Ladies and gentlemen, while we are waiting to begin, may I just remind you that a recording of today's conference will be available shortly after the conclusion of the call. The conference call is also being webcast live on the investor relations section of the Siemens Energy website. The website address is www.siemens-energy.com/investorrelations. A recording of the webcast will be available shortly after the call.
Please stand by.
We are about to begin. Good morning, ladies and gentlemen, welcome to the Siemens Energy's Q2 fiscal year 2026 analyst call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on page 2 of the Siemens Energy presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Tobias Hang. Please go ahead, sir.
Good morning and a warm welcome to the Siemens Energy Q2 and half year results analyst call for fiscal year 2026. Following the pre-release of our preliminary figures on April 23, 2026, we published our full and final Q2 fiscal year 2026 results, along with the half year report this morning at 7:00 A.M. on our website. Our President and CEO, Christian Bruch, and our CFO, Maria Ferraro, are here with me. Christian, Maria will take you through the major developments during Q2 fiscal year 2026. This will take approximately 30 minutes. Thereafter, Christian and Maria are available to answer your questions. For the entire conference call, we have allowed 1 hour. Christian, over to you.
Thank you very much, and good morning, everyone, and thank you for joining us today. Siemens Energy has delivered another strong quarter, and I'm very proud how our team is executing successfully on the strong backlog, driving capacity expansion, and managing through geopolitical challenges day after day. Let me flag up some highlights from the last quarter before Maria dives into the details of our Quarter Two results. We achieved a record order intake of EUR 17.7 billion and with that, a record order backlog of EUR 154 billion. That record backlog comes with increasing backlog margins across all businesses. The demand for our products in the different regions remains strong, with good pricing and with Gas Services and Grid Technologies contributing materially. We continue to build a diversified backlog comprising different customer segments and regions, and I will refer to this later in the presentation.
In the last quarter, I also spent time with our teams in the Middle East, and seeing how they support our customers while keeping everybody safe in a demanding situation gives me a lot of confidence in our path forward. From a business perspective, the financial impact of the Middle East conflict has been very limited, and we continue to see solid interest in new projects across the region. We achieved broad-based revenue growth across all business areas based on digital and execution and increasing capacities coming out of our factories. In line with our expectations, we delivered EUR 10.3 billion revenue in Quarter Two despite FX headwinds. Given the strong momentum, we raised our full year comparable revenue growth guidance to 14%-16%. Our profitability continues to increase year-over-year, driven by a favorable business mix and steady productivity gains.
We delivered a profit margin before special items of 11.3%. Grid Technologies was a key contributor with margins of more than 17%, and we expect margin progression to continue throughout the year. The technology is our fastest-growing and most profitable business area with a broadening portfolio, including more digital solutions. Their services once again achieved profitability levels at the top end of the industry. I would like to highlight the continued progress at Siemens Gamesa, where business is clearly on its planned trajectory to break even, reducing losses in the quarter to EUR 44 million. Also, Transformation of Industry continues to execute profitably. Over the past months, I visited several of our sites and was truly impressed by the progress in our factory expansions.
As communicated before, we invest more than EUR 2 billion in fiscal year 2026 to build up production capacities across the different regions. As a result, we expect a clear step up in revenues over the coming months, particular in Grid Technologies and Gas Services. Our earnings qualities and cash generation remain strong. Free cash flow in Quarter Two came in at around EUR 2 billion. Year to date, we have in fiscal year 2026 already returned around EUR 2.4 billion to our shareholders through dividends and share buybacks. We are planning on accelerating the share buyback this year by an additional up to EUR 1 billion, and Maria will afterwards share some comments on it. Across all businesses, we execute our Elevate program to further drive operational excellence and resilience.
I'm really excited about the potential that AI provides us to transform the way we operate. AI is being increasingly embedded into our operations and decision-making, allowing us to get better every day. It is not just business operations. We are also pushing AI application across all corporate functions, and I'm pleased to see how people take it up. This will show tangible benefits in future, and the teams are really on it. As a global leader in energy technology, we are on track to position Siemens Energy as best-in-class industrial company for the long term. Overall, based on strong demand, improving visibility, and disciplined execution, we raised our 2026 full year outlook across all key financial metrics. As mentioned before, the market environment in Quarter Two remained highly favorable, with strong demand for our products across the different regions and continued strong pricing.
Growth was again led by the Americas and particular the United States. Asia and Australia also delivered solid contributions with strong order intake growth. Revenue comparisons were impacted by strong prior year offshore wind projects in Taiwan. In EMEA, order intake was slightly lower year-over-year, mainly reflecting some shifts in parts of the Middle East. Overall demand in the region remains intact, and Gas Services and Grid Technologies clearly stand out in performance. Let me start with Gas Services. 3 drivers underline the strong performance in the second quarter. First, Gas Services remains one of the most profitable players in the industry and is well on track to meet its profitability targets. Second, we continue to see strong conversion from reservation agreements into firm orders with a current split of roughly 70% firm orders and 30% reservations.
Third, pricing dynamics for new projects remain very attractive, and we expect this to continue for the foreseeable future. In quarter 2, Gas Services delivered another record quarter with EUR 8.9 billion in orders across 12 countries. Demand was strong in the Middle East and Europe, and obviously in the U.S. U.S. demand was largely driven by data centers with excellent pricing conditions. The 5 gigawatts of order intake in quarter 2 brings our total data center-related commitments to 24 gigawatts, that is orders and reservations. In total, we booked 77 turbine orders in quarter two, including 26 large, 45 medium, and 6 small turbines, resulting in 12 gigawatts of new turbine orders, with a majority linked to traditional applications. We successfully convert reservation agreements going forward. During the quarter, 9 gigawatts were converted into firm orders, ending quarter 2 with 27 gigawatts of reservation agreements.
