Siemens Aktiengesellschaft
Q2 2015 Earnings Call Transcript

Published: 7 May 2015

[Executives:]

Mariel von Schumann - Josef Kaeser - Chairman of Managing Board, Chief Executive Officer and President Ralf P. Thomas - Chief Financial Officer, Executive Vice-President and Member of the Managing Board

[Analysts:]

Peter Reilly - Jefferies LLC, Research Division Fredric Stahl - UBS Investment Bank, Research Division Martin Wilkie - Deutsche Bank AG, Research Division Olivier Esnou - Exane BNP Paribas, Research Division Andreas P. Willi - JP Morgan Chase & Co, Research Division Ben Uglow - Morgan Stanley, Research Division William Mackie - Kepler Cheuvreux, Research Division Wasi Rizvi - RBC Capital Markets, LLC, Research Division Timm Schulze-Melander - JP Morgan Chase & Co, Research Division

[Mariel von Schumann:]

Good morning, ladies and gentlemen, and welcome to our semiannual conference in London. This conference is being webcast and simultaneously translated into German. Siemens President and CEO, Joe Kaeser; and Siemens Chief Financial Officer, Ralf Thomas, will present to you our Q2 numbers. In addition, both Joe and Ralf will give an update on the execution of Vision 2020 and our assumption for the outlook for the remainder of fiscal year 2015. After the presentation, we will have time for Q&A. Right after the analyst conference, a press call in German will take place for further Q&A with journalists, and that will happen at 9

[Josef Kaeser:]

Thank you, Mariel. Good morning, everyone, and welcome to our first half conference here in London. As you all know, we are in the middle of our long-term Vision 2020 execution. We've been diligently executing on our mid-term plan, and we are 6 months down the road after implementing the reorganization as of October 1, 2014. We set our strategic direction, strengthened our core, and in 2015 now, we are in the middle of our operational consolidation. If you look at where we are from what we said we would do, I think it's fair to say that we executed timely on what we said that we are going to tackle and going to achieve. We've been executing on our portfolio focus, with the exception of Dresser-Rand, which we expect to close in summer 2015, as originally announced in -- by the time of the transaction. We've -- obviously, also have defined our structural optimization, which is widely known as our 1 by '16 [ph] program, where we are going to save EUR 1 billion for the most part by the end of 2016, and Ralf will elaborate on that later on when he come to the topic. There's obviously more which we need to do. We also have significantly, significantly reduced the amount of charges in the first 2 quarters, with EUR 52 million in the first one and now EUR 23 million net in second quarter 2015. And we are going to execute more diligently and reliably on our projects to come. If we have a look what happened with our fiscal Q2 2015 and the key development. As you know, if we look at the whole spectrum, and what we have been guiding during our investors' conference in mid-March here in London, we think that we have been executing as expected. We do have a complex economic and, of course, also currency environment. That's not only true for Siemens. That's true for the companies in this space. We obviously did have a significant translational tailwind in the fiscal Q2 in orders, which is about 900 basis points; and revenues, which is in the neighborhood of about 800 basis points. We do see, of course, the impact on oil. We do see the impact from secondary effects. We did discuss the matter on our wind business. And it's also said that the mix in our Digital Factory would be unfavorable in fiscal Q2. If we look at the Industrial Business margin of 9%, obviously, that's a bit lighter, as it should be. On the other hand, you also need to take into account that we have a somewhat inflated denominator due to transact -- translation effects, which are supposed to be easing out in the second half of the fiscal year. Our net income of EUR 3.9 billion and a basic EPS of EUR 4.70 a share is obviously driven by disposals gains. And we always made clear that we would basically finance the restructuring and the transformation of this company by the gains of what we can expect and, obviously, now have come in, in our fiscal Q2. The free cash flow was obviously somewhat weak in fiscal Q2, one reason being that we deliberately, deliberately increased our working capital, especially due to the fact that there is a lot of fast-track projects in power generation out there, where we want to secure our delivery capabilities. We've also got some material treasury effects, where we have a figure of about EUR 800 million year-over-year, which also is being -- affecting the free cash flow in fiscal Q2. Also, as planned and as promised, we did an in-depth strategic assessment of our underperforming business, and I come to that later during my presentation. If you look at the top line, we believe we're pretty much in the ballpark of what this industry is able to deliver at this time, given the global macroeconomic and specific circumstances. If you look at the orders, we saw some significant growth in Mobility, where we did win a very prestigious order. We also believe that what we see in Power and Gas has been a significant recovery in both in volume but also in terms of market share, especially in large gas turbines, seem to make way, statistics coming out, I think, as recently as yesterday, and it confirms our view that Siemens is reasonably successful in a -- what I would call a difficult and highly competitive market. We've also seen some Healthcare development, if you like. The market is not exactly easy, so we view the volume recovery in Europe as a positive. China obviously, with coming back to the so-called new normal, is a difficult market. We've seen Healthcare growing double digit. That's definitely something which we like. On the other hand, obviously, if we look at the large order volume in the region, we see that there's a lot of tough comps year-over-year, which need to be taken into consideration if you talk about comparison year-over-year. Now obviously, has been going to the media, Siemens has been very successful on a couple of megadeals. Obviously, the Mobility order which we have booked in fiscal Q2. There is orders to come in from Egypt. We have a reliable agreement on building 3 huge power plants in Beni Suef, Burullus and New Capital for about 13.2 gigawatts with a fast-track project. It's about H-frame combined cycle gas turbines. We also have a firm agreement of -- for 2 gigawatts of onshore wind, which is also going to build -- be built in Egypt around the Suez area. So why have we been successful? Obviously, first of all, we've been able to really tailor our offering to customers' needs. We've been able to consult and help them to optimize the full range of the value chain from generation, transmission and distribution, so we can generate a unique value to our customers if it comes to optimizing electrification in a country and in a society. Now obviously, the volume of those orders will depend on whether or not we are going to do the full EPC contracting or whether we'll have to split between products and EPC, but that's something which is yet to be fully finalized. So we expect orders to come in for the total projects, including wind, in the neighborhood between EUR 5 billion or EUR 10 billion. And if we really look at the global environment, we believe that there are more opportunities out there like the ones in Egypt. If we now go through the divisions altogether. Obviously, Power and Gas is an -- it's a complicated environment. We've won 12 large gas turbines, especially in the Middle East. We've also seen some growth coming out of the Rolls-Royce acquisition, which we have not been including in our numbers. We do have 180 basis points effect from restructuring in the division, which is an ongoing task to right size the business. And you've also heard this morning that there is a further restructuring going on also in PG to make the business not only successful in the market but also competitive if it comes to orders in the midterm. It's important. We've seen quite a comeback yet in the market, but obviously, the cost effective is crucially important. If we go towards the Wind and Renewables business, obviously, it's clearly disappointing. We believe that we have fully understood what needs to be done. We also see that the actions are well underway; may still take some time until we can fully improve the efficiency of the supply chain in the division. We are well underway, well underway in the innovation pipeline, but obviously, we need a significant improvement of the operational reliability going forward. On Energy Management, we clearly do see a significant progress in turnaround. Margins have been up quite a lot. We do see the swing from a minus 7.6% in fiscal Q2 2014 up to now 3.3%, 3.4% in the division and counting. So we are right on the way as to what we said we would do, and we continue the restructuring and the turnaround in the Energy Management division. Building Technologies is quite a reliable and solid business. There've been some headwinds here on the currency because, obviously, the Swiss franc has its own particularities. So we would expect 100 to 110 basis points of adverse impact to the margin out of the FX issues. With about 110 basis points in fiscal Q2, we obviously did initiate actions to compensate for that headwind, but still, it takes some time until this flows fully through the P&L. Now obviously, on Digital Factory and Process Industries and Drives, that's been basically 2 world. They still do some meaningful growth opportunities in Digital Factories. We've also seen it. We've also seen it, especially in the solution business, which is quite a -- an important business to us because the more we can help our customers to install and implement solutions, the better we understand the real customers' needs. The downside, obviously, has been that those solutions orders and executed are materially dilutive in margins. We flagged that earlier. We said we would go more into solution business temporarily. For the remainder of the fiscal year, we expect a return to margins which have been common in that division. We have a different picture, obviously, in the Process Industries and Drives. This is a division where we -- which has been falling victim for the most part on the oil and gas topic, especially the oil price, obviously, but also on the geopolitical issues. There've been a huge backdrop in Russia on both LNG, Oil & Gas and also what I call the secondary effects of a weak oil if it comes to the income statements of those countries. So we do expect continued weakness on the top line, although we expect the margin impact, going forward, will be more favorable, as what we have seen in our fiscal Q2. Mobility, very stringent execution, very reliable. I think this 8% to 9% profitability is somewhat, I would call, a new normal in the space. There is a significant trend to consolidation. We are well positioned in the market because we own most of the vertical value chain, from building the cars all the way down to automation, and which is very important, cost of its stickiness and its profitability. That's the Service, and that's especially also the Rail Automation business. So we like what we see here, and we believe that we can continue to perform in that neighborhood of 8% to 9%. It's a good business, it's capital efficient, and it's reliable in the meantime. If we go to Healthcare, obviously, we -- from what we believe we have seen is we outperformed the market in both in the top line as well as in bottom line, although DX [ph], which is the diagnostics business, still can do better over time. And with that, I would turn it over to Ralf and come back later on the wrap-up and the summary. Ralf, please.

