Good morning, ladies and gentlemen, and welcome to the Siemens 2019 4th Quarter Conference Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor statement on Page 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 conference over to your host today, Ms. Sabine Reichheld, Head of Investor Relations. Please go ahead, madam.
Good morning, ladies and gentlemen, and welcome also from my side. Thank you for being so patient. We just came back from the press conference. The earnings release and today's presentation were published at 7 a. M.
This morning. You can find, as always, everything on our Investor Relations website. Our President and CEO, Joe Kaeser as well as our CFO, Ralf Thomas, are here this morning to review the Q4 results, and they will also give you our outlook for fiscal 2020. After the presentation, we will have time for Q and A. And we will now start with Joe.
Thank you, Sabine. Good morning, everybody, and thank you for joining us for our Q4 conference call. If you look at today's agenda, we have a lot to cover, obviously. Again, we executed on what we promised despite an accelerating weakening of the global economy and continuing geopolitical tensions. We finished our fiscal 2019 with an excellent Q4 that shows the strength of our company and the passion of our global team.
Siemens is growing and many of our businesses are stronger than ever, gaining further share in highly competitive markets. At the same time Siemens has never undertaken too much change in its 172 years history. With the Vision 2020 plus our businesses have now got the entrepreneurial freedom, responsibility and accountability to lead in their respective markets. Our transformation is making good progress and we will create 3 Siemens company. Mine is what we call the Industrial Siemens, Siemens AG new, so to speak, Siemens Healthineers and then Siemens Energy.
They're carrying strong Siemens brand. And if we work together, there there is mutual interest and value. Each company will strive to be among the best or set the benchmark in this industry with ambitious targets for profitable growth and obviously, last after this cash generation. Now let me have a brief look at our 2019 financial performance before I will go into more detail and walk you through our 4th quarter results. So in a nutshell, we delivered on our targets, which we have set out in our initial guidance for the year 2019.
Continuous customer focus drove clear order growth and strong book to bill rate of 1.13. And despite a deteriorating short cycle demand and a well anticipated decline in large gas power, we achieved moderate organic revenue growth for a company as Revo. All in all, we saw quite a decent operational performance in our businesses, and this led to an industrial business margin, excluding severance of 11.5%, right at the midpoint of our initial guidance. Earnings per share at $6.93 excluding severance grew 15% compared to effective 2018 settled in at the upper end of our guidance. With that, we delivered on our commitments for 6 years in a row.
Even when we raised our targets throughout the year, we still delivered. And that obviously is also reflected by the double tick mark in our fiscal 2016 in Beijing where we increased the guidance throughout the year. So it's needless to say, ladies and gentlemen, that this is a good streak. Hasn't always been that way, but we definitely are very focused and clear that this has to continue. It's been a great ride.
And without the extraordinary team, I know that would not have been possible. So I really do look forward to continuing that in the new fiscal year 2020. And with that, I already hand it over to Ralf for the Q4 financials at baselineing with what we are going to intend in 2020. Ralf?
Thank you, Joe, and good morning also from my side. As already mentioned, Q4 saw a very strong finish across all metrics. Order growth of 2% was driven by a higher volume of large orders in Gas and Power and Siemenskamata, overcompensating for short cycle businesses. Book to bill reached 1.01x, while order backlog achieved a new high of EUR 146,000,000,000 also benefiting from positive currency effects. Revenue growth accelerated to 6% with growth in all companies.
Industrial Business profit margin, excluding severance, reached strong 12.5%, up 50 basis points year over year. All companies except Siemens Gamesa increased margins, and 4 out of 6 companies were well within their target ranges. Our Industrial business margin benefited from around 30 basis points in positive currency effect, most notably per share saw a positive impact from a substantially lower tax rate compared to prior year. A real bright spot was exceptionally high free cash flow of €5,300,000,000 up 60% year over year. With this strong team performance, we caught up with prior year's level of €5,800,000,000 for fiscal 2019 in total.
Also, for the industrial business, we delivered an outstanding cash conversion rate of 1.98, driven by improved customer payments and lower inventory levels. Now let me walk you through the company's performance. Digital Industries made more than good on its commitments after the performance split in the 3rd quarter and delivered very strong financials. Our software business saw excellent revenue growth of 15%, well ahead of competition and driven by extraordinary strong performance from Mentor and winning market share. Besides the major contract in the U.
S, we won important orders from Taiwan Semiconductors, SK Hynix and Xilinx. Process Automation held up very well with mid single digit revenue growth. However, we saw continued weakness in our core and machine building industries, which impacted the motion control and factory automation businesses. As expected, orders in the quarter were softer, particularly in the short cycle businesses on continued weakening global manufacturing momentum. We delivered on our promises.
Digital Industries margin of 18.5% returned clearly into the target range. This was driven by a sharp improvement in software and decent contributions from the automation businesses where stringent cost management and key priorities in resource allocation supported profitability. This was a key proof point. The team is in control to react swiftly under volatile market conditions. Furthermore, digital industry's intensified focus on working management led to a strong free cash flow increase and a cash conversion rate of 1.1x.
Now let me give you a brief update on our end market expectations. 6 key verticals cover around 70% of the digital industry's revenue. The overall picture hasn't changed much from prior quarter and shows a challenging backdrop for fiscal 2020. We continue to see for the next 3 to 4 quarters ongoing cyclical weakness and structural challenges in automotive and machine building. We do not expect to see the trough in our most relevant short cycle verticals before mid calendar year 2020.
