Good morning, ladies and gentlemen, and welcome to our Virtual Capital Market Day on accelerating high value growth. My name is Ife Riesenhuber. I'm the Head of Investor Relations I will be your host for today. So first, let's take a look at the agenda. We're going to start off the day with our CEO and President, Roland Busch, presenting Accelerating High Value Growth Strategy.
He is followed by our CFO, Ralf Thomas, who will go a deep dive into how this translates into accelerated value creation. We finished the 1st block of sessions with an ESG presentation by our Chief Sustainability Officer, Judith Wiese, who will walk us through our ambitious ESG target framework. We then have time for a live Q and A before we go into a short break. After the break, we come back with Digital Industries where CEO, Cedric Neike and CFO, Rudy Besson, We'll present the digital enterprise to you. They're accompanied by Tony Hammelgarn, the CEO of DI Software, for a deep dive into our software business.
As before, we then go into live Q and A before a short break. After the break, we come back with Mobility and Smart Infrastructure. CEO, Matthias Revalius and CFO, Axel Meier, will present Smart Infrastructure to you, followed directly by CEO, Michael Peter and CFO, Karl Blime, the Mobility business. We then go into a short Q and A before break. Now, after the break, We have a fireside chat with the entire Siemens Management Board.
Now this is very important Because if during the course of the day today, we actually manage not to answer some of your questions, please do send them to us at investorrelationsseems.com. We will try to bundle all of these questions into the topics for the fireside chat in which we then try and wrap up and hopefully manage to answer your questions. Now, The Capital Market Day will conclude around 3 p. M. With a closing remark by Roland Busch.
A few more housekeeping items. This event is webcast on our Investor Relations website. A recording of this webcast will be made available on the same website as soon as we have it. Now Allow me a word on handouts. Handouts are very important to us.
We will make the handout available prior to each relevant session. So for the 1st block of sessions, the CEO, CFO and ESG handout It's now available on our Investor Relations website. During the course of the day, in our speeches, We are not using the handout. We're actually using technology to visualize what we're talking about. So in that sense, The handout is complementary, and it has additional information and in-depth details.
Finally, I would like to draw your attention to the disclaimer and safe harbor statement on Page 2 of each of the handouts. Because right after the ESG session, we jump into Q and A For all our investors and analysts with a live link for direct participation, please be familiar with the dial in instructions So we're not losing any time. Now thank you so much for your patience. And with that, let's kick it off and over to Roland Busch.
Thank Good morning and a warm welcome to our Capital Market Day. I've been with the company for almost 30 years and the last 10 years on the Managing Board. During that time, I've experienced many market shifts from different perspectives. While working for different Siemens businesses with different countries. But nothing compares With the speed and scale of transformation that we are seeing in our markets right now.
Today, I want to tell you why This is of pivotal importance for Siemens and why Siemens is uniquely positioned to accelerate high value growth Because we are a focused technology company addressing highly attractive growth markets With our global footprint because we can empower our customers to master their Digital transformation and sustainability challenges with our technologies. Because we can combine the real and the digital worlds Like no other company can, because we are pursuing a clear focus On profit, cash, value creation, stringent capital allocation and execution. And finally, because we have the right strategy, the right team at the right time. Let's talk about our markets first. Digital transformation is imperative For our customers to achieve their level of growth and resilience.
And it has become a priority for companies of all sizes and in every industry. And this trend is being accelerated by the pandemic. Some companies are just getting started. Others Our more advanced, but overall, many of our markets have low levels of automation and digitalization, And the potential for their business is huge. A few examples.
Take industry. 60% of manufacturing tasks can be automated For infrastructure, digital technologies can unlock savings potentials of up to 20% in operations, Maintenance phase of buildings. This is where 80% of their life cycle costs Thank you. In transport, digital signaling technology can increase capacity by 20% Without having to build additional infrastructure for healthcare, AI and digital twin technologies can save people's lives And reduce stroke related costs worldwide by 50%. With our technologies, We are addressing the major challenges of our customers: productivity and efficiency, Quality and availability, flexibility and time to market and finally, resilience and sustainability.
Our customers are relying on us to help them transform. Let me share some examples. We are helping Mercedes Benz to transform their brownfield plant in Berlin into a digital sustainable factory. Smart infrastructure will help them to reduce the carbon footprint of their factory buildings. Digital industries will digitalize Their production processes.
And because digitalization requires new skills, Siemens Advanta will support them to upscale their workforce, too. The beauty of this project is that Mercedes only needs one partner, and it will serve as a blueprint for their 30 plants worldwide. We are supporting Norway to transform their entire rail infrastructure. Today, We have an analog system with 11,200 signals and 330 interlockings. We are replacing this with a digital system that uses 1 digital interlocking and a data center instead.
Together with our customer, we are creating the rail infrastructure of the future, which will enhance Safety, punctuality and capacity. In Germany, we helped BioNTech to ramp up Production of their COVID-nineteen vaccine. We converted an existing plant with digital and automation technologies. And in record time, just 5 months instead of 1 year. This allowed BioNTech To deliver vaccine doses much faster to the market.
We are also supporting GlaxoSmithKline with their digital transformation. With our digital twin technology, we help them to reduce development time for vaccines. World leaders recognize the importance of digital transformation and sustainability for their country's future. Many governments are prioritizing a digital green recovery in their stimulus program. This creates enormous opportunities for Siemens In the years ahead, our technology and our strong global footprint gives us A unique advantage to help countries transform their economies.
Today, I would like to focus on the United States and China, 2 of our biggest and fastest growing markets. The infrastructure plan of the United States includes investments to strengthen their industrial supply chains to ensure their position as technology leader and To decarbonize their economy, China has also prioritized building A digital and low carbon economy in their current 5 year plan. To become a high-tech leader, they are accelerating their Industrial Digital Transformation. And we want to become carbon neutral by 2,060, reaching peak emissions before 2,030. Siemens has a strong local presence in both countries that goes back over 150 years.
Today, in China, We have more than 60 manufacturing R and D and digital hubs and over 30,000 employees. In the United States, we also have more than 60 hubs and over 40,000 employees. Our long standing partnership with both countries means That we are well positioned to help them achieve
their goals.
The same can be said for Europe and other countries Where we see similar dynamics and where Siemens has a strong footprint too. With our technology portfolio, we can help countries to digitally transform manufacturing and infrastructure. And we have the technologies to enable a transition to a low carbon economy. Our technologies support customers to do more with less, to use fuel resources, To reuse the energy consumption to lower their carbon footprint. So let me share an example.
Our customer, TrackRabbit, Supplies, manufacturers of fast moving consumer goods with solutions for recyclable packaging. With our digital twin technology, they developed a new form of wrapping that reduces plastic by 70% And energy consumption by as much as 90%. So tech is great, but sometimes our customers also need Financing. Siemens Financial Services helped TrackRamp to implement an innovative Pay per wrap business model for their end customers. And of course, Siemens Financial Services also supports infrastructure projects, Like the new Thameslink commuter line, one of the largest rail projects in the UK.
Now I want to talk about How we are expanding our market opportunities. Siemens is focused on the industries That form the backbone of economies, manufacturing, infrastructure, transport and healthcare. These are highly attractive markets today and in the future. Our addressable markets For Smart Infrastructure, Digital Industries, Mobility and Siemens Health and Ears amount to approximately €440,000,000,000 with growth rates of 4% to 5%. I will tell you later how we are leveraging our domain know how and digital capabilities across all Siemens businesses To create high value growth and to reinvent these markets.
But our ambitions don't stop here. We want to grow our addressable market by entering adjacent markets that are worth about €120,000,000,000 And we have even more attractive growth rates. We are unlocking these markets through organic growth And targeted bolt on acquisitions such as Supplyframe. Our planned acquisition of Supplyframe will Speed up our digital marketplace strategy, and it will broaden our access to the growing market of small and medium sized companies. In the case of radiation oncology, Siemens Healthineers took a transformational step with Varian.
This acquisition creates an integrated oncology solution that is unmatched in the market. And most importantly, it will help advance the global battle against cancer. We are also leveraging our core competencies to grow in adjacent markets. For example, To tap into the growing demand for digital transformation services, we launched Siemens Advanta. They offer IoT consulting and integration services.
Beyond that, we are developing core technologies To drive breakthrough innovations in our markets. For example, AI, digital twin, 5 gs industrial edge, Hydrogen solutions, charging infrastructures and a lot more. These technologies will drive growth in the future. Let me highlight some of them. We are already number 1 in deploying industrial 5 gs manufacturing.
And in the future, we will bring 5 gs to infrastructure and transport systems too. Edge computing will enable real time decisions on the shop floor. Already today, We offer market leading solutions for industrial edge, and we can build on our installed base of 45,000,000 automation and drive devices. We know that the demand for climate friendly solutions will accelerate in the future. We are deploying drivetrains for hydrogen locomotives To help our rail customers reduce their carbon footprint.
In another attractive growth field, electric vehicles. Forecasts expect €130,000,000 on the road by 2,030. To make this a reality, we can provide the charging infrastructure. I mentioned earlier how we are supporting Mercedes Benz to digitalize their factory in Berlin. We are also partnering With their parent company, Daimler, to enable fleet operators to make the switch to electric mobility.
So let's hear From Ola Kallenius, CEO of Daimler.
I think we all agree the transformation is here. Change is happening, and that implies Customer expectations keep evolving. Top of the list are 2 requirements, go digital and go sustainable. Both go beyond what one country or one company alone can possibly pull off. And that's why partnerships are paramount across industries And disciplines.
The partnership between Siemens and Daimler isn't exactly new. We have been cooperating for more than 120 years. But looking ahead, this partnership will gain in importance as we work on some of the most fundamental transformations of our business. These include our new partnership in Berlin, where we plan to advance digital manufacturing and efficient automation in our car production Using more sustainable and more energy efficient production methods in our Mercedes Benz plants. Holistically, a cleaner, more sustainable energy supply across our entire operation aiming to reach 0 emissions And electric charging infrastructure for Daimler Trucks to achieve 0 emission trucking and transportation.
One thing is certain. Having Siemens as a partner at our side is an important asset to achieve Daimler's ambitious goals In becoming an even better, fully digital and holistically sustainable company.
We are proud to work with customers like Daimler Who are reinventing their industries. Our customers place great trust in us, And we have seen this in our excellent results for the first half of our fiscal year, and this is just The beginning. We will continue to grow above market rates in our addressable markets. We will enter adjacent markets, Which offer higher growth rates and profitability.
Altogether,
we are expanding our total addressable market to more than 5 €50,000,000,000 Now let me tell you about our growth strategy and how We intend to accelerate high value growth. Quite often, the capital market asks us for proof points showing that customers buy Software as well as automation solutions from us. It is a good question, but it doesn't go far enough. We can do much more than that. We can accelerate high value growth by creating additional value for our customers, Creating new business models, tearing down silos between the markets, expanding into new markets, Expanding our customer base.
And we can do this by combining the real and the digital worlds. This is the foundation of our growth strategy. Our core business and our digital business Reinforce each other in a virtual cycle. We will grow our core business by leveraging our digital capabilities. And in turn, we will grow our digital business by leveraging our core business and domain know how.
This will result in profitable revenue growth above market rates. So let me share some examples Of how we can grow our core business through our digital expertise. The Rheinro Express was built to ease congestion in Germany's largest metropolitan area. This is one of the biggest orders we have ever received For Regional Rail Transport in Germany. 82 trains, 32 years maintenance In a €1,700,000,000 contract.
So why did the customer choose Siemens over other suppliers? Because we can perform predictive service, we could guarantee 99.9% availability With lower CapEx requirements, that means our customers can provide a full service using Fewer trends. Our digital offering was a key differentiator to secure this order. And we can scale up. London's Piccadilly line is next.
Here we are delivering 94 trains And digital services in a contract worth €1,500,000,000 And there are further opportunities To supply more trains for the modernization program of London Underground. I talked earlier about how Digital transformation is imperative for all industries. We also helped the bottling company, Swire Coca Cola, to advance The digital transformation of their plants and unlock greater productivity. My colleague Cedric will tell you more about this partnership later. Let me talk now about how we are growing our digital business by leveraging our core business and domain know how.
Our remote service for buildings take a digital approach to building maintenance. We can monitor buildings anywhere in the world and identify potential issues as well as areas for optimization. This offers a compelling value proposition for building owners who need to reduce operating cost and energy consumption, Particularly for owners of commercial buildings, retail chains, business parks, university campuses And data centers. Take the example of Tampere University in Finland. Our digital services reduced The need for visual inspections by 70% and almost 60% of issues identified improve energy efficiency.
Their maintenance budget has gone down partly because they need fewer people on the ground. This digital service Brings greater benefits to our customers and recurring revenue for our business. Doing it virtually means that we can scale up easily, and it lowers our carbon footprint because our service technicians Can do their job remotely. The data we collect gives us new insights into our customer needs So that we can develop new products and services. Today, we are providing this service to almost 4,000 customers And with more than 100,000 buildings connected to our IT platform, there is further potential to expand.
We can also leverage our core businesses and our digital trends to develop new business models in areas of our business. We offer performance as a service in our building service businesses. Here, we guarantee energy performance. A bonus Malus is applied to over- and underperformance. Our joint venture, Calibrand Energy, offers Renewable Energy Solutions as an energy as a service to commercial and industrial customers in the United States who want to reduce Their carbon footprint.
In our industrial markets, we are enabling machinery customers to create new business models Such as offering their customers machine hours as a service. And Siemens Healthineers offers its Teamplay Digital Health Platform as a platform as a service to healthcare vendors to help them build And deploy digital solutions faster. And finally, software as a service, Where we want to bring innovation closer and much faster to our customers. Over the past years, We have built an unparalleled industrial software portfolio and invested more than €10,000,000,000 in software companies. We have added complementary capabilities to what was already a strong portfolio by acquiring LMS, Mentor Graphics and Mendix, just to name a few.
Today, our customers Are looking for greater flexibility and accessibility as well as new ways of working in a post COVID world. So I am pleased to announce that we will transition part of our industrial software business model to cloud based Software as a Service beginning fiscal year 2022. Customers, regardless Of size, our industry will benefit from fast innovation, effortless scalability and lower barrier to entry. For Siemens, it will open up new markets, especially small and medium sized companies. Ultimately, Our transition to SaaS will drive more resilient and more predictable revenue and profit growth.
And unlike pure play software competitors, our strong portfolio Will enable us to execute SaaS transition while keeping Digital Industries and Siemens AG Financial Target My colleagues, Cedric, Tony and Rudy will provide more details on this later. Overall, we have ambitious growth targets for our digital business. We expect to grow organically at around 10% CAGR over the cycle, starting from €5,300,000,000 in fiscal year 2020. Due to the SaaS transition, revenue conversion will ramp up more slowly in the 1st year And we'll accelerate after fiscal year 2023. So what makes us Unique in our ability to combine the real and the digital worlds.
It is our deep domain know how, Our leading technologies and our strong ecosystem. So let's take them 1 by 1. First, our domain know how. It is not enough to understand the IT world to develop the digital applications that optimize performance of industrial systems Or algorithms that enable predictive services, you need to understand how the equipment works And the environments they operate in. And you need to understand the challenges of our customers too.
That's why Despite fierce competition, we were able to win the Rhein Ruhr Express Rail contract. We know how to build and service trends. We know how to automate manufacturing systems. We know how to design and operate grids and service buildings. 2nd, technology.
Siemens creates technology with purpose, Technology that makes factories more flexible, buildings and grids more efficient, transport more reliable and healthcare better. Today, we offer a leading technology portfolio of software and automation solutions And a competitive IoT platform. We are number 1 in factory automation, grid automation and rail automation. We are number 1 in industrial software. Technology is a key area where we leverage the power of Siemens.
We focus our R and D efforts on the technology fields That are essential for our customers and our businesses. Technologies like Data Analytics and AI, Digital Twin, Additive Manufacturing, 5 gs, Industrial Edge, IoT and Cybersecurity, Among others, and we call them company core technologies because These technologies are relevant for all our businesses. Let's take our digital twin software, which is widely used in industrial markets. We can apply our digital twin technologies to benefit customers in other industries such as transport, buildings and grids. For example, we recently implemented a digital twin for our customer, American Electric Power, to help them simplify grid planning.
Matthias will tell you more about this later. To develop new innovative technologies, we have more than 40,000 employees In digital jobs across all functions, 12,000 of them are industrial software engineers And over 1,000 are AI experts. In 2020, we increased Our R and D spend and invested €4,600,000,000 around 50% of this was related to IoT and software. 3rd, our ecosystem. Siemens has a strong ecosystem, And we are continuously expanding it.
We collaborate with partners around the world from developers to startups To big tech companies and research institutes, for our partners, our ecosystem opens The door to large established markets in industry, infrastructure, transport and healthcare. And this It's truly unique. For Siemens, it means that all our businesses Can bring innovations faster to the market. Through Next47, we leverage the potential of the start up ecosystem to accelerate The development of new technologies and business models. To create even more value for our customers, we are deepening our collaboration with partners.
One example is our partnership with SAP to develop a single digital thread To accelerate industrial transformation, let's hear from Christian Klein, CEO of SAP.
Siemens and SAP We'll provide an end to end solution connecting the shop floor in the digital factory to the intelligent business processes in the ERP. I'm very proud together, we can offer a standard and scalable Industry 4.0 solution for our customers. With this end to end solution, teams across the business Can efficiently work together to design and deliver innovative products productively, profitably and sustainably. Our partners are important to us because the stronger our ecosystem is,
the more everyone benefits. Digitalization and sustainability are growth engines for our business. We are seeing the increasing demand for both Digital and Automation Solutions. And we are anticipating increasing demand in sustainability solutions. Governments around the world have allocated an estimated €11,000,000,000,000 in stimulus programs.
Many of them include measures that will drive demand for digital and climate friendly technologies in our markets. Our global footprint will allow us to contribute and benefit from many of these programs. Sustainability has been a priority for Siemens for years. It is embedded in our strategy, Our technology development and our operations. Back in 2015, for example, we were one of the first industrial companies To commit to net 0 by 2,030.
Today, we are expanding our commitments to sustainability by launching our degree Framework. It takes a 360 degree approach to environmental, social and governance issues. And the name Degree underlies our contribution to limit global warming. We will now reduce carbon emissions From our supply chain as well as our own operations. And we will invest more into training and education for our employees.
Renve, our employees can acquire the skills they need to adapt to the changes of the market. This means we expect a reduced new normal for severance in the range of €100,000,000 to €200,000,000 per annum. My colleague, Judith, who is also our Chief Sustainability Officer, will tell you more about Decree later. Siemens is now a focused technology company. We feel very confident That we can achieve comparable annual revenue growth of 5% to 7% over this cycle.
This is Significantly above the projected market dynamic and above the revenue growth ranges we targeted at our Capital Market Day In 2019, so far, I talked a lot about how we want to grow in highly attractive markets. Now, What is our ambition in terms of performance? We are fully committed to translating these opportunities Into accelerated value creation for our shareholders and all our stakeholders. We will focus on high value growth. Hence, We are upgrading profit margin levels for smart infrastructure and mobility.
And consequently, We will strive to grow earnings per share consistently by high single digit percentages Year over year. As we have shown over several quarters, our enhanced focus Our free cash flow is paying off. We are now adding a cash flow conversion target On Siemens Group level, free cash flow is the fuel for shareholder return. Siemens has been a very reliable dividend payer for decades, and we formalize this now by striving for progressive Dividends going forward. Additionally, we are announcing today our follow on share buyback program Until 2026.
I have talked a lot about what targets we want to achieve, And Ralf will give you more details shortly. Now let me highlight how we want to further improve performance. 1 of the guiding principles for our leadership team is accountability. We do what we say. We focus on execution to constantly improve competitiveness By simplifying our setup and processes, by delivering on previously communicated cost measures for lean and effective governance And by increasing speed through internal digitalization and better resource efficiency.
We will measure our progress, make it more transparent. We will report on how our resilient And recurring business is growing. We will give you more details on below the line items and how we improve their impact on the bottom line. And we will develop and execute strategic options for our portfolio companies. In a nutshell, we will rigorously drive profitable growth and deliver on our self help potential.
Of course, Compliance is an indispensable requirement in this process. Finally, we will accelerate Our clock speed, moving faster, being more dynamic and agile by empowering people, streamlining decision making and Incentivizing our sales force for high value growth. Today, I've talked About how Siemens is uniquely positioned to grow, but what drives us, all 290,000 of our employees to succeed. Everything we do at Siemens is about creating impact for our customers. We want to anticipate what our customers need almost before they need it.
We satisfy their needs by building technologies with purpose, technologies that help our customers solve their challenges To do more with less. I talked about the transformation that is taking place in our markets. We will empower our people to take faster decisions and to be more entrepreneurial. And we will always have a growth mindset. We will continue to experiment and adapt.
We will continue to grow and learn By investing in education and training,
these are
our strategic priorities, and they are Our roadmap for long term sustainable success. Together with the Managing Board team, I'm proud To lead this company to a new era of sustainable growth and innovation. Our team is well positioned to execute on our strategy. Ralf has played an instrumental role in steering our company's transformation. He has built Siemens financial strength It will ensure a solid foundation for further growth and rigorous value creation.
Judith, with more than 2 decades of experience in driving strategic change We'll elevate empowerment, harness the potential of our employees and accelerate our sustainability approach. Cedric, with his diverse background, tech experience and enthusiasm For change, we'll continue to drive digital transformation at Siemens and for our customers. Matthias, with his In-depth understanding of customer needs knows where the opportunities are to promote digitalization and sustainability. And finally, with my own knowledge in technology and business transformation and my experience with markets and challenges We, the management board team, are well positioned to execute on our strategy. I'm confident The deal achieved comparable annual revenue growth of 5% to 7% over the cycle.
And here is why. Because we are a focused technology company, Addressing highly attractive growth markets with our global footprint because we can empower our customers To master their digital transformation and sustainability challenges with our technologies because We can combine the real and the digital worlds like no other company can Because we are pursuing a clear focus on profit, cash, value creation, stringent capital allocation And execution. And finally, because we have the right strategy, The right team at the right time. With that, Over to Ralf, who will tell you about the numbers behind the strategy. Thank you very much.
Thank you, Roland. It's my pleasure to add what Accelerating high value growth means from my CFO perspective. We've perfectly positioned our company over the past few years For precisely this purpose, and since our last CMD, Siemens has lived up to its commitments and will continue to do so. We improved our competitiveness in all businesses. We executed the Siemens Energy spin off successfully in record breaking time.
And with the transformative Varian acquisition, Siemens Healthineers is executing its upgrading strategy. As our stock performance indicates, the capital market greatly appreciates our transformation. Thanks to joint efforts Of the entire management team, we have achieved a step change in our business profile. As a focused technology company, We have derisked our business profile. Our project and solution businesses now account for a smaller portion of our overall portfolio.
We now have a sharper focus on our highly profitable product, service and software business. This enhancement It's improving our profitability level from a structural perspective. As a result, our gross margin has increased significantly, reaching 30 5% in fiscal 2020 without Siemens Energy. Now more than ever, Siemens stands for reliable And consistent execution, thanks in part to a strong share of resilient revenue. Each business It's operating in highly attractive end markets that feature tremendous growth potential driven by secular growth trends.
We can now build on this platform to further accelerate value creation. And let's not forget, Roland has been driving this strategic transformation for quite some time now, including the work he did in his prior roles as our former Chief Operating Officer and Deputy CEO. On our path to accelerated value creation, we are highly committed to certain key priorities that I will be focusing on during my presentation. 1st and foremost, It's all about stringent capital allocation. Thanks to a great team with exceptional expertise and experience, We have a success story to tell in this regard.