Our focus remains on short-term conversion, allowing us to fully benefit from the favorable pricing environment. The margins of new unit and service agreements we booked in Q2 improved significantly relative to current backlog margin levels. In total, we now have 87 gigawatts of commitments in place after delivering more than 3 gigawatts during the quarter. By the end of the fiscal year, we expect total commitments to reach 90-100 gigawatts. Our supply chain expansion is progressing well and supports the already announced capacity expansion in the coming years. Let me now turn to Grid Technologies. Grid Technologies continues to outperform in both growth and margin expansion. This leads us to upgrade our guidance for the full year significantly.
We now expect to reach a profit margin before special items of 18%-20% already in fiscal year 2026, a level originally targeted for fiscal year 2028. At the same time, we target comparable revenue growth of 25%-27% for the current year. The business benefits from long-term structural drivers, electrification, large-scale grid replacement, renewable integration, and high demand also from data centers. Reliable and resilient grid infrastructure is also a critical enabler for data centers, and as a result, demand for grid connections, transformers, and grid stabilization solutions is accelerating. In the first half of fiscal year 2026, this translated already into nearly EUR 2 billion of data center orders in Grid Technologies. Global supply remains constrained, supporting pricing discipline and operating leverage.
We see stable but elevated prices in Europe, while we observe higher average pricing levels in North America due to increased demand related to data centers. This underpins our decision to continue investing heavily in U.S. capacity. The demand does not only come from one region. The rising demand is visible in many parts of the world. We see an attractive long-term growth outlook well beyond the current investment cycle. To meet the sustained demand, we are expanding manufacturing capacities globally, and our transformer and switchgear capacity will increase by around 50% between 2026 and 2030. Looking ahead, we expect a clear acceleration in Grid Technologies' performance during fiscal year 2026, driven by, first of all, higher revenue conversion from backlog, and second, new production capacities coming online, such as in Austria, Italy, Saudi Arabia or China.
Third, obviously, the operating leverage and productivity gains we have because of the great backlog. This underpins our confidence in delivering 18%-20% margins already in fiscal year 2026. Grid Technologies is now not only the fastest growing business in our portfolio, but also one of the most profitable, with visibility extending well into the next decade. While we are expanding capacity for our products and solutions in Grid Technologies at record speed, we are simultaneously broadening our digital portfolio. The electricity grids in the different regions of the world are transforming, and electricity demand is accelerating rapidly, driven by electrification, the energy transition, and data centers. At the same time, renewable generation is increasing volatility and complexity in power flows. All of this offers us opportunities for new products to help our customers through this transformation.
Besides the capacity expansion in our factories, we develop digital offerings to make the grid infrastructure more capable for the future. We have recently launched our new software suite, Noedra, for Grid Technologies in the logic that these digital applications create the mind of the grid. Noedra adds a digital intelligence layer that helps customers operate increasingly complex grid systems smarter and more efficiently. It brings together four high-value software and service layers. Noedra Shield, which secures the grid end-to-end with cybersecurity and compliance. Noedra Flow, which optimizes transmission with real-time insights and dynamic capacity. Noedra Node, which digitizes substations and turning them into intelligent self-monitoring assets. Noedra Atlas, which supports the strategic grid planning and the energy transition. Together, this is a platform play, moving us towards recurring higher margin digital revenue while unlocking value from our installed base.
Four weeks ago, we inaugurated our own Grid AI Lab in Orlando together with customers and partners like NVIDIA. This investment accelerates how we apply artificial intelligence across the power grid. The lab combines Siemens Energy's deep domain expertise with NVIDIA's advanced AI infrastructure. It enables us to deliver real-time insights, digital twins, and predictive models that address pressing customer needs. This is where we develop and train the intelligence behind NOEDRA, turning complex multi-source grid data into actionable insights across operations, planning, and system optimization. Customer feedback clearly confirms tangible value and practical relevance of our digital and AI-driven approach for day-to-day grid operations. Overall, this gives us strong confidence that digital solutions and NOEDRA in particular enables the next chapter of the grid digitalization, scalable by design and anchored in clear customer value. With that, becoming an important growth driver for our Grid Technologies business.
Exciting times and lots of opportunities ahead of us. With that, I will hand it over to Maria.
Thank you, Christian. Good morning, everyone, from my side. Hope you're all doing well. Thank you for joining us today. We are continuing fiscal year 2026 with very strong momentum. In the second quarter, we delivered another record quarter in orders, continued high profitability and very strong cash flow generation. Let me take you through the key financial developments for Q2 and the first half of the year. Moving to the next slide, looking at the group performance. Q2 was another exceptional quarter. Orders reached EUR 17.7 billion, setting yet another quarterly record for Siemens Energy. The increase was driven by strong demand in the new units business at Gas Services and Grid Technologies. From a regional perspective, as Christian mentioned, the U.S. was a main contributor, with order intake more than doubling compared with prior quarter.
Our book-to-bill ratio was 1.72, our order backlog hit an all-time high of EUR 154 billion. That's 8 billion more in just 1 quarter, again, giving us excellent visibility for fiscal year 2026 and beyond. Quarterly revenue increased to 10.3 billion, up 9% year-over-year on a comparable basis, with all segments contributing to the revenue growth, primarily driven by Gas Services and Grid Technologies. We did experience some foreign exchange headwinds, primarily driven by a weaker U.S. dollar. This weighed on the top line by roughly 550 basis points year-over-year. For clarification, currency movements continue to have no material impact on our profitability. This is due to our effective hedging strategies, which leave us with only minimal unhedged exposure, of course, our global footprint with strong local for local sourcing.
