Siemens CFO Thomas on Altair, Healthineers and solid M&A craftsmanship

Yes, initial skepticism is actually a good thing. It means investors are engaging with us, reflecting on what we do, giving feedback, and we have appreciated that for a long time. We maintain a very trusting dialogue with most of our investors, spending a lot of time on roadshows, just like you are here today. We go to our investors and talk to them. And of course, a 10 billion dollar acquisition is quite a significant move, as they say, and it's naturally worth taking a close look at it. We had obviously thought about it beforehand, and I believe the dialogue has evolved over the past few months to the point where everyone, like us, is very positive and also a bit happy looking back at the closing last week. It's not a given that things can sometimes go faster than originally expected. We were fortunately well prepared for the closing, which came significantly earlier than one could have reasonably expected on average.

Yes, that's a very good question that we've obviously thought about at length and in detail. The simplest answer would have been from the antitrust authorities worldwide. If there had been any overlap, they would certainly have had a different opinion than to approve it. The nuance is quite different. The simulation market is, to exaggerate a bit, factually organized by industries or by technological application fields. While we made the Mentor Graphics acquisition primarily targeting the semiconductor customer market, we are now with Altair operating more broadly. Altair mainly deals with mechanical and electromagnetic simulation, but also has many highly qualified, even academically highly qualified employees working with artificial intelligence and its applications, as well as high-performance computing. On one hand, this is very complementary to what we already had historically as a software simulation portfolio, and at the same time it broadens the perspective on things that find cross-disciplinary application. It's a perfect fit and had been on our wish list for a long time. Of course, you always need a willing seller, as they say, to be able to acquire something. I believe this was a very good development for all involved, and the teams on both sides are literally in the starting blocks and are now getting started together.

First of all, it's important to know the target as well as possible. For publicly listed companies, there's regular information. As I said, we have frequently and often been able to experience things up close, also because many customers have repeatedly pointed out to us and raised that our software offerings and Altair's offerings speak to each other at the customer in their business models. So it was naturally compelling to examine the synergistic potential. We did that extensively. We had said at the time of the acquisition announcement that we see potential on the cost side, which is rather unusual for software acquisitions — 150 million in cost synergies that will materialize in the second year after closing, so announced relatively closely, and we will deliver them. And medium and long-term, there's a very high topline synergy potential, meaning revenue through cross-selling activities and the opportunity to mutually open up new customer groups. That is well thought through, and well thought through of course means thoroughly calculated. You can always assume that when Siemens makes an acquisition, virtually all instruments known from textbooks are brought to bear. First and foremost, we have a very comprehensive discounted cashflow model. Not only are the target's expectations reflected there, but also our opinion of their planning. We have extensive discussions and simulations, what-if scenarios for various important planning parameters like the weighted average cost of capital, discount factors associated with risk structures, different scenarios for growth trajectories. It's very important to have the terminal growth rate, meaning how it continues forever, as that has a major influence on valuation. We do all of this very professionally. We have a fantastic team that is highly trained in these things. In total, we've made over 35 software acquisitions, not all as spectacular and large. We also apply common criteria like multiples of all kinds — price-earnings, revenue multiples — which speak for themselves on one hand, but also come into play in cross-comparisons with competitors or past transactions in similar industry structures. We also look at the share price performance of publicly listed companies, using established instruments that track certain averages over a specific time period. Then there are premiums, of course — you pay more than the pure market value — and then you have to ask yourself how this premium is to be realized. Synergies play a big role there. We also look at how much of the potential synergies are already factored into the purchase price, and the bulk must of course remain in-house. Then there are other things you routinely go through in due diligence, looking closely at governance processes, planning techniques, currency exposure, legal risks, and so on. It's a very complex and comprehensive process that a well-trained team like ours can usually move through very quickly. And when our quick approach meets a quick approach from the responsible authorities, it's possible to bring such large transactions across the finish line in a relatively short time span.

