Earnings Transcript for SIEGY - Q1 Fiscal Year 2025

Operator: Good morning, ladies and gentlemen, and welcome to the Siemens 2025 First Quarter Conference Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore, subject to certain risks and uncertainties. At this time, I would like to turn the conference over to your host today, Mr. Tobias Atzler, Head of Investor Relations. Please go ahead, sir.

Tobias Atzler: Good morning, ladies and gentlemen, and welcome to our Q1 conference call. All Q1 documents were released this morning and can be found also on our IR website. I'm here today with our CEO, Roland Busch; and our CFO, Ralf Thomas, who will review the Q1 results. After the presentation, we will have time for Q&A. Please be aware that the virtual Siemens AGM starts right after this call, and therefore, we must limit the time of the call to 45 minutes. With that, over to you, Roland.

Roland Busch: Yes. Thank you, Tobias, and good morning, everyone, and thank you for joining us to discuss our first quarter performance ahead of our virtual AGM. We delivered a promising start into fiscal year 2025, generating clear momentum for continued value creation for our stakeholders. And we are strategically well positioned in attractive markets with a balanced global footprint. This is a solid foundation to master ongoing macroeconomic uncertainties, also fueled by high volatility from political decisions around tariff regimes and potential countermeasures. In an environment of accelerating technological progress, our technologies enable our customers to combine the real and the digital world to improve competitiveness, resilience and sustainability. Our discussions with partners, customers and opinion leaders at the World Economic Forum were centered around accelerating implementation plans for AI, moving on from more speculative discussions one year earlier, and we are right in the sweet spot. With our leading leadership in industrial AI, we see strong traction in bringing real-world impact for our customers. Siemens provides the operating system for industry that will be supercharged by AI. I will share some examples in a moment, but now let me outline some key highlights of the first quarter. Our solid top line performance highlights the confidence our customers place in us. Book-to-bill reached a healthy 1.09, lifting orders backlog to a record high of €118 billion. Group orders reached €20.1 billion, 8% below prior year. We saw ongoing momentum at Smart Infrastructure, where orders were clearly up even from a high level. Mobility orders were solid, but with sharply less volume from large contracts in prior year. As expected, orders in Digital Industries started to recover with a book-to-bill above one for the first time in two years. Our automation business was clearly up on prior year with plus 6%. Recovery was driven by China, where we expect destocking in the distribution chain to largely finish by the end of Q2. However, overall economic activity was still sluggish and investment sentiment soft in core industries such as automotive and machine building. Our key region, Europe lacks momentum, and in particular, Germany is still in a crisis mode with companies and society urgently awaiting action and clarity from a new government. Overall, revenue growth reached 3% with strong contribution from Mobility and Smart Infrastructure. Smart Infrastructure, again, driven by double-digit growth in the electrification business. The revenue in our Automation business of Digital Industries was, as expected, substantially lower due to continued destocking, partially compensated by 15% growth in our software business. Regional dynamics and sentiment are also reflected in our revenue growth numbers for the group. The Americas were up by 17%, fueled by strong momentum in the U.S., while EMEA was flattish and Asia and Australia was down 4% on softness in China. What really counts is value-creating growth, and we executed in a very stringent way despite the well-known headwinds from the DI automation business. A solid profit of €2.5 billion in the Industrial business topped market expectations. Earnings per share pre-PPA reached €2.22 excluding the divestment gain for and as a clear highlight, our promising start delivered seasonally strong €1.6 billion of free cash flow all in. We are shaping the future and creating impact along a number of fronts. A key area is our strong progress and strengthen our leadership in sustainability. Siemens is a major contributor, particularly in terms of helping our customers to decarbonize. Our offerings sold to customers in fiscal 2024 will over the course of their lifetime, avoid around 144 million tons of greenhouse gas emissions. This is much higher than the 121 million tons of emissions Siemens generates along our entire value chain from Scope 1, 2 and 3 in fiscal year 2024. In our own operations, we continue