Siemens Aktiengesellschaft
Q4 2016 Earnings Call Transcript

Published: 10 Nov 2016

[Executives:]

Sabine Reichel - Head of IR Joe Kaeser - President and CEO Ralf Thomas - CFO

[Analysts:]

Andreas Willi - J.P. Morgan Mark Troman - Bank of America Ben Uglow - Morgan Stanley Martin Wilkie - Citi James Moore - Redburn James Stettler - Barclays Gael de Bray - Deutsche Bank Andre Kukhnin - Credit Suisse Alasdair Leslie - Societe Generale

[Operator:]

Ladies and gentleman we are experiencing a moment of interruption in today’s conference. Please stand by the conference will resume shortly.

[Sabine Reichel:]

So good morning ladies and gentlemen, now we can start, sorry for the short interruption, but there was some faced fire alarm. So let's start now and welcome to our Q4 conference call. The earnings release, the presentation and also the press release were already released this morning and you can find everything on our IR website. Our President and CEO Joe Kaeser and our CFO Ralf Thomas are here this morning to review the results and they will also give you an update about our vision 2020 and our expectations for 2017. And with that I will hand over to Joe.

[Joe Kaeser:]

Thank you, Sabine. Well, ladies and Allison gentleman, it’s almost seems like Siemens was on fire. I’m really glad to report that this is only true for the share price so far, so we will see how it goes. So everything is fine here in headquarter. Welcome and good morning to everyone. Thank you for joining us to discuss the fourth quarter results of fiscal 2016 with us. We have a full plate to cover today, as you can obviously see from the agenda and our recent announcements. As for fiscal 2016 we delivered on what we promised in August after raising our guidance twice. It was a convincing and I mean it really convincing team effort. The results show that our team is fully committed to execute on mission 2020, a growing ownership culture is an important foundation of our strong performance in fiscal 2016. We achieved this despite a weaker than expected global environment and continued customer returns to invest in many of our end markets. The reasons are manifold. This is bad material volatile tensions, there is some uncertainty after the Brexit vote and obviously also about the newly elected government in the United States is going to do. There about nationalistic tendencies and populism all across the world which - as well as it could impact free trade just to name a few. We continued to concentrate on our area of influence and further optimized our operational and portfolio set up. As a very clear focus on driving the digital transformation into chief profitable growth by innovation and deliverance of imperial customer value. We defined clear priorities for 2017 to further create shareholder value. We fully achieved our ambitions fiscal 2016 targets, which we as mentioned have raised twice last year. On the FX comparable, revenues clearly grew by 6% while book to bill was at what we would see healthy level of 109. In the fourth quarter, we saw some temporary [Technical Difficultly] EUR50 million showed moderate growth and could only partially compensate the lack of large orders. So we are not particularly concerned about the developments since we see that the overall prioritized activities are intact. We increased the industrial business margins to 10.8%, up 70 basis points year over year and reached the upper end of the target corridor of 10% to 11%. We saw strong operational performance with 8 out of the nine divisions being within the target ranges. Earnings per share grew 30 % to six - on a comparable base, 30% to EUR6.74 when we assess them to the fiscal 2015 base and that’s of course slightly above the raised guidance. Now let's have a look at the key developments by division in the fourth quarter. Power and gas, we’re swiftly executing its measures to strengthen go-to market, drive productivity and enhance technology to counter aggressive prices behavior. These investments still significantly strengthen our competitiveness. They're making good progress to improve our footprint and deliver cost savings. Overall, the markets especially on the large turbine environment. It remains challenging saying with sluggish demand on the back of global overcapacity. Bookings are down Q4 on tough comps to do a shrub a lower number of large orders. We at least recovered several large orders in the year including several hundred million euros for the mega project. Revenues are significantly up on strong backup conversion and a material contribution from the Egypt orders. In total, we delivered 16 large gas turbines in the quarter. The team was working hard and did a great job to gain market share of about 25% a year ago to now close to 30% in large gas turbines. We also saw material market share gains in the small and medium gas turbine sector. And we do intend to continue that path. Also, restaurant integration has progressed very well. The business achieved much improvement of 140 basis points year over year excluding transformation cost. The ramp up of synergies is ahead of plan. We already realized about EUR70 million in fiscal 2016. Wind power delivered again an excellent performance with 8.3% profit margins on the back of strong growth conversion and significantly improved execution. At the nine months of very strong order growth, bookings were down in Q4 on lower large orders volume. The prior year, we booked among other things the EUR1.2 billion offshore order by [indiscernible]. The division has still the sustainable execution track record and announced a number of few new turbine models during the winter, a strong foundation to end into the planned merger with Gamesa. As promised, Energy Management delivered an impressive performance in all metrics and reached a profit margins of 8.4% which is well within the target range and this improvement in most of its businesses. There is more to come due to further productivity measures and innovation. Topline it clearly outperformed our competitive environment. Orders are up in the high voltage products and digital goods businesses while revenues are driven by the solutions and transform business. Billing technology had again a seasonally were strong fourth quarter with double digit margins on tough comps. Order growth was mainly driven by a strong base business and contract wins for energy efficiency projects mainly in United States. We have seen a historical progress to drive a digital transformation and increased the number of connected sites by 28% in fiscal 2016. The number of connected data points reached almost 0.5 million items. Digital factory and I am sure you can agree with that delivered an outstanding year-end quarter with industry leading topline growth and also decently strong margins. Our market in China stabilizing on a moderate level with strengths in automotive also due to government stimulus measures, while the United States is flattish with some weakness in machinery. Europe in total as well as Germany is modestly up mostly driven by automotive, while machinery is still suffering. In this environment, our strategy to bring softer automation together in the digital enterprise is clearly paying off. Order growth in software was double digit while factory automation clearly gained traction. Same pattern was also visibly in revenue with clear growth in softer and short cycle business being modestly up driven by factory automation. It’s yet remains to be seen on what the channel does but we have reason to believe that it’s seen some stabilizing elements in this area. Topline was up double digits in China also higher activity in the distribution channel. Revenue growth converted nicely into a margin of 18.5%. The CD-adapco integration into a strong PLM business is ahead of our plan. But in ‘15, yields have been closed already. This is a clear evidence that our strategy to continue to complement our softer offering is creating customer and shareholder value. Process industries and drivers continue to be affected by outgrowing weakness in the oil and gas and other commodity related markets with sign of finding a bottom. Had expected the profit margin turned negative due to about EUR200 million in severance charges, we’re executing necessary structural realignments and capacity adjustment. Now let's move on to mobility, where we saw very solid and stringent execution keeping margins in the upper area of the target range. We should believe industry leading as a complete mobility segment. However, aggressive pricing on the rolling stock continuous in the market. Book to bill was at a satisfactory 1.1 level this is by large light rail vehicle order of around EUR400 million in Seattle. We achieved a number of important milestones in the rolling stock such as the homologation of the ICE4 train in Germany which is according to our plan and which was important going forward. Ralf will give you now some more color on progress reading project execution in just a minute. Finally, we were again very pleased with the Healthineer performance. From a regional perspective, revenue growth was driven by Asia with some moderate growth in China. The Americas were slightly up, Europe and Middle East were somewhat flattish. So clear revenue growth in our diagnostic imaging business which also contributed stronger profitability. In lab diagnostics we expect to catch up this competition after a very successful rollout of our new platform of telecom. They are continuing to invest in innovation and we are investing in go to market to enhance our very, very strong technology position. Healthineer is a great business and I will explain in a minute on how we make this business even greater in the future. As you can see, there is a lot of progress which we have made, progress was made on the outstanding team effort and we delivered on what we promised according to our vision 2020. And with that I hand it over Ralf to give you some more comments and some of color on additional financial.

