Jan 26, 2016
Executives
Sabine Reichel - Head, Governance and Markets Joe Kaeser - President and Chief Executive Officer Ralf Thomas - Chief Financial Officer
Analysts
Andreas Willi - JPMorgan Mark Troman - Bank of America Ben Uglow - Morgan Stanley James Moore - Redburn Michael Hagmann - HBSC James Stettler - Barclays
Operator
Good morning ladies and gentlemen. And welcome to the Siemens’ 2016 First Quarter Conference Call.
As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor Statement, on Page 2 of the Siemens’ presentation.
This conference call may include forward-looking statements. These statements are based on the company’s current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.
At this time, I would like to turn the call over to your host today Ms. Sabine Reichel, Head of Investor Relations.
Please go ahead madam.
Sabine Reichel
Good morning, ladies and gentlemen, and welcome to our Q1 conference call. The earnings release as well as the announcement of the CD-adapco acquisition was already published yesterday evening.
The Q1 presentation was released at 7:15 this morning. You can download all files on our website.
The call is also being webcast at our IR website. Our President and CEO, Joe Kaeser, and our CFO, Ralf Thomas, are here this morning to review the Q1 results.
Since the AGM starts right after this call, we will limit the time of the call to 45 minutes. Joe will start with a brief presentation and then we have Q&A with Joe and Ralf.
And with that, I’d like to hand over now to Joe.
Joe Kaeser
Thank you, Sabine. Good morning everyone and thank you for joining us to discuss the first quarter results of our fiscal 2016.
Before I move to the financials, let me briefly recap yesterday’s announcement to acquire CD-adapco, a privately held software company. This transaction is another important step to optimize our business along the entire electrification automation and digitalization value chain, or what we call the EAD System.
CD-adapco is a perfect fit to expand on our strategy to further strengthen our leading industrial software portfolio. We started building this as early as in 2007 with the UTS acquisition, for product design and development.
With CD-adapco, we add a spectrum of fluid simulation to our mechanical simulation and testing competency which we acquired with LMS an induction company in 2012. So, what does CD-adapco do?
CFD or computational fluid dynamics simulates fluid flow, heat transfer and fluid structure interaction of liquids and gases with for example, a wing of an airplane or a car. Through this integration offering, we can combine the automated feedback of simulation and testing of multi domains into product design and optimize the entire system for example regarding weight or cost.
Time-to-market can be reduced after 35% and obviously ladies and gentlemen, time is off the essence. The strategic rationale is compelling in our view, first: CD-adapco is well positioned in a fast-growing market where growth rate are above P&L market growth of 8%.
Second: margins are software typical with other words, north of the capital goods sector margins and CD-adapco has an impressive customer list with a high share of recurring revenues. We expect recurring revenues to be just about north of 80%.
Third: we know how to successfully integrate software companies. And we know how to capture revenue synergies by scaling up through cross-selling.
We do expect the closing of the transaction during the course of the second half of our fiscal year. Furthermore, we closed the sale of our 49% stake in Unify to Atos, and this marks the last milestone in finally disposing the old telecom businesses in Siemens.
We have invested our remaining assets in Sivantos the former audiology business to equity, for about €300 million in value and obviously P&L benefits associated with that. Let me briefly highlight some key developments of our first quarter.
We had a strong start into the fiscal year. Orders were significantly up at 30% excluding currency effects on the back of growth in all divisions.
Major contributions came from all power related businesses and a serious large orders in mobility. Among others, we booked the order of the first power plant in Egypt worth €1.6 billion that’s Beni Suef and there is obviously two more to come.
After three quarters of organic revenue decline, we now reversed the trend with growth excluding currency effects quarterly up by 4%. Healthcare, so, remarkable double-digit growth by the mobility and fielding technologies also showed things in growing the business.
Our industrial business increased margins by 20 basis points to 10.4% for the quarter supported by improvements in the cost structure. In addition, a very stringent project execution backed up margins.
Net income was up 42% on the back of some positive factors below the industrial business such as a very strong performance of Siemens sales and services, on sentry managed portfolio activities benefiting from some positive effects related to the asset retirement obligation and needless to say that this is a highly volatile development because it basically is related to interest rates development. We also were able to work out a - what we believe extraordinary low tax rate of 21% which was due to rise of deferred tax liabilities.