We have made targeted investments in R and D and M and A such as Mentor acquisition And have provided a strong shareholder return. This combination has created substantial value over the past few years. And we will continue to build on this story by striking the best possible balance between investments and shareholder returns. Stringent capital allocation will enable us to grow even faster, while keeping a sharp eye on profitability. In addition, the entire team is strongly committed to driving cash generation and conversion to even higher levels.
A very valuable success factor for achieving all these goals is our strong investment grade rating, which gives us access to financing options At highly attractive terms and conditions, I also want to touch upon our management approach on how We want to go about doing this. 1st, execution continues to be at the center of attention for the entire team. Discipline, dedication and diligence have been paving the road to reinventing this company. Now the same qualities will enable us To reach new levels of value creation. 2nd, enhanced transparency will give you, as investors, More data points to work with.
And last but not least, compliance is an indispensable requirement for our sustainable success, And I never tire of stressing this necessity. In our new chapter as a focused technology company, innovation is vital, And we have been driving our technology leadership through stringent capital allocation. Over the past 5 years, We have invested EUR 22,000,000,000 in R and D. These investments have resulted in an R and D intensity Calculated as a percentage of revenue of 8%, well above our main competitors who have 5% on average. We made these investments in highly attractive growth areas.
As Roland has already outlined with numerous examples, We spent half of our R and D expenses on strengthening our digital portfolio. A look at digital industries illustrates this point. Here, we invested more than 13% of our fiscal 2020 revenue in R and D. These investments have Created a leading digital enterprise offering that is unmatched on the market. And we continue to invest into And IoT.
As a focused technology company, our targeted investments in digitalization We'll drive profitable growth to even higher levels in the future. That's why we have committed ourselves to even more ambitious targets As of fiscal 2022, before we discuss the financial framework as a whole, let's have a look at our business aspirations. They form the foundation for our KPIs at the group level. We will start with our targets for comparable annual revenue growth Over the complete cycle of 3 to 5 years, Digital Industries' leading automation and software Polio put this business into an ideal position to grow 5% to 7%. TI will expand On its huge existing customer base and win customers in new verticals and emerging markets.
Smart infrastructure is expected to grow 4% to 6% with a strong product and solution offering accompanied by resilient service. Mobility has a proven long term track record of growing faster than the market. This business is expected to accelerate growth To a CAGR of 5% to 8%, benefiting from decarbonization and stimulus programs around the globe. Moving on to the margin target ranges. We are keeping Digital Industries target margin range stable at 17% to 23%.
Why? Digital Industries will commence a business model transition for the biggest part of its software portfolio. It will shift from perpetual licenses to subscription with cloud based software as a service or SaaS as people call it. Now is the right time to take this important step because our customers are asking us for SaaS offerings. Cedric, Rudy and Tony will elaborate on this extremely relevant part of our continuing transformation journey.
They will provide details on the required investment as well as on the accounting impact of shifting from upfront To ratable revenue recognition. But let me point out that maintaining our margin range despite These effects is clear proof of our confidence in the strength of this business. And as you will see, The SaaS transition does not affect our ambitions at the level of Siemens Group either, nor will it harm our capabilities to deliver strong And constant free cash flow. Our profit as base stations for smart infrastructure and mobility are becoming more ambitious. They are both Lifting their profit margin band by 1 percentage point each.
For Siemens Healthineers, the profit margin band of 17% to 21% And the revenue growth rate of greater than 5% reflects Siemens' expectations as a majority shareholder. Our businesses' ambitious growth targets are also reflected in our growth ambition at the global Siemens level. Our targets here clearly Take our expectations to a new level. We are committing ourselves to a 5% to 7% corridor Of comparable revenue growth over the cycle. The previous target was 4% to 5%.
Accelerating revenue growth at the company level with Out sacrificing profitability is, in fact, one of the key enhancements within this framework. What else is new? We will give you more transparency and clarity on what we are striving to achieve over the cycle of 3 to 5 years. Vision 2020 plus has been building the foundation, and of course, we will still honor our commitments from it. However, our new chapter As a focused technology company comes with new ambitions for high value growth.
Let's have a look at the upper half of the framework Where you will find all targets on the Siemens Group level. To put these targets into perspective, we will look at the period since fiscal 2018. Our new high value growth ambition will translate into an even larger increase in EPS. We have a very ambitious midterm earnings growth target of high single digit growth. This target means That earnings will grow much stronger than revenue.
In our strategy review, we identified clear levers to accomplish these ambitious targets. Hence, we are very confident to achieve them in our new setup. There's one important thing to note in this context. Amortization of intangible assets acquired in business combinations are as a non cash item excluded from our EPS KPI. This change is in line with common practice in the market.
We want to put cash earnings and our operational performance at the center of attention. After our excellent performance in the first half year, we are well on track to achieve a significant increase in fiscal 2021. This leads me directly to our target for capital efficiency. The 15% to 20% corridor remains valid, And we aspire to approach it by fiscal 'twenty three. Profitable growth, execution on cost measures and stringent working capital management Are the main drivers of our capital efficiency.
On this basis, we are confidently sticking to this corridor and anticipate A gradual improvement from current levels. Here, we also want to give you clear review of our operating performance With regard to ROCE, therefore, this KPI is adjusted for Varian related M and A effects. The transformative Varian acquisition is a centerpiece of capital allocation for Siemens Healthineers. To be fully accountable and transparent To our shareholders, on the operating performance of Siemens AG, we have decided to report ROCE without Those vary in M and A accounting effects, which will be fully transparent to you, of course. As part of our Extrinsent capital allocation, we continue to monitor each M and A transaction closely based on specific criteria.
Obviously, return on invested capital has to be higher than our weighted average cost of capital. We continue to ensure that M and A transactions will have Positive EPS effects pre PPA. As a general rule, these transactions are to be EPS accretive ex PPA in the 2nd year after closing. Of course, we will closely track integration costs, synergy, integration milestones, And we will share specific information with you for each and every transaction individually. When it comes to capital structure, I can assure you that we are highly committed to our strong investment grade rating And to securing our entrepreneurial flexibility.
We are raising our target for industrial net debt over EBITDA To a more appropriate 1.5 times. This increase mainly reflects a technical adjustment from IFRS 16 lease accounting And has been discussed with our rating agencies. We are highly committed to further deleveraging, and we aspire to approach our target corridor By the end of fiscal 2022, you will notice that one of the main updates in our financial framework It's about cash. We are extremely reinforcing our commitment to cash by setting a new cash conversion target To the group level, changing to a more comprehensive perspective from industrial businesses to group level Reflects our new setup as one focused company. It also stands for more accountability.
As a result, It enables a holistic perspective on income that is converted into cash and it reflects the commitment Of the Managing Board and the entire senior management team to not allow cash drains below the line. With our new, more focused portfolio converting much better, we are striving for a cash conversion rate greater than 1 minuteus comparable revenue growth Over the cycle at the group level, on top of that, our focus on cash and transparency manifests itself In our commitment to a cash conversion rate greater than 1 minuteus comparable revenue growth for each of our businesses, too. As you can see, the new Siemens AG is highly focused and confident about cash. The entire management team is Strongly committed to building on what we've achieved so far in this area and is incentivized to do so. Now let's look at the long term history Of Siemens' dividend payments.
It's evident that we have continuously increased our dividends since the late '80s. The one and only exception was merely a technical adjustment for the energy spin off in fiscal 2020. Therefore, We are clearly dedicated to maintaining a progressive dividend policy, and we are committing to such a policy in our new financial framework. You may have noticed that the global target range for the overall margin of our industrial businesses is no longer included In this corporate part of the framework, the reason is that margin targets for each and every individual business are more meaningful and provide Better transparency. Nevertheless, we remain committed to our previously announced target of a 14% to 18% corridor On industrial business level, at the business level of our new framework, our simplification and transparency measures continue.
On that note, we are switching from adjusted EBITA to profit to underline the reference to revenue. This also prevents any misunderstandings. In addition to this transition, we will change our profit definition as of fiscal 'twenty two. We are removing the metric financial income from our profit and operating business. It did not have material impact after the energy spend anyway.
Hence, our profit definition reflects a very crisp and clean operational perspective on our business' performance. I have already highlighted our profit expectations for digital industry, smart infrastructure, mobility and Siemens Healthineers. As you can see here, we have adjusted the profit margin band for Siemens Financial Services to 15% to 20%. Ultimately, this is a consequence of the spin off of Siemens Energy. We are deliberately derisking SFS' business profile To tailor it more closely to our core activities.
As I will explain later, SFS It's a business enabler for Siemens with a deep domain know how and close proximity to the businesses. It generates an impressive return on equity It has been clearly above its market peers for many years. Now let's move on to an entirely new section of our framework. A large portion of our business is already recurring, and we will increase transparency and specific resilience performance indicators In each business, beginning with fiscal 2022, DI Software will measure its successful SaaS transition With an industry typical annual recurring revenue metric, the so called ARR, the goal is To achieve a CAGR higher than 10% until 2025. Service is a major portion in SI's business and has attractive margins.
We aim to grow service revenues 6% to 9% per annum. In addition, high margin service is also becoming more and more important In our long cycle mobility business, one leading indicator here is continuing growth in service backlog. We aim to exceed a CAGR of 8% in this area. Providing you with information on these resilience KPIs will further increase visibility of how Our businesses are performing longer term. All in all, our financial framework provides clear evidence On a very important key point, our commitment to execution and transparency and to driving operational performance And cash generation.
These are the standards by which we want to be measured on our way to value creation. Now let's change gears for a moment to address a topic that I often get asked about. Siemens Healthineers' Transformative acquisition of Varian is also set to generate clear value. This move It's enabling a unique combination of diagnosis and therapy that significantly increases Siemens Healthineers relevance in the global healthcare market. Closing the transaction immediately enhanced the company's growth profile, and Siemens Healthineers expects The very tangible cost and revenue synergies to exceed €300,000,000 per year in fiscal 2025.
This step impressively demonstrates that our strategy of giving this business greater entrepreneurial independence is working. Our approach gave Siemens Healthineers the opportunity to finance this major deal efficiently by raising equity Through its own access to the capital market, it also benefited at arm's length, of course, from the very favorable debt financing conditions that Siemens AG can obtain. One key aspect for Siemens AG is that the Varian acquisition will be accretive to profitable revenue growth. In the short term, acquisition related costs will affect our net income. In addition, the capital increase at Siemens Healthineers Has reduced Siemens' shareholding to 75%, as you know.
Once again, I would like to emphasize That we are committed to remaining a long term majority shareholder. We are looking forward To attractive innovation driven growth, and this growth will be accompanied by sector leading margins That offer further upside potential. Siemens Healthineers will be realizing this potential As it continues to execute the upgrading phase of its Strategy 2025. Healthineers It's also expanding its portfolio into adjacent growth markets. The Varian and Corindus acquisitions are clear examples here.
In addition, its performance is highly resilient, thanks to recurring service and reagent revenues, Regional diversification and long term innovation partnerships with customers. As Roland pointed out, Siemens Healthineers is part of the Siemens core and an important asset on the clear path of further value creation. As I mentioned, we remain committed to our goals targeting fiscal 'twenty three As presented at the last Capital Market Day, and our competitiveness programs are fully on track. We have been very transparent On the measures and we'll continue to do so going forward. We are executing these custom productivity measures very stringently.
We are also continuously looking for additional potential. As a result, we have been increasing and accelerating our measures to drive Margin expansion. Compared to the figures we announced with our Q4 fiscal 2020 results, Smart infrastructure has lifted its target for fiscal 'twenty three again by €20,000,000 to €390,000,000 Global Business Services, or GBS, expects to achieve €95,000,000 by the end of fiscal 2021, A notch above our original target. Furthermore, I am pleased to report that our corporate program is making very solid progress too. €60,000,000 in productivity savings will be achieved ahead of schedule in fiscal 2021 already.
By then, we plan to have reached €330,000,000 in total. These cost measures For lean and effective governance are being executed throughout our entire organization. Around half of the savings We'll be benefiting the businesses directly through improved IT costs, for example. This includes reinvesting Some of the funds in areas such as implementing new ways of working. Very important here, we want to lower The level of expensive restructuring programs and related frictions in the future.
We will continuously shape our footprint and Optimize processes more proactively and in a timely manner. A key lever will be enhanced investments in digitalization and in Training and reskilling accordingly. Judith will explain our approach here in more detail. By adjusting With greater agility, we now expect a new normal for severance for the company in the range of €100,000,000 to €200,000,000 per annum. We also want to boost transparency and give you further insight into what is happening below our industrial businesses or below the line, As we like to say, we are pursuing the long term goal of reducing and streamlining these items.
So what exactly is happening below the line? Certainly, far more than just governance costs. Various below the line businesses that have full P and L responsibility are key items here. As you know, These businesses deliver solid profits in total. However, an impairment of our Valeo Siemens Equity Investment impacted Profitability strongly in fiscal 2020, and we have been reporting on this very explicitly.
I'll return to Siemens Financial Services And our portfolio companies in a bit. At this point, I would like to emphasize that we will continue stringent execution Of our POC concept and no further businesses will be transferred to this unit. As you know, Siemens Real Estate is a steady contributor. Siemens Energy is making solid progress As a successful independent company, as its inclusion in the DAX 30 clearly shows, Our plan has been to lower our equity investment in Siemens Energy within 12 to 18 months after listing, and we remain Fully committed to this plan. We already disclosed separate figures for the businesses I just mentioned.
But let's turn now to our current corporate items, where we want to give you more transparency than we have in the past. There are 2 P and L businesses that have only minor profit impact to date. Our Global Business Services, Which helps its customers integrate, digitalize and optimize business processes in areas ranging from payments And HR to engineering. Only a small portion of its business, GBS, provides 3rd party services as well. And then at Vanta, a growing IoT consulting and software development business in the ramp up phase.
It has around 8,000 employees We are also driving a lot of internal development and digitalization projects for our businesses. Our current corporate items also include very powerful innovation activities with future valuation impact. Roland has already discussed them today. Here, I'm referring to the operational cost of Next47. As our global venture capital unit, Next47 gives us insights into work to allocate capital in new technologies.
In addition, we expect the start up activities that we are driving through Next47 to have a long term positive impact As they mature, as we have seen recently with the successful listing of CharterPoint, another important pillar is our company wide technology unit. There you will find activities ranging from innovation management and intellectual property to application oriented project with universities. Above all, this is home to substantial and high caliber R and D activities in company core technologies To provide support across all businesses with breakthrough innovations. Our bright colleagues there Are very instrumental in driving medium term growth that will have a major impact on our future USPs as a leading technology company. Our central technology unit also includes our overarching IoT platform activities.
These activities will play a central role As we continue our company's transformation and enable our customers to benefit from the digital transformation. Overall, The operating expenses for these long range innovation related investments amounted to €224,000,000 in fiscal 2020. There will be around €200,000,000 in the years going forward. At our last CMG back in 2019, We talked a lot about our cost efficiency efforts in corporate governance for functions such as finance, human resources and IT. In the meantime, we have significantly boosted efficiency and implemented measures for achieving a leaner structure as we saw earlier.
On the way forward, We will facilitate our company's ambitious growth plan with a stable level of existing resources. We will also continue compensate for higher wages with achieving continuous productivity improvements. Our long term commitment in this area is truly very ambitious. By fiscal 'twenty six, at the latest, We want our corporate governance to be fully financed through the brand fees. Last But important, we also have legacy topics in corporate items.
They include miscellaneous topics in part going back for decades, Such as an asset retirement obligation in Hanau, Germany or our participation in the old Kyoto III project in Finland, We will be cleaning up these legacy items for good and will be fully transparent with regard to their impact. There are 3 other positions below IB worth being mentioned here: pensions, which need no explanation at this point Financing, which includes our corporate treasury activities and related interests, the activities included here A very important part of running Siemens effectively from a financing perspective. This item also contains consolidation And elimination items. And lastly, an item for PPA recognizing amortization of assets In connection with purchase price allocations from acquisitions across our businesses, since we already include these PPA aspects in our current reporting very transparently, I won't go into more detail here. As indicated before, let's now return to Siemens Financial Services.
Our future reporting on SFS will offer additional details. You will see the debt and equity business split and many more details On its portfolio diversification from an industry and regional perspective, as already disclosed, SFS Is seeing a significant but not yet full recovery in its profitability in fiscal 2021. Support here is mainly coming from robust performance in its debt business. I already mentioned SFS is in the middle of a derisking process that led to a decrease in total assets for its Equity business In the first half of fiscal 'twenty one, SFS is tightly aligned with those industries that the core of the new focus Siemens AG is serving. It is prioritizing capital allocation to this very core.
SFS will maintain A high level of diversification and a strong regional footprint in countries that have an investment grade rating. But SFS is more than just a profitable business in itself. It adds value well beyond The mere cost or availability of financing. SFS has a strong long term track record of successfully supporting our industrial businesses Through its profound in house expertise, its team has accumulated the necessary domain know how over decades. About 1700 of the more than 2,800 SFS employees are financing specialists, In particular, in the areas of origination and underwriting and as well in risk management.
As a result, SFS Has a far better understanding of our end markets and our businesses than any external provider of financial services could ever have. SFS serves as a highly reliable and professional partner for all of Siemens. And in its role as our captive financing arm, SFS has consistently outperformed its competitors Since 2017, across all its product lines, looking ahead, SFS will move beyond its current role in captive financing. It will take on an increasingly important role as a key integrator within the Siemens ecosystem. We have already heard about Some examples from Roland and more will follow in the business presentations.
SFS will actively help generate value based on 4 Success factors. 1st, SFS has profound domain know how and is closer to our operations than banks are. Having the ability to get involved at an early stage of the sales process opens doors. It also provides SFS With more insight when it comes to assessing the risk profile of a project or a business model. 2nd, SFS It's a highly experienced team.
About half of the people who work there have been at Siemens for more than 7 years. This long tenure It's significantly higher than the industry average. 3rd, as I touched on earlier, SFS strongly diversified portfolio results in lower risk For allocated capital, mitigating this risk in this way can help Siemens businesses move into new asset classes And innovative business models. And 4th and finally, SFS has strong sustainability DNA and a large sustainability footprint. About 90% of the SFS portfolio has favorable ESG scores based on Standard and Poor's classification.
SFS enables infrastructure projects and technology that help meet our important targets in this area. Overall, SFS is fostering accelerated value creation for Siemens with an increased focus on a joint go to market. It can also proactively help to co develop innovative new digital business models Such as energy as a service, more flexible pay per use and integrated pay for outcome models. So in our view, SFS offers a compelling value proposition for our customers, our businesses and even for our planet. At our portfolio companies, we are continuing our active portfolio management.
The Apretax gain of approximately €900,000,000 after it closed in the Q2 of fiscal 2021 For a purchase price of €2,000,000,000 this success has proven the effectiveness of taking a kind of a private equity approach to value creation for these companies. At our remaining fully owned portfolio companies, We continue to execute our plans for enabling these businesses to reach their full potential. We are focusing on stringent execution In the industry specific setup, as we reduce costs, enhance operational excellence, drive scale effects And here the company's TORR growth fields. In line with our existing commitments, we are targeting a profit margin above 5% By fiscal 'twenty two for these units. Our portfolio companies also include our equity investment in Valeo Siemens E Automotive.
Here, our ongoing transformation program and ramp up investments will continue. We have been putting all these companies On a strong operational foundation and are now actively pursuing strategic options for their future following the concept of best ownership. As I said at the beginning, it's all about capital allocation. We can only optimize value If we strike the right balance between targeted investments and shareholder return. To do this, we base all our investment decisions On our strategic imperatives, you have known 5 of them very well for years, and we would like Introduce to you one important new addition, which is sustainability impact.
Since Judith We'll be talking about this topic in-depth right after my presentation. I will just say this. In line With our new ESG ambitions, we will also be placing an even sharper focus on ESG when it comes to capital allocation. Sustainability considerations are incorporated into all decision making and portfolio shaping processes Such as M and A investments, customer project approvals or supplier evaluations. And We are drinking our own champagne by using digitalization and automation to further improve the resource efficiency Of our own value chains, Cedric will elaborate on this topic extensively later on.
Looking at the facts, I think we have quite a success story to tell with regard to capital allocation over the last years. Let me point out a few highlights. At the beginning, I stressed the importance of organic investments in R and D to drive technological leadership and superior growth. Through our CapEx allocations, we have been moving our footprint closer to growing end markets And key customers, over the last few years, we significantly upgraded and strengthened our existing manufacturing base Through automation and digitalization, in addition, we targeted investments towards growth markets of the future. For example, in digital industries, we have ramped up and expanded our factory in Chengdu, China, which is now generating 2 thirds Of the output volume of our world class site in Amberg, Germany.
In the field of acquisitions, We have put together a string of pearls. We have acquired software companies that are not only successful on their own, but jointly Complete the Siemens offering in a way that covers the entire lifecycle of our customer industries. Together, They put us in a unique position to help our customers combine the real and digital worlds in a way that delivers tangible benefits. Here, we are talking about companies like Mentor Graphics and Bendix. And I'm also thinking about the recently announced supply frame Acquisition.
Roland already explained its strategic relevance for the entire industrial portfolio of Siemens. As I said earlier, we have a strong focus on attractive and sustainable shareholder returns. Over the last 5 years, We allocated a total of around €21,000,000,000 to our shareholders via dividends and share buybacks. These returns are reliable even in exceptional times marked by ongoing uncertainties due to COVID-nineteen And Amit, historic changes in the structure of the entire company, such as the spin off of Siemens Energy. Over the past decade, we achieved a clear growth trend in our dividends with a CAGR of 7% since 2,009.
The average dividend yield was 3.3% over this period, very attractive compared to peers. The second pillar Of our shareholder return is our share buyback program. As part of our current program, we've already realized €2,400,000,000 of the overall amount of up to €3,000,000,000 We use a large portion of these shares To meet the ongoing demand from our employee share programs. And I'm happy to announce today another long term share buyback Programme of up to €3,000,000,000 starting in fiscal 2022 and running until 2026. These two pillars of shareholder return Have been combined with excellent share performance since our last CMG in May 2019, underscoring impressively The ongoing rerating of the Siemens shares.
The capital markets have clearly acknowledged our achievements in terms Of our consistent operational performance and our new strategic direction. As a result, Siemens has been able to provide Total shareholder return since our last CMD in May 'nineteen, and we are determined to accelerate value creation even further. Let me conclude with our top priorities for achieving this goal. 1st, as in the past, We are making targeted investments in line with our strategic imperatives, including sustainability. At the same time, We continue offering our shareholders attractive and reliable returns.
2nd, we are growing our company profitably. To do this, we are leveraging our powerful innovation capabilities and continuing our transformation. 3rd, Our entire organization is geared towards strong cash generation. And 4th, we all continue To put a strong focus on execution, transparency and compliance, which will boost our competitiveness even further. Roland, Myself and the entire management team are fully committed to accelerating value creation at Siemens.
And now I am happy to hand over to Judith, our Chief Sustainability and HR Officer, To show you exactly what role sustainability plays on our path to high value growth.
Thank you, Ralph. It is my great pleasure to spend my first Capital Market Day for Siemens speaking about sustainability, a topic that we are very much committed to and that's very close to my heart. And in my role as Chief Sustainability Officer, I am proud to share our approach with you. We're outlining our sustainability story here at Capital Market Day because that's How seriously we take it. For every part of the world that Siemens has an impact on, our customers, our suppliers, Our communities, the governments with which we work, our shareholders or ourselves, We see sustainability as an integral part of our business.
In my presentation, I will focus on 3 things: Our strong track record in sustainability. Sustainability is embedded in our portfolio, Our operations, our governance, in other words, it's in our very DNA. Secondly, our belief that sustainability is great business. Siemens Technology and Innovation Create opportunities and help our customers achieve their sustainability goals for a better future And third, the launch of our ambitious sustainability framework, degree. Like all businesses, we want to measure how well we're doing.
