Siemens Aktiengesellschaft (OTCPK:SIEGY) Q3 2023 Earnings Conference Call August 10, 2023 3:30 AM ET Company Participants Eva Scherer - Head, IR Roland Busch - President & CEO Ralf Thomas - CFO Conference Call Participants Alexander Virgo - Bank of America Ben Uglow - Morgan Stanley Andrew Wilson - JPMorgan Gael de-Bray - Deutsche Bank Simon Toennessen – Jefferies Daniela Costa - Goldman Sachs Philip Buller - Berenberg Operator Good morning, ladies and gentlemen, and welcome to the Siemens 2023 Third Quarte ...

| --- | --- | --- | |---------------------------------------------------------------------------------------|-------|-------| | | | | | | | | | | | | | | | | | | | | | Continued profitable growth and excellent free cash flow | | | | | | | | Roland Busch, CEO Siemens AG Ralf P. Thomas, CFO Siemens AG | | | | | | | | Unrestricted \| © Siemens 2023 \| Investor Relations \| Q3 Analyst Call \| 2023-08-10 | | | Notes and forward-looking statements This document contains statements related to our future business a ...

Financial Data and Key Metrics Changes - Orders increased to €23.6 billion, a growth of 15%, with a record order intake for mobility and a 9% increase in Smart Infrastructure [6][11] - Revenue grew by 15% to over €19 billion, with Digital Industries, Smart Infrastructure, and Mobility each contributing over 20% [7][8] - Industrial business profit reached €2.6 billion, with an EPS pre PPA of €2.56, excluding a noncash effect from Siemens Energy [13][80] Business Line Data and Key Metrics Changes - Digital Industries (DI) saw a revenue increase of 23%, with automation revenue up by 26% [40][43] - Smart Infrastructure (SI) achieved a revenue growth of 21%, driven by a 34% increase in the electrification business [57][58] - Mobility reported a substantial revenue increase of 33%, with orders at €6.2 billion marking an all-time high [68][69] Market Data and Key Metrics Changes - The overall market growth is expected to average 7% annually until 2027, with a significant contribution from software and digital services [16] - In China, revenue growth was 9%, while Germany and Italy saw increases of 37% and 35%, respectively [53][64] - The U.S. market showed strong performance with double-digit growth in both discrete and process automation [53] Company Strategy and Development Direction - The company aims to leverage its order backlog and execution strength to achieve profitable growth, with a focus on digitalization and sustainability [9][16] - Strategic investments will continue in organic growth, targeted acquisitions, and divestments to optimize the portfolio [17][19] - The company is expanding its footprint in the U.S. and Europe, with new facilities and increased capacities [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the second half of fiscal 2023, raising guidance for revenue growth to 9% to 11% and EPS to €9.60 to €9.90 [11][80] - The macroeconomic environment remains volatile, but the company is well-positioned to capitalize on market opportunities [11][80] - Supply chain constraints have eased, allowing for improved capacity utilization and customer deliveries [7][9] Other Important Information - The SaaS transition in Digital Industries is progressing well, with annual recurring revenue growth of 15% [10][29] - The company is focusing on sustainability and digital transformation, with significant investments in cloud and software solutions [30][31] - A joint venture, Cofinity-X, was established to create a collaborative data network in the automotive industry [35] Q&A Session All Questions and Answers Question: TAM growth and market share ambitions - Management confirmed that the total addressable market (TAM) growth is expected to be 7% by 2027, and the company aims to increase its market share [83][85] Question: Siemens Energy stake and capital allocation - Management stated that they are not in a hurry to sell their stake in Siemens Energy and will provide updates in the annual press conference [87][89] Question: Insights on DI orders and automation - Management indicated that software orders have positively impacted DI, while automation orders are expected to normalize in the coming quarters [96][100] Question: Dynamics in China and inventory management - Management noted that the recovery in China is slow, but they expect normalization of backlog and delivery times to improve in the coming months [110][118]