If further volatility occurs, we are prepared to act on the cost side. Food and beverage is expected to continue a steady moderate growth path. Later cycle process industries, such as chemicals, will soften, while hybrid industries, such as pharma, will balance for this. The electronics and semiconductor markets are expected to see lower investment in semiconductor production. However, R and D spending in this industry will remain on high level, which is closely linked to our mentor software platform.
Finally, aerospace and defense, an attractive long term structural growth market where we have a strong market position. Looking at our key geographies, revenue development shows a mixed picture for the Automation business. U. S. Was up 8%, and China grew 2% on strong Process Automation business.
Germany and Italy, both were impacted by weakness in key export oriented discrete customer verticals such as automotive and machine building. In 2020, we will continue to invest our cloud offering such as enhancing the MindSphere platform and applications, expanding our software as a service portfolio and Mendix low code platform as well as further mentor integration efforts. We invested around €350,000,000 in fiscal 2019, and we expect around €250,000,000 in profit impact for fiscal 2020. Our software business shows continued strength, and we expect steady key revenue growth on similar levels as also for fiscal 2020. Smart Infrastructure also had a very strong finish in our 4th quarter with decent top line growth, mainly driven from larger orders in the Solutions and Service business.
However, softer industrial end markets continue to impact the short cycle industrial and product business, and we also see first signs of softening in nonresidential construction markets, which typically trail industrial verticals with 6 to 9 months, but obviously less pronounced volatility. Adjusted EBITDA margin came in on last year's excellent level and benefited from both strong profit conversion and tight cost management. In the Q1, we expect a seasonally weaker margin with some impact from short cycle product business. Quickly slow generation showed great momentum, particularly in receivables and inventory management and more than made up for the shortfall in the 1st 9 months. With a full year cash conversion rate of 1.05 times, Ma'am's infrastructure clearly overachieved the target of 1 minuteus growth rate.
Gas and Power team successfully kept their focus on customers and operations despite full speed carve out progress. Orders were up on decent new unit business. We booked 11 large gas turbines around the globe, 22 small and medium gas turbines as well as 8 aeroderivatives gas turbine units. For large gas turbines, we maintained roughly our market share in the fiscal 2019. The market is expected to stabilize around 80 units next year.
A great success is our continued market share gain for small and medium turbines. Our portfolio is well suited to drive decarbonization and efficiency improvements in customer applications. Gas and power margin of 5.6% ex severance was on the prior year level with a continuing strong contribution from the service business. As indicated, Gas and Power booked further severance charges of close to €200,000,000 to merge and rightsize capacities and optimize its regional setup as well as support functions. Free cash flow made a huge leap in the 4th quarter to more than €1,000,000,000 Our working capital initiatives are paying off, although this huge number also benefited from some earlier than expected customer payment.
Joe will give you an update on the status with year with revenue hitting a quarterly record high of €2,500,000,000 Even more important, Mobility's adjusted EBITDA margin of 12% was at the upper end of the target range, also benefiting from positive project related effects. Like at Clockwork, Mobility has now delivered sustainable margin performance for 24 quarters in a row. Book to bill was temporarily lower in the 4th quarter due to fewer large contract awards. However, both sales pipeline and market dynamics look promising for fiscal 2020 with a focus of large orders in the second half of the fiscal year. As we indicated in August, strong free cash flow reflects the reversal of a weak third quarter performance, particularly from ICX Payments.
Our strategic companies released their Q4 financials already a few days ago. Therefore, I will not go through the details now. But overall, they
have a lot on their face.
We will, from a shareholders' perspective, put a major focus on stringent capital allocation and diligent execution. As I already mentioned several times, our intensified focus on operational cash conversion paid off in the 4th quarter. Adding everything up, we made good on our promises at the Capital Markets Day with just a few deviations in the details. In the Industrial business, we generated cash above the prior year level and narrowed the gap for cash conversion to our target with a cash conversion rate of €4,89,000,000 We lowered working capital by €1,100,000,000 compared to the 2nd quarter, exceeding our commitment at the Capital Market Day of €100,000,000 by €100,000,000 Free cash flow all in of €5,800,000,000 matched the high level of fiscal 2018. We continue to drive dedicated investments in CapEx to further strengthen our global footprint.
Our senior management levels will continue to be incentivized based on a cash conversion, and our target of 1 minuteus revenue growth remains in place for fiscal 2020, of course. All in all, fiscal 2019 was a very successful year for Siemens again. We achieved our targets, and our shareholders will benefit. And we decided to raise the dividend for the 6th year in a row and propose a dividend of €3.90 This equals a payout ratio of 61% and is slightly above the target range of 40% to 60%. With a dividend yield of 4% as of September 30, we offer a very attractive and sustainable and reliable return.
2nd pillar of shareholder return is the ongoing execution of our current EUR 3,000,000,000 share buyback program running until November 2021. We are fully on track and bought almost 11,000,000 shares back for the around €1,000,000,000 of euros equal. With this, I hand back to Joe to give you the update on implementing of Vision 2020 plan.
Thank you, Ralf. As I already said in my introduction, we set ourselves quite ambitious targets with our Vision 2021, 20, 20 plus strategic goals. But I think that's what we can probably agree upon at least for the most part. The question really is, are we prepared to execute or execute successfully? And I at the end will be absolutely.
We do have more focused and accountable businesses. We do have innovative strengths in key areas like, for example, BI. We have a global powerful global network with a strong footprint in the regions we want to be. We have great ingredients to master the transformation, drive performance, create value by growth, profitability and multiple expansion by focus. Next one example is the dedication of the entire team to make the listing of our newly branded Siemens Energy Company happen by the end of fiscal 2020.