[Ralf P. Thomas:]

Thank you, Joe, and welcome, and good morning, everyone here in the room and the webcast. Let me walk you through the below Industrial Business line items first, where we saw material movements during the second quarter, and also give you some guidance going forward. SFS delivered an extraordinary strong profit of EUR 195 million, also benefiting from gains through selling equity stakes in renewable energy projects. During the second half of fiscal '15, the SFS performance is expected to normalize on prior year's level. Centrally managed portfolio activities recorded a gain of EUR 1.4 billion on the disposal of Siemens' stake in BSH. As indicated, we saw a negative impact of around EUR 200 million due to the funding related to our share in Unify. For the second half of fiscal '15, we are cautious on CMPA since we expect some negative impacts related to the remaining businesses, like Unify, Postal & Baggage Handling, Metals and solar. Please note that CMPA includes, as of Q2, also the solar business, which was transferred from the Wind Power and Renewable division. Furthermore, the stabilizing effect of equity income from BSH at CMPA is no -- CMPA is no longer there, and we expect to see some transaction-related costs to hit the P&L here in the second half of the year. SRE is, as usual, depending on disposal gains. But as already guided in November, we see them overall lower than in fiscal '14. As planned, we will see for corporate items a seasonal component with higher cost in the second half year. As in previous quarters, this item depends on certain extent on the changes in the fair value of warrants relating to the 2 tranches of U.S. bonds -- U.S. dollar bonds issued in 2012. In addition, we expect up to EUR 200 million of severance charges to materialize in the corporate items area in the second half of the fiscal year. Pension has and will continue to develop like planned, with a quarterly run rate of around EUR 125 million. Depending on the timing of closing the Dresser-Rand acquisition, we assume that PPA will increase by a mid- to a high double-digit million amount of euros per quarter going forward, depending on foreign exchange rate. Our assumption remains unchanged that the closing will take place this summer. The tax rate of 22% has been temporarily lower in the second quarter due to the tax effects on the BSH transaction gain. Net income all-in benefited from major gains of around EUR 1.8 billion of successfully completing the sale of the hearing aid and hospital information system businesses within discontinued operations. For the second half year, the impact from DO will be rather limited. Having said that, I would like to focus on the clearly weaker free cash flow development year-over-year in the second quarter with a minus EUR 241 million. There are 2 major reasons for this development. First, Power and Gas as well as Wind Power significantly increased their net operating working capital. Power and Gas mainly lifted its inventories for an intentional increase in stock units for fast-track projects, as Joe has been indicating before. Wind Power faced a weak quarter regarding large milestone payments. Secondly, there was also a significant negative impact in Corporate Treasury mainly related to settlements from hedging instruments, as Joe said. For the second half of fiscal '15, we expect a material improvement from the Industrial Business with regard to cash flow. With regard to liquidity, we continue to have a very sound position of EUR 9.9 billion, fueled by the inflows from our recent divestments. As Joe already mentioned, the broad-based euro depreciation had a clear positive impact by adding 8% in growth to fiscal Q2 revenues. Due to our consistent hedging strategy, we haven't seen any tailwind on the bottom line so far. The FX effect on margins was even slightly negative with 10 basis points in the second quarter. If FX rates stay on current levels in the second half of the fiscal year, we will see a continued high single-digit increase in revenue and profit margin windfall of around 90 basis points since more favorable hedging impacts will take effect. Just to give you a flavor on the size of the pure translation effects, currently, a move of USD 0.10 in either direction influences our profit with around EUR 150 million. The development of the Swiss France -- franc continues weighing on the BT margin. As Joe has been explaining, measures have been immediately taken to start compensating those effects and will material -- start materializing later this fiscal year. Our longer-term strategy remains unchanged. We further drive a natural hedging approach by balancing our footprint and supply chain across the regions. However, on current exchange rate levels, we may see some tailwind from the weaker euro since we are still a net exporter from the Eurozone. Let me give you a brief update on our backlog and project execution. As I explained in detail at the Capital Market Days in December, we started to strictly apply the principles of our corporate memory concept already early in the bid phase. By doing so, we identified risks before we submit binding offers and can launch mitigation measures even prior to booking if we take on challenging projects for good reasons. With this, the transparency about the risk profile in our backlog is continuously improving. To make this more tangible for you, currently, we have 14 major projects in our pipeline, but technical risk assessments were conducted by very experienced experts, so-called silverbacks, of which we have identified around 60 globally in our company. During the first half year, we executed our projects in a solid way without major hits on the bottom line. In addition, we made significant progress in delivering on our legacy projects. Between January and April, for example, we handed over 3 out of 4 North Sea offshore grid connection projects to our customer TenneT for commercial operation. And the fourth project, HelWin2, is on schedule to be put into operation in the coming weeks. The percentage of completion in this project is above 80% -- 85% now. Let me touch a topic now where it seems there was quite a debate in the recent months, the impact of onetime effects on our fiscal year 2015 guidance of at least 15% euro EPS growth. This slide is giving you an overview on the different factors to be considered. Now that we have a clearer perspective after fiscal Q2, the impact from onetime gains, in total, amounts to EUR 3.2 billion post-tax. We have said that these gains will be used to finance onetime restructuring efforts and portfolio measures supporting operational consolidation in fiscal 2015. The impact of restructuring measures in fiscal 2015 could reach up to EUR 1 billion. We have penciled in here around EUR 750 million, but the amount can be substantially different, depending on the timing and finalization of agreements with the workers' representatives. The remainder will spill over into fiscal 2016. In addition, we have specified some other adverse impacts, such as Unify. Finally, you obviously have to deduct the missing income from the divested businesses of BSH and audiology. Finally, we want to give you a brief update on the status of our functional cost-reduction program and the step-up in operational measures to address structural challenges in some of our businesses. We are on track to deliver on our target of EUR 1 billion savings by reducing organizational complexity and making our support functions more effective. We expect to achieve between EUR 150 million and EUR 200 million savings in fiscal '15, mainly from IT and other support function measures. For example, we drive IT cost down by implementing cloud solution, new storage concepts and bundling of applications. The principal agreement with the workers' representatives has been achieved now in this area, and we will execute on the personnel-related measures in the coming months. As announced before, the lion's share of the EUR 1 billion savings will be achieved in fiscal '16. From today's point of view, the impact of measures delivering savings in fiscal '17 will be between EUR 100 million and EUR 300 million. With that, I would like to hand back to Joe to give you some more insight in how we address underperforming businesses.