So we are laying out specific targets In our degree framework, let me start by underlining that Siemens has an enviable track record in ESG For all our stakeholders, we have set ourselves ambitious targets, and we have achieved them. First, I'd like to address our commitment to net 0. Back in 2015, we were one of the first industrial companies to commit to net 0 by 2,030. And we have already more than halved our CO2 emissions since. We are using our own technology to decarbonize.
In Vienna, Milan, Midrand, South Africa, we have installed microgrids, Helping us use more renewables at our own sites, become more flexible and save energy. Our production sites in Amberg, Germany and Chengdu, China have been named World Economic Forum's Lighthouse Factories. We have a clear ESG governance framework in place, overseen by our Sustainability Board That represents businesses, key functions and regions and that I chair. We have also integrated ESG components In our long term incentive scheme, we keep track of our impact. For years now, we have used our business to society approach to quantify our impact both from business with our customers and our own operations.
So we're not just telling you a nice story. We're showing you results. In 2019, for instance, We contributed to the creation of €280,000,000,000 GDP all around the world. And last year, our customers saved 150,000,000 tonnes of CO2 using our products. When it comes to education and training, we invested more than €250,000,000 last year in Our People.
We used our own knowledge of digital to shift learning largely to the digital world. So to date, we have about 100 1,000 digital learning assets available. Our sustainability performance is also well recognized By external ratings and rankings, we are proud of our results, and at the same time, we are inspired To do more, our expectations are increasing, and so are the expectations of our customers. And we see clear opportunity for Siemens. So let's look at our customer impact in more detail.
With our technology and innovation, we are operating in fields that are naturally helping our customers achieve their sustainability goals. Our experts are involved in customer projects on a daily basis to provide their sustainability expertise and experience. Through digitalization and automation, we are transforming critical areas such as the future of industrial operations, building and grid infrastructure and mobility. This leads, among other benefits, to greater resource and energy efficiency, circularity And decarbonization, Siemens is in a unique position to support our customers in all these dimensions. Let me share examples from our customers and the sustainability impact that we're achieving together.
1st, Let's take an example from the automotive industry. Mercedes Benz and Siemens are expanding their cooperation, Advancing digitalization in the field of engineering and sustainable production methods. This will support Mercedes Benz In meeting the challenge of building CO2 neutral factories while also becoming more flexible in responding to changing market demands And integrating information and operational technology in a new work environment. Simplified software development with local platforms such as our Mendix will enable the re- and upskilling of white and blue collar workers with future proof skills and competencies. So overall, The Mercedes Benz Digital Factory Campus in Berlin is intended to serve as a blueprint for all Mercedes Benz plants.
And Cedric, of course, will share more on this. Our microgrid systems are helping many customers around the world To decarbonize and become more energy efficient. For instance, in the Azores Archipelago, Our autonomous battery based energy storage system and microgrid are enabling the share of renewables increased to 60% while reducing CO2 emissions by more than 3,500 tonnes. This is in addition to increasing grid stability and resilience. Amatias will talk more about the additional leversmartinfrastructure can offer.
Another example are our battery powered commuter trains from Siemens Mobility. The Mireo is the new eco friendly and economical regional and commuter train from Siemens Mobility, Which recently won the German Sustainability Award for Design. With the Nireo Plus battery trains, we provide Locally emission free passenger transports, for example, for the state office for railway vehicles in Baden Wurttemberg In Germany, operating with or without overhead power lines. We can achieve 25% energy savings compared to Previous models throughout operations. And on top of this, we are able to recycle 95% of the product at the end of the life cycle.
Michael will share further details later about our new trains with alternative Propulsion Technologies. These examples underscore our exceptional position as a technology company. With our innovation and expertise, we offer solutions to our customers all around the world to overcome their sustainability challenges. And we will continue to seize the business opportunity. We are proud of what we have achieved so far.
And as we have just outlined, we want to achieve more. To do this, we must address ESG internally and externally, making it more tangible, memorable and easy to operationalize. This It's why we are launching the degree framework today. I am very proud to announce this comprehensive framework That will guide us in the way we do business all around the world with specific targets in each of the areas we want to drive. And it offers, to my mind, a very high level of ambition on where we want to go.
Degree highlights The need to limit global warming to 1.5 degrees Celsius or below, the toughest Challenge we are facing collectively on this planet. As you can see, Each letter and degree represents an area where we are committed to advancing sustainability and give ourselves Clear targets. D for decarbonization, E for ethics, G for governance, R for resource efficiency, another E for equity and finally, an E for Employability. Let's look at each of these areas, starting with decarbonization. Now we have spoken a lot in the last few years about decarbonizing our own footprint, and we have gone a big step further this year By signing up to the Science Based Targets initiative, we will reduce emissions along the entire value chain to stay within the 1.5 degree threshold.
This means that we are not only aiming To be carbon neutral in our own operations by 2,030, but that we are extending our commitment to all emissions connected to us From our supply chain through to the use phase of our portfolio by our customers, We can achieve the biggest impact for our customers and their operations, and we are proud to offer solutions for decarbonization such as Energy Performance Contracting in both buildings and manufacturing sites. Now let me talk about Our approach to ethics. We are committed to fostering a culture of trust. Our values And ethical standards for doing business are deeply anchored in our business conduct guidelines on which We train all our people globally at least every 3 years. Compliance remains A top management priority for Siemens.
Now trust needs to extend to the digital world. We are recognized as the industry leader in cybersecurity and co founded the Charter of Trust with Global Cross Industry Partners. The aim is to protect data and drive cybersecurity in a trusted digital world. We are also committed To the United Nations Global Compact and their guiding principles on business and human rights, We have hardwired this further in our governance model. There is very clear evidence That strong governance and leadership within a company closely correlates with better, more sustainable Business and sustainability performance.
Strong governance reduces business risks and secures Our license to operate globally and locally. Good governance is built into our state of the art management systems, And we also extend that to our supplier base. We work with around 65,000 suppliers, and a commitment To our supplier code of conduct, it's the basis for an ESG secured supply chain. We have also included ESG criteria in our long term incentives program, both for the board and our senior management. The area of resource efficiency then addresses the fact that we want to successfully advance Recycling and circularity.
With our eco efficiency program, we focus on the input factors of sustainability and have set a Standards in designing eco compatible products. Our latest internal innovation is the green Digital twin that offers sustainable options for every component part in the design phase of a product. By 2,030, 100% of all relevant product families will be covered by a robust equal design approach. We will focus on decoupling of natural resources through increased purchase of secondary materials for metals and resins. And lastly, we are reducing our waste to landfill, ultimately to 0 by 2,030.
Next, let me talk about equity, a word that we tend to attribute to the financial world. What we want to talk about here is equitable treatment and respect that form the core of our value system. We foster diversity, inclusion and community development to provide a sense of belonging for all our people. Here, A number of targets again underpin our positioning as an employer of choice and promote a culture of diversity and equal opportunity. For instance, 30% of our top management will be female by 2025.
And through our employee share plans, our people widely participate in Siemens' success also as shareholders. And when it comes to how we work, we were one of the first big industry players to committed 2 to 3 day mobile working policies for 140,000 of our people. Last But absolutely not least, I want to speak about employability. In a world that is permanently changing, it is absolutely crucial that we all remain resilient and relevant. This is critical for us as business and as individuals if we want to be successful over a long and fulfilling life and career.
When I speak to our people, I want them to know that we care about them and are vested in their physical and mental well-being as well as their skill set. Digitalization disrupts how we work and the type of work we do. That is why we invest In up and reskilling on a continuous basis, we are now increasingly supporting customers on their digitalization journey Also with regards to up and reskilling of their people, we have hardwired our ambitions again in targets by which we want to be measured And measure ourselves, digital learning hours for our people, access to mental health and assistance programs And our people's safety, which is immensely important for us. As you can see from this overview I've given today, With our degree framework, we have now defined concrete initiatives and set clear, very ambitious targets for all core topics that we will drive together with our customers. So let me summarize.
For us At Siemens, advancing sustainability is not an option. It's a business imperative. We are building on an enviable track record and experience, which offers huge opportunity for our customers, for society and for us. Technology with purpose is embedded in our business strategy and drives our businesses. With the degree framework, which we proudly launched today, we are accelerating our sustainability efforts.
Let me leave you with this final thought. Creating value for our customers And creating a better tomorrow for the societies they serve are not mutually exclusive. What's good for our business and what's good for people and our planet go hand in hand, and that is at the heart of what we do. Thank you for your time today. And now it is my pleasure to hand back
Thank you, Judith, Roland and Ralf for this exciting overview. We're now ready to open our first Q and A session. For our active participants, please make sure that you're familiar with the instructions in the e mail. In particular, please make sure that you use the blue Talk Request Please limit yourself to 2 questions only as we already have quite a few participants waiting in line, and we plan to finish on time at around 11:10 a. M.
We will start now with our Q and A. The first question goes to Andreas Willey from JPMorgan. Andreas, please go ahead. Your line is open.
Good morning, Roland, Judith, Ralf and Eva. My first question is your on your comments this On the guidance, maybe you could quantify the net impact we should keep in mind for the Varian acquisition on H2 Between the operations, PPA and transaction costs. And if you could elaborate a bit what drives the underlying upgrade in terms of Regions, markets or businesses. The second question I have is around control and risk management. Obviously, Siemens is seeing strong growth.
Management wants the organization to focus and accelerate these growth opportunities. How are you ensuring that the discipline and costs on costs and risk It's adequate and businesses don't lose sight of sudden market changes or get called out in terms of discipline. What tools, KPIs or incentives are in place to assure that? Thank you very much.
Yes. Well, in the Q3, we see really a continuous strong growth Across our businesses, in some areas, they are even ahead of our assumptions, which gives us the confidence for the remainder of the fiscal year. On a positive side, we definitely see a benefit from the continuous very, very strong Chinese market. On the other side, We have I'm very mindful about the strained supply. And is it the rising commodity prices or is it semiconductors?
But so far, our team does an excellent job. So we believe that we can secure supplies, and we will be able To deliver. So all in all, this led us to the point that we remain with our net income guidance from SEK 5,700,000,000 to SEK 6 point 2,000,000,000 However, we include now the burden from the Varian acquisition into that. And the next thing is that in August 5, on our regular Q3 disclosure, we will share more information with you. But Rolf has, I think, something to add.
Thanks, Roland, and thank you, Andreas. Welcome also from my side. Andreas, You probably remember with the 2nd quarter's disclosure, I have been indicating that we do expect from the Varian Impact, something between SEK 300,000,000 to SEK 500,000,000. This is still valid. It's, of course, up to Siemens Healthineers to give more Color to the content of that, but this is the underlying assumption for our guidance, still EUR 300,000,000 to EUR 500,000,000.
Let me also give a bit more color on the momentum that Roland has been describing. Clearly, China is still Growing, and we are participating there very fruitfully with all the investments we made historically. This is bearing fruit now. We're very much appreciating that momentum. However, it's not only China.
We see a broad based recovery In our main and most relevant economies, including the Central European countries, but also the U. S. As a typical process industry country, It's picking up. And from a vertical perspective, it's the typical suspect, if I may put it that way. We benefit with a strong showing in automotive and in machine building, but also in food and beverage and also In other process industries, around chemistry and one of the big strongholds of the past of the prior quarters, EDA Semiconductor is still Holding on strong.
However, it's not only the short cycle business of DI. We also have been creating quite some momentum In our SI Product business, Electrical Products and the scalability, margin conversion and cash conversion is of the essence, We see them moving strong. So above the line broad based industrial business momentum that is Captain, as Roland has been pointing out, we have a great team managing our supply chain. There were no material hiccups so far. Still a lot of miles to go until the fiscal year will be completed, but we have an outstanding team there and all the ingredients to master the challenges on the way to get The last quick remark.
Below the line, our POC activities are executing on their full potential plans as Planned and we are committed to reach the intended margin range of 5% plus in next fiscal year and are in a good trajectory to get there. Also Siemens Financial Services is doing quite well and is executing along the lines we have been indicating before With a relatively low default rate when it comes to the liabilities out there, So we do see a broad based momentum also based on the fact that our cost out programs are executed consistently, as You heard me presenting before. So all that in a nutshell has been taking us to that point that Roland has been describing. Now let me change to the other question you have been raising, and we have a lot of respect for that because growth needs to be managed not only in terms of risk, but also in terms of Cost consciousness, rigor and discipline, and we have been learning a lot from the mistakes of the past, our own mistakes, but also have been looking into others. So cost discipline is across the board.
We have been dedicating a management board workshop on the matter and literally each Every line item below the line and above the line is getting the attention it deserves means that we are committed to execute our cost out plans, of We are also looking into the discretionary spending. And even though we are sitting on quite a favorable cost positioning at the moment, we are also mindfully Of managing that the way forward. So of course, they will be traveling as soon as COVID policies allows, but we will not bounce back to the former T and E levels. We also have a sharp eye when it comes to internal controls and new business models. We benefit also from the Proximity to our customers, we anticipate their next moves into the digital models they are creating to better cater for their customer needs, and we from the very beginning.
And it's also quite helpful, to be honest, that with our combined offering of Siemens Financial Services and our industrial businesses, we at a very early stage Can jointly assess the risk of those new business model customers. So we have a very broad based and comprehensive scheme in place It also goes into the incentive schemes of the individuals as far as they are focusing in their activities on those critical matters. And this includes Channel management as well as just the regular course of business, which means economic equation. Whenever there's cost inflation Our factor cost increase, that needs to be compensated by productivity this year, next year and the years to come. So we feel well set for those challenges, but we are very respectfully looking at them in each and every of our businesses.
Thank you very much.
Thank you, Andreas. The next question comes from James Moore from Redburn. James, please go ahead. Your line is open now.
Yes. Good morning, everyone. Hi. Thanks very much for Thank you for taking my questions and all of the detail today. I see you have left the DI margin target unchanged Despite the higher digital investment needed for the SaaS transition, could you quantify the Digital investments needed for DI, how long we should model that?
And am I correct to say that underlying margins in DI, Effectively, you expect to rise before those cost items. And what's really driving that? Is it software or automation or both?
Thank you, James. You can well imagine that this was one of the centerpieces of our own internal discussions before we have been Presenting this to you today. And therefore, let me quickly make a very important remark in the very beginning. I mean, you do know That we have a combined offering of industrial software and of automation business, which are tightly linked to each other. And this proximity to our customers allows us to really very well listen to them and adjust our offering and the pace Of the introduction of our SaaS regime to their individual needs.
This is a very important point, and I'll come to that back in a second. So this means, in particular, what we do is we continue investing in the SaaS transition. And you may remember that Already back in 2018, we started to explicitly report to you quarter after quarter how much we invest in that what we call cloud Including SaaS transition, MindSphere, integration of Mentor and the like. That was on throughout those 3 years, Those past 3 years between 102 100 basis points. Last fiscal year, it was 110 basis points impact on the DI margin.
We will continue with that Pretty much on the same levels as a cloud investment and SaaS investment in the years to come. And the grand total over the period of 5 year For SaaS transition itself, focusing on that for infrastructure, preparing ourselves to be ready for the customer needs, implement and rollout Will be something like SEK 100,000,000 on average. Grand total SEK 500,000,000 for 5 years, if you will. On top of that, and this is now important, There's a revenue recognition piece. Moving to upfront revenue moving from upfront revenue recognition to ratable Means that there will be an impact on margin and that we indicated will be up to 200 basis points at peak.
We expect that to happen hopefully as early as possible means fiscal 2022. But referring back to my introductory remarks, This is up to the customers. We will follow their wish and we will not try to push them into something. Therefore, we are very mindfully looking To the different market segments, Roland has been pointing out and Cedric and Rudy will go into more details later on. So the pace is difficult to anticipate.
From our point of view, we appreciate the best and fastest moves that our customers wish, and we stand ready to do that. So that will take us to a maximum Peak impact of up to 200 basis points from revenue recognition. Good news, however, is twofold. First of all, only half of that impact will be impacting cash. That's definitely a good news, And we looked into it very carefully.
And secondly, after the transition, we will
have a
higher pace of growth, plus Better profitability and a better structure and resilience in the business. So it's an upfront investment, Which we will be able to compensate to a fairly large extent by the operations surrounding it. We will not push customers Into our time frame, but we'll listen to them carefully and the transitioning will be as smooth as possible. We indeed we have been thinking through all the different scenarios, And we feel quite comfortable with coming back to the prior levels of profitability for DI after 3 to 4 years. I think that's important.
Cash will not be the essence. There will be revenue recognition, artifacts, if you will, In the beginning, they take us to that maximum dip of 200 basis points. The investments in infrastructure will be on the same levels as in prior years, so No surprise, and we will transparently report to you quarter over quarter. And good news also, we do see quite a lot of momentum, as we Seth, answering Andreas' question. In the market at the moment, so new orders are coming in quite nicely.
So we have more visibility also When we used to have in that business, and therefore, we are quite confidently looking into the rest of fiscal 2021 2022, Seems to be also in a framework that allows us transitioning smoothly to SaaS End cloud solutions without having major impact material impact on the company.
Very helpful. Thank you.
You're more than welcome, James.
The next question comes from Martin Wilkie from Citi. Martin, please go ahead. Your line is open.
Thank you. Good morning. It's Martin from Citi. Just a couple of questions about how the company will be run-in terms of incentivizing management. I mean, firstly, on the divisions, you no longer have the industrial profit target, more the divisions.
Does that suggest that it's more decentralized, that their bonuses and their KPIs are going to be much more on their own divisions? And then related to that, just coming on to ESG, obviously, some very ambitious targets across the company there. But how does that filter through the organization? How do you ensure the divisions contribute to these targets as well? Thank you.
So Let me start and then I will hand over to Judith to talk a little bit more about our ESG program. So there's no change. We have a very, very clear focus Of our businesses on their expectations. And is it on the top line? We are guiding also for higher growth on the top line, but also on the bottom line.
Everything that you see was also, as Ralf said before, coming up from a bottom up Strategy review, which where the businesses came with their proposals where to go. And they clearly understood that we want to go for high value growth, Means capital goes in our company where we see improving margin, where we see a value increase, but also where we can really go for number one positions in our markets And strengthening it. And wherever we have a gap to close it as fast as possible. So that's the mentality. And we see that it was clearly Taken by our management teams, and they came back with a great proposal, which gives us the confidence to go up with our framework, our financial framework as described.
On ESG, I just can say that we see more and more this is really embedded in what we do in our strategy, in our business, but also in our research and development. But I think Judith is a very good person to talk about it.
Yes. Good morning, Martin. Very happy to meet you and to answer your question. Now sustainability for us is an enterprise wise effort. And as Roland just said, we derive it from our purpose.
It's anchored in portfolio Operations and governance. And ever since 2019, we've also anchored it in the compensation of our managers Through the long term incentive schemes, so 20% are ESG related and reflect the stakeholders that we want to represent there. And 2 of them are actually things that also derive from our degree framework, the learning hours as a proxy for employability and also Our efforts in own operations to decarbonize. So those 2 degree KPIs are already hardwired Into our long term incentives themes. But then, of course, accountability needs to sit across the organization where business is accounted for.
So therefore, our CEOs in the businesses and in the countries also are heavily responsible for having a look at How sustainability aspects actually develop through the value chain that they are responsible for. And they actually have a cascaded Version of the degree KPIs that we have just put forward. So this is monitored at all levels of the organization. And at the very top, we've installed a sustainability board that consists of business, regions and functions that I chair Then also obviously has a look at how we're making progress against the targets that we're setting ourselves here and the ambitions that we're setting ourselves And govern activities and strategies at a corporate level, at an enterprise level for Siemens.
Great. Thank you.
Thank you, Martin. The next question comes from Ben Uchlow from Morgan Stanley. Ben, please go ahead.
Hello. Good morning, everyone. I hope that all are well. I have two questions, please. One really was for Roland on your big picture vision For M and A and in terms of the M and A strategy, you mentioned transformational versus bolt on.
In particular, on software, if we look at what you guys have done, you've done a series of very successful bolt on acquisitions. If I think about UGS or Mentor, Mendix, etcetera, over the years, and it's become a really big viable business, Can you get to where you want to go over the next few years just by doing more bolt ons in software? Or do you have to go down sooner or later a transformational route? So can you just give us your big picture thinking? Can we get to where we need to be in digital industry software just by doing more bolt ons?
That's question number 1. Question number 2, I guess maybe it's for Ralph. I do remember you guys not long ago saying POC Portfolio Companies would be gone. It would be gone in a relatively short period of time. Can you just update us on how long it's going to take to divest the businesses in part, please?
So thanks, Ben. And you mentioned Full journey which we made with bolt on acquisition on software. So there's no reason why we should not continue doing that. So therefore, bolt on acquisitions is really something where we We have a very strong track record we can go forward, particularly in the software space, but also in the spaces which are adjacent, where we're describing that How we are adding new markets, supply frame, opening the market for cloud based marketplaces is one example, where I think it's a very smart Paul, Donner, an acquisition yet on an adjacent area, which is very interesting. Overall, I mean, we made also very clear that we have clear guidelines how we deal with It's three elements.
Number 1, we have our strategic imperatives very quickly. Growth market, Good profit pools should fit to Siemens, synergies, innovative, disruptive preferably. And we added one more element, which is It should support our sustainability program and target as well. Number 2, ROCE above WACC and number 3, A very clear earnings per share PPA within 2 years. So that's the point.
Therefore, I do believe that's the right thing to do. If it comes to the question whether a transformative acquisition would bring us there, I don't know. We do have the firepower to do that, but we prefer bolt on acquisitions, which are really Giving us a very, very strong record. And we can also put the X in different baskets. Think about our industrial software, About our vertical software, which we have in smart infrastructure and mobility, so we are looking definitely into that.
I hope this answers your question.
So Ben, POC, the portfolio companies are close to my heart, not only because I'm personally responsible for that Part of the portfolio within the Managing Board, but also because we have been coming a long way to identify what is focused And core to our business in the future and what isn't. If it isn't and if it is part of POC, that does not mean it's not a good business. It It just takes a different management and leadership approach, and that's what we have been implementing with what we call PE like style of leadership and style of management. And I think we have been demonstrating quite well with the Flender case, if I may put it that way, that we can find a better owner than Siemens And at the same time, strengthen the performance on the way to get there as we did for Flender. I think that Caisse is speaking for itself.
Therefore, I won't repeat that you are very well acquainted with the outcome. So that has been encouraging As to consequently pursue that path of managing those companies in a way that they do not Stand in the center of the core activities that are tailored to the individual needs of the individual markets And therefore can sharpen their profile, is it in the go to market or is it in profitability and cost efficiency? That's what they are out for. We have been creating a so called full potential plan for each and every of them, and they are very stringently executing along the lines, as I mentioned before already. Nevertheless, we are not sitting on a burning platform.
We have great businesses there, so we are not in a hurry, but we will consistently check Who is the best owner for a business? And what can we accomplish if we do the right thing at the right time? So along the time lines, I can't be more precise than that, but you saw and see from the activities that we keep them separate, tailor them to the market needs, And I can only ask you to stay tuned on the matter. It will be interesting on the way forward. There is one element In that portfolio, that is different, and that is our Valeo Siemens e Automotive Business, a joint venture with Valeo.
They are in a heavy investment mode. It's a very much very interesting and very highly attractive future market in e mobility. Therefore, we are in investment mode and therefore, this has a different profile, but we talked about that. When it comes to the fully consolidated businesses in pork, We are fully on track, and we will find the best way forward for each and every of those businesses there. On the way to get there, we are Still committed to the 5% profitability being accomplished in fiscal 2022.
Understood. Thank you. Thank you very much. I'll pass it on.
Thank you. So we're nearly out of time. Simon, you're next in line. But Simon, if you could please limit yourself to one question given the time constraints that we have today, unfortunately.