However it is safe to expect that the original guidance for the tax rate for the rest of the three quarters remains in place. And finally, we recorded a profit of €73 million in discontinued operations most related to former Siemens IT service activities.
For the second quarter we expect normalization below industrial businesses as we have guided in November. Royalty was at 16.2% which is almost well in the targeted range, however, that may not be sustainable for the whole year due to the fact that there is some capital employed added through the acquisitions which we did last year.
However, free cash flow was weaker than in the prior year, particularly due to the timing effects of payments project businesses. However, also what we see in fiscal Q2, we believe there is some swing-back already in salary.
Now, let’s look at some key developments in the division. Key focus of the power and gas division, is on a relentlessly improving its cost position, focused on the opportunities in the market and drive innovation going forward.
Our new divisional sales setup in the regions has already been gaining traction. And we have seen substantial order growth.
In total, we did record 20 orders, firm orders for last gas turbines and we added 12 H-gas turbines. Profit margins of 9.5%, is a bit pitched of prior year levels, however mainly due to weaker contributions from projects in the solutions business and some declines in distributed generation business.
Wind power recorded a major offshore order for the Galloper wind farm in the U.K. including a long-term service agreement totaling €1 billion order intake.
Revenues were down as expected due to timing effects related to the project execution which also obviously affected the profit development. Energy management continued its turnaround in all aspects.
Orders were up by 9% on a higher number of large orders. Profitability approached the target margin range, on the back of stronger profit contributions from high voltage products and the transmission solution business, we had the share of low margin legacy projects is coming to an end.
After what we believe exceptional fourth quarter performance, Building Technologies continued its positive trend with a good start into fiscal 2016. Top-line increase was mainly driven by the Americas, with strong demand for our solutions and services and what is to see in that region is that it’s all about energy efficiency and its really something what we like to see.
Margins improved due to a larger share of high margin service business. Our Digital Factory division operates in an obviously difficult market environment.
Order growth was mostly driven by the PLM software business. PLM delivered also strong double-digit revenue growth driven by China and Germany, by the short-cycle business declined moderately as we have forecasted.
Short cycle business was affected by double-digit decline in China, and weakness in the United States, where Germany was flattish and Italy showed some strength if it came to growth. Automotive demand was still the bright spot.
On an already very high level while machine building lost some dynamics, and we expect that to continue going forward. While profitability was still strong given the cyclical market environment, it was affected by a less favorable mix in the factory automation business.
Product industries and drives benefited from strong orders and wins, related business which, were offset by weak demand from commodity related industries. Positive currency effects were compensated by ongoing structural challenges in particular in the oil and gas in the large drive businesses.
Now, let’s move to mobility, which delivered what we believe was an impressive quarter. Our strategy to drive automation and digitalization in the business is paying off.
Mobility won a number of attractive large orders, not just by the numbers but also by the quality of the order, such as the S1 in Berlin was, and it was about €340 million rail automation project in Algeria, which happened to be the biggest single-largest rail automation order ever. Now, last but not least, let’s move on to healthcare.
We are very pleased and I have to say, very pleased with what we saw in the first quarter. Exceptionally strong order growth across all regions, with a sharp rebound in China, albeit of course on the intercoms.
We saw a record double-digit revenue growth which was driven by the diagnostics imaging business, which also dropped through nicely into the bottom line. Finally, I wanted to close with our updated outlook.
As with a strong start into the fiscal year, we do raise our previous expectations for basic EPS from net income in the range of 5.90 to 6.20 to the range now to 6 to 6.40. All other statements of the outlook for fiscal 2016 remain unchanged.
With that vision, Ralf and I are happy to take your questions. And I return the mic to Sabine.
Thank you.
Sabine Reichel
Operator, we will start Q&A now.
Operator
[Operator Instructions]. And our first question comes from Andreas Willi of JPMorgan.
Please go ahead. Your line is open.
Andreas Willi
Yes, good morning everybody. My first question is on healthcare, obviously you just mentioned about your strong quarter.
