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Good morning, ladies and gentlemen, and welcome to Siemens' 2018 First Quarter Conference Call. As a reminder, the 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 expectation 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, Mrs. Sabine Reichel, Head of Investor Relations. Please go ahead, madam.
Good morning, ladies and gentlemen, and welcome to our Q1 conference call. The earnings release and Q1 presentation were released at 7 a.m. this morning. You can find everything on our website. Our CEO, Joe Kaeser; and our CFO, Ralf Thomas, are here this morning to review the Q1 results with you. Since the AGM starts today right after this call, we will limit the time for approximately 45 minutes, including Q&A. And with that, I would like to hand over to Joe.
Thank you, Sabine. Good morning, everyone, and thank you for joining us for the first quarter results of fiscal 2018. As you know, it is almost the time of the AGM here in Munich, so we'll see how it's going to go, but now we do look forward to discussing with you the first quarter results. I believe we had quite a successful start to the fiscal year 2018, and I really like what I see in most of our businesses. The growth momentum of the global environment seems to be strong in most economies, and our investment in key businesses and sectors is paying off. Our focus on digitalization and innovation shows clear results. The Digital Factory division leads the way into what we call Industry 4.0. We do see this in our customer experience feedback across all divisions, and it is not just related to Digital Factory. You would have seen it also at our recent Innovation Day where we, jointly with our customers, demonstrated tangible and real-time examples how to unlock value through our digitalization applied to the industrial world. And it is also recognized by opinion leaders such as, for example, the Boston Consulting Group, ranking us among the most innovative companies in the world.Looking ahead, we do expect the macroeconomic environment to remain positive. Downside risks are rather attached to a continued geopolitical tension in the area like Russia, the Middle East and the Korean Peninsula. Also, diverging definition of what free and fair trade may as well pose risks to the global business going forward.Furthermore, the structural challenges in the fossil power generation market will continue. We have initiated and will take decisive steps to adjust our capacities accordingly. Meanwhile, the dialogue with the employee representatives have also started in Germany.On a more positive note, we are excited about our planned IPO for our Healthcare business. During the Capital Market Day, the Healthineers management team provided an in-depth presentation of the strategy, operations and financials of this great business. They are on track to list the Healthineers business in the first half of calendar year 2018, obviously, depending on market condition. And with that, I would already like Ralf to touch the key financials for the first quarter.
Thank you, Joe, and good morning from my side as well, ladies and gentlemen. Organic order growth was clearly up 7%. We saw continued momentum, particularly from all short-cycle businesses across our portfolio. Large orders were up due to series of significant customer wins in Mobility, such as a EUR 900 million order from Israel and the largest U.S. rail order ever in San Francisco. In addition, we saw again strength in the base orders with 11% nominal growth. Book-to-bill stood at a remarkable 1.13x, and the order backlog increased to EUR 128 billion. Overall, revenue was modestly up 1%. A double-digit organic decline in the power generation business was overcompensated mainly by Mobility and Digital Factory. The Industrial Business margin reached 11%. As expected, it was impacted by a margin drop in Power and Gas new unit business and currency headwinds of around 60 basis points. Most divisions were in or at the margin range, with Mobility and Digital Factory even topping the range.Net income was up 12%, supported by 2 one-off gains, such as the sale of OSRAM shares and a net positive effect from the U.S. tax reform in the magnitude of EUR 437 million. Free cash flow surged to almost EUR 900 million, an increase of 22% over prior year's quarter. Main reason was significant project milestone payments in Mobility.Now let's look at key developments in the different divisions. As discussed, the ongoing structural shift in the power generation markets led to contracting demand and significant price pressure due to aggressive competitive behavior in the new unit business of Power and Gas. Revenue decline of 15% was mainly driven by a much lower volume from the solutions business, particularly from the Egypt project. Unlike to what we see from others in the industry, our service business remains a stable contributor and is holding up very well on top and bottom line. We have a healthy service backlog of EUR 31 billion, with good visibility for the next 12 to 18 months. The book-to-bill in the service business was clearly above 1 in the quarter. As expected, the PG margin came in below the target range