Jan 31, 2018
Executives
Sabine Reichel - Head of Investor Relations Joe Kaeser - Chief Executive Officer Ralf Thomas - Chief Financial Officer
Analysts
Mark Troman - Bank of America Merrill Lynch Ben Uglow - Morgan Stanley Andreas Willi - JPMorgan Simon Toennessen - Berenberg Bank Martin Wilkie - Citi Jonathan Mounsey - Exane BNP Paribas
Sabine Reichel
Good morning, ladies and gentlemen, and welcome to our Q1 conference call. The earnings release and Q1 presentation were released at 7 a.m.
this morning. You can find everything on our website.
Our CEO, Joe Kaeser; and our CFO, Ralf Thomas, are here this morning to review the Q1 results with you. Since the AGM start today right after this call we will limit a time for approximately 45 minutes including Q&A.
And with that, I would like to hand over to Joe.
Joe Kaeser
Thank you, Sabine. Good morning, everyone, and thank you for joining us for the first quarter results for fiscal 2018.
As you know it is over the time of the AGM here in Munich so you'll see us going to go but now we do look forward to this topic with you the first quarter results. I believe we had quite a successful start to the fiscal year 2018 and I really like what I see in most of our businesses.
To growth momentum of the durable environment seems to be strong in most economies and our investment in key businesses and sectors is paying off. Our focus on digitalization and innovation shows clear results.
Addition of factor division leads the way in to what we call industry [indiscernible]. We do see this in our customer experience effect across all divisions and it is not ancillary residual factory.
If you had seen it all that now recent innovation that there would be plenty with our customers demonstrated intangible and real-time examples how to unlock value from digitalization appliance to the industrial growth. And it is also recognized by opinion leaders such as for example the cost and consulting group ranking us among the most innovative companies in the world.
Looking ahead we do expect the macroeconomic environment to remain positive. Downside risks are rather attached through a continued geopolitical tension and unrealized pressure to released and to Korean Peninsula.
Also diverting definition about free and fair trade may affect those risks through the global business going forward. Furthermore restructured challenges in the personal power generation market will continue.
We have initiated and you'll take it has this fit to adjust our capacities flooring in it. Meanwhile it's a dialogue with the ancillary unit representatives have also started in Germany.
On a more positive note we are excited about our brand IPO for our healthcare business during the Capital Markets Day we hosted these management team to provided an in depth presentation. Of the strategy, operations and financials of this great business [indiscernible] business in the first half of calendar 2018 obviously depending on market condition.
And with that I would already like Ralf to touch the key financials for the first quarter.
Ralf Thomas
Thank you, Joe and good morning from side as well ladies and gentlemen. Organic order growth was clearly up 7%, we saw a continued momentum particularly from all short-cycle businesses across our portfolio.
Large orders were up due to serious of significant customer wins and mobility taxation such as a 900 million order from Israel and the largest U.S. rail order ever in San Francisco.
In addition, we saw again strength in the base orders with 11% nominal growth book-to-bill stood at a remarkable 1.13 times and the order backlog increased with the €128 billion. Overall revenue was modestly up 1% a double-digit organic decline in the power generation business was overcompensated mainly by mobility and digital factory.
The industrial business margin reached 11% as expected it was impacted by a margin drop in power and gas new unit business and currency headwinds of around 60 basis points. Most divisions were in or at the margin range with mobility and digital factory even topping the range.
Net income was up 12% supported by two one off gains such as the sale of awesome shares in a net positive effect from the U.S. tax reform and the magnitude of €437 million.
[Indiscernible] low search to almost €900 million, an increase of 22% over prior year's quarter main reason was significant project milestone payments in mobility. Now let's look at key developing into different divisions.
As discussed the ongoing structural system the power generation market lead to contracting demand and significant price pressure due to aggressive competitive behavior in the new unit business of power and gas. Revenue decline of 15% was mainly driven by much lower volume from the solutions business particularly from the [Indiscernible] project.
Unlike to what we see from the others in the industry our service business remains a stable contributor and it's holding up very well n top and bottom line. We have the healthy service backlog of €31 billion with good visibility for the next 12 to 18 months.
The book-to-bill and the service business was clearly above one in the quarter. As expected the margin came in below the target range at 7.6% due to lower capacity utilization.