to make great progress with 60% less CO2 equivalent emissions compared to fiscal year 2019, surpassing our 55% target for 2025 ahead of time. This is also reflected in the recognition of our location in Furth as Sustainability Lighthouse by the World Economic Forum. And as all good things come in freeze, our Alanen site [ph] was -- has become a WEF, digital lighthouse factory next to Amberg and Chengdu. With their green digital approach, the team increased productivity by 69% and reduced energy consumption by 42% in four years. This is a living example for deploying AI successfully with more than 100 use cases and intensively using the power of digital twins. With additional investments, we will further develop it into a showcase for the industrial metaverse. We have defined our long-term direction for Siemens as one tech company, a company with stronger customer focus, faster innovations and higher profitable growth. A cornerstone of our ONE Tech Company program is the acquisition of Altair to enhance our strong industrial software business. The regulatory clearance process is advancing very well. We obtained the Altair shareholder approval a few weeks ago. And considering the progress made and depending on further progress of the regulatory approval process, a closing already in the first half of calendar year 2025 could be possible. However, our current planning is still based on a closing in the second half of the calendar year. We will continue to provide updates on the ONE Tech Company program over the coming months and give you a strategy update at the Capital Market Day on December 9. There's a debate going on among many stakeholders whether AI is overhyped. For our industrial world in automation, mobility, infrastructure and health care, certainly not. The intense application of AI in all industries we serve will supercharge the transformation towards better and faster decision-making and productivity improvements based on data-driven knowledge. It will boost productivity by simplifying tasks, speed up time to market, use resources more efficiently. And whatever innovation makes the development and training of large language models more efficient will drive the faster adoption of industrial AI. Siemens is the ideal partner to empower our customers since we can apply our domain know-how and have access to a vast amount of operational data to adopt AI for the real world at scale. We already integrate the best foundation models from world-class partners and make applications accessible via our Siemens Accelerator platform. At this year's Consumer Electronics Show in Las Vegas, we launched a series of new industrial AI products and a photorealism-enhanced digital twin. JetZero, a start-up led and backed by aviation specialists will collaborate with Siemens on the development and production of a revolutionary blended wing aircraft with the aim to improve fuel efficiency by 50%. They will use the full suite of our latest industrial AI-powered software and automation technologies to achieve their ambitious schedule. At CES, their CEO explained that their ambitions would not be achievable without our technology partnership and the power of industrial AI. Here, you can see some examples from -- for long-term partnerships where we bring Siemens Accelerator and domain know-how together for lasting customer success. From day 1, Siemens has been the technology partner for multi-champion winning Red Bull racing now for 20 years. Together, we have always been pushing the boundaries of latest digital twin technologies for design, engineering, testing and manufacturing. We signed a multiyear agreement with U.S.-based Compass data centers to support aggressive scaling targets for data centers construction. Smart Infrastructure will supply up to 1,500 prefabricated units of a customized modular medium voltage kit solution. Key benefits of the standardized design are easy deployment, low maintenance and cost efficiency. And finally, a great example from our mobility business. HS2 in the U.K. awarded Siemens with several key infrastructure and long-term maintenance contracts for up to 15 years' worth in total £560 million. For the first time, automatic train operation over ETCS will be applied in the U.K. national high-speed rail system for improved capacity, functionality and energy efficiency. I'm very pleased with the continuing successful transition of a majority of our DI software business towards Software-as a-Service. ARR growth reached again a very healthy level of 14% over prior year. The cloud portion stands at £1.9 billion, equal to 42% of ARR with the team targeting to approach the 50% mark by the end of fiscal 2025. All indicators, numbers of total customers, share of small and medium enterprises and customer transformation rates continue to head in the right direction. And with these positive perspectives, over to you, Ralf.