[Ralf Thomas:]

Thank you Joe and welcome and good morning everyone from my side too. Also below the industrial business we walk the talk and focused on long term value creation. However, some development such as interest rate movements are hard to influence of course. Looking ahead, we work in fiscal ‘17 with the following assumptions. Siemens financial services will continue to operate on a similar strong operational level as in fiscal ‘16, but please note that we had an extraordinary gain of EUR92 million from an equity investment in fiscal Q2 ‘16 which we do not expect to be repeated. Centrally managed portfolio activities contain a number of assets such as prime metals, postal and baggage handling also from Hanau asset retirement obligation. Going forward, volatile developments in both directions continue to be possible. For example, we have seen in Q4 a major positive effect related to the Hanau obligation and the lower loss from equity investment. At Siemens real estate, we do not expect any material disposal gains in fiscal ‘17. For corporate items, you can assume a cost run rate of around EUR150 million per quarter with the seasonal component in the second half of the year. Main reason for the higher level year over year is additional central invest in innovation such as our new venture unit NEXT47. For pensions, you should assume around 125 million per quarter in line with last year. The PPA rate for the current portfolio will be broadly in line with the prior year. This excludes pending portfolio topics such as the merger with Gamesa. Overall the elimination corporate, treasury and other items will be roughly in line with fiscal ‘16 and other than in fiscal ‘16 discontinued operations will be immaterial in fiscal ‘17. For the tax rate we assume around 26% to 30%. In Q4, we delivered an excellent free cash flow performance of almost EUR3.6 billion with EUR5.5 billion in total for fiscal’16 that represents an increase of 17% over fiscal ‘15 coming along with a more balanced quarterly development. We saw broad based net operating working capital improvement across divisions mainly on lower inventories. The weaker amount of large orders led to a decline in billings in excess and advance payment in the current quarter Q4 ‘16. As Joe already mentioned, fiscal ‘16 was a successful year with a 30% EPS increase compared to the adjusted fiscal ‘15 base. Since we delivered on our targets, all stakeholders will benefit from the value generation. Therefore, we propose a dividend of EUR3.60 which equals a payout ratio of 52% well within our payout policy. With a dividend yield of 3.5% as of September 30, we offer an attractive and sustainable return also reflecting our operational performance. We will continue with our current share buyback program of up to EUR3 billion until November 2018. Furthermore, the managing board has decided to contribute a second endowment of EUR100 million to the Siemens profit sharing pool. Once the total volume of the pool reaches EUR400 million, they will be distributed in equity to the eligible employees. Fiscal ‘16 was not only successful from a pure financial point of view but we also made significant progress to execute on Siemens Vision 2020. Joe and I will give you some highlights to illustrate the headline of optimization for fiscal ‘16 and how we are prepared to further sustainable profitable growth. First of all, we further accelerated the functional cost savings measures and achieved the 1 billion savings target ahead of plan. He have further substantial measures across the company in place to deliver on a sustainable basis our 3% to 5% productivity target. The team has a tight grip around the measures which are executed based on a stringent operating model. As you can see, we made good progress in the supply chain area towards our 2020 goals for global value sourcing and cost value engineering. A key leader to drive productivity is the rigorous digital transformation of all core and support processes along the value chain. Just to give you an example, we have significantly increased the internal use of our own digital enterprise software suite across divisions. We can cut time to market in the development process between 30% and 50% such as in power and gas for example. Our new CIO, Helmuth Ludwig has been in the PL business for a long time and will drive the digital transformation forward. In fiscal ‘16, we made further substantial progress in risk management and project execution. There was no negative net effect. Project related charges or cost overruns were compensated by reversals due to improved delivery and other projects. To illustrate this positive development, I picked two examples, mobility has achieved in a number of crucial projects such as Valero Eurostar, ICE4 and Thameslink important milestones on time. Oil and gas megaproject in Egypt to build three combined cycle power plants with 40.4 gigawatts is on track to deliver first power to the grid by the end of this calendar year. We will see around 40% of revenue recognition of the solution related project value of EUR3.6 billion in fiscal ‘17 from them. Another key pillar of our self-help story is the stringent improvement of underperforming businesses in our portfolio. We identified businesses delivered as promised around 3% profit margin in fiscal ‘16 on slightly higher revenue of EUR14.5 billion. Looking ahead, a smaller part of the business is up around 15% revenue share is lagging behind and we will review the strategic options in the management team. We expect around 85% of the revenue of the underperforming businesses to reach the expected target of around 6% profit margin in fiscal ‘17. With that Joe I hand it back to you for further discussing the progress of Vision 2020.

[Joe Kaeser:]