at 7.6% due to lower capacity utilization.Energy Management developed sideways in the quarter with lower volume from large orders. The profit margin was at the lower end of the target range, impacted by extraordinary adverse FX effects in the magnitude of 80 basis points. The Building Technologies team built on its successful track record with revenue growth of 5%, driven by the U.S. and China. A key focus is on expanding the digital service and connected product offerings to foster further growth. Profit margin of 9.7% was only temporarily lower due to cost overruns related to the Middle East.Mobility delivered an outstanding quarter where the financial key performance indicators speak for itself, double-digit top line growth and improved profitability across all businesses. The team reached important milestones in several high-profile projects. For example, the Eurostar train received homologation also for Belgium and the Netherlands, while the ICE 4 train for Deutsche Bahn began regular service in Germany. We like very much what we see, the 10.4% profit margin, clearly north of the target corridor. Our Mobility team is confident to deliver strong margins prior to building the European Mobility champion, Siemens Alstom.Digital Factory proves quarter-by-quarter the superior strength of combining comprehensive software offerings with leading automation competence. Looking at the competitive landscape, Digital Factory delivered another strong quarter with further market share gains. Going forward, we expect to continue to outperform the market. A significant growth contribution came from the short-cycle businesses, driven by strong demand from automotive and machine building customers. Again, China was standing out with 24% revenue growth, benefiting also from restocking effect in the distribution channels. We expect the short-cycle momentum to moderate going forward.Also, Mentor Graphics fueled the software business by closing 3 large multimillion software deals. Mentor delivered a substantial profit contribution in the seasonally strongest quarter. The underlying margin was north of 22%, excluding severance investment in MindSphere of around 130 basis points and effects from the Mentor integration of around 80 basis points.Process Industries and Drives achieved strong order growth of 10%. However, we saw diverging end customer trend. While commodity-related end markets showed further stabilization, the demand for mechanical components, particularly in the wind business, was weak. Profit margin improved by 90 basis points despite significant currency headwinds. This was driven by a record high profitability in the process automation business. Siemens Healthineers first quarter saw a solid comparable revenue growth of 2%, driven by strong growth in advanced therapies. Profit margin of 16.9% came in, as expected, below the extraordinarily high level of the prior year's quarter. Despite good execution, significant currency headwinds of 90 basis points in a less favorable business mix impacted margin. As laid out at the Capital Market Day, the Atellica rollout of the diagnostics business is on track. The first 100 systems have been shipped as planned, and customer feedback is excellent. The team is confident and committed that the aspired growth in diagnostics will accelerate the ramp-up of Atellica installations and reagent sales over time.Siemens Gamesa reported their results already yesterday. Nominal volume was sharply up due to the merger, with a healthy book-to-bill of 1.37x. However, top line was significantly lower on a like-for-like basis. Revenue and profitability reflect low installation activity and ongoing pricing pressure in the onshore business. The Siemens Gamesa management team will give you an in-depth update on the strategic and operational priorities at their upcoming Capital Market Day in Madrid on February 15.Let's have a brief look at some of the major topics below Industrial Business. Siemens Financial Services delivered once again a strong performance in supporting our divisions and achieving bottom line results. CMPA showed a clear increase over prior year due to the related gain of selling Alstom shares. However, we expect volatility to continue due to the various assets and liability as well as carve-out-related items.The tax rate was at an extraordinarily low level of 6% for the first quarter due to the largely tax-free OSRAM gain of EUR 655 million, and we already mentioned positive effect from the U.S. tax reform. But please keep in mind that preparations for the Healthineers IPO as well as Mobility carve-out are progressing as planned, hence, we expect certain tax burden related to those items in fiscal 2018, as we told you before. Taking this into account, for fiscal '18, you can now expect the tax rate to be rather at the lower end of our guided range of 27% to 33%.To sum it all up, we had a strong start in the first quarter and confirm the guidance for the fiscal year. With that, Joe and I are happy to take your questions, and I return the mic to Sabine.
Thank you, Joe and Ralf. Operator, we now start with the Q&A.
[Operator Instructions] And our first question will come from Mark Troman from Bank of America.