Ralf Thomas: Thank you, Roland, and good morning to everybody. Let me share more about our promising start to the new fiscal year and our expectations. Orders for Digital Industries at €4.2 billion were 6% above prior year with a book-to-bill of 1.04. It was encouraging to see that all automation businesses showed material sequential improvement and a book-to-bill above 1. The software business delivered clear growth with orders exceeding €1.3 billion for a book-to-bill close to 1, driven by strength in the EDA space. As Roland mentioned, underlying market dynamics and manufacturing output were still muted in important customer industries and investment sentiment was soft in key regions, especially in Europe. However, we saw further progress in destocking in China, where average distributor stock levels closed the first quarter at around 9.5 weeks reach, yet with substantial differences on individual distributor level. As indicated, we continue to expect to return to normal levels by the end of the second quarter of fiscal '25. Our backlog in Digital Industries increased moderately to €9.6 billion. They are in the software backlog amounted to €5.7 billion supported by a strengthening U.S. dollar. The automation backlog stood at €3.8 billion. We see this as a fairly normalized level. Revenue for DI was 11% lower. Therein, the software business achieved strong growth of 15% on easy comps, particularly in the EDA business, which grew more than 30%. The PLM business was up 8%. On the other hand, automation revenue was down 19% to €2.7 billion which we expect to be trough in the current cycle. Discrete automation declined by 24% again most notably affected by destocking in the short cycle factory automation business. Process automation was down by 2%. The high profitability reached 14.5% with the robust conversion in the software business. Lower revenue in automation led to reduced capacity utilization and consequential margin contraction as expected and guided. Regarding our announcements in November, the teams has been progressing well with the executing capacity adjustments in several regions to partially balance lower volumes. This led to severance charges of €52 million or 130 basis points in the first quarter. We expect to finalize the full assessment process for further adjustments and reskilling requirements in the coming weeks. Continuing stringent pricing discipline and productivity gains supported a net positive economic equation in the first quarter, which we target to maintain for full fiscal '25. Digital Industries achieved a solid free cash flow of more than €600 million benefiting from lower receivables. Now let me give you the regional perspective on our top-line automation performance. As mentioned, recovery of automation orders gained some traction. In China, orders increased sharply sequentially and were up 14% over prior year on very easy comps. Our key countries in Europe were also sequentially up despite muted economic conditions. In line with the low level of short cycle automation orders in previous quarters and further destocking, revenue in all key regions declined materially, most notably in Europe and in China. Looking ahead, we confirm our fiscal '25 guidance for revenue growth of minus 6% to 1% to plus 1% and profit margin to be in the range of 15% to 19% as the assumptions laid out in November are still valid. From today's perspective, once destocking is completed everywhere, we anticipate that improving trends will begin to materialize in the second half of fiscal '25 supporting top and bottom line. As you can see in the appendix, official sources point to further emerging green shoots in early cycle verticals such as electronics and semiconductors. However, we will closely monitor if and how tariff disputes will impact the macro environment. For the second quarter, we see DI orders close to prior year's level with an improving automation business, but substantially lower volume from the EDA Software business. We anticipate DI revenue growth to be down high-single digit. Automation revenue will grow sequentially, whereas software is expected to be flattish with strength in PLM compensated by EDA. For the second quarter, we see the profit margin to be rather flat sequentially. Now, let's turn to Smart Infrastructure, which again delivered an outstanding first quarter performance. The team achieved strong top line growth in healthy end markets and further operational margin expansion for the seventeenth quarter in a row. In total, orders were up 5% on a record level of €6.2 billion. This was driven most notably by 10% growth in the electrification business, where orders benefited again from large contracts, primarily from data centers, energy and industry customers. Book-to-bill reached very healthy 1.17%. SI's order backlog at an all-time