And as we management develop sideways into quarter with lower volume from large orders. The profit margin was at the lower end of the target range impacted by extraordinary adverse FX effects in the magnitude of 80 basis points.
The building technologies team built on its successful track record with revenue growth of 5% driven by the U.S. and China.
A key focus is on expanding the digital service and connected product offerings to faster further growth. Profit margin of 9.7% was only temporarily lower due to cost over runs related to the Middle-East.
Mobility delivered an outstanding quarter where the financial key performance indicators speak for itself. Double-digit top line growth and improved profitability across all businesses, the team reached important milestones in several high profile project.
For example the Euro start training receive from a location also for Belgium and the Netherlands, while the ISE for trend for [Indiscernible] began regular service in Germany. We like very much what we see with 10.4% profit margin clearly north of the target corridor.
Our mobility team is confident to deliver strong margins prior to building the European Mobility champion, Siemens Alstom. Digital Factory proves quarter-by-quarter the superior strength of combining comprehensive software offerings with leading automation competence.
Looking at the competitive landscape digital factory delivered another strong quarter with further market share gains. Going forward we expect to continue to outperform the market.
A significant growth contribution came from the short-cycle businesses driven by strong demand from automotive and machine building customers. Again, china was spending out with 24% revenue growth benefitting also from restocking effect in the distribution channels.
We expect the short-cycle momentum to moderate going forward. Also graphics fuel the software businesses by closing three large multimillion software deals.
[Indiscernible] delivered a substantial profit contribution and the seasonally strongest quarter. The underlying margin was not of 22% excluding severance investment in MindSphere of around 130 basis and effects from the Mentor integration of around 80 basis points.
Process Industries and Drives achieved strong order growth of 10% however we saw diverting end customer trends. While commodity related end markets showed further stabilization the demand for mechanical components particular in the wind business was weak.
Profit margin improve by 90 basis points despite significant currency headwinds. This was driven by rate cuts higher profitability and the process automation business.
Siemens first quarter saw a solid comparable revenue growth of 2% driven by a strong growth in advance therapies. Profit margin of 16.9% came in as expected below the extraordinary high level of the prior year's quarter.
Despite good execution significant currency headwinds of 90 basis points in a less favorable business mix impacted margin. As laid out at the Capital Markets Day, the Atellica rollout of the diagnostics business in on track.
First 100 systems have been shipped as planned and customer feedback is excellent. The team is confident and committed that the aspired growth and diagnostics will accelerate the ramp-up of Atellica installations and relations sales overtime.
Siemens Gamesa reported their results already yesterday. Nominal was sharply up due to the merger with the healthy book-to-bill of 1.37 times.
However top line was significantly lower on a like-for-like basis. Revenue and profitability reflect low installation activity and ongoing pricing pressure in the onshore business.
The Siemens Gamesa management team will give you an in depth update on the strategic and operational priorities at their upcoming Capital Marketing on February 15th. Let's have the brief look at some of the major topics below industrial business.
Siemens financial services delivered once again a strong performance in supporting our divisions and achieving bottom line results. CMPA showed a clear increase of a prior year due to the related gain of selling Alstom shares.
However we expect volatility to continue due to the various assets and liability as well as carve out related items. The tax rate was at an extraordinary low level of 6% for the first quarter due to the largely tax free Alstom gain of €655 million and we already mentioned positive effect from the U.S.
tax reform. But please keep in mind that preparations for the helping IPO as well as mobility carve out our progressing as planned intense we expect certain tax burden related to those items in fiscal '18 as we told you before.
Taking this into the account for fiscal '18 you can now expect the tax rate to be rather at the lower end of our guided range of 27% to 33%. To sum it all up with the strong start in the first quarter and confirmed guidance for the fiscal year.
With that Joe and I are happy to take your questions and I return the mic to Sabine.
Sabine Reichel
Thank you, Joe and Ralf. Operator, we now start with the Q&A.
Operator
[Operator Instructions] And our first question will come from Mark Troman from Bank of America Merrill Lynch. Please go ahead.
Your line is open.
Mark Troman
Two questions please. One on power and one on FX currency.