Two questions, please, one on power and one on FX currency. Firstly, on power. Joe, I just wondered if you could outline the sort of timetable for the capacity adjustments, where should we be by, let's say, the year-end, the fiscal year-end September '18? Related to that, on severance charges, I mean, severance charges are one thing. I think we see consensus has about something a bit under EUR 400 million. Will there be more of these capacity adjustment type charges, I guess, you took in Q1, offset by the gain? How should we think about that for the year? That's the questions on power. And then the second one, on FX. Ralf, you mentioned, I think, 80 basis points headwind in Energy Management and 90 or so in Healthineers. How should we think about FX for the year in terms of the group in terms of the overall transaction or margin impact for the group?
Mark, why don't we maybe start with Ralf and then I come back on the PG labor union topic.
Yes. Of course, Mark, what I said is, I mean, for the Industrial Business, the impact from exchange rate in the first quarter was 60 basis points; from continuing operations, it was 50. I also had been mentioning Energy Management with 80 basis points; Healthcare, 90. There was also a substantial headwind from exchange rate from -- for PD with a negative of 80 basis points; and also, our Digital Factory was negatively affected by 40 basis points, just to give you more color on the divisions. From today's perspective, all others equal, if exchange rates stay pretty much level with that what we see at the moment, I would say that the full fiscal year, we'll have pretty much the same impact, around 50 basis points of impact. That's what we expect from today's perspective for the Industrial Business in total.
All right. Then on the power generation, I mean, first of all, the first quarter was basically also adjustments on the underutilization of equipment, which we have been doing in parts. So on the severance topic in PG, as you know, we announced 6,900 jobs to be redundant, about 6,000 of them being power generation, about half of that 6,000 being in Germany, the other half elsewhere in the world. So as for the elsewhere in the world is concerned, we do expect to be having agreements done by fiscal year-end, and then we should see the savings come in during the course of 2019. As for the Germany part of the equation, we have been starting -- finally starting the dialogue with the workers representatives, which have been quite busy with their tariff bargaining and things which still has not been yet fully done. So there is some delay here. So we would expect the negotiations to be done during the course of, let's say, spring, summer, and then we need to go start with getting the cost out. I mean, booking the reserves is one thing, but getting cost out obviously is the next. So a mixed basket here. Outside Germany, we are well underway. In Germany, we have been starting a dialogue, which is a positive, but it could take time until people who are busy with elections, can't come to the table. So I would say, year-end, we should have a solid agreement. And then we also would expect the reserves likely to be booked in fiscal '18, as sort of anticipated, and then starting the cost takeout during fiscal '19.
Mark, maybe one additional data point for PG. I have been indicating that in the presentation that in the first quarter, we had personnel-related severance charges of around EUR 13 million. But on top of that, there's also, of course, a need to adjust the long-lived assets and to depreciate, if need be. That happened in the first quarter to a magnitude of around EUR 40 million.
We will now take our next question from Ben Uglow from Morgan Stanley.
I had a couple, not surprisingly, around power. So big-picture question. You made the comment in the opening that the performance is quite different from your competitors. Joe, can you explain that performance differential a bit? What do you see -- or what is actually happening in your business that's different to your largest competitor? Is it something to do with the way that others have accounted? Is it something to do with your regional mix? Is it even something to do with the actual gas fleet? So what -- why are you seeing such a disparate performance from what others are reporting? So that's question number one. Question number two, I think at the recent conference, you'd indicated that you expected the power business -- power margins to actually improve in 2019. I wanted to understand what is the basis for that confidence. Is it that you think that you're going to have so much costs out that the solutions business is going to improve? Or are you actually betting that power service continues to grow nicely? Where in your business mix do you think things get better next year?
Ben, well, obviously, commenting on other people's challenges is not appropriate because we have enough on our own on that matter. I mean, the reason why I made that comment earlier was that people who are not so familiar with the matter, especially in the general public, just need to understand that this is not a Siemens problem, but a general issue in the industry. It shouldn't come as a surprise because, obviously, for renewable energy growth, something else needs to obviously decline. So having said that though, yes, we do expect the power margins, the mix between new business and service to improve over 2018. And there is a couple of reasons for that. First of all, obviously, we expect the effect of rightsizing to materialize, at least in parts, in 2019. We also do see from the lineup in innovation that there might be some design-to-cost elements which come through to the P&L, so to speak, which should also give us a structural improvement on cost versus price. And thirdly, we do not bet on service to be even better as it is already. So that will be probably just turning our heads away from the real challenge which has -- on the new business. So therefore, we -- I think we have good transparency in the marketplace. We have good transparency on our innovation pipeline, which will improve performance of the machines as well as the design-to-cost. And we also -- how should I say that? It almost smells like unnecessary behavior in the marketplace has become a bit less intense.