Sounds good, Aoife. Thank you very much. Good morning, everybody. Could you just describe the growth pattern in DI A bit better over the next 2 to 3 years. You have this chart where you showed the 10% CAGR and obviously because of SaaS quite A slower ramp up in the early years.
So when we're thinking about the 5% to 7% growth target for DI, Is it fair to assume that we would rather be towards the lower end or maybe even slightly below the lower end for the 1st 2 years Given the SaaS transition or do you think you're going to be within the range despite SaaS? And maybe just in connection to that, do you have a target for how much ARR you want to have, let's say, by fiscal 'twenty five, I would presume a lot of your competitors a lot of your customers Still prefer licenses even further down the road. Thank you.
So hi, Simon. I make that rather short because we have another session where we have Cedric and Rudy ready for your question to answer, just on a high level. What we want to do is we want to grow our ARR in the CAGR of more than 10% until 2025. That's what DI is going to tell you. And the growth pattern of DI is take it regional.
I think they have a very strong foothold in China. They are very strong in Europe, but they also have Fair strength in the United States. So there's it's really a very, very balanced regional approach, but again, very, very strong established in China. But also on the vertical markets, We are establishing ourselves stronger and stronger in food and beverage. You will hear more about pharmaceutical.
You see about the new markets which are growing with its Battery automation, any kind of market which is also pulled by, is it either digitalization, automation or sustainability? So therefore, I do believe that we have a very intact vertical market combination, too. But then I do believe that Cedric and Tulli will be much, much better in
Great. Thank you.
Thank you very much. Thank you all for your good questions. We now conclude the first session for a short break of 15 minutes and then we move into digital industries. And I believe that a lot of Questions that you seem to have also about SaaS, SaaS Transition and Software will be answered during that session, including Tony Hammelgarn, the CEO of DI Software, and you have the opportunity to ask further questions right after that session. With that, let's enjoy your break.
Welcome back to our first business session on digital industries. CEO, Cedric Neicher CFO, Rudy Vasson and our DI Software CEO, Tony Hammelgarn, We'll walk you through our leading digital enterprise business, the strategy and the ambitious targets. Please also note The handouts have been published on the Investor Relations website. With that, over to Cedric.
Siemens is our global technology partner who never sleeps.
In Siemens, we have secured Strong partner with outstanding digitalization and industry expertise.
Siemens is the only company can providing us Digital Consultings, Digital Solutions and Automation Equipment.
Within this partnership, Swagen benefits from Siemens' strengths.
Together, we will be driving forward the development of sustainable future technologies from our Mercedes Benz Digital Factory Campus, Berlin into the whole world.
Skin Group has greatly benefited from the partnership with Siemens.
And they enabled us to produce novel Messenger RNA Cancer Therapeutics as well as our COVID-nineteen vaccine.
Decam is a small to medium enterprise specializing in Electrical engineering solutions with our system, FermaCraft, which relies on Siemens automation and digitalization.
Building connectivity solutions in our own factories, But also using key elements of Siemens MindSphere as part of the industrial cloud platform and marketplace.
WinFast, one of our group company, is positioned to be the world's leading company in smart and electric vehicles, partly thanks to the
We work with Wolf
of the Willows to reduce their ferment time down from 25 days to 18 days and actually grow their business Through the COVID lockdowns,
I'm very excited about this partnership with you, the Siemens.
Hi, I'm Sebek Neiker, CEO of Digital Industries. You just heard about the potential in digitalization and automation from Roland. We told you 60% of all manufacturing tasks can be automated, which means there's even more potential in digitalization in all industries. Now Let me give you an example. Think of your car.
The industry that manufactures this car is already highly automated and digitalized. Think of the vaccine that all of us have been waiting for. This industry has just accelerated its digitalization and automation during COVID. It had to. Think of all the things which are being produced.
All of the things will need a solution to take that product apart And feed them back into the circular economy. And this is only possible through automation and digitalization. The secret is, it won't be enough to deploy a single solution for single steps. Our customers, what they want This process is to be woven together in one integrated value chain. And Siemens Digital Industries is solving exactly this problem.
And we're able to solve it like no one else. That's the reason I'm so excited to show you on how incredibly valuable Digital This is for society, for our customers, for Siemens and of course for you our shareholders.
Why is that?
Because we are in every part of the product and production life cycles, From design and simulation to controllers to edge devices to the cloud, we have all the pieces of the puzzle. And we're the only ones who can bring them all together. Let me give you an example. Let's go back to your car. You use Siemens software to design it, to simulate it, to plan its production.
You use Siemens technology to actually manufacture it. And when you drive the car, that data goes back to the designers telling him or her on how to make the next car even better. That is what we mean by combining the real and the digital worlds in an infinite data loop. And we do this for all sort of products, Your sneakers, smartphones, perhaps even your surfboard, everything you can think of. How do we do this?
We digitally represent everything, products, factories, plants, even processes from the real world. We call this the most comprehensive digital twin. Now we also enable our customers to analyze their data in the real world, Either on the edge devices directly at the machine or in the cloud. We call the sensor to edge To cloud, it's also a unique concept. We weave all of those processes together in one single digital thread.
This is only possible if you understand both worlds like we do, with our deep domain know how. At the same time, we open it up to a vast ecosystem of Customers and partners. I shared with you why we're different. It's proof on how we're helping our customers do important innovative work. It's also why I'm proud.
I'm proud of my team and our results. It's why we're number 1. We're number 1 in automation. You know this. We're number 1 in industrial software, and you'll hear much more from Tony about it in a few minutes.
But we're also number 1 in areas you might not know, such as industrial communication, The core technologies with 5 gs being very important, but we won't stop here. We have a plan for more growth. You've seen this in the first half of this fiscal year. Now we want to accelerate it even further. I'll elaborate more details of this later.
But first, let me introduce you to Siemens Digital Industries a bit more closely. We have nearly 72,000 passionate employees globally. In fiscal year 2020, our orders were EUR 16,000,000,000 We generated revenues of €15,000,000,000 and our profit margin was 16.6%. If you break it down, 65% of this came from automation, 28% came from software and 7% from services. Our goal, it is to stay as close as possible to our customers.
So we have balanced our Our global headquarter for software is in the U. S. Under Tony, Our global headquarter for Standard Motors is in China and our global headquarters in Automation is in Germany. With global headquarters in all three major regions, we're able to make business decisions much closer to our customers in their markets. In these markets, they're huge with huge potentials.
They will grow at around 6% annually. And COVID has shown us one thing. It has shown us that companies who already used Industry 4.0 Solutions have grown. They've reacted much faster and the ones who didn't, they suffered. Industrial companies have understood That they need to automize and digitalize.
And we have all the capabilities to turn this potential into business for them and therefore also for us. You can see this in the numbers. Today, only 11% of companies use Digital Twins, but this share will grow in 3 years To up to 34%, 3 times as much. This just gives you a view on how big this market opportunity is for us. Companies want our solution because they know they have to be more flexible, More productive.
They have to be faster. And as Judith said, they want to be more sustainable. They want to ensure higher quality and they want to offer new business models. Let me translate this to what it actually means for our customers. Let's go to Vietnam.
We work with a leading company there, which is called VIN Group. They do everything from smartphones to cars. We work with them to build an automated factory from scratch. You know in how much time? 21 months, unheard of in the industry.
Why did they do this with us? Because we had this comprehensive twin digital strategy. But the interesting part was when COVID struck, They use this know how from the digital twin to pivot their smartphone production also from us to ventilators. You just know how complicated it was for a lot of their competitors. And you know in which time they did this?
3 weeks. VIN Group can now manufacture 55,000 ventilators a month. That's what we mean When we talk about going much faster, because WingGroup could turn on a dime when things go into a different direction. That's what digitalization and automation does for our customers. You've seen what we can do with WinGroup.
With our help, they became hyper flexible and hyper competitive. By combining the real And the digital worlds with our end to end capabilities and our domain know how, that's how they did it. We're actually making this differentiation replicable to all customers, To all industries, this works as well for brownfields, but also for greenfields. How do I know this? Now since I started, I talked to more than 100 customers and they all asked me the same thing.
Who can tell me on how this technology actually work and if they really make a difference? And my answer was simple. We can. Why? Because we drink our own champagne.
We use our own technologies in our 140 Siemens factories. Some of those factories of Siemens are the most advanced ones in the world. The World Economic Forum has selected our factories in Amberg and Chengdu as lighthouse factories. And you know what, we're building more of them. For example, in Nanjing, We're using our digital twin concept from the onset to build this factory.
It will be the most advanced digital factory for motion control In the world, it will have 20% more productivity, 30% more volume flexibility And it will save 2,900 tonnes of CO2 per year. So why does this differentiate us from our competitors? Because most of them are either software players Or hardware players, we have the 2, software and hardware capabilities, and that makes a big difference. When we're finally done with COVID, come and visit our factories
or take a virtual tour.
That's why companies like Mercedes Benz, they want to work with us. Roland and Judith both have mentioned this. Why? Because Mercedes wants a partner that can help them holistically on their transformation journey. How do we do this?
1, they want to make their production flexible and sustainable as they're moving from combustion engines to electrical ones. 2, they want to make their factories building more efficient and carbon neutral because there's a pressing need to decarbonize. This is where our colleagues from Smart Infrastructure, that's where Matthias comes into play. 3, they have to and they want to retrain their workforce To make them more employable for the future, we're supporting them with Mendix. And on top of that, Advantage is helping us orchestrate all of this.
This is a great example on how all Siemens businesses together create more value by bringing all of the Siemens offerings together. We're actually starting with one of the oldest brownfield factories. And together, we want to make it a blueprint for the about 30 Mercedes factories worldwide. So if I come back to the degree framework Judah talked about, we're working here on Decarbonization, resource efficiency and employability all in one. We can do this not only for established companies or car manufacturers.
We can also do this for young companies. I talked about the vaccines early on. Let's look at BioNTech. It's a very different industry, But digitalization works here as well. We actually have been working with them for quite a while, still when they were very small and in cancer research.
But when COVID struck, there were faster than anyone else with a new mRNA vaccine to the market. And they were capable of scaling up their production with our help. We were going from milligrams to vaccinating the world in record time. Why? Because they used our technology And they're now working with us to replicate those vaccine factories around the world.
So you see, we're helping every type of company grow, reinvent itself and all of them need automation And digitalization to do so. And no one else is actually better positioned than us to deliver this sustainable growth. We're actually obsessed with making this work. Let me actually share with you on how we do it. First, we are very, very close to our customers.
This helps us continuously improve our go to market. We have access to more than 250,000 customers worldwide, Small ones, large ones across several verticals in China, in the U. S, everywhere. This actually allows us to learn understand what they really, really need. And even during the pandemic times, we stayed very close to our customers.
In the past year alone, we reached more than 100,000 customers through our virtual events. Many of you have actually visited our Hannover Messe And if you haven't, please watch the videos. They're very informative. Because we are so close to the customers, We know which technology they need to accelerate the digital transformation. That's my second point.
We at DI at Siemens, we are the technological leader. Let me give you an example. In the last fiscal year alone, Digital Industries has invested more than €2,000,000,000 into R and D. This is more than 13% of our revenue, which we invested into R and D to drive digitalization and automation. It's Twice as high as any of our competitors or their partnerships which exist in the field at the moment.
And you know the great news? The great news is all of Siemens can benefit from this innovation in the core technologies such as IoT, Industrial Edge, Cloud, 5 gs, artificial intelligence or even additive manufacturing. And on top of that, we at DI, We profit from the groundbreaking innovations and patents of the Siemens core technologies. 3rd, we can't do this on our own. Our idea is to build an open cloud based ecosystem and platforms for our customers.
We've done this traditionally with our TIA platform with more than 100,000 users for an automation engineering environment. But then with our Mendix acquisition, our low code platform, it makes it easier for engineers and producers to code, So they don't have to become developers to get their benefits from digitalization. Recently, Mendix has been named The leader in local development platforms by Forrester. This is a fast growing environment with already 2 100,000 developers using this tool. And on top of this, we're extending this now into the supply chain.
We're adding Supplyframe, a digital marketplace company focused on the electronic supply chain. They're reaching up to 10,000,000 users per month. This is a huge opportunity to let the global industry community digitalized in a cloud centric world on their terms. Now, we are close to our customers. We continuously invest in innovation for them.
We build ecosystem to help them scale and to create value. And what's also extremely important, sometimes we don't have everything. When we need to enhance our DNA for this, We strengthened through acquisitions. This can really be seen in the software area, where we spent more than €10,000,000,000 in the past decade. With our acquisition of Mendix and Supplyframe, we're driving this even further.
We want to constantly find new ways of Creating values for our customers to grow the digital and to stay ahead of competition. But there's no one else better than Tony To talk about this. And I'm very proud to introduce to you Tony Hemmelgarn, CEO for DI Software, to explain this more.
Innovators, engineers and makers will never run out of new ideas. The opportunities for creation are truly endless. So I'm excited to share a little bit more about Siemens Software. We help our customers with these creation opportunities From the factory to the products they manufacture. Earlier, Cedric talked about how much of it is enabled by our software.
We built a unique SoftwareCore, it allows us to continue to grow our digital business and puts us in the perfect position to transform the market. It's a truly amazing business, I've been here since the beginning working on this vision, an idea we started when we became a part of Siemens 14 years ago. We focus on helping our customers with the entire product lifecycle, everything from design to manufacturing engineering to production to the service of the product. Our software helps design and simulate the entire factory before it's built. We optimize the layout.
We define the work cell design. We program the robots. Many software tools claim to do this, but our value is clear. We do this simultaneously. We integrate all the pieces together because many times the complexity is when all the processes interact.
We can also simulate how the machines and humans complement each other, Something very important when you think about the factory of the future. Our software can help us avoid issues like fatigue, injuries, stress. We use virtual humans to test and improve the safety in the workplace. These are just a few examples of our software capabilities, solutions That have helped us partner and transform the world's most innovative customers. These relationships have helped Siemens To drill into the number 1 industrial software company.
Our growth is driven by a unique strategy, a strategy built on comprehensive, Personalized and open. This strategy is delivered through a portfolio of software services and domain knowledge, All things needed to help our customers create digital enterprises. We define this portfolio as Siemens Accelerator. When we say we have a comprehensive digital twin, what does it really mean? Well, we create the most complete digital representation Of the real product and the factory, and we call it a digital twin.
While many companies talk about a digital twin, No one offers a comprehensive digital twin like we do. We've built the technology to do this over the past 14 years Because we know, we know the value of the digital twin is how closely the digital represents the real. Industrial software, like all software, continues to evolve. For example, I spent many years working with our customer, Ford. At the time, it was one of the most complex PLM deployments in the world.
We created everything in 3 d models to make sure the car would fit together. These techniques, they changed forever the ideas of design and manufacturing. But our customers, they wanted more. Designing and simulating the parts of this Maserati all coming together, it's important, But they also needed to understand how the car would perform. What about the handling?
What about the comfort? What about the noise? For example, how effective is the shape of the automobile in reducing air resistance? Our customers also knew The digital twin would be better if we could represent not only the mechanical design, but also the electronics. So we acquired Mentor Graphics for Electronics and Semiconductor Design, now known as Siemens EDA.
Then we realized something interesting. We know the design, the manufacturing engineering of a product. Our automation tools help run the factory. So with all this information, how can we better help our customers? We simulate, predict and capture insights digitally across the product design and production process.
We then feed the data back into our digital twin To better influence the design, this is accomplished through our industrial IoT solution, LineSphere. At Siemens, We cover the complex process more comprehensively than anyone else. We help our customers. We help our customers use complexity as a competitive advantage. So what do I mean by competitive advantage?
Let's look at our customer, Buy Aerospace. They had a big challenge. They're building an electric airplane for use in general aviation. They can't afford a lot of mistakes. They can't do a lot of physical prototype builds.
They needed to get it right virtually. Their engineers found a problem with the stability of the plane. Almost every part of the plane had to be redesigned or relocated. The digital twin of the plane enabled bioengineers to redesign, test and create reports for certification, Doing all of this while working from home because of COVID, and they did it in 7 days, 7 days. While the process of design and manufacturing can be truly complex, using our software cannot be.
It must be intuitive, And we believe software will become personalized. We acquired Mendix in 2018. It truly lets users, Not software developers, but users create and tailor our software applications. For example, someone in purchasing might create an app to view Product designs like this razor and then grab cost information from their ERP system in just the way they want to see it. The value of our solutions is clear, but we also know information must flow easily for our customers.
That's why a flexible open ecosystem is a critical part of our strategy. And there is strength in numbers. Our 3 d modeling engine, our 3 d visualization products have millions of users, and they're used by our competition as well, allowing data to move more seamlessly For our customers, and when our customers want to make new applications faster, they can benefit from nearly 200,000 developers in our ecosystem. And thanks to the recently announced acquisition of Supplyframe, we added another 10,000,000 users to our ecosystem. These users, they perform over 400,000,000 search requests a year.
And we started 14 years ago in Siemens. We expanded our Accelerator portfolio through a combination of strong organic growth along with 30 acquisitions, more than 30 Done at very favorable multiples. We've almost quadrupled the software business. We've expanded our market by 50% by over 50%, generating over €4,000,000,000 in annual revenue. We've become number 1, Number 1, with more than 170,000 customers adopting our software, the pursuit to improve quality, reduce cost And quickly respond to changing market dynamics and do this in a sustainable way, it's never finished.
For example, companies like Polar, They make sports watches for athletes. They're in an endless search to improve battery performance or features or capabilities. Frankly, if you have a digital watch, there's a good chance it's designed in our software. As we look back at companies Thrive during the global pandemic, they are the ones that have embraced digitalization. Because of this trend, We continue to see an increased demand for digital transformation.
Because of the vision we started years ago, no company, No company is better positioned than Siemens to help customers become digital enterprises. Earlier, I mentioned MindSphere IoT, Where we learn from the data we produce. We bring this data together through a convergence of sensors on the shop floor to the industrial edge devices. We combine that with our accelerated cloud software portfolio. We call this sensor to edge to cloud.
These digital advances truly unlock opportunities for our customers. Our work with Coca Cola is a great example of this. Coca Cola has very aggressive sustainability goals. They wanted to improve the efficiency at their plant. They needed predictive maintenance tools, Operator alerts, automatic tracking tools, all operating as personalized applications running on mobile devices.
We proposed our MindSphere industrial IoT solution to improve resource efficiency. In the 1st 6 months using MindSphere, they eliminated 4 major downtimes. They had over a 4% reduction in equipment performance loss. They reduced energy usage by 13% and a savings of €110,000 in the 1st year. Now Imagine trying to compete when your competition embraces digitalization and receives these kinds of returns that quickly And you're not.
Examples like these are some of the reasons why our customers stay with us for a very long time. Those in the boardroom, they see that Siemens has a direct impact on their bottom line. It's one of the reasons our software business It's a very sticky business. Our customers are at the center of all we do, and they tell us what they want. They ask for solutions that are easier to access, solutions that can ramp up engineering capabilities on demand and the flexibility to securely collaborate from anywhere, Anytime.
And to best support our customers as they transform their business, we must continue to transform our own. Our customers are asking us for software as a service, SaaS. They can subscribe to new accelerator services that leverage the power Of the cloud. We've been investing in the cloud solutions like Mendix and MindSphere. We've placed applications like our industry leading PLM Teamcenter, in the cloud with Teamcenter X, giving our customers tremendous flexibility.
SaaS offers benefits to customers of all sizes. Imagine you are a large appliance manufacturer. You're developing a new dishwasher. The design engineer needs to worry about style and functionality. In an ad hoc collaboration over the cloud, the designer works with another engineer on simulating the performance Of the dishwasher.
But what about the design engineer's potential customer? Let's use the digital twin for a quick feedback from the customer. The customer leverages augmented reality to see how it looks in their home. As the customer is reviewing the design, we simultaneously get the engineering models into our global supply chain. The supply chain can ramp up software needs quickly so they can scale up their production, all from any device, Anytime, anywhere.
Now visualize being a small company with a global footprint. Rorick Bikes. Even though it's a small company, they need to access many of the same solutions as a large company. But they don't have a dedicated IT department. They need us to manage it for them.
They outsource their IT to us, which allows them to focus on innovation. SaaS enables us to offer benefits to customers of all sizes, regardless of industry. It also provides easier, More affordable access for small organizations to use high end capabilities that scale as they grow. Our customers will continue to use our proven software solutions, but now they can subscribe to cloud capabilities That are fully integrated into those workflows. We also benefit.
Through the cloud, we can reach new markets And new users, we may not have been able to get to previously. New customers like Roaric that need us to manage their IT for them. We can provide new offerings and new ways of working that help our customers scale on demand. While the value of SaaS is clear, We're giving our customers the freedom of choice, choice of perpetual or subscription, choice of on premise or cloud. Of course, we think most will choose SaaS.
Why? Because SaaS gives the highest degree of flexibility and personalization. And we let them set the pace of this transition. We also have a transition as we move to SaaS. It will trigger a shift from upfront to ratable revenue.
This transition will drive more resilient and predictable growth. Like other software companies making the move from perpetual to SaaS, the lifetime value per customer is higher. This increased value per customer is driven by additional monetization opportunities like value add cloud services or as we capture customer insights, More personalized solutions. We see increasing revenue through pay per use access to higher end capabilities. For example, simulating the thermal and structural impact of a car entering the water requires High end software and a lot of domain knowledge.
But let's go back to Rohrig Bikes. What if they want to simulate the air resistance on the bike? They don't have the in house IT. They don't have the compute infrastructure. But they still have the need.
With SaaS, We can reach a customer like Warwick with our cloud offerings. They outsource the IT to us and the issues they have to us So they can focus on the product and their customer. We plan to begin this transformation with our core PLM customers. As our EDA customers' requirements evolve, they will transform as well. Software revenue will continue to grow.
But as a result of this new revenue recognition model, it will not be as fast as our annual reoccurring revenue, ARR, With just high degree of visibility, it's much more resilient. Our ARR is expected to grow by greater than 10% CAGR between now and the fiscal year 2025. You'll hear more about this from Rudy in a moment. Now because no revenue is truly recurring, we will continue to invest in the cloud With a focus on industry solutions, go to market and customer success, all factors to improve the quality of recurring revenue. Rudi will go into this in a little bit more detail on our investment plans.
We believe it is clear that a digitalization strategy can be the true difference Between the most and least progressive companies, Siemens Digital Industry Software makes a difference For our customers, they stay with us for a long time because we help them drive digital transformation. As we grow the digital and transform into a SaaS business, software will continue to deliver great value to Siemens and to our customers.
Thanks, Tony. It is clear the eye is about high value growth and transformation. Why? First, because we have so many existing customers. In the first half year of fiscal 'twenty one, 70% of our existing customers bought from us again, and they bought more than the rest of our customers.
This is called land and expand. Roland calls it growing the core. And it's definitely a huge opportunity we're going to focus on. A second example, Volkswagen. We're doing co creation with Volkswagen.
We're working with them to link the existing operation and automation To the cloud, making automation much more powerful. They want to create an open cloud platform For the 122 factories to accelerate productions, logistics, supply chain management, And then they want to extend it into new open markets. With MindSphere and our domain know how, we stand by their side. 2nd, we will continue to grow in verticals. We're already number 1 in automotive.
We're number 1 in chemicals. And now we're also number 1 in automation for food and beverage. You've already heard from Roland about the bottling company Swire Coca Cola in China. We're helping them unlock annual production capacity of 550,000,000 cans We want to take this into other growing verticals, pharma, batteries, electronics. 3rd, We are broadening our footprint of Industry 4.0 with small and medium sized businesses.
They will benefit most from digitalization and automation. We already have a market share of about 40% in large enterprises, But only 20% in SMEs. We want to push into this business up to the same level As in large enterprises, making it easier for SMEs to use this technology. We will offer them new business models like SaaS, Tony just mentioned, and new ways of working like low code development, and we will even include financing solution with our Siemens Financial Services. We already heard about a company which used to be small, BioNTech.