Firstly, on power Joe I just want if you could outline the sort of time table for the capacity adjustments where should we be by let's say expect the year-end the fiscal year-end September '18? Related to that on severance charges I mean severance charges are one thing I think we see consensus has about something a bit under €400 million will that be more of these capacity adjustment type charge I guess you are talking Q1 offset by the gain and how should we think about that for the year that's the questions on power and then second one on FX and Ralph you mentioned I think 80 basis points headwind in energy management and 90 or so in [Indiscernible].
How should we think about FX for the year in terms of the group in terms of the overall transactional margin impact for the group. Thank you very much.
Joe Kaeser
Why can't it maybe started with Ralph and then I come back on the PT labor union topic.
Ralf Thomas
Off course Mark what I said is I mean for the industrial business the impact from external trade in the first quarter was 60 basis points for our continuing operations it was 15 I also had been mentioning energy management with 80 basis points, healthcare 90 it was also substantial headwind from exchange rate from 4 PD with the negative of 80 basis points and also our digital factory was negatively affected by 40 basis points just to give you more color on the divisions from today's perspective all others are equal if exchange rates stays pretty much level with that what we see at the moment I would say that the full fiscal year we will have pretty much the same impact around 50 basis points of impact that's what we expect from today's perspective for the industrial business in total.
Joe Kaeser
On the power generation I mean first of all that the first quarter was basically the all attachments on the under utilization of equipment which we have been doing in products. On the severance topic in PGE agenda now we announce 6,900 jobs to be redundant about 6,000 of them being power generation.
I'll have of that 6,000 in Germany the other half elsewhere in the world. So as for the elsewhere in the world is concerned we do expect to be having agreements done by fiscal year-end and then you should still savings come in during the quarter of 2019.
As already for the Germany part of the equation we have been starting finally starting the dialogue with the workers representatives which have been quite busy with their carry [Indiscernible] and things which still has not been yet fully done so there is some delay here. So we would expect the negotiations to be done during the course of let’s say spring, summer and then we need to go start with getting the cost out.
I mean booking the reserves is one thing but getting cost out obviously is the next. So a mixed basket here.
Outside Germany, we are well underway. In Germany, we have been starting the dialogue which is positive but it could take time will people are busy with elections can’t come to the table.
So I would say year-end we should have a solid agreement. And then we also would expect the reserves likely to be booked in fiscal ‘18 as sort of anticipated and then starting the cost take out during fiscal ‘19.
Ralf Thomas
Mark, may be one additional data point for PG. I have been indicating that in the presentation that in the first quarter we had personnel-related severance charges around 20 million.
But on top of that there is also of course a need to adjust the long lived assets and to depreciate if need to be, that happened in the first quarter to a magnitude of around 40 million.
Operator
Thank you. We will now take our next question from Ben Uglow from Morgan Stanley.
Please go ahead. Your line is open.
Ben Uglow
Good morning, Joe, Ralf and Sabine. I had a couple not surprising you around power.
So big picture question, you made the comment in the opening that the performance was quite different for your competitors. Joe, can you explain that performance differential, what do you see or what did actually happen in your business that’s different to your largest competitor?
Is it something to do with the way that others have accounted, is it something to do with your regional mix, is it even something to do with the actual gas fleet? So why are you seeing such a disparate performance from what others are reporting?
So that’s question number one. Question number two, I think at the recent conference you’d indicated that you expected the Power business, Power margin’s to actually improve in 2019.
I wanted to understand what is the basis of that confidence. Is it that you think that you are going to have so much cost out that the solutions business is going to improve or are you actually betting that power service continues to grow nicely?
Where in your business mix do you think things get better next year?
Joe Kaeser
I know that commenting on other people’s challenges is not appropriate because we have enough on our own on that matter. I mean the reason why I made that comment earlier was that people who are not so familiar with the matter, especially in the general public, just need to understand that this is not a Siemens problem but a general issue in the industry.
It shouldn’t come as a surprise because obviously for renewable energy growth, something else needs to obviously decline. So having said that though, yes, we do expect the power margins, the mix between new business and service to improve over 2018.
And there is a couple of reasons for that. First of all, obviously we expect the effect of rightsizing to materialize, at least in parts in 2019.
