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Good morning, ladies and gentlemen, and welcome to Siemens Energy's 2022 Second 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 Energy presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Michael Hagmann, Head of Investor Relations. Please go ahead, sir.
Thank you, Judith. Good morning, and a warm welcome to our Q2 results call. As you know, all documents were released at 7:00 and they are on our website. Here with me, I've got Christian Bruch, our CEO and President; and Maria Ferraro, our Chief Financial Officer, and they will take you through the results. This will take approximately 30 minutes, Thereafter, we will have approximately another 30 minutes for Q&A. So Christian, over to you.
Thank you very much, Michael, and also good morning, everybody, from my side. Thank you for joining Maria and myself in our quarter 2, 2022 conference call. I hope you and your families are well during these still challenging times between an ongoing pandemic, and I have to say now, in the meantime, the third month of the war in Ukraine. Our thoughts are obviously with our employees, particularly in the Ukraine, and their families and friends and the Ukrainian people and everybody impacted by the war. I sincerely hope that the ways to end the war can be identified as soon as possible. As you know, Siemens Energy has already stopped all new business activities in Russia at the beginning of the war, and we have placed all our business activities in Russia under review at this point in time. And I will refer back to that point later in my presentation. Let me now take you through the highlights and low lights of the quarter, Maria will then guide you through our financial performance. As you know, SGRE has issued profit warning on April 19, and you may have had the chance to hear what Jochen Eickholt, SGRE's new CEO, had to say on April 20, and last week at their quarterly results call. In essence, Jochen judged the situation at SGRE more challenging than expected, and it will take some time to address the problems. On a positive note, Gas & Power continues to deliver a very solid performance, better than expected, but not good enough to compensate for the disappointment at SGRE. Hence, Siemens Energy's results lagged behind market expectations for quarter 2. SGRE's management decided to place the existing guidance under review and decided that it's no longer valid. And as you may have read, management is now targeting an EBIT margin around minus 4% for fiscal year 2022, including the effect of a successfully closed asset disposal. Incorporating the negative margin of 4% at SGRE, we are now looking at the low end of the existing guidance for Siemens Energy Group for fiscal year 2022. Then, obviously, operationally, GP does really a nice job, and I mean this, let's say, looks all very positive. However, also with GP, we have to say the war in Ukraine and, obviously, the COVID situation in China have been bearing on our results, so that we expect this lower end of the guidance. But I would call it a prudent approach to the outlook of the year. We see a loss of revenue and profit contribution because of the war in Ukraine, and consequently, then obviously, the business impact in Russia. Furthermore, due to COVID, we see additional supply chain constraints. And, I believe, I said it in one of the last quarterly calls, in some cases, this leads to underutilization of our factories. So it's not only always the material cost increases, obviously, this leads then to the deferral of revenue or cost under absorption. Let me also say, and this is why I'm saying, we're looking obviously on how to continue into Russia, and obviously, what happens with further sanctions that we would not be able to compensate fully write-downs associated with an exit from Russia. We are looking at the complex situation. It is obviously not a straightforward decision. We are balancing it, and Maria will take you through the trends and figures in a couple of minutes. It's also nothing which I would see super critical, but I want you to make aware of it. I do see a very positive demand picture across the board for all businesses. And this said, I also see, and this should not come as a surprise, obviously, challenges in the supply chain. However, obviously, with the setup we at Siemens Energy have and also the different businesses within GP, if I see really on the need for our products, this makes me very confident. Let me give you my assessment of the situation at SGRE. SGRE has been a disappointment. I believe this is now really, obviously, the point where we have to get SGRE back on an even keel, and rest assured that we are all working hard to make this happen. Jochen took the role as CEO of SGRE on March 1 this year, a little bit more than 2 months ago. And according to Jochen's first assessment, the problems at SGRE are bigger than expected, and most of the additional impacts are driven by internal challenges, and the internal challenges in onshore are certainly bigger than previously understood by SGRE in terms of the design stability and design maturity for the new products. With this as a consequence and manufacturing ramp up and, obviously, leading in these cases, also to delay its product availability and some quality problems. And as a consequence, as Jochen has explained, unplanned cost. It is early days, but Jochen's preliminary assessment was that 2/3 of the root causes are internal and 1/3 of the root causes are external. This is good news and bad. The good news is that Jochen has identified the root causes, that he has solved similar problems in previous roles. Also Tim Dawidowsky, who just joined him, very experienced in this. And that he does not see a reason to believe that, in the long run, SGRE should not be an 8% or 8% plus margin company. And the last good news is that it will take longer. But as I said, if I talk to Jochen, what I hear is there's nothing what he sees what he has not seen before. And in this regard, obviously, Jochen has put measures in place, a couple of short-term activities to tackle the issues, mostly around the 5.X procurement and the manufacturing processes. He has set up cross-functional teams with the best people really to problem solving, and obviously, drives more discipline when it comes to the project and project selectivity and the coordination between procurement and sales processes to reflect really the challenges on the supply chain. Let me come to the war in Ukraine, and obviously, it is impacting business, but is obviously also impacting supply chains and continuously provides logistical challenges. You have heard many companies talking about loss of revenue and profit. Same