It's not small anymore. But there are many others. For example, small craft breweries like the Australian microbrewery, Wolf of the Willows, who produces beers for pubs. They're fully automated, combined with digital solutions. When COVID struck and pubs closed, They could quickly switch to beers for individual consumers, and they reduced fermentime from 25 to 18 days.
So SMEs An attractive market, and we're ready to go forward in it. Finally, it is regional growth. In the fast growing markets like Asia, we have a leading position, including in China. We have been there from the beginning, But we also addressed further growing markets like India or Vietnam. Think of the example of WinGroup.
And our strengths in software will help us grow in the other markets like the U. S. And Japan. This is what makes us strong. We're close to our customers.
We're investing continuously in innovation. We're building strong ecosystems. And where we need a stronger DNA for this, we strengthen it through acquisitions. That's how we become the number 1. Now we want to expand it.
How? By selling more of our unique automation and digitalization capabilities To our existing customers, into new verticals that aren't as advanced yet, to small and medium enterprises Making digitalization simpler for them and by going early into regions that will grow over the next decades. This will give us profitable growth for the years to come, but It must be based on a stringent capital allocation, of course. So handing over to Rudi, our DI CFO. Thank you very much, Cedric.
It's a pleasure for me to speak with all of you today. And I'm sure you would all agree that DI is an exciting future. Not only is it a great business, as Cedric pointed out, from a technology side, but it's also a great business from a financial perspective. Just look at our first half year financials, where we were able to grow revenue by 9% year over year comparable, thereby clearly outperforming our competition. Profit margin of 21% is a testament to the profitable portfolio and productivity culture.
Let me start my presentation with my top priorities to take DI even to the next level. The first one being continuous productivity. In DI, we have a strong execution discipline. Testament is our DI1 program commitment at the 2019 Capital Market Day, We've not only accelerated by 2 years, but we also increased savings up to €420,000,000 You would ask how did we do this. Well, Cedric told you, we drink our own champagne, which means we deploy our own technologies in our own factories and internal operations, Enabling us to be even stronger coming out of the market contraction in the last months.
Going forward, We will continue to deliver productivity and improve the flexibility of our cost structures. And we will do that by Focusing on levers like digitalization, balanced global value chain and actively managed portfolio, Making sure our go to market is future ready and implementation of the new normal, which refers to the transformation in new ways of working. My third priority is asset management and strong cash conversion from profit. Evidence of our strength can be witnessed In our strong first half year financials, where we not only have been able to grow profitably but also convert profits into cash to reach 1 €600,000,000 of cash and achieve the cash conversion rate target. Next would be stringent capital allocation.
In digital industries, we have many good ideas where to invest. These ideas are always carefully evaluated to pass our capital allocation quality gates To ensure investments with the highest returns for DI, as Cedric and Tony have explained earlier, we have selected focused investment areas That we believe cement our leadership position and prepares us for future profitable growth, Such as leveraging on digitalization to ensure our go to market is future fit, investing in the evolution of industrial operations For discrete and process automation, building ecosystems to provide scalable cloud and edge solutions for discrete and process industries. And last but certainly not least is business model transformation. Tony spoke about how we grew into the number 1 industrial software company and how we will leverage our position of strength to transform our software portfolio into cloud based SaaS offerings. Let me explain this business model transformation from a financial perspective and provide you some more information on our software business.
Software accounts for 28% of our current top line revenue. Within software, we have 3 major business types: Product Lifecycle Management with 65% share. We have electronic design automation software, also known as EDA, with 33% share And the balance being cloud offerings like MindSphere and Mendix. Starting in 2022, we will incrementally transition large part of our portfolio, Mainly PLM, where our customers are consistently asking us to offer such solutions into SaaS fully ratable revenue recognition model. This transition is optional based on our customer readiness, as Tony has already explained.
A portion of software revenue will remain in the nonradable revenue recognition model until customers are finally ready to transform. As Toni said, recurring business are nothing new to us. We started very early to continuously migrate our business away from perpetual licensing. Today, recurring business models already account for 70% of our DI software revenue. And we firmly believe That subscriptions are a much more resilient way to deliver continuous value, not only for our customers, but also for Siemens.
Recurring business models will be at the core of our software business going forward. To monitor this development, we are introducing the KPI annual recurring revenue or ARR for short. I am pleased today that we will disclose this KPI to the capital markets on an ongoing basis. With already approximate SEK 2,600,000,000 today, ARR already represents a large share of our business. We expect significant accretive growth with a cargo above 10% until 2025.
And by the way, as evidence of resilience, ARR was growing even faster than our software business during the year of the pandemic. To further drive the software business transition, we will continue investing in the cloud to enable cloud based SaaS And hypergrowth cloud business. This creates cloud based ARR, which is highly attractive for future resilient growth, And we expect it will represent more than 40% of our subscription business by 2025. Next, I'd like to talk about revenue and what is changing. Our customers transitioning to SaaS will trigger a shift From upfront to ratable revenue recognition.
In other words, shifting from perpetual licensing models and on-site subscription models To SaaS and cloud based subscription models. This will drive resilient, more predictable growth. And as our customers will have a choice of business models, some may not transition immediately. This part of the revenue will continue to be recognized Largely upfront. Despite the revenue recognition effects I just outlined, DI software will Still be able to maintain the level of financial year 'twenty one revenues in financial year 'twenty two.
From financial year 'twenty three onwards, We expect to return to high single digit or double digit revenue growth with even significant higher growth potential in the future years. This would confirm the tremendous value we see in this transition. We expect a high adoption rate by our customers As we prove the long term additional value to them as outlined by Tony. Following the completion of our Mentor integration, we will Continue our cloud investments with a focus on SaaS. And these total investments will continue to stay in the same ballpark as in the past.
The move to SaaS will have an impact on DI's profitability, but we will remain in our target margin bandwidth Despite up to 200 basis points margin impact, DI will get back to the financial year 'twenty one profit margin level By year 4, so we set the stage today for accelerated and resilient growth in the future combined with Growing margin levels. The impact from the transformation is short, and profit and free cash flow Even continues to grow during the transition. So unlike our software competitors, DI has the ability to do a SaaS transition Without significant impacts on its overall business KPI.
To sum up, out of
a position of strength, We will bring new offerings and business models to the market. IRR is expected to grow by a CAGR of more than 10% Until 2025, it will be a key KPI to monitor our software performance in the market. This is the new DI resilience KPI That Ralf was talking about when he introduced the financial framework. DI software revenue will flatten slightly in the short term, financial year 'twenty 2, Due to the accounting effects, unlike others who have embarked on this transformation, we've been transitioning to recurring revenue models for some time. As a result, I can commit that we will deliver positive cash flow going forward.
I'm confident in our business model transformation, And I'm also confident and excited in our market leading automation business that is entering the golden age of automation And digitalization, we are convinced that by bringing software and automation closer together in the last decade and Starting the next level of automation with digital enterprise, our automation business will continue to create profitable growth and turn investments Into value. So as Cedric joins me, let's meet team Digital Industries at Siemens and show you Overall commitment going forward.
So you see, we are committed to success with a market beating team from both sides. We have Rudy, Tony, Rainer, Achim, Eckert, Karen, Stefan, Liliane From Siemens who fully, fully understands all the capabilities we have,
but we have also people from the outside who bring in their specific know how. Cedric, you're from Cisco, right?
I absolutely did. But who else came from Cisco? Scott, and is helping us to change our go to market. Roland mentioned it, Digital offerings require new go to market approaches, and Scott is exactly the right guy for this. But we also have Brenda, who has worked 20 3 years at Autodesk before joining Siemens.
And we recently announced that Dirk, the Head of the Worldwide IoT Activities of Amazon Web Services He's going to join us as our new CTO.
So we have the best of 2 worlds. We have the we are augmenting decades of industrial experience With very diverse backgrounds, helping us to accelerate our profitable growth going forward.
Absolutely. And I'm proud that the team delivered Exceptionally strong results on our prior Capital Market Day commitments. Going forward, you can hold my team and me accountable to deliver over the cycle. Comparable revenue growth between 5% and 7%. Growth in annual recurring revenue larger than 10% CAGR.
Profit margins between 17% 23%. Free cash flow continuously increasing year on year And the cash conversion rate continuing on our 1 minuteus growth pass.
And we will achieve all of this while transforming parts of our business to SaaS, Which will, of course, have an impact on growth and profit.
Ladies and gentlemen, this is a fantastic business. You saw the H1 results. We have a huge growth ambition for the next decade. We are confident that we will achieve them. You've heard our customers.
And I firmly, firmly believe in the golden age of digitalization and automation shaped by Siemens,
Thank you, Cedric and Rudi, for this in-depth overview of Digital Industries. We're now ready to answer your questions. Just a quick reminder, please remember to use the Blue Talk request button or dial star 5 on your phones. Please limit yourself to 2 questions only. And with that, let's go straight to Alexander Virgo from Bank of America.
Alex, your line is open now.
Thanks very much, everybody. Good morning, and apologies for my video not working, The travails are working from home. Thanks for taking my questions. So I wondered if you could talk a little bit more about the Variations in adoption rates or obstacles to adoption of SaaS by region and vertical. I'm just curious as to where you see The differing growth rates and the differing approaches from a customer perspective, given that's what's driving the growth rather than you I suppose.
And then the follow-up question would be in light of what you committed to for the software business For FY 'twenty two and then the implications for 2023 beyond, I wondered if you could just give us A little bit of color around how you're thinking about the non software business given you're still committing to the 5% to 7% comparable revenue growth In the next 12 to 24 months.
Thanks, Alex. And I'll give you an overview on the SaaS business, I mean, the main idea, we've been doing SaaS for a couple of years now. We have MindSphere, we have MenNix, we have a couple of SaaS elements. So we know actually what happens. And There's a couple of benefits for the customers which will drive the adoption.
The first one is really it's an easy access to innovation. You're always up to date in terms of the capabilities you have, so that's good. Lower barrier to entrance in terms of CapEx and in terms of ability to scale. And we also have flexibility, right? You can basically Work with different teams together.
And what we expect in terms of SaaS is it will definitely start in the PLM space because We have large customers and also small customers, which are interested in different parts of our software suite. And it's Going to be in the EDA part, it's going to be more on the PCB side, there where there's more collaboration, etcetera. It's going to be probably a bit Slower on the IC side, the integrated circuitous part, and Rudy will answer some of those questions also later. But I actually believe that PLM will go first, then we will go also on the PCB side for EDA and IC will take a bit longer, which is also what Ralf alluded to. In terms of regional and in terms of also verticals, but I actually think it's going to start mainly in the SMB side Well, the small and medium businesses.
And that's why we actually wanted to sort of address also the SMB part of it. But we're also seeing large customers going in this direction. So If you think about it, PLM first, EDA, PCB on the IC later, if you think of the business as probably more the small and medium, but large customers going in this direction, It's going to go across most of the industries. So it's going to be as well in parts of automotive as it's going to be part of food and beverage, etcetera. So it's actually going to be a broad adoption.
The difference is we're going to want to drive it not force our customers, but prove the value to our customers so they're actually buying into this And going forward, and that's why we were a bit sort of keeping it open. Is it 3 years, 4 years, the SaaS adoption? It's going to depend on how much sort of value we can actually drive for them. We are pretty, pretty confident that it will be great value for our customers.
Alex, let me pick up on the second part of your question. And you were asking 'twenty two and beyond, The non software business, I'd like to say that in the last quarters, we've seen a very solid pickup of our verticals, Recovering faster than what we had expected. It's not just that tailwind, it's also our capability to participate in that market recovering. So for the Automation business, you will see probably in financial year 2022 a rather quick recovery, Rebounding faster than what we had before. But over the 5 year cycle, we see that the discrete markets are going to grow by 6% per annum.
Process Industry is a little bit less, growing about 4%. And Cedric and Tony has outlined, our ambition is not just to grow on the market level, but actually above that.
Okay, great. Thanks, guys. And would you mind just quickly clarifying your exposure to large and SME in terms of the split?
Sorry, acoustically?
The exposure of large
and SMEs. So we have roughly 40% in large enterprises and 20% in SMEs, Present market share and our ideas is at the moment that we really are focusing with the SaaS transition also on the SME part of the market.
Great.
Thank you
very much, Alex. We now move to the next question, which comes from Gail De Bray from Deutsche Bank. Gail, please go ahead. Your line is open now.
Good morning, everybody. Thanks very much The first question I have is about the PLM business that used to be very much driven by and aerospace customers. And both of them put the brakes on spending when the pandemic started, obviously. So my question really is what are your traditional automotive and aerospace customers telling you about their intention to spend on PLM? So that's question number 1.
Question number 2 is about the success you've had, the great success story you've had in Europe and China, over the years at DI, what do you still need To do, to be able to replicate the same success in the U. S. And do you think that The infrastructure programs in the U. S. Over there will help you Or rather favor maybe some of your already very well established U.
S. Local competitors.
Thanks, Gael. So if I start with the PLM business, which is the largest part of our business, it is definitely in automotive. The good thing in terms of spending is that we see That whilst our EDA business was on fire over the last couple of quarters, even during the pandemic, automotive and aerospace is starting again To go forward. And the main reason is that we have roughly 24 out of the big 25 automotive customers. And I just visited one on Friday.
What they're saying is, look, We need to put more and Mercedes Benz is another great example. We need to put more into software because we're moving now to build electromotors. We're building also parts of the battery packs. So they're extending their value chain, and they need to digitalize it from the beginning. So what we're seeing is these customers are not only restarting because of their traditional portfolio, but Also because they're changing their portfolio.
So that's what's happening in terms of PLM, but we're also seeing PLM now being extended into other markets. And our Relationship we have with SAP, SAP is reselling TeamCenters who are putting it into their own sort of offering because they want to go into a lot of different also markets with So that's on the PLM side. It's a business which is accelerating now coming out of the pandemic. It's accelerating the traditional businesses, But it's also accelerating into new verticals, and it's also accelerating with partners we have such as SAP or Fujitsu in Japan. Now U.
S. Is an interesting part because as you said, we're very strong in Europe. We're very strong in China. Now we're also very strong in the U. S.
And in Japan, on the software side of things. So that helps us. So we're very strong. And as we're connecting more and more the software and the automation side To really build a holistic sort of offering, we are going to enter and that's the idea we have and which we're seeing to be successful In being able to actually go through the software side and pulling the automation capabilities going forward, and you've seen that we are actually with BioNTech just announced yesterday the replication Of building sort of end to end vaccine production on greater scales, once you have done this, you can actually replicate it in Asia, but you can also replicate it to the U. S.
So the U. S. Is for us A market which is high-tech, which we will enter through our strong software business, and we will also enter through the vertical solutions, which we built for Worldwide level, which we can actually replicate.
So
Are you able to confirm that the very strong order dynamics we saw in the U. S. At DI in the prior quarter I've continued up until recently.
So the question is, as we have seen the recovery Our numbers in the U. S, and it's actually accelerating. And sorry, Gail, you also asked on the infrastructure deals, which are happening at the moment. I mean, in the U. S, because we have such a footprint, The good thing is we are also seen in the U.
S. As a U. S. Company because all of the acquisitions we've done on the software side are actually American based. That's our headquarter there.
So we absolutely believe that we can participate in the infrastructure acceleration as it moves to industrialization in Industry 4.0, which we are very much leading in the space. On the that's the main question. On the acceleration on the U. S. Market, we're seeing the recovery.
As I said, it was a bit slower because it was so process heavy. But as the process industry is coming out in the U. S, we're participating in this growth also.
Okay. Thanks very much indeed. Thanks.
Thank you, Ger. The next question comes from Simon Tennyson from Jefferies. Simon, please go ahead. No limit at this time other than the 2 question limit.
Thank you, Ifrah. Good morning to both of you. I mean, the question on the revenue that I asked earlier has been basically answered, I think, and asked by Alex earlier. But If you could just clarify a bit more in terms of next year, in terms of the way you see your guidance range of 5% to 7%, Assuming software is flat, which is what you're guiding for, it does seem the automation business needs to grow significantly or at least above That range in order for you to get in there. So just to clarify.
And then two numbers question I have on your presentation. You said you already have 70% of recurring revenue business, and it's a combination of subscription, SaaS maintenance. Can you break this down in more detail, please? Because when I try to do math on your various businesses, I struggle to get To those numbers, given particularly how small SaaS today is? And then just as an add on to that, you mentioned your number 2 Market position in Process Automation, how do you define that, please?
Okay. I'll take just To sort of close off the first question, which Roland sort of gone forward with, I mean, our goal is to grow profitably, right? And the main idea is that we want to grow faster than the market and take market share, which goes back also to Gail's part. And the last quarters actually show the strengths we have on both businesses To be able to completely absorb the SaaS business transition, which is coming over the next 3 to 5 years, 4 years, and Rudi will tell you a bit sort of on the modeling side of things. So we are extremely confident that our position, both on the software side but also on the automation side, enables us to do What we just did is to keep everything the same even if we're going through this transition.
Now on the market position on process, we are very focused on process, to be very honest. We We're strong in chemical, for example. We're increasing in strengths on the pharma, as you've seen with BioNTech. We're not as strong on the oil and gas part of Because we want to focus on markets where we can make a difference with number 1 and number 2 positions. So as you do the aggregation, actually, you go to the position which we shared with you, But we're trying to be in every market, number 1 or number 2, in the process.
Water is another example in the process side of things which we think we can make a difference.
Simon, I mean, I already covered some of the points with Alex, but let me just summarize the key points. The 5% to 7% growth obviously has firstly the revenue recognition impact that we showed to you coming in the software business. We remain flat in the 22% and then after that, we start picking up our growth again. For the other businesses, The Automation side businesses, I mentioned that the discrete business, the market should grow by 6%, process in full. And if you model that out, that is what is driving the hand worth between the 5% to 7%.
Coming back to your recurring, and I understood the math doesn't get out to Come back to the full revenue, you need to consider there are other elements in there like service, for example. So you said it already, recurring revenue is the sum of our subscription business. It's our Cscription business, it's our SaaS business and then, of course, it's our maintenance business. The maintenance business is typically contracts that we sell together with perpetual deals. This is a subset of the revenue that we have.
So if you look at the upfront revenue portion that is within the recurring revenue, This is not accounted for when we go into ARR. ARR actually annualizes these multiyear subscriptions to give us Comparable development going forward. So I think this is why we're also very happy today to disclose ARR because it will be the KPI For you as well to track how are we progressing through the transition with SaaS.
Okay. Thank you.
Thank you, Simon. The next question comes from Andre Kukin from Credit Suisse. Andre, please go ahead.
Good morning. Thank you very much for taking my questions. I've got 2. One is on MindSphere and on how do you assess the development and success of that platform? And from what I understand, it's Potentially transitioning towards more apps rather than being platform and how it kind of interacts with some of the tech primes Okay, WSU or Azu or even Google.
So we'd love to hear your assessment of that. And the second question is coming back to that 6% through cycle market growth rate that you have for discrete automation, what assumptions do you bake into that For your traditional automotive supply chain as that transitions to electric vehicles where obviously Bill of materials is much smaller and hence theoretically leads to a much shorter supply chain. So I understand your traditional customers are basically investing now in Motors and battery packs, but there's obviously the other end to follow out. So I wanted to check on that, please. Thank you.
I mean, if I talk about MindSphere, and we need to talk about the whole SaaS environment because MindSphere, as Roland was saying, are capabilities and microservices, which enables us We'll glue different elements together. And we gave 2 examples. We're working with Volkswagen to use MindSphere. And MindSphere is one of those elements which enables us to work with, Let's say American cloud providers in Europe or in the U. S, but also with Chinese cloud providers in China.
This was going back also to the earlier question. It gives us the flexibility to actually take our apps into different markets. Now the other part, which We also need to understand is that we are moving the sensor to edge to cloud. We believe that a lot of the value will actually be created also on the edge part of the business, and we're investing quite a bit on this. I always give the example that a factory produces, and this is another auto factory it was last week, roughly 2,200 terabytes of data, You're not going to shift it back to the cloud, but you need to be able to actually take the data which is relevant, put it in the cloud, train your AI and then put it back into the edge So that you don't shift it back and forth.
And MindSphere enables us to do this. So the key part of this is that Coca Cola was the other example, is MindSphere has helped us Start really the IoT market. It's now moving to be the glue with Mendix to all of our SaaS sort of transition, and it enables us to be either moving elements from the edge To the cloud or to move it to different cloud providers so that we have that flexibility. And that's the idea of why we invested in MindSphere and the success we have there. And you see the market leader position.
I mean, you look at Gartner, Pack Radar, IDC, we're number 1 really on the top position in that space of IoT sort of capability. Now to the very detailed description on what do we believe our auto manufacturers To do, we're seeing this you have to understand that the complexity of factories and auto manufacturers are increasing They used to very few can build an electric car manufacturing plant and actually in parallel just a pure combustion engine plant. If you go to most of the they need to have flexibility to today to combustion, tomorrow to hybrid and then also to the electrical motor. So we think for the next couple of years, There's quite an investment that needs to happen so that you keep the existing sort of production running, but you make it flexible to be able to go to the electrical. So on top of what I told Gail that there's an extension moving into actually the battery production, which is huge, and also the electric motors, We're now moving into flexibilizing these auto plants, which used to be very sort of defined in building 1 car and build this hyper flexibility into it, Which is a lot of automation and a lot of software, you need to be able to do this.
I don't know if, Nordea, I think that would be sort of My answer to it, I wouldn't give you a concrete sort of percentage, but we're definitely seeing quite a bit of vitality in the auto market.
Can I just follow-up in terms of the supply chain for kind of traditional automotive, all these Kind of factories that are now cranking out engine components, gearboxes, fueling systems, etcetera, It sounds like you don't see a potential sort of slowdown from investment information from them as a threat to about
So a lot of them were actually working, and I'll give you an example? Of the 100 customers I visited since I joined 8 months ago, a lot of them were actually also supplying the auto manufacturer, Which build the traditional CNC manufacturing, machine tool manufacturing, and they're repositioning. So there's the classical I built the combustion engine Environment, but they're repositioning to be able to do hairpin machines, which build for electric motors. They're building packaging capabilities for actually doing battery packs. What's also going to come, all of those things will have to be taken apart going forward.
So when you now build something,
a car, a battery pack,
you need to think about how do you take it apart again, And that part needs to also be automated. So the supply chain is actually growing. And as I talk to most of the automotive suppliers and the automotive manufacturers themselves, the OEMs, They're actually in quite a bit of a renewal of their actually offerings and working with us to be able to do so. If you look just at pure numbers, Andre, I mean the machine tool business has come out, now strongly again out of the crisis and is accelerating again, just in pure numbers.
Thank you very much.
Thanks, Hendrik.
Thank you. The next question comes from James Moore from Redburn. James, please go ahead. Your line is open. James, can you hear us?
We cannot hear you.
It seems that we may have some technical difficulties. James, what we do is we take the next in line and then we come back to you. So the next line would be Will Mackie from Kepler Cheuvreux. Will, if you're there, your line will be open now. Okay.
So we go down our list. We then go to Martin Wilkie from Citi. So next try, Martin, if you're there, the floor is yours.
Hi, Martin.
We can't hear you yet. You have to activate your
Arten, maybe you're on mute.
Can't hear you yet. Try again, please. Unfortunately, we're experiencing some technical difficulties. And we try again with James. Martin, we try and come back.
Let's see if James has figured out the tool. James, are you there?
Everybody, if you can hear me, it's James.
Fantastic. That's great.
I hope you can. Cedric, Rudy, I have a question on margin. If the DI margin goes back to the 2021 level in 2025, how much do you see it falling at the trough? Which year is the trough? And then a question on EDA.
