Hi. We're about to begin. Good morning, ladies and gentlemen, and welcome to the Siemens 2019 fourth quarter conference call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor statement on page two of the Siemens presentation. This conference call may include forward-looking 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'd like to turn the conference over to your host today, Mrs. Sabine Reichel, 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 7:00 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&A, and we will now start with Joe.
Thank you, Sabine. Good morning, everybody. Thank you for joining us for our fourth quarter 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 fourth quarter 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 so much change in its 173-year history. With Vision 2020+, 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 three Siemens companies. One is what we call the Industrial Siemens.
Siemens AG new, so to speak. Siemens Healthineers. Siemens Energy. They're carrying strong Siemens brand, and they will work together where there is mutual interest and value. Each company will strive to be among the best or set the benchmark in its industry with ambitious targets for profitable growth and obviously last but not least, cash generation. Now let me have a brief look at our 2019 financial performance before we'll go into more detail and walk you through our fourth quarter results. In a nutshell, we delivered on all 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. 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 a whole.
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 our fiscal 2018, settled in at the upper end of our guidance. With that, we delivered on our commitments for six 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 and 2018, where we increased the guidance throughout the year. 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, that would not have been possible. I really look forward to continuing that in the new fiscal year 2020. With that, I already hand it over to Ralf for the fourth quarter financials that's baselining of what we are going to intend in 2020. Ralf?
Well, 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 Siemens Gamesa overcompensating for soft, short-cycle businesses. Book-to-bill reached 1.01 times, while order backlog achieved a new high of EUR 146 billion, 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 four out of six companies were well within their target ranges. Our industrial business margin benefited from around 30 basis points in positive currency effect, most notably at Digital Industries and Siemens Healthineers with 50 basis points each.
In addition to a strong operational performance, net income and earnings 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 EUR 5.3 billion, up 60% year-over-year. With this strong team performance, we caught up with prior year's level of EUR 5.8 billion 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 commitment after the performance dip in the third 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 Semiconductor, SK hynix, and Siltronic. Process automation held up very well with mid-single-digit revenue growth. However, we saw continued weakness in our core end markets, automotive, 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, whereas stringent cost management and clear priorities in resource allocation supported profitability. This was a clear proof point. The team is in control to react swiftly under volatile market conditions.
Furthermore, Digital Industries' intensified focus on working capital management led to a strong free cash flow increase and a cash conversion rate of 1.1 times. Now let me give you a brief update on our end market expectations. Six key verticals cover around 70% of the Digital Industries 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 three to four 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. R&D spending in this industry will remain on high level, which is closely linked to our Mentor software platform. 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 EUR 350 million in fiscal 2019. We expect around EUR 250 million in profit impact for fiscal 2020. Our software business shows continued strength. We expect steady clear revenue growth on similar levels as also for fiscal 2020. Smart Infrastructure also had a very strong finish in our fourth quarter with decent top-line growth, mainly driven from larger orders in the solution and service business. Softer industrial end markets continue to impact the short-cycle industrial and product business. We also see first signs of softening in non-residential construction markets, which typically trail industrial verticals with six to nine months. 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 first quarter, we expect a seasonally weaker margin with some impact from short-cycle product business.
Free cash flow generation showed great momentum, particularly in receivables and inventory management, and more than made up for the shortfall in the first nine months. With a full-year cash conversion rate of 1.05 times, Smart Infrastructure clearly overachieved the target of one minus 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 eight aero-derivative 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 EUR 200 million to merge and right-size capacities and optimize its regional setup as well as support functions. Free cash flow made a huge leap in the fourth quarter to more than EUR 1 billion. Our working capital initiatives are paying off, although this huge number also benefited from some earlier than expected customer payments. Joe will give you an update on the status with regards to the Siemens Energy spin-off in a minute. Mobility team closed another very successful fiscal year with revenue hitting a quarterly record high of EUR 2.5 billion. 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 a clockwork, Mobility has now delivered sustainable margin performance for 24 quarters in a row. book-to-bill was temporarily lower in the fourth quarter due to fewer large contract awards. 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. Overall, they have a lot on their plate. We will, from a shareholder's 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 fourth quarter.