We do know it's a question time line and I've heard that many times from the investor side, but we know how to do it. We've got people who've done it before and are very comfortable. We have made significant progress, and we are well underway on an aggressive path on both time line and complexity. We have nominated a strong management team under the leadership of Michael Helsen as CEO and Cat Patak as CFO. They are complemented by Tim Hoold and Jochen Eickel, the 2, you know, the very experienced operating leaders, While Cimarron is the most efficient service operation in the entire industry, Jochen has proven and has a proven track record on fixing and restructuring businesses.
Just think about what he has done in mobility. And after an real in-depth analysis, we decided to strengthen and complement the Siemens Energy portfolio with further portfolio elements, the longer energy value chain. So we will actually put more elements to the Siemens Energy AG. And this is also why we have published comparable key figures for fiscal 2018 2019 to reflect this new setup. We have it today.
We haven't seen it yet in your inbox. 2 former portfolio companies, which we call POC, Process Solutions and Subsea Business will be integrated into Siemens Energy together with our minority interest in the turbine service specialists, Ethos Energy and obviously also the minority interest of hydropower company FUIC, just belongs there naturally. In addition, the distribution transformer business has been transferred from small infrastructure to Siemens Energy. In total, these additions, which naturally fit into the space of an energy company, comes for about EUR 1,600,000,000 in revenue. Finally, we transferred the entire corporate technology activities for hydrogen solutions and Power2X to address promising hydrogen applications in the future.
We believe this is a very strong addition to the Siemens Energy portfolio. And before I leave the Power and Energy space, I do want to explicitly thank the Gas and Power Management team who has brought us to a decent fiscal 2019 that Rolf has been referring to in a not that easy environment. And if you compare merchants with in a competitive landscape, I believe you know what I mean. Also, over here referring to the stability of executing bigger projects
along the way.
Now let's look at where we are in executing Vision 2020 plus in our industrial core businesses. For Digital Industries, deteriorating sentiment indicators point to an ongoing soft industrial growth with some adverse effects on investment climate for machinery and equipment. To mitigate this impact, which we believe is temporary in nature, not important, temporary in nature, not structural, Digital Industries has accelerated its efforts to reach optimization targets in terms of cost savings earlier than announced at the Capital Market Day in May 2019. That's good news because it means also we are able execute even in ecosystems which are not that easy to handle based on the social terms of employment. Now the TI team plans to achieve more than 80% of the intended savings of EUR 12,000,000 already by fiscal 2021, up from 50% originally planned.
The deliberations with the work of councils have been finalized and implementation has already started. Also, Smart Infrastructure, rigorously implements its ambitious competitiveness programs to drive profitable growth. This is in line with what has been committed at the Capital Markets Day in 2019. The team is in advanced discussions with the workers' representatives on implementation terms and conditions and confirms the saving targets laid out at the Capital Market Day in May 2019. Already at the end of fiscal 2019, we saw decent progress to leverage the strength in specific verticals, such as in data centers by combining building management system and energy distribution office.
New businesses such as storage and eSourcing coupled their order intake in 2019, and we do expect growth dynamics to continue in those areas. And that's why, as you might see earlier, we have recognized already, the top line guidance of SaaS rather advanced as it compares to the other segments in the company. The team is committed to deliver an all in 10% to 11% margin in fiscal 2020 by stringent execution of its priorities. Mobility, as Ralf has already rightfully mentioned, has become a world class business operating in a vibrant, promising almost €80,000,000,000 market. It's driven by accelerating megatrends such as decarbonization, urbanization and obviously putting the bits and pieces together into connected mobility.
And on top of that, customers, of course, are facing significant changes, driving recent digitalization, which means make the train network more efficient if it comes to signaling automation and efficiency on how the train cars are going to be run. All these changes offers significant opportunities and play to our core portfolio strength as the best positioned and horizontally integrated mobility company in the sector. Each part of the business has clear strategic priorities. Rolling stock needs to further optimize its footprint, while rate infrastructure and customer service to our digital offering. Mobility has an outstanding execution track record, and we do expect that to continue on a similar basis going forward.
Now on the corporate savings, which we have also been alluding to at the Capital Markets Day, we're executing on our plans to optimize the support function. We do confirm our target to achieve EUR 500,000,000 savings until fiscal 2023. So far, we have reached already EUR 50,000,000 in fiscal 2019, and the implementation efforts are ongoing. It's, however, worthwhile to notice that in some areas, which are extremely busy in the carve out operations, making sure that everything goes right on time for a major milestone of the carve out, the anticipated savings, obviously, will kick in after we have done that job in that area. Right now, we are in the process of transferring a significant amount of corporate operations and governance resources to Siemens Energy to ensure full operability and business continuity of the new company.
Needless to say that this is relevant. This is also true for the customer interface, which is crucial to us so that we don't lose any connectivity. Once this process is finalized till March 2020, we will give you an update on the numbers and assume there will be an acceleration of the productivity gains going forward. As I already mentioned, a significant part of the portfolio companies will be transferred to Siemens Energy. This company is a more suitable owner in the marketplace and can generate significant synergies such as a thorough process for solutions for oil and gas customers.
The remaining portfolio companies will work hard to make progress on their full potential plans to drive profitable growth. And for the most part, we really like what we see in the POC area. There are some areas where we are not that thrilled with, but which we are addressing. So think about the e mobility, automotive, JV, which obviously is great in top line but still needs to get its work done in terms of executing over time. We have an eye on it.
We know what you're doing. But that obviously is something which we are taking very seriously in the progress. Our leadership team for the portfolio companies will continuously look for further value creation opportunities. This is very clear, and there is no change as to what we have been discussing and communicating at the Capital Market Day in this regard. So as you can see, we maintain our level of R and D investments further.