Profit for the group before special items was EUR 1.164 billion, with a margin of 11.3%. This is up 220 basis points compared to Q2 of prior year. This substantial increase was supported by broad-based improvements across the portfolio and with Siemens Gamesa delivering the most pronounced improvement year-over-year. Again, just a word on the Middle East exposure, as Christian already mentioned, we continue to monitor the situation closely, and to date, the impact on orders, revenue, and profitability have been limited. Net income for the group increased to EUR 835 million. This is up more than EUR 330 million year-over-year. Free cash flow pre-tax was very strong and reached EUR 2 billion, a significant improvement versus last year result.
This was driven by the profit of Gas Services and Grid Technologies, customer advance payments and reservation fees, given the high order intake. Let's take a quick look at our order backlog on the next slide. During the past year, our order backlog grew by EUR 21 billion, again, for that record EUR 154 billion in the quarter. 44% of the backlog is service-related, supporting recurring revenues and attractive margin characteristics. Backlog margins continued to improve further across all business areas. In fiscal year 2026, we now have approximately 93% revenue coverage for the second half of the year, and we are already just shy of 80% coverage for fiscal year 2027. Let me turn to free cash flow development. As mentioned, the free cash flow generation continued to be strong in the second quarter, amounting to EUR 2 billion.
We reached EUR 4.8 billion for the first half of fiscal year 2026. This performance, again, was supported by strong profit growth, increased customer advance payments and reservation fees. Driven by our strong order momentum and a positive outlook for the group's profitability, we revised our full-year pre-tax free cash flow guidance upward from EUR 4 billion-EUR 5 billion to approximately EUR 8 billion. The share buyback program announced at the Capital Markets Day in November of up to EUR 6 billion through fiscal year 2028 is progressing as planned. Since March 2026, approximately 11.6 million shares have been repurchased at an average price of EUR 157.1 May 8. As a result, the first EUR 2 billion tranche of the EUR 6 billion program is now substantially completed.
Considering this year's strong free cash flow performance, we are pleased to confirm an acceleration of the share buyback program with additional repurchases of up to EUR 1 billion in our Siemens Energy shares anticipated during the current fiscal year. Expected total shareholder returns in fiscal year 2026, including the EUR 0.6 billion dividend paid in March, will increase to approximately EUR 3.6 billion. Now let me the individual business areas. Looking at Gas Services, Christian mentioned quite a bit here already. Gas Services delivered an outstanding performance and another strong quarter in Q2 of fiscal year 2026. Orders were EUR 8.9 billion. This is up 32% year-over-year, the highest order intake ever for Gas Services.
The book-to-bill ratio for Q2 was 2.55, again leading to a record order backlog for Gas Services of EUR 66 billion. The market for gas turbines greater than 10 MW saw remarkable strength during the second quarter. This quarter, Gas Services booked a total of 77 gas turbines for power generation oil and gas. 26 of those were large gas turbines and 51 industrial gas turbines. Our Q2 market share for gas turbines greater than 10 MW stands at 27%. This is the number one position. Revenue increased 15% year-over-year, the highest ever quarterly revenue in GS. This was supported by strong execution in new units with significant growth of 47% comparable. Service revenue was slightly below prior year. The service share as a percentage of revenue in Q2 decreased to 57% versus 67% in the previous year.
This again was expected given the very strong new unit bookings in the previous quarters. The new unit success today, as you know, structurally expands the high margin service base of tomorrow. Profit for Gas Services before special items increased to EUR 552 million and a margin of last year's level, again, slightly, reflecting that business mix effect with a more pronounced share of new units, as I already mentioned. Free cash flow pre-tax was EUR 1.8 billion, significantly higher than last year, particularly benefiting from advanced payments on large orders. Overall, for Gas Services, a very strong quarter, congratulations to the entire team. Now let's move on to our Grid Technologies business. For here, Grid Technologies had a very strong performance in the second quarter. Orders increased to EUR 7 billion, up 42% year-over-year.
This increase in order intake was in part driven by solutions business due to a large HVDC project order in the Baltic Sea with a volume of more than EUR 1 billion. In addition, the products business with transformers recorded substantial growth, mainly by demand from the U.S. Book-to-bill ratio was 2.28, and order backlog also here a record increased to EUR 49 billion for Grid Technologies. Revenue at EUR 3.1 billion represented year-over-year growth of 12%. This was supported by solid execution across both solutions and products. As a result, we've upgraded revenue growth guidance for fiscal year 2026 to 25%-27%. This is from 19%- 21%.
We expect a significant acceleration in revenues for GT in the second half of this year, primarily driven by the increased capacities from our brownfield expansions and of course project phasing in the solution business. Looking at profit before special items for GT, this amounted to EUR 524 million, margin of 17.1%. The year-over-year margin decrease was primarily attributable to a one-off timing effects in prior year quarter of approximately EUR 100 million, of course, which positively influenced the prior year results. On a comparable basis, the Q2 margin of prior year was actually 16.4%, therefore an increase year-over-year. In addition, we have increased our full year guidance for profit before special items for GT from 16%-18% to 18%-20%.
