Hello?
Okay.
Good morning, ladies and gentlemen. Welcome to our joint press and analyst conference here in Munich today. I'm Clarissa Hala, and I'm in charge of corporate communications at Siemens. And together with my colleagues, Sabina Raheil, Head of Siemens, Investor Relations, we will guide you through the event this morning. Yeah, we have quite a packed gender today.
That is why we have decided to have a common event today for media and analysts today. We report the 3rd quarter results of fiscal year 2018. And we also want to update you on Vision 2020 plus the New Zealand's global strategic plan.
Thank you, Clarissa. Also welcome from my side. We're here joined on stage today with Joe Kaeser, CFO, CEO of Siemens, our CFO, Ralph Thomas, next to As you can hear, the event is being held in English. You can also listen to the German translation with your audio device. Let's have a look at the agenda today.
So first, we will start with the presentation Q3, which will be held by our CFO, Joe, Ralph, sorry, And, then we will have a short Q And A afterwards. After that, Jo will lead you through Vision 2020 plus and we will have a extends Q and A time for Q and A session. Before we get going, I would like to give you also a short safety briefing. In case of a fire alarm, please proceed to the nearest emergency exits, which are here on the right on the left hand side. I also have some further housekeeping remarks.
The event is being streamlined live on the internet. And in both Q and A sessions, you can ask your questions either in English or in German. But to allow simultaneous translation, we will answer all questions in English. Furthermore, I'd like to draw you attention to the Safe Harbor statements. And last but not least, please switch off your mobile phones.
And put it on silent mode. Please also refrain from using the flashlights during this event. So now, Ralph, please go ahead.
Thank you, Sabine and Clarissa. And also a very warm welcome from my side, ladies and gentlemen, to avoid any misunderstandings We do not have any pirates on our fleet of ship. The fact is that I had to undergo I surgery just recently and the eye is still very sensitive to extreme lighting conditions. So please forgive me if I'm looking straight the next place to you when I'm talking to you.
Well, the good news is that Ralf is one eye sees even sharper than most others with 2, so I'm still very confident that this doesn't really impact in a negative way.
Sir, thank you. Let's have a look at our 3rd quarter's performance. Ladies and gentlemen, The economic conditions continue to be robust on a global level. Obviously, however, we see potential clouding on investment dynamics due to geopolitical tensions in some areas. In particular, threats to free trade by tariffs are an area of concern.
The global supply chains are deeply interconnected and is of utmost importance to have reliable frame conditions to foster confidence and economic growth. Against this background, our global Siemens team delivered another excellent quarter with outstanding order intake and strong operational performance across most of our businesses. Let me walk you through the highlights of the quarter. The new record backlog of $133,000,000,000 for industrial businesses. Also, gross margin quality showed solid development.
Comparable orders were substantially up by 21% on strong growth in all divisions, almost all divisions. We had a number of large order wins, especially in power and gas, Siemens Gamesa and Mobility. Organic revenue growth was overall flat with solid growth in most divisions, driven by an excellent short cycle performance offsetting weaknesses in power and gas and Siemens Gamesa. Industrial business profit margin was at 10.7% supported by another outstanding performance of Digital Factory and operational improvements in many other divisions. 6 6 out of 8 divisions were in or even above the targeted range.
As already indicated, currency effects had a significant negative margin impact of 6 basis points. We expect the negative XH headwind to continue in the 4th quarter. Net income came in at 1,000,000,000 a decrease of 14% compared to Q3 last year, which benefited from positive effects in CMPA and from a lower tax rate. Free cash flow from industrial business increased significantly by 29 percent to 1.8000000000, driven by better working capital ment, especially at Siemens Gamesa Renewable Energy. Our pension deficit was reduced to 1,000,000,000 supported by an extraordinary funding to our U.
S. Plants in the amount of approximately 1000000. Let me now walk you through the divisional highlights. At Power And Gas, competition for orders continues to be very challenging. Despite this tough environment, we were successful in winning several large orders leading to a strong book to bill of 1.25 times.
Most notably, we booked an order in the U. K. For the first deployment of our 50 hertz H. L. Turbine.
In total, we sold 5 large gas turbines during the quarter. We are very proud that we completed the world's largest combined cycle power plants in Egypt in record time. Total capacity adds up to 14.4 gigawatts, supplying over 1,000,000 million people with reliable electricity in the country. However, as expected, profit margin for PG decreased to 5.4% or lower revenue price declines and reduced capacity utilization. Therefore, The PG team is working hard, extremely hard on a large number of cost and restructuring initiatives.
On the positive side, the Service business continues to hold up well. It also benefited this quarter from a divestment gain of 1,000,000 Service continues to show resilience on top end bottom line also for the foreseeable future of the next 12 to 18 months. What to expect in the future. In particular, in the large gas turbine market, we see the volatile market environment to continue over the next few years with potentially further declining turbine volumes compared to 2018 with corresponding negative impact on top and bottom line. As a consequence, we expect the PG margin excluding severance to be rather in the mid single digit area in fiscal 'eighteen, with a low to mid single digit performance excluding severance in fiscal 'nineteen.
Energy management. So weaker large orders due to some push outs of HVDC solution projects into fiscal 'nineteen and beyond. The short cycle low voltage product business drove margin up despite material FX headwinds of 100 basis points. The Building Technologies team again delivered excellent operational performance with further margin expansion to 11%. Continued expansion of advanced digital offerings for smart buildings drove margins to the upper end of the margin corridor.
Mobility showed strong order momentum too and POC Siemens largest ever rail infrastructure order in Norway with a approximately $700,000,000. Profit margin was temporarily lower partly because of focused expenses related to innovation and digitalization. Furthermore, margin was impacted by mix effect such as the phasing of some large rail projects. We expect the profit margin for the full year on the similar level as we saw it for the 1st 9 month year to date around 10%. Digital Factory delivered again a world class performance winning further market share by outperforming the whole industry.
Looking at our short cycle business, we achieved remarkable revenue growth. China was up 18% driven by governmental programs still having impact new customers that we have been winning and restocking effects to a certain extent. Italy delivered significant 15% growth. Germany was up 4%. Also demand remained very strong in the machine building industries while Automotive saw some moderation particularly in the U.
S. Given short term visibility of this business, From today's perspective, we expect also a positive trend in the fourth quarter to come. However, growth rates will ease particularly in China into fiscal 'nineteen due to tougher comps and moderation of the extraordinary business dynamics. We were very pleased that also the PLM software business grew mid teens organically fueled by significant contract wins at investment in MindSphere and integration costs for Mentor. The impact was around 145 basis points and 30 basis points, respectively, in the quarter.
Hence, the underlying margin, excluding severance, was again, outstandingly strong, close to 23%. Process Industries And Drives seems to have reached the trough with increasing revenue now in the third quarter. Bottom line was impacted by material currency headwind of 110 basis points. The team is well on its way to execute its challenging Restructuring Program. As a majority shareholder, we are very pleased with the positive development of Siemens Health Immier since the listing on March 18.
Solid financials for the third quarter were already released a few days ago with 5% revenue growth and 15.6% margin despite heavy currency headwinds of 100 and 40 basis points. Not much to mention today about Siemens Gamesa as they reported their results already last Friday. We were pleased with a strong book to bill ratio of 1.54 times. Needless to say that the team is working very hard to execute its improvement program to bring margins in a very competitive industry on higher levels. Let me briefly touch now on what to expect below industrial business in the fourth quarter.
As indicated, we continue to expect volatility in CMPA with a negative impact due to carve out related topics. We expect corporate items to incur significantly higher costs in the fourth quarter compared to prior year. This is in particular related to Central Innovation Invest And Restructuring Costs Related To IT Transformation Mainly. As already mentioned, Q feared tax rate will be negatively impacted by material effects from the carve out of mobility. For the full year, we continue to expect the tax rate to be within a 24% to 29% range.
For fiscal 2018, we see no change in expectations and can confirm our guidance. With that, I'm handing back to Sabine and Sean and I will be happy to answer your questions.
Thank you, Ralph. We will start the Q And A now first with the analysts, and we will then also move to the press side. So first question, Simon Tannerson.
Can you just talk a bit more about the power and gas margin in the quarter? It seems it's another step down if you take the divestment gain out versus previous guidance. So excluding all the one offs, what's happening in the underlying market in terms of pricing, what are you seeing there?
Yes. Thank you for that question. As I have been touching on a bit already, we had an extraordinary gain from a divestment in our service business of around 1,000,000. And this will obviously not repeat itself. On the other hand, we also have been starting to book restructuring charges there to the extent of around 1,000,000.
And as I have been guiding also into fiscal 'nineteen already, I think the new normal is rather between low and mid single digit. But it is important for you to understand that we very, very carefully are tracking our backlog end our service activities. And as I said several times before, we see a very strong resilience on both top and bottom line. I do know that not all competitors reporting that way, that's why I'm stressing it. And what we also do see is that there's no higher level of cancellations.
Pricing pressure is in place, particularly on the new product side, but that why we are also opening up the way for new business models that we are developing together with customers and we will tip on all these opportunities without taking too much risk onboard.
The next question Thanks. Flimik Berson, so I don't could you give us an amount for the restructuring cost and the carve out cost in Q4 and maybe a breakdown on the several items. Thanks.
I apologize. I can't do that today. We are still in the process of negotiating, and we do one step after the other. But, if you consider the restructuring charges that we have been booking current quarter 3rd quarter, that was 138 in total. We had some 160 in the 2nd quarter.
Of this year.
Good morning. It's, Peter Riley from Jefferies. Can you give us some more color on what's happening in the PLM business? You talked about mid teens growth. What's driving the growth?
Is it integration Benowitz from Mentographics? Are you winning share outside the Automotive, bass withdrawal is historically very strong. So Please some more color on what's happening there.
Thank you for that question, Peter. I think PLM is really an outstanding example. What can be accomplished if joint forces do the right thing at the right time. I mean, we are definitely capitalizing on the different customer bases and on that one that Mentro has been bringing, Mentro is a real success story for us in integration and also in top line development. So the teams are very well and very well cooperating, and they get in touch now with customers that they wouldn't have been able to reach on a stand alone basis.
We see, a lot of momentum also outside the automotive business. And, I hope that in the future, we may be allowed also to share some names of key customers that we acquire at the moment, we can't.