We also do see from the lineup in innovation that there might be some design-to-cost elements which come through to the P&L, so to speak, which should also give us the structural improvement on cost shares as price. And fairly we do not fit on service to daily compared to it as these are already.
So that would be probably you know that setting our head away from the real challenge which has in the new business so therefore we I think we will have good transparency in the marketplace, we have good transparency on our innovation pipeline that we will improve performance of machines as well as the design to cost and we also as I said at it almost smells like unnecessary behavior in the marketplace as the time at bit less intense.
Ben Uglow
Lower pricing density around new projects?
Joe Kaeser
No, I was just asking what I can say I don’t think it's a it should be clear in that.
Operator
Thank you. We will now take our next question from Andreas Willi from JPMorgan.
Andreas Willi
The first one just a quick follow-up on power and to performance in the quarter. You have agreements coming down quite sharply on service more stable and that's why a positive mix impact but maybe you could help us a little bit with the underlying performance in terms of where service margins are year-on-year and where are treatment margins on year-on-year to better understand the margin performance and taking the mix thing out of the picture.
The second question on union and work representative situation in Germany, we have the rates discussions do we done with this discussions it seems to be quite [Indiscernible] do you see a change or breakdown in the strong relationship that Siemens and the Germany industrial complex in tenure will have over the last 10 to 15 years that supported the German export miracle in that sense that if something is changing and how the unions and worker representatives deal with the companies in terms of they are wanting a larger share of the [Indiscernible] maybe as to 10 to 15 years we offer a strength?
Ralf Thomas
Let me start with the question on PG and the resilience of the service business and I think we have been talking a couple of times about that so the backlog as a strong components meanwhile from the service and exceeding 75% so we have quite some visibility also in terms of times and how that's going to be trend into revenue so the margin has been hardly impacted year-over-year on the service end so you can conclude from that, that it was all the new equipments that has been suffering in terms of profitability and also the mix from a revenue perspective I think here was power and gas having really a real as a strong service piece also and the revenues of exceeding 50% is giving to give you some confidence that we really have a some groups around the figure and the development of that mix way forward and so no material impact on the service margin developments.
Joe Kaeser
On the question of union and workers representatives, and how what we call the social partners, work together. I think, first of all, honestly it’s not that bad as it sometimes looks like, if you scroll through, let's say, the sensational headlines of some newspapers maybe.
So I will have to say that for the most part this dialogue is intact. However, you’re obviously right, there have been a few changes in terms of how the social partners react and the public also is communicating about, I mean look obviously that’s a collective bargaining and someone comes in and says, now we need 8% increase and, well going to work 28 hours a week and there is nothing to discuss any further.
It's a bit of harsh approach, and we yet need to see how that goes. And obviously, this comes right into the middle of a mostly fully loaded capacity in most of the key industries, it’s a very complicated matter to deal with.
And I would really call that in the approach some irrational [indiscernible], what we see here. On the other hand, they have always been able to come together and make a meaningful compromise in the end.
So that’s the IG Metall topic, which we have attend here and there is also election time now in spring for the workers representatives on the product sites, which also may play a role, that is it bit more outspoken than it need to be. But I am very much optimistic that this can be done, and comes March or April, we move on and go back to business, where we should be.
What I am more concerned about and this is not the only true for Germany, but also most of the fully developed economies. In terms of Germany we are doing as well as we have never done before in our history, if it comes to wealth and economic environment.
And there’s a lot of people, are really, really concerned, if not scared about what the future will bring. They all hear this digitalization and 4.0 and massive transformation and all those things and they don’t exactly know what the hell that is, and more importantly what it means to them.
And this sort of causes a hold back situation and every change, people try to explain is first of all consider this resistant and I think we haven’t done a good job, but also in the economic leader community to explain well the opportunities. Things will also be able to provide and that’s what we need to do.
And obviously populism in the political environment is not helpful either. So we have a bit of a social political challenge here and I believe that the economic leaders, the company leaders need to speak out much more and explain to people that actually, the opportunities are higher than the threat.
So I think long story short. I am confident that comes let’s say March, we should be back to real business.
And again talk to each other and not about each other. And in the mean time we do our business focus on our customers and innovation which we do not need anyone but our customers and our people.
Operator
We will now take our next question from Simon Toennessen from Berenberg Bank. Please go ahead.