is true for Siemens Energy. I indicated in one of the last quarterly calls, last year, we had approximately EUR 600 million in revenue in Russia, Belarus and Ukraine. So we always have to look on the 3 countries in its entirety. Currently, we assume that with the sanctions in place and the decisions we have taken, that we'll probably lose approximately EUR 300 million to EUR 400 million in fiscal year 2022 compared to our original plans. And the impact on profitability would be around a high double-digit to low triple-digit million euro, largely due to higher cost and missing profit contribution from the loss of revenue in fiscal year 2022. In case the sanctions regime would change, further impacts might be caused. I never can exclude this. The situation is very dynamic. And obviously, with this, we have to see on how the situation develops. In reference to our supply chain, we have very limited direct sourcing from Russia. But obviously, we do see this indirect impact because certain supplies in other areas are fading away from Russia, which have to be compensated elsewhere in the market. And this is obviously a connected supply chain, which has to be managed. And this brings me to the point of supply chain. What I would like briefly to highlight here, since I said it before, and obviously I'd repeat it in this quarterly call, this is the core focus area, managing the supply chain. This will be with us for quite some time. And I think we're also, going forward, that will be key to have a very strategic approach to the supply chain, seeing also the COVID measures put in place in China and, obviously, the consequences of the war. As you know, we are well covered in our project and services businesses through purchase agreements, price escalation clauses and hedging. However, we have been pointing out that we are not completely immune on the GP side of it to all challenges. The 3 principal effects we have to deal with are, first of all, rising raw material costs; second, obviously, the lack of material availability; and the third is the disruption of the supply chain, which then leads to the factory under-absorption. We do have a strong purchasing and logistics operation. And you may recall that I already pointed out that supply chain and logistics are key focus areas for us. This said, we are not able to compensate for all the effects, especially our product business with Transmission is impacted, so shorter cycle business. And let me give you some numbers to put it into perspective for you. At Gas & Power, our total purchasing volume is roughly EUR 10.5 billion. Our annual demand for electrical steel, as an example, is around 100,000 tonnes. For copper, 15,000 to 20,000 tonnes. We use roughly like 10,000 to 15,000 tonnes of aluminum, and 6,000 to 7,000 tonnes of stainless. So if you calculate a roughly rule of thumb, you would say there's around 0.5 billion purchase volume, which is then obviously exposed in some areas to the material cost increases. And this means, obviously, we have to compensate for this counter effect on the materials. We spent roughly EUR 400 million per year on logistics. Most of it is contracted out. So that's secured. That is not a concern. It's around 80% to 90% of that. However, there's always a remaining 10% to 15% which is exposed, and which also obviously impacts timing of the logistics side. And this is obviously what we need to manage. And sometimes very simple things, a ship under Russian flag, obviously, is not working for us anymore. And these are things which we all have to manage and the organization does an outstanding job to do this. In order to mitigate the impact, we are renegotiating with our customers. We bundle our purchasing volumes. We see compensation from our suppliers. You will also see that we stock more inventory and you will hear it also from Maria later. But I also have to say that -- and you've seen that we have a really strong order intake in GP. Also being able to get prices up, seeing the increase of the underlying material cost is good, right? In this regard, I'm also positive with the development on that one. Let me highlight 3 project wins, which demonstrate obviously, the needs of our customers and how it fits to our setup. And I'm really pleased always to see that the logic we always have demonstrated with the 3 pillars of the company fits really nicely in the -- how the business develops. The first order proves the competitiveness of the H-Class in China. And this is an example where one of the projects is also a coal-to-gas shift, so roughly a 60% CO2 reduction versus the prior operation. But in terms of the competitiveness or -- of our strong position, it is not limited to the H-Class portfolio only. We also, in quarter 2, were able to maintain our #1 position in the market of gas turbines, larger than 10 megawatts. We had booking of around 26 units. Very nice market share. Maria will provide you later some more details on these numbers. The example you see on the slide that's in Guangzhou, it's a 675-megawatt combined cycle plant based on H-Class, but also steam turbine to generators, axillary equipment. We had another order from a Chinese customer, same area, south of China, Shenzhen, also with 3 H-Classes, 3 steam turbines. And this is obviously bringing us, very successfully now, to sold 100 H frames, where already -- 88 are already operating. Another milestone for us is NeuConnect. That is a link on the HVDC side between U.K. and Germany. For me, it's a lighthouse example on what we continue to see growing, growing, growing, in terms of also providing the infrastructure to really shift renewable power between countries. It's bidirectional to make use of the fact that U.K. and Germany have different phasing of demand through the day, and then because the U.K. side feeds renewables over to Germany and vice versa. And it can obviously also with this substantially decrease the CO2 emissions in the power production. Finally, I'm very pleased that we have laid out the plans for extending our electrolyzer capacity. We have announced the investment in our new gigafactory in Berlin. We will start to manufacture electrolyzer modules here in Berlin in 2023. We will have, in the first phase, a capacity of 1 gigawatt, with a relatively straightforward and simply approach to extend it to 3 gigawatts. We are preparing also the packaging of the plants, and that is something where I'm pleased, obviously, to see we will be ready to serve the market where needed. If the Green Hydrogen Project comes, that has been, already in 2022, already some nice orders on this, and we obviously expect to continue to grow this. And with this, let me hand over to Maria for an update on the financials.