high level of €19.8 million provides excellent visibility for the remainder of fiscal '25. Revenue growth was broad based and reached 8% in line with expectations with the largest contribution coming from the electrification business up by 12%. With 9% Electrical Products continued its consistent growth path from a high level. Building showed 5% growth also driven by a healthy service business. Stringent backlog execution again led to further operational margin expansion of 50 basis points year-over-year to 16.9%. The business continued to benefit from economies of scale from higher revenue and high capacity utilization. The economic equation was again clearly positive supported by strong pricing and sustainable productivity gains outweighing cost increases. Free cash flow showed a seasonally exceptional start for cash conversion, which was supported by advanced payments amongst others. Looking at the regional top line development, we saw robust demand with strong order momentum driven by Europe, outside Germany, and Middle East on large order wins in various verticals. U.S. was up 9%, again benefiting from strong data center demand. China showed soft top-line development across businesses in a challenging environment. Revenue growth in most regions was fueled by strong backlog execution. The U.S. achieved an outstanding 20% growth. Key growth engines were the electrification electrical product businesses again. The Service business delivered broad-based 8% growth. We continue to expect very consistent and resilient end market demand trends with growth in our main verticals. For the second quarter, we see the comparable revenue growth rate to be at the upper end of the full-year growth guidance of 6% to 9% strongly supported by order backlog. We anticipate operational margin to be around the midpoint of the full-year target range of 17% to 18%. In addition, we may see an extraordinary gain related to exiting the Wiring Accessory business in the second quarter. Mobility started fiscal '25 with a solid performance. Order at €2.7 billion were lower due to sharply less volumes from large order bookings as expected, yet the base business showed a healthy margin profile. Order backlog stands at €49 billion with further improvement in gross margin. This includes more than €14 billion of attractive service business. Revenue in the first quarter was up 10% on broad-based growth with a material contribution from customer services and strong rolling stock backlog execution. Profit margin reached 8.4% with strength in the customer service business, offset, however, by a less favorable business mix in rolling stock. Free cash flow was soft in the first quarter after exceptionally strong performance in prior year's fourth quarter. Looking at project payment profiles and timing of order awards in the sales funnel, we expect the second quarter again to be rather soft before we see a material catch-up in the second half of fiscal '25, driven by advanced payments from new orders to come. Our assumption for revenue growth for Q2 is trending towards the lower end of the corridor of 8% to 10%. Second quarter margin is seen as well towards the lower end of our full-year margin guidance of 8% to 10%. Let me keep the perspective on below industrial businesses crisp. Siemens Financial Services achieved a solid Q1 performance. From today's perspective, SFS is expected to deliver in the second quarter profit exceeding prior year, including a strong result from the equity business driven by the expected sale of a stake in an equity investment in India. A major driver for Siemens net income was a €2.1 billion gain from divesting Innomotics to KPS, which was recorded in discontinued operations. Free cash flow performance in the first quarter was off to a seasonally very strong start with Industrial business delivering €1.7 billion. Stringent working capital management contained the increase in operating working capital at €400 million. We are confident to continue achieving industry benchmark levels of double-digit cash return once again in fiscal '25. Liquidity outside free cash flow was materially strengthened through €3.1 billion proceeds from divesting Innomotics. Further inflows are recorded from the continuing sell-down of the Siemens Energy stake, where we are now below 15% shareholding. With a capital structure of 0.4 for industrial net debt over EBITDA and an industry-leading AA rating by both Standard & Poor's and Moody's, we continue to act from a position of financial strength. Following the promising start into fiscal '25, we confirm our guidance. However, we will monitor macroeconomic volatility closely to be able to act swiftly if need be. Our direction is clear. We will deliver further value creation by profitable growth and resilient cash generation. With that, back to you, Tobias.