We want to stay ahead of competition in key area. We are determined to gain market shares by driving innovation going forward. Needless to say, however, that stringent capital allocation has been and will even more be a key stronghold, which we take very seriously. Invested priorities in fiscal 2020 will be obviously software, where we expect to grow by about 8%, 7%, 8%, 9%, which will help us maneuver and through the temporary weakness in factory automation devices in 2020. We invest in cloud on the manuscript that we have had some major progress by being able to equip all the 122 factories of Volkswagen into the cloud based management system.
Needless to say that many suppliers are going to supply Volkswagen will follow suit out of natural connectivity. So with that, I hand it back to Rolf to explain to you the guidance for what we see or believe to see in fiscal 2020, please.
Thanks again, Joe. Now let me share some assumptions with you, which are relevant to our guidance. As mentioned, we assume the global economic environment will continue to be subdued with ongoing risks from geopolitical and geoeconomic tensions in fiscal 2020. In order to build up strength, optimizing footprint and capping specific growth markets, we will maintain high levels of R and D investment and feet on the street as well as in CapEx. However, each decision will be taken with a strict focus on clear priorities and resource allocation.
For Siemens in total, we assume severance charges on a similar level as in fiscal 2019 around €600,000,000 We expect modest negative top line effect from exchange rate. The impact on margin is assumed to be immaterial. Now let me share with you what we expect below Industrial Business in fiscal 2020. EMEA Financial Services will continue to be a reliable profit contributor on the fiscal year 2019 level. Within portfolio companies, fully consolidated businesses are profitable, while equity investments remain negative and volatile.
Immense real estate depends on disposal gains as in previous years. For corporate items and pensions, you can assume in total cost between €1,200,000,000 €1,400,000,000 This number includes material carve out costs for Siemens Energy. For PPA, we assume a similar level as in fiscal 2019. The same applies to elimination, corporate treasury and other items. The tax rate is expected to be in the range of 35% to 39%, materially impacted by the Siemens Energy carve out.
Siemens Energy is planned to become part of discontinued operations prior to the spin off. We expect this to result in substantial positive effects within discontinued operations, including a substantial gain at spin off. At this stage, the gain cannot be reliably quantified. However, we assume that these positive effects and discontinued operations will affect carve out costs and tax expenses related to the Siemens Energy spin off as well as group wide severance charges for fiscal 2020. As you can see, we have changed a very we have changed to a very crisp format for our outlook to reflect clear accountability for each non listed company.
You can find the details described in the even more comprehensive written outlook session in our earnings release document. Digital Industries expect flat comparable revenue, outperforming the broader market. Adjusted EBITDA margin is expected at 17% to 18%. Smart Infrastructure anticipates moderate revenue growth with an adjusted EBITDA margin at 10% to 11%. Economic cycles have limited impact on mobility only.
We foresee mid single digit revenue growth with a margin of 10% to 11%. We assume energy markets to remain challenging with some signs of stabilization. Gas and Power expects moderate revenue growth with a margin of 2% to 5%. On Siemens Group level, we anticipate moderate growth in comparable revenue and a book to bill ratio above 1. Taking all this together, we expect this to result for fiscal 2020 in basic earnings per share from net income in the range from €6.30 to €7 compared to €6.41 in the prior year.
As always, the outlook excludes charges related to legal and regulatory matters. In a nutshell, we have a clear plan with Vision 2020 plus and we execute diligently on our milestone. With that, I hand it back to Sabine, and Joe and myself are going to be happy to answer your questions.
Thank you, Joe. Thank you, Ralf. Let's now start the Q and A. Operator, let's take the first question, please.
Thank you. We will start today's question and answer session. We'll take our first question today from Alexander Virgo from Bank of America Merrill Lynch. Please go ahead.
Thanks very much. Good morning, Joe, Ralph and Sabine. I guess Gas and Power maybe and a couple of parts of the question if I could.
I wonder can you give me
an indication of where you think the underlying margin might be here in 2020? Because obviously, you've shown some pretty good momentum through 2019. And I'm just trying to understand how you see the progress on an underlying basis. And secondly, could you just expand a little bit perhaps on the rationale behind the incremental additions to the Gas and Power Energy portfolio? And then lastly, Ralph, just on the time line, can you give us any idea of when you think we might need to think about GP moving to discontinued operations?
Is that Q3 results?
Well, thanks, Alex, for your questions. I mean, first of all, with regards to the development of the underlying NGP, we are obviously guiding on an all in basis, as you do know. And we saw that the business has been performing quite stable throughout the last couple of quarters. We have been also indicating that the growth momentum expected. We have a clear view from a strong and visible backlog, including a big portion of service activities therein.
So for the way forward, the remaining question is also for us. When you do a carve out of that magnitude that is literally touching on each and every country and everything, There's always some space for smaller, not big project related cover project related, but smaller activities that put incremental burden on the P and L of those entities. So that's why we are careful, and we reflect that also in the magnitude of bandwidth of the guidance of 2% to 5%. So from an underlying perspective, if you take that incremental potential burden into account, which is not going to be overwhelming, I think we expect consistent performance on the levels that we had before. With regards to discontinued operations, you do know this is a technical exercise.
The technical exercise is depending on a couple of milestones that you reach. 1 of the single biggest and most important is to complete the carve out technically so that you include all the assets that are going to be carved out in a legal entity or in a couple of legal entities that are then combined and put together. So as we operate along a very, very ambitious time line already, it's hard to tell whether we can accomplish the wishful target of completing that at the end of the Q2 of our fiscal year, but we are working hard for that. We do have a very experienced team in place, which did that. In other instances, not that magnitude, Technically, then, once the Technically then, once the DO the assessment of discontinued operations for Siemens Energy Business has been completed.
