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Executives

Stephan Heimbach - Head of Communication

Josef Kaeser - Chairman of Managing Board, Chief Executive Officer, President and Member of Equity & Employee Stock Committee

Mariel Von Drathen - Non Executive Director and Member of Remuneration Committee

Ralf P. Thomas - Chief Financial Officer, Executive Vice-President, Member of The Managing Board and Member of Equity & Employee Stock Committee

Analysts

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

Ben Uglow - Morgan Stanley, Research Division

Mark Troman - BofA Merrill Lynch, Research Division

Martin Wilkie - Deutsche Bank AG, Research Division

Simon Toennessen - Crédit Suisse AG, Research Division

Olivier Esnou - Exane BNP Paribas, Research Division

James Moore - Redburn Partners LLP, Research Division

Gael de-Bray - Societe Generale Cross Asset Research

Siemens Aktiengesellschaft (OTCPK:SIEGY) Q3 2014 Earnings Call July 31, 2014 3:00 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to Siemens Q3 Earnings Conference Call. As a reminder, this conference is being recorded. Today's hosts are Mariel von Drathen, Head of Governance and Markets; and Stephan Heimbach, Head of Communications and Government Affairs. At this time, I would like to immediately turn the call over to Mr. Stephan Heimbach. Please go ahead, Mr. Heimbach.

Stephan Heimbach

Good morning, ladies and gentlemen, and thank you for your -- for joining us for the combined press and analyst conference call on the third quarter results of fiscal year 2014. I would like to welcome you also on behalf of Mariel von Drathen, Head of Governance and Markets.

The earnings release, the flashlight and all other documents were published at 7 a.m. this morning. You can download these files from the present IR website. This morning's presentation is now online, and this call is also being webcast via our website.

Allow me a short overview of today's proceedings. Our President and CEO, Joe Kaeser, will briefly review the Q3 results before he, together with our Chief Financial Officer, Ralf Thomas, will answer your questions. We will start with the analyst Q&A in English hosted by Mariel, followed by a press Q&A in the German language. A corresponding simultaneous translation is provided throughout the call.

I would like to draw your attention to the Safe Harbor statement on Page 2 of the Siemens presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.

And with that, I would like to hand over to Joe now.

Josef Kaeser

Thank you very much, Stephan. Good morning, ladies and gentlemen. Welcome to our third quarter conference call, and thank you for joining us to discuss the quarterly results. I will give you a brief overview of the key developments, and then we will focus on your questions.

Back in May, we announced our Siemens Vision 2020 concept, setting the long-term direction and the priorities for the company. And we are well on our way. For now, we are focused on getting the organization ready for the new setups as of October 1. Secondly, we are taking comprehensive measures to simplify processes and structure space on the new setup as of October 1. A specially dedicated Vision 2020 team is driving the implementation of the various topics together with our businesses and functions. And we will provide the next more in-depth update on these topics during our Siemens Capital Market Day in Berlin on December 9.

As for the third quarter, we delivered a good performance with progress in most areas. Continued challenges in the Energy business held back an even stronger profit improvement for Siemens as a whole. As for the full fiscal year 2014, we are on track to deliver our outlook.

The macroeconomic picture continues to show ahead of genius regional development. We've seen some acceleration of production activity in the U.S. but continued slow growth in Europe. Germany's car industry still drives the economy in Germany but seems to have reached or passed its peak in terms of growth dynamics. China is a robust factor in the emerging BRIC markets, while geopolitical tensions, such as in the Ukraine and Middle East, posed a serious risk for Europe's growth in the second half of calendar year 2014 and likely into 2015. In this environment, the order intake remained on the same level year-over-year on a like-for-like basis.

Across the sectors, we saw significant shifts. Large orders in the Energy Sector, such as the EUR 1.6 billion Gemini offshore wind farm project in the Netherlands compensated for sharply lower rolling stock orders, such as the EUR 3 billion MC [ph] contract, which we booked about a year ago.

Emerging markets were the key growth driver. Organic order growth were -- was up actually 16% and accounted for 35% of the total order volume. Emerging countries, excluding the BRICs, delivered an impressive 27% of order growth, and this shows that emerging economies is much more than the BRICs. Overall top line growth was again significantly affected by the global strength of the euro. The headwind which we've seen out of that currency exposure amounted to more than 400 basis points in revenues.