Thank you Ralf, let's now have a look at how we function the core and how we execute in our scale up initiatives. Our early focus on digital transformation to drive valiant growth is bearing fruit. Main focus areas for investment and growth are software in the different verticals. Our cloud data platform MindSphere and digital services across all businesses. We’re building on our leading global number one position in automation across our domains and radicalization and enhance our integrated offering electrification along our what we call EAD strategy, electrification automation digital enterprise. As you can see from these numbers, we achieved strong digital growth of about 12% year over year and are poised to outgrow the market going forward. For example, power services has already more than EUR3 billion in data driven flex long-term service contracts in the backlog. Overall, we have already more than 350,00 systems connected with multi-million data points. As key element of Vision 2020 is the continued ambition to strengthen our portfolio along our strategic imperatives. As you can see we made further decisive moves and continued progress. The announced merger with Gamesa to create a leading windpower player received a fabulous approval of the Gamesa shareholders was 99.75%. We’re scheduled to achieve closing is on track and we expect to consolidate the financials of the new entity as a fiscal Q3 in 2017. We just around that the planned listing of Siemens Healthineers to strengthen the business. Let me first explain our rational for the planned Healthineers listing in more detail. As called, look at the business, it’s gone from good to great by separating the business and making the more focused and more operationally and now we do want to make it fascinating business. Healthcare is one of our strongest businesses with sustainable high cash flow and excellent margin profile in an attractive sustainably growing market. We increased the profit margin by 400 basis points over the last five years and there is more potential. Potential is in focus and being close to our market beings specified in specific on we how approach technology. Siemens Healthineers saw also the undisputed innovation leader with best-in-class market shares in diagnostic imaging and it has an installed base of around 6 00,000 systems in the field. Today, more than 70% of critical clinical decisions are based in Siemens Healthineers technology. As part of Vision 2020, we announced in May 2014 to set up the healthcare business as a company in the company, focus was to increase strategic flexibility and to optimize the specific go to market approach. We moved early and we are ready to act once we see market opportunities. Healthineer defines its new strategic direction to become the enabler for healthcare providers and successfully implement the specific go-to market approach. Legal carve outs now nearly completed. And the business is focused, we expand in key growth fields. We will invest in areas such as molecular diagnostics, advanced directives and services including consulting as well as data driven services. Transformation in the healthcare market continues with a paradigm shift now emerging. There is a clear temptation from transaction oriented product business to solving multi-hospital system challenges worldwide. To add more, we do see changes in paving schemes from fees to service to managing outcome based on health. As a consequence, healthcare providers and our competitors drive consolidation in the market to cope with the strong ongoing changes. In this competitive environment for customer relevance, it is essential to strengthen our healthcare business further and keep the distance in the market. Therefore, we are planning a listing of a stake. This is the best option and a logical next step to provide flexible access to the capital markets and further strength the Healthineer business in the future. Siemens is committed to remain a long-term majority shareholder of the Healthineer business. We are convinced that we can even further expand our leading position. Finally, I want to highlight briefly a strategic alliance which we have also announced today. We significantly advanced our strategic corporation with Bentley Systems including joint investment initiatives of at least EUR50 million to get started with. The goal is to leverage Siemens to the digital functional engineering and simulation models with Bentley’s systems on 3D physical reality context to optimize not only for example the automotive industry but also the entire plant of infrastructure across last cycle. The existing corporation and digital factory and process industries and drives will be significant expanded across all Siemens domains such as energy management, mobility of building technologies. The strength from ties we have also invested around EUR70 million in secondary shares under a company program that will continue until such a time as Bentley system stock is publicly traded. Another important pillar of Vision 2020 is our effort to drive cost to a proximity and foster organic growth. A key indicator, customer satisfaction for us is the net promoter score, which has been significantly up across all our businesses, is a very clear positive customer message. In addition, it has also provided us with very valuable customer feedback on where to further improve. Growth is and will be a key focus going forward to outpace the market. Our growth initiatives cover many areas, along with the potential in selected countries such as India or Argentina or others in Middle East, Americas, Asian all across, we have set-up a dedicated investment and growth plans to match the local needs without offering. Secondly, we do it right industry specific approaches across all the divisions for verticals such as food and beverage, oil and gas, chem farm and many other interesting areas including a more process oriented specific design in discrete industries. A recent success was the award of a front-end engineering and design contract from LNG company Cheniere for a mid-scale liquid liquefaction project to us and our partners. Many of our businesses, the customer journeys are changing. We do see customers, we educate themselves to social media and to also expect highly efficient transactions through digital channels with our suppliers. Therefore they are currently developing a new B2B platform to take these changes into account and further expand out digital sales volume. Over the last three years, we increased R&D by EUR700 million and it paid off and it makes sense and we do see results already. Also in fiscal 2017, our R&D will grow further with a very clear focus on scaling up, mainly our investment into our enhanced digital platform what we called MindSphere which for us is the operating system of what is called industry 4.5 and into our new venture which we call NEXT47. NEXT47 is a unique way of innovation management and we head it by luck and a very experienced and well connected leader in the area of startup and bringing startups closer to bigger companies. As you can see from the other examples, the focus topic for R&Ds are linked to growth and profit strongholds indicating a stringent resource allocation also in R&D. The best indicator of a successful R&D, above and beyond on profit is enthusiastic feedback from our customers. And one among many was the reason supplier innovation award from BMW for the implementation of our TIA Portal totally integrated automation portal, the gateway to digitalization. As we already mentioned the key product launch in fiscal 2017 is Atellica Solution, our new diagnostic platform. So summing it all up, we delivered what we promised and identified clear priorities of fiscal 2017. One, we continued to fix underperforming businesses, we are well underway, to strengthen the core further, expand and extend the leadership in digital enterprise and continue to achieve profitable growth. About and beyond those tangible targets of what to achieve we have integrated also a how component into our leaders incentive schemes. For me personally, this is an important cornerstone and key priority to foster our change coverts, our ownership culture mindset, which rewards leaders who act as role models for collaboration, for integration, for speed and responsibility while empowering their teams. Before I give you now the outlook for fiscal 2017, let me share maybe some assumptions with you that are relevant to our guidance. First, we expected the market environment to remain challenging due - mainly due - first and foremost due to continued geopolitical tensions and ongoing insufficient capacity utilization. You may remember I did said already about a year ago and I would have loved to be wrong in that aspect. The Brexit vote created further reluctance in investment decisions and we do see only insignificant faster global growth in 2017 as compared to 2016. We expect commodity related markets to gradually stabilize, however on low levels for 2017. We do assume to see some positive impact from the stabilization of the Chinese manufacturing industry. I just happened to be there in Shanghai at the Mayor’s Advisory Committee and I can clearly support this notion that we do see some light in terms of industrial policies going forward. Next assumption is that negative pricing should be around 2.5% of revenues overall with power and gas, and windpower being affected the most. Regarding productivity, we do expect to be in the range of 3% to 5% and the meaningful assumption would be just the midpoint for that. As mentioned earlier we plan to continuously invest in R&D and selling was around EUR500 million altogether compared to 2016. Since we have taken some decision to expand and optimize the footprint, CapEx in the industrial business [indiscernible] moderately in fiscal 2017. From a foreign exchange perspective, we see some modest negative topline impact also due to the devaluation of the British pound. Based on those assumptions, formal outlook reads as follows. We continue to anticipate headwinds for macroeconomic growth and investment sentiment in our markets due to complex, geopolitical environment. Therefore, we expect modest growth in revenue, net effect from currency translation and portfolio transactions. We further anticipate that orders would exceed revenues for a book to bill ratio above 1. For our industrial business, we expect a profit margin of 10.5% to 11.5%. we expect basic EPS from net income in the range of EUR6.80 to EUR7.20 compared to EUR6.74 in fiscal 2016 which included EUR0.23 from discontinued operations. This outlook assumes stabilization in the market environment for our higher margins short-cycle businesses. It further excludes charges related to legal and regulatory matters as well as potential burdens associated with the pending portfolio matters. And with that Ralf and I are happy to take your questions and I return the mike to Sabine. Thank you.

[Sabine Reichel:]

Thank you Joe, thank you Ralf, operator we open to Q&A now.

[Operator:]

[Operator Instructions] And our first question comes from Andreas Willi of J.P. Morgan. Please go ahead. Your line is open.