Maybe maybe one more word about the more entrepreneurial approach and why we believe this has been not only now a good idea, but going forward, we'll even be accelerating. If you look at, what we have done with Mentor Graphics, was nothing but combining the the mechanical simulation with the electrical simulation. That's actually been the clue about the whole matter. And I'm more and more customers see how beneficial it is to have those 2 things combined in the product life cycle management environment, mechanical and electrical together to make the system. And this we can also see it from, let's say, from the pipeline, the way people talk to us, customers talk to us about this one, this certainly has sparked the interest, and there's nobody else than us who is able to do that, firstly.
So very positive in terms of lasting underlying and growing, and we actually expect that to accelerate going forward. Because it helps you to ride systems and the whole name of the game going forward is miniaturizing industrial systems. So that's a good part. The only one thing I want to caution a bit about this greatness of the numbers. As you know, cementor is also in the semiconductor design business.
And Semiconductor typically is ahead of peaking of most industries. So not saying anything negative, saying that, the sky sometimes, you know, has a few clouds before the sun comes out even stronger than it used to
Next question to Mr. Wacker, please.
If you elaborate a little bit on Siemens Alstom, maybe when do you expect a decision of the Yigu and are there any conditions you expect from the commission?
Yes. But first of all, the fact that the commission was entering phase 2 did not catch us by surprise. It was very clear that this is something very important for everybody. Because for first time, there is a question about how global our markets, while they still are local. So how, you know, should the future development be anticipated, cause cert the biggest competitor in the world has not arrived till late when Deutsche Bank was actually ordering locomotives.
So things happen, and things are coming So the question will be how that can be integrated. Other than that, we are working and I always emphasize that we are working really diligently on the joint approach to make it understandable what we want to create and why this is this is so good, not only for us, but especially for our customers. And that's exactly what we are going to do also in the future.
So next question, Mark Trowman.
Yes, thank you.
Maybe we could just get a bit of clarification please on on the short cycle outlook. We've heard Joe's comments obviously on mentor and and semi conductors And I think in Ralph's address, he talked about China comparatives, which we will understand But more broadly, what about the short cycle outlook in Europe, in the U. S? You know, how do we see that panning out and where do we see it stabilizing Thank you.
Well,
with regard to China, I think we have been discussing that a bit already in the second quarter. The further we go in our fiscal year, the tougher the comps. So therefore, we must not back miracles. I mean, we had an outstandingly strong growth rate on our short cycle product business in China in the second quarter. I said it won't repeat itself on that level.
We are still in the high teens, which is quite remarkable and driver of that growth momentum, was, again, machine machinery, not automotive. So therefore, as we speak, I think we will see continuing moderation of growth. But with declining rates, It also, as always, is a big question, how long the momentum of governmental stimulus will hold in which industries but due to the fact that we are fairly broad based in high quality industries, which is the centerpiece of the government's program. It won't drop dead overnight. From a factual basis and we do that very diligently on a continuing basis.
We look into that what we have in terms of orders in our books. And, our product business, in particular, for China, there is a backlog, which is quite untypical for that type of business, which is still on high level. So in a nutshell, anytime soon, I don't expect any cliff type of thing, but there's definitely a moderation in terms of growth momentum. The other hand, talking automotive course, in the U. S, this is an extremely important industry also with a second and third tier, elements in the marketplace.
They have been moderating, in their momentum already quite a bit, definitely also driven by cussions and speculations about further tariffs or what the landscape is going to be there. But we also do see a quite nice momentum in other industries, like food and beverage, and also, the commodity industries have been bouncing back quite decently, not making a fully fledged spring or summer, but there is development. So there's a multitude of different impact. And, what we see is that, for the next one, two quarters, there's a moderation of highly on fairly high levels of the past. And what we also do is we, of course, prepare ourselves with the signals of early indicators, for example, from some semiconductor businesses and so on to be prepared and not surprised.
If things happen.
Yeah. I believe there is no reason to be concerned, but I want our organization to be mindful. About what we do and, what markets can develop. I believe we have developed a more resilience, a more resilient model in the digital factory environment by adding businesses like Mentor with the PLM, which is much more resilient in terms of recurring revenues. And obviously, it's still the CapEx related to factory automation.
So with that, as I said, no point to be concerned neither relatively nor absolutely. So what do I mean with that? If you compare our numbers with the others in the space, There's really no need to be concerned, but there is a need to be mindful, about being arrogant, on on success. And and that's what I want the organization to understand that you serve customers and not ourselves. And, In the on the topic of trade and political impact, there are 2 theories.
The first is, while all that all the noise will actually scare away the confidence of, of our customers to invest more. That's one theory. And, there is a, there is a meaning to that because investment is about trust the environment, predictability and stability, traditional way to look at it. One could make another argument and say, we all had trade stuff, actually companies are being forced to more localize. So if you localize more, you build more local capacity.
So the the latter one would be the proof of adoption. But, we are so strong right now that the biggest factor, you know, for for imputing success is ourselves. And that's why I want, out to be mindful about what's doable and desirable, focus our customers and focus on winning market shares and build out the profitability of the business, which obviously is, for remarkable.
Good morning. Oliver Zarko from Bloomberg. Mr. Thomas, I had one question for you. You, alluded to this before the moderation in the automotive sector.
I'm wondering if you can give us a little bit of an idea of how you expect that sector to develop in the next couple that was really affected here? Or are you seeing a moderation broad in the automotive sector? Thanks.
Well, thank you for that question, Oliver. I mean, hard to tell. With all, the areas of impact from tariffs and the liked. We don't have a crystal ball, of course, But, what we saw so far wasn't an earthquake. I mean, there was a moderation that was taking place, has been taking place in a in a in a fairly smooth way, but it had a clear trend.
And depending on where you're coming from, of course, the trend had at different angles. And, I mean, still Italy and China for our customer base, in automotive area was growing in the mid teens, yeah, while the U S, still has been ordering, on a level of high single digit growth rate. So that's what I considered being moderation. We are not talking massive declines, but, as we move on and, Joe has been explaining that perfectly well. It depends on where the footprints are going to be changed on a large scale that would potentially create incremental demand for our industries, or whether there's just, wait and see mentality kicking in in the capital goods in that field.
But the fact that we do offer productivity opportunities for our customers some of them may also be inclined to use that period of time to grade up their systems and take them to higher grounds for the next cycle ahead. So that's something that will be very specific. But moderating momentum does not mean decline.
The next question Ben Yuglou from Morgan Stanley, please.
Thank you. I had a couple. The first one, Joe, you So in the opening remarks, mentioned global supply chains being very interlinked. Are you aware, are you hearing either at Siemens or or anywhere else of disruption to those global supply chains. And particularly, I'm thinking about component shortages and low level low level icons, which can trickle through those supply chains.
That's question number 1. Question number 2 for Ralph, I'm really trying to understand the nuance of the low to mid single digit comment in Power And Gas. If I think about where Power And Gas is roughly this year, I would say it's kind of mid single digit. Are you kind of trying to, say to us that that there is the potential for that margin to go down as we move into 2019 on an underlying basis. And how should we reconcile that with 8% to 12% vision 2020 targets.
So let me start with the Second question. Then, Ben, thank you for that one, giving you an opportunity to clarify. And I mean, first of all, we said that with low to mid single digit margin, we don't see recovery of the marketplace anytime soon. That means new product business will still be very much suffering from over capacities in the marketplace price, pricing, that needs to be very competitive, but still, as I said, I think it's we are very, very convinced that the service model that we have to offer is giving us quite some visibility for the next fiscal year too. So there will be resilience on the service end, and there will be continuing pricing pressure and, under capacities.
Over capacities in the market and therefore underutilization will continue. So therefore, it very much depends. And we are very, very intensively looking into all opportunities to accelerate. It very much depends on how quickly we are a position to take out cost in that field. So we are not naive.
We know how to handle that. It won't happen in a quarter. It won't happen in quarters. It will take probably quite some time before that is kicking in. So in a nutshell, the point I was trying to make So trough is not done in that field because many of the cost measures will only kick in on a full basis beyond 2019.
And we see a continuing, a very intensive competition in that marketplace. How does that relate to the 8 to 12%. This is a midterm target over the cycle for the new setup of gas and power. And, therefore, 2019, and the implicit guidance I gave are not related to that figure, obviously.
Yeah. So the the target merchants are after restructuring, obviously, when the rightsizing is done, that's what we believe that business can yield in a globally rightsized capacity environment. Robot is seeing the marketplace seems that the anxiety has eased as compared to the last couple of years. There people got really anxious about getting their manufacturing filled, but it's still a market where capacity exceeds demand, and this is always creates special moments and special times. Maybe then back to the global supply chain.
I mean, obviously, the the global supply chain and most very discreet industries have been almost put to perfection over time getting the costs down and forced the productivity, which has become a very sophisticated system in the meantime, which cannot be explained in 2 out of 80 characters. So that's why, you know, as I can guess, no, it's not the right answer. I believe at the end of the day, I would rely more on on responsible and, competent entrepreneurs to figure that out and on on, let's say, the legislative side, which is still debating on what should be and cannot be and whether people still need to be asked about what their element So I'm very calm on the whole noise about, those trade wars and things. In material terms, nothing really much happened at this time. And, you can see that more and more responsible people come out and say, look, We've got the job to do.
We've got jobs to secure. Are you really sure of what you do? And what to talk about. So I'm reasonably confident that the dust will settle in a much meaningful, more meaningful way. Then people try to make us believe at times.
Because at the end, you know, if jobs are being lost, that's what everybody hears and sees and acts upon. And, so as I said, I'm I'm still confident that, at the end of the day, the wisdom of common sense will prevail.
Yeah. Thank you very much for your questions so far. We will have time for more questions later on, but now let's move on to the next topic to our strategy update. And with that, I'd like to hand it over to Jokeza.
Yeah, thank you. I'm allowed to stand.
Whatever you want.
Thank you. So it's like it moved this way. Good morning, everyone. Almost almost 2 to day, 5 years ago. I was standing in the same place at a different, at a different, in a different way.
And I started my post as CEO of Siemens. At the time, we just delivered a terrible quarter and did cut all targets of what used to be named Siemens 2014. Today, we delivered the fiscal Q3 as we had promised to do. Nothing spectacular but nothing bad. Just an uneventful quarter, which has its moments on obviously, on the booking side, with 21% positive.