For the second half of this year, just to repeat, we do expect a notable increase in margin. This is driven by the higher revenues and an enhanced contribution from higher margin products as well as improved project execution. Lastly, free cash flow pre-tax was EUR 735 million. This was supported by profit and milestone payments and continued to Transformation of Industry. Again, this business delivered another solid and consistent quarter. Orders were EUR 1.3 billion, slightly lower year-over-year, mainly driven by timing shifts in the Middle East, particularly at compression in our EAD or electrification, automation, and digitalization businesses. Book-to-bill ratio was 0.88, and the order backlog at the end of the quarter was EUR 8 billion, unchanged and stable from previous quarter. Revenue increased moderately by 5% to EUR 1.4 billion.
Profit before special items improved to EUR 171 million. This resulted in a margin for TI of 12% for the quarter. Of course, this was mainly due to productivity improvements and a higher margin of the processed order backlog. Free cash flow amounted to EUR 46 million. This was lower than last year, mainly due to timing effects. Again, overall, Transformation of Industry continues to deliver reliable profitability quarter-over-quarter. Now moving on and turning to Siemens Gamesa, where we continue to see clear and tangible pro-progress. Orders of EUR 846 million were slightly above the level of prior quarter, mainly driven by onshore new units business, which also included some SG 7.0 platform orders. That's the successor to the 5.X turbine. As anticipated, no material offshore order was booked in the recent quarter.
Book-to-bill ratio stood at 0.33, and the order backlog was EUR 33 billion. Year-over-year, comparable revenue increased slightly due to the growth in the offshore business. Profit before special items improved significantly year-over-year to negative EUR 44 million. The margin improved to minus 1.7% in Q2. This is compared to minus 9.2 a year ago, or negative EUR 249 million. In Q2, Siemens Gamesa delivered continued financial and operational improvements. The positive development was mainly due to better productivity and increased cost efficiency in offshore, as well as progress in the service business across the fleet. Free cash flow pre-tax was minus EUR 654 million, partly due to plant quality-related cash outs in the quarter.
The Siemens Gamesa team continues to work diligently through the matters step by step. The direction of travel is very clear. We remain confident in achieving break-even, supported by the operational measures in progress and already implemented. Now let me move on to our revised outlook for fiscal year 2026. Based on the positive business development in the first half and the strong market demand, we have raised our outlook for fiscal year 2026 across all key financial metrics. The change in the outlook is due mainly to a stronger than expected performance at Grid Technologies. For Siemens Energy, we now expect comparable revenue growth of 14%-16%, up from 11%-13%. Our profit margins before special items is now 10%-12%, up from 9%-11%.
Net income is expected of around EUR 4 billion, up from EUR 3 billion-4 billion. Free cash flow pre-tax is now at around EUR 8 billion. This is up from EUR 4 billion-5 billion. Let me briefly highlight the changes within the business areas. In Grid Technologies, we now plan a comparable revenue growth of 25%-27%, previously 19%-21%, and a profit margin before special items between 18%-20%. Before, this was between 16%-18%. In Siemens Gamesa, we now assume a comparable revenue growth of 3%-5%, which was before 1%-3%. Of course, we confirm the profit margin before special items at break- even.
Furthermore, one last piece of information that I'd like to share with you is that we intend to provide you with new midterm targets for fiscal year 2030 with our full year results in November. With this, thank you very much for your attention, and I now hand back to Christian for some closing key remarks.
Thank you, Maria, and let me briefly wrap it up. Looking back at the targets we set for ourselves at last November Capital Markets Day, I'm pleased to say that we are well on track to create sustainable shareholder value. The first half of fiscal year 2026 has been an excellent start, as you saw with our upgraded guidance. I want to sincerely thank our TeamPurple here at Siemens Energy for their outstanding commitment and performance. Our people stand side by side with our customers, doing everything possible to keep critical infrastructure running. The importance of reliable energy in our daily lives has never been higher. I'm proud of what our team even more excited about what lies ahead of us. With that, I would like to hand it back to Tobias for the question and answers.
Thank you so much, Christian. Thank you so much, Maria. We will start our today's Q&A session. If you wish to ask a question, please press star 1 on your telephone keypad. Please press star 1 on your telephone keypad. If you no longer want to ask a question, please press star 2. As we already have a really long queue in the line, please really limit your questions to 1 question each. The first 3 analysts in order to ask a question will be first Max Yates, then Gael de-Bray, and then Sebastian Growe. Max Yates from Morgan Stanley, please go ahead.
Thank you, Tobias and good morning, Christian and Maria. My question was really just on the order intake over the next few quarters in Gas Services. If I sort of back out of your comments on the year-end commitments, it looks like you're pointing towards sort of 8 gigawatts a quarter over the next couple of quarters at the midpoint, maybe 10.5 at the upper end. I guess, you know, there's a lot of data that we can see around slot reservations. What I'm really trying to get to is there a reason that we're sort of seeing orders level off at that, at that kind of range? Is this kind of the new normal?
I guess I would interpret your slot reservations in the high 20s or, you know, that dictating the next four quarters of orders at about seven gigawatts a quarter. You know, I'm just trying to think about, you know, what do we see as the sort of steady state of orders, you know, over the next 12 months, over the next two years? Should we think about it, you know, that 12-13 just truly being exceptional? Any color there on how customer conversations are feeding into that. Thank you.
Thanks, Max. Great to hear you. Let me go to a pre-remark. We have to keep in mind, this business is still, let's say, not a quarter-by-quarter business. There is certain, obviously, lumpiness in that and not get too fixated. We said it before, and I would repeat it. We feel comfortable with this elevated level of the gas turbine market, and we see this continuing. You will see also going forward, quarters, on a good level, then on a lower level a little bit, but you have to look really on a year-by-year basis. This we would continue to repeat that we see sufficient opportunities to believe that this elevated level gonna continue.