[Andreas Willi:]

I have two questions please. The first one on Healthineers. You said in the past that you don't see a paradigm shift or an urgency to list and I mentioned two paradigm shifts, the trend to solutions versus product and the trend to payment for outcome rather than fee for service. These two trends have been in place for the last few years and I assume you and your competitors like you competitors have started preparing for that. So what has really changed in terms of the timing and the ambition here and is it just an IPO or would you also consider a partial spinoff for merger into a public entity as a way to achieve the listing. In terms of the performance of the business, maybe you could give us an indication where R&D now versus a few years ago for Healthineers. And the second question just on the guidance clarification. You gave us many of the items for next year, maybe you could also share what you assume for kind of ongoing normal restructuring whether you have any headroom for project charges, or whether you assume that stays at zero like in ‘16 or whether it also includes any gains you may potentially realize. Thank you very much.

[Joe Kaeser:]

[,:]

And secondly it is also more about the environment. Here, look at healthcare, there is obviously customers, there is competitors, there is our employees. We have a very stringent agenda on both Vision 2020 in general and healthcare in particular, we want to make sure that we keep all our important stakeholders current about what we do. But everyone knows what we do and what we plan and what the priorities are going for. So it is all about our stakeholders, especially our customers, our employees to make sure that they are aware that they are clear, where we are going and what we do and to help them focus on the business rather than internal elaboration about what happens next and who else would be affected. we have a very clear entrepreneurial reason to keep our businesses focused and to set more stage moving even faster and more focused going forward.

[Ralf Thomas:]

So Andreas, Ralf speaking, if I may add with regard to the R&D in the Healthineers business. I mean if you add and to consider also capitalized R&D we are moving into the area of 9% and that has been building up over the last couple of years from a level approximately 20% lower. So as Joe has been mentioning we are intensively investing in that business for quite a couple of years and the outcome I think is also quite convincing in the technological leadership on the conventional imaging business and also driven now by the incremental investments we're getting at Atellica already for the market. So this is pretty much the big picture on R&D spending and how it developed over the course of the last couple of years in the Healthineers business. The second part of your question about the performance in future expectations with regard to restructurings’ new normal, I mean just looking back I mean we had about EUR800 million in fiscal ‘15, we had about EUR600 million of which EUR540 million were are in the industrial business in fiscal ‘16 and what we expect as a normal over the course of time looking ahead will be an amount between EUR200 million and EUR300 million which does not necessarily mean we will spend that money each and every year, it depends also on how we move and where we move our footprint to get closer to our customers and to new markets, growth markets. With regard to the charge, I mean it's hard to tell to be honest, but what do you may believe is that we are extremely and keep on being extremely focused on avoiding charges, I mean all the feature we have been putting in place and we have been discussing extensively in the past like getting early warnings in place, having a view from our silverbacks on projects which are first of its kind not leaning against partners that are not strong enough to pull through if need be, all that will be in place and will remain in place on the same levels. We also do see from the track record that our backlog at EUR113 billion is built on solid margins and risk contingencies of course and what we saw right last year, I mean 2015 with EUR200 million net negative and ‘16 without any net negative that was probably the area in which we will maneuver throughout the next couple of years. What is a new normal and what is satisfying as I said hard to tell but I would be badly disappointed if we went up over EUR200 million again. With regards to last quarter, I mean that was exceptionally balanced because it was literally nil net negative and positive. So from that perspective, I think we may not be naïve and expect that there will not be charges anymore.

[Operator:]

We will take our next question from Mark Troman of Bank of America. Please go ahead. Your line is open.

[Mark Troman:]

I've got a question on Healthineers and second one on short-cycle or digital factory demand in particular. So on the Healthineers Joe, when we look at these growth fields, molecular diagnostics, advanced therapies services, are you investing heavily in those now or is this more inorganic and if it were to be inorganic, would that only really happen post a potential listing just curious with the timing of how you invest in those three areas. That's question number one. And question number two, digital factory, I mean clearly a stronger performance than a lot of the peer. I think 7% order growth, 4% sales growth. Is that market share gain, is that the software business, the PLM business really coming through or a just a little bit more color on how you are performing relative to the market and the mix within for digital factory? Thank you.

[Joe Kaeser:]

Thank you, Mark. Also thanks for the feedback on basically digital factory. I’ll make a channel of comment on this and then Ralf will get to some more supporting flavor. I know that you also do read the numbers from competitors and it is very clear that we have that our efforts and the strategy has been paying off and the intent to continue that path. I think the system of electrification automation digitization which is in simulation software which has clearly, clearly is the right formula. And we need to execute and bring that together, MindSphere will definitely help us with that but it's also highly competitive market so we need to be mindful about the environment, but clearly a good performance. There is some obviously, you may remember I said last year, we need to get some life into the short-cycle in the second half of the year. Interestingly enough that's exactly what happened, took a little longer than we thought but that's what you've seen. I also did see a very strong performance in China, so there is some selling here and we need to see on how much that sell-in will be also sold out in the next couple of months. We do plan some meaningful growth also or we do see some meaningful growth also in fiscal Q1 2017 on discrete [indiscernible] digital factory but we are very carefully watching there. but that's in general the topic and as Ralf will give you more flavor on software and the likes. On healthcare, I mean as I've already answered the first question from one of your colleagues. This is about clarity, this is about - this is letting our stakeholders know what the intent to do. It’s also about the market, reassuring the market that we exactly do what we said in May, 2014. And we do that step by step. So that everyone knows how we are going. Now just bear with us that all our thoughts around how we invest into those areas are still need to be thought through a bit more before we share our thoughts on this but you can be rest assured our intent here is first and foremost a great value. Secondly, in case there was inorganic matter that this would be handled in a market friendly way not affecting any other business in the company in a negative way. So, we are mindful about the priorities and that's exactly what we do going forward. And with that please bear with us that at this time just want to make sure that the market understands what we do. That our people, our employees to customers know what you're doing and we take it from there step by step as we have been executing so far since May 2014. Ralf, maybe a few points on digital factory.