And we can confirm then reporting on the under DO, there will be a couple of technical implications like no regular depreciation any longer. And finally, with the listing, there will then be, from our perspective, opportunity for a substantial gain that is covering the difference between the book value and fair value at that point in time when the market is kicking in. So that's the technical course of things. We do run on a very ambitious time line, as I said. So therefore, expect the DEO decision to be around half year, but we will commit ourselves as soon as we do know.
Thanks very much, Graf. And the rationale on the inclusion of the portfolio companies and SI Business?
My rationale was that things which belong together should be together. And if you look at the subsea grid, then obviously nothing but deep sea connectivity, then obviously it fits just nicely into the oil and gas. The same is true for Process Solutions and and midstream, which we used to have in the associated with the process industries and industry. We put it down because we focus now on the digital on the digital mechanism of digital industries and process industries. And obviously, the sector, the sector is associated with energy.
So what happens there at the time when the Energy AG is being formed in terms of resource allocation and how priorities are being set, it is not a story. But for the market segment, the go to market is designed, and that's why we have been decided to move those elements into that energy, single energy energy. Because if we come to any, let's say, petroleum optimization, it will be the right people to convince the better buyers or the better merger opportunities from the industrial space. It's a good thing to do that, and we focus on the remaining COGS to make good on what we said. We have made very, very significant progress in many areas.
That is, as I had said earlier, still some work to do on the JV side of e mobility, which is attractive by growth, but doing new things in a new area with uncertain Rosetta uncertain rollouts and ramp ups on the automotive space, we just need to be very focused there. So that's where we are in that matter.
Very helpful indeed. Thank you very much.
Sure.
Thank you. Our next question comes from the line of Andreas Willi from JPMorgan.
I have a question on Digital Industries and then a clarification on restructuring. On Digital Industries, the revenue outlook for flat is maybe a bit more optimistic than many had expected. Your comments on the discrete automation side haven't really changed. So obviously, as you said, you expect strong growth in software, but also in on the process automation side. I just wanted to ask how much visibility do you have on that kind of 8% software growth and good positive growth in Process Automation in terms of what's in the backlog and what's clearly visible and what will be risks around that?
Yes. Thank you, Andreas. Obviously, a very value attached question and which is also in the center of our attention and how we expect the market to be. I think there's 3 areas here, or actually even 4. One is, it is quick automation, which obviously is still challenged.
There's no doubt about this one. We are market leader by far we know pretty much the space. But it will be take time till we see the bottom and some signs of uptick. Good news is, and I was a bit worried about it, obviously, after a strong quarter. Q4, the good news is in October, we saw the product sell through in the channel, which is doesn't mean too much, but is a good downward edge because over the if things don't sell through at some point in time, then the point of purchase is already.
So that's the good news. But still, it will take time because investment is being made if confidence rises, and there's not exactly a lot of sense for that. And in all areas, it's not just China and Europe, but also in other areas. So that's the discrete. Process automation, food, beverage, Chem Farm and the likes, it's a more or lighter short cycle.
So we see some winning shares there. We have introduced new systems in the process industry. The cooperation between Bentley and Siemens, the 2 d and the 3 d simulation is very, very well received, I have to say, much more than we have been hoping for. So we would expect here also some signs of life. The third area is the software, the PLM software as such.
We have good reason to believe that we will have a decent growth because efficiency is the player of the month, for the quarter or maybe even a year. If it doesn't do CapEx, you do productivity, design cost, time to market, and that's how our PLM comes in. And the third one is mostly related to what used to be Mentor Graphics, the semicon design environment. Here we actually do see that the semiconductor cycle seems to be through its trough. And I have that knowledge from several data points.
And that could actually provide some confidence that our 8% on average will nicely help us to overcompensate or compensate for an ongoing business, which we see in a discrete space. That's our way we look at the assumption. And if something changes, we have every quarter that at the time to update. Ralf, maybe
Yes. Maybe just to add on the part of your question referring to visibility. I mean, I have been sharing with you last year and in prior year that in the product short cycle product environment, and typically, they had been piling up backlogs to a level that we haven't seen before. That situation has been kind of normalizing again. So if you look into the matter, as I said before, this is not billions, but a few millions of backlog, which is more an indicator, yes, what the whole industry is seeing.
So that has been normalizing and is again back to levels of low three digit €1,000,000 amounts. So visibility is back to normal at the end of the day when it comes to short cycle product business. However, we have quite a fair and reliable view on the pipeline in our software business. And obviously, there is seasonality in the different quarters. To a certain extent, we have been inheriting that with the acquisition trail of the different companies we acquired.
So we had a very successful into the seasonal pattern for 2020, I would expect some of those major projects that qualify again, major projects, not billions, but with to high double digit million amounts, that's the size we are talking rather later in fiscal 2020, not before the Q3.
And thank you very much. And on the restructuring, you guided for the similar level then in 2019. You earlier guided or gave an envelope for overall Vision 2020 plus spending. Maybe you could help us a little bit with the distribution of the restructuring for the main businesses. Obviously, Gamesa has already guided for a pretty big number, but it's a bit unclear there what's restructuring and what other stuff and the SEK 150,000,000 they called out for Semyon integration as well.
And kind of it looks like there is maybe not that much left for other restructuring. Does it mean more of the spending from Vision 2020 plus has moved into later years? Or does it cost less to get to the savings?