As for our Total Sector profit margin, the currency impact is negative at around 40 basis points, affecting Healthcare and Industry the most. These effects are expected to continue on a lesser extent also into the fourth quarter. Revenue, on a comparable level, increased modestly by 1%, mostly driven by the Transportation & Logistics business. Total Sector profit improved by 37% over the prior year, which, obviously, was heavily burdened by more than EUR 400 million in the Siemens 2014 transformation charges. Sector profit was driven by higher contribution from our short-cycle businesses in the Industry Sector, as well as from solid project and productivity execution in the Infrastructure & Cities Sector. On the other hand, the Energy Sector is facing operational challenges that held back further profitability improvement and will require some time to get fully fixed.

Below the sector line profit of about EUR 100 million benefited strongly for some one-off positive effects in the corporate items. The main factor was income resulting from changes in the fair value of warrants issued in connection with the USD 3 billion bond offering in fiscal 2012. This item remains to be volatile in its nature going forward. And the effect which we have seen in the -- in fiscal Q3 was around EUR 100 million, net of taxes, which was just about accumulated negative effect which we have had in the first half.

In the fourth quarter, we expect a similar pattern for the below sector result as in previous years, and therefore, we do reiterate our guidance for corporate items and pensions in the range of nearly EUR 1 billion for total fiscal 2014. Our key metrics, which we also base the focus of our guidance on, which is basic earnings per share, improved to EUR 1.62, and that's up to EUR 4.65 for the first 10 months. That's about 20% up over the prior year.

Free cash flow from continued operations is up 13% over the prior year, but we do see potential for improvement in our working capital management although reduced prepayments continue to negatively affect our free cash flow also going forward.

Now let's take a look at some key developments in each of the sectors. First, the Energy Sector. Let's start with the bright spot at the beginning. Orders were up sharply with growth in all businesses and geographies, however on, obviously, relatively easy comps in the quarter last year.

In Power Generation, we were able to catch up successfully and sold 16 advanced gas turbines in a very competitive market, market connections with turnkey contracts. The global advanced gas turbine market, in our view, is likely to be smaller in '14 as compared to '13.

On Power Transmission, we've booked the fifth offshore grid connection platform, which we call BorWin3, however, this time on a strongly improved, I repeat, strongly improved first management concept.

Looking ahead, we expect the market environment to remain highly competitive for our Energy Sector in mostly all business areas.

On the profitability side, the Energy sector's overall performance year-over-year was rather disappointing except, obviously, that the Power Generation business, which achieved a strong 15.5% profit margin, benefiting from excellent results in the product business and some onetime gains, such as the sale of an engineering business. Wind Power reached only a 2.7% margin, obviously, well below its earnings potential, for several reasons. While the revenue mix was that favorable with the lower share of the high-margin offshore business, also new product launches and a steep capacity ramp-up in production led to higher costs associated to the production ramp-up.

Power Transmission continues to deal with a broad-based challenge arising from legacy issues, such as the wind access, good access in the North Sea, but also some other legacy projects which we reported on in Canada and the likes, and had a loss of EUR 188 million in the third quarter. As I said previously, there is no quick fix on this matter. The division's new leadership team is working hard on the remedy since the Transmission business is a key element of the value chain of electrification. And there's also operational progress. Meanwhile, we installed 4 offshore grid platforms in the North Sea. The average completion rate is about 80%, and commissioning will take place over the remainder of 2014 and into the first half of calendar year 2015.

The Energy Sector in its current setup, and you know we are going to change the set up as of October 1, has several legacy matters, such as Olkiluoto, the North Sea projects and others, which do pose further financial risk potential going forward.

Let's now move on to Healthcare, which delivered a very solid quarter despite continued negative currency effects, which weighed down the profit margins by around 110 basis points, and I repeat, 110 basis points. Organic order growth of 2% was supported by a major service order from the particle therapy installation in Shanghai and a overall better development in Europe. The Diagnostics business delivered a good performance. Management continues to focus on its core in-vitro business by selling microbiology business for a very satisfactory price. This move is in line with our Siemens Vision 2020 priorities, which call for focusing on our businesses in the core areas. We do expect the transaction to close in approximately 6 months.

Next, I do want to highlight the key developments in the Industry Sector. The overall market environment for our Industry businesses showed moderate growth, which we expect to continue for the next months to come. And you may remember that Siemens has been overly cautious about the 2014 outlook contrary to some others, which obviously now have to update their outlook. Automotive and infrastructure-related industries like transportation are still the main drivers, whereas the picture in machine building is regionally mixed. Geographically, we saw significant order growth in China, with 14% like-for-like based on a strong Automation business and some large order in Drives. Profitability in Industrial Automation improved substantially to a, first of all, more favorable business mix with higher-margin products and sustainable -- that means also lasting in the future -- sustainable lower amortization effects from the UGS acquisition. Profit margins in Drive Technologies returned close to double-digit through an improved cost position, which resulted from successful productivity measures and increased demand for our Motion Control products in the quarter. As for the third quarter, nearly all metals, except for a few projects which we keep fronting, are going to be classified as discontinued operations. And we expect the closing of the transition [ph] transaction with Mitsubishi-Hitachi Metals Machinery in the first quarter of fiscal 2015.

