Good morning, ladies and gentlemen, and welcome to Siemens Healthineers 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 two of the Siemens Healthineers 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, Mr. Marc Koebernick, Head of Investor Relations. Please go ahead, sir.
... Operator. Good morning, dear analysts and investors. Our CEO, Bernd Montag, and our CFO, Jochen Schmitz, who are here with me in our headquarters in Erlangen, will be taking you through the details of our Q3 2024 this morning. The Q3 results for fiscal 2024 were published this morning at 7:00 A.M., and you can find all relevant documents as well as the recording of this call on the Investor Relations section of the Siemens Healthineers website. After the presentation, there will be a chance to raise questions.
Please note the following: Siemens Healthineers will record and transcribe this meeting. It will be published on websites such as www.siemenshealthineers.com. If you do not want to be recorded or transcribed, please inform us before asking questions or making comments. Further details are found in the privacy policy of Siemens Healthineers. Finally, let me remind you of the two-question rule for the Q&A. Let us get started. Bernd, the floor is yours.
Thank you, Marc. Good morning, dear analysts and investors. Today, we present you our quarterly figures. We confirm our outlook for comparable revenue growth and adjusted EPS for fiscal 2024, despite China still impacting growth. Varian delivered a very solid set of numbers again, and Diagnostics significantly further expanded its margin based on a consistent executed transformation program. This is evidence of our decisive measures following up on our challenges from last year and bearing fruit. We successfully stabilized Varian's performance. We are swiftly implementing the Diagnostics transformation program. The Imaging business is still impacted by the anti-corruption campaign in China, which impacts the entire industry. We expect this to turn into pent-up demand in 2025, as the clinical need for our offerings is not impacted by exogenous factors like this. In terms of growth, we came up against very tough comps in Q3.
Please remember, last year's Q3, we grew by 10% ex antigen, and in particular, Imaging was at very strong 15% and Advanced Therapies at 12% growth. Let me now briefly run you through the third quarter results. In the third quarter, we again expanded our strong order backlog with an equipment book-to-bill rate of 1.07. Revenue growth in Q3 came in at 4%, mainly held back by China. Adjusted earnings per share were EUR 0.52 in Q3, broadly in line with last year's strong third quarter, which benefited from an extraordinary low tax rate. Imaging grew by 4% on very tough comps. The margin was 20% year-over-year, impacted by headwinds from foreign exchange. Varian grew by 10% at the upper end of the guided range, and the margin came in at healthy 16.6%.
Advanced Therapies revenue was flat on very tough comps. The margin was 14% year over year, impacted by headwinds from foreign exchange. Diagnostics grew by 2% at a strong 7.4% margin and is fully on track to deliver the savings from the transformation program. Jochen will provide you with more insights in the financial section. We are very optimistic about our future growth prospects. On the one hand, thanks to our healthy and constantly growing order book. On the other hand, since we have identified multiple sources of growth for our products and services. You are aware of the secular growth drivers, such as growing and aging population and the rise in non-communicable diseases. Cancer and cardio and neurovascular diseases especially drive the need for exactly what we offer with our portfolio.
Increasing cost pressure in healthcare systems, combined with staff shortages, further increase the need for substantial innovations. What are, what are we doing about it? We offer breakthrough innovations for better patient outcomes and gain further market share, accelerate replacement, and ultimately reach attractive innovator margins with increasing scale. But we also benefit from innovations in other fields of healthcare, whether it is in pharma or in the medical device space, or in the advancements of robotic treatments. One could say the world innovates for us. This chart you are familiar with from previous communications. To accelerate growth and profitability, we leverage two distinct sources of value creation. On the one hand, we have our synergistic and winning combination of Imaging, Varian, and Advanced Therapies. Our focus there is on leveraging combined scale in multiple dimensions. For Diagnostics, on the other hand, the formula is rigorous focus.