Maybe you could provide us a little bit insides into that in terms of contribution of some larger orders that helped the quarter? Whether you see some competitive benefits from FX as well in terms of market share gains and kind of what are your assessments of the market is?
And how much visibility do you have on China in terms of the snap-back in the market there, also from the government orders? Is this, could this be a budget flush at the end of the year in China or is this a return to more sustainable growth in healthcare in China?
And the second question on the outlook, if you could clarify a bit around the short-cycle business where you still mentioned improvement in your second half starting in April, and at the same time you say you expect a global economy to soften from here, maybe if you just clarify those two statements relative to each other? And when it comes to the guidance for the full-year, how do you treat capital gain like this, exit in that guidance?
Thank you.
Joe Kaeser
Thank you, Andreas. Now on healthcare, I mean, obviously we generally saw that the market was reasonably strong, which we have some companies benefited from, others didn’t.
If it comes to China, now, obviously, what you see is that the general market is growth and demand is generally intact. And there are two things which needed to be watched carefully first: it is about domestic competition, which has got some tailwind in general.
And the other topic is on how quickly these still, very active investigative element of the corruption investigation will pull-through. And then again, bring companies and institutions back to order.
We’ve seen that was quite a whole pack in the recent quarters. But generally the market dynamics in China, as it comes to healthcare is still intact.
It was not by the by only healthcare in China, we did growth significantly also in the United States based on innovative offering in the market. So, we would not consider there to be a budget flush, it is more about how the reforms are ongoing, also in the area of the corruption investigation.
On the outlook, I mean, it’s not quite a contradiction. I mean, obviously it is the capital gain which is I would say mid-double-digit millions of euro.
Obviously of course we’ll count into the guidance as restructuring and other, after those impacts will also count since we have only excluded legal and regulatory matters. On the short-cycle business, what we have seen in Q1 was actually a bit better than we thought.
We actually thought that Q1, Q2 and would actually be a trough development already but with regards to the sell-out into the market, not to mention the sell-in, but the sell-out. We see now is that Q1 was actually decent given the environment and we expect the graph to shift a little bit maybe into Q2 and Q3.
So, that’s how latest assessment in what we believe we see tool making is getting a big weak, automotive is still very, very strong. However, if you look at the Digital Factory, what we also see is that our software strategy is clearly paying off yet a very, very strong PLM business with significant growth rates.
And there is no reason that is PLM business would not be able to kind of back up a little bit if there was a more lasting weakness in the short cycle manufacturing automation. So, what we say is, we’ve executed early Q1, that’s our view and what we expect in Q2 and that gave us the confidence to signal to the market that we’re well underway not just in Q1 but also in terms of how we execute in our 2020 goals, recent 2020 goals.
Andreas Willi
Thank you very much.
Joe Kaeser
Sure.
Operator
Our next question comes from the line of Mark Troman of Bank of America. Please go ahead.
Your line is open.
Mark Troman
Good morning, everyone. Sorry, I’m here, don’t worry.
Good morning. Yes, two questions please, Joe.
Firstly, it looks so you have pretty good performance across a number of divisions you highlighted. I wonder if you could I guess scope out how much the cost saving initiatives that you put into place that have impacted Q1 either in terms of basis points or margin year-on-year, or is the program ahead of schedule in terms of what you’re realizing in terms of fixed cost savings and other savings?
That’s question number one. And question number two, just on power and gas, I wonder if you could help us walk through how that is likely to evolve this year?
You’ve got the margin I guess with some charges of around 9.5. And you mentioned some weakness in projects and solutions and I guess some of the distributed generation.
For the second half of this year, should we expect the environment to remain weak but cost savings keep the margin above that 10% to 11% level or with service support. How do you see power and gas margins evolve?
And I guess, I’m trying to figure out whether there is a trough there? Thank you.
Ralf Thomas
Mark, Ralf speaking. Good morning.
Let me take the first question on the cost savings, if you allow. I mean, as we have been reporting back to you on the fourth quarter that was €400 million that were ahead of schedule compared to that what we had been originally planning and also indicating to you.
I personally look into the matter and to into a degree of implementation on a monthly basis, did that also throughout the last three months and actually had a last quick look at it yesterday to be honest. And everything is absolutely on track when it comes to improving the status of the degree of implementation.
