Siemens AG
XETRA:SIE
Earnings Call Analysis
Q4-2023 Analysis
Siemens AG
As we navigate the start of fiscal year 2024, our company's historical order backlog stands as a bastion of resilience at an unparalleled EUR 111 billion. Even in the face of ongoing destocking by customers and distributors, notably in China, our supply chains and manufacturing execution systems have reached normalcy, solidifying our foothold in the market. We foresee the consumption of this backlog to persist through the first half of the year, aligning with market restabilization.
Our commitment to long-term growth and market innovation shines through our strategic partnerships, particularly with tech giant Microsoft. Together, we're pioneering the cross-industry adoption of AI with tools like the Siemens Industrial Copilot, designed to streamline manufacturing processes with generative AI. This tool is a testament to our dedication to significant technological leaps, not just incremental improvements.
Digital Industries have outperformed expectations, with revenue soaring by 11% and the software business hitting a record with more than 30% order level increase. Our profit margins have benefited from this, showcasing a robust growth potential, despite certain businesses normalizing. The upcoming fiscal year is set to be a transitionary period, where investments will be carefully calibrated to nurture growth and adapt to temporal economic softness, especially in regions like China and Germany. We project an uptick in market demand in the latter half of the year.
Our Smart Infrastructure segment has consistently excelled, markedly in its fourth-quarter performance, demonstrating vast improvements across all metrics. With an impressive 6% order increase and a 12% jump in revenue growth, the segment has furthermore accomplished an outstanding free cash flow, significantly outpacing our target conversion rate.
Amidst a 10% growth in our service business and the rapid acceleration in the data center vertical, we are honing in on sustainability as a pivotal business driver. As we move forward, commercial building growth is expected to moderate due to the surging interest rates, influencing our strategic approach and market expectations.
Confronting the reality of fluctuating exchange rates and the intricate balance of product mixes, we persist in our thorough investment into research and development. We understand that pricing strategies must evolve to counteract the pressures of prevailing high interest rates. Despite foreseeing a subdued momentum in the forthcoming fiscal year for Digital Industries, especially in automation, we are strategically poised to invest in our competitive edge and are prepared to respond to market shifts with agility.
Barring unforeseen legal and regulatory burdens and despite the complexities introduced by macroeconomic fluctuations, we project an assertive growth in earnings per share for fiscal year 2024. This projection is a direct reflection of our comprehensive strength, our refined portfolio, and our commitment to agile management as we navigate the unpredictable dynamics of international markets.
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Good morning, ladies and gentlemen, and welcome to Siemens 2023 Fourth Quarter Conference Call. As a reminder, this call is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties.
At this time, I would like to turn the call over to your host today, Ms. Eva Scherer, Head of Investor Relations. Please go ahead, madam.
Good morning, ladies and gentlemen, and welcome to our Q4 conference call. All Q4 documents were released this morning and can be found on our IR website. I'm here today with our President and CEO, Roland Busch; and our CFO, Ralf Thomas, who will review the Q4 and full fiscal 2023 results, followed by the outlook for fiscal 2024. After the presentation, we will have time for Q&A. This call is scheduled for up to 90 minutes since there's a lot on the agenda. With that, I hand over to Roland.
Yes. Thank you, Eva. Good morning, everyone, and thank you for joining us to discuss our impressive fourth quarter and full fiscal year 2023 results. Before diving into our record performance and looking forward with confidence, let me highlight how Siemens continuously strengthens the fundamentals to succeed in a volatile business and geopolitical environment. All our businesses are leveraging secular growth trends driven by automation, digitalization, electrification, and sustainability. We empower our customers in industry, infrastructure, transportation, and healthcare to accelerate their digital and sustainability transformation. Our technology is transforming the every day for everyone. It is instrumental in solving the most significant challenges of our time, including labor shortages and resilience of value change as well as climate change. More than 90% of our business enables customers to achieve a positive sustainability impact such as less energy consumption and decarbonization, minimizing waste, less use of raw materials and water or better passenger and patient experiences. We address the specific needs of our customers in their vertical domains and create substantial value for their businesses. We support our customers to stay relevant and competitive in the future. Three years ago, we started executing our strategy as a leading technology company to combine the real and the digital worlds. We are well-positioned to create even more impact with higher speed and agility going forward. A major success factor is the scaling of our offerings by providing a repeatable answer to recurring customer problems. We do that by deploying a common cutting-edge technology stack together with our fast-growing ecosystem of partners. Our open digital business platform, Siemens Xcelerator, is core to achieve this goal, and I will talk about some exciting examples later. This gives us significant opportunities to consistently achieve high value growth by driving profitability and cash. Looking at the agenda, we reflect on a record fiscal year 2023. We give a confident outlook for 2024 from a position of strength. I'm very proud that we delivered on our raised promises in fiscal 2023 and created substantial value for all our stakeholders. We all experienced another year with ongoing geopolitical and macroeconomic turmoil, including wars, fast-paced interest rate hikes to fight inflation, erratic destocking effects, and skilled labor shortages. Many thanks go to team Siemens worldwide for a tremendous contribution to successfully managing this complex environment and working strongly together with our suppliers, customers, and partners to make a positive impact.
As a technology leader, Siemens captured significant market opportunities and market share. Orders topped EUR 92 billion and were further up by 7% from already very high levels, while revenue grew by a very healthy 11% at the upper end of our guidance. A book-to-bill of 1.19 and record backlog of EUR 111 billion gives us confidence for fiscal 2024. With all-time highs for industrial business profit and margin, we demonstrated again that our strategy as a technology company, powered by a strong operating model is bearing fruit. Our understanding, outstanding operational performance also compared to competition, is most notably confirmed by continuously stellar free cash flow. For the first time ever, we exceeded the EUR 10 billion threshold and topped prior year's level by a stunning 23%. This almost -- equals almost 13% cash return on sales now for 4 years in a row in double-digit territory. Operational strength is fully reflected in earnings per share pre PPA and excluding Siemens Energy of EUR 9.93, slightly above the updated guidance range. Basic earnings per share more than doubled over prior year and for the first time crossed the EUR 10 marks. Profit in the Industrial business reached a record high of EUR 11.4 billion, growing by 11% compared to prior year. And this translates into a further improved margin level of 15.4%. All 3 businesses met or, in the case of Mobility, exceeded their revenue guidance with a full powerful finish. In Q4, Digital Industries grew by 15% of a comparable basis. This was the third year in a row with double-digit growth despite a macroeconomic market slowdown through the year. Profit margin reached 22.6%, a record high level with strong backlog conversion in the automation business overcompensating effects from the ongoing SaaS transition. Smart Infrastructure grew by 15% and came in at a record profitability level of 15.4% at the upper end of this year's guidance. Very steady and consistent improvement path, which is underscored by an impressive 12 consecutive quarters of year-over-year profitability improvement. And there is more to come. Mobility accelerated revenue growth by achieving 15%, well above the guided level. For the first time, annual order intake exceeded EUR 20 billion with a book-to-bill around 2, reflecting strong market momentum. Even more importantly, the team, again, achieved industry-leading profitability and free cash flow, managing risks and opportunities in a prudent way. Now, let me outline some key operational highlights of the fourth quarter. Our customers continue to invest in digitalization and sustainability. This led to strong organic topline performance. Book-to-bill reached 1.02 on strong order growth momentum of 26% in Mobility and clear order growth at Healthineers and Smart Infrastructure. As expected, we saw ongoing normalization of short-cycle automation demand in Digital Industries. Customers and channel partners were further adjusting inventory levels on ease of supply chains and softer demand. This was partially compensated by an extraordinary high level of large EDA orders with customers mainly from high-tech industries.