Now, let me give you some examples how we are crystallizing value in our two cores. Let me start with the synergistic segments. You know about our substantial innovation leadership in CT Imaging with photon counting or in MRI with our award-winning low helium technology. Both are obvious examples of our innovation leadership and how we are paving the way for future growth. However, growth for us does not only come from our own innovations, it is also the result of the healthcare world innovating for us. We are constantly witnessing extraordinary breakthroughs in medical science, like in pharma or the medical device space, which need better diagnosis and better treatments with substantially better patient outcomes. Outstanding examples are new therapy approaches in cancer care and neurology based on innovations in pharma industries, triggering fast adoption of novel procedures.
It has a direct impact on growth in our Molecular Imaging business and further sustains our growth ambitions. Our products are needed to identify the right patients, to assess response, and to confirm health or to accompany survivorship. One example is theranostics, as a new approach to identify and treat an increasing number of cancer types. Theranostics is a highly targeted and individualized treatment using one radioactive agent, the radioligand, to identify and mark cancer cells, and a second agent to destroy those cells. Theranostics has been proven effective in extending lives and improving quality of life of patients, especially also for those who have not responded to traditional cancer treatments such as radiation, chemotherapy, and immunotherapy. As an example, the treatment of prostate cancer has recently significantly, significantly advanced by theranostics. There's also a pharma pipeline covering more than 25 other cancer types.
PET/CT scans and SPECT/CT scans, as well as MRI, play a key role for the clinician to select the right treatment for the right patient and to monitor therapy progress. The clinical benefits of providing individualized cancer care is why theranostics is gaining momentum among providers. Another outstanding example are disease-modifying therapies for Alzheimer's disease. As you are probably aware, several groundbreaking immunotherapy treatments have recently emerged that work to reduce beta amyloid plaques that form in the brain and slow down cognitive decline in the early stages of Alzheimer's disease. To qualify for these treatments, the presence of beta amyloid plaque must be confirmed through diagnostic testing. Beta amyloid plaque PET Imaging plays a critical role in the Alzheimer's disease care pathway, as it is one of the only modalities available to evaluate the beta amyloid plaque burden.
We offer the broadest PET/CT portfolio in the market, from ultra high-end systems, primarily installed at larger or academic institutions, to systems targeted at bringing digital PET/CT to a broader market. They come with a wide range of innovative technologies, like our latest innovation, the AI-powered Biograph Trinion. But our offering goes beyond Molecular Imaging Scanners. We own and operate the leading PET radiodiagnostic pharmacy network in the U.S., which reliably delivers PET radiopharmaceuticals across the country. What makes this so relevant? These radiopharmaceuticals have a very short half-life and need to be used quickly after production. We invest in our radiopharmaceutical network with new production facilities to increase patient access to PET biomarkers and to support future biomarker development.
The availability of new biomarkers will increase access to the latest individualized care and make us an even stronger partner for customers and patients along the entire cancer care continuum, and for many of the most threatening diseases. To sum it up, we laid the foundation for another future growth engine, helping healthcare providers and patients to deal with non-communicable diseases. When it comes to diagnostics, our full focus for value creation in the last two years has been on successfully implementing the transformation program that was designed to drive a step change in profitability at diagnostics. We started the program in 2022 as a reaction to the changed cost environment, but the key trigger was the completion of the Atellica portfolio with the launch of the Atellica CI Analyzer.
This enabled us to embark on a substantial portfolio simplification, the positive effects of which we will see coming in as we wind down the legacy platforms. However, next to the portfolio simplification, we pulled many different levers to bring the cost level in the segment to a sustainably lower level in a large one-time effort. We have tightened our belt with a leaner organization and a significant reduction of complexity. We have challenged the way we do things across the organization and successfully focused the entire setup more suited to the needs of the diagnostics business and with the right focus and people to efficiency drive growth. The same holds true in terms of our service approach, which we right-sized and designed to better fit the needs of diagnostics. I will not run you through the detailed initiatives. There are many.
I believe the numbers on the right side of the chart speak for themselves. The cost cutting is having a substantial impact. The steep ramp, in terms of margin improvement, is also the result of the super swift implementation of the cost out measures, where we are clearly ahead of plan in terms of timing. We are now already on a sounder cost level in the business. Further margin improvement will not happen at a similar speed. It will be more a function of the winding down of legacy platforms over the years to come, and of course, of conversion from higher revenue growth in the midterm.
