Good morning, ladies and gentlemen, and welcome to Siemens 2018 First Quarter Conference Call. As a reminder, the call is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor statement on page 2 of the Siemens Presentation. This conference call may include forward looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.
At this time, I would like to turn the call over to your host, Ms. Sabina Rachael, Head of Investor Relations. Please go ahead, madam.
Good morning, ladies and gentlemen, and welcome to our Q1 conference call. The earnings release and Q1 presentation were released at 7 am this morning. You can find everything on our website. Our CEO, Joe Casa and our CFO, Ralph Thomas, are here this morning to review the Q1 results you. Since the AGM starts today, right after this call, we will limit the time for approximately 45 minutes including Q And A.
And with that, I would like to hand over to Joe.
Thank you, Sabine. Good morning, everyone, and thank you for joining us for the first quarter results of fiscal 2018. As you know, this is always the time of the AGM here in Munich So we'll see how it's going to go, but now we do look forward to discussing with you the first quarter results. I believe We had quite a successful start to the fiscal year 2018, and I really like what I see in most of our businesses. The growth momentum of the global environment seems to be strong in most economies, and our investment in key businesses and sectors is paying off.
Our focus on digitalization and innovation shows clear results. The Digital Factory division leads the way into what we call industry 4.00. We do see this in our customer experience feedback across all divisions, and it is now just related to Digital Factory. You should have seen it also at our recent Innovation Day. The vicente with our customers demonstrate a tangible and real time examples, how to unlock value from this jurisdiction applied to the industrial world.
And it is also recognized by opinion leaders such as for example, the Boston Consulting Group, ranking us among the most innovative companies in the world. Looking ahead, We do expect the macroeconomic environment to remain positive. Downside risks are rather attached to, continue geopolitical tension in the area like Russia, the Middle East and the Korean peninsula. Also, diverging definition of what free and fair trade may as well pose risks to the global business going forward. Furthermore, the structural challenges in the fossil power generation market will continue.
We have initiated and will take decisive steps to adjust our capacities Accordingly. Meanwhile, the dialogue with the employee representatives have also started in Germany. On a more positive note, they're excited about our planned IPO for our health care business, During the Capital Market Day, the Health And E's management team provided an in-depth presentation of the strategy, operations and financials. Of this great business. Caron track to list the L30s business in the first half of calendar year twenty eighteen, obviously, depending on market condition.
And with that, I would already like Ralph to touch the key financials for the first quarter.
Thank you, Joe and good morning from my side as well. Ladies and gentlemen, organic order growth was clearly up 7%. We saw continued momentum, particularly from all short cycle businesses across our portfolio. Large orders were up due to serious significant customer wins in mobility such as an such as a $900,000,000 order from Israel in the largest U. S.
Rail order ever in San Francisco. In addition, we saw again strength in the base orders with 11% nominal growth. Book to bill stood at a remarkable one point 13 times and the order backlog increased to 1,000,000,000. Overall, revenue was modestly up 1% A double digit organic decline in the power generation business was overcompensated mainly by mobility and digital factory. The industrial business margin reached 11%.
As expected, it was impacted by a margin drop in power and gas, new unit business and currency headwinds of around 60 basis points. Most divisions were in or at the margin range with mobility and digital factory even topping the range. Net income was up 12% supported by 2 one off gains such as the sale of Ostrom shares and a net positive effect from the U. S. Tax reform in the magnitude of 1,000,000.
Free cash flow surged to almost 1,000,000, an increase of 22% over prior year's quarter. Main reason was significant project milestone payments in mobility. Now let's look at key developments in the different divisions. As discussed, the ongoing structural shift in the power generation market led to contracting demand and significant price pressure due to aggressive competitive behavior in the new unit business of power and gas. Revenue decline of 15% was mainly driven by much lower volume from the solutions business, particularly from the Egypt project.
Unlike to what we see from others in the industry, our service business remains a stable contributor and is holding up very well on top and bottom line. We have a healthy service backlog of EUR 31,000,000,000 with good visibility for the next 12 to 18 months. The book to bill in the service business was clearly above 1 in the quarter. As expected, the PG margin came in below the target range at 7.6% due to lower capacity utilization. Energy Management developed sideways in the quarter with lower volume from large orders.