From today's perspective, we anticipate that our automation orders have seen the bottom in Q4. Overall, revenue growth reached 10% on the highest quarterly revenue level ever in all 4 industrial businesses. All of them showed similar growth rates in the range of 8% to 12%. And I'm particularly proud of our digital industry software team achieving revenue growth of 30%, driven by large contract renewals, mainly in EDA. Once again, the Electrification business of Smart Infrastructure showed great competitive strength, growing by 25% with ongoing momentum in power distribution and data centers. What really matters is value creating growth, and we executed strongly, a record quarterly high of EUR 3.4 billion profit in the Industrial Business, and as an outstanding highlight, more than EUR 4.6 billion of free cash flow all in. Our financials are clear evidence of our sound operating model and consistent execution. Some more facts. Digital Business reached revenue of EUR 7.3 billion in fiscal 2023. And we continue to launch at high-speed innovative offerings and drive the expansion of our partner ecosystem. The SaaS transition in Digital Industries is fully on track, delivering annual recurring revenue growth of 15% in Q4.
We continue to sharpen our profile by optimizing our portfolio with selected smaller investments and disposals. An important milestone has been the largely completed carve-out of Innomotics on October 1 as planned. The fundamental strength of our company, combined with focus on shareholder return, is also reflected in our dividend proposal of EUR 4.70. In line with our progressive dividend policy, we plan to increase by EUR 0.45. And Ralf will explain to you in more detail the expansion of our shareholder -- share buyback activities. Looking ahead into fiscal year 2024, we will stay vigilant and react flexibly on market developments. We will execute on our long-term-oriented investment strategy, which is targeted for attractive market opportunities and will further improve our global footprint for innovation production and service. Ultimately, this leads to higher competitiveness and resilience. Our teams are very close to what's happening at our customers and keep a close eye on OpEx spendings. We're confident that we will maintain a net positive economic equation with a constant focus on productivity, while inflation-driven price effects will somewhat fade in fiscal year 2024. From what we see today and despite an anticipated muted global economic development, we expect further value creation growth in 2024, and Ralf will give you more details. For the record year -- for the record, here are our impressive Q4 numbers. Let me briefly add that revenue growth was regionally broad-based. EMEA was up by 13%, followed by Americas with 11%. Asia-Australia grew by 4%, held backed by softness in China. EPS pre PPA, excluding Siemens Energy invest, came in at EUR 2.64, driven by strong operational performance. Looking into fiscal year 2024, our healthy order backlog is a source of resilience. It stands at a record level of EUR 111 billion. Lead times in short-cycle Product Businesses and Digital Industries and Smart Infrastructure returned to mostly healthy state. Supply chains and manufacturing execution are back to normal. Our customers and distributors continued destocking in all key countries, particularly in China. We assume this backlog consumption to continue in the first half of fiscal year 2024 until inventories are back to normal levels.
Visibility in our systems, solution and service business is far reaching into fiscal year 2024. I briefly talked about the importance of mutually beneficial partnerships to scale new technologies and drive growth. A game-changing example is our collaboration with Microsoft, based on our shared vision to boost cross-industry AI adoption. The first application is the Siemens Industrial Copilot, an assistant for human-machine collaboration in manufacturing, enhanced and powered by generative AI. It will allow users to rapidly generate, optimize, and debug complex automation code. It will allow users to significantly shorten simulation times, and it will allow users to tackle labor shortages successfully because incremental improvements are not sufficient anymore, step changes are required.
At the SPS Fair just a few days ago, the leading automotive supplier, Schaeffler AG, demonstrated how the Siemens Industrial Copilot will drive engineering productivity. Together with Microsoft, we are already working on numerous AI copilots in other manufacturing industries, such as consumer packaged goods or machine building. In addition, we have the clear ambition to address all industries where Siemens is active. Our partnership with Microsoft can be characterized as a virtuous circle. Accelerated AI adoption will drive green data centers demand, where Siemens is also an important partner for Microsoft to provide critical infrastructure. Siemens Xcelerator's ecosystem and marketplace are growing steadily. At the EMO Trade Fair, we introduced together with DMG MORI, an end-to-end digital machining twin offering, which is now available on the marketplace. Based on our digital native motion control platform, the CNC SINUMERIK ONE. The digital twin includes the controller, the customer-specific DMG MORI machine tool and the to-be machine workpiece. It enables up to 40% faster production ramp-up while minimizing unproductive machine times by up to 75%. Our Siemens Industrial Edge Ecosystem is enhanced with new applications from the pneumatics specialist, Festo. This new offering provides customers with more flexibility to build individual IoT solutions easier and faster to improve maintenance and increase quality. The Siemens Xcelerator Digital Business platform combined with our domain know-how is essential to scale offerings and drive sustainability. The first great success story, how we accelerated the digital transformation to our customers comes from the United States. Together with Ford, we co-created a standardized and scalable SIMATIC Automation Workstation. It combines the OT installations for manufacturing automation with the IT environment, functionality, such as central software deployment. By leveraging our industrial edge ecosystem, this innovative platform will enable fast and easy development of digital use cases. The benefits for Ford are simplified and more efficient processes on the shop floor and much higher flexibility. And it will be widely deployed in greenfield and brownfield manufacturing plants at Ford. Our U.K. team transferred the experience from optimizing power grids to the water industry. Northumbrian Water Group has started to connect more than 1 million smart meters to our SaaS-based meter data management system, EnergyIP X. With this major rollout, the utility identifies household leaks to help reduce water consumption. The third example comes from the healthcare market, an offering with significant potential is the comprehensive digital twin for smart hospitals. At the recently inaugurated Inselspital Bern, building, planning, and construction data as well as construction documentation are being digitally transferred to operations. This has laid the foundation for providing a digital twin in the future and opens new possibilities to optimize processes while supporting efficiency. And finally, after the successful commissioning of a first route section, Austrian Federal Rail provider, ÖBB, presented a long-term framework agreement with Siemens Mobility worth EUR 400 million. We will digitalize the country's rail network with the latest technology, which is a crucial cornerstone to doubling network capacity by 2040. All these projects demonstrate how Siemens Xcelerator works successfully. A core strategic lever for value creation is our goal to grow the digital business annually by around 10% by 2025. Fiscal 2023 was another successful step in this direction, achieving around 12% growth to EUR 7.3 billion despite the ongoing PLM SaaS transition in Digital Industries. And we are confident to continue this strong growth trajectory in fiscal year 2024, while our businesses allocate significant resources to further development and promote Siemens Xcelerator software and Digital Service portfolio. I'm very pleased with the continuing process -- progress of transforming main parts of our DI software business towards software as a Service. After 2 years, we are fully on track to achieving our goal. ARR growth reached a very healthy level of 15% over prior year, which we strive to sustain in fiscal year 2024. Cloud ARR share already stands at EUR 1.2 billion, equaling 30% of total ARR, and we expect to reach the 40% target 1 year ahead of schedule. Around 11,300 customers have signed on to the Software as a Service business model with a vast share of small and medium enterprises. And among the SaaS customers are 77% new logos, underpinning our ambition to substantially expand the existing customer base. The quarterly customer transformation rate remained on a high level with 87%.
Looking ahead, we will actively work on managing the skills transition as well as digitally selling further functionality and applications. Based on our assessment, we have surpassed the trough of the SaaS transformation of our PLM business and a small part of EDA. From here, we will gradually see higher profitable growth contribution. The largest part of EDA, which marks around 1/3 of Digital Industry's software business, remains term license based.
As indicated in Q3, we recently announced our plans to expand our U.S. footprint. This is the final cornerstone of our $2 billion global investment strategy to boost innovation, growth, and resilience. In Dallas-Fort Worth, we will build our high-tech manufacturing factory for EUR 150 million, fully equipped with Siemens software and automation to produce critical electric infrastructure equipment. The factory will start production in 2024 and is planned to gear up for full capacity in 2025. This investment specifically supports long-term customers in the data center space, where demand is expected to grow by around 10% annually through 2030.