Which brings me to the next chart, where we run you through the key points on why we have the right product in place to really compete in the core lab. In vitro diagnostics testing is at the core of clinical decision-making, and we have the perfect offering. With the completion of the Atellica family with the CI analyzer, we can cater for all settings and all customers: large, medium, small, hub and spoke. We offer a highly competitive menu of more than 200 tests, assessing patient health, and we are adding novel assays on an ongoing basis, like the recent first-of-its-kind neurofilament light chain, or NfL, blood test for accurate diagnosis and personalized management of multiple sclerosis. Small hospital labs, as well as reference lab, face the same provider challenges, from staff shortage to cost pressure, consolidation, and procedure growth.
This is exactly what we address: with systems automating and digitizing routine work. At ADLM 2024, the Clinical Lab Expo, we cut it short with the claim, "Do less." Atellica's human-centered engineering and automation delivers highly efficient testing at scale, which enables customers to streamline processes and speed turnaround time. Atellica is reliable with high throughput and therefore drives a high consumable utilization and ultimately our revenue.
Healthy development of the revenue per box in our installed base shows that we are on the right path. The Atellica franchise have already crossed the EUR 1 billion revenue line and continues to grow double-digit. To sum it up, we have done our homework and are receiving great feedback from our customers at ADLM. With this, I hand it over to Jochen for a deeper look into the financials of the past quarter, as well as the outlook for the rest of the year.
Thank you, Bernd, and a very good morning to everyone, also from me. Let me begin with some color on our continued positive equipment book-to-bill of 1.07 in Q3. Again, this equipment book-to-bill was positive in all segments, especially strong in Varian, further strengthening our already very strong order book. Let us now look at the comparable revenue growth in Q3. Q3 revenue grew by a very solid 4.3%, considering the circumstances, against a very tough comparable of 10% growth in the prior year quarter. Despite China still declining by 13% this quarter, we achieved this solid growth at group level on back of strong growth in Americas, accelerating to 9% in Q3, and EMEA continuing strongly with 6% growth on very tough comps. On earnings, we see a very healthy development. Adjusted EPS came in at EUR 0.52.
The year-over-year decline of 4% is due to a very low tax rate in the prior year quarter. If you take out the year-on-year tax impact, earnings were driven by an increase in adjusted EBIT margin of 60 basis points year-over-year for the group. Considering the negative impact from foreign exchange on Q3 margin of close to 100 basis points, this is a very strong margin expansion year-over-year. Also, let me add some color on the cash performance in Q3. The cash conversion was good this quarter, with the cash conversion rate pre-tax slightly above 1. All three equipment segments achieved a cash conversion rate at 1 or above. In operating working capital, we reduced receivables this quarter, whereas inventories increased in light of a very strong revenue quarter in the upcoming Q4.
As said in previous reporting, we are in the process of reducing safety buffers in inventories, which were built up during the pandemic. At the same time, we are working on improving cycle times of operating working capital, additionally freeing up cash. Let us now look at the Q3 performance of the segments, starting with Imaging. Imaging posted growth of 4% against very tough comparables, 15% in the prior year quarter. Although we saw good growth, for example, in Molecular Imaging, the growth in Q3 was primarily held back by a still declining China. China revenue is still declining due to muted demand, triggered by the anti-corruption campaign. This temporarily muted demand will come back as pent-up demand, as the structural demand drivers for growth are fully intact....
The Adjusted EBIT margin in Imaging came in at 20% year-over-year, held back by a headwind from foreign exchange of around 100 basis points. Additionally, the below-average growth in Q3 led to a lower absolute profit contribution. Now let's look at Varian and Advanced Therapies on the next slide. Varian achieved a strong absolute revenue of EUR 927 million, which was in line with Q1 and Q2 levels in absolute terms, underpinning the continued steady performance. In relative terms, Varian achieved excellent growth with about 10%, despite China revenue still declining year over year. We also saw a continued stable performance in profitability, with no volatility in margins and sequential improvements quarter by quarter. On top of this continued stable performance, Varian nicely expanded margins. This is especially notable as also Varian saw foreign exchange headwinds of roughly 100 basis points.