And it also has its, challenges, LCR such as power generation and a few others. However, this time, The normalized quarter, what was the boring quarter and even for 1, we believe is the perfect moment to talk about the strategic concept, which we call Vision 2020 plus. Our huge region, but I believe really shows that Siemens is in great shape, especially the air that we invested into our businesses. Most of them are doing well. Some are even outstanding.
We are heading towards another year with record operating results. So the question really is by actually change. And by now, not later. Well, gentlemen, I believe it's pretty simple. So thanks to a really great global team that has done an excellent job in executing our strategy program which called Vision 2020.
Siemens is in a very strong position right now. And the best time The really best time to take her to the next level is when you are doing well. And if you are strong, even child starving, discover that it's not the strongest for the most intelligent species that will survive and evolve but those that can best adapt to the ever changing environment. And that's exactly what we are up to. And that's exactly What has never been more true as today, and speaker met include of change are unprecedented yet.
We believe the board dynamic the change. The more cautious transformation should be. Because it takes time. And that's why it's so crucial, so crucial to early adapt when there's still enough time to guide transformation and enable stakeholders to embrace it. And that's why I believe now is the right time to make those changes at CMS.
Our aspiration is to create a company That is not only successful today, but is also prepared well for a decade to come. And today, I will explain how we intend Siemens to this next level. We will provide details on the next generation Siemens or what we call it officially we should 2020 plus. It will be a company that is inspired by its purpose. Obsessed with serving customers better every interaction we have.
And a company that relentlessly, and I mean relentlessly drives impact and innovation. The company that is unified by the values and the power of its ownership culture. When we presented vision 2024 years ago, Siemens was not exactly in a great shape. It was a great company, but it was not in great shape. Neither strategically, nor operationally, and certainly not from the point of view of business leadership.
With huge uncertainties in the organization, and credibility in the market at all time lows. It was necessary. It was very necessary to provide strategic direction, to rebuild trust and credibility, stabilize the operated system, which some confused as just resting on where we are and strengthening the inner order of that company. That's what we said. That's what we did.
In that situation, ladies and gentlemen, there was no point. There was no point. In taking and delegating more responsibility to the businesses. We're struggling with basic tasks, such as selling, developing, and manufacturing. And a strong corporate regime was unavoidable.
Vision 2020 was our plan for addressing these issues and for reorientating the company in terms of purpose and performance. We define 7 goals. Ranging from the stringent covenants and strengthening our portfolio to fostering an ownership culture throughout the whole company. For 5 years, almost to the day, almost to the day. We worked really hard to achieve our goals, and we did exactly that.
We made good and what we promised many areas, even ahead of him, and he did it because we had a great team. We brought growth back to Siemens and profitability increased by 40%. Most of our businesses, margin quality has improved significantly. On the top of that, we increased our investment in innovation by more than 20%. You are not in for the short term.
They're also investing into the long term profitability and sustainability of this company. And we managed to increase our customer satisfaction index by what I believe is a stunning 55% over 2013. If all the proven that we can complete large projects on time, and even more importantly, in the money. And Ralph has already mentioned the successful corporation and completion of the world's 3 largest power plants ever built in one place and in one piece. No other company.
No other company in the world. Has ever been able to accomplish that. But we not only made progress from an operational perspective. We're also systematically sharpened our portfolio with targeted acquisitions into future growth areas. And obviously a very decisive step forward of the strategic development of our renewable energy, our health care, and hopefully soon to come our mobility businesses.
Siemens started early as an early mover so to speak. And we developed diligently a powerful industry shaping portfolio, which is fast growing on the software side. And under the leadership of Klaus Helmerich and his management team, this has become the leading entity for a force industrial revolution. By market share, by growth, and also by reputation. If Siemens says something today in the digital enterprise, the world's distance and not just moves on to speak about other topics.
These efforts obviously have been paying off in a big way Our digital business has grown 80% in 3 years. Fiscal 2017, it generated revenues of more than 5,200,000,000. And expect that to substantially increase in the current fiscal year. Today, Siemens eased a leader in industrial software. And Siemens offers the most holistic, holistic, holistic holistic digital twin along the whole entire value chain from design to production.
All the way to service. And we launched MindSphere, our cloud based system in the internet of things in 2016. A lot has happened since then. 50 Mansfield Applications Centers were already built. He founded mines for your world within the meantime, 18 partner companies, and more than 1,000,000 assets are being already connected to MindSphere.
And our end to end security concept protects those assets. It's called defense index very important matter. It features encryption, protected access, as well as a suite of robust industrial security services. And we are actually well on track and very decisive to build out MindSphere, the world's largest industrial internet platform. By fax.
And the latest deal with Alibaba, I'm sure you remember will exactly help us in the world's largest manufacturing country, namely in China. But the real customer value will come from the fast and the effective development of applications. That's where everything comes from. That creates values. And our new addition Mendix will help us to exactly do that.
The acquisition of Mendix and Proden our capabilities in the highly attractive field of low code and mobile application development. It will enable us to massively expand the support we provide to customers in the digital transformation of their business. Growth rates, then more than 40% over the next years, the market mandates addresses is highly attractive. Company earns margins, which are typical to well run soft businesses, and a business model is subscription based. That means more than 90% 90% of Mandex revenues is reoccurring.
So, The question is what exactly does Bandix do? Well, in essence, provides a platform for developers to create applications up to 10 times faster than with a normal traditional way of software coding. The acquisition will add highly motivated team and especially a highly capable team of more than 400 employees to our software business. And the leadership of Mendix has a pronounced entrepreneurial very pronounced entrepreneurial mindset. They are founders.
They know how to run a business. And even more importantly, they know how to focus people who have options to a common task. We do plan to merge Mansphere and Mandex platform together that will enable us to shorten the reuse times of the software of application development by more than 50%. Also, Mendix, more than 50,000 application developers are obviously a key asset. And we expect the number to topple rather soon.
Engaging them in the MindSphere ecosystem will deliver huge benefits for our customers and for us And in return, Mandex will receive access to our global customer base and to our sales channel so the business can scale up in a global sales network. The purchase price of about 1,000,000 of transaction multiples are in line with P evaluations if you compare other deals in that space. We expect the transaction to be EPS accretive in 4 in the year 4, after transaction is being closed, and then we expect mandates to be part of our industrial software business headquarter obviously out of Texas. But back to maybe vision 2010. We've largely met the goals of vision 2020 in some cases.
Even earlier than we planned. So I think it's fair to say that Vision 2020 has truly been a success factor. And hopefully, the Steven Shepherds reflects that, and it's a success which results from the hard work. For 3 177,000 people around 2. They made a pitch intended any real.
And I I probably shouldn't say this, but, but anyway, they made Siemens great again. So a big thank you to all who have contributed to this remarkable success. So then I've when I say our people made Stevens great again, ladies and gentlemen, This is not fake news. All stakeholders obviously are benefiting from the success, and this is how it should be And if we summarize the last 5 years, I believe, it's not a big exaggeration to say that we've built a company That is better than it was in 2013. Although, obviously, we had some easy comps associated with that.
Comparison. So would that be a good time to rest on our laurels and wait and see at that time go by till we are done? Well, ladies and gentlemen, maybe. Maybe. But honestly, being the management team made a different choice.
Because they have a different aspiration. We decided that it's time to raise the power. And we are all well advised to do so because a lot is changing in the world around us. First, the geopolitical arena alliances and international agreements have been rocked solid for decades, but they cannot be taken for granted any longer. Secondary research and of nationalism and protectionism is affecting our markets.
Localization that is creating local value is becoming more and more important. 3rd, slightly that the next decade will be marked at a greatest technological and societal transformation the world has ever been experiencing. And that magnitude and speed will be unprecedented. 4th, Global megatrends are causing paradigm shifts that will affect all of our businesses, all of them. And while we have to accept that the future is uncertain, We decided to start shaping it in our area of influence.
This is not too difficult. Obviously to connect the dots between megatrends and Siemens. The global fight against climate change is a big opportunity for our energy businesses. For the Volkswagen wind power generation, we'll increase 6 falls by 2050 Siemens Gamesa the nuclear energy, obviously, will be playing a major role in that space. And if more importantly, more important opportunities that mobility will massively increase as global trade and global populations grow.
And at some point in time, as a gentlemen, mobility will be all electric. It will be all electric. And at some point in time, Here now, this needs to be a feast of opportunities for our electrification, automation, and digitalization systems of products solutions and services. All of our markets are affected by those paradigm shifts. Those of them create attractive growth opportunities.
And in some areas, obviously, we need to manage transformation challenges. That's exactly that's exactly what we are going to do. In our power and gas business, we see a massive shift of investments from conventional fuel fossil power to renewable sources and distribute engine systems, yet there are still pockets of opportunity. Which we are going to capture or is in that space, and we do expect power service to be resilient for the foreseeable future due to opportunities arising from digital services and a modern installed fleet. As very important, a modern installed fleet, as we just see it coming online and being commissioned in Egypt.
By 2023, more than 2 thirds of investments are expected to flow into a distributed energy systems. And that means electrification, and that opens up a lot of opportunities for us to expand in adjacent areas such as combined heat and power, energy storage, e mobility, of course, also load management. More and more infrastructures, assets are being connected And our new set up will reflect this convergence as we expect to benefit from those growth areas going forward. And there is no factual doubt that Siemens has enlarged its lead in the area of industrial automation and digital enterprise. Our market share gains with the Digital Factory Division are compelling, very compelling evidence of this strength.
And obviously, I think it's clear that this market continues to enjoy high growth over the cycle. And that we are going to tackle down on that success story, which is only natural going forward. And in addition to those attractive growth areas, Customer demand for IoT integration is huge and is rapidly growing across all our businesses. And the services range for consulting to designing and implementing new applications and platform. And that market is already there today.
And it's just about to almost triple by 2025, which is quite a big opportunity. In a quiet rich profit pool. We intend to participate in that field because we know how to do it. We will concentrate out existing domain or how resources in our new unit IoT integration services. And that will give us a head start, a pure head start and enabled us to capture growth in an adjacent field with a very attractive business profile.
And I really do like to emphasize that we are not starting from scratch here. We can build our own enterprise, our own experience based on industrial visualization, based upon know how we have in the physical world. A very deep vertical domain know how and a very huge installed base which, will definitely help us with more than 45,000,000 assets in the industrial field alone which we are connecting as we speak. We can leverage state of the art applications and capabilities in those fields, like cybersecurity, as well as artificial intelligence. President, gentlemen, that much we have received rapid growth.