We are gaining market share and achieved an extraordinary strong order level of almost EUR 2 billion in fiscal 2023. And we delivered revenue growth of around 25% for the second year in a row. Sales pipeline visibility into fiscal year 2024 is robust, driven by additional AI workloads and co-location demand. A key lever for further success is our strength in innovation. In fiscal year 2023, we invested around EUR 6.2 billion to constantly upgrade and drive the connectivity of our strong hardware base and intensify investments in our software and digital portfolio. For fiscal year 2024, we plan to maintain R&D intensity at around 8% of revenue with further growth in absolute terms. You saw a clear goal to extend leading technology positions and drive sustainability offerings. A great example for both is our Blue GIS switching technology without fluorinated gases for primary distribution. It helps our customers to drive the sustainable energy transition ahead of EU regulation. In addition, our central technology team is closely collaborating with all businesses to maximize the impact of, once again, investing more than EUR 500 million in the advanced development of 11 core technologies. We see strong progress and mutual benefits in areas like artificial intelligence, advanced manufacturing, cybersecurity, connectivity, and edge integrated circuits and power electronics or circularity. A further core strategic lever is continuing portfolio optimization. In fiscal 2023, we announced some complementary technology acquisitions such as Avery Design Systems in DI software or Heliox, a specialist in eBus and eTruck fast charging solutions. And we will continue this path of bolt-on acquisitions, complying with our 6 strategic imperatives. At the same time, we executed several smaller divestments, both in the industrial business as well as from our portfolio companies. After having reduced our share in Siemens Energy AG to 25.1% in fiscal 2023, we are working on an accelerated separation from Siemens Energy in India. Yesterday, we announced a set of measures, including our intention to acquire 18% of the shares in the publicly listed company, Siemens Limited, India, for EUR 2.1 billion in cash from Siemens Energy.
With this, we agreed with Siemens Energy to accelerate the unbundling of the activities currently conducted in the Indian subsidiary of Siemens by the way of a demerger. Ultimately, we target a return to a shareholding of 75% in Siemens Limited, India, in 4 to 5 years from now. Siemens Energy is to become majority shareholder in the then listed company, Siemens Energy, India. These are important steps to simplify the structure and sharpen the focus, and we will continue this path. The new Innomotics brand, as a leading motors and large drive supplier, was successfully launched and is well perceived by customers and its more than 15,000 employees. Innomotics is performing strongly with good visibility based on a healthy order backlog. With these attractive prospects, we have decided to start as next step further preparations towards the full independence of Innomotics. We will start preparations for a public listing while diligently avoiding all other options according to the best-owner approach. We will pay particular attention to ensure a future setup, which offers sustainable growth-oriented and value-creating development. So as you can see, we further shape our leading technology company in many aspects to drive performance. And with that, over to you, Ralf. Let us take a closer look at operating performance and our detailed outlook for the fiscal year 2024.
Thank you, Roland, and good morning to everybody. Let me share more about our powerful finish of the fourth quarter and our outlook for fiscal '24. In Digital Industries, we saw a good close on top line, ahead of market expectations and driven by an extraordinarily strong EDA software business. As expected, we recorded a continued normalization of order patterns in our short-cycle automation businesses across all key countries. As Roland mentioned, end customers and distributors further reduced inventory levels due to back-to-normal delivery times and a rather muted industrial investment sentiment. Orders for DI in total were down by 8% with a book-to-bill overall at 0.83. The software business achieved record order levels, up more than 30% on 13 large wins, primarily in the EDA space, an unprecedented level for us so far. Order normalization was driven by the Discrete Automation businesses, while Process Automation was lower in mid-single digits. Therefore, our backlog in Digital Industries further decreased to almost EUR 11.5 billion.
Therein, the software backlog amounted to around EUR 5 billion, a number that has grown gradually in line with the progressing SaaS transformation, which increases the share of recurring revenue. The automation backlog stood at EUR 6.3 billion, around EUR 1.8 billion lower compared to the third quarter, largely as expected. While this is still elevated compared to our long-term levels, the development clearly shows that we are on the way towards levels of pre-pandemic order backlog reach. Customer cancellations remained on very low levels. Revenue for DI was significantly up by 11%. Automation revenue rose 6%, driven by process automation up by 13% while Discrete Automation grew by 3%. Large order wins in software translated into brilliant software revenue growth of 30% to more than EUR 1.6 billion, by far the highest quarterly level we achieved so far. Whereas PLM was up mid-single digit, EDA delivered a fantastic growth of around 75%. Since EDA is a lumpy business, we should look at the full fiscal year growth rate, which reached an impressive 15%. Profit of almost EUR 1.4 billion marked a quarterly record high with an excellent margin of 23.1%, strongly supported by an outstanding EDA software contribution. To reap the productivity gains related to the SaaS transformation, we set up a program to actively manage the required skill transition of our staff, primarily in the U.S. This was the main driver for a severance program affecting the DI margin by 120 basis points. In the automation business, we continue to see stringent execution with strong profit conversion; however, with a less favorable mix compared to prior year. Price increases from previous quarters, which materialized now through backlog conversion, plus productivity gains enabled us to clearly overcompensate cost inflation in the quarter. As a result, we again resolved the economic equation with a net positive in the fourth quarter. Cloud investments in Q4 accounted for 130 basis points of margin impact on Digital Industries, which was also the overall fiscal '23 impact. We are proud that Digital Industry once again achieved outstanding free flow of more than EUR 1.3 billion, close to previous year's high, leading to a strong cash conversion rate of 0.96. Main driver was the automation business where we optimized inventory levels, while the software business saw an increase in net working capital due to extraordinary volume growth. For the full fiscal year '23, Digital Industries generated more than EUR 4.2 billion in free cash flow for the third year in a row, combining very reliable cash contribution with strong double-digit revenue growth. Now, let me give you the regional perspective on the topline automation performance. As mentioned, automation orders saw further broad-based normalization of demand against tough comps of strong growth in the previous 2 years. As expected, this was most visible in China and in parts of Europe where we see ongoing destocking, which will continue into the first half of fiscal '24. Yet, in China, we see some first signals of stabilization in current trading following a very soft fourth quarter. Clear revenue growth in automation was mainly driven by strong backlog execution in Europe, where Germany was up 18% and Italy 23%. China was 14% lower on tough comps and fewer fast-turning orders. In the U.S., Process Automation was up double-digit.
Now, looking at our key vertical end markets for the next quarters, we expect rather muted growth momentum driven by effects from further destocking and fading effects from price inflation as well as softer investment climate due to higher interest rate levels. Our DI teams see this development as transitional and expect an improvement of sentiment beginning in the second half of fiscal '24, also driven by secular demand trends. On this basis, after 3 years with extraordinary double-digit growth, we expect fiscal '24 to be transitionary in nature before picking up accelerated growth momentum again thereafter. We will execute targeted investments in vertical-specific applications in a careful step-by-step approach to increase customer value and maximize growth. Looking ahead, we anticipate a soft economic development in the first half of '24 with sluggish industrial demand, especially in China and Germany, as well as ongoing destocking in key countries. We assume improving trends beginning to materialize in the second half of '24. As expected, revenue contribution from existing backlog will further normalize. Hence, the regular short-cycle pattern of new fast-turning product orders will gain importance throughout the year on mostly healthy lead times. Please note that as of October 1, the Low Voltage Motors business was transferred from DI to Innomotics. Comparable key figures are distributed this morning, and all forward-looking statements refer to the new setup of Digital Industries. For fiscal year '24, Digital Industries will again deliver a convincing performance with orders stabilizing throughout the year and the consistent revenue development on tough comps. Profitability will remain in the upper half of the margin corridor despite rather flattish topline and targeted investments linked to expected volume pickup. In fiscal '24, we again expect to outweigh wage and material cost inflation with productivity and trailing pricing effect from order backlog for positive economic equation. From today's perspective, we will start with the first quarter as the slowest quarter in fiscal '24, followed by a steady improvement thereafter. Therefore, in Q1, we still see orders well below prior year on further destocking in very tough comps for our automation business. We anticipate for DI revenue growth to be in line with the full-year guidance of 0% to 3%. Automation growth is anticipated to be flattish on tough comps. Software is expected to be around prior year level with clear growth in PLM on successful SaaS transition, compensated by lower EDA revenue on a seasonally lower start after the exceptional accumulation of large deals in the fourth quarter. Beyond first quarter, we expect clear revenue growth acceleration in the software business throughout fiscal '24.