The profit margin was at the lower end of the target range impacted by extraordinary adverse FX effects in the magnitude of 80 basis points. The Building Technologies team built on its successful track record with revenue growth of 5% driven by the U. S. And China. A key focus is on expanding the digital service and connected product offerings to foster further growth.
Profit margin of 9.7 percent was only temporarily lower due to cost overruns related to the Middle East. Mobility delivered an outstanding quarter where the financial key performance indicators speak for itself. Double digit top line growth and improved profitability across all businesses. The team reached important milestones in several high profile project. For example, the Eurostar train received homologation also for Belgium and the Netherlands.
While the ICE4 train for Deutsche Bank began regular service in Germany. We like very much what we see 10.4 percent profit margin, clearly north of the target corridor. Our mobility team is confident to deliver strong margins prior to building the European Mobility champion Siemens Alstom. Digital Factory proves QUARTERBYQUARTER the superior strength combining comprehensive software offerings with leading automation competence. Looking at the competitive landscape, Digital Factory delivered another strong quarter with further market share gains.
Going forward, A significant growth contribution came from the short cycle businesses, driven by strong demand from Automotive And Machine Building customers. Again, China was standing out with 24 percent revenue growth, benefiting also from restocking effect in the distribution channels. We expect the short cycle momentum to moderate going forward. Also, mentor graphics fueled the software business by closing 3 large multimillion software deals. MANTR delivered a substantial profit contribution in the seasonally strongest quarter.
The underlying margin was north of 22 percent, excluding severance, investment in MindSphere of around 130 basis points in effect from the Mentor integration of around 80 basis points. Pros Industries And Drives achieved strong order growth of 10%. However, we saw diverging end customer trends, while commodity related end markets showed further stabilization, the demand for mechanical components, particularly in the wind business was weak. Profit margin improved by 90 basis points despite significant currency headwinds. This was driven by record high profitability in the Process Automation business.
Siemens Healthineers' 1st quarter saw solid comparable revenue growth of 2% driven by strong growth in advanced therapies. Profit margin of 16.9 percent came in as expected below the extraordinary high level of the prior year's quarter. Despite good execution, significant currency headwinds of 90 basis points in a less favorable business mix impacted margin. As laid out at the Capital Market Day, the Atelika rollout of the Diagnostics business is on track. The First Hundred Systems have been shipped as planned and customer feedback is excellent.
The team is confident and committed that the Aspired growth in diagnostics will accelerate the ramp up of Atelika instillations and reagent sales over time. Siemens Gamesa reported their results already yesterday. Nominal volume was sharply up due to the merger with a healthy book to bill of 1.37 times. However, top line was significantly lower on a like for like basis. Revenue and profitability reflect low installation activity and ongoing pricing pressure in the onshore business.
The Siemens Gamesa management team will give you an in-depth update on the strategic and operational priorities at their upcoming Capital Market Day in Madrid on February 15. Let's have a brief look at some of the major topics below industrial business. Cement Financial Services delivered once again a strong performance in supporting our divisions and achieving bottom line results. CMPA showed a clear increase over prior year due to the related gain of selling Ostrom shares. However, we expect volatility to continue due to the various assets 6% for the first quarter due to the largely tax free Oseram gain of 1,000,000 and the already mentioned positive effect from the U.
S. Tax reform. But please keep in mind that preparations for the Health And Years IPO as well as mobility carve out are progressing as planned. Hence, we expect certain tax burden related to those items in fiscal 2018, as we told you before. Taking this into account, for fiscal 2018, you can now expect the tax rate to be rather at the lower end of our guided range of 27% to 33%.
To sum it all up, we had a strong start in the first quarter and confirmed the guidance for the fiscal year. With that, Joe and I are happy to take your questions and I return the mic to Sabine.
Thank you, Joan, Ralf. Operator, we now start with the Q And A.
Thank you. And our first question will come from Mark Traumann from Bank of America. Please go ahead. Your line is open.
Thank you very much. Good morning Joe Ralph and Sabine. Two questions, please. 1 on power and 1 on FX currency. Firstly, on power, Joe, I just wonder if you could outline the sort of timetable for the capacity adjustments, where should we be by, let's say, the year end, the fiscal year end September 2018?