Your line is open.
Simon Toennessen
Yes. Thanks very much.
Good morning, Joe, Ralf and Sabine. Firstly, on Power and Gas.
Can you talk a bit more about the trends you’re sort of expecting by product? And I know it’s sometimes difficult to quantify, but I think the expectations for large customer demand this year are being quite weak.
It's quite well understood. But do you think you're gaining share in particularly this more medium aero business right now given we’re seeing a very weak performance here from your bigger competitor?
And also in the compressor related business, with the PD seeing good order growth, should we assume some sort of commodity driven recovery here in that business with I think Ralf you stated the book-to-bill of Dresser clearly below 1 last year and also margins I think you said were in the low single-digit. So what’s kind of the recovery path here going forward?
And then secondly on Digital Factory. Obviously, you flagged very strong orders here, particularly auto and machine buildup driven.
Can you may be split out how the software business grew organically and relative to the more hardware related part? And then also within that, may be how the PLM business is doing?
Thanks very much.
Ralf Thomas
Let me start with second part of your question Simon. So the digital sector overall had a really tremendous start until the New Year.
As I said before, short cycle business in China has been driving that. As always, at that part of the year you need to figure out what are artifacts in it, what is re-shelfing, how much could you sell into the channel and also what effects may you expect for -- and around Chinese New Year.
When it comes to the software business, we have been sharing with you last time already that with the haircut and everything around Mentor Graphics, it's hard to tell what is normal on that end. But I think compared to the prior quarters, that one was relatively slow on the top-line but we had a very, very successful start with Mentor Graphics.
It has been substantially contributing to the margin development in PL and we are very happy with the progress being made there. I assume this is also at least in part due to the fact that the team in PL now after a series of acquisitions knows exactly which strings to pull at which point in time.
So we are very confident. And I think before we talk about a new normal or a new steady state, you should give us one or two more quarters before we can finally conclude from that what we see for the way forward.
And on the PG side, I think Joe has been discussing already that the large gas turbines, they still have a downward trend from the market perspective. Everything we know from McCoy and alike is rather suggesting that the trough may be a bit lower than we saw it last year.
So it’s hard to tell what market shares you may win or not win in that area before you also have a big picture on more than one or two quarters. And on the small gas turbine side, you mentioned that some of the competitors see a very intense market.
We agree upon that. It was a very slow market development for the first quarter and also from the statistics that we had at fingertips, we would assume that that was a further decline in demand on the market side.
And the compressor being part of the value chains of the process industry’s customers, that’s a right statement. However, they are also lagging in terms of the lead time that you would normally see so there wasn’t the same momentum being created as we saw that in the PT portfolio and as we have been pointing out for an extraordinary good development with 10% in order growth even though the wins market with mechanical components is fairly flowing so contracting talking [Indiscernible] I have been mentioning that last year and also the first quarter had a book-to-bill below 1.
Joe Kaeser
Well generally I said earlier I think just typically just as you all know in equate so this is for 2017 it should be two out anytime soon. I didn’t look at down numbers in there they are accurate so you can rely on those as far as Siemens is concerned.
Fiscal Q1 we expect large turbines about and now definition is larger than 100 megawatts. They have like two to three and four in the market this are all seven which is by the market share 30 plus or minus people take that pretty much has reflects the industry.
We have a few, I think, very decent design-to-cost action in the innovation pipeline, especially in the medium size environment I think about the HTT 800 and the likes so we actually to believe that we are well positioned in that market.
Operator
We will now take our next question from Martin Wilkie from Citi.
Martin Wilkie
Just a question on the process and drive business you've mentioned that mechanical drive is or dragging that business versus recovery elsewhere obviously do you have exposure to win there. I just wanted to understand how much of the challenge in mechanical drives is linked to the pricing impacts the impacts done by the turbine manufacturers and how much of that is a structural shift to direct drive?
And also, there was an article in Bloomberg a few days ago mentioning that you might be considering the sale of Flender. And I think there is some confusion to where that comment came from the company or elsewhere so just wondering if you could comment on that as well?
Joe Kaeser
Why don’t I do that because the [Indiscernible] and there is nothing else to have anything in detail. The mechanicals are at business which used to be the Flender business.