So the ramp up to see between €800 million and €900 million for the fiscal year in total is absolutely on track. It would be premature to point to any place beyond the €900 million but you may imagine that we are working very hard on it in terms of ramping up as quickly as possible and also exploring potential maybe beyond as soon as we see enough foothold on reporting for more we would love to do that but would be premature at that point in time.
Ralf Thomas
Thank you.
Joe Kaeser
All right, that takes us to power and gas. And obviously I do agree with the majority of the assessments that 9.5, which is just about underlying maybe a few basis points up.
And underlying is a big light. However, it’s not been unexpected.
So it doesn’t really catch us by surprise. At the end, the needle will be moved by the after sales activity in the market that is true for both, the conventional service intensity on the book-to-build is going forward in summer obviously.
And also in the extra surround after sales services, which have been holding up quite well. So, we still believe that 2016 is at the trough for power and gas in terms of margin development.
And we see that the PG2020 actions in terms of cost efficiency, productivity and innovation are coming along as planned which is a positive but actually it’s expected but still a positive. So at the end, the after sales activities will determine whether we are a bit out or a bit in of the lower range of the power generation target margin.
So that’s how we see it at this time. There is a lot of activity out there in both China, but also the Western World is not that demand is weak.
It is just a very fierce competition the same people are meeting every time and at any project. We are through our innovation achievements coming along with the sell-sell potential of PG2020.
We actually are reasonably confident that see the trough and then move on to a better margin development going forward.
Mark Troman
Thank you, Joe. That’s very clear.
Joe Kaeser
Sure.
Operator
Our next question comes from the line of Ben Uglow of Morgan Stanley. Please go ahead.
Your line is open.
Ben Uglow
Yes, good morning Joe, good morning Ralf and good morning Sabine. I had a couple of questions or I guess, two so interrelated on China and Digital Factory.
Joe, can you just give us a sort of color or little bit more sense of what’s happening in China, in the industrial automation area just in terms of competitive behavior? How tough is it?
And then looking forward, vis-à-vis the comments around short-cycle improvement, is it correct, should we assume that we see a kind of typical restock effect in China at some point in the first half of this calendar year? Is that the working assumption?
That was question number one. Question number two, is just on mobility.
You mentioned in the press release the free cash flow, the timing of payments was not great in the first quarter. What I wanted to understand is, is it just timing or more generally, and I think you’ve made some comments about this before, how are you seeing prepayments in the transport sector?
Joe Kaeser
Yes, thank you Ben. Now, Digital Factory and related businesses in China, I think what we see it as in almost two worlds out there in China, if it comes to the spectrum of Digital Factory.
It’s about the automation, CapEx related automation that is really, really, really light, not unexpected but really light. Sell-in is slow, sell-out also maybe a bit higher.
So, it seems that we see a bit of a channel clearance. It’s been, Q1 has been a bit better than we thought, so we may as well see a shift out of the trough and recovery by restocking in during the course of ‘16.
But that’s dark upside of Digital Factory. What we do see though that also relates to China a lot, it has significant growth in software which is a nice development to see because China has been traditionally a bit slow in introducing modern ways of simulation and PLM systems that is to see quite an activity going on there, which also will help us to manage the trough on the weakness on the other side of the coin.
And the third element which is obviously motion control, that’s not much related to China that has still continuous demand on the lower end of tool-making. But what we’ve seen is some weakness in the driving the machinery environment which obviously matters because they do the high-end.
We saw a lot of good developments in Italy. And we also do see that automotive is still quite strong which obviously is all about robotics and associated motion controlled applications.
So, with our combination of software and automation, we believe that we can out-perform the market on average. But China is going to be slow and it remains to be seen when we see a sustainable demand related pick-up.
Ralf Thomas
And Ben, with regard to the free cash flow of the first quarter and our hint to mobility, let me put that into a broader picture. I mean, first of all, the timing difference, here in mobility was explicitly strong.
That’s why we have been emphasizing that and maybe good for you to hear as well, as it was good for us to hear that the first week in the second quarter, the collection was extremely strong. And the delays in the prepayments that we missed in the first quarter were coming in.
So that is ticked off. And the question about the structural situation in terms of prepayments in that kind of industry, it’s still a question mark and varies from country to country.