Adding everything up, we made good on our promises at the Capital Market 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 0.89. We lowered working capital by EUR 1.1 billion compared to the second quarter, exceeding our commitment at the Capital Market Day by EUR 100 million. Free cash flow, all in of EUR 5.8 billion matched the high level of fiscal 2018. We continue to drive dedicated investment 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 one minus 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. Our shareholders will benefit. We decided to raise the dividend for the sixth year in a row and propose a dividend of EUR 3.90. This equals a payout ratio of 61% and is slightly above the target range of 40%-60%. With a dividend yield of 4% as of September 30, we offer a very attractive and sustainable and reliable return. Second pillar of shareholder return is the ongoing execution of our current EUR 3 billion share buyback program running until November 2021. We are fully on track and bought almost 11 million shares back for around EUR 1 billion equal. With this, I hand back to Joe to give you the update on implementing of Vision 2021.
Thank you, Ralf. As I already said in my introduction, we set ourselves quite ambitious targets with our Vision 2020+, Strategy 2021+ strategic concept. 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 and execute successfully? 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, AI. We have a powerful global network with a strong footprint in the regions we want to be. These are great ingredients to master the transformation, drive performance, create value by growth, profitability, and multiple expansion by focus. Excellent 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 aggressive timeline, 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 I'm very comfortable. We have made significant progress, and we are well underway on an aggressive path on both timeline and complexity. We have nominated a strong management team under the leadership of Michael Sen as CEO and Klaus Patzak as CFO. They are complemented by Tim Holt and Jochen Eickholt, two, you know them, very experienced operating leaders. While Tim runs the most efficient service operation in the entire industry, Jochen has a proven track record on fixing and restructuring businesses. Just think about what he has done in Mobility. After a really in-depth analysis, we decided to strengthen and complement the Siemens Energy portfolio with further portfolio elements along the energy value chain.
We will actually put more elements to the Siemens Energy AG. This is also why we have published comparable key figures for fiscal 2018 and 2019 to reflect this new setup, which if you have it today, you haven't seen it yet. It's in your inbox. Two 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 specialist, EthosEnergy, and obviously also the minority interest of hydropower company, Voith Hydro. Just belongs there naturally. In addition, the distribution transformer business has been transferred from Smart Infrastructure to Siemens Energy. In total, these additions, which naturally fit into the space of an energy company, account for about EUR 1.6 billion in revenue. Finally, we transferred the entire corporate technology activities for hydrogen solutions and Power-to-X to address promising hydrogen applications in the future.
We believe this is a very strong addition to the Siemens Energy portfolio. Before I leave the Gas and Power space, I do want to explicitly thank the Gas and Power management team who has brought us to a decent fiscal 2019 that Ralf has been referring to in a not that easy environment. If you compare margins in a competitive landscape, I believe you know what I mean. Obviously referring to the stability of executing bigger projects along the way. Let's look at where we are in executing Vision 2020+ 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, and that's 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 to execute even in ecosystems which are not that easy to handle based on the social terms of employment. The DI team plans to achieve more than 80% of the intended savings of EUR 220 million already by fiscal 2021, up from 50% originally planned. The deliberations with the workers' councils have been finalized. Implementation has already started. Smart Infrastructure rigorously implements its ambitious competitiveness programs to drive profitable growth. This is in line with what has been committed at the Capital Market 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 offers. New businesses such as storage and e-charging doubled their order intake in 2019. We do expect growth dynamics to continue in those areas. That's why, as you might see earlier, we have recognized already the top line guidance of SI is rather tense as it compares to the other segments in the company. The team is committed to deliver an all-in 10%-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 EUR 80 billion market. It's driven by accelerating mega trends such as decarbonization, urbanization, and obviously putting the bits and pieces together into connected mobility. On top of that, customers, of course, are facing significant changes throughout increasing 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 offer 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 rail infrastructure and customer service drive digital offerings.
Mobility has an outstanding execution track record. 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 Market Day. We're executing on our plan to optimize the support function. We do confirm our target to achieve EUR 500 million savings until fiscal 2023. Far, we have reached already EUR 50 million in fiscal 2019. 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. It's 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. 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. Just think about the eMobility 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 we're doing, but that obviously is something which we are taking very seriously in the progress. Our leadership team for 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.
As you can see, we maintain our level of R&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 more be a key stronghold, which we take very, very seriously. Investor priorities in our fiscal 2020 will be obviously software, where we expect to grow by about eight, seven, eight, 9%, which will help us on revenue and through the temporary weakness in factory automation devices in 2020. We invest in cloud on the MindSphere, where we have had some major progress by being able to equip all the 122 factories of Volkswagen into the cloud-based MindSphere system. Needless to say that many suppliers are going to supply Volkswagen will follow suit out of natural connectivity.