That service the opportunities. And before I come to the new entrepreneurial concept, let me maybe touch on something that had a considerable impact on our Vision 2020 plus concept. It's actually the question What drives us? What is it? How will the digital world are all things connected?
How does it resonate with, analog human world? For in other words, how do we hold together a society that will be divided even more in a digital world? Why is competency this area so important to Siemens? Is that nothing more than for other people, like philosophers. As a gentleman, no, it isn't.
Science And Technology will drive an enable change. That's a given that society will determine whether and how that change is going to be increased. Ranges to and interactions with businesses and society will be fundamental in embracing the benefits of a forced digital revolution. Climate change, smart grid, smart cities, and rising energy being handed in labels and accelerator shift from centralized to decentralized energy. The automation of everything, the so called internet of things, the maker economy and the logistics internet will drive industrial digitization.
And the connections of IIT devices. Psychological unemployment and the need to risk kill or upscale our people. It's an important matter to provide proactive agitation and risk killing into the labor market. And the aging of the population, longer life expectancy and life extension will not only lead to dynamic growth in health care but to a complete change in the value system of our society. And 5 enterprise of the future will be characterized by decentralization of everything and especially in an empowerment economy.
So ladies and gentlemen, ownership culture will be standard in a modern enterprise to be built. And, obviously, as millennials and millennials, ended the workforce and gained influence, the purpose of a company in the value creates to serve society. Is determined to win not only the war for talent, because that's what people are being inspired with, and this is what convinces them to give their best every day. As a gentleman, This is how science, technology, and society are likely likely to develop and interact in the And that's why we will fundamentally change the setup of our company. The business of business is to serve society and create value for all stakeholders based on economic benchmarks.
That's what we are striving for. And that's what we are going to build the values of his companies on. That's our purpose. And as we fulfill it, we'll integrate socioeconomic factors that forced the broader acceptance of a best in class economic aspiration. And that's important.
There is no service to society if they are not the strongest in industry. And that's very important. We make real what matters, and that is what holds Siemens together at the highest level. Acceptable integration. Now, obviously, the question is what does that do to the Siemens structure.
We'll shift from a one size fits all set up to a purpose driven market focused and a readily adapted organization for disruption and being able to foster consolidation. All 6 Siemens Companies will have full entrepreneurial responsibility the way they implement what they will differ about. As a consequence, will allocate as many support and operational functions as possible to those companies, and they are ready to go. In 2013, the businesses, we are not ready to take on more responsibility and therefore accountability. Now they are.
And that's why exactly to this now for that purpose. It's imperative for all Siemens Companies to sharpen the focus. And then in doubt and in doubt, Focus takes precedence over synergy. They will have full control in shaping their businesses to achieve superior performance which will be measured against the best of their respective industries. Future Siemens will consist of 6 companies We've got 3 operating ones, Gas And Power, Smart Infrastructure And Digital Industries, and 3 major owned strategic companies like Clofineers, Siemens Ganisa and Siemens Alstom to be.
The Regions? That's important. The Regions are now part of the business. Not doing a separate thing, but integrated in the go to market to serve the purpose. But every Siemens company can design on its own on how it goes to market more efficiently and best for their business.
For the most relevant markets like China, Germany, India and obviously United States. We are establishing so called corporate contracts with a broader responsibility to integrate our market our socioeconomic and, of course, also our political interests in the space. Corporate Development contains functions that are relevant to us and to more than one businesses. This is about corporate development to optimize its interests of multiple companies. It's important that it integrates interests on multiple companies based on a defined outcome, not on policies, which was sponsored before.
It holds the company together as an innovation powerhouse. And its mission is to develop the company technologically going forward. In addition, we'll bond lower businesses that require small and medium sized setup. Into a unit which we call smart medium enterprises or SMEs led by Jochenaicold, who, as you know, has done an excellent job in restructuring and building what we call our mobility division right now. We've got 3 service companies which will support the Siemens Companies, Financial Services, Global Business Services, And Real Estate Services.
The Siemens Companies will decide to what extent they will utilize those transactional services. They will make costs more transparent to the business and easier to control. And by the same token, the service companies will provide synergistic value by pin the links similar transaction based services. And Aileen simplifies the at robust governance and set the frame. For example, from a legal compliance or an accounting perspective.
As a gentleman goes without saying that there will be no compromise and I mean no compromise about compliance. The only clean business is Siemens Business, and that applies without an exception. Now let's move on to how we will structure our businesses. The existing 8 divisions will be integrated into 3 operating companies and 3 strategic companies, all of which have the mission to be leaders in our respective markets. Our leadership is measured by market share and sustainable benchmark profitability.
Goes both ways, growth and bottom line performance. Now maybe let me keep me give you a rundown on the operating companies, gas and power, we'll obviously focus on center power generation on oil and gas as well as at high voltage transmission and the respective vertical associated with that business. The go to market approach will consist of a dedicated hub and field service structure, very dedicated go to market, and the goals are greater market share in a streamlined support environment. We also combine these businesses to better leverage, competencies such as project management, and service which has been post transmission as in power generation businesses, and there is no doubt. There's no doubt that the overcapacity and structural changes in those markets are a big challenge for our energy units going forward.
But there's also no doubt that we are going to fix that business and the right sizes to a level and market demands. It will take time. The same token are going to co innovate with our customers on new business model as we do it in, Middle East or in recently in Brazil already. Unfortunately, fortunately, I have to say we've been able to earn the trust and attention of our customers in that space, especially in the time and reliable and financially stable partners have become a scarce option in that field. Seems has positioned itself as a partner of choice in most areas of the gas and power spectrum.
And that's Ralph obviously alluded to, we do expect a significant deterioration of performance in fiscal 2018 in 'nineteen, which we consider to be the Let's say the base lining for a restart towards the midterm 8 to 12% margin goal. And there's opportunities. Time and again, just think about the memorandum of understanding, which has recently signed this China stick It calls for a technology corporation in the development of heavy duty gas turbines for China. And that means that whoever is going to do that It's going to set the standard for gas turbines in China. That's what it actually says.
Nothing more. But also really nothing else. And with a highly capable and committed management team in, power generation, with a very robust backlog of more than €45,000,000,000, I have no doubt. And I repeat, I have no doubt that this management team will bring that business to a sustainable future by rightsizing, on one hand, by creating opportunities in the space. On the other.
Smart Infrastructure company. It's a very different situation. Obviously, it's in huge growth area environment. It operates in a 1,000,000,000 market that is expected to grow at a healthy rate of about 5% in the years to come. That's a lot.
Probably just about twice GDP going forward. The businesses which are involved here have a very, very strong track record of continuous improvement of both the top end, as you know, the bottom line, and we expect that actually to accelerate. And all three verticals power grids, infrastructure, and buildings are converging and creating new opportunities in a connected space going forward. Building will become smart spaces And obviously, the key energy prosumers, as we call them today, are closely linked to the grid. And that's exactly what we are taking the benefits from because we've got distributed energy system.
We've got electric charging. We do know how to do energy storage and driving growth by doing just that. And for the first time, and that's important. For the first time we bring together the product piece with the solution piece so we can go into the market with a comprehensive offering on a much stronger combined regional footprint. And finally, obviously, when we combine the leading building and grid automation technologies, where we are by far, number 1 in the world, with with the basis of the whole enhanced digital services based on gentlemen, that is going to be a massive benefit for our customers and obviously also for shareholders by driving margin expansion.
You do have a well experienced team, Matias Repelius, happy taking billing technologies from a meaningless contributor to profitability to a highly valued and respected business in the company. And that's exactly what we are going to double down on going forward. Now, obviously, the the diamond in the in the whole area here is, Digital Industries. Have an unmatched portfolio. They are trendsetting in a powerhouse in the area of what they do, and, it's only natural.
For a natural that we are going to double down on that success and now include not only the discrete industries that also the process industries in that organization and make sure they understand of what can be done and what is achievable in growth and margins and market share. Also in the process industries. That's why they're doing, they're doubling down on transferring our winning formula of the manufacturing to process industries and drive products, not drive solutions. And this unique combination of industrial software of automation build drive end to end solutions to our customer. And that is where the value comes from, and that's why we continue to outgrow the market in that space.
And if you look at how we have been enhancing the margin goals over the cycle, we also took a very strong commitment on executing on that topic. Now ladies and gentlemen, I come too quickly to the strategic companies. But obviously, the IPO of our health care business, this was part of Vision 2020, really. That's when we announced it that we would give that a more focused freedom, and maintained our pace also to strengthen some businesses in the other area by combining them with 3rd party. And the approach here was very challenging because what did we actually want to achieve?
We wanted to achieve the strength in the business on one hand side and keep control without spending billions and billions of acquisitions and premium for control. And that's what we did. And in our view, even over time, a liquid traded asset on a stock exchange, has a value on its own. Has a value on its own, it creates opportunity, and it creates optionality. And this could become a really important topic as we move along in focusing our company to an industrial Siemens footprint.
While we obviously agree that managing these assets to involve greater efforts, the approach is paying off. We are an active shareholder, but we are only an active shareholder. We understand the business too, and that's why we have all the capabilities to govern that business those companies through supervisory board structures. They have knowledge of the strategy, they have knowledge of the organization, We know the performance earlier than most status, and we know our leadership and what needs to be done. To optimize those companies' health care, Siemens' health care or health engineers, as, they call it.
I believe it's sound out that I'm disputed that they really made a strong debut in the marketplace. And I remember some people saying, oh, my god. What a big disappointment at the €28 per year. That's sometimes to give people the opportunity to win something, to make some profits, to feel good on what they did, when the invested investors and gentlemen, I hope you all are proud shareholders, initial shareholders of Siemens Healthcare brings me to the merger of Siemens Wind and CAMMESA. I mean, we can cut his chart trust imagine if he had not done this prior to consolidating markets in that industry.
Well, with the market share of 17%. Siemens from Esa Tututa is the number one company in the market. That's what we achieved, despite a bumpy shark, despite issues in the market. But just imagine how we would have done without it, Michael Sin, you will know him is overlooking both of his assets. And, these are very active shareholder.
Because he knows how to do it, despite a, obviously, somewhat bumpy start that stabilized, the synergies are in place and the starting to soon gain traction. The business obviously has a very powerful purpose as the renewable areas that detracts a lot of new talents. We see them as Alstom, we want to create exactly the same thing. I hope we did that some way to go. But, the first results on accepting that merger as a compelling logic, you have seen 95% of Alstrom's shareholders are voting for that merger.
