Please stand by. We are about to begin. Good morning, ladies and gentlemen. Welcome to the Siemens 2018 fourth quarter conference 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 presentation. This conference call may include forward-looking thing 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 now like to turn the conference over to your host today, Ms. Sabine Reichel, Head of Investor Relations. Please go ahead, madame.
Good morning, ladies and gentlemen, and welcome to our Q4 conference call. The Q4 earnings release presentation and press release regarding our new share buyback program were published at 7:00 A.M. this morning. You can find everything on our investor relations website. Siemens President and CEO, Joe Kaeser, as well as Siemens CFO, Ralf Thomas, are here this morning to review the Q4 results and give the outlook for fiscal 2019. After the presentation, we will have time for further Q&A. With that, I would like to hand over to Joe.
Thank you, Sabine. Good morning, everyone, and thank you for joining us for our fourth quarter conference call. Obviously, we do have a lot to cover, so let's have a look at the agenda for today. Again, heavily executed on what we promised and fully reached our guidance for fiscal 2018, which, as you know, we raised during mid-year. This shows strength of our global team achieving excellent operational performance. We delivered these results in an economically sound global environment with dynamic industrial demand, but obviously also continued structural challenges in the power generation market, including a, what I would sort of call a geopolitical uncertainty. Siemens is growing, and in many of our businesses, we are stronger than ever. We're gaining further market share in highly competitive markets, such as industrial digitalization, automation, Building Technologies, or first and foremost also in the Mobility sector.
We are rigorously addressing these challenges in those areas where the markets are structurally declining or shifting the center of gravity, for example, from fossil to renewable energy generation. Out of this position of strength, we believe now is exactly the right time to raise the bar with our Vision 2020+. Before Ralf goes into the post-quarter results, let me maybe highlight a few recent things in that respect. If you look at 2018 targets, we said we would actually have organic revenue grew modestly by 2%, and that's exactly what we achieved on a book-to-bill, which was at a strong 1.10. All in all, we saw a strong operational performance with most divisions within or even above the target margin ranges, and that led to an adjusted margin excluding severance of 11.3%, which obviously has also been within our guidance range for fiscal 2018.
EPS, very specific, excluding severance, grew 2% to EUR 7.88 compared to fiscal 2017. Again, also here, where we had it actually also committed it to be. We made excellent progress on our strategic priorities. If you think about the completion of the Egypt mega project, which happened in record time of less than 2.5 years after financial close. Each of the three 4,800-GW power plants has become the largest gas-fired combined cycle power plant ever built in one piece and operated in the world. In total, we added about 14.4 GW capacity to the national grid of Egypt, which is obviously enough power to serve more than 40 million people, to be the backbone, of course, what we believe to lead to economic prosperity.
If we really look at it, we not only provided energy, we're also helping the country to save more than $1 billion on annual fuel cost compared to what they had installed and operating before the mega power plants were built. For us, this has not only been something to help Egypt's power grid to be improving, this is also a crucial topic for us when it comes to creating jobs and local skills as a sustainable economic development. We trained 600 Egyptian engineers and technicians to make sure that they can properly operate and maintain the plants. I also want to highlight three examples out of many where we drive digital business together with our customers and partner ecosystems.
First, we will digitalize the entire Norwegian infrastructure into a full digital IP-based signaling system. This landmark order, which is worth more than EUR 800 million, is a real long-term project which is scheduled to be completed by 2034. We combined it with a 25 years of maintenance agreement. Second, MindSphere, which is the leading IoT cloud-based operating system, will run Alibaba Cloud at the end of fiscal 2019. This is a really important step in order to offer a comprehensive IoT service solution for our Chinese customers and manufacturing partners to support them in their digital transformation all over the country. Third, our strategic cooperation with Bentley Systems is really, really bearing fruit. We have several new solutions, such as what we call PlantSight, which is a digital twin cloud service for more efficient process plant operations all over the world.
We have increased our trade investing program now up to EUR 100 million, we intend to continue that path. With that, I'd like to hand it over to Ralf to go through the fourth quarter financial performance, give you a guidance for fiscal 2019, before I'm going to close with the perspective of where we are at in implementing our Vision 2020+ goals. With that, Ralf, I hand it over to you.
Thank you, Joe. Also good morning from my side. The fourth quarter saw a strong finish with broad-based order growth of 5% driven by double-digit growth in Mobility, Digital Factory, Power and Gas, and Healthineers. Base orders were also up 3% on a nominal basis. Book-to-bill reached 1.05, while order backlog remained at a record high EUR 132 billion negatively impacted by exchange rate. Revenue growth accelerated to 5% with growth in all divisions except Power and Gas. Industrial business profit margin excluding severance, reached 11.3%, up 100 basis points year-over-year. Most divisions increased margins now well in or even above the margin corridor. This excellent performance was held back, however, by structural challenges in Power and Gas, which weighed on profitability. Our industrial business' margin was also impacted by 60 basis points of negative currency effect.
As expected, net income and earnings per share were also burdened by sharply higher income taxes related to carve-out activities at Mobility and severance charges, mainly at Power and Gas and Process Industries and Drives. Bright spot was free cash flow of EUR 3.3 billion, up 38% year-over-year, adding up to EUR 5.8 billion for the fiscal 2018 in total. Let me now highlight the performance of our divisions. As we have mentioned for quite some time, Power and Gas continues to operate in a very challenging environment. Global energy trends towards renewables led to declining markets for new units, in particular for large gas turbines. Demand from oil and gas customers shows some signs of stabilization. We booked orders for five large gas turbines, 11 large steam turbines, and 12 small and medium gas turbines in the quarter.
The service business held up again very well, drove order growth of 13% with continuous strength in the digital portfolio. Our backlog for so-called Flex LTPs has grown now to EUR 75 billion, while Power and Gas total backlog stands at EUR 40 billion. A significant order contribution came from the contracts already mentioned by Joe to operate and maintain three mega power plants in Egypt. Some weeks ago, we agreed to a reconciliation of interest with the Central Works Council in Germany to implement measures to boost competitiveness in Power and Gas. The goal is to save around EUR 500 million globally. For the quarter, we booked severance charges of EUR 301 million. Profit margin of 4.9%, excluding severance, was somewhat better than expected. Revenue and price declines again weighed on profitability, while service made a strong profit contribution again.
In addition, we had positive effect from stringent project execution and early closeout. For fiscal 2019, we reiterate our view of a low to mid-single-digit margin level excluding severance. Energy Management continued its steady improvement path and closed with annual profit exceeding the EUR 1 billion threshold for the first time. In the quarter, all systems and product businesses recorded healthy order growth with a very strong data center business.