Well, on one hand, we do regularly access the bond market. The group financing as a whole must be kept in mind when you see additional financing needs for an acquisition. There would have been room for more — I didn't dispute that. I just wanted to explain that it wasn't only about the 10 billion for Altair, but that we naturally look at group financing and the perspective of how we want to do this not based on individual transactions, but in the medium and long-term future. On that occasion, we also considered what, on one hand, regarding our rating — we have an excellent rating, I believe in our industry one can say with all due modesty that it reflects the quality of our balance sheet — and the rating agencies rightly said then you could also finance externally. The honest answer is, we could have financed externally. Looking ahead at the financing instruments we hold, we had extensively explained that we had over 3 billion in inflows at our company that had already arrived in early October from the divestment of our Innomotics activities, which were then essentially redirected. They didn't flow out immediately but were parked on our balance sheet. This saved us other refinancings that would have been due at that time, resulting in interest savings for the current year. Those are nice side effects, if you will, that we naturally take advantage of. We had already pointed out at the listing of Siemens Energy that we would ultimately like to divest this stake with a steady hand and well-considered timing. I believe we have kept our word, and we have now, in this divestment process we had planned anyway, dedicated a portion of the proceeds to this acquisition. And we have always said we are not religious about our shareholding in Siemens Healthineers, and therefore also deployed a small portion — 1.45 billion, about 2.3 percent of this stake — for that purpose. And if there had been a gap beyond pure timing to close, we could have done that through bonds without question. You have to keep in mind, and this is perhaps the most important point in this context, group financing is not something you change overnight. It has a perspective that sometimes extends decades ahead. And that's why, like good chess players, it's worth thinking ahead about the next moves before moving pieces. That's exactly what we tried to follow, and we are very confident that we did the right thing, because we are in the middle of a huge transformation. The company is on its way to becoming a technology company, and that also includes internal renewal from a position of strength. And that's exactly what we're trying to reflect in our financing approach.

First, you've already hinted between the numbers — the figure we mentioned is purely speculative, and we've been saying this since the IPO of Siemens Healthineers. We've said we want to ensure that this great company can unfold in a way that on one hand isn't overwhelmed by the IPO and the new governance tasks that come with it. Secondly, we wanted to give them all the financial leeway. The Varian acquisition of 16 billion US dollars — the company not only handled it brilliantly but also integrated it fantastically, with a truly impressive track record and corresponding developments in that business. And we naturally wanted to ensure that shareholders who invested in Siemens Healthineers know where they stand. That's why we owe the shareholder base of both Siemens AG and Siemens Healthineers a clear rationale with which we reflect our activities as owners, co-owners of this company going forward. That's exactly what we're dealing with at the moment. We want to ensure that when we hold an asset, we are indeed the best owner and can explain why that is the case. Now, in an industry like healthcare, it's not quite so simple, because healthcare has many facets. There's the so-called MedTech, to which Siemens Healthineers also belongs — I'm simplifying dramatically — CT, MRIs, and other imaging procedures, therapeutic procedures like Varian in cancer therapy. That's a technologically dominated environment in which Healthineers plays a great role. But there are other aspects in healthcare. Think of hospitals worldwide, the vast majority of which are in state or semi-state ownership, and their energy efficiency — where for example Smart Infrastructure, a core business of Siemens AG, can be helpful. But it's not just about buildings and energy efficiency; it's also about processes, workflows in hospitals or in healthcare. If I may briefly compare this without being disrespectful to a factory: in a factory, the most expensive investments, the machines, always have high utilization. In healthcare, unfortunately worldwide and in most Western and Central European countries, that's not the case. So it's a good point to think about whether costs in healthcare can't be brought to a more favorable level at a societal level, if one uses instruments and tools that are more available than ever through digitalization and that are already being usefully deployed elsewhere. And Siemens AG can help there. Last point to shorten this: all of that isn't so simple because many processes in healthcare don't scale globally. Every country has its own legislation, regulations, approval processes. In many countries, the reimbursement mechanisms — the so-called reimbursement schemes, who bears the costs for illnesses covered by hospital stays, prescriptions, and doctor visits — vary greatly. So one has to literally look at it country by country to reach sensible conclusions. That's why this process takes a bit longer than some might wish, but we stand for thoroughness and responsibility, and at the end, at the latest by December 9th as announced, we will stand ready to provide answers. And I'm quite sure every rationally acting investor will then understand why we decided as we did.