I mean, first of all, Andreas, you do know thanks for the question. I mean, I would have been assuming that you would like to have more details on that one. And I'd have to say again that, I mean, whenever we discuss matters in that regard, we respect the formal process of first talking to the representatives of labor not to endanger the progress by being too early with statements on that one. But in general, you may assume that on the GP side, I mean, we have been starting early, and we have been adding substantial amount in the Q4, around CHF 200,000,000 So for fiscal 2020, that amount will substantially lower, obviously. You also heard me talking about that Si smart infrastructure is progressing a lot in that direction.
Also, Joe mentioned that. So that will be one of the centerpiece of our activities. And also, as Joe has been alluding to, DI has been accelerating their progress in terms of getting the savings in earlier as needed. And as we discussed at the conference in September, they have been keeping up space. They have pace there and will be a bit earlier.
So that will be a second area a focal area of activities there. I can't comment on Siemens Gamesa statements, but I would not see them to be extraordinarily high in our portfolio, but still a significant size of personnel restructuring that may touch the triple digit million area.
Thank you very much.
Pleasure.
Thank you. We'll take our next question from the line of Ben Uglow from Morgan Stanley. Please go ahead.
Good morning. Thank you for
Thank you. We'll move to our next question today from James Moore from Redburn. Please go ahead.
Yes. Good morning, everyone. Thanks for the
extra color. Can you hear me?
Yes, yes, yes.
Okay. My question is around Gas and Power and the energy spin off. Just firstly on the margin for full year 2020, perhaps a little more cautious than some of us might have expected. I wonder if you could help us understand this a bit more. And specifically, I'm wondering whether you're still expecting the €700,000,000 out of the €1,000,000,000 of savings, €1,000,000,000 by 2023, €700,000,000 by 2021.
Are you still expecting that? And can you say roughly how much of it lands in 2020 versus 2021? And are there any different moving parts in profitability between Central Distributed Oil and Service? And when we think about the margin target of 8% to 12%, is that pushed out
a little bit? Or do
you see a bigger uptick in the outer years? My other question on energy goes to the spin off and the deconsolidation. At that point, should we expect any of your group reconciliation costs or your group reconciliation assets to go down? Or are all the things that go out with the company already in the division?
Thanks, James, for the handful of questions. I mean, as I said before, the carve outs is a really challenging task. And absolutely, we are absolutely convinced that we will stay in the time frame and also within the framework of impact that we have been discussing. The reason why we have been expanding the bandwidth of the margin guidance for GP in fiscal 2020 is due to the fact, and I said that before, that if you do a global carve out of that magnitude that is literally touching on each and every country around the globe, you can't exclude that there's more impact in many, many different entities. And to cater for that, which is a normal course of business, we just said we arranged for that corridor on a bit wider dimension, yes?
So that is not an indication that any of the savings and the commitments that Lisa and her team and Michael have been giving to you and to the public at our Capital Market Days would be jeopardized. So they are fully on track, and the commitments are in place. And those commitments, they also are referring and targeting to accomplish the target margin range according to the plans that we have been discussing. Now the format and the scope of activities of Siemens Energy to be is obviously more than GP as guided as for the ongoing concern at the moment and as discussed at the Capital Market Day. So Joe has been describing that in detail.
And therefore, we have to be a bit patient in terms of their combined business plan for NewCo for Siemens Energy AG to be. And we can't and shouldn't try to anticipate that, that will be part of the equity story and the prospectus at the right point in time. So I have to ask for a bit patience there. With regard to the deconsolidation of assets, I assume you think back to the discussions that we had, what kind of central activities of governance functions and support functions will finally move to the operations GP as well as the other operating companies. We are exactly on track with that what we had been promising and alluding to the fact that we already have been able to acknowledge some of the savings in the area of €50,000,000 already in fiscal 2019, and we are continuing on that path.
There are some areas where our staff is very much under pressure literally to execute on the ongoing business, daily business, plus the carve out activities. And in those areas, obviously, we don't take any risks. No one would benefit from a delay of the process. So therefore, we work in those specific areas on the sales side, which does not mean that the execution of the savings as committed will not take place, but they will be 1 year later, as mentioned already from the very beginning in the Capital Markets We'll
now come back to Ben Uglow from Morgan Stanley. Please go ahead.
Okay. Good morning, folks. I hope this is working. We're having 1 or 2 technological issues, but can you hear me?
Yes, we can, Ben. Good.
That's a big relief. Okay. So first question, Ralph, I wanted to make sure I properly understood the EPS guidance and exactly the message that's coming across. So you've basically moved from the ex severance guidance or the pre severance guidance to all in. And my understanding is that the potential capital gain that you're going to get from the separation of gas and power is roughly equal to the separation cost plus the higher tax charge plus this year's restructuring costs.
And when I add those up, first of all, do you agree with that in principle? And secondly, when I add those up, I'm coming up with a number in the €1,500,000,000 ballpark. Is this the right math? Am I in the right range?
First of all, Dan, congratulations. We have the same understanding in principle.
That's terrific.
Already had been mentioning already had been mentioning in the press conference that we can't be more specific on a quantitative basis at the moment. What I said, and I would like to repeat that, first of all, we have been clearly flagging out restructuring expenses that we expect with €600,000,000 Also has been guiding you with the below the line guidance for the corporate costs, which will be between €1,200,000,000 €1,400,000,000 in fiscal 2020, which is over and above the prior year levels or the normal levels. And I also said in the press conference that typically in other companies, in other companies, you would not be surprised to have a price tag of those projects related costs. Costs that go with the project of carving out would end up in the mid triple digit million area since we have quite some experience with that progress and have qualified and capable people to do that ourselves, I expect that we will end up on a lower level even though the magnitude of the 39% is obviously above that what we would normally expect and what we have been guiding for in the last couple of years. So typically, you end up in the higher 20s as a normalized ETR.