Orders and transmission solutions were clearly below prior year due to a tough comps. We also saw some push-outs into the next year. Our project pipeline looks very healthy for HVDC-related solution projects in fiscal 2019. Profit margin of 9.4% moved towards the higher end of the target margin range with contributions from all businesses. Building Technologies achieved its best operational year ever, delivering a record margin of 13.7% in the fourth quarter, typically being the strongest quarter of the year.
Revenue growth of 5% once again exceeded market growth of around 3%. A clear evidence of consistent market share gain while increasing profitability. Building Technologies is continuously strengthening its integrated offering in automation and digitalization for buildings, combined with excellence in customer proximity through its service network. Another highlight is the Mobility performance. The team delivered all-time high quarterly revenue of EUR 2.3 billion, most notably in the rail infrastructure and service business. This came with an excellent profit margin of 10.1%. We also expect double-digit margin level to continue in the quarters to come. Mobility has built a sustainable execution track record meanwhile. Margin was at, in, or above the target margin corridor for 20 consecutive quarters now. We are very pleased with another world-class performance of the Digital Factory team.
Strong order growth was driven by PLM software business, where we recorded several major orders in the semiconductor space by Mentor. We saw excellent revenue growth of 10%, fueled by mid-teen growth in software and clear growth in the short-cycle automation business, both winning market share. Our short-cycle business in China was again up by a healthy 13%, despite tougher comps. From end market perspective, automotive demand shows lower growth while machine building was favorable. Looking ahead, manufacturing production is expected to continue expansion. However, we see a softer pace in growth momentum across many countries and regions, such as in China or Europe. We expect a good start for the short-cycle business in the first quarter based on backlog conversion and visibility demand of three to six months. Digital Factory's margin, excluding severance, improved 110 basis points to a strong level of 19.2%.
Margin is around 21%, excluding investments to accelerate the adoption of digital offerings such as the MindSphere platform and increasingly also into software-as-a-service. I want to give you some more color on why the fourth quarter of Digital Factory is slightly lower versus year-to-date performance. Software margin in the fourth quarter is typically lower, reflecting Mentor's profit seasonality. Mentor's fourth quarter is typically the weakest, and the first quarter is the strongest. Furthermore, we recorded a higher revenue share in solutions business in the quarter, which carries a lower margin. Last but not least, Digital Factory was burdened by around 80 basis points currency headwind. In a nutshell, Digital Factory delivered another strong operational performance, building on its unique capabilities of combining automation and software. Process Industries and Drives successfully continued its steady improvement path. Revenue increased broad-based with particular strength in China, growing in the mid-teens.
Margin excluding severance improved to 6.7%, despite currency headwinds of 70 basis points. Structural improvement and better operational performance make their way to the bottom line. Severance charges of EUR 85 million reflect the intended major milestone to adjust capacities in Germany. Healthineers closed an exciting fiscal year with a very successful IPO and delivery on its financial targets. They released strong fourth quarter financial three days ago with an excellent order growth of 13%, geographically driven by the United States. Operational improvements and productivity gains were more than offset by substantial currency headwinds of 220 basis points. Siemens Gamesa completed the initial phase of its strategic roadmap and achieved its fiscal 2018 guidance. SGRE made significant progress to improve its competitive positioning by diligent execution of the announced cost-out program. Overall, we are very pleased as a majority shareholder with the progress of our strategic companies.
Fiscal 2018 was a very successful year for Siemens. We achieved our targets and all stakeholders will benefit. We decided to raise the dividend for the fifth year in a row. We propose a dividend of EUR 3.80, which is an increase of 3% and equals the payout ratio of 53%, well within the target range. The dividend yield of 3.4% as of September 30th, we offer a very attractive and sustainable return. The second pillar of shareholder return was the successful execution of our EUR 3 billion share buyback. I'm sure you will be pleased to hear that we will start a new share buyback program for up to EUR 3 billion until November 21. Finally, we foster entrepreneurial thinking amongst our employees. We increased the number of employee shareholders to around 300,000. This is a clear sign of confidence and commitment.
Before I come to our assumptions and guidance for fiscal 2019, let me give you some data points on how we lift our performance through rigorous execution. Since starting Vision 2020 in fiscal 2014, we have increased the gross margin level to around 30%, and we intend to improve further. The continuous strive for productivity, digitalization of internal processes, and the move towards flexible and adaptive teams is bearing fruit. We achieved another year with total cost productivity gains of around EUR 4 billion. A driver is the accelerated implementation of cost and value engineering in the supply chain, strongly supported by our widely applied own PLM software tools. We are also pleased with our consistent tight grip around project execution. Let me share some assumptions with you, which are relevant for our guidance. We assume no material impact for the businesses from geopolitical risks and macroeconomic factors.
Top and bottom line, most of our divisions have demonstrated competitive strength and are on a positive trajectory. We continue to expect revenue growth, market share gains, and margin expansion in most of our businesses. The positive momentum will be held back to some extent by declining power generation markets, as already mentioned. Negative pricing impact is expected to be around 2%-3% of revenue, with stability in short cycle and ongoing pricing pressure in power generation businesses. Personal cost inflation is expected to be in the range of 3%-4%. Also assume around EUR 300 million-EUR 400 million severance charges as normal course of business. We may see some additional impact from Vision 2020+ related efficiency measures to optimize support functions. We will give you further details at our planned Capital Market Day.
CapEx in the industrial business is expected to go up clearly in fiscal 2019, as we have taken some decisions to expand and optimize the footprint in line with market demand. We expect continuing adverse currency effects. It results primarily from translation effects of businesses in emerging markets such as China, India, Turkey, or Argentina. Just as a reference, we recorded revenue of EUR 28 billion in emerging markets for fiscal 2018, thereof EUR 8 billion in China. The negative impact from exchange rates on margin is expected to be limited for 2019. Now what to expect below industrial business in fiscal 2019. Siemens Financial Services will continue to be a reliable profit contributor on fiscal 2018 level. Siemens Real Estate is depending on disposal gains as in previous years. Centrally managed portfolio activities include an equity investment such as Valeo Siemens or Primetals and further carve-out related items.