With that, hand it back to Ralf to explain to you the guidance for what we see or believe to see in fiscal 2020.
Thanks again, Joe. 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 geo-economic tensions in fiscal 2020. In order to build on our strength, optimizing footprint and tapping specific growth markets, we will maintain high levels of R&D investment and feet on the street as well as in CapEx. Each decision will be taken with a strict focus on clear priorities in resource allocation. For Siemens in total, we assume severance charges on a similar level as in fiscal 2019, around EUR 600 million. We expect modest negative top-line effects from exchange rate. The impact on margin is assumed to be immaterial. Let me share with you what we expect below industrial business in fiscal 2020.
Siemens 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. Siemens Real Estate depends on disposal gains as in previous years. For corporate items and pensions, you can assume in total cost between EUR 1.2 billion and EUR 1.4 billion. 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%-39%, materially impacted by the Siemens Energy carve-out. Siemens Energy's plan 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.
We assume that these positive effects and discontinued operations will offset carve-out costs and tax expenses related to the Siemens Energy spinoff, as well as group-wide severance charges for fiscal 2020. As you can see, 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 section in our earnings release document. Digital Industries expects flat comparable revenue outperforming the broader market. Adjusted EBITA margin is expected at 17%-18%. Smart Infrastructure anticipates moderate revenue growth with an adjusted EBITA margin at 10%-11%. Economic cycles have limited impact on Mobility only. We foresee mid-single-digit revenue growth with a margin of 10%-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%-5%. On Siemens level, we anticipate moderate growth in comparable revenue and a book-to-bill ratio above one. Taking all this together, we expect this to result for fiscal 2020 in basic earnings per share from net income in the range from EUR 6.30-EUR 7, compared to EUR 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+, and we execute diligently on our milestones. 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&A. Operator, let's take the first question, please.
Thank you. We will start today's question and answer session. If you wish to ask a question, please press the star or asterisk key followed by the digit one on your telephone keypad. Again, ladies and gentlemen, please press star one on your telephone keypad. We'll take our first question today from Alexander Virgo from Bank of America Merrill Lynch. Please go ahead.
Thanks. Thanks very much. Good morning, Joe, Ralf, and Sabine. I guess Gas and Power, maybe, and a couple of parts to the question, if I could. One, 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. I'm just trying to understand how you see the progress on an underlying basis. Secondly, could you just expand a little bit, perhaps, on the rationale behind the incremental additions to the Gas and Power energy portfolio? Lastly, Ralf, just on the timeline, 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? Thank you.
Thanks, Alex, for your questions. First of all, with regards to the development of the underlying in GP, 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 there's growth momentum expected. We have a clear view from a strong and visible backlog, including a big portion of service activities therein. 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 carve-out project related, but smaller activities that put incremental burden on the P&L of those entities.
That's why we are careful, and we reflect that also in the magnitude of this bandwidth of the guidance of 2%-5%. 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. One 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.
As we operate along a very ambitious timeline already, it's hard to tell whether we can accomplish the wishful target of completing that at the end of the second quarter of our fiscal year. We are working hard for that. We do have a very experienced team in place, which did that in other instances, not that magnitude, but we are very confident. From that what we see, we are working against that timeline, but it's too early to commit ourselves to that point in time. Technically, once the assessment of discontinued operations for the Siemens Energy business has been completed and we can confirm then reporting under the O, there will be a couple of technical implications, like no regular depreciation any longer. Finally, with the listing
There will 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. That's the technical course of things. We do run on a very ambitious timeline, as I said. Therefore, expect the DO decision to be around half year, but we will commit ourselves as soon as we do know.
Thanks very much, Ralf. The rationale on the inclusion of the portfolio companies in NSI business?
The rationale was that things which belong together should be together. If you look at the Subsea Business, which is nothing but deep sea connectivity, it fits just nicely into the oil and gas. The same is true for Process Solutions and upstream and midstream, which we used to have associated with the process industries and industry. We put it down because we focus now on the digital mechanism of Digital Industries and process industries, and obviously the sector is associated with energy. What happens there at the time when the Siemens Energy AG is being formed in terms of resource allocation and how priorities are being set is another story. From the market segment, the go to market is the same. That's why we have been decided to move those elements into that Siemens Energy AG.
Should we come to any, let's say, portfolio 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 talks to make good on what we said. We have made very significant progress in many areas. There is, as I had said earlier, still some work to do on the JV side of eMobility, which is attractive by growth, but doing new things in a new area with uncertain rollout and ramp-ups on the automotive space, we just need to be very focused there. 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 JP Morgan. Please go ahead.
