Good morning, ladies and gentlemen. Welcome to the Siemens 2019 first 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 would like to turn the call over to your host today, Mrs. Sabine Reiter, Head of Investor Relations. Please go ahead, madam.
Good morning. Welcome to our Q1 conference call. The earnings release and also Q1 presentation were released at 7:00 A.M. this morning. You can find everything on our website. Our President and CEO, Joe Kaeser, as well as our CFO, Ralf Thomas, are here this morning to review the Q1 results with you. The AGM starts right after this call. We will limit the time for approximately 45 minutes. Joe and Ralf will start with a brief presentation, and then we will have further time for Q&A. Joe, please.
Thank you, Sabine. Good morning, everyone, and thank you for joining us to discuss the first quarter results ahead of our AGM here in Munich. I just returned from Davos, where I obviously met many customers, business partners, and government representatives from across the globe. While the mood was skyrocketing in 2018, it was quite subdued in 2019. Discussions were centered around the impact of geopolitical uncertainties such as Brexit and obviously trade tensions all around. While I really do hope the serious hold that the Davos mood never materializes in the subsequent year, we still need to be mindful about which effects global uncertainties may have for our customers around making investment decisions which they impact their business. On the bright side, we also do see quite a testimony that Siemens really matters to people and institutions everywhere in the world, and how strong our brand has been recognized.
Siemens is really well-positioned as thought and competence leader in key areas such as the Fourth Industrial Revolution, the pundits are calling it the 4IR now, smart infrastructure, and business to government. We have had great discussions with key stakeholders to develop trend approaches to businesses and people. As for our fiscal Q1, we have diligently been working on the implementation of the new company set up, which obviously is a prerequisite for a successful execution of our Vision 2020+. You know that we will have the Capital Market Days in May. There I will get further details on how to execute the goals we have been reporting to the public and to the capital markets in August. The business results for the quarter were, I would say, somewhat mixed.
While increasing customer confidence and satisfaction with us is clearly visible on a continued very strong order growth, revenue and industrial profit was on the lighter side of our expectations. Thanks to a successful Mobility team and other contributors, we achieved the highest quarterly order intake since more than a decade. Among others, we booked a EUR 1.6 billion order with the first set of next-generation trains for London Underground. This order combines metro rolling stock with comprehensive fleet and digital services and offers potential for much more, and I mean much more going forward. Our Energy Management division, which sort of disappointed on the bottom line performance, also appears with a very strong bookings record. Moray East is an offshore wind farm grid, which connects the project in the U.K. It has a capacity of 950 MW and is therefore Siemens' largest U.K. grid access project ever.
Our Power and Gas division booked an order to build the most efficient power plant in the United Arab Emirates, bringing our H-class turbine in the region for the first time. Let me maybe briefly touch on key financials of the first quarter before Ralf will go into more details. As mentioned, organic order growth was the highlight of fiscal Q1. A 13% order growth year-over-year led to an obviously great book-to-bill of 1.25, and a record high backlog of EUR 137 billion with a mostly healthy margin quality. As expected, revenue was up modestly 2%, with growth in many divisions basically making good on the decline of the power generation, which was about 9%.
Industrial margin business, excluding severance, reached 10.6% overall, broadly in line with market expectations, yet a bit high of our own aspirations due to a miss in the EM division. Earnings per share excluding severance at EUR 1.34 was nominally lower the prior year, obviously, because that one benefited significantly from the Osram sale and a lower tax rate following the U.S. tax reform. Free cash flow had a slow start, which is typical for Q1, yet a cash conversion of only 0.25 is not exactly what we like to see, and we definitely will have actions on free cash flow based on this one. We do expect it to catch up over the course of the year with a stronger focus on working capital management in the company. Ralf will give you more details on the financials based on the divisional highlights. Ralf, please.
