Siemens AG apparently expects to further increase the dividend for the fiscal year ending on September 30th and to continue its share buyback program. "The ability of Siemens to create value and convert successful business performance into future investments, dividends, and share buybacks is not influenced by the results of Siemens Energy", emphasizes CFO Ralf Thomas in a conversation with Börsen-Zeitung. The Munich-based company seems prepared for higher payouts, even though the operational losses of its subsidiary, Siemens Energy, may impact the financials, possibly to the tune of a billion-dollar amount.

Thomas expects that the free cashflow for the fiscal year 2023 will reach an excellent level, possibly exceeding the high level of the past few years. Siemens reached free cashflows of 8.2 billion euros in each of the last two years, and in the first nine months of the fiscal year 2023, it generated 5.4 billion euros. In the last quarter of the previous fiscal year, 3.5 billion euros flowed into the cash reserves through the free cashflow.

Siemens paid a dividend of 4.25 euros per share in the previous fiscal year, distributing 3.4 billion euros to shareholders in total. The dividend yield was 2.8%, based on the stock price on the day of the 2023 annual general meeting. The progressive dividend policy generally ensures that dividends remain at least the same each year and are usually increased.

The company recently intensified its ongoing share buyback program due to a declining share price. In August alone, Siemens acquired 860,000 shares at an average price of 140 euros per share. The buyback program, which began in November 2021, aims for a repurchase volume of 3 billion euros. By mid-September, 2.4 billion euros had already been spent.

CFO Thomas expresses satisfaction with Siemens' performance in the ending fourth quarter, stating: "I am convinced that we will successfully close this fiscal year. We are on the path we set for ourselves." This remains unchanged despite the fact that the business in China did not revive in the second half of the year. Thomas emphasizes Siemens' swift and consistent adjustments to these changes in the fourth quarter. He is confident that the year's results will not only meet expectations but will be retrospectively considered a success. Siemens projects a per-share profit before effects from the purchase price allocation (EPS pre PPA) for the fiscal year 2023 in the range of 9.60 to 9.90 euros, excluding thr Siemens Energy stake.

Thomas acknowledges the investors' disappointment with the third-quarter business performance - on the day of the earnings release in August, the stock declined by 4.8% to 139.46 euros. The stock's valuation has not recovered since then, and on Friday the stock closed at 133,24 euros. Investors reacted in August to the absence of a broad economic recovery in China following the end of pandemic restrictions. For example, the revenue of Digital Industries in the country remained stagnant at the previous year's level.

"The Q3 setback in orders and revenue will not have a lasting impact", believes the CFO. He attributes his optimism to the fact that the strategy of transforming into a technology company is fully intact. In his words Siemens is experiencing unprecedented growth, gaining market share, improving margins, and consistently demonstrates strong cash flow performance.

Thomas also highlights that the company is achieving successes in the fourth quarter with its digital offerings for customers. "The software business, which had high expectations for the fourth quarter, is performing excellently." In the third quarter, the Digital Industries division only increased software revenue by 1%.

The CFO is also pleased with the transition of essential parts of the division to a subscription-based model (Software-as-a-Service): "We are very successful in the SaaS transition." Digital Industries was able to manage the transition effectively without impacting margins, thanks to an outstanding automation business. According to Thiomas, this sets the company apart from competitors who have also shifted to a Software-as-a-Service model.

In addition, the CFO is highly satisfied with the performance of Siemens Financial Services in the ongoing fiscal year. "As experts in industrial markets, we have much lower default rates than the average lenders", he remarks. He would be more than surprised if this were different in the fourth quarter and considers Siemens Real Estate a gem. The digitization efforts within Siemens Treasury have also been consistently advanced in 2023: "I am genuinely proud that we are embracing digitalization internally as we do in our product offerings to our customers."

Thomas expresses his concern in clear terms regarding the situation at Siemens Energy: "The situation is unsatisfactory for all parties involved." The management team is working diligently to improve transparency and address the complex situation. "We are just as curious as the capital market is about the new insights that will be gained," adds Thomas, who is also a member of Siemens Energy's supervisory board. Because the future development is challenging to predict, Siemens AG has excluded the results of Siemens Energy from its forecasts.

Siemens' 25.1% stake in Siemens Energy negatively impacted Siemens' results by 647 million euros in the third quarter. The company could only record a positive profit contribution of 902 million euros from the investment after nine months, partly due to a positive revaluation of the stake. Siemens Energy's management has forecasted further losses for the fourth quarter.

The goal of gradually reducing Siemens' stake in Siemens Energy remains unchanged, notes Thomas: "We will increasingly step back from the role of a major shareholder." He adds that it would have been preferable if this had occurred under better circumstances. However, it was made clear from the beginning that the objective was not to optimize profit potential but to successfully position Siemens Energy with customers and in the capital market.

After the end of the current fiscal year, Siemens will, as previously announced, further outline its plans for reducing its stake. The book value of the 25.1% stake, with 6.8% already transferred to the Siemens Pension Fund in the third quarter, was 2.0 billion euros at the end of June. This is approximately 10 euros per share. On friday shares of Siemens Energy trades at 12.34 Euros per share. That values Siemens' stake at around 2.5 billion euros.

Overall, Thomas is content with the restructuring of the Siemens Group. "We have consistently advanced our portfolio strategy," he says, referring to the portfolio companies - those companies that Siemens aligns with the best-owner principle. The global carve-out of Innomotics will be largely completed by October 1, 2023, and is on schedule. The portfolio company Siemens Airport Logistics, which provides innovative and high-performance solutions for airport logistics, has literally gained momentum: "We view this with approval and optimism for the future," states Thomas. He reiterated his announcement that with his departure from the Siemens Finance Department in 2026, all questions regarding the portfolio companies will be answered.

At the same time, Thomas makes it clear that Siemens is not currently considering relinquishing its majority stake in Siemens Healthineers (75%). He emphasizes that the healthcare sector is an incredible growth market. The CFO is confident that the acquired radiation therapy specialist Varian, for which Siemens Healthineers spent $16 billion, will continue to thrive.

He mentions that Siemens' competitors are also discussing capitalizing on growth opportunities in the healthcare industry. Nevertheless, Thomas points out that Siemens is much better positioned than any other companies. Therefore, he believes it would be a mistake not to explore this opportunity: "I am convinced that we can make a difference beyond just medical technology provision." Hence, Siemens remains an excellent owner of these assets.

Thomas identifies potential synergies, particularly in collaboration with the Digital Industries automation segment. The question of process improvement in hospitals follows a similar logic to that in an industrial setting: "Why shouldn't healthcare utilize the technologies established elsewhere?", Thomas asks. Siemens already has these technologies in its portfolio, allowing it to uniquely combine the real and digital worlds. The company's building technology expertise can contribute to hospital construction and modernization, especially in terms of energy efficiency. Additionally, the financing of new equipment is increasingly important for hospital administrations, and Siemens Financial Services can provide that kind of service: "This is a highly relevant combination in customer interactions. Why should we give it up?"