We expect a significant swing in CMPA and overall negative impact in fiscal 2019. Furthermore, we assume no material gains from divestment. For corporate items and pensions, you can assume a cost run rate of around EUR 250 million per quarter. For PPA, you can assume a similar as in fiscal 2018. The same applies to elimination of corporate treasury and other items. The tax rate is expected to be in the range of 25%-31%. Important to consider is the higher level of minorities in fiscal 2019 due to Healthineers included for the full fiscal year. Now let me summarize the guidance for fiscal 2019. We expect a continued favorable market environment, particularly for the short-cycle businesses, with limited risks related to geopolitical uncertainties. For fiscal 2019, we expect moderate growth in revenue, net of currency translation and portfolio effects.
We further anticipate that orders will exceed revenue for a book-to-bill ratio above one. We expect a profit margin of 11%-12% for our industrial business based on our current organizational structure, excluding severance charges. Furthermore, we expect basic EPS from net income in the range of EUR 6.30-EUR 7, also excluding severance charges. Fiscal 2018 basic EPS from net income of EUR 7.12 benefited from EUR 1.87 per share in portfolio gains related to our stakes in Atos and Osram and was burdened by EUR 0.76 from severance charges, resulting in EUR 6.01 excluding these factors. With that, I hand it back to you, Joe.
Thank you, Ralf. Ladies and gentlemen, since 2013, we have made major progress and have achieved strong results by executing our Vision 2020. What is important and necessary to develop and prove the quality, various quality, reliability of our companies. That performance, in our view, is a very clear evidence that Siemens is stronger than ever. Over the years, we have invested quite some resources into the future of our company. I just want to highlight maybe a few areas. First of all, innovation has always been a key driver of value creation and profitable growth. Since 2014, we have constantly ramped up R&D resources in both absolute as well as relative terms. Main driver obviously has been the rising share of software and digital and artificial intelligence-driven applications across the businesses. It is also reflected in our resource allocation.
Our growth and profitability strongholds, such as Digital Factory or Healthcare, are by far the most R&D-intensive businesses, investing more than half of our R&D spend, which obviously in turn leads to quite rich gross margins in those sectors. If you look at Digital Factory, for example, it will provide a leading innovation platform by combining the Digital Enterprise Software Suite, Mendix low-code application platform, and MindSphere IoT ecosystem. That drives quite a massive amount of interest from all our verticals in the market because we obviously see the benefit in combining those elements to help them improve their efficiency in the market. We do support all those customers, and we support them of all sizes, from small-medium enterprises all the way up to big companies, such, for example, as Boeing or others in that space.
In industrial digitization, we are clearly the number one with our unique combination of automation and software. With 12% organic growth in the industrial software business, we outperformed the sector, we expect to continue this path going forward. Our ongoing investments in this field are paying off, we're also very proud, especially about one great team success, which we're proud to celebrate, that was actually that we have been able to cut a deal with Boeing, obviously one of our lead customers in that area when we talked about the second century partnership of electrical and electronic design. With Boeing together now, we will significantly expand the partnership. They're going to standardize the enterprise based on our tools and solutions. That long-term agreement on how we see it today offers quite the potential for a triple-digit million total contract value.
As mentioned, continue to invest in bringing the bits and pieces together for enterprise solutions, which help the customers benefit in terms of efficiency, savings, and expansion. The Mendix acquisition now closed on October 1st, we are starting to massively use the low-code platforms to speed up our application development, which obviously, again, in turn provide customer solution, which make customers willing to pay for the benefits they have. Digital transformation is changing, obviously, you know that, all industries, we are proactively shaping this development. In our domains, such as discrete industries. We also see verticalization in electronics, in automotive, in semiconductors, and the other appliances. You also see great examples in the Smart Infrastructure environment, not just limited to Digital Industries. One example is a recent order we were able to close in Singapore.
Our managed application center will develop and manage a comprehensive data analytics solution for the mass transit system. That actually means that whole Mobility in the city or state of Singapore is going to be integrated into one data application center and obviously can be optimized as we speak. Combined with our commercial information, obviously we'll be able to provide decision support and guarantee optimized availability and efficiency of the rolling stock and the hardware. Save them hundreds of millions of investment into hardware going forward. As you can see from those examples, like Empower Services, Building Technologies, we are continuously expanding our digital portfolio and sales competencies, which is an important factor, in an organic way, but also through some smaller bolt-on acquisitions. These investments are a sound base to raise the bar for Vision 2020+ for higher aspirations and sharpening our purpose.
Our team is more than ever impact-oriented and aligned across all areas. The customer proximity, innovation, efficiency, and adaptability is one of the prerequisites of a dynamic organization going forward. We want to further develop what we call the ownership culture for the benefit of clear entrepreneurship, responsibility, and accountability as the cornerstones for our Vision 2020+ management system. That management system basically is built on three key principles. First, focus. Focus means that we do whatever the independent and different businesses need as their priority. They have the entrepreneurial freedom to exactly do what is the best for their respective market. In case of a conflict, focus matters over synergies, which typically are pretty overrated anyway. The companies will have full control in shaping their businesses to achieve superior performance, which will be measured against the best of their respective industries.
Accountability means that each leader owns decisions and actions for the individual businesses and is accountable for achieving the defined targets. There is obviously no entrepreneurial freedom without a corresponding responsibility. That will also obviously find its way in the long-term incentive systems of the new operating company structure. Finally, that's very important because that's true for all the functions in the company, adaptability is absolutely critical in today's fast-paced, complex, and obviously uncertain world. With Vision 2020+, we will shift from a one-size-fits-all approach to a purpose-driven and market-focused approach. We do what is best for the respective businesses in the company. Where do we stand in executing on first the organizational changes? We are in the middle of doing that. We are making our way well into what we said we would do. We will be ready with the organizational alignment by March 31st.
Beginning with the third quarter of our fiscal 2019, we are going to explicitly and deeply start the optimization of the businesses.
After the release of our second quarter fiscal earnings in 2019, we are going to host a Capital Market Day where the CEOs and the management teams of the operating companies will provide the details on how they are going to secure the growth targets as well as improve profitability, profit ranges, as we have outlined them in our August presentations for Vision 2020+. Later in the year, we're also going to have an Innovation Day, which also is going to focus on the latest innovation management tools, on where we put our resources to work and where the commonalities are within the company to share with each and any of the operating companies so that we get the best out of what we do in our organization. With that, I believe the goal is clear.
We ultimately want to create value for all stakeholders, for our customers, for our shareholders, and last but not least, also for our people in and outside the company. With that, Ralf and I are happy to take your questions. I'll turn the mic back to Sabine.
Thank you, Joe. Thank you, Ralf. Operator, we will start now with the Q&A.