Advanced Therapies posted flat growth against very tough comparables, 12% growth in the prior year quarter. As in Imaging, the growth in Q3 was primarily held back by a still declining China, where we expect the temporarily muted demand to come back as pent-up demand. The Adjusted EBIT margin in Advanced Therapies came in at 13.9%. It was impacted by year-over-year headwinds from foreign exchange of more than 100 basis points and obviously by the below-average growth, leading to a lower profit contribution in Q3. Now let's move to Diagnostics, our fourth segment. As Bernd pointed out at the beginning of the call today, Diagnostics is well on track with the transformation program to crystallize the business full potential. With no meaningful revenues from antigen in last year's Q3, the Diagnostics business continued to grow solidly with 2%.
The strong Adjusted EBIT margin of 7.4% was mainly driven by operational improvements from the transformation program, contributing to a margin expansion of roughly 600 basis points year-over-year. Furthermore, like in the first half of the year, the margin also benefited from a longer useful life of our leased laboratory analyzers. This effect was partially offset by foreign exchange headwinds. And now to the outlook for the current fiscal year. First, we confirm our outlook for fiscal year 2024 for both comparable revenue growth and adjusted basic earnings per share. We updated two of our main assumptions. Firstly, we now assume Imaging revenue growth to be between 4.5% and 5.5%. We lowered the growth range for fiscal year 2024 due to revenue in China still declining until Q3.
Secondly, we now assume the tax rate to be between 22% and 24%. We lowered the range for the tax rate for fiscal year 2024 on the back of the favorable development so far, driven by positive one-offs. We confirm all other main assumptions for growth and margins for the segments as well as for central items and financial income net. With the lowering of the Imaging growth, we also assume lower absolute profit conversion in fiscal year 2024 for Imaging. Therefore, we now assume the Imaging margin will end the fiscal year around the lower end of its margin band. In diagnostics, we now assume the diagnostics margin will end the fiscal year towards the upper end of its margin band due to the very swift implementation of the cost savings kicking in from the transformation program in fiscal year 2024.
Now, let me share the general dynamic that we expect in our last quarter of the fiscal year. In the equipment businesses, i.e., Imaging, Varian, and Advanced Therapies, we expect significantly higher absolute revenue in Q4, with positive contributions from Americas, EMEA, APJ, and China, meaning from all geographies. We expect China revenue growth to stabilize in Q4 and to stop its year-over-year significant decline. On the bottom line, in the equipment business, we will see the additional Q4 uplift from a higher absolute profit conversion from significantly higher revenue in Q4. With the higher revenue comes also higher gross profit, which gives you leverage over the sequential, more flattish OpEx line, also lifting margins significantly up in Q4 from significant OpEx conversion. In contrast to the situation in Q3, we do not expect significant foreign exchange effects to negatively impact margins in Q4 year over year.
In diagnostics, we expect the strong margin performance to continue in Q4, driven by the savings from the transformation program. Bear in mind that in Q4, antigen will play a role in the year-over-year comparison for diagnostics and Siemens Healthineers in total, since we booked EUR 52 million of antigen revenue in Q4 of the last fiscal year. Let me finish with reiterating Bernd's comments on our performance this fiscal year so far. This year, we have successfully fixed our challenges in Varian and diagnostics from last year. At the same time, we see the exogenous but temporary impact from the anti-corruption campaign on the Chinese market for over nine months now, impacting primarily Imaging and advanced therapies.
To give you a bit more color on this, we expect to lose around 150 basis points of growth from China relative to our assumptions moving into the year. Mm-hmm. Which is the single reason to change one of our assumptions on the Imaging growth. Mm-hmm. Despite this, we post positive equipment book-to-bill year-to-date. We increase year-to-date margins and confirm the outlook for revenue growth and adjusted EPS. On that note, I'd like to end and hand it over to Marc for the Q&A.
Thanks, Jochen. Before we go into the Q&A, let the operator just briefly remind you on how to get into the queue.
