Good morning, ladies and gentlemen, and welcome to the Siemens Energy's extended Q4 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 two of the Siemens Energy presentation. This conference call may include forward-looking statements. These statements are based on the Company's current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Tobias Hang. Please go ahead, sir.
Good morning, and a warm welcome to the Siemens Energy Q4 and fiscal year 2026 results analyst call. Before we begin, a brief note. Today is Armistice Day in the U.K., and we share in that remembrance. We published our Q4 and full-year results for fiscal year 2026 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 and Maria will discuss our Q4 and fiscal year 2026 performance, our fiscal year 2027 outlook, our fiscal year 2030 targets, and the long-term value creation opportunities beyond fiscal year 2030. This will take approximately 60 minutes. Thereafter, Christian and Maria will be available to answer your questions. For the entire conference call, we have allowed 90 minutes. Christian, over to you.
Thank you, Tobias. Good morning, everyone. Thank you for joining us today. It's today more, not only about reporting a super strong fourth quarter in fiscal year 2026, it is about how Siemens Energy has become structurally stronger, how we intend to build on that position through fiscal year 2030, and why we see further value creation beyond it. Fiscal year 2026 was another major step forward. We grew from a higher quality backlog, improved execution, expanded earnings, and generated substantiall more cash. At the same time, the long-term fundamentals of our markets remain compelling. Geopolitical tensions throughout the year and volatile views around AI have created uncertainty, but this changes nothing in our confidence on the short- and long-term outlook. We are excited about the opportunities which lie ahead of us. Electricity demand is in a growth era, requiring sustained investment in generation, grids, and energy infrastructure.
This is not just about additional electricity, but more and more also to make infrastructure more resilient. All of this means more capital needs to be invested into infrastructure. Our portfolio gives us broad exposure across this value chain, while our installed base creates recurring service opportunities well beyond the initial sale of equipment. Our priorities remain clear: execute with discipline, grow profitably, and translate that growth into sustainable earnings and cash generation. Let me begin with that, what we delivered in fiscal year 2026. We finished the year with an excellent fourth quarter and delivered a record fiscal year for Siemens Energy. Fourth quarter revenue reached a record of EUR 12.8 billion, up 21% on a comparable basis. Capacity expansions in Gas Services and Grid Technologies are progressing and already contributing to higher output.
Profit before special items more than tripled to EUR 1.5 billion, corresponding to a margin of 12%. Free cash flow pre-tax reached EUR 1.6 billion in the quarter. I am particularly pleased that Siemens Gamesa delivered its second profitable quarter in a row and achieved break-even for the full year, exactly as promised. Turning to the full fiscal year 2026, comparable revenue grew by 15.5%. The profit margin before special items reached 12.4%. Free cash flow pre-tax was EUR 8.8 billion, and net income was EUR 4.1 billion. We met or exceeded all key commitments. Strong markets supported this performance, but the decisive factor was execution. Better project delivery, higher throughput, and the conversion of higher-quality backlog, particularly in Gas Services and Grid Technologies.
This performance is the result of the work of our Team Purple around the world, and I would like to thank every one of them for delivering this record year. Our earnings and cash generation also allow shareholders to participate directly. We will propose a dividend of EUR 2.30 per share for fiscal year 2026, more than 3x last year's dividend of EUR 0.70. Additionally, we bought back shares in a volume of EUR 3.1 billion in fiscal year 2026. This record year provides a stronger base for the next phase of profitable growth. The improvement reflects the consistent delivery of Elevate, the strategy we presented at our Capital Market Day last year. We set three priorities: build the transforming energy world, enhance resilience in a transforming world, and transform the way we operate.
During fiscal year 2026, we have already made several achievements based on those priorities. We expanded production capacity, strengthened control of critical supply chains, developed our portfolio, expanded financial strength, and made the organization faster and more agile. The impact is visible in the numbers. Within only one year, our profit margin improved by 640 basis points, free cash flow pre-tax increased by EUR 4.1 billion, and our order backlog grew by EUR 26 billion. At the same time, share buybacks and the proposed dividend represent around EUR 5 billion of shareholder returns for fiscal year 2026. Elevate is delivering, and more importantly, these measures have changed the structure of the Company and increased our confidence in the growth and earnings trajectory ahead. There's more potential in the transformation of the organization, seeing what we are currently doing with AI, robotics, and lean.
Looking ahead, global electricity generation is expected to grow by more than 60% by 2040. Meeting this demand will require increasing investment across generation and grid infrastructure. The growth is supported by several independent drivers: electrification, industrial activity, electric vehicles, cooling, technological advancement, and security of supply. AI and data centers add further demand, but they're only one part of a much broader investment cycle. Our growth thesis does not depend on AI. Gas generation is especially needed for reliability, fuel shifts, electrification, and grid stability, and grid investment is driven by rising consumption, replacement of aging infrastructure, and the integration of new generation across regions. Our portfolio is positioned across all of these needs. Gas Services provides reliable and flexible generation. Grid Technologies enables the expansion and stabilization of networks. Siemens Gamesa remains a key pillar of the generation mix, and Transformation of Industry serves diversified industrial markets.
This breadth reduces our dependence on any single technology, geography, or demand source, and the opportunity is substantial, and our focus is to capture it profitably. While we are excited about the growth, we are driving execution excellence to convert this opportunity into profitable growth. As we scale the Company, we must convert our backlog into reliable delivery, higher margins, and cash. First, we are expanding our production capacity in a disciplined way. Across gas turbines, power transformers, and gas-insulated switchgear, we plan to increase capacity by more than 50% between fiscal year 2026 and fiscal year 2030. In fiscal year 2026, 96% of our CapEx projects were within budget and are progressing according to plan. Second, the current investments give us a fantastic opportunity to drive productivity. Gross productivity improved by 5% year-on-year, and overhead cost intensity declined from 8.7%- 8.0%.
There is more impact to come based on the increasing application of AI and robotics in the factories and across the workflows. Third, we are improving delivery quality. Non-conformance costs fell by 140 basis points, and customer satisfaction remained high, with a Net Promoter Score of 62. Lean structures, automation, robotics, selected AI applications, and corporate simplification are the practical levers behind this progress. They increase throughput, reduce defects, improve planning, and lower structural cost. Pricing and mix remain important, but the next phase of margin expansion must increasingly come from operational excellence and cost control, and those levers are within our own control. This brings me to our financial ambition, and by fiscal year 2030, we expect Siemens Energy to have a fundamentally different earnings profile, putting us on track for our North Star ambition of ranking among the top quartile of industrial companies in terms of profitability.
Maria will take you through the financial framework in detail later. The important point for me is that fiscal year 2030 is just an interim milestone, and we see more potential after 2030 for further earnings growth. In Gas Services, today's equipment orders expand the installed base and drive high-margin service growth for decades. In Grid Technologies, the need to expand, modernize, and stabilize grids extends well beyond this decade. Siemens Gamesa offers further earnings recovery as the turnaround progresses, plus wind demands beyond 2030. The planned standalone setup of Transformation of Industry gives both companies sharper strategic focus. Together, these drivers underpin our commitments to double-digit EPS growth through fiscal year 2030 and continued EPS growth beyond. Alongside our financial targets, we are strengthening our operations and supply chain through six sustainability focus areas.
They cover our business portfolio, people and culture, resource resilience, supply chains, health and safety, and ethics and compliance. These targets reinforce the resilience and discipline behind our growth. Let me now detail out the development of the different business areas, starting with Gas Services. We continue to see a gas turbine market at a structurally higher level and believe that this opportunity extends well into the 2030s. Annual additions increased from 64 GW in fiscal year 2024 to 108 GW in fiscal year 2025, and an estimated 140- 150 GW in fiscal year 2026. We currently expect roughly a similar level on an average through fiscal year 2030 and between 120 and 150 GW annually from fiscal year 2031- 2035. There is a broad base of applications which contribute to this strong market.