Thank you, Joe. Also good morning from my side. Power and Gas continues to face tough market conditions. Service remains a very stable contributor to top and bottom line. The team is making progress to execute on the announced capacity and structural adjustments. Orders were up 16%, driven by large contract wins in the service business and a pickup in oil and gas. This quarter, Power and Gas booked one large H-class gas turbine in Middle East, one large steam turbine, and 36 small and medium gas turbines. A particularly decent achievement which deserves being mentioned. The Power and Gas margin reached 4.6% ex severance. A loss of $54 million related to the sale of a factory was offset by several positive effects due to stringent milestone achievements in project execution. Our expectation to achieve a low to mid-single-digit margin, excluding severance in fiscal 2019, remains unchanged.
Energy Management achieved a strong and broad-based pickup in orders, including Moray East, the grid connection project in the U.K. Joe mentioned before, and a large HVDC order as part of the Ultranet project, one of the crucial north-south grid connections in Germany. The margin development was not satisfying, mainly due to negative effects from grid control projects, which we closely monitor going forward. Lower revenue and profitability in transition products impacted margin in the first quarter. Building Technologies continued its growth path. Profitability of 8.5% was temporarily softer due to weaker business mix with less product share carrying a higher margin. Building Technologies is also investing in smart building and IoT offerings to drive future growth and leverage recent acquisitions. As Joe already mentioned, Mobility delivered another excellent quarter with sustainable strong double-digit margin. Digital Factory showed again a very impressive performance.
The team proves quarter by quarter the superior strength of combining comprehensive software offerings and leading automation competency. Year-over-year, orders were down, mainly due to tough comps in the software business after several large contracts at Mentor in the prior year's quarter, as discussed at that point in time with you. Book-to-bill was again clearly above one, with a healthy backlog in short cycle business supporting visibility for continuing decent revenue growth in the quarter ahead. In the first quarter, revenue was up 6% with clear growth contribution from the automation businesses. While automotive and machine tool industry saw some softness, other discrete and hybrid industries, such as electronics and pharma, showed healthy demand. Again, China was standing out with automation growth of 13%, driven by new customers from our dedicated growth initiatives. The software business grew north of 20% in China.
As indicated before, we expect growth rates in China to further moderate due to tougher comps. In the short cycle space, Germany held up well with 6% automation growth. Italy was up 5%, and the U.S. declined by 3% on sluggish automotive investment. The underlying margin was around 22%, impacted by softer demand in the machine tool systems area and a less favorable mix. Severance and investment in cloud-based offerings, Mendix as well as Mentor integration costs totaled around 340 basis points. They were partially offset by a gain of around 160 basis points from the sale of an equity investment. Exchange rate had a negative impact of 30 basis points in the quarter. Going forward, we expect to outgrow the market and deliver continued robust performance despite overall weaker investment sentiment. Process Industries and Drives achieved excellent and broad-based order growth of 15%.
Commodity-related industries such as mining or oil and gas continued their CapEx-related recovery. We like to see that PD's profitability increase and the resulting efforts are paying off. Margin also benefited in part from a positive revaluation effect of our stake in Bentley Systems. Our strategic companies, Siemens Healthineers and Siemens Gamesa, already reported their first quarter results yesterday. The Performance Below Industrial business was in line with our expectations and the guidance we gave to you in November. To sum it up, we had a solid start in the first quarter with a seasonal weak cash flow. We confirm our fiscal year 2019 guidance. For that, Joe and I will be happy to take your questions, and I return the microphone back to Sabine.
Thank you. Operator, we will now start the Q&A.
Thank you. Ladies and gentlemen, 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 will take our first question, which comes from the line of Ben Uglow of Morgan Stanley. Please go ahead.
Oh, morning, Joe. Morning, Ralf. Morning, Sabine. Thank you for giving a little bit of color there around the factory automation part of Digital Factory. I guess what I'd like to know how you're thinking is, if we look forward in 2019, that division, or let's call it roughly half of Digital Factory, historically has been quite sensitive to changes, Joe, as you've said many times, in the macro backdrop. Is your outlook, are you thinking that throughout 2019, you can sort of offset any weakness in automotive by ongoing strength in hybrid or pharma or other industries? Or do you actually think that over the course of this year, there could be some margin volatility in factory automation? I appreciate the software side and other things can remain good, but really what I'm interested in is that factory automation part of Digital Factory.