Related to that, on severance charges, I mean, severance charges are one thing. I think we see consensus has about something a bit under EUR 400,000,000 Will there be more of these capacity adjustment type charge, if I guess you took in Q1 offset by the gain? How should we think about that for the that's the questions on power? And then the second one on FX, Ralph, you mentioned, I think, 80 basis points headwind in energy management and 90 or so in Health Nears, how should we think about FX for the year in terms of the group, in terms of the overall transactional margin impact for the group? Thank you very much.
Why doesn't it maybe start with Rolf and then I come back on the PG labor union topic?
Yes. Of
course, Mark, what I said is, I mean, for the oil business, the impact from exchange rate in the first quarter was 60 basis points for our continuing operations. It was 50 I also had been mentioning energy management with 80 basis points Healthcare90. There was also substantial headwind from exchange rate from for PD. With a negative of 80 basis points and also our digital factory was negatively affected by 40 basis points just to give you more color on the divisions. From today's perspective, all others equal if exchange rates stay pretty much level with that.
What we see at the moment, I would say that the full fiscal year will have pretty much the same impact around 50 basis points of impact That's what we expect
All right. Then on the power generation, I mean, 1st of all, that the first quarter was basically also adjustments on the underutilization of equipment, which we have been doing in parts. On the severance topic in PG, as you know, we announced 6 1900 jobs to be redundant about 6000 of them being power generations. Out half of that 6000 being Germany, the other half elsewhere in the world. So as for the elsewhere in the world, is concerned, we do expect to be having agreements done by fiscal year end, and then you should see the savings come in during the course of 2019.
As for the for the Germany part of the of the equation, we have been starting finally, starting the dialogue with the workers' representatives, which have been quite busy with their carried bargaining and stings, which still has an opinion fully done. So there is some there is some delay here So we would expect the negotiations to be done during the course of, let's say, spring summer And then we need to go start with getting the cost out. I mean, booking the reserves is one thing, but getting cost out obviously is the next So a mixed basket here. Outside Germany, we are well in the way. In Germany, we have been starting the dialogue, which is a positive.
But it could take time until people are busy with elections can come to the table. So I would say, year end, it should have a solid agreement. And then we also would expect the reserves likely to be booked in, in fiscal 2018 as sort of anticipated and then starting the cost takeout during fiscal 2019.
Mark, maybe one additional data point for PG, I have been indicating that in the presentation that in the first quarter, we had personnel related severance charges, around 13,000,000, but on top of that, there's also of course a need to adjust the long lived assets and to depreciate if need be That happened in the first quarter to a magnitude of around 1,000,000.
Thank you. We will now take our next question from Ben Uglow from Morgan Stanley. Please go ahead. Your line is open.
Oh, good morning, Joe, Ralph and Sabine. I had a couple not surprisingly around around power. So big picture question, you made the comment in the opening that the performance was quite different from your competitors. Joe, can you explain that performance differential a bit. What do you see or what is actually happening in your business that's different to your largest competitor?
Is is it something to do with the way that others have accounted? Is it something to do with your regional mix? Is it, is it even something to do with the actual gas fleet? So why are you seeing such a desperate performance from from what others are reporting? So that's question number 1.
Question number 2, I think at the recent conference, you'd indicated that you expected the power business, power margins to actually improve in 2019. I wanted to understand what is the basis for that confidence Is it that you think that you're going to have so much cost out that the solutions business is going to improve Or are you actually betting that power service continues to grow nicely? Where in your business mix do you think things get better next year?
Ivan, well obviously commenting on other people's challenges is not appropriate because we have enough for now on on that matter. I mean, the reason why I made that comment earlier was that people who are not so familiar with the matter, especially in the in the channel public. So I just need to understand that this is not a Siemens problem, but the general issue in the industry. Which shouldn't come as a surprise because, obviously, if renewable energy grows, something else needs to obviously decline. So having said that though, yeah, we do expect the power merchants, the mix between new business and service to to improve over 2018.
And there is a couple of reasons for that. First of all, obviously, we expect the effect of rightsizing to materialize at least in parts in 2019. We also do see from the lineup in innovation that there might be some design to cost elements which come to the P and L, so to speak. It should also give us a structural improvement on cost versus price. And thirdly, we do not bid on service to be even better as it is already.