We see the profit margin for the first quarter to be approaching the full fiscal year guidance of 20% to 23% from the South compared to a very strong prior year quarter with a very favorable automation product mix in a very high capacity utilization. On top, we expect substantial headwind from exchange rate effect at current rates of around minus 100 basis points. For the software business, we expect a seasonally slow start. Smart Infrastructure, again, delivered, like clockwork, a truly outstanding fourth quarter performance across all metrics. The team achieved excellent topline growth in robust end markets, and another proof point for consistent margin expansion trajectory. In total, orders were up 6%, driven most notably by 16% growth in the electrification business. Orders benefited again from larger wins, primarily from strong demand in the data center business. Buildings was up 6% based on strength in the solution and service business, while electrical products was flattish on pretty tough comps. The order backlog remains at record level of EUR 16.5 billion.
Revenue growth was broad-based and reached 12%, clearly ahead of expectations with the largest contribution from electrification business, up by a remarkable 25%. Electrical Products and Buildings showed clear growth with 9% and 7% increase, respectively. Flawless backlog execution led to a margin performance of 14.9%, up by 70 basis points year-over-year. The business benefited from economics of scale and increased capacity utilization on high-level revenue growth as well as lasting structural improvements from our competitiveness program. Headwinds from cost inflation, mainly merit increases, were overcompensated by productivity and in-time pricing actions. Currency effects had a noticeable negative impact of 50 basis points in the fourth quarter.
The SI team very successfully implemented effective measures to reduce operating working capital, in particular, inventories despite material revenue growth. Free cash flow showed an outstanding finish with an all-time high of more than EUR 1.4 billion, bringing full-year cash conversion to impressive 0.95, well ahead of our target of 1 minus growth. Looking at the regional topline development, we saw robust demand with strong order momentum driven by Europe and the U.S. on large wins in the data center and power distribution vertical. China was up by 2% on easy comps with bottoming out of domestic demand. Revenue showed strength in all regions besides China, supported by strong backlog execution in Europe while the U.S. achieved impressive mid-teens percent growth rate. The service business delivered 10% growth, led by a double-digit increase in Europe and Asia. We continue to see nominal and real-term growth in our main verticals fueled by backlog execution. Sustainability is a key business driver in many market segments. Only commercial buildings is expected to show modest growth going forward due to increased interest rate levels. As Roland said before, we see accelerated growth momentum in the data center vertical on higher adoption of AI-based applications. Expanding grid capacities and making them more intelligent is another resilient growth trend for which we are well-positioned, driven by renewables integration and electrification of everything. For the first quarter, we see the comparable revenue growth rate towards the upper end of our full-year growth guidance of 7% to 10%, strongly supported by order backlog. We anticipate the operational first quarter margin to be at the prior year's level within the full-year guidance range of 15% to 17%. Mobility closed the year with another strong quarter on top line. Orders at EUR 3.2 billion, up by 26%, included 2 large orders from -- for commuter trains in Germany totaling EUR 700 million, which drove rolling stock momentum, where infrastructure orders were substantially up on several midsized orders and good contribution from base business. The backlog stands at EUR 45 billion, massively up compared to prior year after extraordinary order intake north of EUR 20 billion throughout fiscal '23. Therein are almost EUR 13 billion of service business. This lays the foundation for another year with strong revenue growth in fiscal '24 yet with a higher share of rolling stock business. Our sales funnel continues to look promising for fiscal '24 for a book-to-bill well above 1 across all business activities. However, expected timing of project awards indicate an order level materially below fiscal '23 levels. Specifically on the Egypt project, we are progressing in the project execution of the Green Line extension with the first Desiro train recently arriving in Egypt. For the Red and Blue Line, the contracts are effective, and commencement date of both lines has been contractually agreed upon for the end of calendar year '23. The teams are working towards the financial close, which from today's perspective is expected earliest end of calendar year '24, after which the remaining order of around EUR 5 billion will be booked. Revenue in Q4 was up 10% on broad-based growth with a strong contribution from large rolling stock projects. Profit margin reached 8%, in line with expectations on a less favorable business mix. Mobility delivered a remarkable free cash flow of almost EUR 600 million in the fourth quarter, amounting to more than EUR 1 billion for fiscal '23. This led to a cash conversion rate of 1.19 in for fiscal '23, well above the 1 minus growth target, clearly differentiating Siemens Mobility from competition. Since Mobility is a long-cycle project business, this comparison is even more impressive when looking at a long-term time horizon since 2016. Mobility delivered cumulatively EUR 7 billion in free cash flow with a cash conversion rate of 1.05, combined with an attractive asset-light business model. Our assumption for revenue growth for the first quarter '24 is within the corridor of 8% to 11%, which we expect for full fiscal year '24. First quarter margin is seen towards the lower end of the full-year margin guidance of 8% to 10%. Now, let me keep the perspective on below industrial businesses crisp. All details are in the earnings bridge on Page 35 in the appendix. SFS delivered a solid fourth quarter performance with a higher earnings contribution from the debt business on lower expenses for risk provisions. I'm very pleased with the portfolio of companies showing a robust profitability as expected. As mentioned, next strategic steps are underway while the team simultaneously execute their full potential plan. Siemens Energy Investment continued to burden the bottom line due to a material equity loss, as you know. Tax rate came in at 33%.
Now, let me briefly give you the perspective on a solid full-year performance of Siemens Financial Services. Return on equity of 16.3% within the target range is a remarkable success once again supported by the diversified portfolio, prudent risk management and a strong result from equity business. SFS has successfully supported the industrial businesses with excellent financing expertise and deep industry domain know-how. The team is facilitating entry in new markets and ecosystems as well as developing innovative digital business models. SFS strongly supports sustainability business for the group along the entire technology life cycle. Based on the current expectations, SFS will start with strong results in the first quarter, positively impacted by the equity business. For full fiscal year '24, Siemens Financial Services anticipates to further gradually improve earnings before taxes over prior year. Ladies and gentlemen, excellent and consistent free cash flow is the ultimate yardstick for performance. In the fourth quarter alone, our Industrial business delivered free cash flow of EUR 4.1 billion in an excellent cash conversion rate of 1.22. A new record of more than EUR 10 billion for free cash flow all-in throughout the year and almost 13% cash return on revenue highlight our focus on stringent working capital management of the entire team around the world. We are very confident to continue this path also into fiscal '24 despite macro volatility. And for the fifth year in a row, we strive for a double-digit cash return. Strong operational performance and cash generation is also reflected in further improved capital structure. Industrial net debt over EBITDA was 0.6x at year-end, providing headroom and flexibility for stringent capital allocation. With our strong investment-grade rating, we are in an excellent position for refinancing in fiscal '24. The pension deficit is at a record low of EUR 1.4 billion, and we will have further opportunities for cash generation from portfolio simplification. Our strong free cash flow, capital structure, and liquidity position are also giving us ample room to provide consistently attractive shareholder returns. We will propose to the AGM a dividend of EUR 4.70, clearly up by EUR 0.45 from the prior year dividend, matching our progressive dividend policy. This represents an attractive dividend yield of 3.5% based on September and closing share price of EUR 135.66. At the same time, we are mindful of ensuring balanced capital allocation priorities. The current share buyback originally planned until '26 is 90% completed with a buyback volume of EUR 2.7 billion and an attractive average-by-average buyback price of EUR 118. Therefore, we decided to launch a new upgraded program of up to EUR 6 billion up to 5 years right after completion of the current program. Now, let me come to the assumptions for our outlook for fiscal '24. We assume a volatile macroeconomic situation, but no further increases of geopolitical tensions throughout fiscal '24. Under this condition, we expect our industrial business to continue its profitable growth path. We anticipate the economic equation of price increases in productivity versus cost and wage inflation to be, again, net positive in fiscal '24 for both Digital Industries and Smart Infrastructure. Building on our strength, we further maintain high levels of R&D intensity with a strong focus on connected hardware, software and digital technologies.