[Ralf Thomas:]

Of course, Mark, as I do know how important the environment and the underlying assumptions are for you as well as for us to kind of get your own models built and for us in terms of guiding the business and steering it effectively. I would take an extra minute to take you through the macro environment how we see it at the moment and starting with China. I think Joe has been already touching on that, there seems to be stabilization in the manufacturing environment on a moderate level. At the moment, automotive to be honest with you has been surprising me positively, with the significant increase in the marketplace in China. And electrical equipment shows also quite some clear growth. Machinery, however it lagging and is only on a very modest level increasing if it all and for the way forward, I don't expect any significant change of that pattern in the near future in China. The US manufacturing developing very flattish so far, automotives are still being one of the best performing industries there with moderate growth rates being reported also officially and machinery continues to suffer and shows a modest decline from a markets perspective in the US. So the expectations for the next month are slightly optimistic compared to what we saw in the past, but will not be over boarding. The European Union has only modest growth potential in total in that industry field and the demand for motor vehicles still confirms a moderate growth. However, machinery is losing speed again and is rather modestly declining there. And so growth expectations for the upcoming months still remain low-single-digit range if at all. And Germany, as part of the European setup, is modestly growing in line with what we see in the European place and automotive is the best performing industry, also is showing moderate increase, while machinery is still suffering a lot and modest growth for the next month would be rather an optimistic view on that. So now when it comes to our businesses in China, we have been substantially participating in that momentum that I described in the short cycle business. There was a clear mid-teens increase in place and in the software businesses was the upper teens, the upper teens and close to 20%, which was quite encouraging and to your initial question whether or not we gained market share, it's clearly yes in that field. The US is reporting slight decline, a modest decline for us in the latest - in the last quarter and that was pretty much driven by the short cycle itself, while software has been moderately growing there. Quite challenging especially with regard to machine builders as I said about the market already. Italy as before, moderate growth for our business, driven by short cycle mainly based on packaging industries as I said before and Germany modestly up - really modestly up with short cycle business rather being modestly down driven by the weak machine building. And software in the mid-single digit growth area. So with regards to the overall picture globally, our PL business has been gaining momentum. We had clear growth of 7% in the last quarter with a heavy focus in China as I said, but also Germany and the US have been growing clearly in that field. And with regard to the product business, there was also a moderate growth in the last quarter that we had machinery as discussed rather still in a contracted mode and the global manufacturing is such with general motion controls at flight, upward tendency also in the mid-single digit area. That was comprehensive.

[Joe Kaeser:]

Yeah. As you see - you see how effective our reporting system really is.

[Sabine Reichel:]

Next question please, operator.

[Operator:]

We will take our next question from Ben Uglow of Morgan Stanley. Please go ahead. Your line is open.

[Ben Uglow:]

Hello. Thank you. Good morning, Joe, Ralf and Sabine. I had a few not surprisingly, I think they’re mainly about Healthineers, I got to be honest I'm still trying to exactly understand what the message is. And tell me if I got this wrong. There's no specific timetable here, there's no kind of near-tern agenda to do it. But what I think you mentioned Joe was we would like to be in a position to respond to any inorganic matters in a market friendly way is what you're saying that at some point, the Healthineers would be used to grow the business. Frankly, to move into molecular diagnostics or some other area, is that the kind of implicit messaging. So that was question number one. Question number two, in the past, I know we've talked about a tax liability associated with Healthineers and that liability would gradually ramp down over the next three years, well, few years I should say. Is that assumption correct? Is that assumption still in place and are there any tax consequence as a tool that are relevant to the timing on this? And then finally on the slide, I noticed that you sort of highlight in common that this is very much in Siemens and it feels to me like you want to keep this business completely intact. Should we assume that there's no plan to make divestments out of Healthineers, so for example, if you were to get a big offer for parts of the imaging business or diagnostics, that is not on the table, but in principle, Healthineers as it stands today is the way it should be for the next few years?

[Joe Kaeser:]

Hi, Ben. You spend about a day and a half with our Healthineers team on the budget and the strategic discussion that pretty much covers every single. So on a serious note, watch out the markets. Market to take, as a message, we do what we say. And now we are preparing the next steps. That’s the message. Sometimes, it helps to reassure stakeholders with doing what we said we would do. There's nothing more and nothing less. I did hear where you were going, but I hope you also heard that we are going. On tax liability, this too, this is a matter amongst several aspects, which are being considered among - associated to the public and which we are going to discuss now, associated with the announcement that we would bring the asset to the market. Now, on your assumption that there are no plans to change the spectrum and the mix, no one said that we wouldn’t do, but no one said that we would. I mean, this is an ordinary course of business going forward. The healthcare business is a very strong business in Siemens because we have the technology which is industry leading and there are few areas which don’t do that well as they should and as they could. And that's all challenging which we’re considering and that's - honestly that’s the message we want to give. We do what we say. We execute on what is good for the company. And there's a lot of aspects to be considered. Maybe Ralf gives you a bit more on the tax matter, but again the message should be very clear on what we’re up to next.

[Ben Uglow:]

And I appreciate that Joe and I understand it, but what - I guess what I'm trying to get at in very big picture terms is, is the idea of Siemens to keep and grow Healthineers, i.e., this is a effectively a future growth platform for you as a listed entity, but in Siemens, are we looking at a, dare I say, the kind of rationalization, a very different structure for Healthineers a few years down the road?

[Joe Kaeser:]

Yeah. If it is costs, businesses, what they will look like a few years down the road, let's assume five years, then there would be at least 20 quarters to update our message going forward. All right. So and to keep you, the market, our employees, our customers and by the way also the competitors very clear on what we do and that we do that to the best to the healthcare business. If you look at, maybe one little help, if you look at the healthcare industry and maybe five years back, there was a lot of companies, conglomerates who believe they can do healthcare business the best by having them best part of something. If you look at what this industry has been doing and who's been actively shaping the future requirements, like click one, then you can clearly see that this whole matter is correct and that the efficiencies are and how to bring the best service to our customers. And the more you commercialize healthcare above and away from who is doing the best pixel on imaging to satisfy the technology of chief doctors, then you can clearly see that efficiency at relevance matters in the marketplace and the more hospitals become commercialized, become chains, become a powerful purchasing area the more you need to be integrated inclusive and specific. And that's what we have understood and that's why we have been acting for two years the way we do and we keep you very, very close to what we do, but please bear with us one step at a time and that step was this is what we’re doing and next time, we'll let you know what the next one will be.

[Ralf Thomas:]

Ben, just one quick word on the tax matter, because I know that it has been popping up time and again, and I mean it's obvious when you complete a carve out and put together all the efforts that you have been carving out before, there's always tax impact. There is two categories to do it, like a white one of them is driven with regard to the amounts by time that may go away and/or down or will have an impact with regard to timing and there's another category, very much driven by the legislation under which you are in the specific country that won't ever go away, so therefore rest assured, we have been very prudently looking into all scenarios and we have been thinking them through and still think them through, as soon as there are changes in any of those legislations. So those that can be impacted, they are thought through and those that cannot be impacted, you can't impact. So from that perspective, in a nutshell, timing will definitely not be determined by tax issues.

[Operator:]

We will take our next question from Martin Wilkie of Citi. Please go ahead. Your line is open.