So that will be probably just turning our head away from the real challenge, which has the new business So therefore, we think we have good transparency in the marketplace. We have good transparency on our innovation pipeline, which will improve performance of the machines as well as the design to cost. And And we also should I say that, it almost smells like unnecessary behavior in the marketplace has become a bit less intense
It's a lower price intensity around new projects.
Yes, just asking what I can say to that. I think it's should be clear enough.
We will now take our next question from Andreas Villi from JPMorgan. Please go ahead. Your line is open.
Ralph and Sabine. I have two questions, please. The first one, just a quick follow-up on power and to performance in the quarter. Obviously, you have equipment coming down quite sharply on service, more stable and therefore, a positive mix impact, but maybe you could help us a little bit with the underlying performance in terms of what their service margins are year on year and where equipment margins are year on year. To better understand the margin performance, taking the mix thing out of the picture.
The second question on on the union and work representative situation in Germany. We have to wait for the wage discussions, the redundancy discussions, it seems to be quite difficult. Do you see a change or breakdown in the strong relationship that Siemens and determining real complex in general had over the last 10, 15 years that supported the German export miracle in that sense that it's something's changing in how the unions and the work representatives deal with the companies in terms of them wanting a larger share of the pie now maybe after 10, 15 years of restraint?
Thank you, Andreas. Let me start with the question on PG and the resilience of the service business. I think we have been talking a couple of times about that. So the backlog has a strong component. Meanwhile, from the service end, exceeding 75%.
So we have quite some visibility also in terms of times and how that's going to be turned into revenue. So the margin has been hardly impacted year over year on the service end. So you can conclude from that. That it was all the new equipment that has been suffering in terms of profitability and also, the mix from a revenue perspective, I think with power and gas having really a real strong service piece also in the revenues of exceeding 50% is giving should give you some confidence that we really have a firm grip around the figure and the development of that mix way forward. So no material impact on service margin development.
Yes. Andreas, thank you on the question of unions and brokers' representatives and output called social partners work together. I think 1st of all, honestly, it's not that bad as it sometimes looks like if you scroll through let's say, the sensational headlines of, of some newspapers and AB. So I really have to say that for the most part, this dialogue is intact. However, you're obviously right.
There have been a few changes in terms of how the social partners react and the public also is communicating about. I mean, look, if you have to collect the bargaining and someone comes in and says, now we need 8% increase. And we're going to work 28 hours a week and there's nothing to discuss any further. It's a it's a bit of a of a harsh approach, and we need to see how that goes. And obviously, if this comes right into the middle of a mostly fully loaded capacity in most of the key industries.
It's it's a very complicated matter to deal with. And I would really call that in the approach, some irrational exuberance what we see here. On the other hand, they've always been able to come together and make a meaningful compromise in the end. So that's the key method topic, which we have pretend here. And there's also election time now in spring for the workers' representatives in the on the production sites, which also may play a role that this is a bit more outspoken than it would need to be But I'm reasonably optimistic that this can be done.
And comes March or April, we move on to go back to business that we should be What I'm more concerned about, and this is not only true for Germany, but also most of the fully developed economies, in terms of German, we're doing as well as we have never done before in our history. If it comes to Wealth And Economic, environments. And there's a lot of people are really, really concerned if not scared about what the future will bring. They all hear this digitalization 4.0 and massive transformation and all those things. And I don't exactly know what the hell that is, and even more importantly, what it means to them.
And this sort of causes a holdback situation and every change, people try to explain is, first of all, consider this resistance. And I think we haven't done a good job also in the economic leader community to explain well the opportunities. Things will also be able to provide, and that's what we need to do. And obviously, you know, populism in the political environment is not helpful either. So we have a bit of a social political challenge here.
And I believe that the economic leaders, the company leaders need to speak out much more and explain to people that actually the opportunities are higher than the threat. So I'm I think kind of long story short, I'm confident that comes, let's say, March, we should be back to real business and, again, talk to each other and not about each other. And in the meantime, we do our business focus on our customers and on innovation, which we do not need anyone else, but our customers and our people.
Thank you very much.
Thank you. We will now take our next question from Simon Thanason from Berenberg Bank. Please go ahead. Your line is open.