What we have seen also now in the last quarter, you know, we always try also to balance out really the segment, how much data centers, and I think with the 25%-30%, that is something which we enjoy, but at the same time we balance out. We also now, you've seen some quarters coming in, and you will see it coming in also classical operations, Asia, and really balancing out. We are trying to steer smartly through it to build a great portfolio on projects. But as I said, elevated level, we believe this is gonna prevail. Don't get too fixated on the quarter. For us, it's really about diversity of the backlog in segments and in regions.
Great. Thanks a lot. Thanks.
Thanks a lot. The next question goes to Gael de-Bray from Deutsche Bank.
Yeah, thank you. Good morning, everybody. Could you tell us what was the book-to-bill this service segment for the Gas Services in the second quarter, please? I'm actually wondering why the service revenues of the Gas Services have been kind of muted over the past couple of quarters, even slightly down this quarter. I mean, does it mean that eventually the Gas Services will rather be trending towards the low end of its targeted revenue range for the year? Thank you.
I'm not sure whether I heard everything correctly. I mean, sorry, Gael, the quality was really bad. Revenue development or what?
Do you need me to repeat the questions?
Just a second.
First, revenue pop. How is it decreasing in comparison to the previous year?
I would honestly say, I mean, you always have, let's say, mixed elements in terms of how you look on the different quarters, but I would not overly interpret it, I would have to say. I don't know, Maria, how you look on it?
No, absolutely, Gael. Maybe just to reiterate, what I meant by we have, let's say, a different mix is that, of course, the new units is more pronounced in the quarter. If we look at it from a slice, it's really we said level, slightly down, but level from last year. Again, you know, looking at this from a quarterly basis, there are puts and takes that come in that affect that quarter-over-quarter. We're not at all worried about it or concerned about it. When it comes to the book-to-bill, just overall, again, for Gas Services, 2.55. You can interpret that with new units and service. Both of those book-to-bills were very strong, well above 1.
We don't disclose it by, you know, new units and service, but I can assure you that this was very positive on both counts for the quarter.
Okay. Thanks very much.
Thanks a lot, Gael. Next question goes to Sebastian Growe from BNP Paribas.
Thanks, Tobias and Maria. A question, one on free cash flow. I was wondering if you could help us how we should think about the cash generation beyond 2026 in the wake of both positive commentary on the market outlook, particularly at GT, for which the order momentum appears to further build up here, and also as GT in particular has reached the 2028 target margin level of 18%-20%, 2 years ahead of plan. If you could comment on that, please.
Sure. Thank you, Sebastian, for the question. Maybe let me start with the free cash flow first. I think this is like we mentioned, you know, we have an excellent cash generation. Clearly, cash conversion rates above 1. As I mentioned, you know, looking at our for this year alone, we have roughly, if you look at the EUR 8 billion that we're anticipating, roughly EUR 5 billion of that cash flow comes from operational profitability alone in that regard. Like we said at the Capital Markets Day, and I showed that, I do not expect that cash flow would reduce in years to come, not at all, with a book-to-bill greater than 1 across all businesses anticipated and overall for Siemens Energy.
We still see that positive free cash flow generation continuing, but beyond 2026, not only for Grid, but also for the other businesses.
Thanks a lot. The next three questions go to Ajay Patel, Phil Buller, and Alexander Jones. Ajay Patel from Goldman Sachs, please go ahead.
Thank you for the presentation. Mine's on the Grid Technologies as well. Just thinking about the margin expansion for this financial year in terms of the guidance. How much of this is operational leverage and just higher volumes, and how much is actually driven by mix effect? Are there components here in the business that are better margin, that are growing faster, that could be relevant for when we're forward forecasting the margin evolution of this business? Thank you.
Thank you for the question on the profit for GT. Look, it's a great development, right? I mean, we're really reflecting strong execution momentum. As Christian mentioned, you know, this is also on the back of some of those brownfield expansions and just normal project phasing. We have high visibility there, you know, in terms of security materials. They're already in-house. Manufacturing is on track. A lot of the projects are in final assembly stages and, you know, we look at also at commercial terms. In terms of what you mentioned about mix, look, there is project phasing driven by our large HVDC projects. Normally, those, you know, reach milestones under the POC method, and sometimes that is lumpy.
Don't forget, underlying in our GT business is a very well-running, what we call product business, which is really our large power transformer business, which is you know, we showed you that on our backlog margin, right? The backlog margin in GT increased and some of that is attributable to the large power transformers. That's kind of that underlying growth, if you'd like, that steady portion of the profit that we see in GT. What the team has done really exceptionally is not only have they brought new capacity online, they've done that with very little additional, what we call non-conformance costs. That's why you're seeing a lot of that profit dropping.
To answer your question, yes, some of that is related to pricing, but a lot of it is related to operational execution and operational excellence in the factories.
Fantastic. Thank you.
Thanks so much. The next question goes to Phil Buller from JPMorgan.
Hi, good morning. Thanks for the question. I have just a couple of follow-ups on cash, if I can. It's great to see the Gamesa P&L losses now at about EUR 100 million, but you still have a EUR 1.2 billion cash outflow. Has your break-even timeline changed at all on the Gamesa topic? In terms of CapEx outlays, again, that's also been quite low in the first half of the year at around EUR 700 million. What is holding that back? 'Cause it doesn't seem to be impacting your growth at all. Are you considering any additional capacity expansion plans from here? Thanks.