Thank you. Ladies and gentlemen, we will start today's question and answer. If you wish to ask a question, please press the star or asterisk key followed by the digit one on your telephone keypad. Again, ladies and gentlemen, please press star one on your telephone keypad. We will take our first question from Ben Uglow, Morgan Stanley. Please go ahead.
Good morning, everyone. Thank you for taking the questions. A couple, if I may, obviously around Digital Factory. I just want to understand, in terms of the margin effects that we saw in the fourth quarter, how many are reversible and how many are ongoing? If I look at the margins sequentially, quarter-on-quarter, on an underlying basis, we've stepped down from about 21% to 19%. That's basically about a 2 percentage point impact. Within that, as you mentioned, we've got FX, we've got solutions, and we've got the Mentor effect. How much of this is one-off, and how much can we expect reverses? Obviously, I also noticed from your presentation that we are stepping up some of the investments in that area as well.
Can you just give us a feeling for how to think about the margins as we move into 2019 versus the 20% that we've achieved in 2018? The follow-up, Joe, you've been very candid about this over the years about the drop-through rates in factory automation and motion control in particular. If we are thinking, and I stress, who knows, but if we are thinking about China slowing down, is it natural to expect that those margins in factory automation and motion control would come down as well? Those are my questions.
Thank you, Ben. Ralf speaking. Of course, very relevant questions we have been asking ourselves quite in detail before. Let me quickly get you some color on the Digital Factory's margin in the fourth quarter. As we have been guiding you, we have been spending about 150 basis points on margin impact for MindSphere. We had another, say, around 50 basis points for Mentor integration haircuts and the like. What you may have not been having on your list is the fact which we indicated that we now start to ramp up software-as-a-service investment. Even though that was in the low double-digit million area in fiscal 2018, this will increase, as we indicated before, the mid double-digit millions in fiscal 2019. What we also have been mentioning is the 80 basis points of exchange rate negative impact for the quarter.
If you take all that into consideration, plus eliminating the restructuring expenses, you will come to a fairly healthy margin level of clearly above 22% again. The mix being given in the Q4, we also discussed it a couple of times, depending on whether or not we execute on what Digital Factory is calling projects, means implementation of projects, mainly at large OEM customers with a fairly low margin. Why are we doing that? Because we will tie in their supply base then in the years to come with the Tier 1 and Tier 2 customers of those OEMs. We are quite happy with that investment because we definitely win market share with that and may get sustainable revenues from that on the way forward.
The Mentor seasonality we talked about, it's hard to tell and quantify what that will mean in detail in the first quarter to come, but after all we saw so far, Mentor really has been very quickly integrated, and the sales forces are fruitfully benefiting from each other, historical and the new joiners from Mentor. We are quite happy with the quarter, even though from a face value, it may have been difficult for you to judge. For the way forward in fiscal 2019, I think we just can repeat and stick to that what we have been guiding you before. Just for modeling the MindSphere impact, we continue investing in the area of EUR 175 million per year, what we said, which was also applicable for 2018. We will ramp up software-as-a-service with some mid double-digit million amounts.
Maybe you consider EUR 15 million in your model.
What we also will see, as always, when you acquire and integrate a software company, Mendix will be in the higher double-digit million EUR area, and we intentionally do that as quick and fast as possible, because the faster we move, the better our opportunities to occupy the space in a very interesting environment, where we also have quite plenty of cross-selling opportunities in the years to come. For Mentor, there will be a residual amount of integration cost in fiscal 2019, with the associated effects of revenue recognition, as you know that from the past. That will also be in the mid to higher double-digit million EUR area.
From that point of view, there's a substantial amount of investment included in 2018 actuals, and we will continue being very transparent in what we intend to invest for moving more into software-as-a-service and also building on the success that we had on FA already with our MindSphere applications, and to build on that. With regard to the drop-through rates, of course, we are very carefully watching not only FA and motion control, but all the short-cycle businesses, and in particular, China. What we have been seeing in China was quite a strong performance in the fourth quarter, as we indicated. Going forward, there will be some moderation on the growth pace, most likely, mainly in automotive. We also see strong momentum in machine building industries, as I said before.
From that perspective, we feel quite confident for the first three to six months of the new fiscal year. What you also should bear in mind, I have been mentioning that the last quarter, and now for the fourth quarter end, we even had a higher backlog in the factory automation environment, the highest level that I ever experienced, and I'm in the business for more than 15 years now, which is encouraging us that we are doing the right thing, and at least for the next three to six months, see a continuing growth momentum, even though moderating in pace. I hope that has been comprehensively touching on your topics.
That's very helpful.
Ben, ladies and gentlemen, let me make maybe a general comment about the whole macroeconomic, geopolitical, and have you methods. This has been on the agenda for all interviews and all things which we have actually been questioned about and asked about for the last three hours. Obviously, there is a lot of concern about the trade war and behavioral aspects of the main players. Questions about have the same eyes in the automotive sectors and the short cycles now reached the peak or not, or how close we are. Obviously, if you look at really what has happened so far was that consumers continue to buy almost no matter how big the tariffs are going to be increased. The jury is out whether or not there will be a different tone between the U.S. and China after the midterm elections. We'll see.
I'm really not that worried about this sector too much, honestly. I'm almost amazed about the fact that no one has actually looked at what would interest rates do to the business if they were being raised in a massive way. Obviously, triggered by inflation, which could be caused by tariffs and the like, if consumers have to pay the bill. I do see if there is a risk in 2019, I would actually expect the major risk to be coming from a significant interest rate hike in both in the United States, obviously killing consumer euphoria in buying stuff and consuming stuff, which is almost unprecedented in the U.S. If interest rates are being raised in Europe, that will definitely spark another debate on fiscal debt and the likes. The more south we go, the worse it will get.
That's much more what we are currently looking at on how the demand will be affected than some big words on trade and very little actions. That's in our view, the reason why we have actually been flagging that we would not expect major adverse impact from geopolitical aspects. If you look at what do the interest rates and what they could do if they hike very quickly to consumer confidence, because that's the end customer, in a way. We are very early in the value chain with our equipment for machine builders and car makers and chocolate producers. That's what we are currently have in focus. We'll take it from there. I think it was important that you understand our thinking here. We cannot predict the future, but we obviously can do everything to perform better relative to competition.
That's the aspiration, and that's what you can take us up on in the end.
That's great. Thank you very much. I'll pass it on.
Thank you. Our next question comes from the line of Andreas Willi, JP Morgan. Please go ahead.