Tobias Atzler: Thank you, Ralf. We are now ready for Q&A. Please limit yourselves to one question per person. We want to give as many of you as possible the opportunity to raise your question. Operator, please open the Q&A now.

Operator: Thank you ladies and gentlemen. [Operator Instructions]. And our first question comes from the line of Max Yates from Morgan Stanley. Please go ahead.

Max Yates: Thank you. Good morning, Roland and Ralf. I just wanted to ask about the Software business. So you've done sort of €1.3 billion of orders. You had sort of one of your competitors in the quarter was talking out some wins with some of your customers like VW. So I just wanted to know, is there any feeling that you missed out on a few orders this quarter? And maybe if you could just talk a little bit about the pipeline that you see for the rest of the year. I mean, just to put some numbers on it, obviously, we're starting the year at around €1.3 billion of orders. Do you see scope when you look at your pipeline to have some quarters through the year that are again getting up to that kind of €1.8 billion, €1.9 billion and €2 billion level? Or do we think this kind of €1.3 billion, €1.5 billion is probably more of a reflection of underlying demand? I'm just really trying to understand kind of how the pipeline may imply that that order number trends through the rest of the year? Thank you.

Ralf Thomas: So thank you, Max, for that question. Let me start with the funnel and the quarterly expectations. I mean, as we pointed out last year in November when we have been guiding for fiscal '25. I mean, it's always hard to predict when major orders are kicking in hunting, white elephants is expensive if you do so, and therefore, we don't. But what we do foresee, we had pointed out a very strong first quarter in EDA business that doesn't repeat itself in the second and most likely not in the third quarter. So for the fourth quarter, things look quite promising again, but too early to determine whether or not. As always, we stay tuned and we try to get the best possible outcome in each and every quarter, but we don't push for timing that hurts margin typically, and we are out to profitably growing the business and not to as fast as possible growing the business. That's not helpful. On the PLM side, I think there will be a momentum building up in the next two quarters. However, with the SaaS transitioning, as you know, this is also kind of equalized in the quarters from a revenue recognition point of view. So as indicated, we still stick to the assumptions that we made and shared with you in November that we will see a rather flat development year-over-year on an annual basis, but it's very, very encouraging how successfully we are transitioning to the SaaS business model. We do see momentum. We keep on rolling all the relevant KPIs, even though the 42% we seem to be stuck a bit, but that's purely driven by math as we have a strong -- we had a strong first quarter in EDA with a fairly low part of SaaS transitioning ARR cloud-based. This is pure math that we got stuck with 42%. We are still dedicated and very optimistically looking into achieving the 50% target. And as mentioned before, the original target of 40% has been reached for cloud-based ARR already one year earlier. So all indicators do support our thesis that we are very successfully going through that transition on the way forward.

Max Yates: Very helpful. Thank you.

Roland Busch: Yes. Regarding the Software business. So Siemens Accelerator, this is the whole suite of software, which we're offering is widely used across the automotive industry. So with leading OEMs like Ford, GM, BYD, Daimler Truck, they use software across design and manufacturing processes. So the continued success of -- also in the automotive industry supports our ARR growth of 14%. So we value our long-term partnership with VW, and we'll also look forward to continue to work with them. They continuously use our technology, including software and automation across design manufacturing processes at various VW Group companies and throughout their supply chain. So Siemens has a history of working with customers like VW who use software from a variety of suppliers. But our strategy has been to enable openness, so we can work with VW and others as we do with many other customers who continue to use Siemens technology alongside competitive solutions.

Max Yates: Great. Thank you very much.

Tobias Atzler: Next question, please.

Operator: Next question comes from the line of Ben Uglow from OxCap Analytics. Please go ahead.

Ben Uglow: Yes, Roland and Ralf. Thanks for taking the question. Mine really relates to portfolio. Obviously, there was -- there's been a lot of speculation in the German press even in late December around the Healthineers stake. And I did want to just sort of clarify your position on all this. I guess two kind of questions. Before, when we were on previous conference calls like Altair, et cetera, I think the assumption was that Siemens was only willing to sell down bit by bit in connection with M&A, sort of 5% here or there. I guess people are now thinking, well, is a broader deconsolidation possible? And secondly, and I think, Ralf, in an article, you were indicating that the decision will be taken and/or announced, I'm not sure what the language was at a meeting at the end of this year, Capital Markets Day, potentially November, December. If things moved quickly or if -- are you bound to -- how quickly can you take some kind of decision around Healthineers? Or should we not expect anything until the end of this year? Thank you.

Roland Busch: Yes. Thanks, Ben. Actually, we are not limited in taking decisions, not at all, but we make mindful decisions. So let me start with Siemens Healthineers. We always said that after investing €16 billion in Varian, we want to see the synergies. And if you follow up Siemens Healthineers closely, their synergies are ramping up in this current fiscal year to the higher level as well as making really good progress in diagnostics and turning customers into Atellica. And we always said we want a shareholder to benefit from this uptick. And if you look at the Q1, a very promising start. So we see that already. Secondly, yes, we announced that we are going to sell 5 plus/minus percent of shares to finance Altair. But this is just a way to finance a very meaningful acquisition. So we are not dogmatic, as we always said, on the shareholder relationship with Siemens Healthineers. And let me say that we will come up with a strategy, how we want to go forward in the Capital Market Day. December 9. And so then you will know more.

Ben Uglow: Understood. Just one follow-up, and apologies for pressing the point. The market, the stock market, and obviously, we all get very excited, assumes that Siemens will naturally deconsolidate, right, i.e., that going below 50% is a real prospect. And obviously, that's part of the rerating story. Is deconsolidation something that you are considering? Is that something that you're willing to do?