Thank you, Christian. Thank you very much, and hello, everyone. Good morning. Also a very warm welcome from my side. I'm very pleased to share with you today our Q2 financial results for the Group and Gas and Power, and also happy to answer any questions. Let's jump right into it. So on Slide 10, I believe, the Siemens Energy Group, just looking at the main KPIs before I take you through development, I guess, in Power. So solid orders, EUR 7.9 billion, which includes a very strong contribution from Gas and Power. This is resulting in an order backlog, as you see here, of EUR 89 billion -- just over EUR 89 billion. And it's a record -- a new record. And I think this really does show that this is comprised of many orders coming from our Gas and Power and also from SGRE, but shows that we do have a real solid foundation built to deliver for the future profit improvements that we're looking for. But again, order backlog alone, as always, I mention it's not only quantity and quality. So we are ensuring that we do have a profit-making project, and of course, continue to work on that through operational excellence as well. Looking at revenue. So revenue for Siemens Energy was slightly down. As you see here, just slightly down, just shy of 2% comparable. At SGRE, however, the revenue was significantly down, so impacting this figure quite substantially at negative 10.5% comparable, as Christian mentioned, due to the ongoing operational issues and, of course, the supply chain constraints. To a much smaller degree, and you should really note that we do also see impacts, of course, from the supply chain constraints in Gas and Power. We also mentioned this in Q1 that this is impacting our Transmission business. Book-to-bill, strong for Siemens Energy, a very strong 1.2, which has an inherent 1.52 book-to-bill ratio at Gas and Power. Adjusted EBITA before special items, negative -- negative EUR 21 million. Lower than we expected, of course, and hence, the ad hoc announcement on April 19. We all know this is driven by the SGRE results. And of course, the adjusted EBITA before special items at Gas and Power was actually better than expected, and I'll talk about that in a couple of minutes. Free cash flow pretax came in at a negative EUR 351 million. But again, this is a diverging development between the segments. On one hand, we have strong performance -- good performance at GP with a free cash flow pretax of about EUR 200 million, which was, again, more than offset by the cash outflow pretax of EUR 560 million at SGRE. So if we move please to the next page, I'll take you through the quarterly developments. We always give you a trailing 4 quarters plus the current quarter to show how each quarter develops for the main KPIs. Again, orders came in just shy of EUR 8 billion for the second quarter of the fiscal year. This is over EUR 2.6 billion below last year's quarter's level. Of course, in the SGRE segment, orders decreased from EUR 5.5 billion in Q2 prior year to EUR 1.2 billion in the current second quarter.
And of course, this was a very strong prior year quarter for SGRE. But also order intake for the recent quarter was affected by delayed customer investment decisions, and of course, as I mentioned, very difficult comps for prior year for SGRE. Group revenue slightly down by just shy of 2%. GP revenue moderately increased as expected. But SGRE's revenue was significantly down, as mentioned, negative 10.5%. So therefore, more than offsetting the increase in GP. Across SG, the decline in revenue was driven by new units, a slight decline, by the way, while service revenue rose year-over-year by 10% on a reported basis. Looking at EBITA. We see a sharp decline in adjusted EBITA before special items from EUR 288 million in profit to a minus EUR 21 million. As in the prior quarter, and as mentioned already, the loss at SGRE did outweigh a strong contribution from the Gas and Power segment. At SGRE, a loss of EUR 278 million was driven by, as I also mentioned, the continuing problems in operations, mainly related to the ramp-up of the onshore 5.X platform and continuing supply chain constraints in the wind turbine business. So if we can please move then to the next slide, net cash. Thank you. Next, the group cash bridge. As always, I'd like to take you through that. We start on the left-hand side where we see cash and cash equivalents of just over EUR 5 billion. And we have, as per previous quarters, we have EUR 101 million receivable from Siemens Group to get us to a total liquidity of EUR 5.1 billion. We have EUR 3.3 billion of financial debt, of which EUR 1.7 billion is long term. This is just over EUR 350 million higher than at the end of the first quarter, and this reflects a rise of [ EUR 360 million ] at SGRE. And this, of course, accounts for the majority of our long- and short-term debt. We have a financial liability at Siemens of about EUR 189 million, you see here, for a net cash position of EUR 1.6 billion, which is about EUR 480 million lower than at the end of the first quarter, again driven by SGRE. During the quarter, SE's provisions for provisions -- excuse me, provision for pension, rather, and similar obligations decreased from EUR 836 million as of previous quarter, from December 31, 2021, that is, to EUR 725 million in the current quarter, and this is driven by higher discount rates.
Credit guarantees remained about the same level. And again, I referred to this has not changed to a bank financing of an associated company for which Siemens Energy has issued credit guarantees. So if we take into account pension, then we have a net cash of EUR 801 million. And I do want to say -- I mean, yes, this is lower than Q1, however, this is a healthy amount and does give us the confidence that we have the funds required to continue to invest, and as Christian mentioned, into our 3 pillars. And also, and this is additional transparency that we have provided, is dealing with our legacy items, such as restructuring, of course, and cash-out relating to things like our noncarve-out countries. We continue to have the expectation for those 2 amounts for the fiscal year. And of course, we want to pay dividends and also keep our solid investment-grade rating. With respect to the restructuring cash-out, a bit over half has already happened in the first half. And for -- just to give some context on those fiscal year '22 expected cash-out. And relating to the carve-out countries, we have settled one smaller country, but we'll see a bigger impact in the second half, just to give some context there. Now let's take a look -- if we can move on, please? If we can take a look please at the Gas and Power segment, which has been, as Christian mentioned, in light of all the headwinds, and continues to deliver in line with our expectations and is on track to reach our expectations with respect to 2022 and 2023.