Yeah. Good morning, everybody. Thanks for the time. My first question is on Power and Gas, whether you could maybe provide an update on some of these mega projects that seem to dominate now the opportunities in the market. In Iraq, both you and GE have announced some wins, but maybe you could clarify a little bit in terms of what exactly you think will turn into firm orders in the near term. Also, you mentioned that you would have signed a EUR 20 billion contract or a framework agreement in Saudi Arabia had you gone to the summit. Maybe you could also elaborate a bit on that in terms of timing, what it is, and what's happening now. Follow up on the guidance, and your earlier comments.
You seem not that worried about short cycle or the tariff impact, but how do I reconcile that then with the EUR 6.30 lower end of the EPS guidance in terms of the spread of assumptions you make, particularly for Digital Factory in the upside case and downside case? Thank you.
Thanks, Andreas. Obviously, we agree with you that the power generation market will be impacted quite a lot by measures of rebuilding economies, which have obviously been suffering from a lot of external impact. When it comes to Iraq, a lot has been written about it in the media. What we do is we focus on our customers, and focus on who can build a better concept for what is being needed from the customer side. That's all what we do. We presented that concept. It has been listened to, an MOU has been signed. We understand other MOUs have also been signed. That's as much as we can tell at this time. If we have an order, we will book it and report on it. Other than that, we focus on our customers and the solutions.
What we, of course, expect is a level playing field from any of the constituents, let's say, involved in the matter. That's all we ask for. We have a lot to offer in the United States, almost 60,000 jobs, which trigger another 150,000- 200,000 indirect jobs. We're paying a lot of taxes still, despite the fact that there's the tax reform, which I believe is a good thing if it creates more jobs and increases the substrate associated with that. We are a global company. We can offer a lot in many countries, and I think that's why I believe also governments are well advised to have a look at that multilaterally and not just have a narrow focus on nationalistic views, although people commit to being nationalistic. That's as much as I can say.
Everything else, people rely on financial sustainability, they rely on stability, on innovation, on executing big projects, which we have quite a nice track record in Egypt. That's stuff we want to speak for us and not some other, let's say, matters which are outside of our control. On Saudi, they have always been a very long-term, committed partner, and that continues to be the case. We believe the Vision 2020+, which has been outlined by His Highness Mohammed bin Salman and his team, is a wise, compelling strategy to develop the kingdom after the oil. We support that. If you look at what's being needed and what's being addressed there, almost reads like a description of business of Siemens, from generation to natural resources to digitalization, industrial build of modern cities and infrastructures, all the way to building virtual twins by software and, of course, healthcare.
We have the whole spectrum. We are a natural partner. That's understood, and that doesn't change. Obviously, I made myself known that there's got to be a few topics which need to be clarified. I did extensively describe my views, which I think are much more differentiated than most others have reflected on it. You can read it in the LinkedIn post, and that's as much as we can say. We look to the future. We cooperate, we work together, but also, we believe it's only natural that developed economies have a certain way of dealing with fatalities, and that also has been said. Other than that, we work it from there. Also here, like Iraq, we look at projects and customer benefits, and if there is orders, we book them and report.
Yeah. With regards to your second question, Andreas Willi, around the guidance and the confidence, I think, was the word that you have been using. What we said is, what we try to express is, at the moment, we have fairly good visibility for the first six months of the fiscal year in our short cycle business. We don't have any indicators that clearly would tell us anything else than just assuming that t he momentum is obviously not burdened by all the geopolitical tensions we saw in the past.
Why would we have a reason to anticipate that to change if we don't have a trigger? As I answered to Ben already, when it comes to the short cycle element of Digital Factory's portfolio, we also have a very tangible and firm backlog in our hands at the moment. Also, the start into the new fiscal was really quite promising. In a nutshell, we don't have a negative indicator. The assumption we set, and that's what the guidance is supposed to express, is that this is something we expect to keep on with a momentum that may decrease a little bit compared to the pace of growth we saw in the past, including China.
With regard to the tariffs, I think Jochen Schmitz has been mentioning the Healthineers Q&A, that the impact for the Healthineers was something between EUR 30 million and EUR 40 million. For Siemens in total, it's really hard to tell because you would have to get into each and every single declaration between all those pairs of countries where we are trading between. If you assumed a high double-digit number for that one, that's what we would also presume from today's perspective. Of course, not a good thing to have, but also not really material from a corporate perspective and from a company's perspective in total. With regards to the Digital Factory and the margin conversion in the year to come, as I indicated before, we will continue to invest in MindSphere.
As pointed out before, this is going to be 150 basis points-200 basis points in fiscal 2019 again, equaling around EUR 175 million for modeling that. We will continue and increase our investments in software-as-a-service, as indicated before. If you then add also what I said about the Mendix integration and the residual on Mentor, you end up with some 300 basis points of upfront investment that will be burdening the margin of fiscal 2019. It's, I think, one of the best investments we can make those days. I also have been indicating that there will be a basic and regular restructuring of EUR 300 million-EUR 400 million on an annual basis as normal course of business. A portion of that will also be in the short cycle business, where we continuously drive our value chain closer to the growth markets.
I also talked about the incremental impact of exchange rates, which will not be material in total, but also will be rather a drag on margins, and also on a nominal basis when it comes to EPS. I mean, that's a different story, obviously.
I mean, obviously you all know how quickly short cycle can move. Otherwise, obviously it wouldn't be short cycled. We also are all aware of the impact of what revenue growth or contraction does to the bottom line, given the rich gross margins which we have in that business. I also, however, would like to throw your attention to is that since we are on quite a growth path, we are also on an investment path. We are planning to incrementally spend money and allocate resources to the business. The good news to that is should there be any adverse impacts on the top line based on markets or other things, we have the freedom to choose and decide whether or not to spend that money.
Which is a fundamentally different situation than if you have spent the money already and need to deal with fixed costs which hardly go away over time, talking about POWERGEN. I think if I would probably guess that we are planning to spend a mid three-digit million amount of OpEx in 2019, roundabout, then you see that we have a lot of leeway to decide whether or not to spend it if we believe market condition will unexpectedly change, which is quite an important factor to know. We have flexibility also in OpEx spending, and we will do that very meaningfully related to what we believe the marketplace will do and develop going forward. I think it's a very important aspect you ought to consider.
Thank you for the clarification. On page 19, the slide where you talk about the investment in Digital Factory over the next two years, does this already include the 10,000 implementation engineers you want to hire over time for the kind of driving further down into the vertical integration to deploy software solutions?