Let me start it with maybe Gamesa. Like we mentioned, we remain committed to break even for this fiscal year. Absolutely. We remain very confident in that regard. The team is working diligently to ensure that we achieve that. With respect to free cash flow, I've already indicated that the Gamesa free cash flow will remain negative in fiscal year 2026. We see that also in Q2. Likely in the EUR 4-digit arena is how we've messaged this. However, better than fiscal year or on level with fiscal year 2025. There's four reasons why really you see this free cash flow, if you'd like, trailing the profit development. One is the quality cash outs, and we provide transparency on that quality cash out.
Again, as we've said before, the largest cash out is in the years of fiscal year 2025, so prior year and this year, where we've indicated around, you know, the triple mid digit, around EUR 400 million, let's say. Secondly, of course, we're working on many project improvement, risk mitigation and cost out measures, and those will also have perhaps a delayed cash effect, you know, due to the phasing of, you know, percentage of completion or POC. Don't forget, we do continue to have CapEx related to the offshore ramp-up that continues to go through and has cash impacts, of course, this year. Last but not least, this is something that's near and dear, is the reduction in contract liabilities. If you recall, we even mentioned this at the Capital Markets Day.
What we're trying to do is look at phasing of orders, of course, and de-leveraging, shifting of pre-financing towards, let's say, other parts of our business, and we continue to optimize the pre-financing on a group level, considering opportunities, risks, et cetera. Phil, in looking at those four items, of course, we do expect a negative free cash flow here. As we mentioned at the Capital Markets Day, we expect free cash flow to be positive in fiscal year 2028 for Siemens Gamesa.
Yeah, maybe let me comment briefly on the, on the CapEx pieces. I mean, this will be, let's say, higher in the second half, and obviously, this is more booking things. The factory expansions, as I said, are running well, and they're ramping up and so that is not any major things. It's really more or less on how it is booked. With regard to additional capacity, there I would say stay tuned and call in in quarter four when we want to give more and new midterm outlook. We are reviewing these things. We see fantastic growth momentum that's very positive, and we will share more insights in the quarter four call.
Thank you very much.
Thanks a lot. The next question goes to Alex Jones from Bank of America.
Great. good morning. Thanks for taking the question. I guess over the past 2 quarters, you've signed 19 gigawatts of new slots, whereas your U.S. peers signed 40 gigawatts. Does that reflect your efforts to balance out customer mix, and therefore you're happy to cede some market share on U.S. data center deliveries towards the end of the decade? you know, is there anything else we should consider to explain that divergence, like a greater focus on firm orders from you rather than new slot reservations? Thank you.
I mean, I wouldn't compare myself against somebody else. I would just can say on how we look on it. Absolutely. What we're trying to do with the reservation agreements is to keep, I would say a decent timeline in terms of also how fast we convert them. That is obviously an important element in terms of this ratio between reservation agreements and firm orders. Also keep in mind, that, I mean, majority of the business still is obviously classical utility business. Not each and every order comes with a reservation agreement. We have to avoid that we draw this conclusion immediately. Some of it is classical business, also particular in other regions. As I said, quarter by quarter, trying to balance it out a bit, Sino Asia coming up again.
That is nothing, let's say, particular to interpret into this in this logic, but it's obviously for us an element to have a short-term conversion on the reservation agreements.
Thank you.
Thanks a lot. The next, 3 questions go to Vivek Midha, Christopher Leonard, and Ben Uglow. Vivek Midha from Citi, please go ahead.
Thank you very much, everyone, and good morning. Hope you can hear me well. I'd actually like to follow up just on that specific comment. You mentioned about having a short-term conversion. Are you referring to short-term conversion of the slot reservations into firm orders, or is it more about lead times on the projects? I'm curious as to how you're treating the question of reservations and orders for delivery slots post 2030. When do you expect to start having more conversations with your customers about those kinds of slots? How are you thinking about that longer-term project pipeline? Thank you.
The statement was meant really to reservation agreements into firm orders. That is, I mean, in terms of the timing. We are having discussions now for that's obviously projects in the early 30s that is developing and will continue also going out. As I said, for me, it's obviously something where we still try to convert it then in a decent timeframe in firm orders. That's it, right? I mean, question was a bit also, can you read anything into it? I'm struggling to, I have to say sometimes. I have to say this, it's a great market. There's a broad interest. We see also now customers, which are not out of the data centers, coming back and obviously realizing activities.
Interestingly enough, I think despite high oil and gas prices, we see across the board also the interest into LNG-based facilities continuing. That means also the market believes that midterm it will play out. That's it, right? In that regard.
Fully understood. Thank you.
Thanks a lot. The next question goes to Chris Leonard from UBS.
Yeah. Hi, all. Thank you for taking the question. Can you just speak to the evolution that you've seen in order dynamics for gas turbines through Q3 to date? Whether or not you're also seeing continuing momentum in that backlog margin for the turbine business. You've also been clear that you expect a slowing order intake into the second half of the year. Would you still expect to have the 70% split on firm orders to be sustained into full year 2026 for that total commitment of sort of 90-100 gigawatts that you've guided to? Thank you.
Yeah. Thank you. I have to see on how to best frame it. I mean, if I look on quarter three, I mean, looks still very good, right? In terms of all what I see coming. I cannot tell you how much is now reservation agreements then and orders because, this is then, I mean, tight planning. Quarter three, it looks good. I would believe quarter four will be a little lower. Keep in mind, we are now already at, what is it? EUR 17.5 billion.
EUR 17.6.