[Josef Kaeser:]

Thank you, Ralf. Ladies and gentlemen, when we announced our Vision 2020, we said this is, first and foremost, an entrepreneurial concept about growth, innovation and productivity and creating value in the mid and long term for the company. In order to do that, we said we would significantly, significantly streamline the operations, bring the company closer to the market and closer to the business. With that, we've been eliminating a series of layers, including the consolidation of divisions and business units. We put that in place until October 1, 2014. Since then, which is about 7 months now into the year, we operate under the new structure. In those 7 months, we've been defining the EUR 1 billion -- actually, excess of EUR 1 billion of potential to save from overhead and administration cost. Those actions are in place and now due out to execute, as Ralf has been mentioning. We also said we would basically streamline our portfolio, focus on where we are good at and where we can provide value to the business. In the mainstream, that portfolio focus has been basically achieved. Third topic was that we said we would have a series of underperforming businesses not making a decent profit, and that's what we also looked into on what to do with those businesses. It did not start in fiscal Q2. We've been starting already earlier, and we also did an assessment after those so-called 100 days of the new management team in place and did an assessment of those businesses. If you look at that chart now, which is in front of you, you obviously see those EUR 14 billion, which, at the time, we called the bottom 10, which represented about 18% of the total spectrum. When you look at them and also the remaining spectrum in the company, we pretty much saw there's got to be more included than the original EUR 14 billion, so we have been extending the spectrum up to EUR 21 billion business in scope. Since then, which is obviously the baseline of 2013, fiscal 2013, since then, we've done quite an amount already of changes and fixes. We've been disposing of the water business as well as Healthcare IT. And if talk Healthcare IT, that's the work that's the horizontal systems integration part of the IT, not the vertical software, which we believe is important to the business. Found them a better owner. We partnered with MHI on the Metals business to form a global joint venture in this space. And we also did some turnaround work on our own. We've been fixing the low voltage business in the meantime, which is about EUR 2 billion. And in the meantime, now it's about double-digit profit. And obviously, double digit starts at 10%. It's a lucrative business. It's a strong business. And margins in the sector or, actually, the profit pool is even more attractive than the 10%. We're making good progress on the Postal & Baggage Handling business, which used to be called LAS, seen already some sort of turnaround, the direction has been changing, and we've been winning more or less in the marketplace. So that leaves us with about EUR 15 billion worth of businesses, which we have been looking into. And we did that with a strategic assessment on how we allocate resources, invest and, obviously, also restructure the business. Those EUR 15 billion of businesses, which we call the so-called remaining underperformers, is what we are going to fix over time. We discussed matters like compressors. We obviously have our challenges -- our economic challenges in Transmission. That is also a matter which we have addressed, such as Mechanical Drives. There is a series of actions which we have been discussing and agreeing upon with the management teams of those businesses when we discussed the business plan. And now we've got a clear view on how to fix those businesses. The fix will -- among other things, will include a footprint optimization, which predominantly also relates to businesses like the transformer business within Transmission. It also includes reverse integration, for example, in the compressor field, where, after the close of Dresser-Rand, we will find the Siemens compressor business a new home within the old -- then old Dresser-Rand organization. It's about EUR 1 billion worth of business. There's hardly any money on the bottom line, where we have very successful businesses in the new Dresser-Rand organization, which is double-digit profitability in the same parts, the same business, the same customers. And obviously, also Mechanical Drives obviously needs some broader view on how to be able to help that business be successful. So it will include, as I said, among other things, footprint optimization, reverse integration but also, of course, partnering. And it will also require a tight managing belt control because, obviously, some got to be different in the future as it relates to the past. There will be a clear -- very clear milestone accountability. We'll discuss those businesses based on milestones over time in the board on a quarterly or if it takes a monthly review. And by doing that and executing on this one, we make that business profitable from about 1 -- around about 1% of breakeven relations in 2015. And you can see that the margin was even negative in '14, with minus 3%. If we make that business profitable to at least 6% in 2017; and then up to 2020, between 8% and 10% going forward. So by doing that, we create about EUR 1 billion incremental profit for that business and about EUR 400 million to EUR 500 million incremental EVA. Obviously, we also do keep all our options open on the way to achieving those goals. That's how we do it, that's how we execute, and that's how we are going to narrow the scope on those businesses which need to be fixed from an economic perspective. Now obviously, let me close and wrap it up with the outlook for fiscal 2015. Now obviously, we do have a lot of weakening indicators. And I've heard, of course, also the questions from the market, what will that do to the guidance? We do have oil price-related matters, which, obviously, we all know about. We do have secondary effects from this oil price development if it comes to income-related issue of those economies. We do have our opportunities and challenges on the FX opportunities on currencies like the renminbi, U.S. dollars and the British pound; but also challenges if it comes to, for example, Swiss franc. And we could obviously see some softness in the second half in China and maybe even in the U.S. On the other hand, of course, we do have initiated a significant flurry of cost-savings actions, which, obviously, will be coming over the year. Also we've seen the 1 by '16 [ph], so we still do believe we'll make and stick to what we promised to the market. If it comes to revenues on an organic base, definitely, book-to-bill of above 1 will be reasonably simple. A flattish revenue still and remains to be in striking distance. Obviously, the gains from our disposals will help us to achieve the EPS guidance. We've always made it clear that the transformation of the business will be in part financed by those disposals, which helps the companies both by financing it, on the one hand side, as far as transformation is concerned; but also, obviously, focus the portfolio on where we are good at and where we would want to remain in the business. As far as Industrial Business is concerned, we do expect the profit margin to be between 10% and 11%. Obviously, it has become clear that this is more about the lower end of the level than the midpoint. Needless to say, that remains in place that the outlook excludes impact from legal and regulatory matters. With that, thank you very much for your attention, and I hand it back to Mariel. Thank you.