That's a different aspect, Andreas. This is supposed to be in the IoT space. That is IoT nucleus we have been talking about.
That happens in the corporate development. It's got nothing to do with Digital Factory at this time. Up to those 10,000 in total, first of all, that will be all low cost, like India, Romania, Egypt and the likes. Secondly, this is something which we may or may not invest. This is based on the use cases we provide and the customer framework we work together with. That would be, if at all, incremental spending covered in the corporate development in the R&D space. It's got nothing to do with the short cycle industrial business. That's one we keep within Digital Industries because it's a very specific IoT use case in the digital industrial field and not in infrastructure such as smart cities or mobile infrastructure or charging infrastructure in e-mobility.
Thank you very much.
Sure.
Thank you. We will now take our next question from Peter Reilly from Jefferies. Please go ahead.
Good morning. Thank you for taking my question. Two questions, please. Can you give us some more detail on the Boeing Mentor win? I'm interested to know whether you think you would have won that contract if Mentor hadn't been part of Siemens, whether it was an example of revenue synergies. More broadly, you talked about winning large projects with OEM customers. Are they still mainly in the automotive space, or are you managing to be more successful now in non-automotive customers and Boeing is just a very public example of that? Secondly, I'd like some more color, if you can share it, on where you think you go from here with Building Technologies. It's had a very successful few years now. You're above the margin corridor range. It's growing nicely, but it's still, I would argue, probably smaller than a lot of its peers.
Do you see the need or the scope to expand the business more rapidly or aggressively by doing some larger deals, or are you happy with the organic development?
Thank you, Peter. Talking Building Technologies, I think this is a true success story because now for many quarters in a row, they have been continuously improving both their top and bottom line. Three, four years back, there was still quite a material gap between best in class in terms of profitability and that what we could contribute, and they have been consistently closing that gap between then and now. They have been very much focusing on growth markets and have been concentrating also on their resource allocation into those markets and benefit from that now very much so also in the U.S., of course. Therefore, they are very punctually adding incremental investments from an M&A perspective as they did with the three ones we had been mentioning. I think that makes a whole lot of sense in that field.
What they also have been very much driving in the past is that they consistently have been increasing their portion of product business and now also earn a premium on their digitalization efforts of the past. For many years, it was a kind of paradigm that has been said that you only can increase your margin to a certain level if you have at least 2/3, if not more of your revenues in product. Now Building Technologies has been delivering proof point after proof point that they can do that also by occupying the digital space with a higher portion of service activities and upgrade, et cetera. That was quite a healthy development.
What I like best, to be honest, about BT is that for many, many years, looking at the cycle, they have been converting their profits also into cash, which is encouraging because that also shows that they don't tie tons of money into their asset management or working networking capital. They are quite strong, and we will continue on that path. Absolutely. You may recall our discussion we had on the Vision 2020+ operating company structure, talking about Smart Infrastructure. If you really look at it, the nucleus of that Smart Infrastructure is nothing but Building Technologies. We add now the decentralized energy systems, the DES. We add the whole matter of pushing the e-mobility infrastructure, which is also sort of a decentralized concept into that. We also add the industrial communication piece from the Digital Factory over to the Smart Infrastructure.
We don't want to overload it. The reason why we did it, though, is that Building Technologies has been extremely successful in building the go-to-market channel and to manage local solutions on a smaller scale, firstly. Secondly, one of the major reasons why BT has actually been outperforming even the bigger peers was that they continuously now have been investing into solutions in combining the fragmented islands of services in a building. If you anticipate that whole matter further, assuming that building technology will benefit like no one else from our cloud-based digital platforms and the knowledge of application centers, you can actually make a case that all those product-related services in buildings, which are completely isolated from each other, taking a ton of money out from the customers with that razor play concept.
That this could be quite a focus point on getting that profit pool handed over to the ones who integrate the solutions and hand part of it back to the customers and keep the other part of it. That's only a matter of time until this will be naturally develop into that building operators are determining when they need a service and not the product. Williams telling them when they need to pay another horrendous amount of money for people coming in and do a job which the others could actually determine. We call that demand response integration, which we do already long time ago in the areas like power generation, and associated grid things. That's exactly the focus point. Expect more intelligent, smart approaches to profit pools we believe should actually be ours and the customers.
Secondly, expect that BT will use its remarkable performance to make decentralized energy systems and power infrastructure a success. They're pretty busy with doing that. There is no point in going after overrated targets, which are out there for quite some time in low voltage and the likes.
Next question, please.
We will now take our next question from Simon Toennessen from Berenberg. Please go ahead. Your line is open.
Yes. Good morning, everyone. My first question is just on Digital Factory in the U.S. more broadly. China has been strong for Digital Factory for quite some time. You seem to be gaining share. In the U.S. you've struggled for quite a few years, not necessarily to grow, but to gain share against some of the established competitors there. I think you flagged you've been growing double digit in the U.S. in the fourth quarter. Looking at some of the peers that have reported, for example, yesterday, it seems that you are gaining share in the U.S. as well, in the automation channels. Can you just talk a bit more about competitive dynamics there? Your distribution setup, obviously software plays a key element when you flag, obviously Mentor in the presentation as well.
Obviously, some of your competitors are waking up a bit more now to the digital angle via partnerships, et cetera, and that they need to offer bundles. Just would be interested to hear your view as to how you can really continue that market share dynamic in the U.S. Second question, just on the balance sheet. Free cash flow has been again, strong. Even with the buyback and taking into account your balance sheet is probably still quite ungeared also for fiscal 2019. When I look at the new divisional structure, obviously, Digital Industries and Smart Infrastructure being kind of the key areas. Where do you see a bigger need in either of the two to potentially do a larger deal, i.e. Mentor size or even slightly bigger? Do you think there is a potential to do a larger deal in the next 12 months here? Thank you.
Hi, Simon. Maybe if Ralf goes into the money, the abundant resources of cash, which is a good thing to have, I believe. Let me maybe reflect a little bit on the U.S. We've been booking quite some growth. It's true that we have not been really that great on winning market share over the years. Now, however, I believe there is an inflection point, I would say in the next 24 months, 36 months. The inflection point comes from the fact that people more and more understand how powerful the integration of mechanical and electrical simulation actually is for future application on growth markets, such as autonomous driving cars, and other areas. Boeing obviously being, always aerospace and automotive driving innovation in that order. People now all of a sudden understand how powerful that integration is, electrical and mechanical simulation.