While data centers contribute to this development, they are only one element in the strong demand. Looking at the current discussions also in the U.S. after the midterm elections, we also always have been clear that the speed of data center execution will finally be depending on being able to install all this increasing amount of infrastructure. So far, I see no surprises on how the market is developing. Demand excluding data centers increased by around 50% between fiscal year 2024 and fiscal year 2026, driven by electrification, fuel shifts, grid stability, and security of supply across the Americas, EMEA, and Asia Pacific. Over the last 12 months, we see an increasing focus on resilience of the electricity infrastructure in regions like Europe and Middle East. At the end, this will mean more infrastructure which we operate better, and we believe we can contribute a lot to that.
With a global market share of around 30% and the number one or number two positions across all major regions, we are well-positioned to capture this structurally larger market. Let us move to the next slide to look at the order profile. In fiscal year 2026, we secured 42 GW of new unit orders at the highest level in our history, bringing total commitments at year-end to 104 GW, comprising 65 GW of firm orders and 39 GW under slot reservation agreements. Looking ahead to fiscal year 2027, these slot reservations agreements are expected to be converted into firm orders at a more attractive margin profile than the fiscal year 2026 orders, and this gives us a clear line of sight on future bookings. The momentum is broad-based across regions, applications, and the full turbine portfolio, with conventional generation remaining the largest demand source.
Compared with fiscal year 2024, ordered units increased across large, medium, small, and aeroderivative frames. We manage the conversion from reservation agreements to firm order against defined milestones. If a project does not progress within the agreed timeframe, we can reallocate the slots to another customer where our contractual rights allow. This protects utilization and ensures scarce capacity is deployed to firm, value-creating projects. Our objective is not to maximize gigawatts, but to maximize the returns generated by the capacity we deploy. The key value of today's new unit cycles lies in the service opportunity it creates for decades to come. Based on expected orders from fiscal year 2024 through fiscal year 2030, we anticipate around 250 GW of fleet additions.
At today's pricing, a 20-year service contract represent lifecycle revenue of more than EUR 400 million per gigawatt, resulting in a service revenue opportunity of more than EUR 100 billion from the newly added capacity. In the 2030s, our fleet is expected to approach 1,000 GW. As these turbines enter operation and age, demand grows for long-term programs, transactional outages, spare parts, repairs, modifications, and upgrades. We therefore expect service revenue to more than double by fiscal year 2035, with growth across all regions. New unit revenue leads the cycle, while the service super cycle follows with a lag and extends the earnings opportunity well beyond fiscal year 2030. Margin quality also improves. New long-term service agreements signed in fiscal year 2026 carry margins around 5 percentage points above those in the existing backlog.
Advanced frames have a more attractive service profile and greater vertical integration in components and repairs, which lowers cost and supply risk. This combination of service growth based on a larger fleet, recurring demand, and margin expansion makes Gas Services a long-term earnings compounder. Moving to Grid Technologies. The market has already roughly tripled since 2022. We see around 6% annual growth through fiscal year 2030 and significant further expansion through 2040, supported by three structural investment drivers. Around 70% of demand is linked to rising electricity consumption. Data centers represent roughly 1/5 of this, while buildings, manufacturing, and transport account for the majority. Around 20% comes from replacing aging infrastructure. More than half of the grid in an advanced economy needs to be replaced by 2040 after decades of underinvestment. This is where our installed base is an advantage.
We serve around 2,000 customers globally and have delivered every fifth power transformer over the years. Also for the Grid, we see an increasing need from our customers to address resilience of the infrastructure, and this offers new opportunities for us through supply of equipment and services. The remaining roughly 10% is driven by the energy transition, as renewable capacity is expected to approximately triple and requires new connections, transmission, and grid stabilization solutions. The opportunity is geographically broad. The United States is a major growth market, but Europe, the Middle East, China, India, and other regions together represent the majority of the addressable market. Grid is therefore one of our most attractive and durable long-term markets. We enter this market from a strong position, number one in products with around EUR 7 billion of revenue in fiscal year 2026, and number one in solutions with around EUR 6 billion.
This rests on a global manufacturing footprint that enables local- for- local delivery, long-standing customer relationships, large installed base, and deep high-voltage engineering expertise. We convert this leadership into long-term visibility. Our order backlog stands at EUR 52 billion, and visibility extends from two to eight years, depending on the product area, across HVDC, large power transformers, grid stabilization, and substations. On this foundation, we are extending our leadership into new growth pools, starting with technology. We continue to expand our SF6-free Blue portfolio, bringing future-ready grid technology to customers in every region. The development in the area of solid-state transformers is progressing, with the first prototype planned for 2028. In grid services and digital grid, we aim to generate more than EUR 2.5 billion of revenue by 2030.
In service, we are capturing more lifecycle value from the installed base through recurring high-margin service revenues and long-term service agreements. In digital grid, the acquisitions, partnerships, and developments we completed in fiscal year 2026 support the shift from physical assets towards software, analytics, and intelligence. Service and digital grid are benefiting from the increasing demand for resilience, which we see across different regions. Grid Technologies allows us, from a strong position, to benefit from long-term backlog visibility and generate additional growth from technology, service, and digitalization. Our priority is to convert this demand and backlog into reliable delivery and profitable growth. Between fiscal year 2025 and fiscal year 2030, we are investing around EUR 4 billion in a global network of 37 factories across 26 locations.
And this includes new factories in the Middle East and substantial expansion in transformers and switchgear in North America, Europe, Latin America, China, India, and Asia Pacific. These investments are closely matched to customer demand. Even after announced industry additions, we continue to see a capacity gap in critical products such as large power transformers. Expanding the footprint is only one part of the equation. We are also increasing output from our existing assets through automation and standardized operational excellence, with significant productivity improvements already visible in switchgear assembly, transformer manufacturing, and warehouse operations. We are now scaling these proven initiatives globally to support throughput, margin expansion, and profitable backlog conversion. Turning to Siemens Gamesa, we achieved break-even for fiscal year 2026, an important milestone in the turnaround. The progress is visible across the business.
Offshore installations increased by more than 40% to around 5 GW, while offshore factory output rose by 13% year-on-year. In onshore, structural costs were reduced by 20%. In service onshore, aftermarket revenue increased by 20%. These improvements demonstrate that the operational measures are working, but break-even is only the starting point. For fiscal year 2027, we target a profit margin before special items of 0%-2%, and by fiscal year 2030, we target 8%-10%. Cash generation is equally important, and we continue to target cash-positive operation in the wind business by fiscal year 2028. Our focus is now to move from stabilization to consistent, sustainable profitability. Delivering sustainable profitability requires progress across four operational priorities. First, we convert our offshore leadership into profit growth.
We enhance order quality, execute the backlog efficiently, and continue the industrialization of the SG 15 turbine, for which more than 25 GW are already secured. Second, we scale service and aftermarket. We leverage a growing installed base of more than 155 GW and improve field productivity and turbine availability with AI and digital tools. Third, we ramp up onshore. We build a profitable backlog with the SG 5 and SG 7 and leverage the value-creating product portfolio across Siemens Energy with a disciplined value-over-volume approach. Fourth, we reduce structural complexity by simplifying the organization, lowering structural cost, and building a resilient and flexible supply chain and footprint. After a weak fiscal year 2026 regarding order intake, we see increasing opportunities in the next years. The task now is consistent delivery across all four areas to achieve our profit margin target of 8%-10% by fiscal year 2030.
Finally, Transformation of Industry, or TI, operates from leading positions in structurally growing markets. We see the addressable market to grow significantly from around EUR 36 billion in fiscal year 2025 to around EUR 64 billion by fiscal year 2035, with additional upside from hydrogen. The growth is supported by energy security, affordability, industrial electrification, and digitalization. These trends increase demand for efficient power generation, compression, electrified systems, predictive maintenance, and decarbonization solutions. Data centers are one of the verticals within this market that contribute to this growth. TI holds top-tier positions across its portfolio, number one in steam turbine packages up to 250 MW, in subsea technologies and in electrolyzers, plus a number two position in compression, as well as top positions in maritime power. This provides a strong foundation for the next step in its development.
Let me explain how the planned separation sharpens focus and unlocks distinct growth opportunities for both companies. The intention is to create two companies with clear identities, Siemens Energy as the electricity infrastructure leader and Transformation of Industry as a leading industrial Company in the making. For Siemens Energy, or the remainder part of Siemens Energy, this means sharper capital allocation. We can focus investment and potential M&A on growth in the electricity sector. It also gives us clearer strategic priorities as we align our portfolio and investment agenda around electricity markets. With a meaningful minority stake, we continue to participate in the future value creation of TI. For TI, bringing a co-investor provides better access to growth capital to accelerate its growth agenda.