[Martin Wilkie:]

Yeah. Thank you. Good morning. It’s Martin from Citi. So just a couple of questions. The first one was really around your cost plan, the billion cost plan is now complete, but one of the things that we've seen with the carve out, the wind business is the sort of central and shared costs and it looks like you're not obviously allocating actually new entity and perhaps cutting that as part of the transaction. With health care, does a similar thing need to happen, do this review of healthcare that you're doing for a proposed spinout or IPO, does that have to involve a reappraisal of central and shared costs or was that all done as part of the carve out that have been seen from a legal perspective over the last couple of years. So that was just the first question around central cost. The second one was just around other investments that you’ve been making, just following on the comments of an R&D ramp-up. Last year, you also pointed to a ramp-up in selling popping expenses. And obviously, we can't really see at in a group level because you obviously had a lot of that through cost savings, but as we look into ‘17, are selling expenses also expected to go up alongside R&D or was that ramp up that we saw in ‘16, was that essentially a one-off. Thank you.

[Ralf Thomas:]

Let me start with the first part of your question, Martin. I mean one by sixteen, remember way back two years when we announced the initiative we said what we intend to accomplish is take out costs from internal processes, fighting bureaucracy and complexity and investing that where the market is going in sales channels, in R&D, innovation and also in changing our footprint around the globe. That is an initiative that continuously needs to be reviewed and we will take care of that outside the program approach and continue doing that without 3% to 5% productivity target, which we will repeat year-after-year. As Joe said in the press call already, I mean just also guiding you for the assumptions for fiscal ‘17, assume the midpoint to be the minimum aspiration level that we will have for ‘17. So that will be continuing. The other thing is whenever you have - you are at that point, that crossroads that you do something like winter or the healthcare carve-out, you need to determine of course how much you can afford in terms of central cost and how much investment if you will in regulatory and rulemaking activities, governance at the end of the day, you intend to happen. We are, particular in that field, continuously asking ourselves not only what do we need to do, but what can we afford also for the way forward. So the assumption that we have 3% to 5% cost productivity on the total cost base of the company for the way forward is also covering that. And if there would be major steps, you can assume that we will try to anticipate as much as we can in that regard, doing things, the right thing at the right time. So that topic is addressed and understood and it's a continuing process that doesn't stop with one by sixteen. That's the message. With regard to R&D and sales, I mean what we did throughout the last two years, if you take together R&D, marketing and sales and also changing our footprint in terms of CapEx, making our factories more efficient, there was an incremental spend of 500 million in fiscal ‘15 over ‘14, an incremental spend of 500 million roughly in ‘16 over ‘15 and there will be amount pretty much in the same dimension in ‘17 and that includes say to about 25% to 30%, also sales activities which are not centered about feet on the street only, but also driving new business models, when it comes to digitalization and e-malls as we run them and the like.

[Martin Wilkie:]

When I look at last year, your SG&A as a percentage of sales didn't really go up. So you presumably offset that with the functional cost savings. As we go into next year, should any ramp-up in selling expenses be offset by the productivity initiatives or do we think those ratios will actually go up as part of this investment?

[Ralf Thomas:]

As I said, I mean, we will not run that by a function of the cost line item, but what we do is we will accomplish that 3% to 5% productivity gain. And that will to a certain extent compensate for build-up of resources in the sales channels themselves and technology for that, but year-over-year, if you take the functional costs of SG&A as a line item, that will remain pretty flattish, as a percentage of sales.

[Operator:]

We will take our next question from James Moore of Redburn. Please go ahead. Your line is open.

[James Moore:]

Yes. Good morning, everybody. Joe, Ralf, Sabine and thanks for taking my questions. My first one relates to your industrial business margin target, the 10.5 to 11.5, up 20 bps at the midpoint. I was just wondering if you could help us with how you see that across the eight divisions, specifically those that are meaningfully better or meaningfully worse within that. And then maybe specifically if I could on power and gas, your margin, if we exclude the inventory effects, has been hovering around 10, 10.5 in the last couple of quarters and I get the sense that Egypt is going to be a bigger year next year. I wondered if you could help us with how we should see PG develop in ‘17 and how will the Dresser-Rand margin within that develop? And then finally maybe one for Ralf, could you help us with a percentage number please for how price productivity inflation developed in ‘16 and what the FX impact was in the fourth quarter and how you see that moving into ‘17? Thanks.

[Ralf Thomas:]

So let me start with the last one on pricing and inflation and we saw something between 2% and 2.5% price erosion in ‘15, ‘16. And that may slightly increase with a heavy focus in PG and also in wind power. But overall, there is no huge change expected in ‘17 over ‘16 in terms of price erosion. When it comes to cost inflation, especially with regards to personnel, you should take the same assumption as we had in prior year, ‘16 was about 3.5% cost inflation and that would also be a pretty good assumption for fiscal ‘17 I think. When it comes to the portfolio and how does that kind of drive the overall margin range of industrial business that we have been guiding, are guiding for between 10.5 and 11.5, I mean the overarching principle is that we want all our divisions growing profitably and cost efficiently. So the majority of the businesses, I mean, actually seven out of those nine are clearly planning for progress in that field. And that includes PG by the way. Some of the progress is driven and pretty much self-explanatory, I mean taking the example of PG that much improve after the severance charges of fiscal ‘16. And some of them are continuously working themselves the way up as we saw that for BT now for a couple of years, also translating profitability into cash and free cash flow has been developing quite nicely too. So the overall scene is that the majority of the divisions will increase their profit margin year-over-year and as we've said in the guidance, of course, in the short cycle business, pretty much depending also on the stabilization of the market in that field. In PG in particular, we have quite some visibility for the year ahead. I mean, we saw many competitors being aggressive in the market and the visibility we have for the quarters to come is such I think this will remain a tough environment. Also with regard to pricing, we have been initiating measures quite in time with Vision 2020 making good progress. We’ve been beefing up the synergy potential of Dresser and Rolls Royce acquisitions as we told you in detail in the Capital Markets Day. I think 375 million, substantially improving over that what we had been indicating when we announced the acquisition. This is quite speaking for itself.

[James Moore:]

That’s very helpful. Could I just go back to the productivity and what that was in ‘16 and how currency was in the fourth quarter and what you see?

[Ralf Thomas:]

So the productivity in ‘16, including our program one by sixteen was at the upper end and even a bit beyond the 5% in total. What we expect for ‘17 is something, I personally hope for being north of the midpoint of the range. Let me put it that way.

[James Moore:]

And the currency in the quarter and for the next year for the margin impact?

[Ralf Thomas:]

Currency in the last quarter was literally not material. I mean we had 10 basis points of support for the bottom line in the quarter. For the fiscal year, we ended up exactly where we had been guiding you. It was 30 basis points for the industrial business margin for the full fiscal ‘16 and you shouldn't expect any major impact for ‘17 from exchange rate. As we speak, we plan with what we see at the moment.

[Operator:]

We will take our next question from James Stettler of Barclays. Please go ahead. Your line is open.

[James Stettler:]

Yes. Thank you. And good afternoon. Two for me. If you look at your portfolio in software, what you have today, do you believe this is enough to achieve the growth you're looking for, is there something else that is missing within the mix. And then secondly could you just give a bit more color on what's going on in power grid, sorry in power and gas in terms of the OE versus service business and how you see that developing in 2017. Thank you.

