happening with offshore. If you take those out, then of course you can back into a Q4 number which gets us to the EUR 1.3 billion, around EUR 1.3 billion for the year. It's very much a diligent process that the Siemens Gamesa team is undertaking month by month, quarter by quarter again to get us to this one, this break even next year. Also, to remember, I think I need to stress that for next year the break even is by the end of the year. Right. We're going to continue to ensure that we're break even by the end of fiscal year 2026.
Sorry, but just to be clear, it's break even when we take the entire profit.
Correct.
Right. It's not just you're going to do a quarter of break even. It's the entire profit.
Correct, correct.
The entirety of the year, yes, exactly. Take that into consideration, Max. Mathematically for the year we will be break even. Thank you.
Yeah, appreciate it . Thank you very much.
No, thank you for the questions, Max.
Thanks a lot. Next question goes to Ajay Patel from Goldman Sachs .
Good morning and firstly thank you for the presentation. I guess I wanted to expand on wind. Also, look, this quarter you did very well on the order intake side. We saw two good projects come through on offshore, and I'm just thinking of the picture going out and what you have as a preferred bidder status on offshore that we can maybe look forward to, to add additional growth. Is that picture accelerating as we go towards 2030? Seems like there's a lot of orders that have gone through auctions in the utility part of the sector, and these haven't yet firmed up for any manufacturer. I just wondered how you fit into that.
I have to say I'm struggling a bit from the top of my head to give you the result. Let's say the preferred supplier order of magnitude roughly, but obviously the outlook towards 2028 is relatively sound, right? I mean that's there in place and there are obviously discussions ongoing, either preferred supplier status like the Japanese ones, the Korean ones, what we have communicated before, which stretch out into 2030, 2031. The question will be really now, okay, do they really come to final investment decision? Do they close and then move forward? Fundamentally, how I look on it obviously is we still believe the offshore market is very, very sound and available, but not on the flight level which was originally assumed.
This is why we also are very carefully planning today's growth, particularly if it comes to ramping up capacity on sites and rather look on productivity measures than really building new sites or so. That is something one has to see. I think we look with interest now on auction round seven in the U.K. This will be very, very interesting what comes out of this. This will be also, I think, a sign for the rest of Europe on how to make an auction successful or not successful, but hopefully successful.
Okay, thank you.
Excellent. Next question goes to Gael De Bray from Deutsche Bank .
Good morning, Christian and Maria, thanks very much. Can I ask about the order dynamics in gas? I mean, 9 GW, I think you said, in the quarter, that's pretty spectacular, especially when comparing to GE Vernova, which bagged, I think, only 5 GW over the same period. I'd like to understand firstly, the selectivity process here and the risk that you're taking, perhaps a bit too much on board. Secondly, the competitive dynamics, especially in the U.S. Are Europeans more capacity constrained than you are, meaning that you're offering better delivery times? If I may, just a clarification on one of the comments you've had around pricing normalizing. Does it mean that prices are flat, coming back perhaps a bit down, or is it rather that you're still raising prices but at a slower pace than prior quarters? Thanks very much.
Hi, Gael. First of all, I would say yes, it has been an absolutely excellent quarter for the gas service folks and I'm really, really proud of them on what they achieved. That is also really, you know, our business is also driven on how closely you interact with the customers and really what is your style to develop projects. They have done a tremendously good job. Don't just look on the quarter at the end. I mean also in comparison to others, we always have to look on full years. I think we're doing very good. The big plus I think for us has been the breadth of our portfolio in terms of frame sizes. It's really for the first time that I see that across all frame sizes there has been super high demand. That was a very good success. This allowed us to secure that order level.
I think we are all roughly from flight level of delivery times. If you talk about a certain frame, similar, but obviously you can answer requests with smaller frame sizes faster than with NHL, for example. In that regard, I think it was a very successful quarter and well done. Pricing is still good, I would say the pricing environment. I see it positive. I always want to put it into perspective compared to 12 months ago. I think what I'm seeing is that the increases obviously are getting a bit lower, but the pricing trends are still positive also going forward from our perspective.