Yeah. Good morning, everybody. I have a question on Digital Industries and then clarification on the 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. Obviously, as you said, you expect strong growth in software, but also 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 would be risks around that?
Thank you, Andreas. Obviously a very value attached question, which is also in the center of our attention and how we expect the market to be. I think there are three areas here, or actually maybe even four. One is the discrete automation, which obviously is still a challenge. There's no doubt about this one. We are market leader by far, we know pretty much the space. It will take time till we see the bottom and some signs of uptick. Good news is, I was a bit worried about it, obviously after a strong quarter before. The good news is, in October, we saw the product sell through in the channel, which doesn't mean too much, but is a good downward edge.
Obviously, if things don't sell through at some point in time, the point of purchase is already. That's the good news. Still, it will take time because investment is being made if confidence rises, and there is not exactly a lot of signs for that. In all areas. It's not just China and Europe, but also in other areas. That's the discrete. Process automation, food, beverage, chem, pharm, and the likes. It's more a lighter short cycle. We see some winning shares there. We've introduced new systems in the process industry. The cooperation between Bentley and Siemens, the 2D and the 3D simulation is very well received. I have to say, much more than we have been hoping for. 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 play of the month for the quarter or maybe even the year. If it doesn't do CapEx, it will do productivity or design to cost, time to market, and that's where our PLM comes in. The third one is, it's mostly related to what used to be Mentor Graphics, the semiconductor design environment. Here we actually do see that the semiconductor cycle seems to be through its trough. I have that knowledge from several data points. That could actually provide some confidence that our 8% on average will nicely help us to overcompensate or compensate for an ongoing weakness, which we see in the discrete space. That's our way we look at the assumption, and if something changes, we have a report or the chance of time to update. Ralf, maybe.
Yeah, maybe something to add on the part of your question referring to visibility. I have been sharing with you last year and in prior year that in the short-cycle product environment, untypically, they had been piling up a backlog to a level that we haven't seen before. That situation has been kind of normalizing again. 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 of the whole industry is seeing. That has been normalizing and is again back to levels of low three-digit million EUR amounts. 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. 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. We had a very successful fourth quarter from Mentor activities in fiscal 2019, as reported. If you look into the seasonal pattern for 2020, I would expect some of those major projects that qualify, again, major projects, not billions, but mid to high double-digit million amounts. That's the size we are talking rather later in fiscal 2020, not before the third quarter.
Thank you very much. On the restructuring, you guided for the similar level then in '19. You earlier guided or gave an envelope for overall Vision 2020+ spending. Maybe you could help us a little bit with the distribution of the restructuring for the main businesses. Obviously, Gamesa's already guided for a pretty big number, but it's a bit unclear there what's restructuring and what's other stuff, and the EUR 150 million they called out for Senvion integration as well. It looks like there is maybe not that much left for other restructuring. Does it mean more of the spending from Vision 2020+ has moved into later years, or does it cost less to get to the savings?
First of all, Andreas, you do know, thanks for the question. I would have been assuming that you would like to have more details on that one. I have to say again that, 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. In general, you may assume that on the GP side, we have been starting early, and we have been adding substantial amount in the fourth quarter, around EUR 200 million. For fiscal 2020, that amount will be substantially lower, obviously. You also heard me talking about that SI, Smart Infrastructure, is progressing a lot in that direction also. Joe mentioned that. That will be one of the centerpieces of our activities.
Also, as Joe has been alluding to, DI has been accelerating their progress in terms of getting the savings in earlier as needed. As we discussed at the conference in September, they have been keeping up their pace there, and will be a bit earlier. That will be a second 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 EUR 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.
Morning. Thank you for-
Hi, Ben.
Hi, Ben.
Ben Uglow, you may have muted your telephone.
It's on to the next line. Have him come in later.
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, James.
Okay. My question is around Gas and Power and the Siemens Energy spinoff. Firstly, on the margin for full-year 2020, it's perhaps a little more cautious than some of us might have expected. I wonder if you could help us understand this a bit more. Specifically, I'm wondering whether you're still expecting the EUR 700 million out of EUR 1 billion of savings, EUR 1 billion by 2023, EUR 700 million by 2021. Are you still expecting that? Can you say roughly how much of it lands in 2020 versus 2021? Are there any different moving parts in profitability between central distributed oil and service? When we think about the margin target of 8%-12%, is that pushed out a little bit, or do you see a bigger uptick in the outer years? My other question on Siemens Energy goes to the spinoff 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 question. As I said before, the carve-out is a really challenging task, and we are absolutely convinced that we will stay in the timeframe 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 smaller impacts in many different entities. To cater for that, which is a normal course of business, we just said we've arranged for that corridor on a bit wider dimension.