And from that perspective, you got all the ingredients to fill your models. I can't commit at that point in time to nominal amounts, but we will, as we go, update you on the matter. And an important milestone will be once we put Siemens Energy into the DO space from an accounting perspective. But the final yardstick, we will see at listing end of September. Maybe one comment.
First, as you all know, Ralph is typically conservative and well thought through matters before talking. That's good news. The other thing is that I'm sure I don't need to remind you, the other news is that the gains we may book are noncash, whereas the efforts we need to finish the carve out and the tax may eventually result in a cash out position. So I'm sure you know that, but it doesn't seem to be a bit advanced.
I'll reiterate. Absolutely. Understood. Thank you for that. I mean that clears it up from my side.
Joe, one big picture question. In terms of and obviously I get the caution around
the short cycle and stuff like that. In terms of
what you're seeing in cycle and stuff like that. In terms of what you're seeing in China from a very high level perspective in terms of trade tension, in terms of corporate behavior, what you're hearing from customers, what you're hearing on the ground, how is the dynamic right now? Have things changed in the last 3, 6 months, either for the better or for the worse? What's your view on this?
Yes. That's just been in Shanghai a couple of weeks ago and obviously a very close view at this one, especially in the short cycle environment, such an important market. The true answer is that the jury is somewhat out because there is not consistency on the signals, assuming that we are able to separate the noise from the signals. The good news, as I said earlier, is we had a decent sell through in October, which is good news obviously in the channel. We do see that software is increasingly relevant in China, especially also design software and semiconductor design software associated with it.
This is particularly relevant because you got to be very careful and mindful about the fact that a lot of software, especially semiconductor area is, let's say, under sanction from the U. S. So this is something where we always case by case need to check on what this means delivering to customers in an area where there's decent demand. So we are very mindful about it. So far, we've been managing through well, but we never know what happens.
In should there be, let's say, continued tension on that matter because most of the software which we create both the semi design as well as the PLM comes out of either Texas or Oregon and the like. So this is something where we have good demand, but we need to be mindful about regulatory changes going forward. Then the government has been significantly stimulating in the economy. You could see that. You can also see that the customers, the private sector customers, not so much the state owned companies, are also very concerned about the ongoing fallout of the trade tensions, so it's a different trade war.
So at this point in time, there is no consistent signal going forward. But if I had to take a bit to a little more up and a little more down, I would probably take the bit on a little more up.
That's really helpful. Thanks very much for the time. Sure.
Thank you. We'll go to the next question from the line of Martin Wilkie from Citi. Please go ahead.
Thank you. This is Martin from Citi. Just coming back to digital industries, you mentioned in the release that the Q4 was held by software margin and you mentioned earlier on that Mentor was doing particularly well. Just to sort of clarify, is that sort of a new trend for Mentor? Was there just an unusually good project or something like that that helped during the Q4?
And the second question related to digital was also under the old digital factory structure, you talked about cloud investment, MindSphere, Mentor Integration, cost, fee cut things and a lot of those things were due to fall off or certainly become less of a drag by 2020. Is that still the case? And therefore, when we look at your margin guidance for next year, you've obviously got some additional cost savings or some pull forward cost savings. But are we also expecting some of those drags like Mentor Integration, like Mindtree Investment and so forth to also be less of an issue next year, so also helping the margin?
Thanks, Martin. With regard to the relevance, you're hitting the point, of course. I mean software is playing an ever bigger role in our portfolio, and we said that we also expect more resilience from that perspective. The ongoing growth momentum and the fact that we obviously outperform market and win market share is quite helpful for us and also for the business model and proof point for that we executed along the lines that we have been promising, amongst others, at the Capital Market Day. I think the 4th quarter being a strong mentor quarter shouldn't be a surprise to you.
We had the same thing last year. They had seasonality in their renewals, obviously, and some of the big accounts and new projects being won, they typically have been taking place in the last quarter of the fiscal year or at least not earlier than Q3. That's why I also tried to guide you a bit with regard to 2020 that the soft momentum may rather happen in the second half of the fiscal year. So that's not new, as you asked for. This is just was a very strong peak, if I may take it that way, in the Q4.
And we can't expect that this is repeating itself on the same level. But what you typically have amongst the regular on top of the regular business, there are always some outstanding projects in magnitude. That doesn't mean billions, as I said, but mid- to high double digit €1,000,000 amounts are large projects, which you go for on the acquisition part for 2 to 3 years minimum. So we are quite happy to foresee or to see in our funnel that some other projects coming up in fiscal 2020 that may take us to comparable levels and will support the overall growth momentum that we expect and have been committing ourselves to. With regard to the investment in Mind it's also It's also moving to software as a service in a business model, which also requires investments.
We have been discussing that very much in detail throughout the last couple of quarters, give you full transparency. And I don't consider it being a drag into investing in integrating Mancur and also Mendix because there are plenty of cross selling activities going on. They have lead time as discussed, but this is literally an investment in acquiring new accounts or better exploring existing accounts. So therefore, we deliberately do that. And the guidance we've been giving was last year, fiscal 2019, the total investment in cloud was around EUR 350,000,000 and there is a clear downward trend.
It's going to be €250,000,000 as I said before for fiscal 2020, give or take. And this is an investment in the future exploration of the market space, and we feel very much supported by the outcome of what the team has been accomplishing in clearly gaining market share.