So lower price intensity around new projects?
Yes, there's nothing more I can say to that. I think it's -- should be clear enough.
We will now take our next question from Andreas Willi from JPMorgan.
I have 2 questions, please. The first one, just a quick follow-up on power and the performance in the quarter. Obviously, you have equipment coming down quite sharply; and service, more stable, and therefore, positive mix impact. But maybe you could help us a little bit with the underlying performance in terms of what their service margins are year-on-year and their equipment margins are year-on-year to better understand the margin performance, taking the mix thing out of the picture. The second question, on the union and work representative situation in Germany. We have the wage discussions, the redundancy discussions. It seems to be quite difficult. Do you see a change or a breakdown in the strong relationship that Siemens and the German industrial complex in general had over the last 10, 15 years that supported the German export miracle in that sense that it's -- something's changing in how the unions and the worker representatives deal with the companies in terms of them wanting a larger share of the pie now maybe after 10, 15 years of restraint?
Thank you, Andreas. Let me start with the question on PG and the resilience of the service business. I think we have been talking a couple of times about that. So the backlog has a strong component meanwhile from the service end, exceeding 75%, so we have quite some visibility also in terms of times and how that's going to be turned into revenue. So the margin has been hardly impacted year-over-year on the service end. So you can conclude from that, that it was all the new equipment that has been suffering in terms of profitability. And also, the mix, from a revenue perspective, I think with Power and Gas having really a strong service piece also in the revenues of exceeding 50%, should give you some confidence that we really have a firm grip around the figure and the development of that mix way forward. So no material impact on the service margin development.
Yes, Andreas, thank you. And on the question of unions and workers representatives, and how, what we call, the social partners, work together. I think, first of all, honestly, it's not that bad as it sometimes looks like if you scroll through, let's say, the sensational headlines of some newspapers maybe. So I will have to say that for the most part, this dialogue is intact. However, you're obviously right, there have been a few changes in terms of how the social partners react and the public also is communicating about. I mean, look, if you have the collective bargaining and someone comes in and says, now we need 8% increase and, well, going to work 28 hours a week, and there is nothing to discuss any further. It's a bit of a harsh approach, and we need to see how that goes. And obviously, this comes right into the middle of a mostly fully loaded capacity in most of the key industries. It's a very complicated matter to deal with. And I would recall that in the approach some irrational exuberances , what we see here. On the other hand, they have always been able to come together and make a meaningful compromise in the end. So that's the IG Metall topic, which we have attend here. And there's also election time now in spring for the workers representatives in the -- on the production sites, which also may play a role, that is it's a bit more outspoken than it need to be. But I'm reasonably optimistic that this can be done. And comes March or April, we move on and go back to business where we should be. What I'm more concerned about, and this is not only true for Germany, but also most of the fully developed economies. In terms of Germany, we're doing as well as we have ever done before in our history if it comes to wealth and economic environment. And there's a lot of people who are really, really concerned, if not scared, about what the future will bring. They all hear this digitalization and 4.0 and massive transformation and all those things. And they don't exactly know what the hell that is and, if more importantly, what it means to them. And this sort of causes a holdback situation. And every change, people try to explain is, first of all, consider this resistance. And I think we haven't done a good job also in the economic leader community to explain well the opportunities. Things will also be able to provide, and that's what we need to do. And obviously, populism in the political environment is not helpful either. So we have a bit of a social-political challenge here. And I believe that the economic leaders, the company leaders need to speak out much more and explain to people that actually, the opportunities are higher than the threat. So I think long story short, I'm confident that comes, let's say, March, we should be back to real business and again talk to each other and not about each other. And in the meantime, we do our business, focus on our customers and on innovation, which we do not need anyone else but our customers and our people.
We will now take our next question from Simon Toennessen from Berenberg Bank.