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. They are fully on track, and the commitments are in place. Those commitments, they also are recurring and targeting to accomplish the target margin range according to the plans that we have been discussing. The format and the scope of activities of Siemens Energy to be is obviously more than GP has guided for the ongoing concern at the moment and as discussed at the Capital Market Day. Joe has been describing that in detail. Therefore, we have to be a bit patient in terms of their combined business plan for a NewCo , for Siemens Energy AG to be.
We can't and shouldn't try to anticipate that. That will be part of their equity story and the prospectus at the right point in time. I have to ask for a bit of 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. Joe has been alluding to the fact that we already have been able to acknowledge some of the savings in the area of EUR 50 million 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. In those areas, obviously, we don't take any risks. No one would benefit from a delay of the process. Therefore, we walk in those specific areas on the safe side, which does not mean that the execution of the savings as committed will not take place, but they will be one year later, as mentioned already from the very beginning in the Capital Market Day.
Thank you very much. Appreciate it.
Thank you. We'll now come back to Ben Uglow from Morgan Stanley. Please go ahead.
Okay. Morning, folks. I hope this is working this time. We're having one or two technological issues. Can you hear me?
Yes, we can, Ben.
Good. That's a big relief. Okay. First question, Ralf, I wanted to make sure I properly understood the EPS guidance and exactly the message that's coming across. 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. When I add those up, first of all, do you agree with that in principle? Secondly, when I add those up, I'm coming up with a number in the EUR 1.5 billion ballpark. Is this the right math? Am I in the right range?
First of all, Ben, congratulations. We have the same understanding in principle.
That's a relief.
Already have been mentioning in the press conference that we can't be more specific on a quantitative basis at the moment.
Okay
I would like to repeat that is, first of all, we have been clearly flagging out restructuring expenses that we expect with EUR 600 million.
Mm-hmm. Yep.
Also have been guiding you with the below the line guidance for the corporate costs, which will be between EUR 1.2 billion and EUR 1.4 billion in fiscal 2020, which is over and above the prior-year levels or the normal levels. I also said in the press conference that typically in other companies, you would not be surprised to have a price tag of those projects related costs that go with the project of carve-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 exercise is really impressive.
Last but not least, the tax rate we have been guiding for between 35% and 39% is obviously above that what we would normally expect and what we had been guiding for in the last couple of years. Typically, you end up in the higher 20s as a normalized ETR. From that perspective, you got all the ingredients to fill your models. I can't commit at that point in time to nominal amounts. 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. The final yardstick we will see at listing end of September.
Maybe one comment. First, as you all know, Ralf is typically conservative and well thought through matters before talking. That's good news. The other thing is, I'm sure I don't need to remind you. The other news is that the gains we may book are non-cash. The rest, the efforts we need finish the carve-out and the tax may eventually result in a cash out position. I'm sure you know that, but that's important to reiterate.
Absolutely. Understood. Thank you for that. 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 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 three, six months, either for the better or for the worse? What's your view on this?
Yeah, Ralf has been in Shanghai a couple of weeks ago, and obviously a very close view at this one, especially in the short cycle environment.
That's an important market. The true answer is that it truly is somewhat out. There is no consistency on the signals, assuming that we are able to separate the noise from the signals.
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've got to be very careful and mindful about the fact that a lot of the software, especially in the semiconductor area, is, let's say, under sanction from the U.S. government. 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. We are very mindful about it. So far, we've been managing through well, but you never know what happens. In short, there will be, let's say, continued tension on that matter.
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. This is something where we have good demand, but we need to be mindful about regulatory changes going forward. The government has been significantly stimulating 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 or even trade war. At this point in time, there is no consistent signal going forward. If I had to take a bet to a little more up than a little more down, I would probably take the bet 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. Coming back to Digital Industries, you mentioned in the release that the fourth quarter was helped by software margins, and you mentioned earlier on that Mentor was doing particularly well. Just to clarify, is that sort of a new trend for Mentor? Was there just an unusually good project or something like that helped during the fourth quarter? The second question related to Digital was also, under the old Digital Factory structure, you talked about cloud investment, MindSphere, Mentor integration costs, these kind of things. A lot of those things were due to fall off or certainly become less of a drag by 2020. Is that still the case?