Even though it looks like a bit counter intuitive, the European customers seem to be more leaning against the leading historical payment, prepayment patterns than other countries. But on a global basis, we wouldn’t see a change in the paradigm in that field.
But beyond mobility, we also had a couple of payments coming in late that also probably has been contributing then to the good collection in the first couple of days in the new calendar year. However, I would also like to emphasize that the inventory build-up in particular in the project business has also been contributing to the weaker flow in the first quarter and that is kind of also indicative for the growth we expect now to accelerate in the second quarter and in the quarters to come.
With our backlog of €114 billion we have really clear visibility of what’s going to happen in project business throughout the next three quarters and beyond. And that is supporting that it makes a lot of sense to stick to the policy in terms of allowing inventory for a certain period of time being a bit higher to then execute swiftly if there is need from a customer perspective.
And that’s what we do.
Ben Uglow
I have just one follow-up if I may for Joe. I mean, given what we’re seeing sort of in the capital markets on the screens basically in terms of frankly panic around China.
Can you give us a sense, how did your business evolve the - particularly I’m thinking, particularly about the industrial automation area, how did that evolve during the quarter. Was it sort of broadly stable or did it deteriorate?
Did you sense any sea-change in trend in the way that the capital market seemed to be?
Joe Kaeser
Well, I mean, it’s typically a difference between the volatility and the capital market. And the volatility you can execute on in real machines and manufacturing environments.
So, that’s why there is a natural difference between how markets can react and how businesses which has backlog and customer relationships and aftermarket sales and services to add.
Ben Uglow
But you didn’t see things getting remarkably worse?
Joe Kaeser
I obviously was in Davos for a couple of days, and if you listen to commentaries go out like the moment I come home, the world is gone. So, I think we are not getting paid for panicking, we’re getting paid for looking at opportunities and that’s exactly what we do.
Ben Uglow
Thank you.
Joe Kaeser
Thank you.
Operator
Our next question comes from the line of James Moore of Redburn. Please go ahead.
Your line is open.
James Moore
Yes, good morning everyone. I’ve got a few questions.
Apologies if it’s a repeat, I got cut off for a while. On currency, would it be possible to say what the bits of accretion was in the first quarter and at current rate, what do you think that might look like for the balance of the year?
Secondly, could you talk about the strong margins that you saw in energy management and mobility and healthcare, to me they seemed to be three of the surprises in the reporting period. Could you just talk about how sustainable those better numbers are throughout the balance of this year?
And then finally, could you perhaps update us with the operational trading of the Dresser-Rand unit?
Ralf Thomas
Sure, James. With regards to exchange rate, we had an overall contribution in the first quarter of 50 basis points to profit for Siemens in total.
You also need to bear in mind that we had about €60 million plus restructuring. And also the integration of Dresser-Rand which in total have been, pretty much making up for the exchange rate effects.
The most beneficiary impact on the exchange rate side we saw for healthcare in the first quarter to a large extent for PD also, Digital Factory has not been really contributing there and the short cycle business, the low voltage business in EM has been also benefiting from exchange rate effects. What also is worth being mentioned is our BT business, still had to fight against negative impact on the exchange rate side, which will now be gone then for BT in the quarters to come.
The second quarter, we still expect some positive impact in terms of exchange rates. Over the year then the delay that we have from our hatching policies which I have been elaborating on in prior quarters, will definitely disappear.
So the level of those 50 basis points, I would not expect that to continue for the full fiscal year, but it also depends on how the exchange rates are moving. What I realized is that the dollar having been the main source also on top-line support in that regard, is not going to play the dominant role anymore because other currencies also are going to have an impact on us.
And with regard to hedging, as I said before, I mean, we stick to our policy for the product business. We try to safeguard the next six months and that’s what we did and we pretty much are on current levels as we go.
Joe Kaeser
On the three divisions, we agree with your view that they’ve been performing very well on different levels, obviously. I mean, energy management has been restructuring case which we believe has been successfully developed into a meaningful margin.
And the management team there is doing a real good job. So, we do expect this recovery and this improvement to last throughout 2016.