Yes, thanks very much. Good morning, Joe Rife and Sabine. Firstly, on Power And Gas. And can you talk a bit more about the trends you sort of expecting by products? I know it's sometimes difficult to quantify, but I think the expectations for large gas turbine demand this year, I think quite weak is quite well understood, but do you think you're gaining share in particularly the small medium aero business right now given we've seen a very weak performance here from your from your bigger competitor?
And also in the compressor related business, with the PD seeing good order growth, should we assume some sort of commodity driven recovery here in that business with, I think, Ravi stated the book to bill of Dressa being clearly below 1 last year. And also margins, I think you said were in the low single digits. So what's kind of your recovery path here going forward? And then secondly, on Digital Factory, obviously, you flagged a very strong orders here, particularly auto and machine builder driven Can you maybe split out how did the software business grew organically relative to the more hardware related part And then also within that maybe how the PLM business is doing? Thanks very much.
Let me start with the second part of your question, Simon. So the digital factory overall had a really tremendous out into the new year. As I said before, short cycle business in particular in China has been driving that as always at that part of the year, you need to figure out what are artifacts in it, what is re shelving, how much did you sell into the channel and also what effects may you expect for around Chinese New Year. When it comes to the software business, We have been sharing with you last time already that with a haircut and everything around mentor graphics, it's hard tell what is normal on that end. But I think compared to the prior quarters, that one was relatively slow on the top line.
But we had a very, very successful start with Mentor Graphics. They have been substantially contributing to the margin development in PL. And we are very happy with the progress being made there. I assume this is also at least in part due to the fact that the team in PL Now after a series of acquisitions knows exactly which strings to pull at which point in time. So we are very confident and I think before we talk about a new normal or new steady state, you should give us 1 or 2 more quarters before we can finally conclude from that what we see for the way forward.
On the PG side, I think Joe has been discussing already that the large gas turbines, they still have a downward trend from the market perspective, everything we know from McCoy and like is rather suggesting that the trough may be even a bit lower than we saw it last year So, it's hard to tell what market shares you may win or not win in that area before you also have the big picture on more than 1 or 2 quarters. On the small gas turbine side, you mentioned that some of the competitors see a very intense market. We agree upon that. It was a very slow market development for the first quarter and also from the statistics that we have at fingertips, we would assume that, that was a further decline in demand on the market side. And the compressors being part of the value chains of the process industries, customers, that's a right statement.
However, they are also lagging in terms of the lead time that you would normally see So there wasn't the same momentum being created as we saw that in the PD portfolio, as we have been pointing out an extraordinary good development with 10% new order growth, even though the wind market with mechanical components is fairly slow and still contracting. Talking dresser, I had been mentioning that last year and also the first quarter, had a book to bill below 1. Okay.
Thank you
very much. Generally, I think, just typically this as you all know, in McCoy statistics for 2017, it should be due out anytime soon. I did look at our numbers in there. They are accurate. So you can rely on those as far as Siemens is concerned.
Fiscal Q1, we expect the large turbines about and our definition is larger than 1 100 Megawatt. Yes, we have like 23, 24 in the market. We saw 7 which is by the market share of 30 plus -plus for take. That pretty much, I think, reflects the industry. They have a few I think very decent, designed to cost action in the innovation pipeline, especially in the medium sized environment, think about the SGT 800s and the likes, so we actually do believe that we are well positioned in that market.
Thank you. Sure.
Thank you. We will now take our next question from Martin Wilkie from Citi. Please go ahead. Your line is open.
Yes, thank you. Good morning. It's Martin. Just a question on the Process And Drives business. You've mentioned that mechanical Drives is sort of dragging that business versus recovery elsewhere.
Obviously, you do have exposure to win there. I just wanted to understand how much of the challenge in mechanical drives is linked to the pricing impacts being passed down by the turbine manufacturers and how much of it is a structural shift to direct drive And also there was an article in Bloomberg a few days ago, mentioning that you might be considering the sale of Flander. And I think there's some confusion as to whether that comment came from the company or elsewhere. I was just wondering if you could comment on that as well. Thank you.
Yes. Why don't I do that? Because it's very short. I mean, we've seen an article too, and there's nothing else to add. I mean, the mechanical drive is which used to be the slender business.