[Mariel von Schumann:]

Thank you, Joe. Thank you, Ralf. We can start with the Q&A, and I have only one -- no, more, but we'll start with Peter in the second row, please.

[Peter Reilly - Jefferies LLC, Research Division:]

It's Peter Reilly from Jefferies. Two questions, please. In your statement, you talked about massive price erosion in the power generation, but you've had actually quite good order intake in Power and Gas. You got some large orders you haven't booked yet in Egypt. In the old days, Siemens is happy to take orders at low margins when demand was weak. So can you talk about what's happening with the current level of orders you're booking, what the margin and the backlog looks like, what sort of assumptions you're making about cost reductions to give us some confidence about pricing in the backlog? And then secondly, what are you seeing in Germany amongst your traditional export customers on the back of the weak year? Are you starting to see any signs of improving in quiet levels as some of your customers use a weak euro to be more aggressive in overseas markets? Or is that at all probably more of a story for 2016?

[Josef Kaeser:]

Yes, thank you, Peter. Obviously, it is a -- quite a competitive market if it comes to the Power and Gas market, and that relates, first and foremost, to the large -- to the LGT business, large gas turbine business. We've seen some price reduction in the market, first and foremost, due to an extremely aggressive behavior to get a pie, which, obviously, has become a bit smaller than it used to be. So this is all about cost reduction, right? With our PG 2020 program, which Lisa has just been implementing, we expect cost to go down double digit over time. And that, obviously, is a major cornerstone to recovery to industry-like margins. As far as the Egyptian transaction is concerned, it's been a decent economic slate, and we really like what we see if it comes to not just the volume but also to the quality of the business. Germany -- I mean, obviously, if a country benefits from a weaker currency, it is -- in Europe, it's Germany because of its strength in both industrial equation as well as export power. Now obviously, if it comes -- if you look at the industry, it's been dominated by the car industry. And there have been some signs lately that some major areas of sale has become a bit softer, for example, like China. But still driven by innovation, power and strength, those areas are still very, very attractive and powerful, so we would expect that one to continue for the time being. We actually thought that the cycle -- the peak cycle on automotive would be slower about 6 months ago. But now with the actions of ECB, obviously, that has gotten a second boost on the matter. If it comes to more the OEM powered, like tool making and the likes, just talked to a few people recently, they are very confident about the global export, such as China and the United States, still being strong. There is still a lot of concern on the sentiment if it comes to Europe due to the geopolitical impact of crisis in the East and in the South.

[Mariel von Schumann:]

Thank you. We'll continue with Fredric in the third row, please.

[Fredric Stahl - UBS Investment Bank, Research Division:]

It's Fredric here from UBS. Can I maybe start with a question on the quarter just on Process Industries? Is it mix that explains the weak margins here? Because it doesn't look like the revenue drop could explain that kind of a drop in profitability year-over-year. And then the second question going to the underperforming businesses, do you have an estimate what the cost will be to get margins back up to 6%?

[Josef Kaeser:]

All right. PD, obviously, as I said, it's been fall victim for the most part on those 3 areas, secondary effects as well as the topic for -- of oil. So if I look at the weakness today, what we have there, also in -- also always in terms of economic equation, it's not about technology and customer responsiveness. I would say about 60% is market, or you could call it also mix, in a way; and about 40% is some sort of homemade opportunity to make good on going forward. So if you ask me about the second half, I'm not speculating on any oil prices and what have you. There's been a lot of speculation on this one already. I believe, from a structural point of view, there should be some ease on the second half of the fiscal if it comes to the homemade topic, that we could have a pretty -- have a very good -- pretty good grip on. But obviously, the CapEx-related topic in the market remains a concern, so we'll likely have seen the bottom in that business by end of 2015. That's what we are currently planning. And as far as the underperforming businesses and fixing them is concerned, we just have announced another restructuring of about 4,500 headcount going forward. On a global base, they're off about 2,200. And I would say just about half of it is -- or maybe even 2/3 is related to fixing the underperforming businesses. And about 1/3 relates mostly to getting the cost competitive and cost effectiveness back on the rightsizing of Power and Gas.

[Mariel von Schumann:]

Thank you. And we'll continue in the second row with Martin, and then we move over to Olivier.

[Martin Wilkie - Deutsche Bank AG, Research Division:]

It's Martin Wilkie from Deutsche Bank. You've gone through some of the portfolio change you've made already, but of course, the other big area that we've talked about was the carve-out of Healthcare as a company within a company. Just if you could talk about what your latest thoughts are on that. Is it any way that you still think needs to have access to capital markets perhaps to make acquisitions to grow that business? Just really where we are on that Healthcare view.

[Josef Kaeser:]

Yes, thank you, Martin. Look, Healthcare has also been part of the long-term concept of the company, and we've -- we are in the middle and continue to prepare the Healthcare unit to be a powerful business within the company, and there's nothing really new as to what we have been saying. If you look at the value chain of electrification, automation, digitalization, it's a very clear view on how tight generation, transmission, distribution and what have you are in the value chain, and that is the Healthcare business. There's nothing wrong with having a successful Healthcare business. But if there was any change in paradigms, this company would be the first one to be prepared to act on any given change. That's the lessons for it. So we like the business. It's strong. I like the business because it's highly innovative on our part. It has been -- it's a very competitive business. It retains a lot of free cash flow because of the payback of the acquisitions in the past. But then again, as we -- if we saw some paradigm shifts, the company would be able to execute on any given point in time what it takes to continue to have a successful business. And that's as much as we should say, I'm going to say, on this one, except that we like the comeback in the market in China, in the global market, as well as the come back on the margins.

[Mariel von Schumann:]

Okay. And we'll continue with Olivier, please.