So without delay, if we can go to the next slide, showing the Gas and Power KPIs. So again, we're pleased to see that we continue in Gas and Power to take advantage of the improving market environment, and we booked EUR 6.7 billion in orders during the quarter. This is just shy of 30% increase in comparable orders year-over-year. The order backlog here, you see at quarter end, increased to a very healthy, just shy of EUR 57 billion, EUR 56.6 billion to be exact. This is around EUR 3 billion higher or EUR 3 billion higher than at the end of December. Revenue grew by 3 -- just over 3% comparable. This improvement mainly comes from our service business, with plus 7.7%. And then, of course, you know with service, this also leads to a positive mix that we see in this quarter in terms of our profitability. So talking about profitability, looking at our adjusted EBITA, this came in strong at EUR 266 million or 6% margin. As just mentioned, this was driven by a mix, so more service business and our strong operational performance. I think it should be noted, we say this quarter-over-quarter, that we do see underlying improvements in our operations in GP and, of course, keeping a very close eye on the continuous delivery of our cost-out program. As Christian already mentioned relating to impacts of the war in Ukraine, they were limited in the reporting quarter. But I think the update showed exactly the effect of what we expect in terms of revenue and profitability, which we currently see for the second half based on the first half of the year based, of course, on the ongoing sanction regime. Free cash flow, this came in at positive EUR 200 million. And again, I have to say another solid free cash flow quarter for our Gas and Power segment. This is what -- I do want to make 1 comment here, because you may have seen that in our operating net working capital, you see that inventory levels did creep up a little bit, so they went up. And we have increased where necessary, and on a very, let's say, well thought out basis, we have increased our inventory levels of safety stock and/or buffer stock, given the global supply chain constraints. And this is something that we are looking at continuously essentially on a monthly basis to see how this develops. But here, you see we're doing the right thing to ensure that we continue to meet our customer obligations and to not let our customers down. So now going to please the quarterly development on the next slide for GP. Again, I think it is important to note that the significant order growth at GP was supported by double-digit increases across all businesses. And also important to note that we saw increases in both new units as well as the service business. So very positive development on both sides. In Generation, for example, we booked in the second quarter 26 gas turbines greater than 10 megawatts. Thereof, 9 large gas turbines are LGT and 17 industrial gas turbines in the range between 10 and 100 megawatts. From a regional perspective, the demand, looking from a geography, the demand in the Americas reporting region was especially strong, and that's evident in our order intake. Revenue is back on track from the disaggregation of revenue table, where we provide additional transparency by business type, you can see that Generation increased by just over 1%, IA by just shy of 10% and Transmission by 9.4%, for example. For the full year, we continue to expect revenue in Generation to be stable or moderately down given our market expectations, including selectivity, including our project execution and the natural, if you like, volatility that brings, and of course, our internal hurdle rates on projects and orders. As anticipated, Industrial Application sees a gradual recovery, and this continues into the rest of the fiscal year. And in Transmission, we can observe increased market demand by grid stability projects and good update. Adjusted EBITA margin before special items, as mentioned earlier, stood at 6% and slightly above the midpoint of our guidance range here. But also, as mentioned, we do see headwinds coming for the second half of the year after a very solid first half. So to sum up, where -- for GP in Q2, we're in line with our expectations. We're progressing as we expect. We have strong orders really fueling that foundation for our future. Really pleased to see we're back to growth on the top line, strong profitability, solid profitability, solid cash flow. And again, this underpins our ability to reach our targets in fiscal year '22 and in fiscal year '23. Next slide, please, just to give an update on the financial priorities that I put out in the last quarter. In principle, they remain the same. However -- and I think we can all agree that we are in unprecedented times and this is -- there's a lot of volatility and significant challenges, such as the war in Ukraine, supply chain constraints and, of course, the deteriorating or the difficult performance at SGRE. So I think all of these have a direct or indirect impact on our operating performance. Particularly as just mentioned in the second half of the current fiscal year, here I'm talking about revenue, profitability and cash. However, it's important to note that we're pulling all levers really across the organization to mitigate and to limit, wherever possible, the negative impact. And you can see that we successfully did so in the first 6 months. But we all know, and this is becoming clear, that the second half will be even more challenging in certain areas. Therefore, it's really of paramount importance that we continue to execute our cost savings program. I'm pleased to say that we're on track. And we do have a very strong purchasing and logistics organization. Christian referred to this as a core competency, and I fully agree. And I believe that we're doing a great job there to be as resilient as possible given the certain circumstances we're in today. And it's still a top priority for me and for the organization to stay on top of those mitigation plans. And make sure that, on the other hand, that we're strictly enforcing our cost pass-through mechanisms in our contracts, and that we look and ensure that we increase our prices to compensate for cost increases not covered, for example, by indexation. I just talked about inventory and our tight monitoring of our operating capital -- net working capital. In the past 18 months, I just want to remind everybody, we have consistently generated higher free cash flow in our GP segment than expected. And I think one key point for this achievement is, of course, the diligent work of our team and, of course, our asset management initiatives that are also ongoing in the background. But we need to be mindful that the current circumstances and what we need to do is good for our business, and that also means that sometimes we have to ensure we keep our time lines towards our customers. And like I said, wherever possible, make smart decisions regarding inventory levels. And so, I think, this is what we have done in a very, let's say, calculated way in the last couple of months. So cash, cash -- cash flow and liquidity continue to remain a key focus. I walked you through our cash situation. I've also included additional information on our liquidity. And for the Group, it remains very healthy due to the strong performance at GP, of course. We see the cash outflow of SGRE, of course, in the last quarter and, of course, for the first half year. That means we all need to continue to have a very strong focus on our liquidity. And transparency, transparency is very important. And we promised you that we will be working on improving our external transparency. Just as a little teaser, we do have a new reporting structure with much more transparency. And of course, this will take effect in the next reporting or the next fiscal year, starting on October 1. However, I will talk about that and provide more details and unveil it at the upcoming CMD. So last but certainly not least, looking at the financial outlook. For the financial outlook. I think, for the Gas and Power segment, it's important we maintain our guidance for comparable revenue growth and adjusted EBITA before special items. However, in light of the prevailing challenges, I think, we've mentioned it very clearly, Christian as well, we expect results toward towards the low end of the guidance range. Of course, SGRE management announced it continues to work to achieve target, a comparable revenue development within the range of negative 2 and negative 9, and their adjusted EBITA margin before special items towards the low end of their previous guidance range with negative 4. So therefore, given SGRE's adjusted aspirations and in light of the challenges we see, we now expect SGRE's results toward the low end of the guidance ranges for comparable revenue development, which is negative 2 to positive 3; and adjusted EBITA margin before special items which is positive 2 positive 4. I would just like to reiterate what Christian said. Of course, the guidance is based on what we know today. And of course, this assumes no, let's say, further impacts from COVID-19 and so on. And I think that, that remains and excludes also extraordinary charges related to legal and regulatory matters, including further effects from the war in Ukraine, other than those that we have indicated today, and its economic consequences. So with that -- hopefully, that was clear. And with that, I now hand back to Christian for some final remarks. Thank you.