In addition, we will continue to selectively invest in go-to-market digital sales channels, vertical-specific and sustainability offering. However, each decision will be taken with a stringent focus on strategic imperatives in resource allocation. To support midterm growth momentum, we will also increase CapEx in line with our strategic investment initiatives to expand capacities, drive innovation and resilience. We assume severance charges below prior year level from today's perspective in a range of EUR 250 million to EUR 350 million. Based on current rates, we anticipate a negative effect of around 1 percentage point on topline from exchange rate and the burden on profit margin of around 30 basis points, primarily in the first quarter of fiscal '24. On Page 36 in the appendix, you can find all details as reference for our outlook below industrial businesses. I want to point out here only a few important topics for your models. In portfolio companies, including Innomotics, we are confident to achieve an operational margin of more than 5% again.
Fiscal '23 profit included a gain on sales of commercial vehicles of EUR 148 million. Cost of governance, net of brand fee, will be materially lower in line with our intended path of consistently decreasing this item to net 0 by '26 latest.
The tax rate is expected to be in the range of 24% to 29%, which we see as a regular rate without extraordinary effects. Here, you can see the outlook for Siemens Group and for the businesses. Given the strong performance in fiscal '23, our guidance is based on tough comps, especially when looking at the order development, it reflects our confidence in the continued high-value growth despite challenging framework conditions in fiscal '24. Digital Industry expects comparable revenue development of 0% to 3%. This is based on the assumption that following destocking by customers, global demand in the automation business, especially in China will pick up again in the second half of fiscal '24. The margin is expected at 20% to 23%. Smart Infrastructure expects to achieve revenue growth of 7% to 10% with a further improved margin of 15% to 17%. Mobility anticipates achieving revenue growth in the range of 8% to 11% with a margin of 8% to 10%.
On Siemens Group level, we anticipate 4% to 8% comparable revenue growth and, again, a book-to-bill above 1. We expect this profitable growth of our industrial businesses to drive basic EPS from net income before PPA accounting, excluding effects from Siemens Energy, to a range of EUR 10.40 to EUR 11 in fiscal '24. This outlook excludes burden from legal and regulatory matters, as always. As you can see from our ambitious outlook, we enter fiscal '24 from a position of strength with a leading portfolio and stringent execution. However, we monitor the macroeconomic volatility closely to be able to act in an agile way. Our direction is clear. We will deliver further value creation by profitable growth and resilient cash generation. With that, I hand it back to you, Eva.
Thank you, Ralf. We are now ready for Q&A. Please limit yourself to 2 questions per person because we want to give as many of you as possible the opportunity to raise questions.
Operator, please open the Q&A now.
[Operator Instructions] And our first question comes from the line of Ben Uglow, Morgan Stanley.
Okay. So I've got 2. Let's just do them in order. The first is really around the DI margin guide. It's an obvious question that your 20% to 23% does imply that we are seeing slower margins, maybe 1 or even 2 percentage points in the first half of the year. What I'd like to understand is, qualitatively, big picture, what is behind that lower margin guide? My assumption, which may indeed be wrong, is that we're thinking about slower volume primarily in the big automation factories in Amberg or Chengdu, wherever it might be. And that volume is typically quite sensitive with the automation products margin. Is that really what you're trying to communicate? And the reason why I ask is there are a lot of -- well, there are a lot of theories in the market, should we say, about software mix, and software mix materially improving your margin this year. It sounded like you downplayed that in your opening comments. But is this -- are you really reflect what you think is going to happen to volume in automation products? Or is it something else? That's my first question.
So shall I start with that right away, Ben? Thanks for asking. I mean you can probably imagine this was also on top of our mind when we have been forming and shaping the guidance for fiscal '24. And I mean, if I may walk you through the framework first and then conclude in the end, I mean it's obvious that we do see challenges in growth markets like China. We do have all that what we discussed, and I'm sure we're going to discuss that also in today and later on when we meet you in London, that the destocking and, let me call it, the uncertainty in the channel is playing a major role there. But if I may point out 4 areas to think about when you look at the margin guidance of DI, first and foremost, just to get it off the table, exchange rate will be unfavorable for us. I have been pointing out first quarter it's going to have a negative impact of 100 basis points on margin. No one knows, obviously, where we see the exchange rate to go on the way forward. But -- I mean, just looking at the current status and anticipating what that would mean potentially for us for full fiscal year, this is a material impact for DI mainly. Then, you already touched on the mix. And when we talk mix, we have actually 3 dimensions to consider. The first is products and software. You're right, software momentum has been kicking in. I mean we talked about the backlog, obviously, also reflecting the successful transitioning to SaaS models. That means that revenue recognition is delayed. You know all the mechanics, I don't need to mention that. So volume increase does not necessarily fully reflect the potential of earnings power in that business. And at the same time, just reminding ourselves, we continue investing in SaaS transition not to dig into that further at this point in time, but we have been highly motivated, let me put it that way, by the customer response. So the increase in ARR growth rate and the cloud portion in it have been very encouraging. So we feel we are on the right path. And as always, we will follow the voice of our customers. We have been well advised doing so and will continue so. So seeing the bottom of the fish, so to speak, does not necessarily mean that we have a step change right away, but we continue investing as long as we hear the voice of the market. So software product mix or the software automation mix is the one dimension, but also the product mix within automation is playing a role, of course. I think you heard me saying that process industries have been benefiting from the latest development.
Obviously, this is not the peak of our margin in portfolio perspective. And, therefore, there is a mix in the automation business that has been starting to be not unfavorable, the meaning that it's not worth going for that business, it's quite the opposite.
We are occupying the place at the customers, and we are winning market share. But the mix and the resulting also capacity utilization, you have been touching on, is playing a role. Of course, this will be temporary in nature. So, therefore, the mix in automation, mix between software and hardware, and also third dimension of talking mixes geography.
You heard us talking about growth rates in the past in highly profitable countries that do no longer provide for that massive growth. And, therefore, there is also a geographical aspect in that mix. And I hope you forgive me that I don't get into the details of this one.
Pricing is artwork these days, and we will stand firm because the price increase that we have been pushing into the market for the win-win situation we create with our products, needs to be defended now. And this is really giant work at the moment. It's reflected also a bit in the fact that we have a different pattern, timelines in our economic equation. I mean, just quickly referencing back to '23, when we have been starting with a good positioning from a price increase perspective, so price increase of the prior year '22 was in the backlog, has been worked on. At the same time, factor cost increase, in particular, wages have not been fully up to the levels we expect now for '24.