TI also gains greater strategic freedom to align its investment with the needs and investment cycles of its industrial customers, with a focus on service, digital, industrial electrification, and decarbonization. The next steps are clear. First, preparing the legal and operational separation, starting early next year, discussions with potential co-investors. We believe both companies, or both parts of the company, can benefit from a sharper focus and the freedom to pursue their distinct growth opportunities. Looking across our four businesses, the picture is consistent. Each has a clear role, a clear path to higher profitability, and levers that are largely in our hands. Gas Services and Grid Technologies are the growth and earnings engines. Siemens Gamesa is moving from break-even to sustainable profitability, and Transformation of Industry is stepping into a more focused setup.
Maria will now show you how this translates into our financial framework, the margin path to fiscal year 2030, cash generation, and capital allocation. Maria, over to you.
Thank you very much, Christian, and hello everyone from my side. Christian showed you how Siemens Energy has changed, why our growth is sustainable, and where each of our businesses will create value. Over the next 20 minutes or so, I will translate that ambition into the financial framework that underpins it. I will try to do so in around four steps. First, what we delivered in fiscal year 2026, at group level and in each of our four businesses, and how much of our future is already secured in our order backlog. Second, our outlook for fiscal year 2027 and our targets for fiscal year 2030. Third, the key drivers of our margin expansion and why we are confident they are largely within our control. Fourth, how stronger cash generation translates into greater capital allocation capacity and ultimately higher earnings per share.
Let me start where we should, with delivery. A year ago at our Capital Market Day, we committed to five financial goals. One year later, we have exceeded three. We are a full year ahead and on plan for the fourth, and on the fifth, we are already ahead of the annual average we committed to. Our profit margin before special items was 12.4%, clearly above the 9%-11% we had guided at the CMD. Free cash flow pre-tax reached EUR 8.8 billion, almost twice the upper end of our range of EUR 4 billion-EUR 5 billion before we upgraded the guidance to around EUR 8 billion. Net income came in at greater than EUR 4.1 billion, above the range of EUR 3 billion-EUR 4 billion we had set out a year before.
With the fiscal year 2027 outlook we present today, a margin of 14%-16%, we will reach our fiscal 2028 Group margin target set at the Capital Market Day 2025 one year early. With an expected EUR 5 billion return to shareholders for fiscal year 2026 alone, we have already delivered more than half of the up to EUR 10 billion we committed to return through fiscal year 2028. Simply put, we said what we would do, and we delivered, in several areas faster than planned. Now, let's turn to Q4 and the full year results. Looking at Q4, we finished the year with strong momentum and another strong quarter of operational execution. Q4 orders grew by 5.2% on a comparable basis to EUR 14.8 billion.
As expected, order intake moderated from the exceptionally strong levels of the first three quarters, reflecting normal project phasing and the large project nature of our business. For the full year, orders reached EUR 68.1 billion, + 19%, a new record since spin. Book-to-bill increased to 1.54 for the fiscal year. As a result, our order backlog increased to a new record high of EUR 164 billion at fiscal year-end . Q4 revenue reached an all-time quarterly high of EUR 12.8 billion, up just over 21% year-on-year on a comparable basis. New unit revenue grew particularly strongly, up 27%, and service revenue increased by 11%. For the full year, revenue grew by 16% on a comparable basis. Profit before special items more than tripled in Q4 to EUR 1.5 billion, while the margin rose to 12%.
The margin drivers were higher volumes, strong project execution, operational excellence, and the conversion of higher-quality backlog at Gas Services and Grid Technologies. Siemens Gamesa, as said already, also delivered a positive result for the second consecutive quarter. Free cash flow pre-tax increased substantially to EUR 1.6 billion in the fourth quarter, compared to EUR 1.3 billion a year ago in Q4 fiscal year 2025, and reached EUR 8.8 billion for the full year. The strong development was primarily driven by improved profitability. In addition, we continue to benefit from customer advance payments and reservation fees, supported by our strong and continued order intake.
One final remark on currencies. Currency movements continue to have no material effect on our profitability. This reflects our global footprint with strong local-for-local sourcing, complemented by effective hedging strategies. Now let's take a look at our four businesses to see the breadth behind this strong performance.
In fiscal year 2026, Gas Services delivered revenue of EUR 14.5 billion, up 20.3% on a comparable basis. Profit before special items reached EUR 2.4 billion. This is a margin of 16.4%, and free cash flow pre-tax was EUR 6.4 billion. Two things stand out. First, the capacity expansion we outlined at our Capital Market Day last year is already translating into growth. In medium-sized gas turbines, we have increased annual capacity from around 50 to around 80 units, while the additional large gas turbine capacity comes online from fiscal year 2027. Second, every additional unit we deliver expands our installed fleet, as Christian mentioned, and creates a long-term opportunity for recurring and highly attractive service revenues. With a backlog of EUR 74 billion, this is up 35% year-on-year; Gas Services is both our largest growth engine and our most important service contributor.
Looking at Grid Technologies, once again, our fastest-growing business. In fiscal 2026, revenue grew 26.2% on a comparable basis to EUR 14.1 billion. Growth accelerated throughout the year as the first major brownfield expansions for power transformers and switchgears became operational. Profit before special items was EUR 2.7 billion. This corresponds to a margin of 18.9%, the highest in the Group. Free cash flow was also very strong at EUR 4.1 billion. The Grid Technologies backlog now stands at EUR 52 billion, up almost 25% year-over-year. Growth, margins, and cash, and Grid Technologies is delivering across the board. Siemens Gamesa also reached an important milestone for fiscal year, as mentioned, break-even. Revenue grew 6.7% to EUR 10.6 billion, and the profit before special items was slightly positive at a margin of 0.1%. Free cash flow was negative at EUR -1.6 billion, as expected and as communicated.
However, the direction is clear. New offshore and onshore orders are coming in at better margins, and the backlog of EUR 31 billion for Siemens Gamesa is steadily improving in quality. Looking at Transformation of Industry, they grew revenue by 3.4% to EUR 5.8 billion, despite a slightly more muted industrial environment. The margin remained very solid at 12.1%. Free cash flow was EUR 0.7 billion, and backlog remained stable at around EUR 8 billion. Now, let's move on to the next slide, our backlog. Here you see in front of you our backlog, which gives us confidence in what comes next, very important. At our CMD a year ago, we emphasized the visibility our backlog provides. Today, that visibility extends even further, and the quality of that backlog has improved once again.
Our order backlog has grown by almost 70% since fiscal year 2022, from EUR 97 billion- EUR 164 billion. This gives us both resiliency and very strong visibility going forward. In fact, around 85% of our expected fiscal 2027 revenue is already covered in our backlog. To put that number into perspective, keep in mind that a significant portion of our transactional service business is not reflected in the backlog. While these revenues are not contractually secured today, we have a high degree of visibility and experience that the underlying service events will occur as our installed fleet continues to operate and requires maintenance. Also importantly, our backlog includes a significant service component. Around EUR 71 billion relates to services, providing recurring, resilient, and highly cash-generative revenues well beyond our mid-term planning horizon. The majority sits with Gas Services, as Christian mentioned earlier.
At the same time, the quality of our backlog has improved significantly over the past four years, driven by a stronger mix. Gas Services and Grid Technologies, our higher-margin businesses, now represent a substantially larger share of the total backlog. We have seen strong growth and momentum from data center-related customers in Gas Services and Grid Technologies over the past two years, and we do expect this momentum to continue. It is important to put this into perspective. Data center-related customers currently account for around EUR 15 billion of our EUR 164 billion backlog. This translates to less than 10% of the total. Data centers are an important growth factor, and we certainly want to participate, but our growth story is much broader and very well diversified. The margins embedded in our backlog improved meaningfully once again in fiscal year 2026.