Finally, and last but not least, and I have to say it's been a remarkable development which we have seen in the Infrastructure & Cities Sector. The sector continued its path to deliver consistent profit improvement by stringent project execution and continued productivity efforts. In Transportation & Logistics, large rolling orders -- large rolling stock orders in Europe and orders for components in China are now being converted into revenues, pushing growth rates up to 17%. Power Grid Solutions & Products improved its margins by 160 basis points, and that was mainly driven by higher profits in the Low and Medium Voltage division where we continued to see good progress on our way to industry standard margins. Growth in China continued, and both product and systems businesses showed further healthy margin improvement, mostly on the back of a very successful go-to-market into construction industry. Finally, Building Technologies again delivered good results by continuing its productivity improvement efforts and optimizing its go-to-market approach.

There's much to our fiscal Q3 financial key data. As promised earlier, we will give you periodic updates on the performance of important acquisitions. Today, want to focus on Invensys and on Rail Automation and the LMS on the PLM area. The Transportation & Logistics financials obviously indicate already that the Invensys rail business is contributing solid results on both top and bottom lines. We're very pleased about the progress underway. We have created a world leader in Rail Automation, and the integration is actually slightly ahead of plan. Looking at the status, we are very confident to deliver the synergies as planned.

By the end of fiscal 2014, we will have already achieved more than 1/3 of the expected synergies of around EUR 100 million largely through cost savings. Stringent integration leads to a profitability slightly ahead of our original plans. And since the profit margin adjusted for PPA and integration costs is in the, I would call it, mid-teens, this is highly accretive to divisional profit.

Back in January, we complemented our offering in PLM software with the LMS acquisition, LMS being the leading provider of testing and simulation softwares. The integration of the LMS team has worked well with very, very low attrition rates, which, obviously, is key in this area. We are growing at an above-market rate although the growth environment in industry is somewhat slower, as we expect it to continue in the long term. In core industries like automotive and aerospace, they're executing on excellent cross-selling opportunities in the PLM field. We've made significant progress in Asia, where we've, for example, greatly expanded our footprint with Toyota. It's obviously one of the leading car manufacturers in the world. Overall, the integration is on track to meet the desired outcome although some elements may take longer than originally anticipated.

Now let me briefly review our performance at the 3 quarters year-to-date 2014 using the One Siemens cockpit [ph]. Three sectors are well in the target margin, with Infrastructure & Cities making the strongest progress of them all. In line with the improvement in profitability, return on capital employed, which is up -- which is one of our key measurables in the company, most of which comes to performance and incentive measurements, after 9 months, stand at 16.6% for continuing operations, within our target range of 15% to 20%, which, obviously, is a huge improvement year-over-year.

Before going to your questions, let me close by confirming our outlook for fiscal 2014. Now with that, Ralf and I are happy to take your questions, and I return the mic to Mariel.

Mariel Von Drathen

Thank you, Joe. Good morning to everyone. Operator, we would like to open it for Q&A now for both Joe and Ralf.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Andreas Willi of JPMorgan.

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

Two questions, please. The first one, on the outlook for Q4. Bloomberg has a headline that you're guiding sector profit for Q4 below Q3. Maybe you could elaborate on that and whether that's correct. Normally, Q4 is seasonally higher in terms of revenues. And if that guidance, if in case -- if it is what you say, is it due to charges expected in Q4? And the second question, on Industry Automation, with order growth of 1% looks weak even relative to what you have indicated in the past. You say that China had good growth, which declined -- which indicates declined sales there. Maybe you could provide some information by region, what's going on in Industry Automation, and why that business is not growing more given your good position in that market.

Josef Kaeser

All right. Thanks, Andreas. Well, first of all, this, what is called, outlook for Q4, that's a Bloomberg outlook and not a Siemens outlook, so you may want to go back and ask them what their underlying thought has been. So there's no reason to caution or guide anything on Q4. We've confirmed the guidance for fiscal 2014. And with 1 quarter left, I guess that should actually answer all the questions in that area. On Industrial Automation, I mean, obviously, we do need to look also in fiscal Q2 what we have seen there, where we had a very strong performance on growth. So I would not read anything into the growth rate of this 1% in fiscal Q3. That might have come from some restocking, de-stocking seasonal effects. So we do not see any market particularity where Siemens would not participate. So I think over the quarters, this will level out to a meaningful performance also against [ph] market. I also would like to remind you that we are still in the process of phasing out this labor-related industrial services package, so there might be some underlying compensation for this one. If we look at Q2 and Q3 and what to expect for fiscal Q4 in Industrial Automation, we are actually satisfied with the progress.