So, therefore, there will be a positive economic equation net for the full fiscal year for DI and SI, but the structure and the magnitude are not going to play the same league. So timelines, if you will, are less favorable than they used to be in '23 when it comes to matching price increase and productivity with factor cost increase mainly from merit increases. And it's obvious, we all know that productivity measures do not kick in from the very beginning on full impact. So, therefore, there is also a natural timing in that, that is geared to the second half of the fiscal year. And with that, I think I just want to repeat what I said before, despite that slower momentum in this fiscal year on topline in DI, in particular, in automation in some key markets, we continue to invest in R&D because we feel this is the golden moment to make a difference. We win market share. We get the customer response. We make a difference, and we are accelerating our accelerator. So from that perspective, it makes a hell lot of sense to continue investing. The assumption that we made, and I think I spelled it out, clearly, is second half of the year, we expect a pickup in demand again. And we are also ready to pull the brakes if need be if that assumption doesn't kick in. All that together in a nutshell has been shaping our view on fiscal '24 for DI automation mainly. And we, of course, will use each and every opportunity to grab market opportunities coming up, and we will be ready to accelerate if we can, but we are mindfully watching circumstances and also the market sentiment, I mean, high interest rates.
And the question, where will they end, is not definitely encouraging our customers' investment sentiment at this moment. But be -- you can be absolutely sure that we will be able to accelerate, and we will also be able to pull the brake if need be.
That's understood. Very helpful. My one follow-up is just about the distribution channel. I mean, Ralf, you always give us an interesting kind of view on the so-called artifacts and where we are in the destocking process. If we look around the world, I think we all sort of know what's going on to some extent in China. But how do you see the relative degree of destocking between China, Europe, and the U.S.? Where are we sort of globally in that process, in your view?
I mean, if you allow just to have a short look at macroeconomics for China before I come to discussing the China channel situation, but geographies around the globe, I mean if you compare them, it's obvious that China is the biggest challenge at the moment.
And it's also obvious that, in particular, Germany to a certain extent correlates with China from the export perspective. So I would see a distinct connection between the 2 of them. They are not fully independent. This dependency is, of course, on far lower levels in our industries when it comes to the U.S.
In the U.S., we see a market that is driven by Process Industries, mainly, and is also giving us opportunity to grow into market shares. We are not that strong in the U.S. yet. And we are working on that as you do know. So there is a natural setup that China is destocking -- China's destocking impact is bigger on us than in the U.S., where we don't have that magnitude and didn't ever have that magnitude yet, so priority China. Therefore, let's have a quick look at China. I mean, from a macroeconomic indicator perspective, I'm sure you follow them as I do, in October, there were no real tangible signs of market sustainably recovering. And there was also a drop in exports. PMIs have been falling below 50 and declining. PPI and CPI do not suggest a recovery anytime soon. So good order intake in the first couple of days of the new fiscal year, which we had, is not a real true and solid signal for recovery. That's why we are carefully, and also, yes, I think we are prudently observing that in our outlook we are giving for the first quarter and the second quarter of the fiscal year. So talking our channels. When you look at the distributors that we have, there are still high levels of stock on their shelves. The outbound deliveries of our distributors do rather indicate a slow backlog conversion and destocking speeds. This may change quickly. You do know that from the past, if momentum is kicking in, in China, you need to be ready to deliver. And that's why we need to strike the best possible balance between those 2 different scenarios, being close to the market and to our customers is of the essence. And we, of course, also have a very mindful view on the local competitors there. So taking all that together and concluding, my gut is telling me that we won't have a clear picture before Chinese New Year. And even though I don't like it, we need to be patient with more detailed estimates on the development there. For ourselves, looking a bit, just as the numbers, you do know, and I need to say that, again, we don't have a complete closing process for October because we are basically closing the fiscal year and doing all that what took us to the position to talk to you today. So no firm closing in October means only indicative figures also for myself. And there was a positive signal, to be honest, in the new orders in automation in China in October, was a clear pickup over a very weak September. And also August and July, you know that, have not been really stunning in that field. So 1 month 2 weeks of a signal to draw conclusions on. Looking at revenues, I mean, typically, the first month in the quarter is anyhow a bit weaker. If you compare the first month of the quarter is behind ourselves, I think that was also on level. So I would say there is hope, but no firm conclusion possible at that point in time whether the unwinding of the backlog will be accelerated or whether it will take us those 2 to 3 quarters that I had been mentioning a couple of times before. So on a world level, finally, when we talk new orders, October figures as preliminary as they are unaudited and not a full closing cycle. As I said before, they are pretty much on level of September, August, and July. So, therefore, there seems to be a trough that has been reached, and we are very carefully looking at that. We stay close to business sentiment as possible, talk to customers, and we are ready to react. That's the only thing we can do at that point in time.
Our next question comes from the line of Andrew Wilson, JPMorgan.
I've got 2. I think the first one is something of a follow-up to Ben's. I guess I'm interested in terms of the information you're using to talk about a trough on the automation side. I mean, obviously, you've alluded to some of those kind of early numbers, I guess, from October. But in terms of -- how confident are you that your visibility of that picture has improved versus earlier in the year, where obviously it proved to be a very difficult market to call? I guess just trying to understand sort of that information flow and whether, I guess, we sit here with better confidence today on the understanding of what are clearly a lot of moving parts there, if I start there.
Thanks, Andrew. A very good question, of course. And -- I mean, what I'm referring to is typical for -- typically for different sources. I mean, we're looking at macro, as you do. There's an abundance of use out there when and how a potential pickup can take place. So we are just clinging to the numbers that I have been quoting before. Then we, of course, are looking at the market. We see the dynamic, we talk to customers, we conclude. We also draw our own conclusions. I mean, when it comes to interest rates, you typically know what the reaction and which part of the market it's going to be if there's uncertainty or not. So that's the second source of the market, if you will, and then it's our current trading. And this is, unfortunately, as I said, in the other quarters, I have firmly booked figures for the month that lies behind ourselves when we talk to you typically in October or in November as we are. And as we speak, October figures are not that firm. That's why I had to put that indicator, trading -- our own current trading is the third source. And then, of course, we are talking to our channel partners. They have their own use. They are combining, so to speak, in particular, in China, the conclusions you would draw from interest rates, market sentiment, and also their own stock level policies if you will, and used to call it artifacts in the past, and I apologize if that sounded disrespectful to them. They do a meaningful job for themselves, but it's hard to conclude on a broader level what that means to the market because some of them may opportunistically look for opportunities to grab them with -- is it pricing, is it their own customers, and others are more strategically allocating their resources. So it's hard to take a pattern from that. But it's a very valuable source to conclude because the change in that what they do is giving you indications. That's the reason why I said the stock levels at our distributors in China didn't change a lot. That means their outbound flows are not increasing. And that's why we believe at the moment, we may rather be at a bottoming-out process than as an early -- in an early pickup pattern.
This all concludes in our -- from our point of view, that at the moment, we shouldn't be over optimistically looking at change in momentum, but they are clear those long-term trends and indicators that have been leading the market in general, and they are still intact.
And we also hear that from our Chinese partners and our Chinese sales force that it's not a structural lack of demand, it's rather that unwinding of this complex situation that has been building up throughout the last 2.5 years.
Let me add 1 comment, which we didn't talk about yet, which is there's a kind of a transformation in the market itself, China's -- I mean, Chinese companies are pushing very hard also into sustainability kind of solutions. Is it efficiency? Is it any kind of new technologies? I mean you can now count it on batteries, hydrogen, stimulating any kind of -- portable type, whatever it is. And that's another shift within the Chinese market along with a second one, which is -- I would use the words of the government, they call it high-tech manufacturing in times where the world is competing for direct investments. And China is fighting, obviously, against this resilience trend, so they have to defend their own manufacturing strengths. Obviously, they have to drive for higher productivity levels while using less resources, which is really a very, very strong push into high-tech manufacturing. Also, in particular, for roughly 350,000 small and medium-sized enterprises. That happens as we speak to rebuild, so to speak, and needless to say that this is also a good tailwind and potential for us.