[Olivier Esnou - Exane BNP Paribas, Research Division:]

Olivier Esnou, Exane. I would like, first, to have your thoughts on the free cash flow generation for the year. Why do you think we could expect given the negative trends you described in working capital turns? And also, maybe if you could comment a little bit on the pension. The liability is increasing quite fast. And do you have opportunities to derisk that part of the equation?

[Ralf P. Thomas:]

First of all, let me answer your question around free cash flow in the second half of the year. As I said before, we have been intentionally building up inventories in some of our project businesses to be able to deliver also at short notice if opportunities arise. So therefore, you may expect that, that trend will not continue on same level. And as I said, there will be an improvement in the second half of the year when it comes to free cash flow from Industrial Business. That will be mainly driven by the project businesses, as I said. And we also expect that the billings in excess and advance payment have an opportunity to improve with regard to their turns in the second half of the year. So from that point of view, looking forward, the second half of the year will definitely be in better shape than the first when it comes to the churn rates here. Talking about pensions, I mean, you are aware of the fact that again, the discount rates have been mainly driving the EUR 11 billion of underfunding at which we stand at the moment. And of course, we are looking into each and every opportunity for derisking that in all angles, if I may say so, asset and liability side.

[Mariel von Schumann:]

Let me turn over to [indiscernible]. So we'll start with Andreas Willi and then move over to James.

[Andreas P. Willi - JP Morgan Chase & Co, Research Division:]

Andreas from JPMorgan. The first question, on the restructuring and the guidance for this year, just to clarify, you said it's kind of, base case, EUR 750 million, EUR 200 million of which will be booked within corporate and the rest, I assume, in the industrial operations. Does this include already anything for the 4,500 people? Or are they all coming next year in terms of the restructuring? A second question on Mobility. It's the -- it's not the only division that has quite regularly beaten consensus expectations over the last couple of quarters. In the past, obviously, you made some comments around Rolling Stock, whether that's core. Has that changed now, that view, on Rolling Stock given the overall Mobility division doing much better? And how is Rolling Stock doing without within that? And given the fast consolidation in the industry, what's Siemens' position there?

[Josef Kaeser:]

Let me start with Mobility before -- then I hand it over to Ralf on the restructuring. Let me -- look, Mobility has been, first and foremost, about execution because the execution has become much better under the new leadership of Jochen Eickholt and his team. When we did the new structure and strategic direction for the company, we put everything together and understand Mobility not as only a few trains moving around people or goods. We understand Mobility to be a very important megatrend in terms of managing urban or suburban issues, and those issues are counting as we speak. Siemens, contrary to most others in the space, has a highly vertically integrated value chain. So not only that we build cars from both steel and aluminum for everything from high-speed all the way down to metals or substation or subways, we also do have automation. We have drives. We've got [indiscernible], and we, first and foremost, have the software-related rail automation. That helps us a lot to optimize that value chain rather than buying and selling and incorporating this all kind of complexity. And you've seen it in the marketplace. And more and more, our customers rely on that integrated concept. In that end, we made it always clear that only those that are strategic which make money and understand the business well if it comes to execution. Now we've seen a consolidation in the market, obviously, with the Chinese move. You've seen also some other areas between Japan and Italy, and we look at that. But while others are busy now in trying to find out what the future is, we execute on our projects. And if you look at the projects which we win at really decent margins, I think we are pretty well intact going forward. And everything else, we'll take from there. Consensus -- talking about consensus, I mean, ladies and gentlemen, I had a reason why I was mentioning wind, PD and Digital Factory in March that there would be developments there, which -- you saw it, the market couldn't yet see. Now obviously, was the margin light on DF? Absolutely. Was it fully unexpected? Absolutely not. Are we concerned about PD falling victim of all those geopolitical and structural topics around oil and gas? Absolutely. But we've seen that, and we need to go -- get the cost down. Wind, clearly, is a disappointment. But again, you know what we do. To fix the operational challenges and the pipeline, the innovation pipeline, especially on low wind onshore we see as very important. Going forward, this looks pretty good. So there is work to do before [indiscernible] clear to get everyone back online or get them online, but then again, the concepts are clear and we inform the markets diligently about the developments, which we see. Now Ralf, the restructuring?

[Ralf P. Thomas:]

With regard to restructuring, Andreas, I said that it can be up to EUR 1 billion of charges. And we have been picking the midpoint of our expectations, so to speak, with EUR 750 million. And that includes -- that EUR 750 million includes EUR 200 million in corporate items. Now as you know, there is more than corporate items below Industrial Business. There will be also an effect on these entities, like CMPA and so on, but the biggest part, of course, will materialize in Industrial Businesses. However, let me say that it's not about getting the bookings done. It's about really pushing these measures ahead because we know exactly what we need to achieve, and we would love to see the negotiations with the workers' representatives proceeding quickly, making sure that the measures can kick in quickly.

[Andreas P. Willi - JP Morgan Chase & Co, Research Division:]

But does it include anything for the additional 4,500?

[Ralf P. Thomas:]

Yes, that includes that part of our negotiations that are just, as we speak, starting.

[Andreas P. Willi - JP Morgan Chase & Co, Research Division:]

Okay. And on -- is Rolling Stock part of the underperforming EUR 15 billion of revenues still or not?

[Ralf P. Thomas:]

In that part?

[Josef Kaeser:]

No, it's not -- I mean, at the rate of 8%.

[Andreas P. Willi - JP Morgan Chase & Co, Research Division:]

Rolling Stock within Mobility, which was...

[Josef Kaeser:]

Yes. We've come to the conclusion that our customers want systems. They have a problem that they need to move people and goods in a reliable way. They have the issue that this is costly, unreliable and in parts [ph] even just scattered around air and car and street and rail and commuting and sea. And they want solutions to help to get the cost down, the revenues up and the reliability, effectiveness up in terms of freight of how many people can be moved from place A to place B. In Baltimore, where we see that this integration impacts make the difference in getting orders for those type of management. If you look at this and take it one step further, this is not only about building the cars and the rail automation. It is also about service, and that's very, very new. For example, if you look at this latest order of the Rhine-Ruhr Express, RRX, this is -- well, first -- this is the first time actually, in a meaningful way, in a material way that Siemens not only builds the cars and, thus, the management on how they work, but also that's the service. It's a whole new business model, which we are able to achieve now. And obviously, Service, if it comes to spare parts to maintaining traffic in a proactive way, not repairing it with -- repairing it when it won't work anymore, opens a whole new profit pool on that industry.

[Mariel von Schumann:]

Then Andreas, if you want to move on to the mic to James first and then to Ben.

[Unknown Analyst:]

Can you talk a bit about pricing on a global level and what you're seeing and how does that compare to your expectations? On Healthcare, can you also talk a bit about the competitive situation there? It appears that GE is also trying to grow market share in that segment as they are in gas, turbines. And then finally, the EUR 15 billion of underperformance, can you give a bit more color what is in there apart from the 3 that you mentioned?