Operator

And our next question from the line -- comes from the line of Ben Uglow of Morgan Stanley.

Ben Uglow - Morgan Stanley, Research Division

I have a couple of questions. Joe, first of all, I really wanted to understand the performance in Power and Gas and how it relates to next year's guidance of -- or the margin -- the new margin range of 11% to 15%. You're still operating at the upper end of that band, 14.7% in the fiscal third quarter. In terms of your thinking and how you're looking at it for next year, what are the main drivers or what are the downside factors that concern you? Is this all about the European service market? Is it down to fewer of these famous white elephant contracts? And how comfortable are you that we could actually remain in the upper end of the band? So that is question #1. Question #2 is really a general one about M&A. I'm sure you read as much idle speculation in the press as we do about what Siemens is about to do next. Fairly obviously, I don't expect any comments on specifics, but could you say a little bit about the firepower of the company? How flexible are you in terms of M&A? Your net debt to EBITDA is still only 0.6x. So my -- yes, is it fair for us to think that Siemens could do the EUR 4 billion or EUR 5 billion type acquisition very easily without requiring, for example, any disposals? And finally, is it right for us to assume that there would not be any circumstances under which that you will consider pulling or reversing or scaling down the share buyback?

Josef Kaeser

Thank you, Ben. Look, on the -- on the Power and Gas performance, I mean, is that a reason why we were mentioning the sector specifically above and beyond the challenge -- the ongoing challenges in transmission, which is mostly related to solutions, by the way. The transformer recovery is going well, and restructuring shows first results. There are truly also bright spots, but still, that needs to be fixed to go back to where we ought to be and where we have been. Now in the Power and Gas, it's a mix of a few items. We do expect the order intake and top line sale to be weak in going into '15, out of the weakness in order intake in '14 and then, perhaps, even '13. Secondly, obviously, the European service environment is not set to improve at any given point in time; also, in a way, affected by, for example, German energy policies on continuing to subsidize wind and solar rather than look at the back half on efficient gas. So there might be some challenges here on the top line affecting the, obviously, highly profitable service environment. But the thing about the -- the biggest impact on our guidance of 11 to 15 has been that we are going to invest significantly in boosting our technical performance of the gas turbines all across the board because we believe that at the end, competitiveness comes from innovation and efficiency. So there will be some investment in R&D and engineering, which, obviously, gets down the profitability for a period of time.

Ben Uglow - Morgan Stanley, Research Division

So is it fair for us to assume that even with those effects, you should be able to be toward the upper end of that range? Is that correct or not?

Josef Kaeser

Look, I mean, when we said 11 to 15, that's what we expect. There might be some volatility around it. But in the long term, we believe this is a very good business. We just have to invest a bit more again to keep the leading-edge performance in efficiency and the likes. You might have heard that our competitors are strong. Some reached levels which go now into commercial use, out of [ph] still talk about it. So there is a lot going on. We just need to be mindful about investing that to stay competitive. Thirdly, if you look at the structure of new businesses versus service, for example, in '15, there might just be a materially adverse shift to more new products and the turnkey projects rather than service. And taking that all into consideration, we want to caution the markets that for a limited period of time, there might be some adverse impacts on the margin. That's all that I'm saying. So now on the M&A speculation, I'm not sure whether I catch everything which is out there. But maybe let's go to the factual evidence. First of all, no matter what we do, share buyback continues as planned, okay? That's got nothing to do with that one. Secondly, obviously, as you rightfully said, our adjusted net debt to EBITDA is 0.6x. We said the target is -- or the range is about up to 1.0x. So there would be some firepower there as far as financial metrics are concerned. But the most important aspect is a different one. We just laid out our Vision 2020 concept, which is about getting the company streamlined and more efficient, which is about getting closer to markets and clean the decks in terms of underperforming businesses. And if I say clean the decks, that's not just about selling, it's also about fixing them. So the focus is clearly on operational improvement and using and accessing the self-help potential which we have to get our profits up. So that's where our focus is. Now obviously, if there is the right target, the where [ph] level at a time, we certainly have shown with the French example, that we are ready to act at any given point in time. So that's the story. So we are very relaxed about this -- those debates. We really follow closely the targets which we have in a deal book. We focus on operational improvement. And if the time is right, then we, obviously, can strike because we've got all the means, what it takes to do it. So that's the way we look at it. But clearly, if we have our will, the focus is operational improvement. And once we are leading there again, then we can also add some meaningful business by acquisitions.