That's very helpful. Maybe for the second one. It's still on DI, but on the software side. I guess I just wanted to make sure that I would understand -- understood rather the comments on the sort of demand picture, I guess, for '24. It sort of sounded to me that there was a good deal of optimism with regard to demand on the software side, and obviously, tasks continuing. On EDA as well, Q4 is clearly fantastic, absolutely fantastic. How should we think about the pipeline for activity on EDA in terms of '24?
So thanks for appreciating the development of our software business. I mean, there's 3 aspects about it. And Roland has been touching on 2 of them. I mean, first, there was a huge unseen accumulation of large contract wins in the fourth quarter, which had an impact that we never saw before. I wish we would do that quarter-over-quarter, but unfortunately, it won't. The reason for that, we discussed a couple of times, projects of our customers finally taking them to the decision to change to Siemens or to use our software is driven by long-lasting preparational efforts before they conclude. So we see them building up, and sometimes, it happens that some of them accumulate. So we do see more projects ramping up, unfortunately not in the first quarter of fiscal '24, but this is not embarrassing us. We do know the nature of that business, it's lumpy, and we would not ever step into the trap of trying to push our customers. This is not advisable in no business at all. So the other one is that parts of EDA may also be subject to subscription type of transitioning. It's hard to predict. As always, also for the PLM business, we are following the voice of our customers. They set the pace. So, therefore, there will be momentum picking up. Is it going to be material or not? I don't think it's going to be material in '24, but it will be in the long term. Now, the third element, PLM, transitioning to SaaS. I hope you agree that it's really impressive how we have been picking up momentum. Our sales force and our delivery forces are getting that on to the ground and obviously reaching exactly that part of the market that we have been wishing for, meaning 80% of midsized companies that are buying Siemens now is a huge opportunity for us. And the momentum we have been creating with the numbers of customers being addressed, more than 11,000, with a portion of cloud-based solutions growing faster than, honestly, I personally expected, this is giving us opportunities.
At the moment, however -- and I mentioned that when I tried to answer Ben's question, at the moment, however, this is not popping up in top line and not in income at the moment because the transitioning has a burden. That's why we stay very transparent in sharing those KPIs with you that we believe are giving you best possible transparency. And as Roland has been putting it into a nutshell, I think we are right at the bottom of the fish transitioning as we call that. But that doesn't mean that margins are already visibly improving on a level that it has impact on DI overall.
So in a nutshell, from a seasonal perspective, I mean you saw us in last fiscal year '23 talking about seasonality, where we were back-end loaded. We said that from the very beginning for the software business and from today's perspective, it looks to me it may not be that dramatically in its extent as it was in '23. But again, we will be back-end loaded in particular, when it comes to the highly profitable EDA business.
The next question comes from the line of James Moore, Redburn Atlantic.
Could I ask a DI margin question and return to that and a follow-up on the buyback if I could? Thanks for all the answers to Ben's question, Ralf. I just wondered if we could unpack it a different way. In terms of the currency, could you give us a rough idea for the year at current rates what that could look like? And on investment, could you size the '24 cloud investments and say if we should expect anything outside of that in [ Selex ] or R&D intensity that could be impacting margin? And I guess my core question is, away from Innomotics and currency, when we look at the organic margin in software, I hear what you say about the bottom of the fish doesn't mean margin visibly improving to the degree that it moves the DI margin. But do you still stick with the original plan laid out 2, 3 years ago? And on automation, I would have thought that the economic equation would have offset the volume and wage scenario. If we had neutral mix, would you expect the automation margin to progress? And is the topic just entirely mix, SI, China, et cetera?
Wow, that was quite a lot of topics you have been putting on to our plate. Let me start with the easiest one, software transitioning, SaaS transitioning. Yes, we stick to the commitments we made. We don't know the timing exactly as we said, but we feel very much encouraged that the momentum we have been creating is very strongly supporting the commitments we gave and the pattern of the fish or the fact that we use the form of a fish to describe the business is also showing that once you then took up -- pickup with volume and have less incremental burden on your P&L, it will still take 6 to 8 quarters before you see the full beauty of the impact. When it comes to automation and the economic equation, I mean it's about timing if I may put it that way, yes. What we saw, and I tried to describe that, we had, thanks God, very early touching the pricing levers in the beginning of the inflation -- high levels of inflation kicking in. At that point in time, then -- back then, unfortunately, delivery times have been extended, yes, because there was scarcity of material in the market. And therefore, a lot of the orders with good pricing have been shifted into '23 even though they have been originating in '22. At that point in time, in '23, then when we executed, there was a wage increase expected, but not fully effective yet. Now, in fiscal '24, we see the full-year effectiveness of a wage increase of, give or take, 6%. While pricing doesn't create incremental levers anymore, I would be happy if we got along with a pretty stable global pricing tag. There will be challenges in some markets with local competitors, which are trying to use that opportunity, of course, like in China. So, therefore, not a lot of opportunities to counteract with pricing. Now, what do you do if pricing doesn't do the trick, you turn to more productivity measures which have a certain lead time before they come effective. So, again, timing difference. And if you add all that together, you come to a point that you see no further impact incremental from a pricing perspective, heavy impact from wage increase. Productivity measures being on their way, but not fully effective yet before the second half of the year, I wouldn't expect them to be in a degree of implementation that are materially having impact on margin development. This is not rocket science.
I know it sounds a bit complex to you guys, but this is our normal course of business here in trying to lead this company that you accept that, you push. But if you push too hard, you may end up in wishful thinking, and this is not the territory Roland and myself want to be. So, therefore, we are facing the brutal facts of the pattern, and we are managing it as well as we can. Talking -- your question about exchange rates, we don't speculate. I mean, what we do is we just take the exchange rate as it is, anticipate with forward points in the market then what may happen. And at the moment, the average rate for the U.S. dollar we see for fiscal '24 is around $1.06. And for China, it's about CNY 7.7, give or take. So this is what we see at the moment, yes. And, therefore, it's unfortunately a fact that the first quarter will be hit hard.
I know you wanted to talk about share buyback, but you didn't ask a question yet.
Maybe I could just ask on that briefly then. Great to see the intensity of that doubling. But given your impressive free cash flow and the prospects on that front and your strong balance sheet, could you talk a little bit about the discussion on how you came to that as a size and why not, say, EUR 2 billion a year?
Yes. I mean that's easy to explain. I mean you know that I have the pleasure to do this for 10 years now. The first 2 buybacks, we ran into the trap that we have been taking a timeframe that has been pushing us then, and it didn't help because share price was not ideally developing in a relatively short period of time. We made a couple of bankers happier than they should have been, and we learned from that. And the execution of the current plan, as it is, is pretty much encouraging me that we have been moving into the right direction. We deliberately are picking a longer period of time. We set current plan EUR 3 billion for 5 years. We have been then opportunistically using the opportunity. It's hard for me to say this is an opportunity if you have a low share price. But the dip that we all took has been allowing us to accelerate swiftly. You could see that we have weekly disclosure on that matter, and we use that. So the output of this process of acceleration is, I believe, a meaningful average buyback price of EUR 118. So EUR 3 billion in 5 years ending up in EUR 3 billion in 2 years, give or take, is quite encouraging, I think. And if we now do 6 years -- EUR 6 billion in 5 years, and again, use opportunities that the market may provide ending up with a shorter period of time, I would then be happy to announce another plan rather than committing myself at this point in time to buy back higher volumes in a shorter period of time and then being trapped in an unfortunately set up in the market.
The next question comes from the line of Alexander Virgo with Bank of America.