I mean, ladies and gentlemen, what else can we expect as a token of appreciation and acceptance that this has the potential to create real value to the shareholders going forward. Malays, gentlemen, one of the areas which we promised to do in Vision 2020, that actually was to fix underperforming businesses. Some called it the bottom 10. Others said, you know, these are the rest I called, you know, the the the area where you put all the things to rest ladies and gentlemen. There are businesses which are challenged, but they're still having customers.
That's still helping people. The 80s serve a responsible treatment of those assets. And that's why it is time we do it differently. And we kept those businesses, those underperforming businesses in those areas they were before in 2020, This time, we take them out of the organization. We pull them together and have them actively managed by York and I called who has proven what successful restructuring is all about.
This business is typically operating a highly specialized market, and we believe they're better off in an environment which support medium sized and specialized businesses going forward. To make them faster, we're flexible and, last but not least, and ultimately, hope this is also more profitable. Currently, those small and medium enterprise businesses have a total revenues of about €5,000,000,000, and, in a negative return on, on a on a revenues of about 300,000,000 euro. Her goal is to have a least about 5% profitability by 2000 penniesly. Since this is a long time to wait for, we have already set the goal in between so that we are going to have Breakeven on those businesses by end of 2020.
That's the goal, midterm goal, and then we'll have them at 5%. In 2023. Presentation and let me now summarize the intent of what we want to have as an outcome of revision 2020 plus concept. It is designed to emphasize the focus and the accountability of an enhanced company in order to accelerate growth and achieve higher profitability. The medium term that's important in the medium term So it doesn't go overnight.
We expect revenue growth of two percentage points compared to the current leverage we are operating in. We will provide our operating and strategic companies with the entrepreneurial freedom and the flexibility and the power. To optimize and focus their businesses with support functions according to their specific needs. The respective CEOs and their management teams are responsible and fully accountable for their companies. This, together, with a structurally enhanced portfolio will lift our current industrial margin by a level of 2 percentage points in the midterm.
Below industrial business, further value creation will result from fixing small and medium enterprises, from defined efficiency measures in our global service companies, as well as a significantly streamlined operation of governance. And support efforts. And therefore, we obviously do expect our earnings per share growing faster than the revenue during the medium term. And the, obviously, respective KPIs and the financial framework will exactly reflect that outcome. As a gentleman, our updated Siemens Financial Framework defines our new and what we believe very ambitious midterm targets over the cycle.
Much of that will look familiar to you but there's one big change. One big change. We are raising the power for growth for margin and especially cash performance. To see the new cash conversion goal here associated with the system, and we believe it's important. A 4% to 5% comparable revenue growth is obviously a highlight of the new growth ambitions for the midterm.
And a margin target range of 11 to 15 percent for the total industrial business over the cycle for our industrial areas will reflect our ambition to raise margin quality altogether. We measure them based on a adjusted EBITA margin, which equals our current way of, defining the profitability going forward. So that means, actually, before PPA. And our key restoration our key aspirations to become to remain the leading company in every business we operate in. For our operating companies, the margin targets are derived from a basket of our main competitors, the adjusted EBITDA margin ranges are as follows: for gas and power, we expect a mid term range of 8% to 12%.
And, obviously, we are leaving quite a bit of room for further improvement on current levels, and real time will take time to close that gap. For smart infrastructure, the new target range is 10% to 15%. That's significantly above the previous like for like targets, in the EBIT environment as it used to be for predictive technologies and energy management. The target range of digital industry is a record breaking 17 to 23%, and that's quite an aspirational level. But I hope I can assume that you will agree to that one.
It's, an increase of 3 percentage points over the like for like reallocated environment. While we are aware of how ambitious our target is, we believe we have the power have the strength, and we have the will and especially the team to achieve that. The adjusted EBITDA margin for our strategic companies obviously do reflect Siemens, shareholder expectations, which we are doing everything through our impact on the port to make those a reality. Be it Siemens Healthcare is 17% to 21% of Siemens Gamesa. 7 to 11 or the future Alstom where we have been setting a target margin of 8% to 12% for the foreseeable future.
And the reason why we did not put the 11 to 14 a year, which we originally announced by the time of the merger announcement was that you do not even have a company yet. So it will take more time there to go to the 11 to 14 but the targets still stand, but they are more long term in nature. So that's 5 now for the 9 people time being we are at actually 8 to 12% and upside for a fully fledged operating and, used to each other company. Financial Services, which obviously is always a very reliable profit source every quarter, the target range for return on equity after tax is 50% to 22%. So all the Siemens companies, All six of them, including also, Siemens Financial Services, which makes it 7 have all the freedom, all the power, all the strength to make good out of the targets, our rental targets, obviously, that goes without saying, our agreed administrative management teams.
So this is not top down. This is not something which people may want to call a legacy left behind. This is something we pulled up together as a management team. That's important. For you to understand.
So in, almost concluding, and I hope it's been a long time, which I have been taking question is, what else is important, other than going it by the number? Well, hope is this even shareholders are important, and they still can expect a dividend payout between 40% 60%. And capital efficiency has always been clear that this remains a priority, even though we are very well aware that acquisitions do a lot of harm on that in the short term, So we need to have some time to get the rosy targets back to where we want to have them at 15 to 20%. Ladies and gentlemen, we have defined very clear the measurement of KPIs, means key performance indicator for implementing Vision 2020 plus. We'll keep you updated as we implement it.
And, maybe it's worthwhile to briefly explain what we mean first. I have already mentioned that the medium term financial ambitions set down in our updated financial framework are the ones we are going after. And our aim is to extend profitable growth. 2nd, and is thatably created enterprise that has a clear business focus, and this is about the winning formula, electrification, automation, and digital enterprise. 3rd, customers are 1st.
The full satisfaction is our first priority. Net promoter score is an indicator of customer satisfaction. In Vision 2020, as you know, our target was to increase by 20% We ended up at 55%. But today, again, we are going to raise that bar even further and the goal is to improve it at least 20% further out. And our obsession to win mindshare and share of wallet of our customers He's not stopping here, and that's why he has actually been increasing the goal line from our already very remarkable level.
4th, for many reasons, the trend toward more local for local is accelerating in our markets. Be it be it, nationalism, protectionism, be it trust the will for for developing economies to become as wealthy as the developed ones, we need to be clear that this is a trend which is going to last And actually, as a matter of fact, as a gentleman, it is going to accelerate further. So therefore, we are going to anticipate that. We are going to be closer to our markets, not only by revenues, not only by manufacturing, not only by engineering, but also by decision making right at the desk at the cost to, so therefore, more than 50% of our businesses will be headquartered outside Germany and closer to our key markets in the future. 5, Siemens Company will be supported by a lean but the robust governance organization and an effective, but impact focused and impact driven support structure.
6 highly engaged and motivated and especially capable people are the foundation of our success. That's why we are very, very mindful about the approval rating of our global engagement survey where we are going to measure. The satisfaction of our people in relevant topics. And obviously, 7th, Same is through a year. Engagement of our people make a difference in the end.
It's not about technology. It's not about only customers. It's about the people who make it worse. So therefore, we are very, very engaged to keep our people go the extra mile. The last engagement survey, 90% of our people who responded out of 230,000, said we are actually willing to go the extra mile.
But I'm really, really, very proud that more than 300,000 people, our employees, are now human shareholders, has inspired us, and they give us the full We have successfully completed Vision 2020 ahead of time. Most of our businesses are doing well. Some actually are doing really well. A few even set the benchmark in that industry. That's a remarkable accomplishment considering where he came from when we introduced patient 2020 in May 2014.
And that's what I promised. That's what I wanted to be measured against. But accomplishing that was only possible with a great team. It's a team that deserves a big thank you. It's a team that disturbs the utmost to stick.
The Asian channel in the world is not waiting for us till we are done resting and celebrating the responsibility for the next generation. And we have a purpose to fulfill, and that time is now to get it started. That's why we are raising the bar? And we have a plan for taking Siemens to the next level, and our plan is called Vision 2020 plus. We relaunched the transformation of the organization on October 1st, the redeeming of our fiscal year.
And our aim is to complete the whole realignment by March 31, 2019 so that we are able to start the full fledged use set up by April 1, 2019. Some of the milestones for the implementation of the use setup are listed here. And we'll be, obviously, keep you posted on the progress. Vision Tenney? Is our vision of the future of Siemens.
Next generation Siemens will be a focus and it is best to be an adaptive company. A company united by a larger purpose, purpose of service society and creating value for all stakeholders. We have a competent, we have a committed, and especially a very motivated global team. Motivated by the success of Vision 2020. And we are going to build our company to last.
That's the plan That's the commitment. And with that, ladies and gentlemen, Ralph and I are looking forward to your questions. Thank you very much.
Yeah. We are now proceeding with the Q And A, and we will again take it in turns. And this time, start with the journalists here, Angela Mayer. First question, please.
Hi. Good morning. I would like to start with the question on the new structure, which reminds us a little bit data structure eliminated 4 years ago. 4 years ago, the argument was that the sectors lead their own lives and he wanted to streamline the company and accelerate positions by centralizing support functions And now you go back to a quite similar structure with 3 operating companies with CEOs who are a member of the, Forsland. And again, now you say you will, just, then decentralized, support and operating functions.
So, and and to give the businesses more entrepreneurial freedom, but exactly this entrepreneurial freedom was 4 years ago, so we're using for the new structure. So It's a new structure, if this is a structure for the long term, so why did you change the structure for using it? Thank you.
Yeah. Well, thank you, and for the question. I mean, I actually have been alluding to that in the speech. A business need to be ready to take on It doesn't do any good to overload the system, which is now capable of doing the primary functions. First of all, as a general framework.
But now they are ready to do that. And we have the right people who know how to manage that. Secondly, but it may look familiar If you only look at the spectrum of the 3 operating companies, you must not forget that the other 3 strategic companies have been part of those 3 or when they did another sector for another Managing Board member newly elected through those 4 sectors. Now we have 6 operating companies in Siemens who run different businesses as healthcare as it used to be. Emittedly, but in a different environment.
And what is more than successful than ever? Just go by the numbers. Then we have a mobility companies, which is soon to be, you know, strengthened by a very, very meaningful merger, obviously, 95% of Alstom people believe that too. So mobility was some place else, which Roland, and, Jochen Ehudkle brought to life from a non profitable loss making enterprise to a very powerful business. So it's somewhere else, not industry operating companies.