Operator

Our next question comes from the line of Mark Troman of Bank of America.

Mark Troman - BofA Merrill Lynch, Research Division

Joe, first question, just on Power Transmission. In terms of the underlying performance, could you just outline what initiatives are really going on there to improve the project of the underlying business, x, obviously, the charges that we're seeing? I recognize there's some long lead time [indiscernible] business that we need to get through. But if you could just give a -- if you like, a progress report on what's going on in Power Transmission in terms of improving the underlying performance, that would be helpful. And then secondly, just on the short-cycle business, if you could give maybe a little bit of regional color, is it true that -- obviously, China seems to be going well in Industry. But is the short cycle kind of showing a -- similar trends everywhere? Or are there very distinct trends on a regional or product basis within your short-cycle business?

Josef Kaeser

On the -- if you look at the Transmission area, there are basically 3 major areas. One is transformers, where we have had our challenges, like others, in overcapacities. We do make meaningful progress there. We are back in the black. And this restructuring continues into profit improvements into '15. The high-voltage environment still needs some help. But yes, the real issue -- it's really helpful that we are not alone there, so we need to put more emphasis on the solution area. And that's the single most sticky item because the backlog shows us that this will take time until this has been grown out of the backlog. So that, in essence, means that there are still some quarters where we have those challenges, and this might go well into 2015. So that's, I guess, the Transmission environment. But then again, we changed the team there, a very clear plan now on how to act, and we will continue to improve the situation. On the short cycle, I believe it's helpful if we do a run-up on the geographics all across the board so that you'd get a picture of where we stand and what we expect. And for that, I hand it over to Ralf Thomas.

Ralf P. Thomas

So Mark, that is, of course, one of the key question for us, too, so therefore, we are very carefully looking into that. And as Joe said before, the second quarter, we had very strong restocking impact, especially in China, so the growth that we see now, especially in IA, is quite satisfying for us. And we see those moderate growth rates going on and to continue. This is in particularly important for us because, underlying, we see strong impact on our -- of our product business, which is even growing stronger with significant growth rates, and that's what we see, especially in China, when it comes to automation systems, where we had clear double-digit growth rates. We also see pockets of growth in the U.S. when it comes to Motion Control; also, clear double-digit growth rates. However, in Germany, there is still a flattish development. At the moment, we see very volatile developments quarter-over-quarter, so it would be premature to take a trend out of that. So -- but in total, it's China and especially the automotive industries that are driving us. Machine building is still on moderate levels, mid-single-digit area, so that's where we stand at the moment.

Operator

Our next question comes from Martin Wilkie of Deutsche Bank.

Martin Wilkie - Deutsche Bank AG, Research Division

It's Martin at Deutsche Bank. Just a couple of questions. Going back to Power Transmission, you mentioned that it could take some time to fix some of these problems. I was just wondering if you can put some sort of framing around what you mean by some time and whether or not, from an engineering perspective, you now know how to implement these projects, and it's really factors outside your control, whether it be suppliers or other things, that gives that uncertainty as to distribution problems. And the second issue is you obviously signed a BorWin3 contract during the quarter. You suggest in the release that the terms are much more favorable than they have been in previous large HVDC contracts. Just wondering if you can give us some examples of how that contract is structurally different in terms of mitigating some of the risks for Siemens.

Josef Kaeser

All right. On Transmission again, look, we obviously have seen a lot of improvement plans there. And some of them just failed because most of the improvement commitments have not been in our hands, but they're resting with suppliers and associated stakeholders. And that's actually the main reason why, first of all, we don't move that quickly as we have originally planned to fix those solution projects, which are ongoing sometimes for almost 1 year or 1.25 years. And that's why we've been somewhat cautious about the project because it's not all in our hands. It's unfortunate. And we've seen it in Canada, where we've been let down by most everyone who has been in the area in terms of construction and soil removal and what have you and we do see similar developments now in a project in the U.K. Having said that, we look into those type of projects in the backlog. And if we take just the worst assumption, that leads you to saying we need to have some time because we need to see and not just get the commitments from that. So that's why we are somewhat cautious. But then again, good progress in transformers, decent progress in high-voltage projects. And if and when we are successful in avoiding charges in Transmission, you should actually see a significant profit improvement year-over-year in Transmission in 2015, so just to keep the record straight. So we have understood the ramifications. And since we felt some -- as I said, some disappointments with most of our stakeholders to get the job done, we've been somewhat cautious. But lesson learned, obviously, is that better rely on yourself than on many others altogether, and that will put a certain decision pattern into how we are going to go about taking orders, if we do, have it under full control. On -- and that actually brings me to the BorWin3 and the differences which we have been putting in place, also following a new procedure in the company on how to go about complex order intake and approvals of thereof. And I'd like to -- Ralf to give you some flavor on what has been materially different in BorWin 3 as compared to the 4 ones we have taken earlier. Ralf, please?