You're the number 3 overall. You're very strong in PCB. You're number 2 in IC layout, but you are a clear number 3 in the CAE simulation piece of EDA, what can you do to address that as it's arguably one of the 4 segments going forward? And finally, on EDA margins, consensus for your 2 competitors goes up from 25% EBIT margins Over 40 in the next 3 or 4 years, which is a very significant increase with the high growth and the high gross margins in that market. Do you think you also see strong profitability increase in your Siemens CBA business?
Maybe Cedric I'll lead with the first
and the third question. Thank you, James, for the question. I mean, the first part of what a point is how far is the trough going to be. And in the handout in our presentation earlier, we were mentioning 200 basis points. That is coming because of the revenue recognition effect.
This transition is optional to our customers, but we predict A solid development, so we would rather see the trough somewhere into 2022. But then again, it's up to the speed and the acceptance of our customers How they are going to adopt into the program. I just want to take the opportunity as well to say that we stay within our profitability bandwidth. Mean, as DI now, we are big and strong enough to be able to digest the SaaS transition and stay within our profitability per bandwidth. Then at the same time, because we've already been from an early point in time, transferring from perpetual into subscriptions, We can even build on our cash year by year going forward.
So the impact is negligible. On the EDA margin, obviously, we do not But I can do to tell you that we are having a good run, in particular because of the strength within the semiconductor space. We are very, very well placed there. The EDA business is a highly attractive business for Siemens. I might take the opportunity to place that with you that our EDA IC business It's not foreseen now to be part of the SaaS transformation.
So the business tends to be a little bit chunky or lumpy depending on the term that you use. In our case, these contracts are fairly difficult to time, and we definitely do not risk content for timing. So you can have Expect a little bit more of lumpiness within DI within our EDA IC business. And Cedric, on the second question.
Yes, I mean and James, we're very happy with our EDA margin profile at the moment, and we're nurturing it because the PCB if you look at the PCB business, we're number 1. We're happy with it. We Supplyframe actually pays into the PCB part of the EDA business, but we want to replicate it into other marketplaces, so just to give you a view. One element we haven't shared, but if you looked at the announcement we have, we do quite a bit of investment also into the EDA. So in terms of simulation, we bought a lot of Nine acquisitions in total, not all in the EDA, but mostly in the EDA space to strengthen it.
So what we do, we invest in it. We're actually making sure that we're taking them to customers they weren't before, And we're continuously sort of doing, we call them tuck ins. I'm not always sure that you like that work, but capabilities to be able to close the gap, we haven't actually Take a sort of leap compared to our 2 other competitors. So we're happy with it. We invest in it, and we're actually driving.
And you've seen the success we have with the EDA business at the moment.
Thank you, James. You do look frozen. I assume we answered your question and we would be moving on to Will Mackie from Kepler Cheuvreux. Will, we unfortunately are running out of time, so
Hello. I
hope you can hear me.
Yes.
Good. Okay. My question my first question follows up On the subject of margin and development around the SaaS business, I think from the framework that you've given us Around the revenue progression in the division for 2022, perhaps You're expecting or anticipating between €600,000,000 or €700,000,000 of revenue to transition as an early stage you've highlighted around PLM. I'm trying to understand the impact on that we should take on margin from that. Perhaps you could discuss a little about the gross margin differences Your cloud based business and the traditional license based business and whether there are any other drags To the margin development with regard to a step up in costs such as the MindSphere investments.
And the second question really is to follow-up on the Supplyframe acquisition that you made a number of weeks ago. I think you've been clear about the strategy and what it brings. But could you elaborate a little on how you make The statement that it will be triple digit value enhancing in the midterm. So what sort of growth And return expansion assumptions do you build into the growth around supply frame and how it complements the existing core? Thank you.
Let me start, well, I think with your first question, I think you were trying to flesh out on the margins in our software business. Maybe what I could provide you with is further information for your modeling. You've seen from the presentations that we will have a 200 basis point Effect in our DI profitability because of the transitioning going into SaaS and the revenue recognition element that is therein. But if you were then to probably calculate backwards in your model to understand how profitable the software business is, I'd like to give you 2 additional elements that you can take with you. One of which we've already alluded to that as we go into the SaaS transformation, we will start with our PLM part, which The customers are asking for, we will also go with our IC PCB business, but the EDA IC business will not Foresee now in the next wave to be part of the SaaS transitioning.
That means that the highly attractive EDA business is not part of the SaaS transitioning, something for you Thank you. The second element that I'd like to highlight, the quarter to business mix effect. It links I'll link it to your second topic, MindSphere, and I'll find my way back. I mentioned to you earlier, I mean, in Siemens and in digital industry, capital allocation is of really, really utmost importance for us. So as we have been investing to ramp up MindSphere in the past, I've also digested the integration of the Mendix and Mentor acquisitions.
We are now refocusing our investments Towards SaaS and the cloud, that means that we are reducing our investments in MindSphere significantly after the initial ramp up effect. But coming back to the software margin, there is the element of Mendix. Mendix is in a hyper growth trajectory, And it is on a different business development cycle profit stability effect. So combining the EDAIC effect Together with the business mix effect, I think, is what you are probably lacking in your modeling.
And on the supply frame? Supplyframe, the idea is that this is really sort of a marketplace where you have you actually are bringing together The producers or the distributors of EDA elements with actually the people which are designing those. And this has actually 3 businesses. It has one businesses where this is classical if you think about it like you're on a website and you get sort of redirected So that's the classical business. The second business is actually a business where you do a search.
You're an engineer, you do a search, and you have the capabilities on which element do I need, and you get Basically, number 1, number 2, number 3, these are the 3 suppliers which you can have. Now the element we're transitioning and which has this hyper growth you're alluding to It's the capability that we will offer SaaS components because we have the SaaS components I mentioned, you have sort of a freemium model in which you start designing your PCBs and you get sponsored by the people actually are putting the different elements on it. And that's what's actually driving this growth and the numbers which we shared with the market in terms of where we're going forward. Now this is just On its own, good for the EDA business because it's extending the supply chain, if you want. Now what's the big kicker into this is once you know on how to build those marketplaces, You can extend them into mechanical and other elements, which is what the plan for us is.
And our idea really is that supply frame becomes the kernel on doing these marketplaces. Imagine you have Teamcenter and you have a bomb of your product. And like at the moment, there's a certain part which is missing and you're automatically linked to the complete marketplace to see where you can get sort of the replacement. That's where we want to go. But that's why so supply frame for me has this hyper growth due to the fact that we're Taking it into our sales channels, we're bringing it forward, but we're going to integrate it also into our products and replicate into different businesses.
Well, let me wrap that up with a short fact. The SaaS business in supply frame has been growing by a cargo of approximately 40% now in the recent past.
Thank you.
Thank you, Will. Thank you all for your very good questions. And thank you, Cedric and Rudy, for your great answers and the passion and energy you've brought to the stage. Here's just a quick reminder. If we didn't answer all your questions, please feel free to send them to us at investorrelationsseamans.com so we can bundle them into our fireside chat at the end of the CMD.
Now unfortunately, we're running a little bit out of time, so we have shortened the break to 5 minutes only. I hope that is okay, and I'll see you back in 5 minutes. Thank
you.
Welcome back So I'll double head around 2 excellent businesses. 1st, we focus on smart infrastructure where CEO, Matthias Revalius and CFO, Axel Meier, will give you some Deep insights into the setup of SMART's infrastructure and the strategy going forward. This is followed by Mobility. Here, CEO, Michael Peter and CFO, Karl Blime, will give you their insights into their strategy targets and how to accelerate high value growth. Now, for those of you who have checked our websites, the handouts for SI and Mobility are now available.
And with that, directly over to Matthias.
Welcome back, everyone. There has never been a better time to care about our infrastructure. The world is at a point of inflection. Individuals, companies and governments are posing important questions about sustainable development. And there is a sense of urgency for change, not just about climate change.
It's about much more, radical electrification, Urbanization, the need to feel safe in buildings post COVID-nineteen. Digitalization is the key enabler. The good news is that governments around the world have serious green investment plans to build back better. Smart infrastructure is crucial to a sustainable energy transition and creating sustainable communities. The energy transition is a major driver of change.
We need smarter technology to move to a decentralized, decarbonized ecosystem. Energy sources are going from around 80% fossil fuels today to 80% renewables. We are moving to an all electric world. Think about growing demand for electric cars and buses, Streaming, digitalization, a boom in data centers, all this will increase electricity demand by 20% In the next decade, the changes are pushing aging grids to their limits. Storms, floods, droughts And wildfires make the need for change even more urgent.
During last year's wildfires in California, The community in Blue Lake Range Area was able to provide lifesaving medical care and shelter to neighboring districts Hit by blackouts because they had invested in a microgrid, of course, from Siemens. And it goes beyond energy. The second driver is the desire to create sustainable communities, the best possible places for us to live and work. Buildings account for 40% of the global energy demand. And incredibly, 1 third of that is wasted.
This represents a huge opportunity and a responsibility. It's more than energy efficiency. We want adaptive buildings that are smart. COVID has changed how we think of the indoors. Rather than being a haven, we worry about air quality and social distance.
Human centric smart buildings make us more comfortable, safe and secure. And in the decentralized energy ecosystem, buildings and grids interact. This is smart infrastructure. We are well positioned To create environments that care. Let's look together at our markets.
We address electrification, buildings and electrical products. The infrastructure market is worth approximately €185,000,000,000 With an approximately 3% compound annual growth rate, in line with the GDP, it is an attractive market With exciting growth pockets, double digit growth in both digitalization and at the grid edge. As you know, the grid edge means Electric vehicle charging, decentralized energy systems and storage, etcetera. Let me explain how smart infrastructure is addressing these markets. Firstly, with our electrification portfolio.
We make grids more resilient, flexible and efficient. We do so with grid control, protection and automation, switchgear and electric vehicle charging systems and infrastructure, Generating non consolidated revenues of €4,000,000,000 last year. This is a strong core And well positioned to capture growth in software and at the grid edge. Secondly, our buildings business, With response to the needs of operators, owners, occupants and users, with revenues of €6,900,000,000 it has a mix of products, Solutions and services in energy efficiency, building automation, fire safety and security. Here we are uniquely positioned in terms of customer proximity.
And thirdly, our excellent electrical products as the glue of smart infrastructure Across electrification and buildings, generating revenues of €3,700,000,000 with protection, switching and control products That are increasingly connected. We have been outgrowing the market for past one and a half years while continuously improving our profitability. Now let's zoom into 3 examples, 1 in each area, how we create value for our customers and shareholders. Starting with electrification. We are leading in smart electrification with the best in class portfolio.
So what are the key challenges our customers face? Grids are becoming much more complex. The addition of distributed energy resources will increase By a factor of 7 by 2,030, it's only possible to maintain grid stability with digitalization. But let's not forget, only 10% to 15% of secondary distribution grids are smart today. This is where we come in.
Here you see a secondary substation. Every town and city has at least one where power is being stepped down to go Where we are using electricity. We support our customers with leading portfolios for substation automation and protection And medium voltage switchgear. The highlight is here our first to market blue clean air range, which is completely fgas free. As you may know, fluorinated gases are among the most potent greenhouse emissions.
We offer increasingly connected And data enabled services for real time grid diagnostics as well as asset optimization. And to support the rapid growth in e mobility, We have strongly invested in a complete range of charging products and services. At the grid edge, Energy storage is booming, with installed capacity growing at about 40% each year. Our joint venture, Fluence, is a number one utility energy storage company recently valued at USD 1,000,000,000 a unicorn. Let me share an example of how this all comes together in just one city.
For many years, Siemens has been supporting Hamburg with its green ambitions. We have a pilot with Straubnet Hamburg to digitalize the secondary distribution grid. Hamburg will have 50,000 electric and hybrid Cars by 2024. Even when we are in the new normal, many people will arrive home and at the same time plug in their e car, Creating significant load on the grid. Artificial intelligence now instructs e car charging stations to draw Less power if overload, situations arise and to draw more when there is a surplus of power.
Additionally, we are installing 96 Charging points ready to expand e buses to a fleet of 1,000 over time. And by the way, with the ship to shore power solution And our control products making the harbor's fireballs smarter, we are helping on land and at sea. We're adding value in several ways. We are a market leader, and areas of our portfolio have class leading profitability, Ideally positioned for strong growth. And we can scale.
We will see a major ramp up of demand for electric Charging based on a market growing 30% between 2020 2025. With our investments, this will be a real growth rocket. The Hamburg example shows the potential in just one city. Let's look at a second example. Buildings are playing an ever more important role in the decentralized energy ecosystem.
Here, we have a resilient service With a high proportion of recurring revenue, we already generate services revenue of €3,200,000,000 annually With 750,000 existing customers as a foundation, solutions and service go hand in hand with our business model, Of course, positively impacting our return on capital employed. Our customers' biggest challenge is to run buildings as Efficient and sustainable as possible with the lowest operating cost and the highest rental yield. Customers need us to make this easier for them. We are well positioned to support with our service portfolio for buildings with unique customer proximity. We have 10,000 service technicians in the field and imagine already 2,300,000 connected devices.
We offer services for single domains such as fire safety, security in just one building, but also complete building automation and energy management We're even full service and maintenance of large campuses. IoT and cloud technology are enabling the next step, Increasing building efficiency with remote maintenance and decision making based on analytics. We are taking our customers on a journey From traditional break fix with technicians being called to site to product agnostic data driven services supported by a remote digital service center. And insights from these services help identify new customer needs, a virtuous circle. Let me explain further with a customer example from Dallas, 2 years ago, I shared the story of Southern Methodist University or SMU.
This university has more than 100 buildings of all times and a great example of a typical campus customer. Since 2019, we have further expanded our strong partnership with new digital services, connecting to our digital service centers. Services can be taken to the next level with cloud based energy monitoring and analytics and strategic energy planning. The customers' investments in these new services give them great payback. 60% of all issues can now be resolved remotely, And they saved 1,000,000 in their overall maintenance budget for the facilities.
Their CFO put it at best. Let's hear what she has to say.
We have built a good level of trust where I feel they're bringing appropriate solutions to the campus. They have lived on this campus now. They understand how we operate. They understand
To summarize the value, The smart billings market is growing fast from €15,000,000,000 to €50,000,000,000 by 2,030. Service is a good business, generating Carrying revenue based on low capital investments and the data driven services are higher margin business with the demand accelerating at a double digit growth Our third example, last but not least, our Hidden Gem, the fast growing increasingly profitable electrical products business. These products are the magic behind the scenes. So what are our customers looking for? In both the markets for electrification and buildings, Customers demand reliable products to make whole systems safe and efficient, ultimately protecting people and assets.
In addition, customers want more operational transparency to take energy and optimization of assets to the next level. Less downtime means lower operating costs. So what are Siemens doing here? Our equipment secures safe and reliable electrical power Everywhere you look, across residential or office buildings, factories, solar parks, ships or tunnels, We have invested in growth and innovation. During the past 5 years, 75% of our portfolio has been renewed, Increasingly connected to the cloud.
And here's a nice example of the magic working for our customer. In Hangzhou, China, we provided reliable power supply for the expansion of their metro network, 300 kilometers With 230 metro stations, think of being underground, the space is limited. We were able to design compact solutions And provided state of the art circuit breakers and contactors to our licensed partner, who built these into more than 4,000 compact panels in substations Along the metro lines, it's an example where Siemens Financial Services also supported with an attractive financing solution. As our channel partner confirmed, we provided excellent quality, which is why they choose us rather than a lower priced alternative. Electrical products bring significant and increasing value for customers and shareholders.
Products are the backbone of grids, buildings and industry. Customers appreciate our quality and innovation, and high margin products are positive for our mix. We have a strong track record and maintain solid double digit profitability while investing for growth, And we can build on this. Opportunities for growth in Asia are supported by our recent CNS acquisition in India And with continued growth with our channel partners, it's time to benefit from these investments and to continue to grow at twice the market rate. Now let's look at our business from different perspectives.
1st, Again, from a portfolio view, electrification, buildings and electrical products. They all serve 3 main customer groups. Close to 60% of our business is with buildings and campus customers, 25% is industrial customers where we collaborate closely with our digital industries colleagues and almost 20% is with utility customers. We benefit from a resilient business mix. As we saw during the pandemic recently, products with higher margins, Services was an increasing portion of digital services and a significant share of recurring revenue.
Our systems, solutions and software enable pull through of both products and services. And together with services, they ensure and leverage Customer proximity, a base for innovation and growth. We are well balanced when it comes to the geography With a strong footprint in Europe and the Americas and upside potential in Asia, having given you now some specific examples of value creation And the flavor of our business mix. I now welcome our CFO, Axel. He will give you an update on our strong performance since Capital Market Day 2019 And explain the ongoing impact of our competitiveness program.
Thank you, Matthias. Before I go in detail, I'd like to share with you our IC Smart infrastructure and what drives our agenda. We're in the right markets that are growing and have pockets for accelerated growth. We have the technology, the products, solutions and the right people to address our opportunities. Our business mix Has proven to be resilient, and I couldn't be prouder of our performance during a turbulent period.
We focus on execution, strengthened capital allocation and cash flow generation. We've come a long way, and we're delivering on the commitments for fiscal 2021, which we gave at the last Capital Market Day. But more importantly, we still have room to grow and improve profitability. Each area of our businesses is committed to close the gap to their best performing competitors by 25 at the latest. Strong execution of our competitiveness program is Key and needs to shift from program to process.
Extraction capital allocation is fundamental to sustainably drive And here we can do better and need to be more aggressive. As a team, we are focused on being a reliable performer Each and every quarter. Now I want to share more detail of our competitiveness program, The foundation for our continuously improving profit margin. The competitiveness program announced at Capital Market Day 2019 is not a simple cost It's about systematic continuous improvement. Our commitment was to achieve a €400,000,000 improvement On top of base productivity by the end of 'twenty three, of which EUR 300,000,000 is cost out.
We're now at the midpoint, and I'm pleased to say that with a €300,000,000 contribution, we will overachieve by the end of this fiscal year. We have raised the program goals multiple times and now aim for €520,000,000 by the end of 'twenty three. Our program is built on 3 axis: optimizing business mix product and system business improvements And focusing on becoming lean. There are multiple levers under each axis, and I'd like to highlight 3 examples to give you a flavor. There's much more to it.
First, we reviewed €2,000,000 of portfolio based on strategic fit and performance. We exited €700,000,000 big ones for HUBA control and distribution transformer. The remainder is under Performance Improvement Program, where up to this point, we have improved profitability by 40 basis points. And while we continue to improve, €500,000,000 have been identified for further divestment and M and A considerations. Manufacturing optimization is another important lever.
We're well on track. We reduced the number of our production sites by 25% From 79 to 59. While footprint considerations will remain, we shifted the focus towards digitalization and automation. And here we clearly tap into the expertise of digital industries. And finally, our lean setup.
We aimed at simplifying organization as well as stressing back office activities by offshoring and or automating them. As of now, we identified up to 2,200 jobs worldwide in engineering, sales and administration services, Which can be reduced or transferred from high to low cost countries. Approximately 500 have already moved With detailed plans in place for the remainder through fiscal 'twenty three. To reiterate, we are committed to deliver EUR 520,000,000 by We are well on the way, and there's more potential, and we will go for it. Additional focus is in our service push and pricing, and We will pursue additional portfolio improvement opportunities.
So the next step is to move from a program to an embedded continuous improvement process, avoiding major We've made good progress in optimizing our businesses. This is a solid foundation to address future opportunities. And now back to Matthias.
Thank you, Aksel. So far, we have talked about our markets, Our business and how to grow our core. Andy have explained how we will continue to improve our financial performance. Now let me add some more flavor on 2 important building blocks, digitalization and sustainability. Digitalization is the brain to simplify complexity, combining the real and the digital worlds across infrastructure.
You heard from Roland today how this runs across our entire company. The market for digitalization and software in grids and buildings It's growing more than 10%. Having started early, we are in an excellent position to turn this into value for customers As well as shareholders. Let's think about the billions of gigabytes generated, collected and processed In infrastructure every single minute, imagine this data being pulled together and turned into a competitive advantage. Advanced analytics turning data into insights to automate infrastructure, even make it autonomous?
Digital Twins will be the single source of truth of data over the entire lifecycle of grids and buildings. Digital Industries has brought the benefits of digital twins to industry. The next frontier is infrastructure. Allow me to outline how digital twins bring value. In grids, we have a great opportunity here.
Let's quickly recap. Grids are rapidly becoming more and more complex, changing loads, increased demand, more storage, buildings becoming prosumers. Today, information is siloed within separate processes, departments and software tools for planning, simulation, operation and maintenance. This is resource heavy work, and a grid control room can have up to 15 people who monitor the grid 20 fourseven. But with a huge increase in data and complexity, it won't be possible to maintain grid stability at an affordable The current approach won't work beyond the next 5 to 10 years.
Digital twins can help with decision making across all the domains and processes. The The good news is we have a head start with our leading portfolio and the customer base in grid simulation, operation and smart metering. Connecting our simulation tools to grid operations now enables near real time optimization. Let me share a great example. Together with 1 of the largest utility companies in the U.
S, American Electric Power, With our digital twin, we are integrating the data from 3 regional grid operators into 1 software model. This improves decision making, which strengthens our overall grid reliability and stability. The trend reduces the time and cost for model coordination. Also in buildings, it's time to make smart technology work Across all aspects of life and work, we talked about only 10% 10% to 15% of distribution grids being smart. For buildings, it's even less.
We need to balance requirements from multiple stakeholders, owner, facility managers, service engineer, tenants. The challenge is that they have each multiple programs and tools to operate the building. This adds complexity and means At Aspers Grids, data is siloed. This is a major source of inefficiency and creates a lot of extra and manual work. This needs to change.
Smart technology allows buildings to respond to our needs for well-being, comfort, Safety, while minimizing operating costs. Smart buildings will conserve energy, facilitate social distancing And equipment will always be in good condition and in the right place. What is our role in this? We make smart buildings twice. 1st, we create them digitally, and then we make them for real.
We create one simple to use interface, A single pane of glass for all the stakeholders to interact with the building and get what they need. We already have more than 150 digital applications and offerings. This is what Roland refers to as grow the digital. And we are ready to take it one step further. Our new smart building software suite leverages digital twin technology, Analyzing all data to create that single source of truth for a step change in building operations performance.
And the beauty of all this, not only do smart buildings use 20% to 30% less energy, but also tenants are willing to pay around 10% more rent. We have already pioneered the digital twin approach in a pilot for the Tiefenau Hospital in Bern, Switzerland. We integrated data from billing information modeling together with data from the billing management system, achieving a 10% total operating cost reduction And 30% faster fold resolution for the hospital. We have been in these businesses for decades, Developing deep domain know how. We have a broad software portfolio covering both IT and OT, and we are investing for the future.
We have a bold ambition, to more than double our digital revenues from €700,000,000 today to 1 point €5,000,000,000 by fiscal 2025. If digitalization is the brain, sustainability is the heart. Smart infrastructure is sustainable infrastructure. We empower our customers for their own sustainability ambitions. Already today, more than onethree of our revenue is from our environmental portfolio.
Smart Infrastructure makes a significant contribution to our ESG goals. For example, the D in the degree framework, Let's look at decarbonization. Our carbon neutral programs support customers towards low or net 0 CO2 emission goals. Many of these are enterprise customers. You heard earlier about the work we'll do with Mercedes as an example.
Of course, We also start at home. Supporting the whole of Siemens with our expertise to have net zero operations by 2,030, as Judith explained earlier. But it goes beyond decarbonization programs. In the Azores, for example, we have worked with Terchera Island To deliver a microgrid and battery storage to improve their grid resilience. This solution will enable the island to increase the renewable energy share to around 60% and reduce the annual CO2 emissions by more than 3,500 tonnes.