I appreciate the opportunity to ask a question. I guess the first one would probably be on the Smart Infrastructure margin guidance. Very encouraging to see that now well above 15%. And I wondered if the time has come to review the medium-term margin targets there. And whether you could give us some qualitative comments perhaps around the profitability across the different verticals in Smart Infrastructure, particularly given the support you've got from backlog there. And then I guess the second question. Just a sort of a follow-up, really, on free cash. Would you sort of start to think about being able to guide on free cash or at least start to talk about it with greater consistency? I'm thinking about the consistency of conversion now particularly across DI and SI and thinking about how we should be forecasting your generation, free cash flow generation over the next couple of years.
Thank you, and we are very happy about the development of SI, as you can imagine, too. So it's driven basically by a very, very strong demand from the market for the portfolio which we have, obviously, in the whole electrification space, but also in the building space when it comes to building products and alike and the sustainability demand. So just to give you -- I mean you know that, that electrification grew by 25%, electrical products by 9%. This is a very strong demand. And this is also driving obviously a conversion. So I quote Matthias, when he talked about the development of the electrical product, and he compared it with the competitors and the competitor we have, and he said we closed the margin gap. So that gives you an idea how we are working on productivity in our manufacturing sites, needless to say that we use our own technology there, and we are delivering better than others. This gives us the confidence to invest EUR 150 million in a new electrification plant on the back of an order from hyperscalers, and there are more to come.
So, therefore -- I mean, we are extremely strong in -- obviously, also in a very strong portfolio. You know that we renewed our portfolio, switching portfolio of core technologies as well as the related tools around it. And there's another element in it. We are very good in translating customer demand in the, let's say, specific switch gears, which are then running in high volume in manufacturing. This obviously gives a high conversion. And so another one is they worked extremely hard also on the economic equation. I think it's -- at the end, the equation -- economic equation of SI was even a notch higher in fiscal year '23 than that one of DI, I mean just recognize it. So very well worked. Everything what Ralf said is also true, obviously, for SI. We see a little bit of a moderation in the market, but still a strong trend in electrification. We see the salary increase kicking in fully. Pricing is still, I would say, a little bit better than for SI. But, therefore -- I mean, if you take all this together and look in the growth perspective, which we have, this suggests also that we bring another conversion which links us then also to the guidance. Last point, you obviously recognize that we have a financial framework, which is getting a little bit tight for SI. We're looking into that.
Yes. And let me take the point around free cash flow. I mean, first, thanks for appreciating the consistency that has been also accomplished over the last couple of years. We are very proud of our teams that they managed to really get a grip around asset management in daily business life. It's not that easy for some of them. And I think the teams have been getting a really firm grip around the different levers when it comes to managing working capital. There will always be ups and downs, of course, and the team is getting also more and more experienced in managing those ups and downs. That's what we then see also in the seasonal structure of the free cash flow. You have been asking whether or not we would dare to start guiding on the matter. And I thought I heard myself saying that we are very confident to continue this path that we have been embarking on in '23, also for fiscal '24, despite macro volatility. And for the fifth year in a row, we strive for a double-digit cash return on sales. It was not part of my speech in the guidance piece, but I still believe this was a strong indication where we want to go. Before we really come to commitments on that matter, I think we need to be mindful also of that what's happening below industrial business. Because, I mean, as well as they are managing their working capital, there's quite a chunky impact below the line of industrial business when it comes to tax payments. You may get tax audit, and the cash in or out from that is completely unperiodically hitting your free cash flow statement and your balance sheet. The same also for derivatives from hedging. You do know, I mean, the better you're hedging is getting, be it risk in the exchange rate, be it risk on the interest side, it's always derivatives in place. And the better you get, the more you can resolve. And that does not necessarily mean that you hit the perfect timing for that. So there's volatility that goes beyond control. Therefore, it's very hard to give guidance on that one in a very specific, ideally quarterly way, but we are working on that and the fact that we commit ourselves to that what I mentioned before, again. I think that's a clear signal how committed Roland, myself, and the entire Managing Board and the leadership team of Siemens globally is committed to this pattern continuing on the way forward.
We'll take 1 last question. Today's last question comes from the line of Gael de-Bray with Deutsche Bank.
I've got 2, please. Maybe the first one is around mobility. Some of your peers have had some issues in ramping up production in the past few quarters or even years, maybe not as much as originally planned. So I wonder if you could talk a bit about this, around the potential supplier issues and capacity constraints you might have had or think you may have in the future. I mean, I think that's an important topic given the very big backlog you have. And then, the second question is around Siemens India. So you're putting EUR 2.1 billion to get a higher share. But of course, the transaction is not completed yet. And I wonder how much you think you will eventually recoup from the sale of the Indian Energy business to Siemens Energy in, I think the timing is, around 5 years. If you could elaborate maybe on the terms and conditions for this transaction?
So let me start with mobility. As you can imagine that we are very happy with the development, what we see at Mobility. I mean a EUR 20 billion order intake, meaning we are capturing market share in a very attractive market, it's growing. And this is fired by rolling stock as well as rail infrastructure, very nice. And then, we also see this business delivering cash flow, I mean, EUR 1 billion, which is not that obvious and not that easy if you compare it. So we see the supply chain is almost back to normal. The only limit is some electronic smart still in rail infrastructure. It's normalizing. We are watching that closely. But from that perspective, and you can see also our revenue development, we are not really hold back from supply chain anymore.
We have very strong order intake turns into revenue. So you see us also investing in new manufacturing sites, assembly sites in the United States in a strong market. We are gearing up now our activities in India, which is very interesting. And obviously, we're looking also for capacity improvements in Europe.
All in all, this is a very, very strong, very good development. There's another element in it, customers are tending more and more to look into the sustainability aspect, meaning buying the highest efficient drives, but also the way how you maintain your assets and have basically a longer life cycle of assets, which goes back to a very strong maintenance. And we are extremely good at it. Our Railigent X platform gives us visibility on all our trains. All our trains are connected, which we deliver. And the last thing is under-invested rail infrastructure, and this isn't only Germany, it's in all other places requires for more and more investment. Needless to say, this goes definitely into high technology, so signaling, also signaling the cloud.
The first test in the market in Austria was very successful. Others will follow, and we are in a leading position. There's no other player in that market who can deliver this kind of technology. So you see us quite bullish on this one. And we have to say that Siemens Mobility is the champion in the market, and we were expanding our leadership there.
On the SIL deal, I mean, the mechanics are actually quite simple. We are buying 18% with a discount of 15% from Siemens Energy. And obviously, this 18%, they continue anyhow 75% of our own business. It's only a smaller portion, which contains the Siemens Energy share.
Once we have that, then we can go into -- I mean, some people call it autopilot, which is meaning triggering then, number one, the split between these 2 businesses within SIL. Finally, spinning those apart with a mimicked shareholder structure afterwards, which allows us then to sell our shares in the -- of the energy part into the market.
Ending up then finally, selling the share, which energy would still have in the Siemens India Limited AG back to us and vice versa, which will end up then after the timeline of something like 4 to 5 years in us owning 75% of our SIL AG and Siemens Energy holding 51% of SIL SE, so energy. This is the plan. We do have in the contract kind of a breakup fee. So it really makes an extremely high barrier for Siemens Energy, not to do this buying back. So we want -- and actually, they want -- anyhow, they want this business back because it's India, it's a growing market. So for us, it's a very smart combination of, number one, allowing us to accelerate the decoupling in India and at the same time supporting Siemens Energy with EUR 2 billion cash. And, again, I can reemphasize that we have a discount of 15% on that deal.
Thanks a lot to everyone for participating. As always, the team and I will be available for further questions, and we look forward to meeting many of you at the sell-side meeting in London later today and during our upcoming roadshow. Have a great day, and goodbye.
Ladies and gentlemen, that will conclude today's conference call, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.