Ralf Thomas: Ben, of course, we cannot hinder the stock market to speculate, as you know. But we have the freedom to act in all directions. That's what we always said. What we do is we are prudently and thoroughly assessing the situation. It's broader than just shareholding. As we said, it's about how can Siemens AG best possibly benefit in a health care market beyond med tech and how instrumental would Healthineers be at a certain point in time for that. That is driving our thinking. We don't exclude anything, as we said that before. We always use the wording that we are not religious about the 75% shareholding. It needs to make sense. And you can rest assured we are prudently looking into all options and scenarios, and we will conclude in a way that everyone will understand our rationale.

Ben Uglow: That's very clear. Thank you very much both.

Tobias Atzler: Next question please.

Operator: The next question is from James Moore from Redburn Atlantic. Please go ahead.

James Moore: Yes, good morning everybody. Thank you for the time. I wanted to ask about portfolio, but Ben snaffled that. So can I ask about the 14.5% margin in DI? Could you elaborate a little bit on the dynamics between software and automation? Without numbers, I sense that software profitability was very strong in the second half of last year because of the large license revenues and revenues have now normalized. Would it be fair to assume that the software margin has normalized from that level even if it's progressing? Could you talk a little bit about pricing trends on both sides of DI? And on the cost savings, could you size the potential of the actions? You've quantified the size of the severance that you're looking to do. But I'm just trying to think about what the size of savings could be and whether they more land in '26 or whether they'll already start to land in this year from a kind of bridge modeling perspective?

Ralf Thomas: James, thank you for that universe of question. I tried to sort it out in a meaningful time. If you allow, I start with the big picture, and you are perfectly right. We had a very strong and also focused second half of fiscal '24 when it comes to software, large-scale deals with corresponding profitability. We also guided in November that this will not repeat itself on the same levels in fiscal '25. We are working hard on that. And first quarter was promising, in particular, with a strong growth focus in EDA, which was helpful. But in a nutshell, the full fiscal year for software will be rather backloaded for the rest of the upcoming three quarters. we said that the funnel for EDA business in the next two quarters looks rather dry, yes. I mean we are always doing -- the team is always doing their best, and they have been very successfully hunting. But as I said before, answering another question, we try and will be meaningfully in our attempts to hunt at the right point in time and not sacrifice margin for timing. That always paid off, and we will continue doing so. So on the software side, EDA short term, rather low, mid and long-term, of course, a highly attractive market. And we also do see electronics and semiconductor markets in general picking up momentum quite meaningfully. So strategically and structurally, the demand, which is driving our software business is very well intact, and we feel very comfortable with our portfolio in that regard. Now talking automation. Also, let me give you a quick rundown of the different market segments, the verticals, as we call them. Automotive, obviously stagnant in Europe and in Japan, U.S. rather declining, positive momentum building up in China. We do see in machinery, first signs of stabilization, substantial price pressure for European and American manufacturers out there, but mild expansion from our point of view in fiscal '25, and this is going to be widespread across countries. When it comes to chemistry and pharma, positive momentum has been building up. And as I said before, the sweet spot of the market seems to be electronics and semiconductors at the moment. Mid- and long-term demand on a really promising trajectory in that regard. When it comes to aero and defense, positive development continues after COVID, people obviously start traveling again and more than during that period of time. However, there is one of the important players globally, obviously struggling. And therefore, we do not expect a massive expansion in that part of the market. So that's a big picture at the moment. How did we do against that? We talked about it already, but let me quickly recap. I mean, the stock level issue in China seems to go along the lines that we have been guiding 9.5 weeks of stocks in our distributor shelves. That's quite a meaningful development. We also said that we don't expect a finalization of what we call normalization before the end of the second quarter. This is still very valid. And we feel quite comfortable pickup in new orders, automation was good. So how did January look like? It's obvious that we have been doing quite well in December and in the first quarter when it comes to new orders, including China. We are in line with our expectations with the start into the new quarter, the second quarter and even global second quarter new orders are quite promising at the moment. Still, we need to admit that with Chinese New Year having a different phasing this year compared to prior year, January is difficult to assess. There is always artifacts around that in the Chinese market at that part of the year. But we are quite confidently looking into the further development of the second quarter, but we'll definitely not jump to conclusions too early in that regard. So in a nutshell, making good progress along the lines that we expected. Talking the stock levels throughout our own orders on hand, the distributor stocks and our end customer stocks. I mean, to give you a number, give or take, I do think there is still some €300 million sitting on those three shelves that need to unwind, and this is exactly along the pace that we have been indicating in November. So assumptions are still valid. Talking about severance, and I would like to underpin that twice also reskilling. We are not out to severance only. We want to assess, and that's what I also said in my presentation, to what extent we can use those well-skilled resources as much as possible that we do have. We see that as a competitive advantage. The €52 million, 130 basis points on the margin level that we have been spending on severance in the first quarter, I think that's quite the pace that we may expect. There will be quarterly ups and downs. So it will not be equally spread over the four quarters, but the dimension may be -- will be -- is the right one. And as I said, there is a bias to use reskilling activities rather than severance -- and all the improvements on the global footprint and the cost positioning seems to be very well on track. We also saw that in the development of the profitability in automation in the first quarter and in the first couple of weeks in the second quarter. I hope this is giving you a meaningful picture of the overall situation.