Possible uses have nothing to do with it initially, because that's a question of how meaningful the ownership is. If we were to come to the conclusion — which brings me back implicitly to your last question — that we had a need for deployment and no means, then we would very likely first explore our balance sheet options rather than questioning a strategically relevant asset. But because we want to be forward-looking and anticipatory out of the responsibility that we are entrusted with others' money and they trust us, it's important to think ahead about what makes strategic sense and not reflect short-term financing options in long or medium-term utilization aspects. That wouldn't be professional.

We still have to deliver. But allow me to briefly elaborate before I answer the question directly. I believe Siemens is a company that, through its 178-year history, has repeatedly faced challenges to reinvent itself, to adapt to conditions, or to influence them. And in this sense, the company's development over the last 30 to 35 years, which I've had the pleasure of working for, has always progressed. Each era had its paradigms, its economic policy conditions, also geopolitical conditions to consider. I may recall, for example, that the exit from the Russia business was naturally a painful act and didn't just happen alongside other business — in some segments like Mobility, it actually left gaps that need to be filled again. So each era has its own challenges regarding the portfolio. While in the 90s, under the impression of globalization, conglomerates looked extremely desirable because they offered risk diversification possibilities that were rated very positively, better financing conditions, capital access and so on, over the last 20 years this steering paradigm or notion of how successful companies should be run — particularly publicly traded companies — has changed significantly under the impression that so-called pure plays apparently achieve higher, empirically verifiable performance levels. Siemens AG didn't close itself off from this, and so we systematically looked over the last 10 years and before that at the best possible use of the capital entrusted to us. Then came the IPOs of Siemens Energy and Siemens Healthineers, creating independently operating companies. In this framework, the company continued to develop. We recognized early on the opportunities of automation, electrification, and digitalization, and their contribution potential to sustainability aspects. That's why we are well positioned along these megatrends and can now, from what we consider a position of strength, also devote ourselves to how things should continue. And this how-to-continue is a dynamic process — the better is the enemy of the good, if you will. So the portfolio question isn't asked just once every 10 or 20 years, as perhaps in the 1980s, but is permanently on the table. And being permanently on the table means it's an omnipresent topic in our strategic and operational planning processes. We're always busy thinking about how to best deploy our capital in a profitable and growth-oriented way. That's how we identified the so-called portfolio companies — business units that in 2021, when we communicated them externally, had an enterprise value of about 1.5 billion, which we knew would no longer be at the core of Siemens AG activities. We could have kept them and waited until marginal returns kept shrinking. Or we said these are companies that might find a better owner elsewhere, for whom investments in these businesses come with corresponding employment for employees. So we put them aside and nurtured and developed them the way private equity would have done. And we were rewarded, if I may say so, in that in retrospect, these portfolio activities — which were worth 1.5 billion at inception — could be placed with over 7.5 billion in better ownership and better hands for the path forward. And this process, even though the Portfolio Companies entity as a group no longer exists, is something completely normal in business these days. You have to ask yourself every day: how do we continue? Which technologies are changing? Which business models are on the horizon? And what possibilities do I have with the money that third parties, my shareholders and owners, have entrusted to me, to manage it best?

Well, I believe understanding of our house has improved dramatically, and it's not my doing — it's a generational contract, if you will. The transparency with which we operate is, I believe, very high. I also hear nothing to the contrary. There are naturally always wishes for additional information, which is in the nature of things. Regarding the so-called conglomerate discount we suffer from, one must say that it has changed dramatically over the last 12 months. In particular, our share has already been significantly revalued compared to so-called peers, and if you take the two major competitors — whose names I won't mention — as reference points, the gap has already changed significantly. In some cases, the gap has been completely closed, both in terms of operational performance, meaning growth and profitability, and valuation. Then, what doesn't the capital market like? It's the well-known discussion you also brought up. From the outside, there is clearly impatience at every point regarding the assessment of who is the best owner of Siemens Healthineers. Then there are naturally different notions about the speed of divesting the Siemens Energy shares. If we speak today, I believe the situation is relatively clear. But I want to briefly recall without rehashing how it was in November 2023, when very many voices, calling very loudly for a quick divestment, were of the opinion that one should stand aside with large helping hands and by no means yield a single millimeter. One must also see the big picture on the time axis overall. And I believe we are very consistent and sustainable in the truest sense of the word. But we are also a bit proud that we don't let ourselves be led by the pressure of the moment, but advance the business with a steady and calm hand.