How do you think margins could trend this year?
All right. Thank you, Ben. Good morning. Obviously, the fact that DF, and short cycle within DF, especially factory automation, PLCs and the likes, is sensitive to the economic investment, of course, is clear. We have been able, I believe, to sort of dampen the volatility through the spectrum.
The whole PLM method simulation, Mentor Graphics and the like. We also know that we have a quite a significant OPEX spend in our budget based on growth assumptions, that the money has not been spent yet. There is some, as I said, some potential here should it come to an unexpected drop. What do we see? First of all, in general, obviously the mood has been changing. Sentiment has gotten much more negative, maybe not even fact-based, but just perception-based, and perception matters a lot if it comes to investment decisions. I think in terms of geographics, we should see that first in the U.S. and then, if at all, at a later point in China. Why do I believe that? China has got sort of a special situation if it comes to e-mobility, automotive, domestic industries.
There is quite a demand, what we see, and we do not expect that demand to change in the current fiscal quarter, which I mean is fiscal Q2. We do anticipate some slow demand, more on the toolmaking, tooling area, robotics, things like that. Motion control would be the area where we could be affected with. That's a bit slower, clear, because that's where China exports a lot into the world, which obviously now is in debate. That's where we see the geographical area. In terms of product, as I said, the robotics, motion control, toolmaking is, we anticipate to be a bit slow. On the factory automation software for Q2, we believe we are well underway. We don't know what happens in Q4. It's just a fact, which we need to make clear.
From the numbers you've seen till today from markets and competitors and the likes, shows that we're still rather winning market share, which is a good thing because that at the end matters that we do relative to the competition. We are reasonably cautious given the nature of the impact of short cycle, but you also do see optionality going forward in big markets like China and to a lesser extent in the U.S.
That's very helpful. Thank you. I'll pass it on in the interest of time.
Our next question comes from the line of Andreas Willi of JP Morgan. Please go ahead.
Good morning, everybody. I have a question on the Energy Management division, where we've seen some issues around project execution. Maybe you could elaborate on that and maybe provide some details around the margin decline, what's driven by a specific project, and whether that's now completed in terms of impact on earnings. You also mentioned tougher underlying trends or margin pressure or margin decline in the grid products business. What's going on there, and what do you expect the division to be able to do for the year? Obviously, you've got the good orders, but maybe you could also comment on some of the risk profile of these big projects like Moray East, how that compares to the risk profile of some of the larger orders you had in the past in that space. Thank you.
Thank you, Andreas, for that question. Of course, we have been digging into the matter intensively and deeply throughout the last couple of weeks. First, for those who haven't been having an opportunity to listen in the press conference, the nature of those projects isn't the magnitude that you would know from the past. I described that in the EUR mid-double-digit million area, the size of the project. We have been identifying one of them that was technically, obviously not under control. We have been correcting the course, including the engineering work in that area, in a very restrictive way, and have been putting resources into it as described in the past. Was even one of my colleagues on the board personally taking care of that over the Christmas holidays. The poor guy has been looking into the matter and has been also having impact.
I'm quite confident that in that particular project, there will not be any major surprises. The impact that we saw on the negative side was below the number that I have been describing before. On the product side, I may not have been precise with my wording. It was not the grids product. It was the high voltage power transmission product area, where we had seasonally weak new orders in the past. We described that before. The fabs were not running on the ideal level. That will level out throughout the next two, three quarters again, and we also have clear visibility on the backlog. However, the nature of the product business being profitable has been leaving some space in that very first quarter. We will clearly see improvements in the next quarter when it comes to profitability.
However, we will approach the target margin corridor from the south.