Put simply, that means the orders entering our backlog today carry materially higher margins than the orders we are currently executing. In Gas Services, the improvement is particularly pronounced. New unit backlog margins are now 26 percentage points higher than in fiscal 2022, with 14 percentage points of that improvement achieved in fiscal 2026 alone. This is reflecting the strong pricing discipline we have maintained over recent years. We are also seeing a similar trend in services. New service contracts signed in fiscal year 2026 carry operational margins around 5 percentage points above the average of our existing service backlog. As these contracts convert into revenue over time, they will support further margin improvement. We see a similar strong development in Grid Technologies. Since fiscal 2022, the backlog has more than tripled, and at the same time, embedded backlog margins have improved by 12 percentage points.
Looking at Siemens Gamesa, new offshore and onshore orders are coming in at increasingly attractive margins. Also in Transformation of Industry, backlog margins remain stable at a high level. Importantly, today's backlog already shapes our earnings trajectory through and beyond fiscal 2030. A meaningful part of our future margin expansion is therefore already embedded in the orders we have secured. Now let me turn from what is secured to what we expect. For fiscal year 2027, we expect comparable revenue growth of 14%-16% and a profit margin before special items also of 14%-16%. We expect a net income of around EUR 5 billion and free cash flow pre-tax of around EUR 10 billion, all underpinned by a strong balance sheet and investment-grade capital structure. Looking further ahead, we target revenue of more than EUR 70 billion in fiscal year 2030.
Starting from EUR 44 billion today, this represents comparable annual growth of 12%-14% through fiscal 2030. Over the same period, our profit margin before special items is expected to rise from 12.4% in fiscal year 2026 to 20%-22% in 2030. Combined with our growth, that means roughly tripling our profit before special items within just four years. Taken together, these targets represent a fundamental step up in our earnings power, our profitability, and our cash generation through fiscal year 2030. Now, let me take you through the key drivers of that margin progression. Let me explain why Christian and I, and we, the team, we all have a very high degree of confidence in our profitability path to fiscal year 2030, and why the earnings growth story extends far beyond it.
A significant part of the margin improvement underpinning our targets is driven by factors within our control. The key point is that the path from a 12.4% margin today to our 20%-22% target in fiscal year 2030 is driven predominantly by levers already embedded in our backlog or within our control. It does not depend on another step-up in pricing or an even more favorable market environment. The first lever is the margin quality of our backlog, combined with a more favorable business mix. Gas Services and Grid Technologies, our higher-margin businesses, now account for a substantially larger share in the backlog. As those higher-margin orders we have secured over recent years progressively convert into revenue, we expect a significant uplift in profitability. The second lever is operational excellence and rigorous cost control, and this becomes increasingly important as we move towards fiscal 2030.
Better execution, Christian mentioned it, reduction in the NCCs, or the non-conformance costs, year- over- year as an example, higher productivity, greater automation, and the increasing use of AI will drive efficiencies across our factories and functions, and already does today. As we grow, we will make better use of our existing cost base, create additional operating leverage, and further reduce overhead intensity. The third building block is the continuing recovery of Siemens Gamesa. From break-even today, we target 8%-10% margin by fiscal 2030. Lastly, the trajectory is complemented by the removal of the Siemens brand license fee. The bridge to a 20%-22% margin is built on tangible and largely controllable levers. Importantly, as mentioned, fiscal 2030 is a milestone. It is not the end point of our earnings story.
We are committed to delivering continued EPS growth well beyond 2030, and we see multiple drivers of continuing earnings and EPS growth. Structural market growth and an expanding installed fleet provide a strong foundation, while higher-quality backlog and a growing service opportunity, as Christian outlined before, provide further earnings potential. Beyond 2030, again, operational excellence will remain a key earnings driver. Continued productivity gains and cost optimization will support further margin expansion. Capital allocation becomes an increasingly important part of EPS growth. We will continue to actively shape our portfolio, reinvest in the areas where we see the most attractive returns, and return [CapEx] excess cash to shareholders. Share buybacks also provide an additional lever for EPS growth. Overall, we have a clear and largely controllable path to 20%-22% margins by fiscal 2030, and we see significant potential for further EPS growth beyond 2030.
Now let me translate these ambitions into the individual businesses. Gas Services and Grid Technologies remain our strongest growth and earnings drivers. Through fiscal 2030, we expect revenue growth of 15%-17% in Gas Services and 16%-18% in Grid Technologies, with Gas Services reaching margins of 25%-27%, and Grid Technologies margins of 24%-26%. This roughly triples profit before special items for Gas Services and increases it by 2.6x in Grid Technologies. Already in fiscal 2027, we expect Gas Services to reach 18%-20%, one year ahead of our previous fiscal 2028 target, and Grid Technologies is expected to reach 21%-23%, already above our fiscal 2028 target we set at last year's Capital Market Day. For Siemens Gamesa, we expect to reach 0%-2% in fiscal 2027 and 8%-10% by fiscal 2030.
This is equivalent to around EUR 1 billion of profit before special items. Our fiscal year 2028 indication from the CMD 2025 for Siemens Gamesa of 3%-5% remains unchanged. Transformation of Industry is expected to grow 3%-5% a year and to expand its margin to 14%-16%, increasing profit by around 1.4x . Just to be clear, one clarification. Our fiscal 2030 margin targets exclude the brand license fee, as the agreement more or less ends in fiscal year 2030. Our fiscal 2027 outlook still includes it, and in any case, whatever remains will be seen as a special item and not operational. Looking forward, ultimately, earnings growth translates into cash, and this is where the development of Siemens Energy has been particularly strong.
Our free cash flow pre-tax has increased from EUR 1.9 billion in fiscal 2024 to EUR 4.7 billion in fiscal 2025, and EUR 8.8 billion in fiscal 2026. For fiscal year 2027, we expect around EUR 10 billion of free cash flow pre-tax. From fiscal 2027 through fiscal 2030, we expect to generate approximately EUR 55 billion of free cash flow pre-tax, including around EUR 15 billion per year from fiscal year 2028 onwards. This represents a significant step up from our previous ambition of just last year's Capital Market Day, reflecting both higher earnings and the strong cash generation of our businesses. At the same time, we continue to invest in our future growth in line with our capital allocation framework and maintaining our strict investment criteria.
We expect CapEx to reach approximately 5%-6% in fiscal year 2027 before gradually normalizing to below 4% as the majority of our current capacity expansion program is completed by fiscal 2028. Customer down payments remain an integral part of our business model, allowing us to order the necessary long lead items and supporting growth while limiting extra funding needs. This allows us to invest significantly in growth while materially increasing our cash generation, again demonstrating the capital efficiency of our business. Our stronger financial profile is also reflected in our credit ratings. In fiscal year 2026, S&P upgraded Siemens Energy to BBB+ with a stable outlook, while Moody's upgraded us to Baa1 with a positive outlook. Taken together, we have a substantially stronger financial profile, structurally higher cash generation, disciplined investment, and a strong investment-grade rating.
This gives us significantly greater flexibility in how we allocate capital going forward. Overall, we enter this next phase from a position of strength, with a solid investment-grade rating, a robust balance sheet, and substantial cash generation. Again, this is giving us significant flexibility to invest in growth, allocate our capital with discipline, and deliver shareholder returns. Higher earnings and strong cash conversion fundamentally expand our financial capacity. Through fiscal 2030, we have a capital deployment envelope of around EUR 60 billion, around EUR 8 billion of starting net cash, and approximately EUR 52 billion of cumulative operating cash flow before CapEx and after tax. This brings us to the next [inaudible] question. How do we put this capital to work? Our principle is clear. We deploy capital where it generates the strongest returns and creates the greatest value for our shareholders.
So, looking at the categories in front of you on the slide, around 25% of our capital deployment is earmarked for operations and organic growth. This includes approximately EUR 2 billion of CapEx per year on average through fiscal 2030. This supports our backlog and our backlog execution, our capacity expansion, and our organic growth opportunities. In the second category, around 45%, or more than EUR 25 billion through fiscal year 2030, will be returned to our shareholders. This includes a dividend payout, 40%-60% of net income, and share buybacks of up to around EUR 3 billion per year. Following EUR 5 billion of shareholder returns in fiscal 2026, we expect returns to increase further each year. For fiscal year 2026, as indicated already, we will propose a dividend of EUR 2.30 per share, more than tripling year-over-year.