So it has a good brand actually as a company and it does see some structural areas closely because of innovation [Indiscernible] explain that. In order for us to bring the cost down in most of the off-shore but also nine products on-shore we are going after key list boxes because it's just more efficient it's a the wait is down and the cost are down.
So actually this mechanical drives that environment if it comes to wind is so to speak I think they are more for innovation. The areas of benefit sales strategy that's when we commented a bit on the differences in the wind there it's not so much about pricing issues and everyone looks at other people stack or services to top line but there is not the issue, the issue is that doesn’t segment issues to be ago segments it's now it's being affected by innovation elsewhere and the deal was that and as people speculate we will sell it or ever been [Indiscernible] but a comment on it but obviously are very good people they are quite to turn around you need to know this mechanical drive business was also one of those so called underperforming units and you are not in underperforming unit anymore by our definition.
So you can see a lot of good things happening there and the team is great. We have a good positioning in the marketplace and so we feel actually good on what we see.
Operator
Thank you. We will now take our next question from the James Stettler from -.
Please go ahead, your line is open.
Unidentified Analyst
Yes good morning and thank you for taking my call. Two quickly, just on the mix within the 17% order growth in Digital Factory, how much was a project and how much was short cycle?
And could you just give us a bit more color around the 2% order growth in Healthineers, which looks a bit lower than your two peers? Can you talk a bit how that breakdown between the three segments?
Thank you.
Joe Kaeser
Thank you, James. Starting with the Healthineers, I think we need to understand that the competitors that has been disclosing their figures do not have a diagnostics business as we have, and as the management team has been sharing with you guys in the Capital Market Days.
It’s obvious that with ramping up now Atellica and really making good progress in terms of what has been delivered, installed, in terms of customer feedback that we get. It’s exactly meeting the expectations of the customers obviously but still it will take time.
And this is also going to be reflected in the performance of the diagnostics business. Obviously, it’s ceding period and before we really see substantial and material bottom line impact.
That will take another couple of quarters, as we said before because then the reagent business is going to kick-in, with richer margins compared to that what we see at the moment. So, in VIVO business, so advance therapies as pointed out in the presentation, as well as imaging has been minimum up to speed with that development of the competitors, that has been out with their figures already.
So, we are absolutely satisfied with the development and also bear in mind that prior year’s quarter and we said that in the discussion then, was an extremely outstanding good one also in terms of profitability and not only in top line growth and the 90 basis points of negative impact from FX, I have been mentioning before. Talking about the Digital Factory and where the growth momentum comes from, maybe I can give you a bit more color on that one.
I have been mentioning that we had 24% growth on the short-cycle business in China, which is amazing again. As I said, the momentum in the market there, is probably at peak and we should be careful with our expectations for the quarters to come, momentum will remain there, but probably not on that high level, so we need to caution you a bit for the second half of the year, in particular visibility, typically it’s not more than six months in that business.
We also had outstanding growth rates on the short-cycle product business in Italy, and packaging industries are fairly strong there and they are supporting and benefiting from internet base trading obviously and also Germany with modest but stable growth rates has been contributing in the short-cycle business development. So we see that’s being the main source of the development.
In particular automotive and machine builders has been contributing a lot, but also the general, the general manufacturing environment and automation they are in is providing additional growth for almost any of the typical regions where we are in and particular China, as I said before with strong double-digit growth rates.
Operator
Thank you. We will now take our next question from Jonathan Mounsey from Exane BNP Paribas.
Please go ahead. Your line is open.
Jonathan Mounsey
Could you comment on the scope of Vision 2020, I see it appearing more and more on your slides all the time. And obviously, hopefully, we'll get some communication on that before the end of this fiscal year.
But may be just a scope that it’s likely to incorporate? And then on Mobility, a very, very strong quarter in terms of order intake and cash generation.
Does this at all affect the agreement with Alstom? Will there be adjustments made as we go into the completion of that deal to reflect how the two businesses have performed in the period since it was announced?
Ralf Thomas
Thank you, Jonathan. Let me start with the last one around Mobility, you are absolutely right, this was an outstanding quarter of Mobility and we have been indicating to you that we expect strong growth momentum both for our new orders and for revenue.