Andreas, ladies and gentlemen, I would not overrate the hiccup we had here in the EM division. This is in the digital grid area, which we know very well. We have revenues there, annual revenues north of EUR 1.5 billion, typically double-digit margins. We very well understand the business. Probably from a market leader perspective. We've been trying to develop grid optimization projects with two of the grid operators in Germany, which obviously is relevant in the future as the whole strain of the multi-sourcing of energy with renewable comes to the grid. We're working with both on solutions, pretty custom-made. We both at the end agreed that we need to find a broader platform to do that and not to customize solutions for operator A grid, operator B grid, and there's a third one, as you know, let's operator C. We pretty much know what the intent is.
We understand that business well. We agreed that we need to reset that whole topic and bring it more on a platform base and not custom-made stuff, which could have worked, but obviously it didn't. I believe we need to understand what it is. That's what we have, and now need to move on and bring it to a more platform-based approach. I think it's important to understand that this is nothing we are what we do for the first time. In a way, digital grid is profitable, double-digit. Due to the effect in Q1, it was double-digit negative. In margin, we do expect Q2 to be double-digit positive. That's what the benchmark is, and that's what we wanted to see.
On the risk of the Moray East in terms of difference to the past projects in Germany in the North Sea?
No correlation at all. No correlation at all.
Next question, please.
Our next question comes from the line of Alexander Virgo of Bank of America Merrill Lynch. Please go ahead.
Thanks very much. Good morning, Joe, Ralf, and Sabine. I wondered if I could squeeze a quick one in on Digital Factory, with respect to just understanding the underlying growth in orders there. Obviously, the tough comp in Q1 affected the optical development in this quarter. Just wondering if you can comment on that. Then on Building Tech, I wondered if you can talk a little bit about the margin development there. Obviously, a lot of costs going in, as you mentioned too, IoT and smart buildings. I wonder what you could give us in terms of color for the trajectory for the rest of this year. Thank you.
Hi, Alex. Before Ralf goes into the two topics, congratulations on the promotion. Welcome to the community. I understand that you're succeeding Mark in that capacity. Again, congratulations, welcome, and look forward to working together.
Thanks very much.
Welcome also from my end, Alex. Starting with the Digital Factory, I'm not sure whether I get the core of your question, but the growth momentum that Joe has been discussing in the prior question is, A, built on a strong momentum in factory automation that we also clearly had in China, mentioned the 13%That we have been most likely also taking market share there in that very important market way forward. We also do have quite some good visibility now for the second quarter and maybe half of the third, because we, at the moment, are sitting on the biggest backlog that we ever had in that business. Therefore, relative visibility is quite good and even better than we used to see that in the past. We also have a lot of respect of the responsiveness of the market if things go into the other direction.
Therefore, Joe had been mentioning that we also have impact, particularly on incremental spendings, if need be. We also stabilize, of course, in total the Digital Factory with a growing share of our software business, which is quite resilient and was also fairly strong, in particular in China, with growth north of 20% in the first quarter of the fiscal year. All that is giving us confidence for the second quarter and a certain extent of the third quarter. As Joe mentioned, the fourth quarter, we need to wait also before we see how the second quarter worked out with regards to Chinese New Year, which is always a bit of a question mark. There is no indicator that I would know about, including the channels, that there is channel stuffing or any artifacts like what we see at the moment.
From all what we heard so far about competitors, I think we are fairly well underway. When it comes to Building Technologies, I think we need to see the spending pattern in IoT and the likes in front of the backdrop that we have been making three minor acquisitions throughout the last fiscal year. In the third and the fourth quarter, we acquired three high-tech companies: Enlighted, Building Robotics, and J2 Innovations. Typically, after integrating or with integrating them, you have to make dedicated investments in some areas to allow them fully unfolding their potential to contribute. That's what they are currently doing. There was a slight dip in the product business as a portion of the total business mix. That also had incremental downside then on the margin development.
That happens typically in the first quarter of the fiscal year will not be indicative for the margin development in Building Technologies.
Thanks very much. That's very helpful indeed. Look forward to working with you all going forward. Thank you.
Me too.
Our next question comes from Simon Toennessen of Berenberg. Please go ahead.