Therefore, when we look at your margin going to next year, you've obviously got some additional cost savings or some portfolio cost savings, but are we also expecting some of those drags like Mentor integration, like MindSphere investment and so forth, to also be less of an issue next year, so also helping the margin? Thank you.
Thanks, Martin. With regards to the relevance, hitting the point, of course, software is playing an ever bigger role in our portfolio. 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 execute along the lines that we have been promising, amongst others, at the Capital Market Day. I think the fourth quarter being a strong Mentor quarter shouldn't be a surprise to you. We had the same thing last year. They have 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 the third quarter.
That's why I also try to guide you a bit with regard to 2020, that the software momentum may rather happen in the second half of the fiscal year. That's not new as you asked for. This just was a very strong peak, if I may take it that way, in the fourth quarter, and we can't expect that this is repeating itself on the same levels. That's what you typically have 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 million amounts are large projects, which you go for on the acquisition part for two to three years minimum.
We are quite happy to foresee or to see in our funnel that there are 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 MindSphere and what we then have been summing up under the header of cloud investment for a couple of quarters, because it's actually MindSphere. 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, giving you full transparency. I don't consider it being a drag into investing in integrating Mentor 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. 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 million, and there is a clear downwards trend. It's going to be EUR 250, as I said before, for fiscal 2020, give or take. 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.
Can I give 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 overfulfilling 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 are only two more in that space. We just recently won a design with a very relevant U.S. customer. I mean, really relevant. I know that Kai still for the due diligence at the time, and we discussed whether that would be feasible or not. We were debating it, now after what, two years?
Two and a half.
Two and a half 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. This is something which really helps us to develop an ecosystem within DI, which is not always running with the cycle on discrete 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 to now process industry so that the sort of level
The volatility of the short cycle discrete, and we are really well on the way. I'm really very satisfied and proud of the team, Klaus Helmrich. 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. I really have to say I'm confident when we basically go into an era where we have, let's say, an industrial Siemens and a Siemens Energy, because what we see already today, if you look out a little further than 2020 with our budget numbers, which we will guide only guide 2020. If you really look at what a year after Siemens Energy, Siemens Industry split, what the Siemens Industry would look like, I really like what I see.
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 about focus and clarity and transparency, what that could mean for corporate discounts and margin or, let's say, multiple expansions and things like that. We have this very clear focus on that one too, 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. One minus growth and free cash indicator also for the whole company, no matter where we are, because you decide if you grow more, you can invest more cash.
If you don't, you better produce cash. A very stable system in itself. In the operating area, we have been guiding now on each and any 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 a business to run its business. It also associates accountability. Needless to say that we align the incentive systems accordingly. 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. Secondly, of course, accountability means not only looking at aligning incentives with shareholder interest, accountability is also getting the job done. If not, then it's more than just about incentive system.
All in all, since we are just about to close, maybe one more question. We are well on our way. We obviously are aware of the fact that the economic environment is not exactly tailwind. We are aware of the double dip which we are taking in running and operating company business, but also do 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.
Thank you very much.
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. 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. Linked to that, obviously, you've raised the Siemens dividend today. Will that dividend be maintained after the spin? In that context, will Energy pay a dividend on top of that? 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?
Before Ralf answers this one, let me give you maybe a comment on power. We have raised the dividend because we believe this is a good thing to do. Apart from beyond the shareholder fix. 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 spin-off 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, EUR 30 billion business to the shareholders. This will be significant. Whether or not after that, the dividend will be up or down or different is a new ballgame. Once we know what exactly it will look like, we definitely will guide the market on what to expect.
It's the right question, whether Siemens Energy will pay a dividend or not. At this point in time, that's just a bit too early.
Yeah. 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. 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 continuously have been updating those. Therefore, there was also material aspects from that that we had to recognize, and it will not repeat itself, obviously.
Thank you, Joe and Ralf, and thank you everyone for participating. We will now close the call, and the team and everyone will be around to answer further questions. We'll be on the roadshow throughout U.S., Europe. I think we have all major destinations. 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 +496920001800, access code 9015173, followed by the hash key. Participants in Europe, please call the replay number +442076600134. Access code is 9015173, followed by the hash key. Participants from the U.S., please call the replay number +17194570820, access code 9015173, followed by the pound key. This replay service will be available until tomorrow night. 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.