Well, without going into the White House specifically, it's generally the case that trade barriers of any kind factually restrict or complicate world trade. Complications or a cooling of world trade always means fewer investments, or hesitations, indecisiveness, longer decision-making processes, and that in turn is naturally not good for the investment climate. Siemens and many other companies are naturally affected in their respective customer industries when companies that are our customers make their decisions later or in a different form. We ourselves are, I believe, in a relatively favorable position through decades of nurturing our globally diversified value chains. The background noise, if you will, is negative due to trade restrictions. If you accept that as given and then ask how best to cope with such restrictions, we see ourselves in a relatively favorable position, even though we don't wish it to be so. Why are we in a relatively favorable position? Because through our global value chain, we are active in virtually all economic regions. To cite some numbers: in fiscal year 24, we generated 25 percent of our revenue in the US. We have 48,000 employees there, 28 factories, countless R&D activities. A large part of our software portfolio is there. So I believe it's also fair to say that we fundamentally have American roots. The administration surely understands this. And in the many senators I've had the privilege of speaking with throughout my career, there wasn't a single one who wouldn't have felt comfortable with a Siemens factory in their respective state. So I believe we are also appreciated as a corporate citizen in that regard. I wouldn't know anything to the contrary. On the flip side, in Asia, we have a large share of our activities — over 25,000 employees in China, over 35,000 in India. This global setup, if I may put it that way, was essentially built into Siemens from the cradle, because the founding brothers were already active not just in Berlin but also in London, St. Petersburg, Calcutta, and other places around the world in 1847. So it's a grown structure from which we now benefit. We naturally ensure that we maintain independent value chains as far as possible — local deliveries by local sub-suppliers, so that the systems are closed. But that's not an homage to the government in Washington — it was especially during the COVID period, when supply chains worldwide were severely challenged, that this was already a great quality of our house, and we continue to nurture it. The same applies as with financing and portfolio: it's not the question of getting something right once, the golden moment, but sustainable nurturing, thinking ahead, holding anticipated scenarios ready, and then implementing in a way that the company develops as well as possible in a given situation and a given environment. That's why we have great respect for all the movements we see in global markets, but we have no fear.

I would definitely assume so. I don't want to correct your question, but I have also said myself repeatedly and would like to repeat it now: when the time comes that the Good Lord allows me to remain active until next December, I will have signed my 14th annual financial statements for Siemens AG. And I believe that was a time that was very enriching for me, and hopefully brought good aspects for the company too. But I also believe it's good that a corporation, which by definition is immortal, is continuously renewed, and that includes personnel renewal. Whether it will be retirement in the truest sense, I don't know. I know myself well enough to know it won't just be rest. I also look forward to activities such as on supervisory boards, and I think I'll probably continue to accompany one or two honorary positions for at least a while. Regarding the quality of talent development, if I may put it that way, in the finance function at Siemens AG — I don't think I need to say much. One just needs to look at the DAX and other companies to see how many CFOs have gone through a certain 'Siemens school.' We're proud of that. It's not my doing — it's a generational contract. My predecessor's predecessor certainly started it for me. Neubürger then really kicked it off, I believe. Mr. Käser made a great contribution, and I try to contribute my part. But the tradition of the house — having high quality standards and offering many development opportunities — and being not just large but also globally active means there are opportunities to work in various economic regions with different maturity levels, different businesses from project business to software and service, and also in different governance functions. I was truly fortunate — I mean that in the best sense — to be active in all these dimensions in my career. And over time, this creates an overall picture that not only sharpens one's own judgment but is also attractive for companies to acquire such experience. When I look now at where, above all other important companies, CFOs and other board members and senior management are active — SAP CFO Dominic Asam was here, was SFS head and treasurer, gave very big, groundbreaking impulses for the further development of finance before moving via Infineon and the well-known further stations in aerospace to SAP. And our most recent departure, so to speak — also a very successful young woman, Eva Scherer, who gets to steer Daimler Truck's financial affairs, and she's doing it very successfully after just one year from my perspective. I hear nothing to the contrary. We're quite proud of that. I could give you a whole list of additional names now, but I don't want to overdo it. It's a fantastic training opportunity in the truest sense of the word that I was able to go through myself, and it's a duty of mine to pass it on. That's also one of the reasons I try to get as involved as possible in talent development. We have various programs, very systematic succession planning that always ensures not only is a gap filled when it arises, but those affected continue to develop, and also those who close the gap develop themselves through this step. And over the years and decades, quite reasonable results apparently emerge.