As you mentioned, competitors seem to wake up. I would not have minded to keep them there, but from their actions, you see that there's got to be something to it, what we have done years ago and have been developing. We focus more on our customers because we know what needs to be done, and then not so much on the competitors. We do believe we have quite a unique window now in the next two to three years to correct the current share deals in that economy, especially, with the rise of e-mobility and autonomous cars. Also with the aerospace quite a lot. There will be a lot of companies who have been committing to invest in the United States based on encouragement and economic terms and tax reform and what have you.
With those huge big companies now investing there, this is a new field on a green field. Green field, obviously, always is very courageous in getting the latest and the best solution in. Brown field, sometimes it's not that simple. Also I talked just recently in Shanghai to Dan Bodie, who manages the biggest car company in the United States. We also talked about the electrical and mechanical simulation and have that all together with the automation piece, including even the manufacturing execution system, which is the link to logistics and warehousing. You could tell how massive the interest was to have that all out of one hand, out of obvious reasons. We believe we have a window. Or that the door opens.
We still need to cross that door, and I'm sure that we have strong competitors there that just look and see how we do it. We feel pretty good about what we have in the offering, and now we need to make it work. We have had a good start in 2018, and we need to continue to explore and exploit those opportunities in 2019. That's exactly what we are planning to do.
Yeah. Taking the part of your question around our balance sheet, I, of course, like to hear that you appreciate the strong cash flow that we have been able to generate while being on a growth path and investing also substantially, but also in a very focused way. The fact that we have an Industrial net debt to EBITDA that is clearly below the threshold that we have been setting ourselves does not implicitly mean that we are in spending mode. I have been answering that question also in the press conference. We will be very consistently reviewing, of course, opportunities when they arise. The fact that we have a strong balance sheet does not necessarily mean that we need to change that.
Okay, thanks.
Thank you. We will now take our next question from James Moore, Redburn. Please go ahead.
Yes. Good morning, everyone. Thanks for taking my questions. I've one on outlook, one on charges and gains, and one on investment. I was interested in your comment that you're expecting favorable short-cycle markets in 2019, I listened to your answers earlier, I was wondering if you might quantify your first half, what your first half visibility says your U.S., European, China short cycle revenue growth will be around the different regions. Secondly, just on housekeeping, was there a provision release in PG in the fourth quarter, if so, could you quantify it? Can you put a rough size on any likely Alstom merger or Vision 2020+ charges? Just on the PPA guidance for flat, I would have thought you might have a EUR 200, EUR 300 drop from Siemens Gamesa backlog amortization dropping out. If that's not the case, is there an offset?
Finally, sorry for all these, on the investment slide where you've raised your guidance to EUR 380 and EUR 220 for the next two years, I'm wondering whether that's really going to be the case, and will it drop to nothing in 2021, or will we be here in 12 months where we acknowledge IIoT cloud means that these numbers will just keep staying quite high?
James, let me start with your first question around the outlook. What we said is that from today's perspective, and I think that's important, we don't see any tangible indicator that would suggest that the short-cycle business is harmed or somewhat materially impacted by geopolitical tensions and the like. I also said that we have a very strong backlog in our short-cycle business compared to that what we saw in the past. This is not billions, obviously, like you know that from project business, but a couple of hundreds of millions, and that is allowing us to have a very good view on the first three to six months of the fiscal year.
It definitely would be too early to quantify by regions, and it also would probably not help you a lot because the dynamics, as Joe has been pointing out, they can change fairly quickly, and we don't want to speculate. You'll get all the details and the regional split as we do that once we have been completing the quarter. As we, you have to be patient with that split for the first quarter and the second quarter then. The momentum, and that's what I said a couple of times, and the pace of growth will moderate, but it will not materially impact from today's perspective the growth trajectory for the Digital Factory, even though the growth rate as such may not be on exactly the same level, but moderate a bit.
In terms of PG, as I said, we have been successfully reaching a couple of important milestones, in particular around the Egypt projects. The mechanics of POC, of percentage of completions, are known to you, and whenever you reach a milestone and execute flawless. Of course, then you incrementally recognize revenue and also profit accordingly. We will not start to discuss the margins and the POC milestones and their impact on margins on a project-by-project basis. With regard to PPA, if I got your question properly, I said in the guidance for the next fiscal that you should assume pretty much the same level as for fiscal 2018. On the one-hand side, we now see from our very first acquisitions on industrial software companies like UGS, more than 10 years back now, the end of the amortization period for some of those assets.
At the same time, with Mendix, and also with smaller acquisitions like we had them in Building Technologies, we add. The level will be pretty much the same. For modeling, I think you just straightforward take the figure of fiscal 2018, and you will be safe.
There was one on the Alstom merger and Vision 2020+ charges, whether you could quantify it and whether the investments will really come down as we go forward.
What we said is that, of course, we will keep you posted on the impact of the carve-out activities and the related taxes associated. I think it's fair to say that we have been digesting a big part of that with regards to Mobility, but we are not done yet. It also makes a lot of sense. I think we discussed the last time we met already, in particular when it comes to taxes, it's not smart to move ahead too fast, too early because this is immediately triggering cash out, obviously, when the taxes are supposed to be paid. Some of those carve-out steps are intentionally saved for a later point in time, but fully under our control and definitely not keeping us away from moving ahead as fast as we can with regard to the content of the merger.
There is some residual left for fiscal 2019, and I can't quantify at the moment. You saw from the high tax rate of the fourth quarter that obviously that period of work we then carve out and start to organize a group also tax-wise for Mobility. We are entering the last couple of yards.
There's still a few people in the line. Maybe we limit to one or two questions to get more people in because we have only 15 minutes left. Next question, please.
We will now take our next question from Martin Wilkie from Citi. Please go ahead.
Yeah. Thank you. Martin from Citi. Just a couple of questions on some of the longer cycle markets. Firstly, in Process and Drives, order growth slowed. I know there was a high base of comparison, just to check, has there been any sort of change in what customers are doing in those process markets? Secondly, in Power and Gas, if we ignore the large gas business, obviously there are the old Dresser-Rand business, things like that. If you could just let us know, where is the book-to-bill on the non-large gas business, which is presumably a little bit earlier cycle and therefore could give us some indication as to how that business might progress over the course of 2019. Thank you.
Thank you, Martin. Let me start with the Process and Drives. As indicated before, we saw that some of the commodity markets coming back. It's too early for euphoria, of course, because many of them are still not making full use of existing capacities. In some areas driven by commodity pricing, there have been incremental investments that we saw. Probably one of the single biggest changes compared to prior year's quarter is the fact that wind has been coming back to a certain extent. However, as you probably also took from the disclosures of Siemens Gamesa, there is quite an intense pricing pressure in that market, in particular in the onshore piece of it, which is then filtering through to the suppliers, of course. Therefore, there's still a high demand for productivity gains.