Firstly, on Power and Gas. Can you talk a bit more about the trends you're sort of expecting by products? And I know it's sometimes difficult to quantify, but I think the expectations for large customer demand this year are being quite weak. It's quite well understood. But do you think you're gaining share in particularly the small, medium aero business right now, given we've seen a very weak performance here from your bigger competitor? And also, in the compressor-related business, with the PD seeing good order growth, should we assume some sort of commodity-driven recovery here in that business with, I think, Ralf, you stated the book-to-bill of Dresser being clearly below 1 last year and also margins, I think, you said were in the low single digits, so what's kind of the recovery path here going forward? And then, secondly, on Digital Factory. Obviously, you flagged very strong orders here, particularly auto and machine buildup driven. Can you maybe split out how the software business grew organically relative to the more hardware-related part? And then also, within that, maybe how the PLM business is doing?
Let me start with the second part of your question, Simon. So the Digital Factory overall had a really tremendous start into the new year. As I said before, short-cycle business, in particular in China, has been driving that. As always, that part of the year, you need to figure out what are artifacts in each, what is re-shelfing and how much could you sell into the channel and also what effects may you expect for and around Chinese New Year. When it comes to the software business, we have been sharing with you last time already that, with the haircut and everything around Mentor Graphics, it's hard to tell what is normal on that end. But I think compared to the prior quarters, that one was relatively slow on the top line, but we had a very, very successful start with Mentor Graphics. They have been substantially contributing to the margin development in PL, and we are very happy with the progress being made there. I assume this is also at least in part due to the fact that the team in PL, now after a series of acquisitions, knows exactly which strings to pull at which point in time. So we are very confident. And I think before we talk about a new normal or a new steady state, you should give us 1 or 2 more quarters before we can finally conclude from that what we see for the way forward. On the PG side, I think Joe has been discussing already that the large gas turbines, they still have a downward trend from the market's perspective. Everything we know from McCoy and alike is rather suggesting that the trough maybe even a bit lower than we saw it last year. So it's hard to tell what market shares you may win or not win in that area before you also have the big picture on more than 1 or 2 quarters. On the small gas turbines side, you mentioned that some of the competitors see a very intense market. We agree upon that. It was a very slow market development for the first quarter. And also, from the statistics that we have at fingertips, we would assume that, that was a further decline in demand on the market side. And the compressors being part of the value chains of the process industry's customers, that's a right statement. However, they are also lagging in terms of the lead time that you would normally see. So there wasn't the same momentum being created as we saw that in the PD portfolio where, as we may have been pointing out, had an extraordinary good development with 10% new order growth, even though the wind market with mechanical components is fairly slow and still contracting. Talking Dresser, I had been mentioning that last year and also the first quarter had a book-to-bill below 1.
And generally, as said earlier, I think they are typically just, as you all know, in McCoy statistics for 2017, it should be due out anytime soon. I did look at our numbers in there, they are accurate. So you can rely on those as far as Siemens is concerned. Fiscal Q1, we expect the large turbines, about, in our definition, it's larger than 100 megawatts. We have like 23, 24 in the market. We saw 7, which is part of market share of 30 plus/minus, give or take. That pretty much, I think, reflects the industry. We have a few, I think, very decent design-to-cost action in the innovation pipeline, especially in the medium-sized environment. Think about the SGT-800 and the like. So we actually do believe that we are well-positioned in that market.
We will now take our next question from Martin Wilkie from Citi.
It's Martin. Just a question on the process and drives business. You mentioned that mechanical drives is sort of dragging that business versus recovery elsewhere. Obviously, you do have exposure to win there. I just wanted to understand how much of the challenge in mechanical drives is linked to the pricing impact being passed down by the turbine manufacturers, and how much of it is a structural shift to direct drive? And also, there was an article in Bloomberg a few days ago mentioning that you might be considering the sale of Flender. And I think there's some confusion as to whether that comment came from the company or elsewhere, so I just wondered if you could comment on that as well.