[Josef Kaeser:]

Yes. Thanks, James. On the global level pricing, it's pretty much of in the ballpark of what we have been guiding the markets to in November, no really significant topics. If you go like-for-like, not taking into account the currency options, which probably give a -- some leeway there eventually, we do see fierce competition on the whole large gas environment. Definitely, pricing have come down significant in parts even materially. So it's all about getting the cost out of the system and it's exactly what we do. Now obviously, the other topic is about innovation, and the reason that we have hardly any price erosion, even maybe in parts even a positive development in Digital Factory, is that they are just pretty good. So it is also about competitive and innovation power in the market. Rail is also all right. In Healthcare, interestingly enough, we see some ease on pricing in China. That may also have to do with the fact that some local aspirations have come to more realistic territory on what is possible and not. And even there, people understand there's money to make at some point. So that's actually a positive like-for-like; everything else, as I said, pretty much on what we have been guiding the market towards what we expect. On Healthcare, I mean, as I already said, China, again, return to double-digit growth. It's been a concern for a few quarters on the traditional health care diagnostics. It has always been double digit in China and continues to grow. Now obviously, every company and every competitive environment needs to make its own consideration on how to be successful in the market. We're going after innovation. We are going after a much higher, much more advanced sort of platforms on diagnostics over time, where we integrate more procedures to help the customers be more effective and productive. So it's all about innovation there and taking cost out where they don't need to create value over time. And also, making Healthcare a company in the company helps them to get more focused on their markets, which are obviously different as to what we see in the rest of the value chain of electrification, automation and the digital services, which also, by the way, have a lot of commonality in Healthcare if it comes to database and analytics or the cloud strategies. On the EUR 15 billion of underperforming businesses, look, ladies and gentlemen, that's the reason why we focus on what we want to achieve. We do have mentioned a few examples on what exactly we do, like on compressors, on mechanical drives or the area of transmission, in particular, the transformers. But obviously, everything else, we are going to work on and fix and show you the results because there's also a lot of other constituencies around who, obviously, rather see the results than having a lot of public debate about what exactly we do. So take us up on what we promise in terms of results, and we fix the things one after another. And once we are done, we will also announce it to the market.

[Mariel von Schumann:]

Okay. So I think, Ben, you had a question. And then we'll move over to the center of the room.

[Ben Uglow - Morgan Stanley, Research Division:]

Ben Uglow from Morgan Stanley. So inevitably, my first question is about the dreaded Power and Gas topic. Joe, could you say a little bit about the underlying margin trend at the moment in Power and Gas? The press release cites sort of project execution. Are there specific project items or the specific project gains and how those are going to be sustainable going forward? So that was question number one. Related topic is just Power Service. I know that you've made some comments and that you actually see Power Service, if anything, stabilizing a bit. And I wondered if you could elaborate on that. Third question, and I believe it's not too many. Dresser-Rand, are we expecting to consolidate Dresser-Rand? Not so the closing of the deal, but are we expecting to consolidate that acquisition in the current fiscal year? And final question is around the partnering, the EUR 15 billion of underperforming businesses. I just want to understand what you're saying here. Are you expecting -- or would you like, in principle, to partner in businesses like transformers, for example? And I think you've got the same question previously. High-speed rail is one that we have talked about a lot in the past based on your comments on Mobility. Are you ruling out a partnership there?

[Josef Kaeser:]

Thanks, Ben. All-important question over to Power and Gas. I mean, we've come a long way from almost 18%, 20% environment. We've always said, at the time, that it would not be sustainable. And at the time, we were kind of guiding 300, 400 basis points to be over performance, which made it 16%. Then we guided the market in May last year that a -- for the time being, in March, we called it would be between 11% and 15%. And we have the reason to do so because we kind of have been talking to our customers, did see competitive behavior, consolidations and the likes. Now obviously, if you analyze the topic, we continue to push innovation because that's the differentiating factor at the time. We do see trends from highly centralized, mono-sourcing of power generation to more decentralized power generation from wind, from solar and so on, so forth. So the focus shifts more from big, high-end type of machines to a more mid-level-sized flexibility also for the backup of the volatility challenges on renewables. We've seen that one and once [indiscernible] outcome that there'll be closing gaps especially in that area. It was the acquisition of aero-derivatives for specific markets as well as the Dresser-Rand, which was all the way down to engines. So that's the one thing. The other topic, obviously, is that if you look at market expectations years ago, obviously, the framework has just been built too big. So we need to do rightsizing, and that's exactly what Lisa now does with her management team. And rightsizing goes not only by reducing capacities and taking cost out where we can. Rightsizing is also about innovating to a more competitive and sustainable cost structures of the way we built the machines. And there will be more to come on this one. So we also do invest in innovation, not just cut cost or resources. And thirdly -- and that's one of the single most important and pressing topics, which we, obviously, are addressing, too. That's the reallocation of resources to where demand happens, and that's been, obviously, the single biggest item and the most urgent topic to do because in Germany and also Europe, out of different reasons, the markets are just -- you know what the markets are, and they're not going to come back. So there is no temporary weakness in those regions. It's structural in nature, and if something is structural in nature, you're always very clear that you will act on this one. And that's exactly what we do. So kind of long story short, the -- for the time being, the 11% to 15% is the range we feel comfortable with by taking out cost, by investing into innovation, if it comes to efficiency and by optimizing the footprint. There's a comprehensive program on this PG 2020, very comprehensive I have to say. It's quite a remarkable progress, which we have already seen in -- for German, European views, pretty fast even given the limitations which exist in parts. And that's exactly where it will continue. And obviously, Service in Germany and in Europe is not exactly growing. So that's also one of the areas why the margin is not 16% anymore but between 11% and 15%. On the Dresser-Rand, the plan is, as originally announced, that we closed in summer. So that would actually call for a 1 quarter's consolidation into the numbers. So we expect the current assumption, this fiscal Q4, will be part of the consolidation already. And there is no reason to believe that it should be any different. On the EUR 15 billion underperforming businesses, I mean, we understand the interest on the content and exactly on how and what to do. But please understand that we focus on now executing the topic. There are several thoughts I explicitly said and meant that they keep all options open if it comes to resource allocation. But what really matters is the difference between minus 3% in '14 and at least 6% in '17. That's what the focus is all about. The way, how we do it and what exactly that means over time is subject to reporting every quarter and, if need be, even during the quarter.

[Ben Uglow - Morgan Stanley, Research Division:]

Just one follow-up. So from that, I'm assuming that the -- in the fiscal second quarter, there wasn't a significant benefit from any project-related items. There was -- this is a normalized margin?