Lastly, around 30% preserves our financial flexibility. This covers strategic portfolio opportunities, our commitments to increase our stake in Siemens Energy India Limited to 51% in 2028, and the headroom required to maintain our strong investment-grade profile. Let me then close where I started. A year ago, we made commitments, and we delivered more than we promised. For fiscal year 2027, we expect comparable revenue growth of 14%-16% and a profit margin before special items of 14%-16%. By fiscal 2030, we expect more than EUR 70 billion revenue, a margin of 20%-22%, and again, around EUR 55 billion of free cash flow over four years, and more than EUR 25 billion return to our shareholders.
Lastly, and very importantly, these targets are built on the same foundation as our track record, a largely secured backlog, tangible margin levers that are largely within our control, and the financial strength to invest in growth while returning capital to our shareholders. With that concludes my portion, and I hand back to you, Christian. Thank you very much.
Thank you, Maria. Let me close with the core messages from today. Siemens Energy enters fiscal year 2027 from a strong position. We have two powerful growth and earnings engines in Gas Services and Grid Technologies. Siemens Gamesa is returning to sustainable profitability, and the planned independence of Transformation of Industry will sharpen our strategic focus. At the same time, stronger earnings and cash generation gives us the capacity to invest in profitable growth and increase shareholder returns. Fiscal 2030 is a milestone, not the peak. The expanding Gas Services fleet creates a service growth engine for the 2030s, while structural grid investments extends well beyond this decade. Our task is clear, execute with discipline, grow profitably, and deliver the value creation potential we have outlined today.
At this point, I also would like to thank the 106,000 employees at Siemens Energy for the excellent job in fiscal year 2026, the passion they show every day for our customers, and their resilience in a volatile world. I am proud of what we, as Team Purple, have achieved together, and I am excited for what lies ahead of us. Thank you for your attendance, and Tobias, over to you.
Thank you so much, Christian. Thank you so much, Maria. We will now start today's Q&A session. If you wish to ask a question, please press star one on your telephone keypad. Again, if you want to ask a question, please press star one. If you no longer want to ask a question, please press star two. I already see that we have a long queue in the line, so therefore, anybody who is asking a question, please limit your question to one question. It is good that we have a bit more time than normal. The first three questions go first to Ajay Patel from Goldman Sachs, Max Yates from Morgan Stanley, and Alex Jones from Bank of America. Ajay, please go ahead.
Good morning, and thank you for the presentation. Mine wanted to focus on page 28 on the capital allocation, and more specifically to the strategic value creation block in that chart. Could you help maybe break that down a little bit? How much of this contributes to the overall Group targets? Out of that EUR 18 billion or so number, how much is actually needed for the investment-grade? I am trying to understand if we were to utilize that capital, how much capital is available that could help these targets even further? Thank you.
Thank you, Ajay, and I will take that one. I appreciate your question because it looks like that is a significant part to the 30%, and of course, it does have a number of items included in there. It also, maybe just to be very clear, it also is where we have, let us say, dry powder for in the event of, and as we have discussed before in the past, if we would like to have a strategic portfolio development, that is where this, let us say, this category lies. But do not forget, there are a few things in there that I think are important. One is, we have indicated in the past that we would like to remain net cash positive, right?
I mean, just due to, of course, the strength of our balance sheet has improved, but also due to the nature of the business that we do at Siemens Energy, that is where this investment- grade profile amount is. Maybe to put a solid number, if you would like to, the Siemens Energy India Limited commitment also sits there, and you can take about EUR 3.5 billion-EUR 4.5 billion of that amount is earmarked for Siemens Energy [India] Limited. Just as a gentle reminder, we have 16% ownership today, but must get to our 51% ownership in 2028. Again, the rest is where liquidity lies, our liquidity needs, et cetera. Like I said, this is where, in the event of a strategic portfolio need, this is where we would go.
It is fair to say that the Siemens India and the residual that is left after the investment-grade profile are not within the [inaudible] targets you lay out today. They would be additional.
Correct. Absolutely correct. Absolutely correct.
Thank you.
Thanks a lot, Ajay. The next question goes to Max Yates from Morgan Stanley.
Good morning. Thank you. Look, I guess my first question is, you mentioned in the slides that you expect your 39 GW of slot reservations to convert into orders in 2027. That looks very encouraging for the order intake. But, given some of the news flow around pressure, cancellations on some of those slot reservations in this week, how are your customer conversations looking related to those slot reservations? Are you seeing any delays, particularly in those states, maybe Texas and Ohio, where perhaps the political situation has changed? So, are you seeing any slower conversion of those into orders? I guess one interpretation of the 2 GW of orders booked in Q4 is maybe we are already seeing some slowdown, but perhaps that was always the plan.
In addition, anything you can say on slot reservation pricing and how that relates to new orders would also be helpful. Thank you.
No, thanks, Max. Maybe also with the 2 GW, to put this into perspective, that is really a timing effect. Keep in mind, we landed above 40 GW total bookings in 2026. This was above what we originally planned for. I also look very confident into quarter one of 2027. So, I do not see that slowdown. At the same time, also remember that I always also hinted to say, "Look, if all of these things have to be built, and this will cost time because it needs to be installed and so forth." I do not see anything surprising now in the market. It continues as is. We see strong customer demand. I can also not say that I would currently already see an impact from the midterms.
I think the discussions that certain communities are a bit hesitant on the installation of data centers is not new. I think it's a normal process if you build out infrastructure. I would see this continuing, and as you rightly said, we sit on a good SRA. By the way, the SRA portion comes accretive to the backlog or better margin than in 2026. There is an additional improvement there on the margin level. At the same time, I also would say, we obviously have an interest with these SRAs also to make sure that whenever timing runs out on the SRAs, that wherever we can, we also take back the slots to us to make sure that we can always allocate it to the right project. That is obviously an instrumental element.
Let me make one last statement, obviously, with all the sometimes data center discussion, hype, nervousness around it. I just want to emphasize, I think Maria said it, if I take my total backlog, less than 10% is related to data centers. It's important, it's a great market, but we always have to put that into perspective. From a customer side, I'm very positive and confident also on 2027.
That's great. Thank you very much.
Thanks a lot, Max. Next question goes to Alex Jones from Bank of America.
Thanks. Morning. Just a question on Grid Technologies margins. I guess if I take the midpoint of your guidance, you are at 22% next year. You are talking about 25% in 2030, and I guess, you have over 100 basis points benefit from the brand fee coming off. So, sort of underlying expansion between 2027 and 2030 looks like less than 200 basis points. You talked about pricing going up in the backlog. You have talked about more volume. Is there some conservatism in that? Is there an offset that sort of drives margins down versus that underlying expansion? Then how do you think about that margin sustainability in Grid Technologies specifically post-2030? Thank you.
I can also take it.
You go ahead, and I can—
Right.
—then I can—
Okay. You complement, that's super. That's super. Let's do that. I mean, Alex, keep in mind also, we have always been very, very clear that the pricing environment in Grid is flattening out. It's a different pricing environment than in Gas. This is why Maria emphasized so much the push on margin improvement also is very much around operational excellence. We are very confident on this because we have it in our hands. We see great progress in our new factories in terms of productivity. We see a lot of great cost-out ideas based on AI. But it's obviously a different pricing environment than we had.
It's also, at one point in time, will return to a little bit shorter cycles because it goes back, I mean, if I take switchgear or so, and where I would say, we are very confident on a strong market after 2030. But in terms of what the pricing environment then is, I think there would be also a lot of speculation in which we wouldn't want to take. What we are trying to do in the guidance we give, we try to emphasize on the levers which we have in our hands and by the backlog what we're seeing. That's the logic of the numbers.
Yeah, and maybe just to complement Christian's point, very valid point, he said almost everything. Remember last year, we indicated that a lot of that price or that backlog margin expansion had already occurred in the last two years for Grid Technologies. We always said it was a bit of a mix, because here in Europe, we see that prices are, as Christian rightly mentioned, starting to plateau. We're also seeing a bit of increase in pricing, if you'd like, in the U.S. But certainly, that backlog margin expansion started earlier for Grid Technologies. So, I just want to make sure that we don't discount such a great run that GT has had, and so it will continue at that high level and also increase till to fiscal year 2030, which I think is an excellent message.