Yes. Why don't I do that because it's pretty short. I mean, we've seen that article, too, and there is nothing else to add. I mean, the mechanical drive business, which used to be the Flender business, so it has a good brand actually as a company. It does see some structural areas mostly because of innovation. Maybe let me explain that. In order for us to bring the cost down in mostly offshore, but also now in parts onshore, we are going after gearless boxes because it's just more efficient. It's -- the weight is down and the costs are down. So actually, this mechanical drive environment, if it comes to wind is, so to speak, a victim of innovation. There, we have the benefits elsewhere. That's when we comment a bit on weaknesses in the wind area, not so much about pricing issues, and everyone looks at other people's backyards, which is the supplier. But this is not the issue. The issue is that there's a segment, which used to be a growth segment, which now is being affected by innovation elsewhere. And we deal with that, and if people speculate, you sell it or everything else, [ but I've ] comment on it. But obviously, we have very good people there who had quite a turnaround. You need to know this mechanical drive business was also one of those so-called underperforming units, and they are not an underperforming unit anymore by our definition. So you can see a lot of good things happening there, and the team is great. We have a good positioning in the marketplace, and so we feel actually good on what we see.
We will now take our next question from James Stettler from Barclays.
Two, quickly. Just on the mix within the 17% order growth in Digital Factory, how much was project and how much was short cycle? And could you just give us a bit more color around the 2% order growth in Healthineers, which looks a bit lower than your 2 peers? Can you talk a bit how that -- the breakdown between the 3 segments?
Thank you, James. Starting with the Healthineers, I think you need to understand that the competitors that have been disclosing their figures do not have a diagnostics business as we have. And as the management team has been sharing with you guys in the Capital Market Day, it's obvious that with ramping up now Atellica and really making good progress in terms of what has been delivered, installed, in terms of customer feedback that we get, it's exactly hitting the expectations of the customers, obviously, but still, it will take time. And this is also going to be reflected in the performance of the diagnostics business. Obviously, it's seeding period. And before, we really see substantial and material bottom line impact. That will take another couple of quarters, as we said before, because then the reagent business is going to kick in with richer margins compared to that what we see at the moment. So the in vivo business, so advanced therapies, as pointed out in the presentation, as well as imaging, has been minimum up to speed with that development of the competitors that have been out with their figures already. So we are absolutely satisfied with the development. And also, bear in mind that prior year's quarter, and we said that in the discussion then, was an extremely outstanding good one also in terms of profitability and not only in top line growth. And the 90 basis points of negative impact from FX, I have been mentioning before. Talking about the Digital Factory and where the growth momentum come from, maybe I can give you a bit more color on that one. I had been mentioning that we had 24% growth on the short-cycle business in China, which is amazing. Again, as I said, the momentum in the market there is probably at peak, and we should be careful with our expectations for the quarters to come. Momentum will remain there, but probably not on that high level. So I need to caution you a bit for the second half of the year, in particular, visibility typically it's not more than 6 months in that business. We also had outstanding growth rates on the short-cycle product business in Italy. Packaging industries are fairly strong there, and they are supporting and benefiting from Internet-based trading, obviously. And also, Germany, with modest but stable growth rates, have been contributing in the short-cycle business development. So we see that being the main source of the development. In particular, automotive and machine builders have been contributing a lot. But also, the general manufacturing environment and automation there is providing additional growth for almost any of the typical regions where we are in, in particular, China, as I said before, with strong double-digit growth rates.
We will now take our next question from Jonathan Mounsey from Exane BNP Paribas.
Maybe a couple. Could you comment on the scope of Vision 2020? I see it appearing more and more in your slides all the time. And obviously, hopefully, we'll get some communication on that before the end of this fiscal year. But maybe just the scope that it's likely to incorporate? And then on Mobility, a very, very strong quarter in terms of order intake and cash generation. Does this at all affect the agreement with Alstom? Will there be adjustments made as we go into the completion of that deal to reflect how the 2 businesses have performed in the period since it was announced?
Thank you, Jonathan. Let me start with the last one around Mobility. You're absolutely right, this was an outstanding quarter of Mobility, and we had been indicating to you that we expect strong growth momentum, both for new orders and for revenues. So that has been part of our business plans when we started into the negotiations with Alstom, and therefore, there is no need to adjust for the business development so far. Of course, there is the normal technical adjustments being made for working capital and the like at the end when we close the deal. But the business development that you now see us reporting on the first quarter is exactly along the lines that we had been indicating before. And as I said, there is growth potential for the quarters to come. A very strong and dedicated team that also now obviously has been successfully doing their homework in terms of nonconformance cost. So the margin in the double-digit area is clearly leading the industries, and we are very happy with the team and with their performance.