Thank you very much, Maria. And let me wrap up with our management priorities for the current fiscal year, and it falls all in line with what Maria also has said. First, really continue to deliver on the fundamentals of GP and SGRE. As I said before, we have made really good progress at GP. I'm pleased with what I'm seeing. We have identified the levers. And we see, obviously, let's say, a challenging environment in which we have to continue to rigorously follow through these activities. SGRE is trading its target and the management has identified the measures, which obviously need now to be further implemented. Second, supply chain, supply chain, supply chain is a big topic. And I did say and Maria repeated it, we have been coping well so far on the GP side. We need to make sure that the impact remains limited. We have an excellent established supply chain management. And as I said, I believe that we will continue in all industries to see this as one of the core areas to manage and will be decisive also to continue to lever profitable growth to manage the supply chain. There are certain components which are simply not available or if there's a shortage of electricity in China or whatever, and this is obviously -- we'll continue also to push for flexibility on our fabrication factory system. Third element, we will become leaner, faster and sharper, and we continue to refine our operating model along the 3 pillars. We will share, obviously on the Capital Market Day steps to do that. And you will see, obviously, the clear accountabilities and, let's say, faster, leaner structures. And the fourth element is, obviously, building this company with a clear focus on sustainability, gradually turning the portfolio around and obviously really targeting our goal to become the most valued energy technology company in the world. And with that, I want to invite you once again to our Capital Markets Day, 23rd and 24th of May in Berlin. And I look very much forward to see you in person there. And let me hand over to Michael for question and answers.
Thank you, Christian. Thank you, Maria. We've now got just shy of 25 minutes for Q&A. [Operator Instructions] And we are starting with Alex Virgo from Bank of America. Alex, over to you.
Christian and Maria. I'll do one major one, I suppose, and a second squeezy one just at the end. The first one, I guess, is to address a bit of the elephant in the room, in that you said in the press release that SGRE has deteriorated even further since the profit warning 3 weeks ago. And I appreciate you're working hard and you put a lot of changes in place and operational actions in place to address this. But ultimately, the capital structure remains pretty inefficient, and it continues to put pressure on your own stock and also constrain your ability to communicate. So at what point do you believe this becomes an unsustainable situation? I guess most investors I speak to would suggest we've already passed that point. But isn't it better to do something proactively about the cap structure of the Group rather than being forced into doing something when you can't control the timetable? That's the first question.
Yes. Thank you, Alex. First of all, maybe allow me to clarify one thing because, the way you said it, it might have been misunderstood. Obviously, in terms of the earnings release, what we gave -- I mean, we were referring to the comparison towards the last quarter. I mean also to be very crystal clear, I do not have any indication of any further, let's say, profit warning from SGRE's side, just to put it into perspective, I think, they have worked roughly through that, but maybe also the wording in the earnings release could have been misunderstood. So just to clarify that. In terms of the capital structure, I mean, I can only repeat what I always said before, we're looking on it. I take your points. I agree to them, but I have really no additional comments to this at this point in time. And we will, obviously, as soon as the situation changes, we will inform about it. But at this point in time, I cannot further comment.
Okay. And the second question is, I suspect a far more simple one, which is I wondered if you could just expand a little bit on your comments around Transmission demand and the changing dynamics there. It does feel like we're seeing an awful lot more in the way of project momentum. So I just wondered if you could just elaborate a little bit on that for us, maybe regionally and pipeline-wise.
Yes, happy to do so. And this is particularly related to the HVDC world, I would say, right? Because you see this bipolar link, so point to point, and you also see the first discussions of the multipolars connecting more or less HVDC lines. The discussion is, let's say, very, very active in Europe at the moment because, obviously, here will be the biggest need for an extension of the infrastructure, also seeing the connections between U.K. or within U.K., seeing where the big wind farms come online or will be coming online. And obviously, we always have to be aware, the electrical infrastructure has to come first, right? It doesn't make sense to build a wind farm if you don't have anything to connect it to. And in this regard, we see a very high project activity. We are well positioned. We have, let's say, learned over the last years really our lessons, and I think know how to manage the project. So I'm very confident on these. And the good thing is, how I look on it, the next wave what we're going to see will be the U.S. Obviously, we see it ramping up now. But will, in terms of the intensity of the project, be behind Europe, and this is what my expectation is.
And the third phase then will be Asia. So you see really a wave going between the different regions. And obviously, we're well positioned. We continue to position ourselves there, but that is a very interesting and successful market for us.
Thank you, Alex. Next question goes to Andreas Willi at JPMorgan. Andreas, over to you.
My question is about the Gas and Power outlook on the margins. Obviously, you've given an indication where we will be for the second half of the year points to around 3% profitability. You reiterated the 6% to 8% for 2023. Maybe you could provide us with some elements of the 300-plus bps margin expansion that you see next year, where that's coming from.
And also maybe clarify in terms of the Russia impact when you gave the numbers for this year, is this an annualized number that will affect you in the second half? Or is there basically an annualization effect that then impacts you more next year? And also in light of kind of wage inflation debate, particularly in Germany with [ IG Metall ] what do you assume there in terms of a headwind for 2023?