So that has been part of our business plans when we started into the negotiations with Alstom. And therefore, there is no need to adjust for business development so far.
Of course there is the normal technical adjustment being made for working capital and alike at the end when we close the deal. But the business development that you now see us reporting on the first quarter is exactly along the lines that we had been indicating before.
And as I said, there is growth potential for the quarters to come. A very strong and dedicated team that also now obviously has been successfully doing their homework in terms of non-conformance cost.
So the margin in the double-digit area is clearly leading the industry and we are very happy with the team and with their performance.
Joe Kaeser
And I think may be to add to that, you may recall that I said in the press conference at the time when the deal was announced that there’s no reason why this new co should not have margins going to equal 10% or double-digits margins once it’s formalized, integrated and has gotten the synergies out of deal. Now obviously, there’s a lot of work in between.
We need to do the deal. First of all, we need to close, that is an intense discussion with all the stakeholders at this time thinking about the unions, obviously also about antitrust matters, the customers.
So the team is really busy in doing that. For the most part it looks really good.
Of course all the guys are concerned as Andreas mentioned earlier in terms of social impact and workers representatives, so we need to deal with that. But all-in-all we continue to believe this is a very, very attractive combination if and when we finally have it.
Now on the vision, what we call Vision 2020 plus which is nothing but a placeholder for what’s next in the long-term strategy. Look, I mean, we do have a strategy today.
And you also, however, have recognized that we need to now take it to the next level. We are not in a hurry to jump to something too quickly as you obviously see the business overall is doing well and also we have some structural areas in PG.
It obviously was one of the most prominent parts today in the Q&A, rightfully so. So I mean we really need to balance between fixing the structural topic with the workers representatives.
And laying out in new strategy on the other hand I mean it won't be and both I think it's with the structural thing and layout what happens next before we have fixed the first thing. So I think we are well underway we have had quite good discussions in the management team workshops and where we see the potential and where it can't be or it should be much better than we use to be, so well underway as I said I like with [HC] we are not in a hurry we will get things done right but first as sometimes let's say we've thought of need to do the right sizing first and then expand the good things into the future and that where we have been good at.
Sabine Reichel
We will take now our last question please.
Operator
Thank you. We will now take our last question from [Gale Deborah] from Deutsche Bank.
Unidentified Analyst
I had couple actually and the first one is related to well some of your competitors issues right now I mean did you see some early signs of some of the group's activities starting to benefit from the windfall effect of GE carryon issues and perhaps with some of your customers now more willing to daily and they had done in the past. And the second question relates to wind entry management margins have been sliding down here for the past few quarters this by the good top line development.
So could you elaborate a bit more on this please what's going on there and where it seems that the margin gap with some of your peers has actually expended gradually rapidly?
Ralf Thomas
Let me start with the end part of your question first of all looking back into historical track records there you typically see that the first quarter is very slow each and every year and so from that perspective the pattern is such which is not revenue and as I said before there was also substantial impact from exchange rate in this quarter as it was amounting to 80 basis points if you add those 80 basis points they are clearly moving forward also considering that seasonal pattern in it and we are absolutely convinced that they are going to make progress with their programs and their growth pattern in particular 5% revenue growth in energy management is quite something to achieve we are quite happy with that and also the fact that our product business is developing low voltage product business in particular is developing quite nicely that's also an area in the portfolio where we see a good margin conversion taking place and so also in that business we saw that is quite some momentum being created in the short cycle business and from that what we see the visibility in that markets we are also quite positively looking ahead for the quarters to come.
Joe Kaeser
Then on the first one I mean look off course there is a four ways if you have the challenges that customer ask and [Indiscernible] off course people can do ask and say are you owned and are you ready and will you support us and the answer is off course yes as we have always done. And this is nice quite progress on efficiency products we have been investing into innovation despite obviously a complicated market, our service is still underway, we have a fascinating team in power generation and in service, so they are really, really working hard to also help our customers get more benefits out of their product they have today.
So, we try to keep our customers happy and help them to be more successful and competition after all and we will see how it goes.
Sabine Reichel
Thank you, Joe. Thank you, Ralf.
We will now finish the call because we have the AGM. Thank you, everyone for participating.
I and also the team will be available for further questions. Thank you.