James Moore: Thank you so much.

Tobias Atzler: Next question please.

Operator: The next question is from Gael de-Bray from Deutsche Bank. Please go ahead.

Gael de-Bray: Thanks very much. Good morning everybody. Can I ask about the guidance for DI this year? I mean, I'd like to get your level of confidence about reaching the growth guidance in particular. Because based on your indication for Q2, it seems that DI revenues will probably still be down around maybe 9% or 10% in the first half. So it looks like a bit of a stretch to be back in the range of between minus 6% and plus 1% for the full-year, especially considering that in fiscal Q3, then the basis of comparison will be extremely challenging on the software side. So any more color on this would be great. Thanks very much.

Ralf Thomas: Thank you for that question, Gael, and giving me the opportunity to confirm that I'm highly confident that we will make our growth guidance. We said that the first half of fiscal '25 will be overshadowed by destocking and normalization. This is exactly along the lines that we have been expecting and is materializing also with the pace that we have been expecting and also sharing with you. What is encouraging me is that there seem to be first green shoots on new orders in automation, including China. Too early to declare victory, of course. We are very seriously looking into that. We are as close as possible. I know that you know that there are distributors asked and interviewed in China. The picture is very diverse from one distributor to another. But the trend is into the right direction. And the way I saw the January figures developing in new orders in China and also on a global basis is encouraging me that we are going to see the momentum expected for the second half of fiscal year. As we indicated to you, we will have more clarity after the second quarter, obviously. But at the moment, I can only underpin we feel very confident that we will up to that what we said and promised.

Gael de-Bray: That's great. Thanks very much.

Ralf Thomas: Thank you, Gael.

Tobias Atzler: Next question, please.

Operator: The next question is from Simon Toennessen from Jefferies. Please go ahead.

Simon Toennessen: Yes, good morning Roland, Ralf, and Tobias. I've got one on Digital Industry and your European business. Can I ask how you expect this to develop through the rest of the year? Your U.S. competitor this week talked quite upbeat about Italian machine building momentum. And if I look at your slide, I think you still had Italian orders down 12% in DI in the quarter, Germany down 3%. And so given how important Europe is for you, just how do you see Europe developing for the rest of the year? And kind of related to that, is the European recovery far and foremost driven by China recovering? Or do you think it can recover on its own? And do you think kind of the recovery cycle related to Europe is sort of different to what we see maybe in the past?