[Josef Kaeser:]

There've been a few favorable project execution matters in there, but it's not really relevant that it would change the big picture. Let me go -- maybe give you some more flavor here if I go look at my small booklet. Let me see where we are here. Honestly, not really much, okay. So if you go underlying, what we've shown was a 12.9% margin reported. If you look at underlying, we're pretty much the same ballpark. Now obviously, going forward, this PG 2020 program also has its effort to put into, so it wouldn't rule out that maybe in fiscal Q3 already. There will be some restructuring or special effects coming from that, but that's a good sign. So underlying, I would expect the ballpark to be kind of similar as to the lower end of the corridor.

[Mariel von Schumann:]

Very good. Then we'll continue here in the middle with Will and then Timm over there, second to the left.

[William Mackie - Kepler Cheuvreux, Research Division:]

Will Mackie, Kepler Cheuvreux. I had 3 questions. If I can come back to the underperformance, first of all, could you throw a little more granularity on the process that you'll undertake to undergo the turnaround perhaps with regard to management incentive structures and accountability for that process at the lower levels? And also, are you able to at least give an indication of whether any of the divisions have a particularly heavy skew in terms of content of the EUR 15 billion we referred to? And when I look at the margin goal for the EUR 15 billion into '17, it looks like the step-up occurs into the next fiscal year. Is that also a year when we may expect additional charges and provisions to ensure you lock in these gains you're looking for? The second question relates to the discussion of cost out versus pricing. I've heard you, a number of times, highlight that the competitive pricing environment needs to be addressed with cost out. When we look at the savings program, should we look at that as a net-net 0? Or should we, from the top down, think of that as a drop-through of some of those gains which you're chasing? And lastly, on the wind division, you described there some way to go with regard to the margin turnaround and securing the value chain. Could you highlight where you think that will develop in the next 1 to 2 quarters?

[Josef Kaeser:]

Sure. On the EUR 15 billion, the nature of fixes are obviously tailored to the respective businesses. For example, as I mentioned, compressors, it's about EUR 1 billion business in Siemens. It doesn't make any money. So if you look at the spectrum of the products, if you look at the spectrum of what we see from, example, Dresser-Rand, there's a lot of commonality to the products as well as to, obviously, the market. So if we only apply the methodology and the way that's been doing its business, there is a significant potential to increase that profitability rather quickly. Others, for example, in the transformer matter, it depends on utility travels versus distribution travels. So that's, first and foremost, a matter of footprint, reallocation and consolidation. As we all know, there is quite an amount of overcapacity in the market. Metals or mechanical drives, this is an area which is, first and foremost, related to metals and mining commodities type of things. There is a temporary weakness there. There's also a structural weakness because obviously, metals mining is not so common in the western part of Europe as compared to other parts of the world, which is also about footprint. So there are many different actions. So they are very much tailored to the nature of the business and what we expect this business to develop. So how do we -- what do we do differently? As I said, first of all, we are not excluding any sort of actions, the full range. Secondly, we have a very clear business plan. Remember the new organization, and it is important to really point that out time and again because people sometime start the count May 7, exactly a year ago when we announced what this company ought to be all about until 2020. We did start this new company, October 1, 2014, the new structure, new organization, new leadership in some areas, accountability story. We gave the new management teams in those areas where we said it's not going to be any good in terms of economic outcome. [indiscernible] we gave 300 days, right. And then in February, we started the discussion of all those business one after another, business by business by business. We'd looked into the management team. Are those the right people to tackle the job? What does it take to get it done? What exactly is the nature of the issue? How do we fix it from footprint, from integrational matters, from restructuring through even innovation by investing into R&D or into -- even into geographical optimization to bring the business closer to the customers or consolidate manufacturing or the way we go to market? So it's a whole bunch of different things. We have a business plan. We have accountable people. We have a business plan. We have milestones. So we're not waiting until '17 and see where we are. We have very clear milestones. We discuss those businesses based on those milestone achievements then they are due out in the managing board. And they have a very tight control on the progress. And as I said, we keep all actions open and all options open to make sure that the 6% in '17 are being met. That's the process. It's about incentives. It's about incentives in a way but, first and foremost, about getting the job done. So it's accountability in the first place and get the actions out. On PG, on cost out versus pricing in Power and Gas, there's clearly -- the program, 2020 -- PG 2020, is clearly designed to have a net drop-through in profitability. So what I see today in that area is that, for example, we get the cost down on large gas turbines and associated matters, double digit, okay, double-digit cost, double-digit percentage cost down. So this is not just about taking care of pricing. This is about a net drop-through and return to profitability which we have seen as a normal in the past, not over-performance but as a normal in the past. Wind -- as I said, the growth in wind has given us some particular challenges, which we still need to optimize in the supply chain. We expect to have seen the -- operationally, for the operational business, we expect to have seen the bottom in fiscal Q2. So expect the second half to be recovering based on operational performance. We would not rule out that there are a few corrections to be made, but in terms of operating performance, we expect fiscal -- the second half of fiscal 2015 to be in better shape than what we've seen in the first half.

[Mariel von Schumann:]

Very good. Maybe you can hand over just behind you. We'll take Wasi and then we'll go to Timm.

[Wasi Rizvi - RBC Capital Markets, LLC, Research Division:]

It's Wasi Rizvi from RBC. Just a couple of questions from me. I was interested in your comments on the inventory in Power and Gas. Now you mentioned there was -- you saw some opportunities in fast-tracking projects. Is that, that you are seeing some pockets of activity in Power and Gas? Or is it more that inventory is a differentiator and a way you're winning the few projects that are out there? And then just secondly, you quite helpfully ran through the price dynamics in some detail. On the cost side, aside from the things that you're doing and your programs that you can manage in terms of things that are, perhaps, a bit more outside your control, like commodity prices and maybe labor agreements, how are those playing out versus what you need to get to your targets?

[Josef Kaeser:]

Yes. To start maybe with your second question first, there is no plan on -- that we need some help for commodity pricing or labor. So the labor cost are pretty clear on what they will be in the second half of fiscal because the negotiations have been done for the most part. So that's pretty clear. Commodity pricing, I mean, usually, also, if there was a commodity price on things we need, they would be hedged as we do hedge the selling part of the business. So don't -- we do not speculate on any tailwinds or headwinds on that area. So that's pretty much clear. On the inventories in PG, well, first of all, it's important to note the major impact on our free cash flow in fiscal Q2 has been the closing of positions in treasury. That's, first and foremost, the issue -- I wouldn't even call it an issue, the topic of interest rate hedging. We closed the positions because we believe, going forward, there are better ways or more appropriate ways to do it given what we expect and that the swing for that one is about -- for the second quarter alone, about EUR 830 million, okay. Year-to-date, we have about EUR 1.2 billion swing on the treasury area. So that is not going to recover if you go year-over-year, like-for-like. So if you go last year's free cash flow, you should kind of reserve about EUR 1 billion, which we don't see this year like-for-like due to the technicality of closing positions there. And as we all know, hedging is something which materializes over time. So there's always a flip side as to the benefits or the cost on the one side. So therefore, this is important to know. Now on the inventories, first and foremost, on PG, the reason being that more and more, we do see that economies, governments, public areas struggle to see that demand happening ahead of time. Think about the drought issues in Brazil, which has been relying heavily on water, hydro power generation. Well, now obviously, there is no water. There is no water. There is no power. People say, "Can you help us?" So yes, but it takes a while because our suppliers need to be notified first. And we've seen that in many areas. And one of the reasons why we have been able to kind of get this successful development in Egypt was that we are ready to go where we were needed. And there is more of those areas. And I would not be too surprised if you see more of those pockets coming in the next quarters in terms of bidding and channel and funnel.