EUR 17.6 billion in GS. We were last year at EUR 23.5 billion in the total year. Obviously seeing the ramp up of capacity, it will not every quarter be EUR 10 billion, EUR 8 billion or EUR 9 billion, and this is why this will balance out. This is why I would always warn on this quarter by quarter. If you look beyond '26, also '27, all what we see looks like a good pipeline. In that regard, on the order side, works all out. We will every year, until 2030, increase our capacity in the factories on the gas turbine side, in terms of coming with additional capacity in, and that helps us obviously to generate the revenue.
Pricing is good and still continues to contribute positively to the backlog margin, and I see that also for the quarter 3.
Thank you so much.
Hello?
Yes, we can hear you.
Yes, we hear you, Ben. We lost Ben.
Yeah, lose, Ben Uglow, unfortunately just skipped out of the line. The next three questions will be going to Sean McLoughlin, Richard Dawson, and Vladimir Sergievskii. Sean, please go ahead.
Thank you. A question on Grid Technologies. You've highlighted the digital aspect. I'm just wondering, but it does sound like the core transformer business is really the part of the business that's driving most demand. Just where are we in terms of digital percentage of overall sales or orders? Where do you see that progressing over time? Is digital more about, you know, getting a customer in the door rather than improving the margin, or is digital also a margin accretive component? Thank you.
Thank you for this question. First of all, absolutely, right? If you look on our revenues and orders today, that is driven by, as Maria said, the products, the transformers, the solutions business, and digital is just coming up. What I wanted to flag up that is really coming up and that will over the next, let's say 5, 10 years, become a substantial business. We are working on it on all ends. It will be decisive to use this infrastructure, which we now physically built, as most effective as possible. We believe this can be an enormous value contributor. It will take some time to ramp it up, also in terms of margin. A lot of these things are development money and investments, which we are currently doing.
Also, we have done some smaller bolt-on acquisitions on little things here and there. We believe very much in really the, how shall I say, autonomy of the asset to a certain extent. Yes, because we install so many transformers, you would want your transformers to operate in a certain way, even so not, let's say, controlled by a human or whatever. This is what we're working on. It is more to give you the outlook in terms of what next is to come until 2030 and beyond. Going forward, I do believe in the average, it will be accretive to the margins. It's a ramp-up curve, and it's a new business to be built up.
When I see what has happened in the last 12 months on the AI side and what were you able to do on, really, new applications which are not part of an overarching software suite and so forth, that's super interesting.
Thanks a lot. The next question goes to Richard Dawson from Berenberg.
Good morning, and thank you for taking my question. Just one on the orders for Gas Services. Clearly very strong demand from the U.S. data center vertical. Have you seen any of the data center customers starting to cancel projects due to objections at the local level? Really issues around energy availability or water supply, for example, and if this had any effect on reservation agreements. Thank you.
I wouldn't call it cancellations particular. No, not like this. What we do see is that customers trying, particularly bigger customers, trying to shift between sites, where they see, let's say, different timelines on regulations or approvals in terms of permits. That is an element in terms of saying, where can they get whatever air permits quicker, and how do they shift it around. So far, these customers have a portfolio of different sites and projects where they then want to deploy the assets to. But this is more or less it. Fundamentally, that you would say, you see bigger amounts of cancellations? No.
That's great. Thank you.
Thanks a lot. The next question goes to Vlad Sergievskiy from Barclays.
Yes, good morning. Thank you very much for taking my questions. I will ask also about Gas Services orders, I am afraid. Trying to look at the bigger picture here. In the last two quarters, you booked 25 GW of firm orders. This is 50 GW annualized just for Siemens Energy versus your Capital Markets Day estimates of the entire market being around 100 GW per year going forward. Is it underlying market demand so much higher than you thought back in November? Is it particular phasing of orders than this 100 GW number for the market you hold?
I hope, Vlad, I heard everything correctly. I'm not 100% sure, but, I mean, on average, as we indicated, I mean, the picture has substantiated from the Capital Markets Day. It has not fundamentally changed. Already in the Capital Markets Day, we indicated this around 100, right? A 100 gigawatts type of market, which we also see going forward, with obviously a certain portion in this coming from data centers, which we will see continuing, which we believe. That is pretty much in line, obviously, with what we said on the Capital Markets Day, with a slight note on a bit more positive and substantiated now, really coming through.
Super. Thanks very much.
Thanks a lot. Ben Uglow is back in the line, afterwards comes Alexander Virgo and then Lucas Ferrarin. Ben, second try, please.
Great. Good morning. Thank you guys for taking the question. I just wanted to get a kind of qualitative sense or feeling for what you're seeing in terms of the data center market. The 5 gigawatt order number is obviously pretty noticeable. In particular, I'm interested in your portfolio and in terms of where you are seeing the greatest strength in demand. Has there been any change at all in the last 3-6 months? The reason I ask is that we've got a lot of new companies or new capacity, I should say, in all kinds of different areas from gas, diesel, even fuel cells, et cetera.
What I wanted to know was, have you seen any kind of shift in the type of units that are being requested from Siemens Energy? Thank you.
Yeah. It's not a shift. Hi, Ben, first of all. It has not been a shift in the requests as such. It has been a shift in what we sometimes put together or offered for customers with a certain demand need in terms of the different frame sizes.
Looking really on what we can do. Obviously, also we also try sometimes to find really workaround solutions, like redeploying units from elsewhere and trying to build bridges for customers which are obviously in urgent need. It's more around this. Obviously, yes, we also see the different applications, including fuel cells, which is more driven by elements, how fast can you get an air permit and how fast can you deploy certain things. It's more really from a perspective, what can you do? Not so much in terms of I want. We fundamentally, and I shared that before, have obviously Took an extra effort to expand our mid-size gas turbine capacity, which is increasing faster than the large gas turbine capacity.