Thank you.
Thanks a lot, Alex. The next three questions go to Phil Buller from JPMorgan, Gael de-Bray from Deutsche Bank, and Alasdair Leslie from Bernstein. Phil, please go ahead.
Oh, hi. Good morning. Thank you, Christian, Maria, and Toby. It sounds like the outlook in GS is not dependent on data center. I get that. It is only a small portion of the backlog. But it is a key driver of the equity case for a lot of investors at the moment. The gross margin expansion on those new units is quite striking, 14 points improvement year-on-year, 26 points in recent years. I know that they are not the primary driver of the backlog, but how should we think about the gross margin differences between your customer types? I guess I am trying to frame how gross margins in GS behave if there is a need to reshuffle some of those slots, please, between different customer sets. Is it neutral? Is it negative? Is it positive? That would be great. Thanks.
Yeah, thanks. Obviously, it is a complex question, whereas I try to give a simple answer to. Obviously, yes, as we always said, there is an opportunistic element in some of the particular North American data centers, depending on how fast you can develop. I would always distinct these two things. Because data centers are so much under time pressure, short-term available slots are higher- margin profile. But I would say, the longer you reach out, the less push you have on the timing element, and then actually margins start to normalize with other opportunities. Why should they not, right? I mean, it is the same logic. So, I think we have to not look at on a segment base in the application, but more in terms of what is fastly available and what is not fast available.
In that regard, yes, there will be a difference as much as then the market at one point in time would even relax a bit. But from today's perspective, as I said, it is much less a segment element, it is more a timing element. What you also have to keep in mind, I think I said it last time, there is a difference on the 50- 60 Hz market, but particular if you do it specifically, because obviously the same machine delivers a different power, and then obviously also pricing looks different if you do the back of the envelope calculation.
Thank you.
Thanks so much, Phil. The next question goes to Gael de-Bray.
Yes, good morning, everybody. Thanks very much. Look, I think actually the most attractive part of your equity story is around service. And in slide 11 shows that you now expect Gas Services revenue to more than double by 2035, so it would be an incremental EUR 8 billion of revenue at the very least. Is it also fair to say that margins are expanding nicely as well, and that the service margins could potentially become 10 points higher in 2035, because of pricing and scale effects? Under that scenario, I calculate that the service profit could actually be maybe EUR 3 billion higher in 10 years' time. I guess my question is whether the direction and perhaps the magnitude of this sound about right in your mind?
Hello, Gael. I'll try to take a shot at your question, which I think has multiple elements. First of all, you're absolutely right. On page 11, we outline the opportunity that the increase in our installed fleet provides on our service, which goes beyond the midterm of 2030. We gave a few points of reference that I think maybe to see how the numbers will develop. Going to your assumption of about around a 10% increase, we already indicated that today, new bookings, so new service orders, are being booked at a 5% increment in the last year. What I do want to caution to say, "Hey, you can just incrementally increase that year over year," is don't forget the inputs also increase in cost.
Yes, we have the ability to pass on some of those cost increases to our customers. That's why we're really confident with our service backlog. But I do want to at least put that into perspective. But certainly, what it does say is that, of course, the new units, if you look at the margin that is being booked today, the opportunity, as Christian mentioned, and I like that word, with the super cycle that comes afterward, obviously you'll see that margin expansion coming into the mid-2030s. And of course, like I said, today we're booking orders, new service orders, around a 5 percentage points better in fiscal year 2026 than just a year before.
Thanks so much, Gael. And thanks a lot, Maria. The next question goes to Alasdair Leslie from Bernstein.
Yeah, thank you. Good morning. So it's a follow-up on capital allocation and strategic portfolio development. I don't think you actually talked about your M&A priorities, so I was just wondering if you could expand on that. Is basically deepening vertical integration the kind of strategic goal here across your Gas Services and Grid Technologies? One of your closest peers has done a couple of larger deals in the grid businesses. Is that maybe where you see the biggest opportunities as well, and could that extend into kind of areas like digital and grid software? Thank you.
Yeah, thank you very much. I would also do it a bit simplistic in terms of the VP. Yes, I mean, the logic which we pursue is really a vertical integration in Gas Services, always coming from the logic every acquisition we do must support the service business. In that regard, obviously, you have seen us buying upstream into certain parts, which then belongs to blades and vanes, investing there also together with suppliers, and we will continue to do so. So vertical integration in gas is absolutely something which we pursue. On Grid Technologies, I would say it's more like a horizontal piece in terms of broadening the portfolio going forward. What areas to go into is not the time today to communicate, but obviously we are looking into this.
You have been seeing us, and also this is what I conveyed before, buying bolt-on acquisitions in the digital Grid Technologies side. I have to say, these were, in the last 24 months, very often small bolt-on acquisitions, in terms of continuously building out the portfolio. I think what Maria has showed in the capital allocation is that the firepower is now significantly better, which gives us now, ahead of us, a new window of opportunity to pursue different things. But this is more for us really the midterm development of the portfolio. Do not expect short-term surprises here, but we want to convey to you the message that we will continue in the mid and long term to broaden the portfolio there also on that side.
Very clear. Thank you.
Thanks a lot, Alasdair. The next three questions go to Ben Uglow from Oxcap, Chris Leonard from UBS, and Vivek Midha from Citi. Ben, please go ahead.
Brilliant. Thank you, and I hope everyone are well. My question is really about the long-range guide on Grid Technologies. So, we see around 22% at the midpoint in 2027, but then that is going up quite materially to about 25% by 2030. And what I guess what I wanted to understand is, what are the kind of levers or what is baked into that expansion? Can you maybe say a little bit about capacity, how important that is, supply chain, skilled labor, and all of these kind of things in terms of getting there?
And obviously, you probably figured out the basis of my question is, your largest competitor, which is not an American Company, has far more conservative projections. I do not often see a 5 percentage points spread between these two very similar businesses, and I am trying to understand that. So if you could help there, that would be helpful.
Thank you.
Yeah. Thanks, Ben. Maybe I would start, and Maria to complement. As Maria pointed out in her speech, there is a lot of things which we have in our hands, and this is how I also look on the Grid Technologies business, or to say the margin going forward towards 2030. There is a big, big portion coming really from productivity, better factories, new factories. What you do see is really continuous increase of productivity. We gave examples on the factory in our last Capital Market Day, and we continue to see more. Just getting more out with less. This is where we are confident on the backlog in terms of converting it into higher margin. There is also a mix effect. What you have to keep in mind, there have been some projects now going out, better ones coming in.
There is a margin mix effect coming through, which you also obviously see helping the margin. But I would really say there is a lot really on productivity and own cost improvement. The exposure on the supply side, there is one obviously on copper or other likes, but it is different compared to the Gas Services where the dependence on certain supply chain elements had been bigger. This is better in control, I would say, in Grid Technologies. Did I forget anything, Maria?
No, perfectly put. Maybe just to Because I think it is the timeframe that kind of underpins your question. Do not forget, and we said it already, in 2026, we are already starting to see some of the benefits from the brownfield expansions come online. As Christian just mentioned, at the better margin levels. If you recall, just a year ago, we were saying it was a bit of the opposite. It was more about operational excellence, the ability to put more through our factories. But now we are seeing that brownfield expansion come on, and we have the benefit of some of that margin dropping to the bottom line. One other thing that I think is critical in terms of transparency is, of course, the lead times that we have on our order backlog and the orders that we have in-house.
But do not forget, some of our greenfield expansions come online during that timeframe of now and 2030. As we mentioned last time, for example, our Charlotte factory, our LPT factory, mainly in the U.S. for the U.S., is essentially sold out for two and a bit years after that. Again, I think it goes back to the levers that are in our control, our operational excellence. I mean, Tim and the team have their thumb on the productivity that's necessary to deliver that double-digit growth, which you know, Ben, is no small feat in the last couple years.
They absolutely have what they have, at least in their own hands, with all of that capacity coming online and that backlog margin expansion to support them, I think is critical factors to why we're confident about how Grid Technologies will be able to perform at that level by 2030.
Understood. Thank you, Maria.