[Joe Kaeser:]

Hi, James. The first one portfolio in software. I mean, we did start talking about digital factors first and foremost. They did start out to build a real meaningful and substantially meaningful operation in 2007 with the acquisition of UGS. From then onwards, we did grow our software engineering versus organically. And that’s also been complementing the activities. Since then, more smaller sort of pull on acquisitions. Last permanent example obviously being CD-adapco, which turned out to be much better than we originally thought, doesn’t always happen at times, but this time, I’m really proud to discuss that also. And this is something we have continued now with the Bentley Corporation, which we also believe is very, I’m not sure where it is, but it's also a creative way of getting what you need without spending a ton of money. We've been short on 3D process simulation. As also some others. Some have tried to do to buy something, to do reverse things, which didn't work and they tried again and didn't work. And this time, we get access to 3D process simulation above and beyond the 2D which we do well already by co-operating and by also securing our interest if need be going forward on that asset by participating also in this equity space. Small but yeah, it’s started. And there would also be some potential agreements behind in case if something happens, what we could do and what access we could get. So there is many ways to build the digital enterprise going forward. Sometimes the acquisition, sometimes by a very reliable corporation, sometimes by just do a co-operation because it makes sense and maybe one chips on a joint project. So that's what we also continue to use going forward. The digital enterprise, it's just at the beginning of being build. So there will always be activities and this will be a combination between what I said earlier EAD, electrification, automation digital enterprise. I really feel comfortable to predict everyone doesn't have that vertical integration will have a tough time to make a meaningful difference in that space. So I’ve just seen that all over. And that's what we do, we look into electrification fields, we look into automation where we are obviously very strong really. Simulation, we connect the dots and the bits and pieces with somewhat like doing a passable. We just need to know what the end result to look like and then we'll find our way and that's exactly what we do. We feel very comfortable about understanding what it does, not always and the other thing gets away, we want it to go, but they are very mindful about the different options and how to complete the picture going forward.

[James Stettler:]

Just a follow-on here, just with Bentley, have you disclosed how much this, I think it’s 70 million that’s going to get you?

[Joe Kaeser:]

We have well - I mean there's no need to disclose that or be that because it doesn't get you anywhere. But what we haven’t disclosed is how far up it would go in case there would be more shares of the element. And there is no meaning to do that, but we feel very comfortable of what's in the fine print of the agreement. So back to PG or power and gas, very, very backlog in terms of quantity and quality and service. Also very, very solid understanding on that, the service person has kind of reached a bottom in Europe in terms of service utilization. Piece of backlog on the new business environment, some very encouraging progress in the LNG field with what I mentioned in my speech. Very encouraging innovation in building and what we call eLNG electric LNG, which is pretty unique in the marketplace, benefiting from what we have done in our investment in the oil and gas environment. There is a lot of space, there is a lot of emission. It’s highly attractive and a lot of interest in that space and a lot of other capacities in an additional environment of everything, which is above 100 megabyte. So that’s the situation as we make the best out of it. So very encouraging matters, but also constant struggle. We are up against the best companies in that space and we have a lot of respect. But we also know how to be successful

[Operator:]

We will take our next question from Gael de Bray of Deutsche Bank. Please go ahead. Your line is open.

[Gael de Bray:]

Yes. Good morning. Thanks for taking my questions. Can I actually follow-up on James’ earlier question on power. I mean, could you give us a sort of indication of the size of the backlog for power and gas at the end of September because I'm under the impression that excluding Egypt, the backlog is actually smaller than it was a year ago. So would it make sense to actually expect a negative revenue development perhaps in the second half of 2017 for power and gas or do you have already some visibility on the potential booking for a few large contracts, which is a fast track process? And one specifically for SFS, I noticed there was a EUR1.3 billion increase in SFS that this quarter. So where did that come from and how far do you intend to grow the size of SFS going forward. I mean it now exceeds EUR22 billion. And the last question relates to healthcare, how do you see Healthineers margins progressing in 2017. Because the ‘16 performance was kind of good, supported by the currency hedging effect, but going into next year with the launch of the Atellica platform, I mean surely there has to be some sort of negative mix on margins? Thank you.

[Ralf Thomas:]

So let me start with the Healthineers question first. I mean, you're right and we said that the fiscal ‘16 was pretty much supported also by exchange rate, to the extent that I said for the company in total, 30 basis points, with a focus on Healthineers. Nevertheless, even though we don't expect further tailwind for the Healthineers and for the portfolio in total in ‘17, there is, as I said before, also an expectation for the margin of the Healthineers to grow. So it will not be driven by exchange rate effect. With regard to SFS, you’re rightly stating that we are growing there and the intent and the planned policy we have in place will remain the same. We intend to grow the SFS business along with the Siemens business and financing is playing increasingly important role in project business as you may imagine. I know it's counter-intuitive in a low interest environment. But therefore, we will very much focus on supporting our sales activities and project business with the strength of the balance sheet of SFS, still doing prudent things only and dealing at arm’s length if need be to support business there from a financial perspective. Then with regards to giving more light to the backlog of PG, PG is standing at September 30, 44 billion, which is about 40% of our total backlog and it was about at 42 billion one year prior year end in end of fiscal ‘15. So as a rule of thumb, you may also anticipate that about 50% of new orders and this is not referring to a particular quarter, but as a rule of thumb is kind of service driven business in our new orders for PG in total and when it comes to revenue recognition, that portion is a bit smaller. So as a rule of thumb, again it used to be around between 40% and 45% in the past, but service will play an increasing role in terms of materiality for sales going forward, means there will be more resilience and also kind of visibility for us in that field. So it will remain a strong pillar of the business of PG going forward.

[Gael de Bray:]

Okay. Thanks very much. Can I have a follow up actually? You said earlier that you expected 7 out of the 9 divisions to see margins improving in 2017. So which are the two where margins are expected to grow up?

[Ralf Thomas:]

I mean that was referring to margin only. I mean all of them have an ambitious plan also in increasing nominally the earnings, but depending also on growth and also on timing with regard to project business, you may not see an increase of the margin quarter - over prior year’s quarter. That was my point. The ambition is to grow all of them in terms of profitability and margin wise, there may be incremental moves only for some of them, but that, as I said, relates to growth momentum in that. So all of them are planned to improve earnings year-over-year.

[Operator:]

We will take our next question from Andre Kukhnin of Credit Suisse. Please go ahead. Your line is open.

[Andre Kukhnin:]

Yeah. Hello. Thanks very much for taking my questions. My first one is on power and gas please. Could you walk us through what you're seeing in the pipeline of large projects there and whether there is anything that is kind of reasonable to expect on the 6, 12 months from South Africa, Argentina, Iran, places like that and what would be your market share aspirations on that, similar to what you've been doing already or would you consider to give some of that up to improve pricing? And secondly related to power and gas, we see electricity prices up sharply in Europe, 20%, 30%. Is this actually starting to help your service business over there that it's driven by nuclear issues and also with the coal to gas switch economics appearing quite favorable?