This has obviously helped also on the data center markets then to come with whatever, 5 times SGT-800s.
Yeah
type of solutions. That was more driven by what can be made fast available.
That's great. Thank you.
Next question goes to Alex Virgo from Evercore.
Thanks. Yes, morning, Christian and Maria. Thanks for squeezing me in. I wondered if you could just talk a little bit to GT for us. I guess what I'm just trying to reconcile here is the visibility that you have in that business versus the significance of the upgrade and the phasing through the year. That would be super helpful. If, Maria, I could squeeze a cheeky one in on tariff framework changes, any comments on that would be really helpful. Thanks very much.
Okay. Sorry, Alex. It's the audio quality is medium. I mean, what we're seeing, obviously, and I hope you said GT business, right? I heard you correctly. What we're seeing in GT going forward is obviously a strong transformer business continuing. We see this demand obviously on the data center side. Some activity. Keep in mind, if I have it right from the top of my head, I think 2,000 gigawatts of capacity globally are waiting for grid connection, something like this, right? It's an enormous amount of strengthening grid infrastructure and will continue to prevail. The visibility going forward is good in terms of the demand needs.
We always have said, obviously, certain, of the solutions business and project business will be more bumpy in terms of getting into, let's say, the big HVDC. Also there, I would say, let's take an example, Europe. We see this continued planning being executed. In that regard, visibility going forward is good. This is why we're expanding so much capacity. I mentioned the 50% capacity expansion between 2026 and 2030. We believe the market will still be, let's say, tight, at that time. I would say so far so good.
Yes, let me make a brief word, Alex, on your question regarding tariffs. I mean, of course, you know, we booked around EUR 200 million or so, tariffs of last year. We've fully included tariff impacts that are expected for this year. As you know, this situation remains slightly volatile. Of course, we don't expect significant impacts on new orders and/or our margin expansion. Maybe let me put that out there to start. Secondly, when it comes to the new, let's say the tariff and the refunding, if you recall, one of the reasons why we're so resilient with respect fully on to our customers, we haven't removed anything with respect to refunds or anything like that.
Should that be the case, if and when, then of course, we would back to the customers accordingly. Nothing really to report on that side at this point in time, Alex.
As we have 3 more questions on the line, or 2 more questions on the line, please really a quick Q&A now. It's Lucas Ferhani now from Jefferies, please.
Thank you. Just one on wind. See, there was some one-offs in Q1. The margin was slightly better. You pointed that Q2 could be kind of similar to slightly low, worse Q on Q. Eventually, it's better again. Just the path there, how do you see the second half and the improvement? Do you have extra confidence in getting to that break even? Thank you.
Maybe, just to clarify, to make sure that, of course, you saw for this quarter, we have a negative EUR 44 million for Siemens Gamesa. What we always said is we want to be breakeven by the end of the fiscal year, which means we said that we would progress profitability through Q3 and Q4. We expect the profit, slight profits to come in both of those quarters to ensure that we have that breakeven, which we remain committed to for the fiscal year.
Now the last question goes to Alex Hohenstein from DZ Bank, please.
Yes. Hi, Alex Hohenstein. Thanks for taking my question here. Looking into HGRE, I'm wondering if there's a good chance to see a speed up of the ramp up for the formerly 4.X and 5.X turbines, which have been overhauled here. I'm wondering, at the end of the day, what could be a level in terms of gigawatts that you might reach, let's say, looking into 2030 ±? What do you think here? At the end of the day, how big in comparison to how big you have been, you might end up in terms of what you see currently and what you're planning? Thank you.
Yeah, thanks for the question. I mean, first of all, we will have to see on now how this ramps up. It will be in a couple of gigawatts type of range. This will also depend in terms of would we on onshore reenter U.S. or not. There's another thing which is coming, which is all the repowering, right? Which is obviously contributing in onshore, also in Europe at one point in time, to that. The onshore business for us will be always smaller than the offshore business going forward. I mean, this is in terms of size on how I would look on it.
Keep in mind, the thing what we're trying to do is to have, let's say, a decent enough flight level that we can entertain a profitable service business and really make sure our infrastructure which we entertain is loaded. It is not my major growth engine in the company. That's not the desire. I would say at the end, couple of gigawatts coming. Let's see on how the next particular 12 and 18 months develop it. We see a good interest in the units. That's positive. It just takes time because of the process, particularly in Europe, to get this then afterwards into the projects committed. I'm more obviously now looking in particular with regard to 2027 on the large orders on the offshore side.
Thanks so much, Christian.
Thanks a lot for the extra time. If there's any additional questions, you can always reach out to the investor relations team. With that, Christian, do you wanna conclude the call with some extra comments?
I mean, first of all, thanks very much for your time and all the questions and your interest in the company. I have to say, I can only repeat, it's a great time to be in the energy industry. There's more to build and more to come, and I'm really pleased also to see that the people are able to execute. I mean, this, what Maria mentioned with the capacity expansions, I had big concerns at the beginning of the year in terms of, okay, is it really all coming in terms of getting the factories up and running? That's positive. We take it from here and take it forward.
Thanks a lot, Christian. Everybody have a great day, and talk to you soon.
Thank you. Bye bye.
Ladies and gentlemen, that will conclude today's conference call. Thank you for participating, ladies and gentlemen. A recording of this conference call will be available on the investor relations sections of the Siemens Energy website. The website address is www.siemens-energy.com/investorrelations. Goodbye.