So it has a good brand actually as a company. It does see some structural areas mostly because of innovation. Maybe let me explained that, in order for us to bring the costs down in mostly offshore, but also 9 parts onshore, we are going after keyless boxes because it's just more efficient. It's the weight is down and the cost are down. So actually, this mechanical drive environment, if it comes to wind, is so to speak, a victim of innovation.
There, we have the benefits elsewhere. That's when we comment a bit on weaknesses in the wind area. It's not so much about pricing issues and everyone looks at other people's backyards, which is the supplier. But, this is not the issue. The issue is that there's segment, which used to be a growth segment, which now is being affected by innovation elsewhere.
And you deal with that, and if people speculate, we sell it or everything has still a good point of comment on it. But obviously, there are very good people there who have quite a turnaround. You need to know this mechanical drive business was also one of those so called underperforming units, and they are not an underperforming unit anymore by our definition. So you can see a lot of good things happening there and the team is great. We have a good positioning in the marketplace.
And so we feel actually good on what we see.
We will now take our next question from James Stittler from Barclays. Please go ahead. Your line is open.
Yes, good morning. Thank you for taking my call. 2 quickly. Just on, on the mix within the 17 percent order growth in Digital Factory, how much was a project and how much was short cycle? And could you just give us a bit more color around the 2% order growth in Health And Eres, which looks a bit lower than your two peers.
Can you talk a bit how that, the breakdown between the three segments? Thank you.
Thank you, James. Starting with the health and years, I think we need to understand that the competitors that have been disclosing their figures do not have a diagnostics business as we have And as the management team has been sharing with you guys in their capital market days, it's obvious that ramping up now at telecom and really making good progress in terms of what has been delivered installed in terms of customer feedback that we get, it's exactly hitting the expectations of the customers, obviously, but still it will take time And this is also going to be reflected in the performance of the diagnostics business. Obviously, it's ceding period And before we really see substantial and material bottom line impact that will take another couple of quarters as we said before because then the reagent business is going to kick piece has pointed out in the presentation as well as imaging has been minimum up to speed with that development of the competitors that have been out with their figures already. So we are absolutely satisfied with the development. And also bear in mind that prior year's quarter, and we said that in the discussion then, was an extremely outstanding good one also in terms of profitability and not only in top line growth.
In the 90 basis points of negative impact of from FX I had been mentioning before. Talking about the digital fact the re and where does growth momentum come from? Maybe I can give you a bit more color on that one. I had been mentioning that we had 24% growth on the short cycle business in China, which is amazing. Again, as I said, the momentum in the market there is probably at peak and we should be careful in with our expectations for the quarters to come momentum will remain there, but probably not on that high level.
So I need to caution you a bit for the second half of the year in particular. Visibility typically is not more than 6 months in that business. We also had outstanding growth rates, on the short side product business in Italy. Packaging Industries are fairly strong there and they are supporting and benefiting from internet based trading, obviously, and also Germany, with modest but stable growth rates have been contributing in the short cycle business development. So we see that being the main source of the development in particular, automotive and machine builders have been contributing a lot, but also the general the general manufacturing environment and automation therein is providing additional growth for almost any of the typical regions where we are in, in particular, China, as I said before, with strong double digit growth rates.
Thank you. Welcome.
Thank you. We will now take our next question from Jonathan Amundsey from Exane BNP Paribas. Please go ahead. Your line is open.
Hi, good morning. Thanks Paul. Let me ask a question. Maybe a couple. Could you comment on, the scope of Vision 2020?
I see it appearing more and more on your slides all the time. And obviously, hopefully, we'll get some communication on that before the end of the fiscal year, but maybe just the scope that is slightly to incorporate. And then on mobility, a very, very strong quarter in terms of order intake and cash generation. Does this at all affect the agreement with Alstom? Will there be adjustments made as we go into the completion of that deal to reflect how the 2 businesses have performed in the period since it was announced.
Thank you, Jonathan. Let me start with the last one around mobility. You're absolutely right. This was an outstanding quarter of mobility, and we had been to you that we expect strong growth momentum, both for new orders and for revenues. So that has been part of our business plans when we started into the negotiations with Alstom and therefore there's no need to adjust for the business development.