Thanks a lot. The next three questions go to Vivek Midha from Citi , Vlad Sergievskiy from Barclays , and Sean McLoughlin from HSBC . Vivek, please go ahead.
Thank you very much and good morning. Hopefully a quick follow up on the last call. You mentioned the new German government's plans for 20 GW of additional gas capacity. Has there been any update on potential timing of those tenders? I understand that this is still contingent on European Commission approving state aid. Thank you.
Yeah, we had luckily yesterday our minister here at the site looking at least on our gas turbines. That's hopefully a good sign, and the discussions are progressing, if I understand her correctly, with the European Union. It's not concluded yet, but I think it's on a good path. I always said, and I would also continue to believe like this, that it's coming in two phases. It's not 20 GW in a go, but roughly, roughly assume it's, let's say, somewhat in the area of 50/ 50, on how it is split in the phases. I believe over the next months we see progress. Keep in mind that the first thing is that the government with our customers finds an agreement on how to structure it, and then obviously the bidding on the equipment comes.
I would still look obviously towards calendar year, next year more or less for us, not anymore in this calendar year. Everything here is positive in terms of getting this moving.
Very clear. Thank you.
Thanks. Next question goes to Vlad from Barclays.
Yes, good morning. Thank you very much for taking my question. Very strong margin performance in gas services this year and this quarter. Going forward, and I'm thinking a few years forward, is there a material opportunity to increase profitability in the services part of the business and long term service agreements in particular, or most of future margin improvement for this division will likely be driven by obviously a very positive new equipment cycle? Also, a follow up to that, is there a point potentially when new equipment margin in gas could start being accretive for the overall margins of the gas services business?
Got you. We just have to. Because some of. Oh yeah, to the average. Okay, thanks. Thanks a lot. First of all, you know, in terms of how the service business is working, obviously you book the long-term service agreement and then you work against it and also try to continuously improve it. This has been always the case also in the past. The one thing is the backlog margin. The question is, okay, how do you convert it afterwards to profits? By finding new ways of doing things, 3D printing, smarter ways, AI and all the likes. We will continue to work on it. In terms of the booked service margin, it's a very gradual, let's say, increase. I don't see this as a big moving point.
The big moving point for us has the improvement in the new being the improvement in the new unit margins, which is really across all frames now. That is the big change. These really provide the uplift in the average margin. I would frame it like this. From today's perspective, the new units business is really an interesting business to do, which was not always the case like this. Obviously, what will not change is that the service margins are substantially higher than the new unit margins.
Wonderful, thank you very much.
Next question goes to Sean McLoughlin.
Thank you and good morning. Just coming back to Siemens Gamesa, I wanted to understand a little bit, building on Max's question about the buckets, you now have a 7 MW turbine onshore coming to market in September. Am I right in thinking that you're still assuming almost no onshore deliveries in fiscal 2026 or are you already thinking that you might be able to secure awards, particularly in Germany, that can contribute to fiscal 2026? If that's the case, how should we think about risks for further service pricing and cost adjustments as we go through fiscal 2026? Thank you.
First of all, absolutely. I would not plan with large Rancho sales in 2026. If you see, particularly Germany, you bring it now to the market, you start to develop the projects that might lead to first order intakes in 2027. Particularly in Germany, it takes time because you have to obviously get the permitting in place for that turbine project, and this will take time. In this regard, 2026, no, it's really not a contributor to the revenue which is significant. I have to now reconcile the service piece itself. That's mainly really driven by getting the 4.X 5.X service in line with the reliability. We have now achieved roughly 80% of the 4.X and 5.X orders we had in our books with a takeover certificate. That's the volume which now comes into service, obviously with increasing reliability and availability.
That is a major contributor to build the profitability next year. It also means they need to continue to grow the availability month over month over month based on the refurbishments that have been done and are happening at the moment.
Thank you. Just to confirm that I've understood, you wouldn't expect first order intake for the 7 MW turbine potentially until 2027?
Could you just repeat it? The reception is bad. Sorry.