Thank you, Andreas, and good morning. Maybe let me start and then Maria should kick, in particular on the more detailed numbers. I mean generally, if I look between 22% and 23% on GP, and this is why I'm, let's say, was also trying to convey it in my presentation, operationally, I'm extremely pleased with what GP is doing, right? And also, if I see the order book coming in, let's say, it's possible to get price increases in the market. Despite that, we are able to take new orders. Book-to-bill above 1. The programs or the efficiency programs really are fully on track. And this gives me the confidence that, obviously, also the 2023 target range of the 6% to 8%, is absolutely sound because the underlying operational performance is very satisfactory. And obviously, we have the second half of the year, and Maria can comment further on it, obviously, some counter effects. Some effects out of Russia which we're seeing, obviously, today is part of that, right, which is more related to revenue recognition. And obviously, the other piece is some, let's say, the structure of our project business in terms of bigger projects. But I would ask Maria to further comment on it. And in that regard, obviously, we expect -- or we are more careful, I would say, about the second half of the year. But the good thing is it's, let's say, really coming on the base of an operationally very successful GP business and turnaround. On the [ IG Metall ] and salary expectation, absolutely, we obviously expect an intensive discussion. That is obviously subject to the, let's say, nominated parties to negotiate it. This is what we plan for still at the moment that, obviously, the salary ranges might reflect obviously a certain part of the inflation and we have to see what's finally coming. But I think this will be a situation we all have to recognize. And this is, obviously, part of the headwinds which we need to mitigate and manage. And where I believe, with the measures we have in place, that is something that we're able to. Maria, would you want to comment on some further numbers there?
Yes. No, absolutely. So thank you. And thank you, Andreas, for that because we certainly do want to provide some more color on what we mean certainly off the back of a very strong first half year where you see for GP essentially at the half year, we're just shy of 6%. Maybe I'd just echoed some of the comments that I made already. I mean we do have a very strong -- which is great and we welcome that, but we do have a very strong service performance certainly in the current quarter. So therefore, from a mix perspective, I also mentioned that Generation was slightly stable or slightly even down. I mean those revenues, like last year, if you recall, also in the last 6 months of the year, we do have those revenues, let's say, more strongly in the Q3 and Q4 coming in, which do have a dilutive effect. So that is number one. Number two, I think, Christian gave a very thorough overview on Russia and the impact that we foresee coming. And those also are, let's say, more back-end loaded, as we mentioned. We have limited impact so far on Russia. But that high double digits, low triple digit, then also kicks in the next 6 months. And also a supply chain. I think we mentioned we've mitigated everywhere we can. Honestly, I think the team is doing an outstanding job. However, also as mentioned in Q1, we're not immune, so those additional costs that we see are going to impact us also more from a back-end loaded for the fiscal year.
And last but not least, COVID. I think we have been impacted by the closures that we see in China. This is what we mentioned with respect to our Transmission business, where we have manufacturing locations there which have been closed. And this does have an impact amount, and we mentioned it earlier today, of about EUR 1 million per week. So if those closures persist, then this is something also that we see happening as a direct cost. But of course, that also has consequential cost increases as a result of that. So hopefully, that provides more color on why we're saying the second half does have, let's say, more challenges on the EBITDA margin. For example, we stay and we remain in our guidance range at the low end, yes, and this is what we wanted to make sure we reiterated. Thank you for the question.
Yes. Maybe definitely, let's close off with our '23 question also to be clear there. I mean why are we confident with the increase in the '23 to more than '22, obviously, sound backlog, let's say, good margin profile in the project on the GP side. And obviously, seeing also with, let's say, the COVID impact as well as the Russia impact, the headwinds despite, let's say, the net contribution all compensated, which shows the underlying performance. And obviously, assuming that some of the headwinds like Russia will be -- not have the same impact in '23. And seeing the underlying backlog particular, that is what gives us the confidence to deliver on the 6% to 8% corridor.
Thank you both. And then the next question goes to Vivek Midha at Citi. Vivek, over to you.
Could I maybe ask on the orders, that you've seen several consecutive orders over quarters. This is quite strong order growth in GP. How do you assess the outlook for orders for the rest of the year and into 2023? I know you alluded to strong demand earlier. And maybe if you could give us an indication on the total size of all the large orders in the quarter, that would be great. So understand if you'd rather not.
Christian, I think maybe I'll take that one first.
Yes, please go ahead.
Yes. So no, thank you, Vivek. We do have several consecutive quarters of order growth. I mean this is what we mentioned about, And certainly I also reiterated, that we're taking advantage of the market momentum and how well positioned and suited all of our businesses, as Christian just mentioned, Transmission, but also in Generation, also in IA, in terms of our order growth. That's why it's really important for us to communicate that it's across all businesses. . And also what we're seeing is that 30% more or less as a rule of thumb, Vivek, I can't give you the number of them as such. But as a rule of thumb, we see that about -- that double-digit growth continuing into the rest of this fiscal year for all businesses across the board.
Thank you, Maria. Next question goes to Gael de-Bray at Deutsche. Gael, please go ahead.
I have 2 questions, please, and I'm going to take them one after the order, if you don't mind. On GP, so you've clearly been trying to raise prices actively and probably also implement more and more protective mitigation clauses. So how do you explain that there has been no protracted commercial discussions with your customers and apparently no delays in the booking of orders, like what we saw at SGRE, for example? So that's question number one.