[Mariel von Schumann:]

Very good. So we just have one person left. Timm, you will close the Q&A.

[Josef Kaeser:]

There's one more.

[Mariel von Schumann:]

Oh, sorry, a second one, sorry.

[Timm Schulze-Melander - JP Morgan Chase & Co, Research Division:]

Thank goodness. It's Timm Schulze-Melander of JPMorgan. Two quick questions. Could you just -- picking up on that inventory build in PG, can you just maybe give us some quantum in terms of euro size, how much of that inventory build is for forthcoming projects that you expect to win? And the second one, again, just very high level on these underperforming businesses. Clearly, you've communicated a very sincere determination to fix it. You gave us example of the compressors, and I was just curious how much of the 900 basis point step-up in profitability is cost. And how much -- just if you were to put it into very big blocks, how much of that step-up in margin is fixing the cost? And how much of it is fixing other things, footprint, value selling, just in very big picture?

[Josef Kaeser:]

Let me maybe go to the second first, and then Ralf is going to go after the working capital. As I said, fixing those 15 -- remaining EUR 15 billion, and please also take in consideration what we've done so far. Those EUR 6 billion turned out to be quite clear and decisive for [indiscernible]. I mean, talking about the future is always more challenging than just referring to what has been achieved already. So we are serious about it. We mean it, and I believe we ought to build a track record that we get done what we said, especially if it comes to this part of the restructuring. Now going forward -- now obviously, we did announce this morning that there will be another 4,500 jobs globally. There are 2,200 in Germany related to fixing the underperforming businesses as well as power generation. If you look at the relation between global and Germany, you can very already clearly remember that the footprint on revenues is about 10% versus 90%, Germany versus world. Or the headcount, totally, is about 1/3 versus 2/3. If you look at that relation, you can clearly see that we have a very, very high focus on bringing the resources where the markets are. That also -- that means basically footprint optimization. When I discussed the new company, the transformation a year ago, I said we are going to bring our business closer to our customers and bring ourselves closer to our business. Bringing ourselves closer to our business means that we -- that the proof point is charges. The better you -- the closer you are with the business, the less charges you have. And now you charge us on the last 2 quarters. And I would only expect that to materially change going forward on actual business. There might be some legacy things, which we all know about, talk about Olkiluoto, talk about this and that. And they're all known and documented and on the records. But as far as new business is concerned, we expect that to continue in that program. So there is a proof point in terms of closeness to business, proximity as to charges. The other proof point, of course, is closer to the markets means that people need to be close to customers, and that is footprint reallocation. And that's exactly what we do in the structure of this job reduction, bring people closer to the market. So it's footprint. But it's also just rightsizing the business. Think about, for example, transformers. There's been huge overcapacities in both utility related, high voltage as well as distribution transformers, and we'll go fix that one, too. So it really depends on the nature of the business, what exactly needs to be done. There's quite a bunch of actions which are being applied to. We wanted to be very precise about what to expect in terms of results. It's minus 3% to at least plus 6%. It's very clear. On the way to get there, we will be reporting on the progress on those EUR 15 billion every quarter, okay. But then, please, bear with us that the content and the nature of which business exactly are being looked at and what the options are, that's something we'd rather prefer to discuss once we are done with it than making a lot of noise about things which still need to be achieved. With that one, I would hand it over to Ralf on the working capital side.

[Ralf P. Thomas:]

So with regard to the buildup of inventories in the second quarter on the PG end that was in the low- to mid- 3-digit million amount, but you should also consider for your models that there is billings in excess applicable pretty much the same amount of money.

[Mariel von Schumann:]

Well then. I think we have Andre [ph], the last question.

[Unknown Analyst:]

It's Andre [ph] from Credit Suisse. Just one question, R&D ramp-up in gas turbines that you mentioned you are going to spend EUR 100 million more there. Could you give us some color on what you're going to do there and on the phasing of that spend? And then maybe some related to that, in gas turbines, you -- as you mentioned, your market share was boosted to, I think, 35% in Q1 according to McCoy [ph]. Do you think you can hold on to this type of market share gains this year looking at the pipeline of the projects that you see for the rest of the year? And just on the working capital ramp-up -- sorry to labor with a fifth question, but what did you actually increase? What kind of working capital was it? Was it finished goods? Or bottom [ph] materials, i.e., did actually have any margin impact or not in the quarter?

[Josef Kaeser:]

Yes. Last one first, I mean, obviously, the working capital has been increased to that. It's -- where we -- where no particular order is attached to it, has been increased to a level where we still keep the flexibility to build it either way. So we would not jump into something which may not materialize in customer orders later and gets scrapped along the way. So that's, obviously, not what we are after. On market share, look, I mean, there are 2 more to be asked as the customer and the competitor. We definitely would have a preference to at least keep where we are at, but we are not going to do that at any cost and at any price. So we still strike the balance to optimize the course of business. Just important, I think, to mention that if -- there's always opportunity in the market, and nothing is for granted either way. And that's what we realize. On the R&D ramp-up, this is more a -- a more midterm-related concept. And obviously, we'd rather, as I said, prefer to talk about it once we are done. But just to give you a little flavor on what direction that could go, many years ago, in the car industry, every car which was designed was kind of built from scratch. Every little part, every little thing was new. Today's carmakers, at least the successful ones, they rely on sort of platform concepts, multi-usage of components and the likes. This is -- I think, if someone wants to make a little difference in an industry, not just always chased price relationship [ph] and some competitive behaviors or market pressure, in general, and someone needs to come up with something new. I mean really new. And that's what we are up to. Everything else, we'll take from there.

[Unknown Analyst:]

And just on the phasing of that EUR 100 million ramp-up through the years?

[Josef Kaeser:]

Should be about EUR 60 million in the first place because also, we need to have the resources in place. And they are scarce goods these days, especially the good ones. And you build it up one after the another, one thing at a time.

[Mariel von Schumann:]

Very good. Thank you very much for attending this analyst conference. Management will be on the road in the next couple of weeks. We'll be in the U.S. in New York. We'll be in Canada, in Paris, in London again, and also in Berlin. So if you want to meet management, please get in contact with the IR team. And with that, we will close the analyst conference. Thank you very much, and goodbye.

[Josef Kaeser:]

Thank you.