Did I understand correctly that the first order intake for the 7 MW turbine could potentially be in fiscal 2027?
Correct. Correct. How I would look on it.
Thank you.
Yes.
Go ahead.
Unfortunately, we are running out of time, so I would take one more last question, which goes to Will Mackie from Kepler Cheuvreux.
Good morning everyone. Thanks for squeezing me in. I'd go back to gas services please and work on the discussion about conceptually where you can go or where you might go as a group with your capacity planning. You've planned to increase the capacity as you've signaled on medium and large sized turbines out for 2026 and 2027, perhaps to basically specify how that compares with the run rate at 2025 in terms of the capacity, and then how you see the supply chain set up to go beyond that if you're ready into 2027, 2028 with additional shifts or expansion and pulling your suppliers with you. Just a medium term view on new build gas services capacity planning into the 2026 to 2028 period.
Oh, it's getting complicated now. I will try to do this. First of all, compared to this year, more or less I would see, I mean it's mainly coming from the mid sized gas turbines is what you're going to see. This in total, if I look, it's always a question of you look on GW or you look on number of turbines obviously. If I look on GW, probably towards next year, 10%- ish roughly increase, and then obviously the big chunk comes in with a large gas turbine increase. As we said, this is around 25% - 30% in 2027. Now I have to supply chain. Thank you. Sorry, the supply chain and obviously what we're doing parallel to this, we started this roughly 15 or 18 months ago to extend the supply chain on the blades and vanes. It's one thing, right?
With external suppliers as well as in our own factory, this takes normally quite a time to ramp it up. This will be a continuous process and that is one of the big constraints of the next two years at least while we're growing this pipeline. The other thing is that we continue to do other agreements. There is a, let's say, smaller company which we bought on the supply chain side just to strengthen the supply chain. Everything is public yet, but where we build around it to ensure that we can really deliver that growth level. That is happening while we speak. It's really step after step after step.
Thanks for that, Christian. I can squeeze in one last question, which would be Ben Uglow from Oxcap. Ben, please.
Morning everyone and thank you very much for squeezing me in. A lot of my things have been answered, but one question I had, that 3 GW number out of the 9 GW for data centers is pretty, pretty eye catching. Christian, can you just give us a kind of qualitative sense of where's that coming from? What type of machines is it? I think in the commentary you talked, you kind of gave us a breakdown between mid sized machines and large machines. Just give us a sense of what type of turbine is being ordered. Thank you.
Hi Ben, thanks for the question. Also there across the board, but particularly in the last weeks you see a lot of mid-sized multi-trains type of solutions or like F frames, right, because they're simply fast available. The longer you stretch it out, if you look then you're also going, getting back to HL. We've seen particularly on the F frames a track record which is a good balance between size and speed, and this was driving it. Obviously you will need it across the board. It depends a bit who's your customer. I also have to say from which field they're coming, rather from the gas field or rather from the classical data center operator. This is how I look on it.
Am I correct to think that you've got no significant HVDC orders contracted in backlog for data centers?
For data centers, from the top of my head, I'm struggling. I think we had a couple of, right, I mean, I'm, yeah, potentially not in the U.S.
Understood.
This is really an F class phenomenon basically.
Obviously, you now see other markets coming up, and this look into HL units. That was the logic in it, which in particular has driven the U.S.
Understood.
Thank you very much.
Thanks Ben.
Thanks a lot. That would conclude our Q&A session. Christian, any closing remarks from your side?
See you at the Capital Market Day in person. I would say no. Thank you very much for your attention in a volatile world, and I'm really proud of what the team has achieved step after step. We're getting there and look forward to speak to you soon in person, hopefully. Thank you.
Thank you everyone for participating today. As always, the team and I will be available for further questions. Thank you very much. With that, we conclude this call.
Thank you, everyone. Bye bye.
That will conclude today's conference call. Thank you for your participation, l adies and gentlemen.
A recording of this conference call will be available on the investor relations section o f the Siemens Energy website. The website address is www.siemens-energy.com/ investor relations.
Have a good day.