And maybe to add to that. You may recall that I said in the press conference at the time when the deal was announced that there is no reason why this newco should not have margins greater/equal 10% or double-digit margins once it's formalized, integrated and has gotten the synergies out of the deal. Now obviously, there's a lot of work in between. We need to do the deal. First of all, it needs to close. There is an intense discussion with all the stakeholders at this time, think about the unions, obviously, also about antitrust matters, the customers. So the team is very busy in doing it. For the most part, it looks really good. Of course, all the guys are concerned, as Andreas mentioned earlier, in terms of social impact and workers representatives, so we need to deal with that. But all in all, we continue to believe this is a very, very attractive combination if and when we finally have it. Now on the vision, what we call Vision 2020+, which is nothing but a placeholder for what's next in the long-term strategy. Look, I mean, we do have a strategy today. And you also, however, have recognized that we need to now take it to the next level. We are not in a hurry to jump to something too quickly. As you obviously see, the business overall is doing well. But also, we have some structural areas in PG. It obviously was one of the most prominent parts today in the Q&A, rightfully so. So I mean, we are ready to balance between fixing the structural topic with the workers representatives and laying out a new strategy on the other hand. I mean, it would be ought, I think, if we are not done with the structural thing and lay out what happens next before we have fixed the first things. So I think we are well underway. We have had quite good discussions in the management team workshops on where we see the potential. And there, we can be -- or should be much better than we used to be. So well underway. As I said, I like what I see. We are not in a hurry. We will get things done right. But first, as I sometimes say, we sort of need to do the rightsizing first and then expand to good things into the future and double up on them where we have been good at.
We will now take our last question from Gael de-Bray from Deutsche Bank.
I have a couple, actually. The first one is related to, well, some of your competitors' issues right now. I mean, did you see some early signs of some of the group's activities starting to benefit from the windfall effect of GE current issues, and perhaps, with some of your customers now more willing to deal with you than in the past? And the second question relates to Energy Management. Margins have been sliding down here for the past few quarters now despite a good top line development. So could you elaborate a bit more on this, please? What's going on there? And because it seems that the margin gap with some of your peers has actually expanded relatively rapidly.
Thank you, Gael. Let me start with the end part of your question. First of all, looking back into our historical track records there, you would typically see that the first quarter is very slow each and every year. So from that perspective, the pattern as such is not really new. As I said before, there was also a substantial impact from exchange rate in this quarter. It was amounting to 80 basis points. If you add those 80 basis points, they are clearly, clearly moving forward, also considering the seasonal pattern in it. And we're absolutely convinced that they are going to make progress with their programs and their growth pattern in particular. 5% revenue growth in Energy Management is quite something to achieve. We are quite happy with that. And also, the fact that our product business is developing. Low-voltage product business, in particular, is developing quite nicely. That's also an area in the portfolio where we see a good margin conversion taking place. So also, in that business, we saw that there is quite some momentum being created in the short-cycle business. And from that, what we see, the visibility in that market, we are also quite positive, really looking ahead for the quarters to come.
Then on the first one. I mean, look, of course, there is always, if you have your challenges, customer ask and worry and wonder. Of course, people come to us and say, are you on and are you ready and will you support us? And the answer is, of course, yes, as we have always done. And we've made quite progress on the efficiency in our products. We have been investing into innovation despite, obviously, a complicated market. Our service is well underway. We have a fascinating team in power generation and in service. So they are really, really working hard to also help our customers get more benefits out of their products they have today. So we try to keep our customers happy and help them to be more successful. And competition is competition after all, and we'll see how it goes.
Thank you, Joe. Thank you, Ralf. We will now finish the call because we have the AGM. Thank you, everyone, for participating. I and also the team will be available for further questions. Thank you. Bye.
That concludes today's conference call. Thank you for participating, ladies and gentlemen. Once again, let me repeat the instant replay numbers. Participants in Germany, please call the replay number +49-6-920-001-800, access code 9770016#. Participants in Europe, please call +44-207-660-0134, access code 9770016#. And participants from the United States, please call replay number +1 (719) 457-0820, access code 9770016#. This replay service will be available until tomorrow night, and the recording of the conference call will also be available on the Investor Relations section of the Siemens website. The website address is www.siemens.com/investorrelations. Thank you, ladies and gentlemen. You may now disconnect.