So, we’ll see an improvement year-over-year from ‘15 to ‘16. And it’s true for mobility which obviously had an exceptional quarter in Q1 in terms of margins.
But then overall, we are a very well-functioning business in the meantime, which not only does trains and locomotives, but also has been developed into a mobility digital company, highly vertically integrated from electrification, rail automation, mobility management and of course also rolling stock. So, we also do expect mobility to improve its margins year-over-year from ‘15 to ‘16.
Healthcare, obviously it’s been a very, very good quarter. We knew it would be good, we like that we were a bit surprised on the upside is always good.
And we also expect that focusing healthcare on its own markets, focusing healthcare on its own resourced allocation optimizing the processes to healthcare company in the Siemens Company that this is going to payoff not just in Q1 but also for 2016 compared to 2015. So, those divisions definitely have a good momentum.
And we expect that to be maintained, maybe not at margin levels in Q1 but year-over-year definitely we expect an improvement.
Ralf Thomas
And with regard the development of the Dresser business, I mean, the most crucial point for us is of course that we capture all the synergies and proceed with the integration efforts as we have been planning. And we’re absolutely on track in that regard.
We have been, as you probably took from our figures booking, restructuring in PG, about 20 million which is taking place in that particular Dresser environment. And we also have been accounting for integration costs of €13 million in the first quarter which is also on track and ramped up.
So, we are proceeding as planned in that field. However, as you know, investment opportunities for new products are rather difficult at the moment, so you’re probably not surprised that our book-to-bill is below 1 for that business and that is actually reputable to the combination of our former compressor business as well as for the acquired Dresser unit.
However, we also see that the fact that this is sticky business is now kicking in. And we see the new unit business suffering.
But we also see quite some resilience in terms of service business and that’s what we are going to build on because all these customers that stay with us in service are also potential customers for new products when the investment is going to kick in again.
Joe Kaeser
And if I may, just one final comment relating to energy management and mobility. Having said that, we’re pleased with the development and that those divisions will grow and improve margins going forward, that’s one thing.
But a same token though, if divisions which are below the 10% plus average of the company grow faster, then others do, that obviously helps growing the profitability and thus the earnings per share. But do not necessarily help improving the margin overall.
I think it’s very important to remember is people think about why EPS grows and margins may be still in the range which we have been saying they would be in November.
James Moore
Thank you very much, everyone.
Operator
Our next question comes from the line of Michael Hagmann of HSBC. Please go ahead.
Your line is open.
Michael Hagmann
Good morning. Two questions if I may.
First, on the acquisition, of course $1 billion to spend is quite a lot. You’ve given a very rough guidance on profitability but it still leaves a lot of scope for imagination.
I was wondering if you could narrow a little bit the margin profitability for us on the business. And also give us your expectation for EVA and EPS accretion, when will it accrue?
And the other question was on the underperforming businesses, healthcare has been discussed before was very strong. So, how much did the turnaround in ultrasound contribute here.
And is there anything important to say about progress or setbacks in the portfolio of underperforming businesses? Thank you.
Ralf Thomas
So, let me take the one around the acquisition Michael, and good morning. I mean, talking about software specific margins is a huge range and you probably know from that what we have been discussing when we have been acquiring LMS and also back UGS that’s up in the high-teens and in the early 20s that’s probably quite a remarkable step.
However we are not there yet. Initially we will have integration efforts to overcome.
And so, don’t expect that to happen from day one. So to speak, with regards to being accretive I mean, what we have been telling you two years back is that, whenever we acquire a target we look into the industry-specific environment and also conclude on, what is an acceptable and an aggressive plan in terms to get the payback done.
For software industries that is per nature probably not a quick return, and so you will not be surprised to hear that the 15% cash return on investment that is a very important KPI for us, will be reached in 2020. And we will earn our cost of capital EVA positive first time two years later.
In terms of EPS accretiveness, we first need to look into when exactly and how will be the timing of the integration efforts before we can conclude on that.
Joe Kaeser
Hi Michael, I mean, adding to what Ralf said, I mean, it’s a business of €200 million which is good and we like the business, but it’s not about whether this is going to be €20 million or €30 million or €40 million profitability, it is about that to scale it up and bring that technology and that solution also to the larger part of our customer base. So this is about the scale-up methods in the end.