Ralf P. Thomas

So first of all, we have been very intensively looking into the whole process and -- especially into the contract, and how much value add can we really give in that project. So we found partners that are fully responsible for the area of responsibility, means those parts which are not naturally driven by the electrification chain, which we own. So having taken all these learnings from the other 4 projects, we came to clear no goes on the tee [ph] and fees. We have been implementing then full scope. But the most important learning that we have is that we need to refer back to people who have the experience to deal with the problems and challenges arising in that area. And from the core planning team in that project, which is about 30 people, more than 25 have experience -- substantial experience in the other 4 projects. And we are fully capitalizing now on the learning curve, having accountability in place for those individuals that have been exposed to the other ones. So we believe we are -- we have been gaining substantial ground in that area, and we will continue doing so, transferring knowledge from projects which we were in to those to come and also taking the liberty to take certain parts or complete projects which we do not have the feeling we can fully master not onto our books.

Josef Kaeser

All right. So a steep learning curve, first of all. Secondly, a massively increased price per megawatt. You may just want to calculate the old ones and the new one, and you'll see how significantly higher the price is at similar -- obviously similar cost levels. And secondly, very important that the whole steel contraption, the platform is not our responsibility anymore, so there's someone else accountable for that, so massively reduced risk at significantly higher price with the similar level of work. So that -- and a lot of experience, obviously, so that should actually make this a meaningful success.

Martin Wilkie - Deutsche Bank AG, Research Division

When you say that your customers and suppliers are sort of accepting these changes, obviously, your biggest competitor in this area is also trying to do something similar in terms of changing the risk profile to make it more balanced. So would you say that there's been a broad acceptance from your suppliers and customers, that these revised or slightly more fair terms and conditions are essentially the way forward?

Josef Kaeser

Well, I mean, I cannot comment on our competitors' views, but we clearly made sure that the lessons learned, which obviously had been very costly, have been fully applied to the new business. And if that had not been possible because the business guys would have not worked or the customers would not have been satisfied, we won't -- we just would not have taken the order. I guess that whole industry has learned a lot from that exercise. The question is would that have needed to be that costly. It is now what it is. But -- and again, BorWin3 and the project and the way we have been structuring it will be a successful project not only by technical means but also by profitability.

Operator

Our next question comes from Simon Toennessen from Credit Suisse.

Simon Toennessen - Crédit Suisse AG, Research Division

My first question is on your Healthcare business and the order trends there, particularly outside China. If I'm right, you had good, probably, double-digit growth in China, helped by the contract in Shanghai. But what are you seeing sort of in the U.S. and in Europe? Your competitors are seeing quite a mixed picture, actually, in the U.S., but it's definitely more negative than we've seen at the beginning of the year. So that's question number one. Second question, on Russia, you flagged the potential impact into maybe even fiscal '15 from the tensions over there, and maybe you can just elaborate a bit more on that. And the last question, on the U.S., you talked about the Motion Controls business being better, but maybe you could give a bit of an outlook what you're expecting into 2015. Is that clearly an improving trend on the production side happening in the U.S.?