And then Siemens Wind, as you know, was in the power sector. Now it's completely elsewhere as a much stronger enterprise shaping the consolidation of a young market. So it has some meaning to what we did and not just disputing Siemens businesses by the number of managing board members who need to get employed. And that's in essence what it was. Because that was an infrastructure sector, which got everything, which was left out and could be put elsewhere.
That's not the way you run a business. Honestly and frankly. Now this time, it makes sense from the go to market point of view. And that those management people whether management's management purpose or not, the success factors of, how to run a business are not attached to whether your management program or not is attached to what you are capable of doing. And so, we have a very strong feeling that this is a completely new setup at the right time by focusing the business on the markets and not on internally driven, decisions
Thank you. So we will now go to the analyst side, a lot of hands. So, maybe James first question?
Thank you very much for such a comprehensive roadmap. Two questions, if I could, on central costs. When you get the starting 2017 margin for the 3 operating companies, how much of the central costs that were previously below the line in either corporate items, pension or eliminations have you already allocated to the 3 units. And the second question is, whilst I'm sure you're going to provide some pro form a numbers at some stage, what's the starting HQ and services profit for 2017. And basically, how much can you reduce the HQ because you've given targets on almost everything else, but that remains the one gap where, and an important piece of the jigsaw that you haven't talked about.
Thanks, James. Well, thanks, thank you all for the patience for a very long explanation of a comprehensive thing. But sometimes things take time to explain it And can it be always reduced to, as I mentioned earlier, to annotated characters, on, how much costs are being allocated. Basically, most of them are which go from support to the business. And you can expect a much smaller corporate allocation as it used to be.
But again, this is a growth driven efficiency driven entrepreneurial approach. This will take time. And we deliberately have been putting growth in market and customers as the number one goal and not doing another 1 by 20 or 1 by 22s or thing. It's a different approach. It's an approach from the area of strength and, and and then gradual incremental shift of, resource optimization over time.
So I I obviously do know that the model you are trying to build is not really complete with what I said. And I'm very aware of that. Maybe maybe just give you a bit of a color on what the intent actually is. The intent was that today, we say this is where we're going to go. Clearly, I do other people to make it work.
And what does the structure look like at the new Siemens is going to go into? What people need to know? Are there still a Q4? Are there still customers? Out there who obviously need to be served.
Last thing we want is an inward orientation that's 377,000 people do nothing but ask and talk a look. We have the new boxes they are going to like BP. It was important. And this time, we have a meaningful for the most for the most part, well working business. So we take time It takes time to bring that over to the new structure.
And that's why we say we are going we decided yesterday together with the supervised report, with a union imposed vote about what needs to be done. It's important. And now we said from now onwards to October 1st, we set up the teams and look what does need to be done in what area called that work streams. Then from October, till December, going to do all the necessary fine tuning with the workers' representatives, Not in general because they had their they had their voice yesterday, and eventually, obviously agreed but on-site level so that we have a very cascading down process that people don't get I'm, scared and get a hassle into that. And once that is done, we do the whole transfer.
That will be done by March 31st. And then we are fully operating in the new reporting structure, in the new way we work together in the way we count down numbers. People, obviously, profitability and things like that. So that's how we do it. And then later in the year, there's no time yet set maybe May, maybe April, maybe June.
That's going to be a capital market pay. And then we are going to present very decisively with the new management team of each of those businesses. What exactly are we going to do? How do we do it? What are Lambos going to be look like?
What's the transformation by the numbers, and then your models will be more complete as they will be at this point in time, all right?
Thank you, Theresa.
The next question comes from Mr. Hoopner, please.
Yeah.
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So apologies if you take the questions in in, if you answer them in English because otherwise, the translators that the interpreters will will run that Thank you.
All right. So then we do it in English. What is the freedom of the businesses? Look, I think that freedom correlates 100 percent of the performance and the promises they make good on. That's an essence what it is.
And that's what Peter Maxim now on how we're going to get started. For now, they have all the trust all the trust, and all the credit it takes to get the job done, and that will take it from there. The small, medium enterprises, first of all, as you remember, Vision 2020, so called underperforming businesses, we made good on most of the most of the promises we've made at that space, but we did not 100% succeed. Around about 80,000,000,000 dollars, $85,000,000,000. Well, that's still $50,000,000 missing.
It didn't 100% succeed contrary to many other targets we actually achieved or overachieved or at least achieved in earlier. So it was not that great. 85% is okay, but it's not good. There have been a few things we learned from that. The first one was why do you need why do you leave those businesses in those organizations which didn't get the job done in the first place, all right?
Could have seen that earlier, but it's never too late to learn. Secondly, maybe the nature of that business is not exactly in the focus of the risk of a global enterprise. Thirdly, we put them somewhere at so called corporate managed portfolio as it's actually NPA activities. So you can see already by the name that this sort of asks for more, for more attention. And so this time now, we put them together as SMEs.
And with Jochenicol to actively manage and run it, it's a different approach as to what we used to do. Last time. And we are fully confident that, we get the job done what we intend to do to make them not only technology wise, solution wise, a customer value, but also a value for shareholders. So, the app for sale, no, they're not because it wouldn't treat them differently in the balance sheet. Can we rule out that one or the other will be given a further prospective somewhere else?
No, we can't, and we don't, and we shouldn't. Because our goal is to create opportunities for people and assets and businesses and to serve our customers in a committed way. And that's exactly how to go about it. And, you know, getting breakeven in 2020, as that is something, as a start, 2020 is around the corner. It's not that far away.
2023, obviously, 5% profitability If you get the first one, I'm sure we get the second one too. So very straightforward, very clear, very dedicated, very open and again, stakeholder oriented.
Thank you, Joe. So next question, at Exane, please. First quick for all. Jonathan?
Hi. Yes. Jonathan Mansley from Exane. So unlike Vision 2020, there's no group wide cost saving program attached to vision 2020 plus. I'm sure you'll still be looking for savings, but I guess Under the new operating structure, will Siemens ever announce a single program again?
Is it is it now the job of the individual operating companies to define their own strategies, their own savings programs rather than programs imposed by management as may have happened in the past. And also, if that is the case, how will we be held to account? Why haven't you chosen to list the operating companies and the way that the strategic companies are listed. Is that a good way? Get external shareholders to hold these companies to account rather than the Siemens board?
But if I have to follow, you you you you've seen that, right? You're not right. There is no global restructuring program. There is no one by something. And it has a reason to that because you also learned and it's not so much relevant to control the input, but rather rely on the output.
And now we've been so great in 1 by 16, but why then didn't the administration costs not go down? So there's going to be something else that we need to take care of. This time, we say we have end results. And are going to grow the business by 2 percentage points more in growth. They are going to enhance the quality of margins by 200 basis points.
In, obviously, the midterm. That's what we're going to do. And there's a series of enablers to get us there. Am I ruling out restructuring in particular areas? Absolutely not.
But the approach this time is result oriented and not so much enabling and input oriented. That's very important. So why didn't we list or whatever to stand alone stuff. Well, first of all, if we had done this one, there is no point of me sitting here today because actually, I am not up to doing the job of buy side people managing portfolios. So there's one too many release that up to the ones who do better than that.
So what I'm trying to do together with our global management team was vision 2020 plus It's leaving behind the company because you are so much up to legacy. Leaving behind the company which cut options, which creates optionality. So if you really want to look for some legacy stuff, and intent is to create optionality to that can act at any given point in time in any different space. That's what mission with recent 2020 classes is all about. Creating optionality.
And while doing that, we enhance the operational businesses and the earnings and the growth and intelligence satisfaction and the well-being of our people altogether.
The next question from Mr. Hepner, please.
Thanks.
Is the plan that the operating companies will become in the next step, real companies with a legal form?
Very helpful. We have a lot to do, to form now those operations in a meaningful way aligned the resources and, and build a meaningful therapist economic system centered around customers employees and shareholders. That's what we do. A legal entity by itself doesn't create any value. It's more what you have in there.
And should there be any necessity to do so because this is going to enhance a sustainable stakeholder oriented value. Then we are ready to do because we created optionality. But that's certainly not the first priority to look after while we develop those businesses in those companies. Thank
you. So next question Simone Tarnason.
Thanks very much. Two questions, please. Firstly, Siemens has, on average, created pretty decent value for its own company it's split up the businesses. In particular, if you take health and ease now into account, but it's also run, at the time, yet your own share price doesn't reflect that. It's sort of flattish year to date obviously with Health And E is being up quite strongly even SGRE being up sort of mid single digits.
What are you telling investors? When they ask you what they're missing right now? In terms of the Siemens share price along? And second question on power and gas, you provide a lot of detail. If I take the split of the business into account and obviously high voltage goes into this, it still seems large gas is about 30% to 40% of that.
Of that business. So apart from probably the small and medium and arrow business, none of the other subdivisions are even close to the range right now. It would assume you need to get large gas up towards that range. Apart from the headcount reduction savings that you're anticipating, What else do you need to see to get that business up there? Is it pricing improving or anything else?
Thanks.
Thanks, Simon. I mean on the first question, I mean, a lot of, the strategic companies are up at share price so that The residual seems to be quite an attractive buying opportunity. So if you ask me what I tell shareholders, I would tell them if you believe in management, you gotta buy more. If you don't, then, obviously, you know, their options. And on a more serious note, I mean, we've been aware of the, of the discrepancy there that the residual business is valued quite attractively.
I believe it's important that we show the market that we can run a company without adding complexity to the business. And 2020 plus is also targeted to make it crisp to clear and clean on the structure how we operate the business. And, from what I hear feedback from investors is tell us exactly what the end game is. And I see that point, but sometimes, you know, the endgame is being created by letting parts and pieces fall into place as if that was happening by accident, but it was planned a long time ago. And that's why the market in some areas needs to figure it out what that could be going forward.
So we execute well on what we said we will do, and this is what we want to continue to do. Now, on power gen, Ralph, maybe a quick bit of a color on what the new the new thing will look like any system.
I mean, first of all, there's plenty on our page to execute on, as we said, we are just in the process of finalizing the implementation of that. What needs to be done? Lot of cost that needs to be taken out. And, as I said before, that's going to keep us busy, for more than 1 quarter literally. On the other hand, we are also looking into new business models when it comes to LNG and the like.