Yes, Gael, thank you for the question. First of all, I mean, yes, I would like to confirm that we are obviously able to get price increases through the customers, reflecting really the inflation we see in the supply chain. And despite that, get good new orders. It's probably -- obviously, I would say, strong customer relationships, long-term relations, also the projects, obviously, are long term jointly developed.
I also believe there are parts, obviously, where we have an extraordinary good position in terms of the products. And also in a lot of areas, it's the confidence, I believe, also of the customers that we are delivering on the promises to execute the project, which also then justifies for them to accept also the fact that we reflect price increases in the supplier market and also price increases on our side. Obviously, I mean, if I hear you correctly, Gael, obviously, we see certain delays on the SGRE side, in contrary to that. Some of it, you could, obviously, route back to price increases, but I think the effects of what we see in the order intake is more than just this, right? I would not say the order intake development is so low just because they're raising prices. I think you have seen also across the market, also from the competition on the wind side, that ASP is generally growing. It's a diverse picture on the order intake.
Sometimes it's just a project which is delayed in terms of decision-making uncertainty. So I would not see it as such a distinction between the 2 segments. But I have -- I can confirm, absolutely, we're getting, let's say, price increases through and, despite that, able to conclude the contracts which we have been developing over a longer time.
Okay. Understood. Can I try a second one? I'm sure you agree with me that the value of Siemens Energy does not fully reflect the strong progress that you made on the cash and on the margin side of GP. But my question is, do you also believe that Gamesa or shares are cheap or cheap enough based on what Jochen found out in the last couple of months?
Gael, normally, I would ask you this question. Well, if I compare the price towards last year, the shares are today a lot cheaper. That is the situation I can absolutely observe at the market. And obviously, yes, I mean, that is a way I would look on it. And this obviously was a substantial movement in the whole wind industry. I think with all the shares, you see it across the board. I still believe that as an industry, which is urgently needed going forward, to solve energy transition. And in this regard, I believe there will also be better times for the shares coming because it's really products and offerings what the market needs.
Thank you, Christian. Thank you, Gael. If we could really limit it now to one question, that would be great, given that we're running a bit out of short of time. Andre Kukhnin at Credit Suisse is next. So Andre, please go ahead.
Maybe can I just follow up on the order book margin and that kind of order book quality message that you've been conveying. Could you give us an idea of where your order book margin is now compared to 6 months ago and compared to a year ago given the current kind of -- on current raw materials and the actions that you've taken?
Yes. Sure. I think let me take that one, Christian. So no, thank you for the question. I'm happy to clarify. In terms of -- this is something we look at very carefully internally. On each and every order, by the way, this is reviewed at the highest level for the large ones, of course. And given our trends from over a year ago, what we certainly see is that we are improving the order backlog margin in certain areas.
And of course, in other areas, it's stable. Because, again -- and I do -- and I have mentioned that already, that we still have included in the order backlog, some of our legacy orders that we continue to -- have to deliver on. I also alluded to some of the revenues that are coming in the second half of the year and the margins that are attached to that. So of course, those Andre are still in our backlog. But what's important and what we see is that market, if you'd like, step-up in order for us to achieve -- and this is obviously part of the question is how do we see fiscal year '23. And that's where we do see that the order margin backlog quality continues to remain stable in some areas, improve in others, which allows us to remain confident about achieving our targets in fiscal year 2020, for example?
And that same applies for orders for delivery in the next 12 months just appreciating that your backlog position.
Yes -- no, so some of that what I meant about the legacy orders. So the orders still in the next 12 months do have a component of those legacy orders, first-time introductions, for example, where they do not have the profit levels that we would ensure going forward. Again, looking at the order in its totality of the new units and services in some cases. So those orders will continue to be part of our revenue mix for the next 12 months. And then we see a moderate improvement after that fact in a step up.
Thank you, Andre. Thank you, Maria. Ben Uglow at Morgan Stanley is next Ben, over to you.
Question for Maria about the sort of capital structure of the Group of Siemens Energy. When we look at the net cash, the net cash is now at about EUR 1.7 billion, which is perfectly healthy, as you rightly point out. My question is, if things continue to get tougher either in Gas and Power and/or SGRE, what is the level of cash, net cash that you would like to have? I remember at the time of the separation, the Siemens' management were quite keen to keep a sort of EUR 2 billion level. But is this a situation where you would be prepared to go to kind of 0 or even into a net debt position temporarily? I just want to understand the sort of cash requirement in the -- at the Group level.
And thank you for that very important question on capital structure and looking at our net cash. You're correct, we do have a very, let's say, solid level of net cash at the EUR 1.7 billion. And I think -- because you mentioned GP and SGRE, I want to clarify. From a GP perspective, we have generated a very solid cash flows in the prior year, and in Q1 and Q2 for the half year this year.
So we've had a very solid cash flow already. And it's also because of our strong order intake, of course, where you have a balance sheet effect, so a tailwind in our contract assets and liabilities as a result of that order intake. And we still believe that we -- looking at the full year, we will have a healthy cash flow. And I think GP, this is exactly what we expect from GP. In terms of SGRE, I mean, you've heard and most of you have heard exactly what Beatrice said in their results call. So conversely, to GP, SGRE does have a net debt and -- but they also have cash. I think it's important, they have cash of EUR 1.1 billion. And of course, liquidity is still intact with available unused credit lines, et cetera, of over EUR 2.5 billion. And I think it's also important for them that they are generating cash with respect to the disposal of the development assets, which also then helps cash flow as we proceed into the next 2 quarters, and that disposal takes effect in Q4. But what we have always said, though, in terms of a target net cash, we -- at least that was the previous. But certainly, I have not given a target net cash as such. But what we've always said is that we expect to generate operating cash flows that allows us to remain in a net cash position specifically for GP, and I think that this is something that I would stick to, given the situation. And I also think that, look, we have a strong balance sheet, and we will continue to ensure that the Group has sufficient liquidity, and I think this is something that I would maintain at this point in time.