Thanks a lot, Ben. Next question goes to Chris Leonard from UBS. Chris, please go ahead.
Yeah. Hi. Thank you. Maybe if I could go back onto Gas, and the new unit backlog margin obviously was up to 26%. I think you spoke to a 14% increase coming alone in 2026. Could you maybe help us to speak about the evolution of pricing that you saw across 2026 year-over-year, and whether or not you are starting to see that normalize heading into 2027? Also just reflecting on the 2030 target for Gas Services margin at the midpoint of 26%. It clearly looks like you are confident that further Gas orders land in 2027, given where the slots are today. Is there anything that would maybe stop us from thinking there is more upside to these margin targets post-2030, once the aftermarket kicks in? That is it from me. Thank you.
I will try to give a good projection after 2030. No, absolutely. I mean, first of all, as I said before, right, I mean, if I look on the current slot reservation agreements and the outlook into 2027, I do believe the good pricing environment is going to continue. We believe we book next year higher prices than in 2026. It looks promising. If I look 2030 and beyond, absolutely. The statement what we gave also in the last quarter is to say, whenever the service portion gets higher, it has a positive effect on the total Gas Services margin still holds true, and this is the way on how we look on it for after 2030.
Yeah, and just a further comment on the new unit pricing. I think it is what I said in my portion. As Christian mentioned, he is absolutely right, we still see these elevated and dynamic pricing environments, if you consider, for example, in the U.S. But what is really critical, and I think that is important for the 2030 projection, which is we do not consider additional pricing increases in that—
Yeah.
—in that model, or in our models. I think it is important for you to know that should there be an additional step-up, that is nothing that we have included in the numbers at this point in time. We see, and we have indicated also in previous quarters, that there is different pricing levels depending upon each of the geographies. We see the backlog margin expansion, which we are very happy with, but it does not require an additional significant step-up to make our 2030 level.
Thank you.
Thanks so much for the question, Chris. The next question goes to Vivek Midha from Citi.
Thank you very much, everyone. Good morning. My question is around the Grid margin, if I may. You have seen another around 3 percentage points incremental step-up in the Grid backlog margin versus last year, which is similar developments what we saw last year. Your commentary in one of the earlier questions suggested you have seen some plateauing in pricing at a high level, but with some incremental upside in the U.S. Given the 3 percentage points move in the backlog margin, it would appear to imply you have had still a further solid development on the new order margin.
Should we think that that has been largely driven by the U.S.? Also looking to understand what is going into that backlog margin calculation. Some of these improvements in productivity that you have called out, are they feeding into the backlog margin, or are they more towards a sort of conversion cost? Thank you.
Do you want to take it?
Yes. I think I am going to. I apologize, I hope I got it, and please do clarify if I did not. The first one was regarding the backlog margins and how we think about the pricing dynamics and where do we see potentially plateauing. I think there are two aspects that you need to look at this from two lenses, if you would like. One is the geographic, which you rightly mentioned, which is, and we have indicated that before. I use the plateau word still because each order we book still is accretive. It is just not, again, you are not going to see a 9%-10% increase year-over-year like we have in the past. Again, that is really related to what we call more in the regulated area, so more solutions-based business. That is why I need to clarify.
Geography plays a part, but also if it is products, so large power transformers versus solutions also plays a part. That is what Christian mentioned earlier in terms of mix. That is where we still see high pricing levels, because again, it is still a very long wait to get a highly customized large power transformer, and hence why we need that new capacity to come online. Again, to go to your point about, is it plateauing in general? I cannot say that, because it really does depend not only on geography, but on what part of the portfolio you are talking about with GT.
Again, I think it is important, and of course, it is up to us to continue to capture some of these additional productivity levers, operational excellence levers, but we feel confident with that trajectory to 2030 of the 24%-26% for GT on that basis.
Thank you. That's helpful. Thank you.
Thanks so much, Vivek. Time really flies, and we still got a lot of people in the queue. Therefore, let's keep the questions short and the answers maybe also. The next three questions will be going to Richard Dawson from Berenberg, Alexander Virgo from Evercore, and Colin Moody from Royal Bank of Canada. Richard, please go ahead.
Hi, good morning, and thank you for taking my question. My question is on the expected gas additions per year that you outlined on slide nine, and how industry capacity might change. There's quite a broad range when you look at those post-2030 additions, ranging from about 120 GW- 150 GW. If we assume that maybe that top end of the range comes true, and I know there's some uncertainty exactly on exactly how that might develop, but would you expect additional industry capacity additions beyond the 130 GW that you've outlined by 2030?
Good question. I mean, I said it also in the last calls before. Additional capacity expansions, I only would see if you have a long-term picture of really doing something different. I think all of us are trying to get more things out of existing footprint. I think we're all doing good progress in there. We particularly, I have to say, we're able to really get so much more productive on our existing sites. But if the question is, would I believe that I would see then additional capacity, whatever, coming greenfield in, I think the visibility, I cannot see really in terms of making such a bold decision, would be my view. What you obviously always can question, and this is then, whatever, 2035, is there anybody from Asia coming bigger and the likes? But it's too far out that I would give a judgment here.
That's understandable. Thank you.
Thanks, Richard. The next question goes to Alex Virgo from Evercore.
Yeah, thanks. Good morning, Christian, Maria. I thought I'd try and push a little bit more again on the service margins. I'm trying to think, as you look out to that 2030, 2035 date, and you're starting to see outages coming through, the pricing that you're talking about, Maria, of 5 percentage points on the order intake to date, presumably doesn't really reflect any of the LTSAs and negotiations that you're signing or will look to sign with the machines as they get installed over the next four to five years. Your EUR 400 million a gigawatt is cut at current pricing. Am I to infer from that that actually there's materially more upside to come, albeit obviously over a 10-year period? Thank you.
Thanks, Alex. Obviously, I didn't respond to Gael's question as comprehensively, because I think it was coming from a similar vein. You're right, and maybe to put that into context, the 5% would be from orders, pretty much renewals today, because of course, something that was booked, let's say, in the last half-year or sometimes the year of fiscal year 2026, you know the service order lags. Why I wanted to include this 5 percentage points in there is to let you know that the pricing, that dynamic pricing, or the strong pricing is going into the service side as well.
Now thinking about it going to 2030 and 2035, and you are absolutely correct, as we look at the new units, if you see the margin expansion, and considering how in the next years we will continue to sign those LTSAs, which of course will translate to revenues in 2030, actually like 2030, 2035, then you can assume that it is beyond the 5%. This is what we have said before. But what I do want to at least preface a little bit is what I said in my answer to Gael. At the same time, costs go up, right? I cannot say to you, of course, you can add 5 + 10, and perhaps, but you cannot, you must take cost inflation into that as well. But again, the trajectory is very positive.
We see that, as Christian outlined before, very nice, if we have 1,000 GW install base, of course, at the EUR 400 million per gigawatt, we see that as a very nice revenue stream coming online with higher margins in the next decade.
Understood. Thanks, Maria.
Thanks a lot, Alex. The next question goes to Colin Moody from Royal Bank of Canada.
Hi there. Thank you for taking my question. Another one on the Gas Services aftermarket story. Clearly a very encouraging growth trajectory and clear that the best is yet to come for your LTSA contracts. I wanted to ask specifically instead on the transactional activity. It would seem to me that today, that is a very high-margin business, sort of benefiting from this book-and-bill nature and the tightness of power demand. I just wanted to know how is that developing today, and how does that margin profile look like versus maybe the LTSA business? And what are your sort of expectations of that going forward? And maybe just a very, very quick one as well. We hear some stuff and rumblings in the market around yttrium shortages and rhenium shortages, which, as I understand, are very important in some of the older turbine blade variants.
Have you seen any shortages or issues there? Thank you.
Yeah, thanks for the question. I mean, obviously, we have been actually relatively well. Let me start with the last part. We have been well working through the supply chain, I really have to say. There were obviously along the way teething pains in terms of capturing this growth. I mean, we have been strengthening obviously, and parts, it will still be constrained, but I think it's really controlled, and a lot of the investments we are doing is exactly hinting on that. And if you look on the general profile also on the margin side level on how it develops, one thing you always have to keep in mind, now what kicks in after 2030 is a large HL frame service, which is the most profitable service what we have.