So that will open doors. And of course, we also so stand ready for for further momentum being created in the oil and gas environment. So as Joe said before, when we talk about the new margin ranges, it's over the cycle. Yeah. And, as I indicated before, 2019 will not be part of those years where we can accomplish that, percentage range.
Next question please from Mr. Vonneberga.
Yeah. Thank you for the for the question. I mean, We have an area, which we call corporate development. And that corporate development, is something which holds the company together in a more narrow way because it provides value for for 2 or more businesses, like, corporate development does for in software area, cyber security area where the others can benefit. And this is what corporate development is all about.
And it also provides an area where we have a company interest, which we want to fulfill, and that is fixing businesses, which come from all different places. So corporate, technology stays where it is. And it does, for the most part, the same as it does. But now it gets a more impact driven approach. Our corporate development will be significantly streamlined and focused on what the businesses need.
Now the new Siemens said that they have more or less people, I'll see that something the customer is typically designed. The task we have is to create options and opportunities. They can be inside the company. They can be outside the company. And that's what we do.
So let's focus on the business. The more market share we win, the further we grow, the more, obviously, valued people we need.
Thank you. So Alfred Glasser, please, next question.
Yes. Alfred Glaser from Odo Beybehave. First of multitask, you're on growth. You said that you do 2% higher growth in the future, but fundamentally, what has really changed already 4, you wanted to go for more digital, more automation. This is still the same topic in the new strategy.
How do you produce 2% growth in addition? And my second question is on, shareholder return or precisely return on capital employed. Joe, you mentioned before that It's gonna take time before you get back to the 15 to 20% range. Why not put some target into the new strategy? Why not go into more details explaining how you're going to get to the 15% to 20% range.
Thank you.
I mean, was it a legitimate question on the details? As I mentioned earlier, the processes that we now set the framework so that people know where we are going second review will be now to convert the details into the conversion. And then we're going out to the markets. All three of them to explicitly and detailedly explain on what are we going to do when with what outcome. Okay.
Where does the growth come from? I mean, you remember really the slides in the areas where we are going to invest and put emphasis to. Like e mobility infrastructure, the IoT area, and other places to double down on the digital factory. Those are the areas of growth which are going to see incremental, quality growth from. And there are a few others, obviously, but those are the most relevant ones in the space.
And maybe maybe to add a bit on our R and D activities over the last couple of years, I mean, we have been potentially beefing up our R and D activities throughout the last 3, 4 years. Since 2014, we have been adding some 25% until fiscal 18. We have been doing that in a very focused way and have been also identifying opportunities to now combine those specific R and D activities in the different market segments. We are in with digital opportunities. So we create a really comprehensive offering for our customer that is also reflected in the substantial improvement of growth rates in the digital place as Joe has been showing on one end slides.
The next question for Mr. Kudin, please.
Hakisa, named Faganian Foonfian since the next year from activist non tetanus from terrorism. And I'm O'Mahmeghana reason. On this very activist in France. A party from Einhard and Rakazil Shefern. Lan, you know, I'm going to be in Umgar.
It's who, had his own activist and I'm known hear, communication or a proton, so be in, to some corp channel electric. It's anti actual device. As this is Nick Vasquez here, this is the Einephago. It's Einephago to the mid arbaitan. We how's the Einephu position?
We feel these are Now, this unless we will see your order, the course of the departure design, the Fager is the luxury owner, concerns Central Demistia.
Yeah. Well, thank you for, for a question. I mean, obviously, on the on the on the headcount side. If you look from the business point of view, and see where the businesses are going and how they're being combined. There is no massive No massive divide in it.
So business units will mostly move as a whole unit. There are a few areas where we divide them. For example, the transformer area where we divide in utility, transformer and distribution transformer, and a few other areas that are not too many. So it's more about combining the assets we have in SPU into a a meaningful entrepreneurial system of the operating companies. Obviously, that more people are going to go to the business.
Look, look at it from the other side. You know, if you have more focused approach. If you are a member of a business, we run after every day trying to convince your customer every morning. It makes a lot of fun to be part of a business community rather than be busy with a lot of policies and and things like that. So there's a lot of value for our people.
We've been asking our people too. What is it that you feel comfortable for? And most of them said, reduce bureaucracy, and I'll get a few levels out so that I understand better what actually I'm supposed to be doing. So it has, we'll have a lot of benefits for the ones who want to be part of, fundamental change and improvement of the business. Now the other topic, which obviously is, you know, an interesting topics.
And, I think you're Of course, shareholder activism has increased and this got more prominent especially also in Germany and in Europe, which you know, has, seemingly increased. So it's always been there elsewhere in the world, so there's nothing new. But I think you're Your analysis, of root causes for having activists take an active stand is not because you structure the company so that they can take some. It is underperformance. If a company underperformance consistently, There is no point in telling the world how great you run your business.
Somebody else will tell it tell you how to do it. And that's typically the root cause of that one. So it's a natural gift and then companies who perform well according, you know, to their industry, there is a lower push on, on that topic. So, you know, we take that very seriously. They many, many of those, actions have created value.
So it's not, you know, the dark side and, and the beautiful side. It is a part of the The ecosystem will live in and we better take it seriously and perform well in the industry.
Thank you, Joe. So next question. Markus Mitemayel, UBS, please.
Thank you very much. Good morning.
Two questions, please. One on, digital factory or digital industry. So card now. The 17% to 23% range, you had previously commented, that in cloud based and software as a service revenues you anticipate or aim to add another 1,000,000,000 top line by 2022. Would the drop through to profitability from that already be in that range or would that be incremental to that?
That's question number 1. And question number 2, sorry to belabor the PG topic, but maybe a little bit more granularity on where that pricing issue is. Because if I remember correctly from the last quarter call, the service of the fleet growth over the next 3 years is 20% on the gas side I think it was 10% on the industrial side and 5% on the steam side, if I remember. So a flat pricing, I'm a bit surprised that sort of the step down in margin guidance that you implied for for next year, or is there now service pricing pressure as well? Thank you.
Let me start let me start with your second question on PGIM maybe. So what I said in the last quarter is that we do see substantial pricing pressure across the board when it comes to new products. I said that from all that, what we see on our existing backlog for service, which is about 80% of the total backlog of power and gas, there we don't see any major cancellations. And whenever there is pricing pressure and it is there, our positioning in terms of technology is allowing our customers to improve their business case by higher levels of productivity by the means of our technology upgrades, which we provide to counteract. So I didn't ever say there's no pricing pressure in the marketplace, but up to now, we could fairly well act in that environment without finally ending up with price erosion.
I think that makes a big difference and that may also align perspective from different players in the market. So that picture did not change. And the fact that we have very clear view on the backlog and how that's going to be executed for the next six quarters on the product side. End on end in terms of serviceability is taking us, literally to the conclusion that that what we see now underlying as as I described that taking out the extraordinary impact of the divestment gain for the third quarter of fiscal 'seventeen. Most likely to be the new normal for the quarters to come when we execute then on the backlog that we see at the moment.
So there's no incremental change in my view, our view on the service business as such.
On the IoT range, with the 1,000,000,000 we've been setting as an initial target, it's probably too aggressive to to associate that with the margin range of, digital Industries because there could also be some systems integration activities associated with it to do together the I and T and the OT space at the customer area. So if you assume about a 15% around the lower end of the range, you should be reasonably suited. The lower end of the range.
So the then then from Mr. Poser Place, from? It's up kind of targets within annoying owned, police meters done, met in Einheit and Bijit, met Mahazhu and Savita.
It's Umberichsen, Carnigsen and Sargen, we are the truly writer in Uber owned survey Siemens Financial Services as reporting segment. Sorry. Sorry, what I said is that we will continue reporting, on Siemens Financial Services, obviously, and also introduce, reporting former for the SME, the small, medium enterprises, in a condensed version, so there will not be any lack of transparency in that field.
Alright. I think the other question was if we're already in the margin then, but we are. Yeah.
So, obviously, as has been discussed before, for the GP piece, we are not in the margin in the future. Margin ranges. And for the others, we are.
Next question comes from Alasdair Yeah. In the middle, please raise your hand.
Yes, thank you. Good morning, Alastair Lesley from Societe Generale. So, for Digital Industries, obviously you brought together Discrete And Process Automation now. And within digital factory previously, you really differentiated freely, the early move into industrial software and really integrating that with the factory automation piece. So is the plan to replicate that software strategy now more broadly across the the entire automation, spectrum and and how would that work?
Do you need a a sort of foundation acquisition like UGS was or could deals in the process software space to really be added on to the existing platform that you have much in the same way, I guess, that CDADAPCO and and mental health be.
Yeah. That was a great question. I mean, as I mentioned earlier, toupling down on success is typically a very reliable and attractive model to do. And that's what we're exactly doing. So we are transferring the the end to end solution piece from PLM Software Service Design And Manufacturing now into the space of process industries.
The first area and the second is that we invest further into building a robust application ecosystem on top of it because it's where the customer value is actually being generated. So first of all, the the new Tesla Industries is a TFplusplusindustriesend and that drive products. The products are still part of it. The solutions are out. So that's that's important to note just for a for the sake of, completion.
Do we need, do we need big, acquisitions? No, we really don't. We have quite a quite a, remarkably well performing, joint venture or, corporation agreement with, Bentley on the 3 d side, which works out actually very well and complements the systems in the space. So there is, at this point in time, there is no interest in in bigger acquisitions and no need to fulfill the target by not doing so.
So then, Mister Buser, next guy.
5 quilts have hardly asked is, is this thing, but as digital industry, yeah, Diament, these are acting It's vital for Haagen Norge, but has the city at Central here. We field jobs since Petrovman, Divya and Langhwenten. Nakman and Anshul sanifraghl from Collin. Thank you.
Yeah. Skip Kane plan. The digital we're the digital industry, Nok, and Andre Eindhite, Yextan Depers, etcetera. So oh, I'm sorry. I'm sorry.
Yeah. Of course, there is no plan in place at this time to to get any of the 3 on the stock market at this time. So the second topic is how many jobs are being affected want to rather call it, how many opportunities we curate, for people to be, to be part of, 3 very focused companies and our robust governance system in place. That's actually the question we are going to have answers for in the next 6 months. And we roll over and focus the details on those on those targets.
Thank you. So next question, Ben Euglof, Morgan Stanley.
Thanks. A couple of questions. First of all, on this kind of, definition of operating and strategic companies, As far as I can see, and tell me if I'm wrong, that the big differentiator is, is optionality. Is that fair? And can you give us some thoughts about what, you know, what you mean by optionality?