Ralf Thomas: Thank you, Simon. And of course, you are addressing a very complex topic here. I mean it's not that this is one single driver only. And in a nutshell, I would underpin what you said before. I mean we do see, as I said before, that in machinery, in particular, there's first signs of stabilization in global production after 18 months of contraction. China is gaining momentum and India continues to expand. That's what we see. On the other hand, Japan, Europe and also U.S. display some sequential stabilization, yet year-over-year, it remains negative at the moment, and we further do see substantial pricing pressure. I mentioned that before for European and American manufacturers due to low prices in Asia, which might limit upward dynamics going forward, at least in the short term. We do expect the current global stabilization that we see to be followed by a mild expansion, as I called that before, for the full fiscal, but definitely back-end loaded. And this is broadly spread. When it comes to Europe, in particular, Italy is playing a major role. I can see a couple of topics that underpin that what one of our competitors said, but to quantify a trend from that in the short term, I think that would be too much at this point in time. I mean the overall sentiment and can only repeat what I said before, we have been seeing and entering into fiscal '25 with a back-end loaded scenario. All that what we have been anticipating has been materializing so far, even a bit more momentum on top line, but too early to declare victory, as I said before. So we need to ask you for some more patience before we can quantify and then confirm numbers on that. But Europe is definitely one of the areas with a lot of complexity also driven by tariff discussions and the like. So we, from a Siemens perspective, concluded, as I answered Ben's question already and others that we are confident that we will make our numbers. We are also, I think, looking forward for opportunities in the industrial space when it comes to artificial intelligence and being one of the key drivers in that field. But Europe as such, is going to be a challenge for the next couple of weeks, and we will stay very close to matters.

Simon Toennessen: Thank you, Ralf.

Tobias Atzler: We will take one last question.

Operator: This last question is from Alexander Virgo from Bank of America. Please go ahead.

Alexander Virgo: Thanks very much. Good morning, Roland. Good morning, Ralf. Thanks for taking the question. I wondered if you could just give us a little bit more color, please, on free cash flow. It's obviously been very strong in the quarter. I appreciate you can't really comment on Healthineers, but SI very strong, and you called out advanced payments in particular, as a driver. So I wondered if you could just give us a sense of how we should think about that through the balance of the year. And as part of that, is the advanced payments and orders related to data centers and thinking about the comments that we've heard from both Schneider and Vertiv in the last couple of quarters about delays in Europe. I appreciate Europe doesn't tend to get much of a comment on data centers given how strong the U.S. is. But it's interesting just to hear what the dynamics in Europe might be, given that's where the big catch-up could theoretically happen? Thank you.

Ralf Thomas: Thanks, Alex, for addressing this very important and also material matter to us. I mean, first of all, free cash flow entering into new fiscal was really quite promising, and we have been creating momentum on a fairly high level, encouraging us that we will again be able to live up to our own ambitious targets of, again, delivering double-digit cash return on sales for the full fiscal year. As always, part of it will be seasonality. It would be naive to believe that there is not a strong fourth quarter required to make it to those levels. But I'm not worried about that. The team is really into matters. I mean everyone is focused on generating cash from operations. We know how important that is. And I personally was very much pleased that we saw a strong SI free cash flow, again, also DI, of course, but SI again, has been using the opportunity in a market in which we are a relevant player to collect advanced payments. This was not always the case. You remember that. So large orders, including data center business is always an opportunity to collect advanced payments. And therefore, we will continue doing so. We will use the opportunity also being a relevant player in that field and contributing at least to a certain extent, setting market standards in that regard is also quite helpful. So operational management of resources and assets is on everyone's top list of priorities on top. So therefore, I'm quite confident that we will continue with that momentum in the quarters to come. When it comes to the data center business as such, I mean, it's obvious that you cannot repeat each and every year, 60% plus of new order growth as we saw that last year. But 50% of revenue growth was quite something, and we have been accomplishing that again in the first quarter. With a book-to-bill above one seasonality in large orders being placed is having its own dynamics, and therefore, we don't push customers. We respectfully listen to their wishes and timelines, and we have been always well advised doing so, and we'll continue in that way -- doing it that way. So growth momentum may not be on the same levels as we saw that last year, but clearly in the double-digit area, probably between 20% and 30% from today's perspective. I think that's quite an attractive field. And being one of the players providing not only opportunities to install what is available now, but also driving the business models on to higher levels of efficiencies, we are a well-recognized partner for our customers, and we are very happy to live up to their high expectations in that field. So in a nutshell, data center is still a driver of growth and profitability in that field. Free cash flow will be on everyone's mind, and I'm absolutely confident that SI in particular, is going to continue its path on success. And I'm sure you listen to them in December and so anyhow.

Alexander Virgo: Thank you very much, Ralf.

Tobias Atzler: Thanks a lot to everyone for participating today. As always, the team and I will be available for further questions. Have a wonderful day, and goodbye.

Operator: Ladies and gentlemen, that will conclude today's conference call, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.