Josef Kaeser

Thank you, Simon. We look at Healthcare taking into account also the currency impact and what we see from the competitive landscapes should -- everyone has reported the numbers already. We are actually -- and I'm very satisfied with the performance of Healthcare on that high level. China has been particularly strong because of this one-off order. But even take that aside, China still offers significant growth potential. But it will be slowing down from real strong double-digit type of growth to somewhat maybe high single-digit type of environments or maybe low double. We still see that the Chinese government and also our customers there are honoring our localization efforts in both manufacturing, as well as engineering. And we are going to push this one further and believe that we can make Siemens Healthcare China a company qualified for local content, which is important going forward. So we, actually, are very looking forward to the Chinese opportunities. In the United States, the picture is mixed. Definitely, it's got a lot to do with the way that the sector is going. But it also has opportunities, and that's in both Diagnostics, as well as in the high-end imaging. We do have our challenges in the small ticket items, [indiscernible] sound and the like, where we continue to push our new products into the market. But by doing so, obviously, this constitutes some margin pressure, while then the subsequent installed base will help us in the mid and long term. On Diagnostics, we are right on plan with our performance improvement. The new platform is supposed to be ready by 2016, as we do grow diligently on that milestone, and we believe that will actually boost the prospects of Diagnostics. Germany and Europe, I mean, still somewhat flattish. But then, the time that no one has been reinvesting and replacing the product is now going on for quite some time, so we do actually expect some positives here on replacements in 2015, having said, though, that the Healthcare environment also requires some new ways of boosting operational profitability. And that's why we continue to focus our spectrum there, where we believe we are really good at. And that's why we have also been selling off the microbiology business. And we continue to look on how we can strengthen and focus the Healthcare environment going forward. On Russia, I mean, the Russian business is about -- a bit shy of EUR 2 billion a year, mostly in Energy and Mobility, which one can, I guess, easily figure out. Now the question will be how this is all going. I mean, we're obviously very concerned about the development, which is, obviously, terrible. And we will see how that goes. I mean, this is -- there's more human issues here than whether or not we sell a bit more or less. And I guess, with that, we should just hope that the developments go into the right direction again and don't continue to escalate. On the Motion Control, I mean, the development has been great. It's been -- all been pushed by growth outside Germany. And then those new number sales in Germany will be released on the VDMA. I would not be too surprised if they show very strong growth in exports and some stagnations or if not, actually, negative growth in Germany. And that, I guess, is the picture we ought to also drive forward. That export business remains to be strong, but the toolmaking machine domestic business remains to be weak. United States, I mean, it's got opportunities that account from the reindustrialization, from the fact that many car manufacturers are continuing to build capacities in both the U.S. and Mexico. But there has also been a lot of CapEx growth already. So I would not go overboard with hopes -- short-term hopes to have that continued in 2015. So we are cautious on both the Motion Control, as well as Industrial Automation. But then again, there might also be some upsides, in our view.

Operator

Our next question comes from Olivier Esnou of Exane.

Olivier Esnou - Exane BNP Paribas, Research Division

First question, on the comments you made about some projects being moved to centrally managed portfolio, I think, out of metals, is there any meaningful risk profile to those project, if you can comment about that? And also, when you mentioned the new structure of Energy going forward, you mentioned that it would be some legacy projects in it; obviously, Olkiluoto, North Sea, plus others. And I just wanted to make sure that the others was just a summary for what we already know: U.K., Canada and the like, or if you have something in your mind about new areas of risk that we haven't fully heard about yet. Lastly, I mean, the dust has not really settled yet on the Alstom transaction. Maybe if you could come back on the -- if that happens, what are the implication for you in terms of -- for Siemens in terms of competitive landscape?

Josef Kaeser

Thank you, Olivier. Look, on Metals, there's no reason to be concerned. That's just the usual practice, which we have also been applying, for example, when we did the Atos, Siemens SIS deal. These are -- I think it has 2 -- let me think, about 2 or 3 ongoing projects which are in the middle of being finalized. And before we hand over all the helms and all the top lines and everything, we just decided that we, too, front the process, and obviously, the new owner will support it. So that's business as usual; no reason to be concerned. Second, the -- those legacy projects can also rest assure you -- those are exactly the ones we meant. This is about -- that's about Olkiluoto, that's about the North Sea, and that's also this Canadian and U.K. type of high-voltage substation turnkey projects. Thirdly, on Alstom, I mean, look, there has been a lot discussed and written about in my last interview on that subject there. The door is open. If someone gets into trouble, we still are available to help. And with that, I would actually ask then for the next question.

Operator

Our next question comes from James Moore of Redburn.

James Moore - Redburn Partners LLP, Research Division

I've got 3 questions, if I could. On Power Transmission and Power Generation, can you help us a little more undersize this -- understand the size of the risk profile for further charges into next year on North Sea, OL3 and other? Secondly, on the underlying Energy margin, you talk about the Power Generation challenges next year. But maybe ET [ph] and Wind could be up. So the big question for me, really, is overall 2015 underlying Energy profit, could that be down? And thirdly and finally, could you quantify where the LMV margin is today? I'm just trying to understand how much of a catch-up to the industry average has already happened and what is the outstanding opportunity.