Optionality can mean we want to issue equity and bulk up to large scale M and A. It can mean, you know, we're going to go into joint venture partnerships. It can mean that we're going to seek to divest businesses over time. So what does what does optionality mean in practice when we think about these businesses? Second question is this memorandum of understanding with the State Power Corporation in China, in my view, was a very big deal that got slightly overlooked.
Is there a scenario where that extends beyond a simple memorandum of understanding that we get into a kind of more more permanent financial relationship.
Thank you, Ben. You actually gave the answer yourself. You described, examples of optionality. So there was a q and a session where you did both at the same time. Yes.
Oh, it depends. Yep. And And on the on the on the on the China Technology agreement, of large gas turbines, it creates optionality and dictates first and foremost opportunities. And that's why this is important to us and, to serve our customers build and make sure that they understand that Siemens commits to something we are making good on what on what we promised. And that tracker track record has increased, and I obviously do know that what, wasn't meant to be really, really dead serious, saying we made Siemens great again, is about is exactly that reliability on any commitments that we may put on them.
But this is a this is a precious good, which, is on the on the line every day. We don't intend to use it.
Next question please from Mr. Repker.
Two questions please. The first question, how do you provide leadership and control in the with your operating companies. So, are there certain criteria when you intervene when they are not doing well And the second question, what synergies does Siemens achieve in this actual more centralized structure? And can you plan with those synergies in the future or do you plan with those synergies? Thank you.
So first one is a good CFO question because you're holding the money together, which is probably one of the most prominent items to So,
how to provide leadership and control on the operating companies that was what you have been asking for. I mean, 1st and foremost, I mean, this is part of Siemens AG and therefore, the responsibility for allocating capital properly executing controls and making sure that we comply with all relevant aspects of compliance, not only in the legal format, but also when it comes to taxation, when it comes to, accounting standards, end to end. That, of course, is still in the hands of the same set of individuals means the member of the Managing Board, which is a group of individuals and cannot be singled out for certain areas. What we accomplish with the the operating companies is that we give all levers that are relevant to shape the best company in a specific market environment into the hands of, the CEO of that relevant operating company So, I think it's important to understand that, being part of Siemens HE in the same duties apply, And we will have a very, very steep capital allocation, of course, means that we will nurture and feed businesses that have a have opportunities for profitably growing capital efficiently and, there will be also a difference between those who can use make you best use of those opportunities and those that can't.
So, controls in the meaning of legal framework that's why we have been putting governance aside, with all what it takes, and there will not be any compromise on books and records or compliance rules that we have in the company. But at the same time, giving entrepreneurial freedom within the given format of capital allocation to those businesses, we size completely within those entities. And this being the purpose, there is no intent to overrule them, of course. So they are master of their own fortune. If and when there would be worries arising whether things are done diligently, the corporate responsibility in total kicks in of the managing board in total.
Yeah. The to your second question, the synergies, here are synergies. For the most part of synergies, today, are actually in the shared service environment. And the second topic is in areas of corporate development. For example, if we develop trend platforms, if we have, you know, efficient if you are building efficient cybersecurity codes, applicable for more than 2 businesses, and things like that.
And, if you look at the structure of the company, And now we have a we have a business service company, which are going to build, which exactly bundles those energetic values on the transactional of the services. And we built the corporate development, which exactly and more efficiently, by the impact of is actually, you know, pending those matters, which we believe are of value of the 3 plus ex operating companies, even even health care, they're going and already intentionally Siemens Alstom are looking into the digital application center and say, Mia, this is really good. Can we go get something from that so that we don't need to create it and build it on our own? So that's why we've been so mindful about this model of, there is a purpose to fulfill that a business which drive the purpose. There is regions which are on the customer and a part of it.
And if we have those 2 side elements, which seamlessly go together, like corporate development and shared services. That's been the model all along not to lose too many of them. You have keep the company focused on their competitors and the performance of that space they are doing business in. That's been the whole meaning all along.
Thank you. Mark Traumann, please.
John Ralph, I've got a question on cash. I mean, if you do your targets 4 to 5 percent organic sales growth, through cycle 15 to 20 percent Rocky, 95% let's say cash conversion, you're going to have a lot of cash You've got a strong balance sheet today. You talked about dividend payout. Where is this cash going to go? Are we are we talking more share buybacks, special payouts?
Are we talking more M and A in the software and digital space? Which I guess you alluded to in the presentation. Maybe you could talk about the how you're going to spend what looks or what could be considerable cash that's seen as we'll generate.
So for good reasons, Mark, we have been putting that into our financial framework because we believe, 1st of all, we are doing fairly well in most of our businesses. I mean, just think about building technologies who have been contributing cash with high conversion rates for years. So did Digital Factory and also many others, but what we want to make sure, with that KPI taking into perspective the free cash flow and also the growth opportunities that we do have midterm trajectory that is baked into the business plans of those companies. So part of that, entrepreneurial freedom that we been discussing, but at the same time, making sure, that we are also heading into the, say, into the right direction keeping the balance sheet strong as you have been putting it and providing us opportunities to make sure that our shareholders and also other stakeholders are having a perspective of participating in that move. But honestly speaking for a decision on and how and when and with which regime we would potentially apply, other share buyback programs.
And as such, we should first generate the cash and then distribute it. So need to give us a bit more of time, to be more precise on that one, but in a nutshell, we deliberately have been choosing that focal area of cash flow to make sure that also the independence of the new entities, completely, is embracing a mandate for cash generation and not only for growth and profitability.
Thank you for taking my question. John Revel Reuters, Mr. Kaeser, I must have seen it written somewhere that this could be your last chance to sort of significantly alter or affect the strategy of the company before you stand down and retire. I was wondering, looking back on that, what would you like your legacy of the company to be installed by 2021 looking back over the years. And also does this new strategy today, does this kind of stop your successor coming up with a new strategy?
Because this will still be kind of going then. That's my first question. And the second one is, conglomerates generally are not very kind of popular with investors right now. And I look at the share price reaction today has been quite negative. So I was just wondering, what are you going to do to kind of reassure convincing investors that remaining keeping this conglomerate structure is the best for Siemens and how long before we're going to see some kind of results?
Thank you. Well, I think people never know what their last chance is. So that's why I wouldn't jump to conclusion too quickly. And even though, you know, there is a probability, Nothing is certain. That's what the future is all about, except demographics.
So if you turn 52 this year, So the probability that they turn 51 next year. But other than that, the future is hard to predict. And that's why I think it's premature to think that You know, this is, an end game. What you see today And what we intended to provide you today is creating a concept which provides optionality. Which leaves a which creates a greater frame of options to do exactly what we are paid to the end of the day creating stakeholder value.
And if you and should it have been the last chance, assuming that for a while, you know, the intent would have been creating optionality. And not, and not pushing my successor, be male or female, into a corner, which is hard to get out of if something turns out to be different, then I thought it would be. Firstly, secondly, by creating optionality, you always have to have the end in mind. And that's not the end of a of a merger and, a a sector and game. It's not something you ought to have in mind when you think about last chances.
And obviously, conglomerates are neither in fashion nor are they typically very effective. And you could even probably see today on the share price reaction that, you know, another part of the stakeholder community has maybe expected more than other stakeholder communities listed. And, we have 2 of them today in this room. Maybe 3. You never know.
And so, therefore, you know, at the end of the day, if you want to do a meaningful Long term oriented business. You better not forget that performance is the only one way to survive. Yet secondly, I understand that there is sometimes a a balance to strike between, between, what you can do and what you want to. Differ balance to strike between the duo and the desirable. Sometimes the speed to go to the desirable It's got to be slower because the tour will otherwise not be accompanying you.
So there's more to it than just to go out and say, this is how we're going to push the share price up. There's more to it than just look at one of the single items As but not least, there are a few customers around who put our who put their confidence to us every day. So it is, you know, in responsible management at the end of the day is is being inclusive of of interests and still get the drop down based on outcomes. And that's why I wish in 2020 plus is what it is. Today, a great optionality He understands that at the end of the day, the only ones secure plays anywhere in any business, his performance.
There is no point in striving for performance, which is desirable if the speed of the ones who need to get along. Does not allow that to be faster. And, that's been that's been the intent of the message we wanted to give to you today as a management team. There is no point in, in, not understanding that result matter in the end, and they better be better than the ones people have option against. We have that very, very mind.
It did that with the transmission 2020. They are going to do that with vision 2020 plus. Are you going to do it our way? You also know there's no point in laying out big targets pleasing one without having the other one coming along. If I had told you today, we're going to get rid of, powertrain.
We spin it off and And, you know, the future will be bright. It probably would have created another 1,000,000,000 or 2 in market shares. But if you were a customer, and hear that. What do you actually think? You've got a structuring 800 pound gorilla in that space already.
You need another one? Probably not. So you need to understand that running a company is more than just optimizing one single piece of interest. In a very well network community. I am too old for pushing one side and neglecting the other.
Guarantee what we are going to do. Is better than most people think at this time. How do you do it together? And do it in a balanced, meaningful way to take most of the ones along who have an interest in the area? That's exactly what they are going to do.
I do appreciate that, maybe the quality of detail has been insufficient for some. But obviously, there have been more than to be able to digest for others. So we need to find a way to bring things together because we've got a company to run every morning, every week, and every month. And that's exactly what we do. So that's what you need to understand.
If you put something out there, where it stays, stakeholders are important. At the end of the day, the only one relevant topic Also, Mr. Kuhn, what you were mentioning to scare away maybe more, more, one-sided short term interest is to performance as well as others to prefer Repeta, and that's exactly the aspiration. And if you don't tell you everything today, What we know already how to do it. It's got nothing to do with not being is not having a plan.
It's got to do with the fact that it's good enough if we know it. And we let ourselves be measured against results every quarter and every year. How we do it. That's been important to understand. It's been the whole intent of 2020 plus to integrate the interests in a ever more divided world.
That's what the whole matter has been all about.
Thank you. I think this was very good closing remarks. Looking at the time, 11 o'clock, Theresa.
Yes, then thank you very much to all of you for coming and for all your questions and your interest. We wish you all a very nice hot but also rainy summer from time to time. And hopefully, we will see you again latest for our annual press conference on November 8.
Thank you also from my side. We will now conclude the webcast. Thank you for joining us here. We would like to invite you also for a light snack in the 4 year of this building together with Joe and Ralph. Thank you, and goodbye.