And now imagine the impact as we can Gale is up over the next years. This is where smart infrastructure has an important role to play. We enable the energy transition with our smart And we contribute to sustainable communities by creating smart buildings, which can deliver up to 25% energy savings And reduced CO2 emissions. And with our energy and performance services, we already today guarantee €4,000,000,000 savings for our customers. We have the hardware, the software and the expertise.
And we will continue to leverage digitalization and sustainability For further business success. So Aksel, please join me again on stage.
So bringing it all together, building on our strong performance and the progress made in our competitiveness program, We've updated our financial commitments. We commit to comparable revenue growth of 4% to 6%. Service is a growth engine for us. Here, we're aiming for accelerated growth of 6% to 9%. These are our resilient revenues, as explained by Ralf.
To reflect on improved profitability, we have revised our margin band to 11% to 16%. The next STEP will be a profit margin of 13% to 15% by 2023%. Last but not least, we maintain a 1 minuteus growth ambition for Cash conversion rate. We have already momentum we can build on. So based on solid plans, the progress made, I am confident that we will continue to deliver.
Smart infrastructure is a business whose time has come. We play an important role in Siemens' digitalization and sustainability ambitions. Since last Capital Market Day, we have streamlined and improved the business, Not just delivering on our commitments, but even ramping them up. We do what we say with a particular focus on improving profitability. And we are ready.
Our team is highly motivated and has managed the pandemic well. We're all proud of the positive contribution we can make to society And in communities.
We are a strong leadership team, 12 personalities, 5 different nationalities, One common goal, to be the leader in smart and sustainable infrastructure, and we are committed to meet our financial goals. After spending more than half of my career in the infrastructure business around the world, I can tell you there's never been a more exciting time for Siemens Smart Infrastructure. We create Environments That Care. Thank you for your time and attention. It is now my great pleasure to hand over to Michael Peter, CEO of Siemens Mobility, To share the perspective of the mobility business.
Welcome, ladies and gentlemen, to the fascinating world of mobility. My name is Michael Peter, And I'm the CEO of Siemens Mobility. I have been in this industry for almost 30 years, around 10 years in sales and project management On the rolling stock side, as well as another 10 years in the signaling business, so I had the fortune to get to know our business from all angles And from various management levels. Let me tell you, these are truly exciting times for our industry. The market is pushing us To new solutions needed for CO2 free mobility, leading to high value growth possibilities That I've never seen before in this industry.
We all know that for the past decades, the rail industry has been rather slow In innovating, mainly due to the extremely high safety requirements and the harsh environmental conditions in which we operate. It now really takes the best Of the industry to change that. And it takes the deep domain know how, paired with automation know how and technology know how In a way that only Siemens has it. But before I get into the technology game that we are playing and we are leading at Siemens, Let me first talk a bit about our market. Obviously, the market was heavily impacted by COVID-nineteen In the last year, which is factored into the 3 years average market that we show here in the background, Several projects were delayed, and this was most notable in the urban area.
However, I'm glad to say that the need for clean and sustainable transportation is much stronger than the COVID impact. Urbanization is still accelerating. Cities are predicted to grow by 2,500,000,000 people in the next 30 years only. And the only way to enable these large masses of people To commute in a sustainable manner is with more rail transportation. We can already see that the stimulus packages Around the whole world will be used over proportionately to invest in rail systems.
Our stimulus money in the past has always been used And spend on infrastructure, but this time, it must also be spent on systems to meet the climate targets. Large programs are on the way in Europe, in the U. S. And in several individual countries. For example, digital railways In Germany, the DSD program, our prediction is that in the next few years, the market will grow back To levels even higher than what we had thought before COVID.
There's one thing about this market that I consider even more important Linda, near growth of it. And that makes this market really a Siemens market, Supporting our profitable growth ambitions and that's digitalization. Digitalization is transforming this market from within. That's really important as the market, therefore, supports our strategy to go for technology leadership. This growth is driven by 2 important trends.
Firstly, increased competition on the rail. Much of the growth of rolling stock will be happening through concessions, for example, in the regional markets. And that means that our customers bidding for concession do not look for the cheapest rolling stock. They are looking for the most intelligent solution To maximize their own business case, and that means over the life cycle of the 30 year concession, including energy consumption. And secondly, on the infrastructure side, Our customers often supported by governments are increasingly moving to countrywide bids Like in Belgium, like in Norway, like in Austria in the past and currently Such bids are going on in the Netherlands, for example.
Now why is that? Because you can really only optimize the network If you have a consistent digital system for the complete network. And again, our ambition To reinvent transportation with technology, thereby leveraging our core portfolio with digitalization and investments Of the past years, it's paying off now. Our IoT and cloud technology on infrastructure side has significant advantages here Over the traditional technology of our competitors, we are uniquely positioned to combine the real and the digital world On a countrywide rollout program in the rail markets, technology leadership It's by far the largest lever to gain market share and to lead the competition when it comes to profitability Because it offers jumps in efficiency for all customers. And this is what our customers, Kaab Leym, our CFO, And me want to show to you in today's session.
So let me start by explaining what this means for rolling stock. Over the last year, we have developed clear market leadership with outstanding market shares with our Vectron platform, Which is our locomotive with our Vilaro high speed trains being delivered, for example, to Deutsche Bahn and others. And most recently, with the Mireo, we are targeting the same for the commuter rail. As a matter of fact, you just saw me Arriving in one of them, really an excellent train. I had a great ride.
For rolling stocks, technology leadership means developing the best Platforms. A rolling start platform means the technology core of the train such as engine, bogies, Transmission systems can be used in several train variations and the other parts can be individualized. When you develop a rolling stock platform, you have 3 advantages. Firstly, You can use your complete digitalization know how and put a lot of brains and R and D into the platform because you will use the platform for many, many projects. So for example, the Mireo is an ultra lightweight design and needs much less energy than other trains, up to 25% less Consumption and previous models.
It takes new designs and new simulation tools To design trains like that, we can put a lot of connectivity and intelligence also in the design at the same time. With this, we combine the real and the digital world. Secondly, platforms must allow optionalities so that in the end, You can sell the same train to many different customers with varying needs. Again, for example, the Mireo platform And also different propulsion options. Can we purchase as a normal train set by the regular overhead line, but it also can come With the battery version, and now we are also adding a hydrogen generator to charge the battery to have the 3rd possible propulsion system on board.
It's extremely important to be able to gain advantages of scale in our industry. Even if individual order sizes might be 1 or a few trains, scale in our industry is not Really about the total number of trains a company can sell. Well, it's about having a platform to serve small or large orders of trains, And this really drives efficiency and scale. The quality of the platform decides this game. And thirdly, a well thought through platform that takes many years to develop allows Still very speedy inclusion of fast track innovations on top of the platform.
For instance, When Deutsche Bahn ordered new high speed trains, fast track just last year, we were able to still offer all innovations that DB Wanted on top of the platform, changes in the interior, new Wi Fi in the train, new passenger information systems, New specially coated windows to allow better 4 gs penetration to maintain connections when you sit in the train. And by the way, In the end, the platform also guarantees reliable project execution. That's a key ingredient to reduce project hits, And it really is one of the secrets of our Siemens Mobility performance in the last years. In addition to rolling stock, Intelligent infrastructure is key. On the rail infrastructure side, the role that Technology place might even be larger than on the rolling stock side.
Infrastructure providers cannot just put more rails Into the countries, let alone the bottlenecks in the cities, costs to build larger tunnels or new bridges are gigantic. So the task is very clear for us. Increase the throughput with technology. Countrywide Optimization of Networks is the solution. Several years ago, we started to develop the technology for that.
We had very simple two slogans for it. Number 1, everything is IoT. We at Siemens know IoT like no one else in the industry because, for example, our colleagues in digital industries have been pioneering IoT In automation for many years, and for us in mobility, it means that all field equipment must be connected And remotely controlled. This is exactly what we are rolling out in the complete country of Norway For the very first time in the world. And number 2, move the logic to the cloud.
This is the interlocking, but also The European train control signaling system. This is what we have pioneered the first time in the world With an interlocking that recently went live in Austria. And now that's exactly what we will be doing For the complete ETCS signaling system in Austria, where we just won an order for the national rollout program And I've committed to move the logic to standard cloud service. While that sounds simple, the safety target for these Applications to obtain the operational license is one safety critical incident every 100000 years. And to achieve and guarantee that in the cloud It's taken our best engineers years in large R and D investments.
We are currently the only ones that can do that in the cloud, That's a real game changer for our customers. No more special spare parts from the '60s '70s On managing country operations from over 2,000 interlocking buildings all over the place, no. Now all data and software Can be on a standard over the shelf server or in the cloud. And that means consistent operation of the complete network From one single location. And it means maintenance will be reduced by 30% and throughput can likewise be increased by 30% In combination with other technology advances we have achieved.
Of course, this is also the basis To have driverless operations in the future on top of this technology, all of this is what Roland referred to as grow the core. We are growing and actually we're transforming our core business through digitalization. And our real strength in doing that in signaling Is that with a global market share of 25%, we are undisputed market leader. We can develop this technology in our home markets And then roll them out all over the world. Needless to say, the rolling stock platforms and interlockings in the cloud We'll not only drastically improve operations, but also revolutionize the service.
Our trains Today already intelligent computers on wheels, sending operational data all the time while they're on the track. Our infrastructure Has the data of all fleet equipment in the whole country available in just one location. For example, with the Rayleighgent application suite, It is very, very easy now to compare the behavior of all doors of many trains in operation or of all point machines in the whole country And to identify anomalies in one particular door or in one specific point machine. In this way, we can focus on predictive maintenance, only doing maintenance when we know there will be problems upcoming. And at the end, that results in reduced maintenance and reduced life cycle costs, but at the same time into higher availability.
All of this can be brought together very nicely in turnkey projects, which is the one portfolio element Of our business units that I have not mentioned yet. We have a very strong record in complex large projects, For example, Bangkok or Riyadh. Ladies and gentlemen, this brings us to our first deep dive about what it means to be technology leader In this exciting market, as I mentioned, late last year, we put the 1st interlocking in the cloud and the service in Austria. It's the first and the only one in the world. And I have talked about how it replaces relay interlockings or electronic interlockings It enables us to control a complete network remotely with only one data center.
Customer will give you details About what that means for UBB, the Austrian Federal Railways. But just one comparison from my side. So you understand my personal excitement about the possibilities that this technology shift will offer to us. If you compare this to the telecom industry, the relay interlockings that still make up over 50% Of installed base in every European country today would be comparable to telephone with a rotating disk that we used in the '70s, Completely analog. And now in one gigantic step, we go to voice over IP, like on your smartphone.
This is exactly what the interlocking in the cloud is, computing in the cloud and communication over IP to the field devices Somewhere in the country.
The Austrian Main Grid is approximately 3,500 kilometers long, and we operate this main grid with more than 600 interlocking stations. So it's A lot to do to change this old technology into the new digital world. We need here As a critical infrastructure, a powerful partner, and Siemens is a powerful partner. And We have as we've seen, we have a big tender about ETCS, the European train control system. Siemens won this tender, and so we go with Siemens in our digital future.
We assume that this new technology reduces our CapEx and OpEx because we can centralize the computing units into the cloud. We can reduce building for interlockings and so on. So it's for us the possibilities to reinvest In a very quick way from the old technologies to a new digital interlocking technology.
Our second example will capitalize on Activity of our platform trains and the interlockings. For several years now, we have invested heavily in creating value out of the data That these systems generate. I mentioned before the possibility to predict problems in equipment before these anomalies lead to a failure. Today, we have over 10 research centers distributed around the whole entire world, which are specialized in data analytics and artificial intelligence and have developed such algorithms. Through our digital asset management solutions for rail systems, Our customers can achieve the optimum balance between performance, costs and risk to ensure profitability and competitiveness With always 100% system availability, we have been heavily working to convert This know how into a means to provide standardized services that scale.
With Rayleighgen inside, All our trains and infrastructure solutions have come with built in connectivity and services that can be switched On if the customer wishes so. Let's see what our customer has to say.
Ray Liogent gathers and analyzes data from our train fleet and helps us Make smart decisions for the operation of the train and for Siemens as a maintainer. These Class 700 trains generate 9,000,000 data points Across the fleet each week. This helps show exactly how the trains are running and makes it easier to diagnose and fix faults. All this information helps to improve the availability of our service, reducing delays and improving, therefore, passenger satisfaction. We have a great partnership with Siemens Mobility and have had for years, and the digital technology is a real game changer.
The Rayleighgent Platform really supports us in delivering reliability and reducing costs. Maintenance is data driven With 30% of all work orders generated automatically by the train directly scheduling into the Siemens maintenance management systems, So making the maintenance really smart in terms of efficiency and cost.
The strong statements from our customers Underline our strategy of leadership through technology and digitalization. Now let's look at how all of this Translate into business figures. I would like to hand over to our Siemens Mobility CFO, Karl Blime.
Thanks, Michael. Hi, everybody. Exciting things happen at Siemens Mobility. I'm the CFO of the Mobility business Since now nearly 7 years, and I have had the pleasure to serve as CFO of both the Rolling Stock And the infrastructure business for additional 7 years. It has been quite a journey these years, But we have developed mobility into something really special.
Through all the things Michael just showed But also by the means of rigid execution and commercial prudence. I would like to guide you So what I stand for. 1st and foremost, growth must be value creating with a sustainable margin expansion. However, giving enough headroom for investments and stringent capital allocation to sustain our technology leadership position. 2nd, every order is a commitment towards our customers to deliver in time, in quality And in budget.
Therefore, risk and opportunity management are key. 3rd, We have managed to be ROCE accretive to Siemens due to our low asset intensity, and this will remain also in the future. The basis for all of this is tools, processes, but most and foremost, people and an open culture. I have had the opportunity to build up, educate and train, and I truly believe this, the best team of commercial project and line managers. Day by day, they go beyond the pure number crunching, creating value for the company.
This has been the basis for our resilient performance in project business. It's ultimately reflected In a proven track record throughout 29 quarters above industry peer levels. You do know our numbers by heart. Mobility is a long cycle business. Based on the large backlog at hand, we typically know what we have to do.
The backlog gives us visibility and resilience. It's however also rather a marathon than a sprint. Therefore, it is of importance To judge the business performance not on a single quarter only but rather on a long term view. The important things: First, we have been consistently growing the business with a CAGR of 4% and above the market. But more importantly so, we therein have increased our share of recurring revenues from services from 13% to 15%, A 9% CAGR of our service business.
We have reached an order backlog of more than €32,000,000,000 This includes a service order backlog of €10,500,000,000 Our book to bill was constantly above 1 For our total orders. 2nd, we have proven our project execution capability That we can deliver above industry profitability over the last 29 quarters, quarter by quarter, And we haven't compromised on innovation. We continue to be technology leader with significant R and D spending. 3rd, in addition, we have managed our cash flows and achieved accumulated cash conversion rate of better than 1 minuteus growth. We all know the ultimate if yardstick though is competition, and we don't have to be shy When it comes to comparing ourselves with competition, even in difficult times such as The global pandemic year 2020, we delivered robust and resilient results.
Compared to the combination of 2 major competitors and a big Chinese competitor, surely, we do have less backlog, But size doesn't do the trick. We have been growing faster in terms of revenue. Matter of fact, we have been the only one growing in the pandemic. We have been delivering the best EBITDA margins and have been delivering on our promises on cash flow. How did we do that?
Project management excellence. Just an example, we have developed an empirical database early warning system, allowing us To act early on if problems might arise. This has helped to keep our non conformance costs on a very low level And gives us great visibility into ongoing project execution. We have a quite efficient factory footprint, lesser but Larger factories. And as outlined by Michael, we have been proactively managing our customers' transition From CapEx to a lifecycle OpEx driven industry through digitalization.
How do we stay best in class? Let me tell you about our competitive growth program. We thereby will rely on 3 levels: growth and scale, Business mix and innovation and operational excellence. The competitive growth program is a logical Extension of our past successful development. It is all about developing the center of gravity of our portfolio Into areas of higher profitability and more recurring revenue streams like service.
Let me give you some examples for the different levers. 1st, growth and scale. As being said, there is a lot of motion in the market Based on the available stimulus packages, rail is the perfect spot which combines economic stimulus And CO2 savings at the same time. We will foster profitable growth by diligent execution of our large infrastructure projects, And we are clearly targeting to increase our base for resilient revenue as well. We will further increase our service order backlog, which has been at €10,500,000,000 in fiscal 2020.
Our plan is to grow this number With a CAGR of more than 8% until 2025. 2nd, business mix and innovation. Rolling Stock platforms and, for example, interlockings in the cloud will not only drastically improve our customers' operation but also derisk Project execution and drive resilient margin expansion. We have invested early in these fields And are already the number one signaling company. With the program levels in this category, we are setting the right priorities in resource and capital allocation.
3rd, operational excellence. We have been already increasing our rolling stock manufacturing footprint in Eastern Europe During the last three years significantly, we will continue to do so and even accelerate our ramp up of engineering centers In India and Eastern Europe, we plan to add 2,000 engineers in lead cost countries until 2025. These measures contribute in addition to our 3% base productivity. As an interim readout, we expect to grow at a CAGR of 5% to 8% until 2023, exceeding the €10,000,000,000 revenue threshold and a profit margin of more than 11%. With those levers in place, we shape and prepare our future.
Michael, why don't you come back To the growth and scale lever and fill the audience in on what we do in the ESG area. Our market is driven By
the need to have clean transportation available for everyone. We, Siemens Mobility, are ESG And a very strong contributor to the degree framework presented early on by Judith. Our portfolio supports decarbonization And achieving climate targets. Today, our trains can provide 100% CO2 free transportation At a very high capacity and little space used per person transported. And where lines are not electrified yet, In the future, we want to have the same efficiency with alternative propulsion systems.
We have developed platforms, Platforms that today then also allow for battery driven or hydrogen driven trains. We are leading the industry already today with battery technology. And for hydrogen, we have decided to skip the 1st generation and will Put directly the 2nd generation train on the tracks in 2022. Also taking the lead here with a concept that is far superior to other Hydrogen trains on the market. Our first hydrogen train will be right away a modern and fully fledged Mainline train, with all the acceleration needed to run even in a mixed operation and a huge reach Of 800 kilometers, something that no other train on the market today can promise.
I've talked a lot about why we have chosen To go for unrivaled technology leadership, Karl has presented what that means for our business numbers and also how we control our strategy And translate it into strict measures so that the execution of our strategy, our growth plans and our projects We'll lead to the business numbers. Together, Karl and I are firmly convinced of our commitments To deliver industry leading results, and Karl will guide you one more time through our commitments. Karl, over to you.
Thanks, Michael. As in the financial framework, all our commitments are over the cycle. Based on the market dynamics And our positioning, we plan to grow faster than the market with a CAGR of 5% to 8%. Our special focus is on resilient business development. As already said, we plan to grow our service backlog With a CAGR of more than 8%.
Service backlog today already accounts for 1 third Of our overall backlog of €32,000,000,000 By growing our service backlog, we will further increase Our basis for future resilient revenue streams. At our last Capital Market Day, we have already increased our target margin band To 9% to 12% profit. Based on the positive developments we have described, we do increase our guidance On the target margin band, once again, to 10% to 13%, way better than the competition. And all of that With a strict focus on cash and financial resources used. This is big ticket infrastructure business, though, which is Subjected to volatility over the quarters.
However, over the cycle, we commit to a cash conversion rate of 1 minus
growth. Last but not least, a business can only be as great as the teams that make all of this possible. If you ask any of our almost 40,000 employees why they joined Siemens Mobility in the first place, it's because they wanted to build the best trains. They wanted to build the most intelligent infrastructure and they want to transform mobility, ecosystems to digitalization. And this is what they take pride in, and it's their passion for mobility that drives our success.
Thank you very much, Michael and Karl and Matthias and Axel for your engaging presentations. We will move directly to Q and A. Since we have both leadership teams here on stage with us, it would greatly help if you can make clear whether you direct your question to the Smart Infrastructure team or to the Mobility team. Please limit yourselves to 2 questions per analyst. With that, let's get started.
The first question comes from Ben Uglow from Morgan Stanley. Ben, your line is open. Please go ahead.
Hello. Thank you for taking the question. It was really on Smart Infrastructure and maybe for Axel, but whomever. I just want to understand the raise in the margin target
and what you're actually seeing
that's getting there. What is actually driving That changed. If I look at the businesses between electrification, 27%, buildings, 47% And Electrical Products, 26%. What part of the portfolio is mainly responsible for that Higher margin target, please.
Sure. Thank you for the question, Ben. When we started Smart Infrastructure and we were looking at our business, we figured out each of our business is trading the Best performing competitor in its categories. So we said, okay, look, the target is you have to narrow the gap to your best So they were setting the expectation. And from there on, we were saying, okay, deliver us a plan on how you close the gap by latest 2025.
So when we started this, everyone was trading each of our businesses. And looking at this today, we're seeing the progress being made in all of the business. Also seeing the first ones having almost closed the gap to competition. Now having said this is We will have to continue to grow above the market, which we have clearly as a target. We will have to have a competitive Folio through innovation, and we have spent a lot of money in the past renewing the portfolio to be competitive.
And then a big piece of this is getting the Cost out and optimizing the business mix, what we say is our competitiveness program. And if I stick for a second on the business mix, business mix for us is Weeding out the portfolio when it comes to low performance or not really accretive to the business. Then the second part is also driving those areas of the business have a high margin quality. That's why we look towards the service business and why we also look about the product business because Product business itself, with innovation, with the economy of scale, with the cost measures, that's the recipe basically to narrow the gap to competition. As I said, where we are today is we're encouraged by the successes we've seen so far, but we also do know By far, we are not there.
So if I compare smart infrastructure with digital industries, they are there. We have still to get there, But that's why we say, okay, it's all about the execution of the plans we have laid out. I think we have a track record demonstrated so far, And our clear target is we will deliver as we have laid it out.
Thank you. And obviously, I can understand that there has been some progression, but we're still talking about 10% to 11%, hopefully a little bit higher this year type margins. Well, when I benchmark those components versus competitors, we're certainly more in the mid teens range. Is there any one area I understand we're going to get more growth. I understand mix and all these things.
Is there any one area where you could really concentrate To lever this margin a little bit higher. And the reason, with all due respect, I'm asking this is we have been having the conversation now For 15 plus years. So what is it that could take this higher? Is there one business or one activity or one divestment, One thing that would be beyond with benchmarking versus better competitors?
Our biggest lever Closing this gap is our product businesses. This is where we have to focus. There we started with the biggest gap That we will see the fastest momentum building.
Okay.
Thank you very much.
Thank you, Ben. The next question comes from Daniela Costa from Goldman Sachs. Daniela, please go ahead. Your line is open.
Hi, good afternoon. Hope you can hear me. Thanks for taking my questions. I have 2. I will start With Smart Infrastructure, you've mentioned that sort of like a portfolio review of some of the lower margin business is mostly complete.
I know there's still EUR 500,000,000 of Potential for divestment, but can you talk through now that you're mostly done with that, give us a little bit of color in the 3 main sub areas, Where do you see your market position and whether there are any pockets that you think going forward you might actually want to strengthen maybe with more inorganic investments? That's the smart infrastructure question and maybe I'll pause here and I ask the mobility one afterwards.
Yes. Thank you, Daniela, for the question, which is pretty broad and it relates to also the topics that I've shown in the video. So if you Look at the three areas that we how we cut the market and cut our business, electrification, buildings and electrical products. And we shared some of our success factors there and also the KPIs and also where we think we have a leading position, For example, in smart electrification, also on the grid control with a huge installed base, also especially on the substation Automation and Protection business as well as in the GIS and being the first of also offering the blue GIS, I would call this a leading position in technology, But also in the market position overall. On buildings, I would say we are a leading company in smart buildings So here and on the top 2 for the overall building market where we serve products, Solutions Services and now even more digital services with having not only the resilient service business within that business mainly, Also, the digital revenue is related very much to digital services plus software, which is enabling us also to take To build on our installed base and our legacy and the strong customer intimacy that we have to for the future For future success in building digital and smart building business.