Yes, good morning, Joe, Ralf, and Sabine. I've got one question related to generally your guidance. Could you put Q1 a bit into context in relation to your margin and EPS guidance? At 10.6% margins, you're obviously below the 11%-12% range. If I look at recent years, your first quarter EPS, ex-severances, always accounted for a third, last year even for more than a third of your full year earnings. It had always quite a big weight. This Q1, obviously, you said was a bit disappointing on the profit side, is less than 20% of your EPS, if I take the midpoint of your guidance range. I guess my question is, can you be a bit more concrete in which areas do you expect the catch-up to happen?
Maybe as a sort of follow-on to that, given it seems your later cycle business really starts to be boosting your backlog more and more. Q1 I think is another good example here. How should we think about mix in the coming quarters ahead? Thanks a lot.
Thank you, Simon, for the question. First let me get out of the way, the prior year's first quarter and EPS portion was, of course, materially impacted by the two extraordinaries of the U.S. tax reform, which we benefited from and disclosed by EUR 437 million, and the sale of our Osram stocks that had a pre-tax impact of EUR 655 million and EUR 645 million after tax. That was materially impacting the first quarter. I think we need to take that out to put the current quarter into perspective. You are right. We need and intend to improve in terms of performance. Already in the second quarter, we have been talking about Energy Management, and they have been taking measures which take us to the conclusion that they will rapidly improve again in terms of margin levels.
As I said, they are going to approach the target margin corridor from the south over the course of the year. They also have, for many years, a seasonality that makes the fourth quarter the strongest one. Obviously, you rightfully have been stating that the late cycle impact of Process Industries and Drives. We see the business developing quite nicely from the top-line perspective for a couple of quarters already, which is now finally also hitting the bottom line. PD homework is not completed, but we have now proof points that they are on the right way, and they are continuing along these lines. PG, as I said before, a very stable contributor.
To put that into perspective in terms of the first quarter's profitability, we are still in the target margin range, and they are clearly heading to get into the double-digit margin range again anytime soon. With Mobility, we have a very stable contributor. I said that before, 21 quarters in a row now in or even above the target margin corridor or very close to it. That's quite a stable environment. For Digital Factory, I have been extensively answering Alex's question, and so did Joe in the beginning, and Ben. I won't repeat all that. With PG, we gave you clear guidance that we stay in the low to mid-single-digit margin range. With that, I think we have been describing the framework in which we operate. Again, with EUR 137 billion of backlog.
Just to give you a rule of thumb, about 30% of that is going to turn into revenues in the current fiscal. We have quite some visibility and also very healthy margins in the approach of clear view on margin in the project business. In particular, visibility in the service part of the PG portfolio.
Thanks a lot.
You're welcome.
We will take our next question, which comes from the line of Peter Reilly of Jefferies. Please go ahead.
Well, good morning, everybody. I wanted to ask, please, about the growth outlook for PG. You've had five quarters now of pretty good order intake, but the revenue is still declining at a fairly rapid pace in the first quarter. Could you talk about when you think revenue start to bottom in Power and Gas or whether it's an issue that the order strength has been long duration service contracts, and therefore we can't really look at the order strength and derive much comfort in terms of the near-term organic growth outlook?
Hi, Peter. Obviously, the order, we do like what we see on the order growth in Q1. Hopefully, we also like Q2. If you look at fiscal 2018 and the four quarters 2018, 1, 2, 3, 4, you see orders developing -1.6% for Q1 2018, -7%, +54%, +13%. What you actually see in Q1 is sort of an easy comp improvement. Could be the same, let's say the same area in Q2, obviously also on a more easy comp. Then come some more tougher comp area when we compare ourselves to the 54% growth here in Q3 2018. I think that's how you should sort of look at the top line order growth. On the revenue side, typically, the PG orders are big projects, sometimes even EPC contract-related ones.