And you always look on the mix if you look on the margin, which is obviously across the existing portfolio. But what we bring online now until 2030 is really, to the biggest extent, large frames. And that is service-wise really beneficial, which gives us obviously opportunities really to make sure that this is consistently growing. I mean, what did I say? A profit compounder or so in the way forward.
Yeah. Just to go to the transactional business, because I mentioned that, not to forget that. I think you said, "How's it going? What do the pricing levels look like?" Of course, this all depends, but generally speaking, transactional and the LTSAs, although we do not disclose the margin, you know that this is at a very nice margin level. But certainly when it comes to transactional level, it depends on the type of service, but generally it is at market price or depending upon the situation. So we do enjoy high margins on the transactional business.
Thank you very much.
Thanks so much, Colin. The next three questions go to Lucas Ferhani from Jefferies, Will Mackie from Kepler Cheuvreux, and Sean McLoughlin from HSBC. Lucas, please go ahead.
Thank you. Just a question on the gas market and separating demand from data center versus kind of the legacy market, so utilities, et cetera. I guess, is there a way to look at from utilities demand how much essentially is behind it driven by data center? Because there might be an element where both are essentially building capacity for that same end market, so we are kind of underestimating potentially how much data center is potentially participating to this growth. So have you kind of looked a little bit into that part? Thank you.
Yeah, as much as we see it might not always be perfect, right? We obviously try exactly to judge on it in terms of making sure that there is no double counting. But when we talk to utilities and they supply data centers, we allocate this to our statements on data centers and would put it into the same bucket. There might be always here and there a portion, particularly with the smaller data centers, which then just consume like the 50 MW or whatever, in an overall junction which we miss. But I think by and large, hopefully we get it. The one thing also to just remind, more than 50% of our current installations is behind the meter type of discussion, so not utility-driven business. While at one point in time they might connect to the grid, I don't see this fast.
This is why you will have, particularly in the U.S., a little bit, I wouldn't say two markets, but two different things, where the one thing is really data center behind the meter type of thing, and the other, the needs of the utilities. So from that perspective, I think in our projections, I would not yet see the source of double counting or so.
Thank you.
Thanks a lot, Lucas. We have to go to elevator pitch question- and- answers. As we have still four questions open, next question goes to Will Mackie from Kepler Cheuvreux.
Yeah. Thank you very much. Elevator pitch. Just looking at Gas Services, 55% of the business this year was EUR 8 billion of sales. Looking out to 2030, it's about just under EUR 11 billion on your 8% compound growth. We've got nearly a 2.5x increase in revenues from OE. Historically, your OE business has been a big drag on the profitability of Gas Services. When we look out to your 2030 assumptions, how would you express the expected profitability of the OE business in relation to the service business? In balance or a continued deviation between the two?
Who would—
Yeah, I'll try. Hi, Will. Great question. Of course, exactly. I mean, right now we're enjoying excellent new unit margins, as you know. As we go through, and actually, if you look at our order entry, it's proportionally, we talked about that, how we used to have seasonality, right? Even in terms of the revenues, where it was more new unit versus service, and that used to have a larger impact on us. Now we see that that has clearly moderated. When you look into the future in terms of the mix, we will see that it kind of comes in line. But it goes back to what Christian just mentioned. I don't think you should underestimate that. It was a really good point, which is the service mix that's coming online in the 2030s.
When you see that moderation that you're just talking about, it's going to be the large units, which carries even a higher profit or margin profile. I think, even if you see a moderation in the new units, you should still see that continued step up in the service accordingly.
Thanks so much, Will. Thanks a lot, Maria. Next question goes to Sean McLoughlin from HSBC.
Thank you for squeezing me in. Let me touch on Gamesa. Just to understand, just to frame your messaging on Gamesa. Previously, you talked about reaching double-digit margins as the precondition for the remaining part of the portfolio. I look at the 8%-10%, so is the top end of that still today? Is today now the prerequisite for that? What percentage of the growth, if we look out from here to 2030, is onshore versus offshore? Thank you.
Yeah, I mean, in terms of also the strategic role of wind in our business, I stay with the statement in terms of obviously at the end, we have to see in the long-term picture that these businesses are contributing and accretive to the Company. The 8%-10% can only be, let's say, a milestone type of thing, not the end. But it's important for me in terms of looking on the business. The first thing was get it to break even and continuously profitability increase. The second point is really understanding where the wind and renewables market is going to. This will be very much about the midterm picture in the 2030s in terms of saying what are we expecting to really make this final decision. What is onshore, what is offshore? I cannot tell you today.
I do strongly believe in offshore, like being a decent-sized market in selected countries of the world, and that is still my underlying assumptions, that we can play on the strengths we have in offshore. We have products lined up already for 2030 delivery in the sense of more or less having pre-invested there. So this is something where I would assume it continues to be a big contribution. But we are also, at this point in time, not there that we can fully judge on the market in the 2030s. Some of the onshore markets are unclear. Take the U.S. in terms of what's happening there. The offshore market trajectory is not fully clear. At this point in time, we have not yet a clear picture on how we continue to develop this.
But we definitely believe that renewables and something will determine also electricity generation in the 2030s. This is what we are trying to answer over the next quarters to come.
Thank you.
Thanks so much, Sean. We are hitting the time, but let's squeeze in the last two questions, going to Delphine Brault from ODDO and Vlad Sergievskiy from Barclays. Delphine, please go ahead.
Yes. Thanks for squeezing me in. My question is on free cash flow. Can you help us understanding the main moving parts we should expect on your EUR 10 billion free cash flow targeted for 2027? I am thinking notably at down payments and more generally working [cap] as compared to pure operational improvement.
Sorry. Thank you, Delphine. Hello, Delphine. Thank you for the question on free cash flow. I appreciate it, actually. It is a good question, because of course, when you look at our around EUR 10 billion that we expect for this fiscal year, fiscal year 2027, do not forget profit continues to be a really strong contributor to cash. In this particular case, if you look at the profit that we are expecting for fiscal year 2027, it is around 75% driven by profit. Like I said last Capital Market Day, and that still holds true, and you see that actually in the development of the order backlog, that prepayments are directly in line with how our order backlog develops in that regard, whether it is advance payments and/or slot reservation agreements.
If you use that as the rule of thumb, I think that is a good way to look at how the composition of cash and the levers for free cash flow for next year, or this year.
Thank you, Maria.
Thanks so much. The last question goes to Vlad. Please go ahead.
Super. Thank you very much. A more conceptual question on 2030 targets. You target up to 27% Gas Services margin, up to 26% Grid Technologies margins, and this is for businesses that have relatively low capital intensity and enjoy solid prepayments. Could you give us some idea of what return on invested capital or return on capital employed, both Grid and Gas businesses, are expected to be generating on the margin profiles you expect them to be delivering? Could those numbers be in three-digit range?
Well, of course, like I said earlier, I would not go three-digit range, certainly. But, of course, when it comes to the low capital intensity, and like you said, we do enjoy negative operating working capital as a result of it. I think it is important to note that, and even when we look at further investments, et cetera, we do have a very high threshold as a result of that. But again, I would not go beyond to say it is a triple digit at this point in time. But certainly, happy to kind of take this offline and work it through in terms of the question. Our friends in IR would be happy to help.
Super. Thank you very much.
Thank you so much. With that, we conclude our Q&A. Christian, are there any final remarks from your side?
No, thanks very much for your time. It has been a bit longer today, but we tried to give you a good picture also for a longer outlook and what the businesses are doing. As I said, on the back of a strong 2026, we are already off to 2027 into quarter one, and then really look forward to see you in the next call. More things to come, but thanks really for your time.
Thank you, everyone.
Thank you so much also from my side, and especially really staying with us for 90 minutes now, for so long. As always, the team is always available for you and me, myself as well, for the questions, as we will be on several roadshows and conferences in the next weeks. Looking forward to see you there. If we do not talk to each other, I already wish you a great Christmas season now, yeah? But with that, we conclude today's call, and thank you so much.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available in the Investor Relations sections of the Siemens Energy website. The website address is www.siemens-energy.com/investorrelations. Goodbye.