I believe they need to be much faster. And faster now doesn't necessarily mean faster in the head, though perhaps also in the head, but faster at adapting to other conditions. When I look back, when I made my first career moves in the company in the 90s — before that I was in management consulting — there were at best technological changes every 10, perhaps every 15 years that were significant enough to create new S-curves, meaning new technologies taking hold across the board. Now that's happening literally on an annual cycle, and even apparently established things are constantly being questioned, not just technologically but also regarding business models. And that naturally includes applying modern technologies in financial processes. We have also, as is known to you, issued blockchain bonds, even though we didn't have to for financing reasons. We want to internalize these technologies, make our own what we ourselves offer to others. And with this, we're on a trajectory that keeps shooting future generations into ever faster orbits. And with this speed, you have to manage without becoming sloppy. We still want to make rational, justifiable, and intersubjectively verifiable decisions that serve the best of the company. And that requires a lot of domain know-how — you have to master your craft. We only want players capable of Champions League in our ranks. But at the same time, we also want to experiment and push things forward, be it in financial processes or in how we handle the portfolio — we've already discussed that. And we naturally want to be serious conversation partners for the CEOs and the technologists in our house. And this creates a field of tension whose complexity I believe cannot be overestimated. It was different in my time when I was a rookie. I believe that's one of the big challenges. And what I personally believe, given this multitude of possibilities, is that it's important to acquire decision-making competence, to switch perspectives, to use the opportunities of the house, and on the other hand to ensure you have a super strong team. Because in times of such high environmental ambiguity as we currently have, it would be completely illusory, bordering on naive, to believe that a single person can absorb all of this. The systemic answer is: I need a super strong team, and that super strong team must itself have super strong teams. And there's an incredible inner coherence in how strong players then become attractive for subsequent players in certain fields. It's similar — I understand nothing about football, but that's how I imagine team sports on the green pitch. When you have fantastic players, it also inspires other fantastic players to join the team. And in the end, you get Champions League format. I've never hidden the fact that I'm an avowed high-achiever, and I assume we also live that as a team. We want to be the best. A silver medal is nice in the long run, but not satisfying.

Going to Siemens.

That's right. I thought the CFO career begins with the appointment.

Saying no at the right moment.

I really can't name a single one. I believe — sorry for the lengthy answer, but it has to be at this point — you have to distinguish. There are decisions that look like decisions but are actually just derivations. I have sufficient information and can then more or less unambiguously arrive at a correct decision. What's right and wrong is ex ante clarified — it's just a question of information availability. Real decisions are characterized by residual uncertainty. You don't know at that point, and therefore what happens afterwards is of great significance for the quality of the decision. Sometimes it also depends on things you can't even see or couldn't have seen. That's why I believe it's difficult to say ex ante about the most difficult decisions or wrong decisions. What I do have great respect for is the sheer volume of information that nowadays needs to be considered because it's available. And that's why I can only repeat my plea: anyone now thinking about becoming a CFO-to-be or who may have already started, should invest in themselves and their own judgment. You rarely get that just from textbooks. You have to experiment, switch perspectives, and then work in a great company like Siemens.