They go pretty long in the time where you see notice to proceed and subsequently, revenues. If you look at the backlog, and maybe Ralf can allude to that a little more. At the backlog, we have quite stable margins in the backlog of PG, which I think is relevant as to the potential volatility of the business going forward. It may take some time till we see a like-for-like revenue growth. Fiscal 2018 had a decline of 14% in revenues year-over-year. We do expect 2019 to have a significant deceleration of the decline, whether or not that reaches already break even remains a question.
Peter, with regard to the backlog, we've got EUR 40 billion on backlog for PG at the moment. Around 80% of that is service with a very stable margin quality. We also discussed a couple of times, I can confirm that there's no extraordinary cancellation or pricing pressure that would be extraordinarily burdening the service business and the renewals. That's a very strong pillar for the next six to eight quarters, as we said. We are very diligently monitoring that and discussing with management whenever there are major renewals ahead. The 20% of new unit business, again, is in a very tight and price-intensive market. Also there, we don't see any major movements in the margin in the backlog at that point in time. The teams are very diligently executing there.
We just have been completing important milestones in our Egypt projects, which was quite helpful and also making us confident that we do have a firm grip around project execution, which is important. As Joe said, the decline or the deceleration
Of the margin of the revenue line for PG will come down. Before we see the point of inflection, we need to be careful with our prognosis.
Okay. Thank you for that. I take the point about the easy comps and the order growth. If you look at the actual numbers, you've been running at about EUR 13 billion and a bit of order intake for the last two years now. It looks like you started this year in line with that. My assumption is that the business there, the revenue troughs at around about somewhere in the EUR 12 billion-EUR 13 billion range in terms of revenues. Is that a reasonable assumption or is it just still a little bit too volatile in terms of the end market dynamics?
Well, Peter, honestly, it's almost like a lawyer's answer. It depends. It depends on the activity of the service portion, which we call the book and bill, which means we get the order and execute on the order in the same period. This is where we really make the difference in the end, whether you'll be right or whether the pessimists or the bears are a bit more in front of the optimists. The answer is we just don't know. We do know that it's a very, very robust service offering. We do know that we are in quite a few sweet spots in service, especially on the H-class, where we obviously have quite a market share. Many things will depend on what the weather will be in areas where you need a lot of energy and cooling, what the service intervals will look like.
I do not expect that the cool down of the global economy will lead to a reduced demand on energy and therefore less service. I don't think it's way too early to go down that route. We could be around of what you said would be satisfactory if it's a bit less than what you hoped for, probably also in the ballpark. Around that area, we also believe that this could turn out to be for 2019.
Okay. That's very helpful. Thank you.
Our next question comes from the line of Jonathan Mounsey of Exane. Please go ahead.
Hi. Yes, thanks for taking my question. Wondering if I could turn maybe to the future, on May, the Capital Market Day. On what we might hear on that day, can you confirm whether or not we'll get an announcement around cost savings? Obviously, it was maybe an element that was missing from the initial announcement back last August. Could we see that addressed in May?
What you will see is that the CEOs of the operating companies will address on how they are going to run their company and how exactly they are going to achieve the margin targets and the growth expectations which have been laid out in August. By the way, if you look at the August presentation, there have been quite a few areas where we said that cost savings need to materialize. If I remember it correctly out of the top of my head, we said we would have at least 20% of efficiency improvements in selected areas in scope, which is mostly related to corporate support environments. We said that we are going to install an effective service organization, which once completed, will at least bring 10%-20% efficiency improvement in that area. That has been a framework which we set out as a minimum.
What you can expect in May is that you get more precise actions on how that is going to get achieved. That's what you can expect.
Thank you.
Sure.
Our next question comes from the line of James Moore of Redburn. Please go ahead.
Yeah. Good morning, everyone. Thanks for taking the questions. A number of them have been answered, maybe I could go back to the Digital Factory commentary. That was very helpful that you gave earlier, Ralf. Thank you for that. I think that you're talking about the regional short cycle growth trends within the 6% organic sales growth. Obviously, I understand that the Mentor comparative and software has driven the minus 4% organic order growth. I am wondering if you could help us understand numerically a bit more momentum of how short cycle bookings looks compared to the billings for the key countries.