So just to make sure I understand it, Maria, what we are basically saying is -- and again, this separation that we keep making between GP and SGRE, it's Siemens Energy Group and the debt of SGRE ultimately is recourse to the Siemens Energy Group. So my question is, are you -- you're saying that ideally at the Group level, forget the 2 divisions, but at the Group level, we want to be in a net cash position. Does it have to be in a net cash position? Or could we swing into net debt, I guess, is what I'm interested in?
Well, I mean, of course, I never say never in terms of strategic moves, et cetera. I mean but right now, and as I said earlier, we always want to remain in a net cash position for the Group. This is exactly what we said. And we want to ensure that the Group continues to provide operating cash flows. I think it's important. Because one of our -- absolutely one of my fundamental boundary conditions, if you like, is to make sure that I maintain, and we maintain as a Group, the investment-grade rating, and this is what is required.
Excellent. Thank you both. And we've got 2 more callers on the line, Ajay Patel at Goldman Sachs, Ajay, over to you.
I guess mine is just focused around getting more clarity. Like a sizable amount of your performance over the last 18 months has been driven by Siemens Gamesa's force and profitability. And despite the Gas and Power business doing fantastically, it's not reflected in the share price, as you can see by the implied multiples that it trades at. And we have targets for the next 2 years. We have a Capital Markets Day in May, maybe giving us a little bit more granularity.
But the key question here is when do you think the Siemens Energy Group will be in a position to detail a proper recovery path for Siemens Gamesa, which would include -- what type of balance sheet pressure that may come for '23 on new guidance and give us a trajectory of what the picture to getting this business back up to speed looks like? Because I think it's critical and effectively reflecting the valuation in the Gas and Power business keeps continuing to mask it?
No, very good. Ajay. Thank you very much for the question. And I think Jochen has given some clear indications. Obviously, he indicated in the quarter 3 call, he's currently working, let's say, clear plan, not only short-term actions but midterm actions. Because at the end, obviously, it's a whole trajectory on how to turn around the whole business. So my expectation that within this time line, obviously, until some of this is all detailed out and communicated through the SGRE management. . And this consequently will also then be, obviously, wrapping up into the overall Siemens Energy type of business. Because as you rightly said, on the GP side, we are clear. It's really execution per plan. So the missing part is the SGRE element. And as I said, over the course of the next 1 or 2 months, he is obviously putting the plan there together.
And now the last question goes to William Mackie at Kepler Cheuvreux. Will, over to you.
The question is -- relates to service growth across the business. Can you break out how you saw the service growth across Transmission, Generation and IA, and expectations for the second half? There's actually 2 clarifications as well; one, at the time of the IPO, you were left at the Group level with excess cash. Part of that cash was going to be allocated to the buyback of certain -- well, certain other obligations which you had in the midterm relating to assets in India and deals in China. How do you see the priority of the cash around that? That's the first.
And second, when it comes to SGRE, I mean it sounds like I hear you reiterating the 8% midterm guidance. It's probably difficult to answer in a complete way, but why do you hold on to this 8% as a midterm margin goal at the moment? Is it aspiration? Or is it built on a credible budget internally?
I would -- thanks, William. I will take the second one first, and then I would ask Maria to comment on the service side and the growth rates there. This was referring to the call from Jochen, where he gave his midterm outlook and where you obviously said there is no reason to believe that it could not be an 8% business. That is related to that statement of SGRE management. Obviously, any further details have to be delivered first by the SGRE management. But this was referring to the statement we made in the last quarterly call. And -- yes. And with this, I would hand over to Maria for the service piece.
Yes. Thank you, and thanks for that, because I think the good news is that the service is growing across both segments. So you also saw that SGRE, so highlight was their service growth quarter-over-quarter as well. But looking at Generation, I think if you look at the 3 areas in terms of indication. For IA, we see a modest growth. This is expected by the way. As you know, the IA business was most impacted by the pandemic. So we do see moderate growth for the service business for this particular year, and that continues in the rest of the year. Looking at Transmission, we also see high single digit. We like service growth, so good growth there as well. And with respect to Generation, we see that, of course, Q2, as mentioned, that was part of the growth that came in for this particular quarter. So that was really leading some of the strength, if you'd like. And then in the second half of the year, we see this flattening out. Again, going in line with what we mentioned with the next 6 months to come in terms of the profits and the mix. So that -- and then I think, Will, you had a question around the excess cash and the cash priorities. I think I highlighted that specifically on the cash bridge, where we still have -- you're absolutely right, that we prioritized our cash and had some, if you'd like, earmarked usage of cash, and this is clearly indicated in terms of our planned restructuring. So this is all planned for. Even when we talk about the guidance -- the maintenance of the guidance, if you'd like, with respect to free cash flow for the year, at mid-triple digits. And also including the non-carve-out countries. And that is exactly what you're talking about at spin, where we have concluded a small country and we will have the majority of that coming in the next 6 months. Thank you.
Right. That concludes the question and answers, and I'll hand over to Christian for a brief closing remark.
Thank you very much for all the questions. And as I said before, we look forward to welcoming you on the Capital Markets Day, and obviously, have further discussions and detailed outlooks there. Stay healthy. Stay safe. Looking forward to see you in person. Thank you very much.
Thanks, everyone.
Thank you, everybody else from my side. And please do reach out if you have further questions to the IR team. Thanks, everyone. Bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A record of this conference call will be available on the Investor Relations section of the Siemens Energy website. The website address is www.siemens-energy.com/investor relations.