That's why I also have been mentioning that we will continue doing that, we will use our own tools with the cost-value engineering toolbox, of course. On selected customers, there is momentum that we sense. As I said, too early to say this was it. Typically, this is not only long cycle but also late cycle. We may expect another two, three quarters in which that being late in the cycle is stabilizing the top line. That's what I also mentioned in my presentation. The other part of your question referring to the book-to-bill outside of large gas, the book-to-bill ratio is still below one.
Okay. Thank you.
Thank you. We will now take our next question from Markus Mittermaier from UBS. Please go ahead.
Yes. Hi, good morning, everyone. Quick question on guidance again, at a group level. If I look at your more late cycle businesses, Process Industries, wind, Mobility, et cetera, and look at the exit margin this year versus 2017 levels and the order intake you've had throughout the year, I am just a little bit puzzled how you only can get to sort of a 20 basis points at the midpoint margin improvement guidance for next year. Maybe you can comment on that. I think your top-line language from modest to moderate is becoming a bit more positive. You're positive on short cycle for the first six months. Just how we get to an essentially flat to only slightly up margin guidance. That's question number one. Number two, on PG specifically, in the backlog, if I look at FlexLTP, and Large Gas Service.
I know that you can't comment on specific projects, but can I assume that the margin profile and margin levels, in that FlexLTP and Gas Service business remain at roughly historic levels? Has there been a change? If you allow just on a very brief housekeeping on CMPA, why was there this negative swing, whereas I think consensus had EUR 100 million + for next year?
Thank you, Markus, for those questions. Let me start with the quickest one on CMPA. I don't know how the consensus has been finally shaped, obviously, but it was very clear and evident, and we have been also very transparent on the extraordinary gains that we've been benefiting from in fiscal 2018, with Osram and also with Atos. If you just take those out, you will pretty much conclude that you can't expect in the absence of major divestment gains, as I said, that you can't come to the +EUR 100 of what the consensus has been suggesting. This is obvious. With regards to the FlexLTP, yes, you're right. We are very carefully watching that. It's a very important indicator for us also. As I said before, the service business, from a top line and also from a profitability perspective, is standing strong.
Probably also driven by the technology that we can provide. We discussed it at several stages that whenever there's a renewal upcoming, we may or different providers may be in a different position when it comes to be under pricing pressure. If we can provide productivity gains with new technology to our customers. We are very happy with the development of the FlexLTP and also with the total backlog for PG of EUR 40 billion. I think it's also good to know that a bit more than 80% of that is service related, in which again, then the FlexLTP are playing a major role. Service is a very consistent and strong pillar of our business model there, and we do not have any indication that this is going to change throughout the next 1.5 years.
As we said before, four to six quarters is the typical visibility we would have pre-notice of renewals coming up. I'm not sure whether I completely got your question around the guidance around late cycle and so on, but what I took from it is the fact that we do have very limited impact on the industrial businesses margin from exchange rates. Of course, does not implicitly mean that there is no impact on EPS. We said that in particular due to the fact that we have a growing business in emerging countries as a result of moving to those growth markets with big parts of our value chains. Of course, there is also impact from those currencies. I have been spelling out China, India, and also Argentina, obviously. From a nominal perspective on EPS basis, that has an impact.
I also would like to reiterate that we have been guiding you to low to mid single-digit margins for Power and Gas for fiscal 2019.
Maybe. That's been, since we have been shifting a bit from the short cycle to the more long cycle environment outside the famous large turbine generation. I just want to make sure that the records are straight. You asked about PD. Said the orders are slow. We do see that in the commodity-related environment, such metals mining, obviously oil and gas. There is some signs of life, particularly, of course, in the LNG environment. If you look at what we believe will happen in 2019 on the, let's say, the big metals mining, oil and gas related businesses on the solutions. We actually do see clear order growth coming along with the bigger projects. The same, by the way, is true in oil and gas.
We expect a field clearly above one, but this is only orders, so it may take some time till we see it on the P&L. That's why, obviously, we are a bit so carefully about deal-related matters. In terms of bookings in the large solution PD environment related to Mobility as well as oil and gas, we do see a clear order growth.
Maybe you misunderstood my question. That's exactly my point. If you look at Mobility, when PD, you had significant order growth throughout the year, and your exit margins are very much higher than sort of where we started the year. Right? I would have expected that that backlog that you've accumulated in those longer execution cycle businesses is significantly higher margin than what we would have seen maybe even on the 2017 print. Hence, my thought whether the 20 basis points at the midpoint improvement to guidance on margin is actually a bit conservative.
Look, it is what it is. If we had been able to predict the future, we would have been more precise. You could see that we opened the corridor a little bit, to 70 basis points instead of the typical 50 basis points. We do see some favorable conditions in some areas. There is also risk and what we will come up with what we thought would be a balanced way of risks and opportunities to make a meaningful guidance. Obviously, we've been meeting the original guidance or the increased guidances now for five years in a row. There is a track record at stake here. That's why we did the guidance as we did it. I think we are pretty well aligned with the investor community and the sell side. If it comes to top-line engagement, same in book-to-bill, as well as in industrial margins.
We had a bit of a clash in CMPA. The market expected us to produce another one-off as an average of the last years. Well, one-offs are called one-offs because they don't happen every year. That's why we have been guiding the market now the way we believe is most probable. We feel good in what we said we want to achieve. Don't forget that on top of an ordinary course of business, we also do a realignment of our company to make it stronger in the future. We need to do one step at a time, and that's exactly how we wanted the guidance to be understood, in a balanced way with some upsides, uncertainties coming more from macroeconomics interest. Well, we believe actually interest rate movements, geopolitics, you never know. That in essence, how we wanted the market to understand it. We are well underway.
We know what we are doing. We have a lot on our plate. We are strong. We do have good cash flow. We have options. We can act at any different point in time if we wanted to, and other than that, to serve our customers.
Thank you very much
how we want the year being developed. Thank you very much. With that, we give it back to Sabine.
Thank you. We will conclude now. Thank you, Joe. Thank you, Ralf. Thank you, everyone, for your participation today in the call. The team and I will be available for further questions. With that, we will conclude now the call. Goodbye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. Once again, let me repeat the instant replay numbers. Participants in Germany, please call the replay number +496920001800. Access code 15.