Josef Kaeser

Thanks, James. On the risk profile of those so-called legacy projects, and if we had reason to believe that there is probable risk, we would have considered and, obviously, booked it in the P&L. So -- but then, there is -- obviously, history tells us, unless we are done, there is some risk associated with stakeholder input. With Olkiluoto, for example, we are actually done with our conventional island. So it's not us anymore who holds up the process. But as long as we don't have any steam, we cannot run our turbines. And that's the sort of issues what I'm kind of referring to. But the likelihood that there is going to be earth-shattering news on this one is rather low. Same is true in the North Sea. We have shipped them out. We are in the middle of commissioning. 80% of the total work of all those 4 has already been completed, so that gives some comfort about what much can happen again. So therefore, I would not be overly concerned about it. History just tells us that it is wise to make sure that the market doesn't forget, and it is not over until we are fully done. So with that, I hope to give you some comfort on what can happen and should happen or should not happen. On Wind, I mean, the things we need to improve there are actually coming over the positive side. We've been very successful in developing our market share in offshore. We've been growing the business rapidly over the years. Now we do see that the transformation from some, as I said [ph], handcraft-type of production to industrial flow, production takes some time. But we need to have this because productivity, obviously, is of the essence to bring the cost curve [indiscernible] down. So let's say, that's an exercise which has a very positive underlying because we do grow, we are successful, and in offshore, we are both market leader by gigawatts and, usually, market leader by margin. And we intend to keep it that way. So now will the underlying Energy profit be down in '15? That's a very good question, and I ask you to bear that with me until we are done with 2014. And when we lay out the guidance for '15, I'd be happy to come back to this in more detail to see on what the guidance will be for '15. It's way too premature now because there is a lot of opportunities, and some risks which we need to quantify going forward. So I'd rather have the job done in '14 and not just commit to the guidance in '14 but make it work, and I'll take it from there. And I'm very, very positive from what I've seen already now that these are the areas we will make a big difference in the way how to handle matters going forward, to develop the team, to set the right milestones and have a balanced understanding between risk and opportunity, between pressure and systems. So that's actually, I guess, an important matter also. Then on LMV, we are approaching the double-digit margin environment, which is, obviously, a significant improvement as to what we know from the past. So we're probably more than halfway through, but there is still potential going forward. And I have to say I'm very impressed with the team, how they have been accessing the construction markets, how they have been building up new channels. We do know that we outgrow the market at this time, although on a smaller level, but that's a good development, and I like what I see.

Operator

Our next question comes from Gael de-Bray of Societe Generale.

Gael de-Bray - Societe Generale Cross Asset Research

My first question is again on Transmission. It seems that you've achieved significant milestones in July with the installation at the sea of the remaining 2 HVDC platforms out of the 4 legacy contracts. So does it provide now much more visibility as to the timing of the completion compared to, let's say, a few months ago? And in theory, what should be the average time lag between the installation at the sea of the platforms and the final completion of the projects? Secondly, in Healthcare, it seems the margin of the imaging and therapy systems businesses dropped quite substantially in Q3, maybe by as much as 400 bps. So how much of that was driven by currency effects? And does the decline also start reflecting a more competitive pricing environment?

Josef Kaeser

On Transmission, I believe your -- I have a lot of sympathy for your assumption that during the significant progress, the incremental risk or the residual risk is actually rather low compared to what we've seen in the past, reason being that platforms have been shipped out. They have been adjusted to the place that they are -- where they are going to operate and have been the single most compelling impact on those charges of this 1 -- I think EUR 120 million because we were dependent on the weather. And since we couldn't ship them as we wanted, there was a lot of cost associated with the transport. And that, obviously, is gone. BorWin2 is completed 87%. HelWin1 is completed 87%. And SylWin1 and HelWin2 are at 71%. So you can clearly see that the risk profile on the commissioning is much lower than the risk profile on shipping them out to transport and so on and so forth. So therefore, we are also reasonably comfortable about what we still want to expect because, yes, it's just more in our hands now than it used to be before we shipped them out. On the matter of installation versus commissioning, I mean, we are done during the course of the first half of 2015, then it should be somewhat okay. Now in Healthcare imaging, I mean, obviously, the margins we have shown not just in Q3 but generally are, I believe, industry-leading margins. And we do not intend to give them up also in 2015. So therefore, there is no reason to be overly concerned about structural change in -- on either pricing or cost. So we are well underway. We know a lot about innovation. But then the FX impact has been huge, so we said, on average, there has been about 110 basis points on imaging alone. And the division, it's almost double as much. So you can clearly see that it was a very specific impact, and that, obviously, should change again when the strengths of the euro is changing, as we have seen that develop over the last few weeks.

Josef Kaeser

Thank you, and see you soon. Thanks. Bye.

Operator

Thank you, ladies and gentlemen. That will conclude today's analyst question-and-answer session.

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