And Aksel was already talking about the ElectroGear products, which is really The foundation, which goes in all of our markets, all of our customers, a strong growth rate and renewed portfolio, Which where we are on a good track record to improve our market position as well as the profitability based on an innovative portfolio, A strong focus in the business as well as a growth strategy across all our markets. And you have seen this also in the recent performance of our business and especially also in the product business in the first half of twenty twenty one. And of course, the second part of the question was related to M and A. Of course, For all of our business fields, we are screening the markets also in terms of that was not limited to M and A. It's also about partnering With other companies and also within the company, leveraging the technology base that we have in Siemens, also the strong Hold, in the digital twin story, what Cedric was showing today again for Digital Industries, how we can build on that and leverage also the Strengths and the benefits within the company, partnering with others within the industry, which has which is really moving Towards digital and sustainability, as I was talking about before and really build on this.
But of course, also externally, we are open for Acquisitions in dedicated markets to drive either digital business or sustainable business or strengthening the core.
Thank you for that. And my question on mobility relates to, as you've mentioned, you have higher margins Than other peers. In the space, you also have a different structure. I guess, you're part of a broader group versus a lot of the others being pure plays. Can you Talk a little bit about sort of the benefits, sort of how much of do you think of that higher profitability might be being able to tap in other Parts and other investments they are doing elsewhere in the business and sort of what's the advantage of being not being a pure play basically?
Thank you.
Maybe I'll start with probably Trying to explain why we are where we are. I mean, you have seen in our presentation basically our strategy. We do believe that we have a quite efficient manufacturing footprint. We have fewer but larger factories, and that's actually where The productivity hits the road. As Michael has been showing, we are investing heavily in innovation and digitalization For a certain purpose, and the purpose is also to optimize the life cycle costs.
And the customer, as always, you could See in the statements of our customer is exactly transitioning into that arena. We do have invested Also in platforms, platforms meaning you have retiring risks already early enough and therefore, you have a much better handle around your Project execution. And last but not least, we are part of Siemens. And Siemens does give us a lot of benefits, Being it the access to core technologies or being it a strong balance sheet which we can leverage.
Thank you.
Thank you, Daniella. The next question comes from Phil Buller from Berenberg. Please go ahead, Phil. Your line is open.
Yes. Hi, good afternoon. Thanks for taking my questions. I have a couple on the SI business, please. I guess the first is An extension of the other questions really on the margin gap, and I don't wish to lay with the point too much.
But is there anything you see that is still unaddressed And low hanging fruits, I'm thinking particularly in terms of your own pricing strategy. And also one of the things that we've seen from one of your Higher margin competitors was a strategic decision to be much more selective on bidding and tendering, which has weighed on their growth for A few years in exchange for structurally higher margins. So is that something that you are considering and have factored into The higher growth guide. And also, can you just talk a little bit on the gaps in the portfolio in SI, perhaps on the BMS So I do all low voltage products. Is M and A something you'd hope would be accretive to margin going forward?
Yes. Perhaps I think it's actually about 3 topics. The one was perhaps the low hanging fruits in the portfolio. Perhaps, Akce, you want to Address also on this one, where we can improve the first. And I take the one on our portfolio and also where you see gaps Again, the M and A question.
I think I answered the M and A part already before. This is an option. Where we are focusing on is, Of course, we have renewed our entire EP portfolio, electrical product or 75% of it in the last 5 years, Really being competitive now and bringing this into the market. In addition, we have also for the huge growth market I was talking about For an e cars charging infrastructure, an almost complete portfolio now put together in the last 2 years Since we started and put this together. And it's now ready, and we are really seeing huge growth rates there.
And of course, there's one or the other Gap in that portfolio, which we are still closing organically. And then combining this and as we combine the digital and the real world, The portfolio there also with our software suites and that is then, of course, for the grid edge software and but also the smart building software Being connected, connecting the automation world of buildings with the automation world of grids and also then the e car charging infrastructure is a significant contributor to that into this portfolio. So these are areas of investments Where we are focusing on, definitely on software, digital platforms And the like. And then, of course, also open for acquisition and partnering, as I said before. On Decisions strategic decisions on where we focus in, of course, we do solutions to enable service.
We do solutions to pull through product Pull through products, they are all closely interlinked. And that gives us also some as what we call a resilient portfolio mix To when we have short cycle business booming up as we see it now, while the Solutions business is still a little bit lagging from the pandemic and We see orders coming in there again. And then service is balancing this out over the time. That's what we call a resilient portfolio and where we are focusing and of course, always being making strategic decisions on Where we want to invest in and where we are bidding in also in terms of projects. And Aksel, perhaps you want to talk about some low hanging fruits?
Sure. Yes. Maybe quickly to the low hanging fruits. I would say the really low hanging fruits we have already cracked. The parties here, we have identified and have started to execute on measures, while it takes some time to really see the benefits.
So we are continuing on what we have started, And the impact will come, which is mostly on the portfolio side. What we have done also, we became much more stringent when it comes So where do I spend the money for? So we have stopped certain investments which had started and which basically started to be derailed And reallocating the money to what Matthias was describing. And then lastly is also what you can actively manage always very fast is, okay, How much do I invest in a solutions business, which traditionally has lower margin businesses versus accelerating other businesses like in the area of service or in the product So this is what we do on a day to day basis. I think it shows early fruits, but again, it's still the way to go.
Thanks, Yi.
Thank you very much. We tried to conclude the session at quarter past 2. So what I'm hoping to do, the next person in line is Alexander Virgo from Bank of America. Alex, if you could limit yourself to one question, So we have also time for one more question from Andreas Willi from JPMorgan. That will be fantastic.
Thank you. So with that, Alex, please go ahead. Your line is open.
Sure. Thanks, Eva. So it's an SI question. And it was just I wonder whether you could clarify How the digital revenue is €700,000,000 splits across the verticals, I. E, the differences between portfolio and customer mix and just where it appears in the business mix?
So is there a balance between systems solutions and software and services? You have some digital services and some software. I'm just looking for a little bit of color on that. Thank you.
Yes. Digital revenue, as we say also in our markets, electrification, Electrical Products and Buildings, and we say grid edge and digitalization are growth fields across those markets. And the same is also and this is also how we now also our reports here that we say the digital revenue goes across all of the business. So we have, of course, And we have digital business, which include digital services, which also include the software that we are selling and like our Building management suites and also the metadata management, the grid control software. So that is all included there In the what we call digital revenue, but also the cloud based and analytics based digital services that we, For example, apply in especially mainly in buildings.
So it's a combination which goes across all of the business. And it's also important because we're also leveraging common technology as well as especially if we talk about the building. And I was reading also The report from you about the Bank of America from the Smart Building business, which is really and also aligned with how we see this Really increasing and also helping them with a long design build and manage and operate Give us more growth fields also for our digital revenue, and this is exactly where we want to double the digital revenue to SEK 1,500,000,000 as we said.
Thank you very much. Thanks for the shout.
Thank you, Alex. So the last question comes from Andreas Willey from JPMorgan. Andreas, please go ahead. Your line is open.
Thank you very much for fitting me in. I hope you can hear me. I can't see myself, But hopefully, you can hear me.
I just
want to We can't hear you. We can't see
you, but we can hear you.
Well, on the portfolio, in terms of growth This is obviously one of your competitors has a very strong data center business. You're not playing in the core of that market in terms of UPS. But what's Data centers for your business and what's your strategy there, maybe some indication of size. And the same for EV charging where The ABB has announced they're going to list their business. You've called yours the market leader.
ABB has about said they have about EUR 300,000,000 revenues. How do you compare against that? You very much.
Yes. Thank you, Andreas, for the question. So let me really quick on Data centers, I talked about data centers 2 years ago and that is, of course, important is one of the most important verticals for us. We continue to have a 20% growth rate Yes, we are considering us a strong number 2 in the data center market and with, as I said, strong double digit growth rate. And it goes across the business.
That's also an area where not only fire safety automation, but also then low and medium voltage And the software played together very well. So that's a real strong story for the SI Overall portfolio and then also leading to additional growth, which we call had 20% over the last 2 years per year. So on the e car charging, so I will not comment in detail, of course, what our the other partners in the markets do With their business, but of course, it's a huge growth opportunity, as I also said in the video, with 30% plus Growth rates, and that is where we are focusing. We have invested in our portfolio. Now it's about Sales focus and continued investment.
And we definitely run this different than like we run our fire business, for example, in our business. So with a clear focus, Dedicated teams, a strong focus on this important market and also combine it with digital offerings and software to make a difference.
Thank you.
Thank you very much. Thank you very much to everyone, to all of your Excellent questions. I'm really sorry we have to wrap up at this point, but we will be picking up some of them and others that you sent to us online in our fireside Ted, which we will commence in 10 minutes. So now we're taking a quick break, change our setting, and we'll be back in 10 minutes. Thank you.
Thank you.
Of the CMD, the fireside chat with the Siemens Management Board. So what we've been trying to do is to channel all the questions that you had throughout today, and that may not have been completely answered into this last session. So I will kick it right off with a question to Roland Busch. So people want to know, in connection with the adjacent market opportunities of $120,000,000,000 that you highlighted in your speech, Which markets are these? And how do you want to unlock them?
And what role does M and A play in unlocking these markets?
Well, I mean, we knew that this SEK 120,000,000,000 created a lot of attention and Particularly because they come with higher growth but also very good profitability. So we want to address these markets in 2 ways, Organically and unorganically. And here I give you an idea how we do that unorganically. Supply Frame was an acquisition, Which opened up really the market for digital supply chain platforms and marketplaces, Which is now stepping into that and as Cedric explained, has the opportunity for us to really leverage it and expand it to other markets too. Varian is another example with some more stronger acquisition, but in order to really open up Therapy market for cancer.
So this is one. We also develop organically in these markets. And there are 2 others which I would like to mention, which is the IoT transformation Market IoT Transformation Services, but also Digital Transformation Services. There we are investing organically, but we are also looking into that profit pool because it's very interesting. It is exactly playing our strengths, combining the real and digital world, Integrating it and providing superior services to our customers.
So therefore, it's a blend of organic and unorganic moves.
So maybe as a follow-up question on that one. As you pointed out, these are highly attractive markets and they're growing fast. So how exactly will you establish value creating M and A?
Yes. I would like to repeat what I said before because I think it's very important. Number 1 is we really want to be very stringent regarding capital allocation when it comes to acquisitions. And again, our 6 imperatives, It has to be a high growth market with good profit pools. It has to belong to Siemens, so leveraging our strengths.
It has to come with synergies, But also with innovation, preferably disruptive innovation, any kind of new things which we eventually cannot or don't want to Develop organically. And last but not least, a new element that has to support our sustainability program. But you also look into the bottom line. So Brosi has to be larger than the WACC. At the same time, we look for earnings per share pre PPA, which is accretive after 2 years.
But then we also focus on the integration, which is a very important element, not only the technical integration, but also the culture aspects And there'll be a restricted following on the costs. Is it top line synergies or bottom line synergies? All in all, we'd like to Really follow-up on the success which we had so far on bolt on acquisitions, where we really believe this is the right thing to do. And we have a very good success story here. We would like to continue that.
Thank you very much. Well, switching gears a little bit, Judith, so we get a lot of positive feedback on the degree framework, But there's a question around what do you actually mean by saying sustainability equals business?
Very happy to talk about that. Now we think at Siemens that with our technology and innovation, we're actually uniquely positioned to help our customers Achieve their sustainability goals. So whilst we're still committed obviously to decarbonize in terms of our own operations and to do what's Right. In the supply chain, we think that it's actually our portfolio that can make the biggest difference in terms of sustainability going forward. And we've been a technology leader in fields like decarbonization, helping with energy efficiency and driving resource efficiency.
So if you think about just what digitalization can do in terms of decarbonizing industrial operations, mobility, Buildings, we have solutions to offer to our customers. Tech Digital Industry, the digital twin technology, is a brilliant example of what we can do across all verticals in the discrete and process industry. If I take an example from SI, It's also what we have to offer not only in building technology, but also with our microgrids because we have clever intelligent solutions To offer that help with flexibility of grids, but also allows our customers to actually feed in renewable energy whilst Lowering emissions at the same time. And then, of course, there's the future of mobility. And you've heard from Michael Peter today What we can do in terms of new propulsion technology, whether that's battery powered trains or even hydrogen going forward.
So therefore, we think we're uniquely positioned, and every investment in our core portfolio is also an investment Into sustainability.
Thank you, Judith. I've got another question for Roland. It's a bit general. So the question is, what are the synergies between DI, SI and Mobility?
So let me start. Coming from the customer, it's always good to come from the market from the customer. I mean, definitely, we are leveraging the power of Siemens With our strong regional footprint established by many, many years, very, very strong foothold, we have a we are working on or we have a joint sales force, In particular, if it comes to product and channel business, SEK 1,500,000,000 of revenue goes via the same channel. This is revenue between SI and DI, which they're contributing. But also if you could talk about vertical markets, special markets like automotive, food and beverage, chemicals, where we work with Account management, we have corporate accounts, customer accounts.
They're bringing the interesting things together like take the example of Mercedes, where we have a project where we really Put the power of Siemens on the street. And the customer has to work, as Ola said, also with one partner. But then it goes beyond that. We have a couple of go to market projects, which were launched between our businesses, Which put the customer at the center of what we do. Is it about our Siemens sales portal, More and More's Growth Digital?
Is it about the automation of sales and marketing, our processes? Is it about the incentive scheme, which we are aligning on in order to really get our Feet on the street, really up and running also on cash, but also the digital sales transformation itself, which requires data analytics, Have a holistic customer view. Having a data, we have a very strong backbone of technology. We call it company core technologies What we are leveraging on, you saw that in the presentations. Is it 5 gs?
Is it cybersecurity? AI? We have 1,000 AI experts which are sitting all around Contributing. But also in open source, where we are leveraging the capabilities amongst the company. And of course, our IoT platform, Which has a repository for applications, our machine learning core works on different verticals, for example.
There's a lot of domain on how which is going into that. We are leveraging this horizontally. But also think about connectivity. We're connecting a lot of assets. We can do that across all businesses.
And financial organization, which is providing support for big tickets, Think about Varian Financing, but also small tickets. They are working now with their competence of building new business models. They are supplement To what we do in digitalization in order to really get also on a small ticket financing new business models to our customers.
Thank you very much. Next question goes to Ralf. Ralf, we have a question on the progressive dividend policy. So the question is whether the €3,000,000 or €0.50 of fiscal year 2020 is the baseline for fiscal year 2021 and what growth rates going forward Ken. There was a
lot of discussion in place for a couple of weeks, and therefore, we wanted to spell it out ourselves. Yes, Progressive dividend payments are going to be our policy on the way forward. And as you heard, we intend To be quite demanding in terms of EPS growth and the fact that we have been tailoring our new KPI EPS before PPA to the cash concerns and cash opportunities that you may have had, We are very, very close to our dividend payments with that progressive scheme.
So the question is, other companies have experienced customers being reluctant in adopting SaaS. What's your view on this?
So Our experience talking to our customers and working on the SaaS environment is really that the customers are ready To adopt SaaS in our market. And they will see the value we are delivering. Now we want to give them the choice. I mean, we repeated that. We wanted to give them the choice, so we're open.
But the good news about SaaS is that it's actually a motion which has a low barrier to entry. You can try it out and then see if it works. That's why it's so attractive for SMBs. Art actually is once you have a customer using it, it's how do you expand it. So what we're doing is we're redefining We have redefined and we're ready sort of setting out sort of this digital sales motion and expansion motion.
And the good news is, Ralph said about the investment we've done On going and getting cloud ready, we've taken within that cost has already integrated not only the technological change, but also the sales motion change. So we are ready for the customers. We will show them the value. And I'm very, very sure we will convince them to try it out and buy more.
Okay, great. There's actually another question on the SaaS transition, which is, does Siemens need to spend more in sales, engineers and other teams to address the more fragmented SME market.
It's a bit sort of the answer I gave before. And the good news is Ralph gave you a number, and that number is true. This is within that number, which we're spending. We are spending it for delivering the SaaS technology, but also Redefining this digital land and expand motion. And as such, we are actually ready for the SMB customers to adopt it.
And Tony said it very nicely. The big advantages is as an SMB, Ruroc was the example. They can just try it out and then use it. And we think that the complexity we're taking away from them from the IT capability is what will move them in our direction. So it's within our cost, And we are ready and our sales force is prepared for that.
Excellent. Thank you for that. Now Roland, the next question is for you again. It's a question on the SEK 5,300,000,000 from the digital revenues. And the question really is, could you give a definition or Explain a little bit more what it is.
Right. I can do that. And remember, this is a business we want to grow by 10% over the cycle going forward. So within this SEK 5,300,000,000 you'll find SEK 4,100,000,000 of revenue, which is linked to industrial software, our DI software. You know that very well.
Another SEK 500,000,000 comes from we call vertical software or business specific Fair. This is, for example, grid software or software which goes into buildings. We have a building suite there as well as mobility. And the rest comes from IoT Services and Digital IoT Services. Here again, I can mention building Service, digital building service, which if you ask me, we've talked about the levers to close the margin gap.
This is another one because it not only provides Additional value to customers, but it also bring lifts our profitability in this very attractive service business. But it's also Digital service, IoT service from Mobility OR Digital Industries.
Thank you very much. Matthias, here's a question for you. So we have received several comments on how different SI looks and feels in comparison to the CMD in 2019. Now if you have to sum it up in a few sentences, how would you summarize the progress that SI has made since
2019. Yes. First, I would say 2019, and we were standing there together, Cedric, And when we formed the new business, we had different business came together from the Energy Management, Building Technologies, Parts From Industry. We put this together for a purpose, and we have made Strong progress from my perspective. And if I may say, I would say we are we have become a core a valuable core business for Siemens With combining these assets and developing this further, we also we had delivered on our commitments and continuously improved the performance.
And how did we do that? Axel and I, we were talking about this earlier today with focused innovation on the growth fields Of the future, digital services and products as well as on, of course, above market growth, which we have delivered over the last many, many quarters As well as the continuously and the consequent implementation of our competitiveness program with all of the levers. And we have a clear ambition. We have a clear ambition where we say with which is with sustainability at its heart to make it a business or make it part of our business And also with digitalization as the brains, as I called it before, to make grids more effective, productive, deal with the challenges ahead of them As well as with to make buildings more secure, effective, productive And efficient and even smart or autonomous, as we call it. So we are in attractive markets, electrification, Buildings and Electrical Products, as we talked, and we are ready to enable and accelerate sustainable energy transition as well as Sustainable community.
So we are ready, and we continue to deliver on our commitments.
Thank you very much. So we keep getting some questions live from you. So we're taking one that just came in, which is on the ROCE, Ralph. The question is, Siemens has fallen short of the ROCE range over the past 5 years. And from fiscal Q3 onwards, the integration of Varian will increase the group's Capital employed by nearly 20%.
So, does it still make sense to keep an ROCE target in such a high range If every time you make a midsized acquisition, it kills the group's returns for a few years.
So first of all, thank you for that question, giving me an opportunity to touch on this very relevant matter. Even though I wouldn't To the Varian being a midsized acquisition, I think your conceptual concerns are very valid. And what we said is transformatory Transactions like Varian with an impact for 3, 4, 5, 6 years, which cannot be changed By operational performance, it doesn't make sense to include it in ROCE. Therefore, we took it out to give you a clear and crisp view on how we are doing on an annual basis, Which is important for you guys to compare ourselves to peers, but also for us to see where we stand in terms of capital efficiency. But that does not mean that we would eliminate other acquisitions that are not of that magnitude.
So assuming that we don't see transformative Acquisitions every year, I think this is a very valid and reasonable figure on the way forward. And on top of that, of course, You will see all our disclosures also as reported, including all the KPIs That would reflect the full scope, including acquisitions and their impact on capital efficiency.
Thank you very much for clarifying that. So we have one final question that came in for Judith. How much do you invest in reskilling your people to be able to reduce the severance to $100,000,000 to $200,000,000 per annum?
Okay. Now let me start by severance or let me split out the 2 things because whilst there is a bit of relation, I do think they're 2 separate Thanks. So we're not spending as much going forward on severance because we're not planning to do significant restructuring. Now that is, I'm sure, an interesting piece of news for you, but it's an even more important message, I think, to our people that there are no big restructurings ahead. Now our investment into learning, Education, learning, training has been high over the last years.
Just last year, even if we The Siemens Healthineers, we spend about €250,000,000 on up and reskilling and the education of our people. And that will become even more important as we go forward. And we think it actually makes a lot of business sense already today, but it's going to become Imperative tomorrow because of 2 trends in particular. One is and we've talked about digitalization most of today because technology is Changing so fast. So the capabilities, the competencies that we need to have at an organizational level, but also At an individual level, at a person level are going to change far more rapidly.
We're talking about shelf life of knowledge being probably no more than 5 years, Particularly in tech and IT relevant functions. So that's one thing. The other thing that's happening as well is demographic change. In some countries more than others, but to give you a number for Germany, we think that about 6,500,000 people out of 41 will leave the workforce in the next 10 to 15 years just in this country alone. So therefore, investing into the people that we have is going to be Critically important for us, and we do that in a number of ways.
At an organizational level, we've developed a methodology that helps our businesses understand where And for our people, we have a learning platform that only today has already 100,000 digital learning units, Which allows us to democratize learning, give more access to more people to learning and reduce the cost per learning unit. So for us, an extremely important message to give to you as investors, but also to our people.
Thank you, Judith, for these important insights. Thanks to all of you for staying with us for the last 6 hours. We have really enjoyed engaging with you today and explaining our strategy and way forward. Roland and Ralph will be going on roadshow from tomorrow, so we still have to ask some of your more technical questions that we may not have fully gotten to the bottom of during the course of today. Now with that, I would like to hand over to Roland for some closing remarks.
Well, it's time to wrap up our Capital Market Day, and Thank you, Eva, for managing us so well through not only the day, but also the preparation. Great job. Well, Siemens is a focused technology company, and we are positioned for accelerated high value growth. That means Comparable annual revenue growth of 5% to 7%, together with increased margin bands for our businesses. We will achieve this By addressing highly attractive growth markets, and we will continue to grow substantially above market rates.
In our addressable markets, They currently amount for around €440,000,000,000 But we are also entering adjacent markets, which account to About €120,000,000,000 with even higher growth rates and profitability. Siemens will grow faster Because our technologies empower our customers to master their digital transformation and sustainability challenges. Just one example. By offering our PLM portfolio as cloud based software as a service, we will make it easier for more and more customers, Large and small. To access the latest digital technologies.
Sustainability. It is embedded in our business strategy, and it drives our businesses. But still, we want to do more. Our new degree framework Brings our ESG commitment to the next level. I will give you three examples.
We will reduce the waste to landfill to 0 by 2,030. We will go for a 0 carbon footprint in our supply chain by 2,050, and we will strengthen Our training and education offerings, as explained by Judith, for our employees. This will also help reduce our severance cost To a range of €100,000,000 to €200,000,000 per year. We will grow because we can combine The real and the digital worlds like no other company can. Our core business and our digital business reinforce each other In a virtual cycle.
And we have ambitious growth targets for our digital business. We expect to grow organically at around 10% CAGR, Starting from our strong €5,300,000,000 in 2020. We will accelerate Value creation because we have a clear focus on profit, cash, stringent capital allocation and Take our move into software as a service. While we execute the transition, we will keep our financial target commitments. We are upgrading profit margin levels for Smart Infrastructure and for Mobility.
We are adding a cash conversion target on Siemens Group level. We are committed to be a progressive dividend policy payer. And finally, we strive To grow earnings per share by high single digit percentages year after year. And that's What I mean when I speak of high value growth. Thank you for