[Joe Kaeser:]

Yeah. Thank you. Let me maybe try that what I will consider to be a difficult question. I mean the large projects are very transparent because all the big players are going after them. And so very clear and there is opportunities everywhere in the world. About the Middle East, it's about Latin America. It is about the United States of America and China. Anywhere, Indonesia, the good thing is any society anywhere in the world needs electricity. And there are still a lot of people out there who don't. So that's why it is essentially not a bad business to be and the question is, which source is going to produce which electricity renewable or gas or steam or nuclear. So that's why I think it’s - there are a lot of opportunities out there and there will always be the same competitors, fighting for winning the project, which is natural. So if I give you now the expected market share we intend to achieve, I’m afraid [indiscernible] to my competitors. You will end in a market higher than 100%. So that's why maybe this is not a good idea. Let me maybe if I - why should we give up projects to increase the price. I'm not sure whether this is a good way to do it. So, what we need to do in essence the market price is what the market price is. So we need to make sure that the projects are being profitable by us, leading the innovation and cost competitiveness and that's what exactly we are focusing on. And also this is also important to take good care of our customers. Because sometimes I hear, when I talk to important customers on big projects, they say, hey, I really would like to work with you because if I have a problem, you send me your engineers and some other send me their lawyers. So it is about inclusiveness of customer care. So there's more to it than just products and stuff. And that's exactly what we're trying to do. I’ve made that very clear in our Vision 2020. When we said, we need our customers, we need our people and you need technology, but exactly in that order. And that's what is paying off really, as we have been saying selling our regions, made sure that people are - our customers are not just fly in to try to capture something and then fly out again to the next project. That's not us. This is not Siemens. And that has obviously borne some fruit, because if I look at our net promoter score, it almost couples since 2014. So we need to obviously be doing something right. Is it always sufficient, no, it isn’t, because I said earlier, we’re up against specially the best companies in the world. So we are mindful, we’re respectful, we do our thing. And so far, it's actually paid pretty well. This is the more managerial notional way of explaining businesses but that’s sometimes, it happens. On electricity pricing. Through - we obviously - you see that, I mentioned earlier in one of the questions that service in Europe, which has been a concern about how much service we actually need if the turbine comes around. That has been, it’s in the bottom, we do see some activity about increase and improvement of efficiency. But yet you know the tour is still out on how much that would move the needle going forward. Europe is not exactly the most dynamic region at this time where business happens in the gas turbine and turbine environment, but it's more about the Middle East. It's more about Asia, especially China, Indonesia and the like, talk about and also of course Latin America and the United States themselves, they have about 100 gigawatt of coal fired power plants, still somewhat operating or standby. If you only take that out of the way to help the planet to be a bit more sustainable would be a massive infrastructural activity, which the new President could actually do for his country to make it even greater and also more sustainable.

[Sabine Reichel:]

Okay, operator. We’ll take the last question now.

[Operator:]

Thank you. We will take our last question from Alasdair Leslie of Societe Generale. Please go ahead. Your line is open.

[Alasdair Leslie:]

Yeah. Thanks for taking my question. Couple of questions on Healthineers please. So we've seen a lot M&A activity in the molecular diagnostic space with [indiscernible] as well. You’ve obviously got a stated objective to expand in this area from, what I understand is a small presence today. So I guess part of the decision today is presumably borne out of a sense of urgency to respond. But just in terms of pushing ahead with strategic ambitions here, do you still have time to execute on a roll up M&A strategy here or should we anticipate larger acquisitions to play catch up?

[Joe Kaeser:]

Look, this is a - as I said, probably what the lawyers would say a leading question because we - really when we laid out our Vision 2020, also looking at where the healthcare business ought to be by 2020 and then the following decade, we did not think about any competitor buying anything for 1 billion. This was about what we believe is right for a business and keep our leading position there. So and when I talked about, what was it, molecular diagnostic earlier, that was one of many areas. Think about if you want to try to understand and anticipate what Siemens is up to, building a fascinating healthcare out of a great healthcare business, you need to think about the inclusiveness of relevance in the healthcare segment and the relevance in the hospital. That's how you need to think about it. So whatever helps to be inclusive of products and services and building platforms, you're on the right path, okay. This acquisition from, I think what you mentioned [indiscernible] isn't really contributing an inch to our decision to let the stakeholders know what’s coming next in that space.

[Alasdair Leslie:]

Thanks. And maybe just a follow up, we did a bit of work early on this year on Healthineers as we came away via the synergies between imaging and diagnostics, where that’s not as high as we imagined. Is that your view today and is that maybe just offset by your comments just now on sort of increasing relevance and leading scale. Thanks.

[Joe Kaeser:]

Yeah. I mean we just introduced our all new platform in lab diagnostics which has been by the way received really, really well by our customers. And so what happens typically in that space is you introduce a new platform and everyone is excited and they want to have it, which is good for the long-term, but in the short term, it's nothing, but selling a lot of equipment for very little consumables. So why would we not really be excited about what the installed base of the new platforms will bring us in the future. So that's why we are pretty excited about the mid and long term impact of our new platform and the consumables come on, which obviously have this razor blade type of effect on the business. So we feel good about healthcare actually, almost really excited, because they've been doing well. Already, we focus the business, we did the carve-out, we are ready to go, we have a good management team, which made a really, I would say, already fascinating performance in 2016. We like what we see, what they plan for ‘17. And now, we just take it to the next step and we inform the stakeholders on a very timely basis, because you want to make sure that our employees keep their eye on focusing on the business and on the customer and not on corporate rumors, and make sure that our customers are clear about how massively we support them going forward and even strengthen to help them to be successful. And we want to make sure that the capital markets understand that we do what we say. And stringently, diligently, mindfully and also execute in a humble way and that's exactly what we want to do and will be more on healthcare and then we have to tell more we will also in a timely manner.

[Sabine Reichel:]

Thank you. Now, we’re finished, operator?

[Operator:]

Thank you. Ladies and gentlemen, that will conclude today's question-and-answer session. I would now like to turn the meeting back to Sabin Reichel.

[Sabine Reichel:]

Thanks a lot everyone for participating today. The next event will be our Innovation and Digitalization Day on the 7th of December in Munich. We have already sent out the save the dates and we are looking forward to seeing you there. As always, the team and also I will be available for questions later on today. Thank you. Bye.

[Operator:]

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. Once again, let me repeat the instant replay numbers. Participants in Germany, please call the replay number [phone]; access code, 3098137#. Participants in Europe, please call the replay number [phone]; access code, 3098137#. And participants from the United States, please call the replay number [phone]; access code, 3098137#. This replay service will be available until tomorrow night. A recording of this conference call will be available on the Investor Relations section of the Siemens website. The website address is www.siemens.com/investorrelations.