Maybe one word to the mentor since it has been mentioned so often so positively, I really have to say that this is an example, which is hard to find that an acquisition has actually been over fulfilling its business case. I'm very glad that we see here. Not only that we take the capability and apply it into industrial systems, but we also see in the original space in semi design tools that they're actually winning market share. The market is very transparent because there were 2 more in that space. And we just recently won a design with a very, very relevant U.
S. Customer, I mean, really relevant. And I know that Cai is still from the due diligence. At the time, and we discussed whether that would be feasible or not, We were debating it. And now after, what, 2 years, 2.5 years, it turned out to materialize.
This is such a significant win, which could be a landmark case for all other companies in that space. So this is something which really helps us to develop an ecosystem within DI, which is not always running with the cycle on automation. We've got this spectrum on Mentor. We've got the software on PLM and manufacturing execution system. We are working really hard to double down on the success of discrete factories in our process industry.
So that is sort of level the volatility of the short cycle discrete. And we are really well underway. I'm really very satisfied and proud of the team, Klau Selmer. He just knows what he's doing. Sometimes it takes longer than we wish for.
But it's got a lot of substance associated with it. And so I'm really have to say I'm confident when we actually go into an era where we have, let's say, an industrial Siemens and Siemens Energy because what you see already today, if you look out a little further than 2020 with our budget numbers, which we will guide on the guide 2020, I didn't really look at what a year after Siemens Energy, Siemens Industry split with the Siemens Industry would look like. I really like what I see. So that's something which also we need to focus on that to get the milestone
done on Siemens Energy. It's very relevant. Out of
many ways, I don't need to tell you corporate discounts and margin or yes corporate discounts and margin or yes, or let's say multiple expansions and things like that. We have this in a very, very clear focus on that one, too. So that transparency will enable investors to better know what they buy if they buy. You have seen that we have been now putting our guidance for top line, of course, for the whole company, for EPS, of course, for the whole company because somebody needs to pay the dividend at some point, 1 minus growth, a free cash indicator also for the whole company no matter where we are because you decide if you grow more, you can invest for cash. If you don't, you better produce cash.
So a very stable system in itself. And then but then on the operating area, we have been guiding now on each and many of the operating companies because this organizational principle is designed to be transparent. It's designed to have all the ingredients it takes for somebody in the business to run its business, but it also associates accountability. And needless to say that we align as we align the incentive systems accordingly. So now the CEOs who are also board members will not have a Siemens company as an incentive anymore, but also predominantly their area of accountability in the business.
And secondly, of course, accountability means not only looking at aligning incentives, the shareholder interest accountability is also getting the top line because if not, then it's more about the work and just about incentive system. So all in all, since we are just about to close, maybe one more question. We are well on the way. We obviously are aware of the fact that the economic environment is not exactly tailwinding. We are aware of the double dip, which we are taking in running and operating company business, but also to the biggest transformation in a long time.
It's not biggest at all. We are very mindful. We keep our head down. We work hard and all what we see is pointing to a direction that we believe this can get done in a timely
and meaningful way. Okay. Thank you. So I think we have time for one last question now. And then we have the team anyway to answer the questions and we will be on the road.
We'll come to London as well, so we will have further time to discuss then. Maybe a short one. Operator, the last one.
Thank you. Our last question now comes from Jonathan Mounsey from Exane BNP Paribas.
Hi, good morning. Thank you for taking this. A couple, if I may. So on Gas and Power, have we given any thought to just how much of it we're going to spin? I know the original guidance was quite a wide range.
And linked to that, obviously, you've raised the Siemens dividend today. Will that dividend be maintained after the spin? And in that context, will energy pay a dividend on top of that? And then just a housekeeping item. I think below the line, you have a reversal of provisions mentioned in the release, quite a bit bigger that line than consensus was expecting.
Could you give some color on what that was?
Yes. Before I enter this one, let me give him maybe a comment on power. Yes, we have raised a dividend because we believe this is a good thing to do. Above and beyond the shareholder fixed, we have 300,000 Siemens employees to our shareholders. So that's good news for them too.
Secondly, no matter what the value of the SIBNOF will be next year, it's going to be a massive shareholder return, which adds to the TSR in total, obviously, because we give a major part of the company 30,000,000,000 dollars business to the shareholders. So this will be significant. And whether or not after that the dividend will be up or down or different in a new ballgame. And once we know what exactly it will look like, we definitely will guide the market on what to expect. The right question was whether NRC will pay a dividend or not, but at this point in time, the right question that's just a bit too early.
Yes. And with regards to the reverse accrual that we have been mentioning below the line. Hopefully, you understand that we can't disclose single line items. But as you do know from the past, there's a couple of obligations on our balance sheet that are having quite a long time horizon in which then discount rates and inflation assumptions are playing a major role, and we continually have been updating those. And therefore, there was also material aspects from that, that we had to recognize, and it will not repeat itself, obviously.
Thank you, Joe and Ralph, and thank you, everyone, for participating. We will now close the call and the team and everyone will be around to answer further questions. And we'll be on the roadshow throughout U. S, Europe. I think we have all major destinations.
So please reach out then. Okay, bye. Thank you.
Thank you.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. Once again, let me repeat the instant replay numbers. Participants in Germany, please call the replay number plus 49 69200001800, access code 901 5,173 followed by the hash key.
Participants in Europe, please call the replay number plus 44,207, 660-0134. Access code is 9,015,173 followed by the hash key. And participants from the United States, please call the replay number plus 1719 4570820 access code 9,015,173 followed by the pound key. A recording of this conference call will also be available on the Investor Relations section of the Siemens website. The website address is www.siemens.com/investorrelations.
Thank you.