Financial Data and Key Metrics Changes - Orders increased to EUR 22.6 billion, with a book-to-bill ratio of 1.25, exceeding revenue in all industrial businesses [7][10] - Revenue grew by 8% to over EUR 18 billion, driven by Digital Industries and Smart Infrastructure, each contributing 15% growth [8][10] - Industrial Business profit reached EUR 2.7 billion, marking the highest first-quarter level ever, with a profit margin of 15.6% [10][15] Business Line Data and Key Metrics Changes - Digital Industries saw a 23% revenue increase, gaining market share due to improved component availability [9][10] - Smart Infrastructure achieved a 15% revenue growth, with electrification business up by 20% and electrical products up by 24% [36][37] - Mobility's revenue increased by 7%, with a significant order for the Sydney Metro project valued at EUR 900 million [42][19] Market Data and Key Metrics Changes - Orders in China rebounded with a 17% revenue growth despite a recent infection wave [33] - Strong order momentum was observed across Europe, with Germany up by 16% and Italy by 23% [33][40] - The U.S. was a major growth engine for Smart Infrastructure, with a remarkable 25% revenue growth [41] Company Strategy and Development Direction - The company is focused on sustainability, with initiatives aimed at reducing CO2 emissions by 55% by 2025 and 90% by 2030 [20][21] - Continued progress in executing strategy, including the divestment of Commercial Vehicles and the formation of an integrated motors and large drive champion [11][12] - The company raised its guidance for fiscal year 2023, anticipating revenue growth of 7% to 10% and EPS in the range of EUR 8.90 to EUR 9.40 [13][48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in operational strength despite a volatile economic environment, citing robust investment demand [6][14] - The company expects substantial cash flow recovery in the second quarter, driven by backlog execution and improved working capital management [46][70] - Management remains vigilant regarding macroeconomic conditions but sees positive trends in customer demand and investment sentiment [31][64] Other Important Information - Free cash flow was around EUR 100 million, expected to rebound strongly throughout fiscal 2023 [15][46] - The company reported a negative impact of EUR 187 million from its Siemens Energy stake, which lowered profit expectations for the fiscal year [45] Q&A Session Summary Question: Situation in Digital Industries in China - Management noted robust demand across various sectors, including automotive and process industries, contributing to strong order growth despite a slight year-over-year decline [50][52] Question: Electrical Products Segment - The book-to-bill ratio for electrical products was reported at 1.14, with expectations of normalization in the second half of the fiscal year [56][57] Question: Pricing Developments - Management indicated a net positive economic equation, with expectations of 4% to 6% pricing growth for the fiscal year, driven by demand for sustainability offerings [61][64] Question: Cash Flow and Receivables - Management confirmed no concerns regarding customer creditworthiness and expects significant cash flow improvements in the second quarter [66][70] Question: Portfolio and Siemens Energy Stake - Management reiterated a cautious approach to selling its stake in Siemens Energy, emphasizing the long-term value of the asset [75][76]

| --- | --- | |---------------------------------------------------------------------------------------------------------------------------------|-------| | | | | | | | | | | Outstanding performance in fiscal 2022 Strong fourth quarter finish Roland Busch, CEO Siemens AG Ralf P. Thomas, CFO Siemens AG | | | Unrestricted \| © Siemens 2022 \| Investor Relations \| Q4 Analyst Call \| 2022-11-17 | | Notes and forward-looking statements This document contains statements related to our future business and financia ...

Financial Data and Key Metrics Changes - Orders increased by 17%, while revenue grew by 8%, resulting in a book-to-bill ratio of 1.24 and a record order backlog of €102 billion [12][26] - Free cash flow remained strong at €8.2 billion, equating to over 10% cash return on sales, marking the third consecutive year in double-digit territory [13][92] - Earnings per share pre-PPA reached €5.47, aligning with the updated guidance range [13] Business Line Data and Key Metrics Changes - Digital Industries saw a revenue increase of 13%, with profit margins close to the prior year's level, driven by strong performance in the automation business [15] - Smart Infrastructure grew by 10%, achieving profitability at the upper end of guidance [16] - Mobility experienced a 3% revenue growth, maintaining industry-leading profitability despite challenges from the wind down of operations in Russia [16] Market Data and Key Metrics Changes - Revenue growth was broad-based, with Asia and Australia up by 22%, EMEA up by 7%, and the Americas rising by 8% [25] - Digital Industries generated €6.5 billion in revenue for fiscal 2022, with sustainability being a core growth driver across all businesses [19] Company Strategy and Development Direction - Siemens aims to play a leading role in empowering customers to tackle global challenges through digital transformation and sustainability [7][8] - The company is focused on combining real and digital worlds to create substantial value for customers in various sectors, including industry, infrastructure, transportation, and healthcare [8] - Continued investment in R&D is planned, targeting around 8% of revenue to enhance software and digital portfolios [48][98] Management's Comments on Operating Environment and Future Outlook - Management acknowledged geopolitical and economic challenges, including the war in Ukraine and supply chain constraints, but expressed confidence in managing these complexities [10] - The outlook for fiscal 2023 remains positive, with expectations for further value creation growth based on a strong order backlog [22][97] - Management emphasized the importance of agility in responding to macroeconomic developments while maintaining a robust growth trajectory [116] Other Important Information - The company proposed a dividend of €4.25, an increase of €0.25, reflecting a progressive dividend policy [20][95] - Siemens plans to execute a share buyback program totaling €1.8 billion and reduce its share count to 800 million [96] Q&A Session Summary Question: Growth guidance amidst economic projections - Management is confident in converting the existing strong backlog, providing visibility for the next 6 to 9 months, while remaining vigilant about macroeconomic developments [115][116] Question: Digital Industries growth and margins - The backlog in Digital Industries is €13.5 billion, with 70% in automation and 30% in software, indicating strong demand across regions [118] - SaaS transition is progressing well, with a 14% ARR growth and a significant share of new customers [120] Question: Assumptions for short-cycle order growth - Management is monitoring macroeconomic conditions closely and has contingency plans in place, but remains optimistic about the current momentum [116] Question: Cash dynamics and prepayments - There is an extraordinary high level of prepayments, which is expected to normalize with new orders, particularly in China [128][129]

| --- | --- | |------------------------------------------------------------------------------------------|-------| | | | | SIEMENS DIGITAL INDUSTRIES SOFTWARE | | | Accelerating digital | | | transformation Tony Hemmelgarn, President and CEO | | | Unrestricted \| © Siemens 2022 \| Tony Hemmelgarn \| Siemens Digital Industries Software | | | --- | --- | --- | --- | --- | --- | |--------|-------|-------|------------------------------------------------------------------------------------------|-------|-------- ...