So far, of course, there is the normal technical adjust the on the first quarter is exactly along the lines that we had been indicating before. And as I said, there is growth potential for the quarters to come a very strong and dedicated team that also now obviously has been successfully doing their homework in terms of non controlling costs So the margin in the double digit area is clearly leading the industries and we are very happy with the team and with their performance.
Yeah. Maybe to add to that, you may recall that I said in the press conference at the time and the deal was announced. That there is no reason why this new NUKO should not have merchants greater equal 10% or double digit margins once it's formalized, integrated, and has, gotten the synergies out of the deal. Now obviously, there's a lot of work in between. We need to do the deal, 1st of all, needs to close.
There is an intense discussion with all the stakeholders at this time, think about the unions, obviously, also about antitrust matters customers. So the team is very busy in doing that. For the most part, it looks really good. Of course, all of that is concerns as Andreas mentioned earlier in terms of social impact and workers' representatives. So we need to deal with that But all in all, we continue to believe this is a very, very attractive combination if and when we finally have it.
Now only on the vision or the Coalition 2020 plus, which is nothing but the placeholder for what's next in a long term strategy. Look, I mean, we do have a strategy today. And, you also, however, have recognized that we need to now take it to the next level. We're not in a hurry, to jump to something too quickly. As you obviously see, the business overall is doing well, but also we have some structural areas in PG, which obviously was one of the most prominent parts today in the Q And A, rightfully so.
So I mean, we really need to balance between fixing the structural topic with the workers' representatives and laying out a new strategy on the other hand. I mean, it would be ought, I think if you're not done with the structural thing and lay out what happens next before we have fixed the first thing. So I think we are well underway. We have had quite good discussions in the management team workshops on where we see the and that we can be should be much better than we used to be. So, still underway.
As I said, I like what I see. We are not in a hurry. We will get things done, right? But first, as sometimes say, we sort of need to do the the right sizing first and then expand the good things into the future and double up on them where we have been good at.
We will take now our last question, please.
Thank you. We will now take our last question from Gail Deborah from Deutsche Bank. Please go ahead.
Have a couple actually. The first one is, related to, well, some of your competitors issues right now. I mean, did you see some early signs of some of the group's activities starting to benefit from a windfall effect of GE current issues and perhaps with some of your customers now more willing to deal with you than in the past. A second question relates to energy management, margins have been sliding down here for the past few quarters now despite the good top line development So could you elaborate a bit more on this, please, what's going on there? And because it seems that the margin gap with some of your peers has actually expanded relatively rapidly.
Thanks.
Thank you, Gayle. Let me start with the end part of your question. First of all, looking back in to our historical track records there, you would typically see that the first quarter is very slow each and every year. So from that perspective, the pattern as such is not really new. As I said before, there was also central impact from exchange rate in this quarter, it was amounting to 80 basis points.
If you add those 80 basis points, they are clearly, clearly moving forward, also considering that seasonal pattern in it. And we're absolutely convinced that they are going to make progress with their programs and their growth pattern in particular. 5% revenue growth in Energy Management is quite something to achieve. We are quite happy with that. And also the fact that our Product business developing low voltage cloud product business, in particular, is developing quite nicely.
That's also an area in the portfolio where we see a good margin conversion taking place. So also in that business, we saw that there's quite some momentum being created in the short cycle business and, from that what we see, the visibility in that market We are also quite positively looking ahead for the quarters to come.
Yes. And on the first one, let me look, Of course, there is always, if you have, you know, in severe challenges, customer ask and worry and wonder. Of course, we people come to us say, are you on and are you ready and will you support us? And the answer is, of course, yes, as we have always done. And we've made quite progress on the efficiency in our products.
We have been investing into innovation despite obviously, a complicated market. Our service is well underway. We have a fascinating team in power generation and in service. So they are really, really working hard to also help our customers get more benefits out of their products they have today. So, we try to keep our customers happy and help them to be more successful.
And competition is competition after all, and we'll see how it goes.
Thank you, Joe. Thank you, Raj. We will now finish the call because we have the AGM Thank you everyone for participating. I and also the team will be available for further questions.
That concludes today's conference call. Thank you for participating ladies and gentlemen. Once again, let me repeat the instant replay numbers. Participations in Germany, please call the replay number, plus 4,9,690,001,800. Access code 9770016 hash.
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Thank you.