And that’s why we did it and that’s why we believe it’s a very good addition. To the underperforming businesses, I mean, ultrasound, we didn’t play a role in the greater scheme of things of healthcare.
It was an exceptional strength in the imaging environment, while diagnostics was a bit light, which actually even offers the potential going forward. As far as the underperforming businesses in general, we are on our way as planned.
There are very, very few exceptions to think of one right now, where business plan is not going to materialize the way it was originally planned for. And we will realign that business in a couple of weeks from now so listen, often use, we are consequent on executing power our strategy there.
So, we are very mindful about delivering as I said, for the most part in growing well. And it’s our exception to address them.
Sabine Reichel
Operator we will take the last question now.
Michael Hagmann
Thank you.
Operator
The next question comes from the line of James Stettler of Barclays. Please go ahead.
Your line is open.
James Stettler
Yes, good morning all. Thank you for taking the question.
Quickly, just could you give a comment on pricing across the portfolio? And what’s interesting is how your view differs from your U.S.
competitor on the gas turbine side, which would be interesting to hear why. And then looking at Digital Factory, can you just talk about a bit about the mix effects, obviously software going very well, short-cycle going less.
I mean, would you expect the mix, I mean, can you just maybe talk a bit about that, we saw that 200 basis points drop and how you see that going forward in 2016?
Joe Kaeser
Yes, let me just talk to the pricing James, hi. As to the pricing, there is no material difference as to what we laid out in November.
So, we are about some 2-ish percent price decline like-for-like. We do know that some of our competitors have a different way of talking pricing.
So, when we talk about price change is that we have product A, compare it to product A, compare the pricing and multiply it by the number. If we add some bells and whistles to it, some improvement of features and the likes, we consider that to be a benefit from design to cost.
So maybe that explains the difference. If there is anything else than that, it’s probably good to ask the competitors how they calculate their display in their pricing.
So as I said, in summary, no real change in the overall pricing environment. So that’s not an issue at this time.
Ralf Thomas
And with regard to the Digital Factory and the development of the mix, I mean, you heard Joe saying that we had quite a decent quarter in terms of growth momentum in Digital Factory and in PL. And that is the process to continue the beauty of that business that it has a high level of resilience.
And as you know, by adding to our portfolio but also by growing organically we have been building over years now a €2 billion plus company that of course due to the fact that the product business is potentially not growing but strong. For the time being we see a shift into that direction.
But it’s also important to again emphasize that this is not only software business or product business, this is addressing and opening doors for customers that we didn’t enter vice versa in these two parts of the portfolio before. And we now see with a strong market position of CD-adapco that we have more opportunities also to sell into their channels and into their lead customers and they’re very strong in their relevant market fields, which is going to give us additional opportunities to grow.
Joe Kaeser
James, maybe for the sake of clarification and making sure that we answer and address your question well, did I hear you say that there is a different view on gas turbine pricing in the market or is there a different view in terms of what gas turbines are all about in terms of their potential in terms of growth and market development?
James Stettler
I thought the question was on pricing.
Joe Kaeser
Then I think I answered it already.
James Stettler
You did it. And just in terms of Digital Factory, I mean, you said that trough looks like it would be pushed out a bit.
Does that mean, you see a bit more margin headwind as obviously it appears at this sort of short cycle products are clearly a big profit driver?
Joe Kaeser
Our view is unchanged for the fiscal 2016. All what’s changed a bit is that we have one quarter more of reality and one quarter less to speculate about what this figure will be.
So, I think that’s all what’s changed. We saw a bit more strength in short-cycle in Q1 as we thought it would be.
Actually we were relatively I would say surprised but relatively touched by a decent development after all compared to our view. So, having said that we believe that this weakness is still coming, so we just kind of shift our view by a quarter, that’s all we do.
James Stettler
Great. Thank you.
Joe Kaeser
Sure, thank you.
Operator
Ladies and gentlemen that will conclude today’s question-and-answer session. I would now like to turn the meeting back to Sabine Reichel.
Sabine Reichel
Thanks a lot everyone. And as always, the team and I are available for remaining questions.
Operator
That will conclude today’s conference call. Thank you for your participation ladies and gentlemen.
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