| --- | --- | --- | --- | |--------------------------------------------------------------------------------------------------------------------------------------|-------|-------|-------| | | | | | | Strong topline momentum and solid execution – Outstanding Free cash flow Roland Busch, CEO Siemens AG Ralf P. Thomas, CFO Siemens AG | | | | | Unrestricted \| © Siemens 2022 \| Investor Relations \| Q3 Analyst Call \| 2022-08-11 | | | | | --- | --- | |------------------------------------------------------------- ...

Financial Data and Key Metrics Changes - The company reported a revenue growth of 4% to almost EUR18 billion, with a book-to-bill ratio of 1.23 and a record high-quality backlog of EUR99 billion [21][15] - Earnings per share (EPS) pre-PPA came in at EUR1.52, while the all-in amount was a negative EUR1.85 due to a EUR2.7 billion noncash impairment on Siemens Energy [21][19] - Free cash flow for the quarter was EUR2.3 billion, with expectations to achieve more than 11% free cash flow as a percentage of sales for the full fiscal year [18][68] Business Line Data and Key Metrics Changes - Digital Industries saw a revenue increase of 15%, with a strong order growth of 35% and a book-to-bill ratio of 1.33 [44][15] - Smart Infrastructure achieved a revenue growth of 10%, driven by an 18% increase in the electrical products business and a 26% increase in orders [53][54] - Mobility's revenue grew by 4%, with a backlog of EUR36 billion, although impacted by supplier delays and pandemic-related effects [60][62] Market Data and Key Metrics Changes - Revenue growth in the Americas was up 10%, while Asia and Australia saw a 7% increase, led by India and Korea [21] - China experienced flat growth due to COVID-19 lockdowns, but there was a strong recovery in June, with expectations for continued momentum [16][92] - Europe saw a decline in sales primarily due to lower COVID test sales, but overall demand remained strong in other sectors [21][56] Company Strategy and Development Direction - The company aims to grow its digital business by approximately 10% annually until 2025, with a strong growth trajectory already evident [22] - The acquisition of Brightly is expected to enhance the Smart Infrastructure team's capabilities in asset and maintenance management solutions [23] - Siemens Xcelerator is being developed as an open digital business platform to facilitate digital transformation across various sectors [26][87] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating geopolitical and economic challenges, emphasizing strong demand for technology and a focus on operational execution [6][8] - The company is prepared for potential risks from energy availability and supply chain constraints, with a low direct energy supply impact on manufacturing [9][10] - Future growth is anticipated in automation and digitalization, with a focus on sustainability and resource efficiency [12][33] Other Important Information - The company has taken precautionary measures to safeguard production operations in the event of gas shortages, with only 1% of purchasing volume being energy supply [9][10] - The strategic transition to Software-as-a-Service is progressing well, with a high renewal rate of 76% for PLM renewables [31] - The company is actively working on derisking supply chains and expanding partnerships to mitigate impacts on customers [14] Q&A Session Summary Question: Demand in Europe and Germany - Analysts inquired about customer plans to mitigate risks related to energy shortages and the potential impact on order conversion, particularly in energy-intensive markets [78] - Management responded that while there could be impacts on customer production processes, Siemens is positioned to assist customers in their sustainability transformations [81] Question: Integration of Software Offerings - Analysts asked about the integration of software offerings across divisions following the acquisition of Brightly [83] - Management highlighted the Siemens Xcelerator platform, which enables interoperability and modular solutions across different business areas [84] Question: Situation in China - Analysts sought clarification on the inventory situation and momentum in China, particularly regarding the impact of lockdowns [90] - Management confirmed strong order momentum in the third quarter and noted that factories were recovering well post-lockdown [92] Question: Russian Operations and Charges - Analysts inquired about the residual risks and potential future charges related to the exit from Russian operations [110] - Management provided details on the charges incurred and indicated that the focus is now on unwinding the leasing business in Russia [111]

| --- | --- | --- | --- | |---------------------------------------------------------------------------------------|-------|-------|-------| | | | | | | Strong operational performance and growth Outlook confirmed | | | | | Roland Busch, CEO Siemens AG Ralf P. Thomas, CFO Siemens AG | | | | | Unrestricted \| © Siemens 2022 \| Investor Relations \| Q2 Analyst Call \| 2022-05-12 | | | | | --- | --- | |--------------------------------------------------------------------------------------------------------------- ...