Well, thank you, James, for the question. With regards to the new orders and the minus 4%, we said that last year, you may remember that we did have three major orders in Mentor Graphics right after we acquired them. They also have been contributing literally from day one. If you take out Mentor effects of the prior year's quarter, the comparable order would have been slightly positive. What I try to express also with my discussion of what the picture is in the short cycle business around the globe is, A, we are obviously over proportionally participating in the growth momentum in China, which even though declining as momentum is still on fairly high levels. I don't want to compare us now to competitors with another regional focus, but obviously we are playing a bit above eye to eye with the disclosures we heard of yesterday.
We do have the opportunity to tap on different verticals in different customer industries in those growth markets. While automotive is kind of sluggish and while machine tool systems, as Joe said, is also not contributing to growth in some geographies, for example, in Germany, machine tool building is still moderately up in the first quarter. The point I'm trying to make is we focus on opportunities in different regions, specifically for certain industries with dedicated sales stimulation programs, if you will. We do have also, obviously, the right momentum when it comes to tapping on the potential of hybrid industries and also food and beverage is an area which is always helpful. When you look into the geographies, China and the environment there, China nominal manufacturing shipments still expand with a clear growth rate, but have been losing a bit of momentum throughout the last years.
Machinery there still with moderate increases, but below the manufacturing average. Automotive, I already discussed. There is lower dynamics, but still relevant in terms of materiality on a global basis. I think everything is said about the U.S. already. In Germany, manufacturing is still on a modest growth path, even though in lower ranges, and machinery still is reporting also a moderate increase. It's only automotive that is declining. In a nutshell, there is a lot of different aspects in the market at the moment, and we are picking our opportunities and have obviously a grip around them. It's too early to compare in which markets we have been winning market share, but the overall figures are suggesting that in the growth markets, we are leading the pack.
Thank you. Operator, we take one last question, a short question, please.
Our final question comes from the line of Gael de-Bray of Deutsche Bank. Please go ahead.
Thanks very much, and good morning, everybody. I keep it short. The question is about Process and Drives that clearly stood out this quarter. Could you perhaps talk a little bit more about the drivers of the margin improvement? I mean, how much of this 300 basis points margin increase can be attributable to volume growth versus the effect of cost-cutting and footprint rationalization program? What was the effect of the revaluation of the stake in Bentley Systems in the quarter? Thanks very much.
Gael, thanks for the question. It's hard to keep apart the footprint and the growth impact, of course, because the footprint change is facilitating growth opportunities which come from the market. What we see is that in the commodity-related businesses on our customer base, we saw some stabilization in their investment patterns just lately. Also, the demand for renewable energy and wind power has been increasing again. What you probably heard from the disclosure of Siemens Gamesa yesterday also, the pricing in their end markets is getting a bit more stable, which is good news for the suppliers into those businesses, obviously.
At the end of the day, it is important for us that the homework that we have been doing and that has been completed to the biggest part is now bearing fruit, and we have a firm grip around the cost base and the quality of the output after that move of the footprint. We have been touching literally each and every angle of the organization. This is a real proof point that the concept has been working out properly. With regards to the impact of the Bentley stake and the revaluation of that, it's in the mid-double-digit million EUR area. If you took that out, we would still be on a good trajectory to reach the lower part of the target margin corridor, in particular, taking into consideration that there was some 30 basis points of negative exchange rate impact in the quarter for PD, too.
Thank you. Thank you, everyone, for participating. Thank you, Joe and Ralf. We will now go to our AGM. You can also watch the live webcast on Siemens via our investor relations homepage, and the team and I will, of course, be available for further questions. Thank you. Goodbye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. Once again, let me repeat the instant replay numbers. Participants in Germany, please call the replay number +49 069 2001800. Access code 3576290#. Participants in Europe, please call the replay number +44 0207 6600134. Access code 3576290#. Participants from the United States, please call the replay number +1 719 457 0820. Access code 3576290#. 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.