Thank you, gentlemen. We will start today's question and answer session, where we would like to ask you to limit yourself to two questions. If you wish to ask a question, please press the star key, followed by the digit five on your telephone keypad. Again, ladies and gentlemen, please press star five on your telephone keypad.
Great. So the first one, in the queue, that would go live would be Hassan from Barclays. So, Hassan, please go ahead with your questions.
Morning, and thank you for taking my questions. I have two, please. Firstly, just on Imaging growth in the quarter, what came as a surprise to you this quarter, driving the miss and guidance cut, given China delays to orders in the first half meant that it wasn't necessarily going to have a meaningful impact this quarter and the second half, for Imaging? And then secondly, could you talk about what you're seeing on the ground in China and the extent of the recovery you expect this calendar year? Do you think that stimulus will kick in this year? Do you think hospitals are waiting for this? And if it doesn't kick in this calendar year, does it drive risk to your 20% earnings growth expectations for 2025? Thank you.
Thanks for your question. On Imaging growth, I think it's as I tried to point out, I think we have a single topic, yeah, in Imaging growth as well as in the overall company growth, and that is China, and that is also holding true for Q3, right? Please be reminded, China is different than other regions, more a book and build region, yeah, out of several reasons. Yeah, we do not have significant value partnerships in China business, which have, in general, longer lead times. And secondly, as you know, we manufacture everything in China for China. Yeah? And our expectation were clearly that we see a better China contribution for Imaging, but also for the group. Yeah. That's it at the end of the day, yeah.
When we look into the future and look into our expectation for next year, at first, we do not expect to see an impact from the stimulus program in revenue for this fiscal year. Yeah? And then when you look at the stimulus program, it is divided into several pieces, yeah? And where we see good progress is on the, so say, tier one national top 44 hospitals. Yeah. There, the topic is well defined meanwhile. Yeah. And there we also see good momentum coming in in the nearer future, either early in the fiscal year or earlier in the fiscal year. On the others, it's still a bit open, how quickly that will come in. Yeah. I think when we look at...
I think that was the second part of your question or this, yeah. When we look at our expectation for margin expansion on Imaging, we had that discussion last quarter a lot. We feel still good to see a margin expansion above and beyond the upper end of the normal range of 20-80 basis points. Last quarter, we talked about 100 basis points, and we feel still good about this. Yeah. Also now looking into the future, looking into what we see in the market and what we see also coming out of China.
Okay, thanks.
Thank you.
So I'm move over to the next one on the queue. That will be Veronika Dubajova from Citi. So Veronika, go ahead.
Hi, guys. Good morning, and thank you for taking my questions. Hope you can hear me well. I'm gonna stick with the predictable themes. So first, I kinda just want to understand a little bit, Jochen. I think last quarter you said, "Look, we've de-risked the numbers on China. There's no more downside risk." And here we are, a quarter again, having seen a disappointing top-line performance and you taking the growth guide down again. What can you tell us to give us confidence that this is it, and from here on, China, in your expectations, both for fiscal 2024 and for fiscal 2025, is realistic and we're not gonna have to worry for another quarter or two quarters or three quarters about what China does.
So if you can give us some color on that and kind of your degree of confidence, that would be super helpful. And then my second question is just to follow up again on China, but you've been very helpful in quantifying the top line headwind to the original fiscal 2024 expectation. Can you also talk through the margin headwind that you've experienced as a result of China being soft? And I guess, you know, how that flows through to your fiscal 2025 expectations, when you look at that at least 100 basis points margin improvement in Imaging, what does that assume for the China margin in there? Thank you, guys, so much.
Thank you, Veronika. Let me take the first part of the question, and about our confidence for the quarters to come in China. A little bit of a double click on this. In Q3, revenue in China was on Q2 level. Even a touch above. And despite this being on a low level, it—this is a first sign of stabilization. Another sign of stabilization is that the book-to-bill in China was above one for the second quarter in a row, coming from figures significantly below one in the quarter before.
Yeah, and with Q4, we expect further stabilization in China, and are very confident to almost sure, yeah, that China will stop its year-over-year decline in Q4, meaning we expect China Q4 year-over-year to be at least flat or growing. Yeah. So and this is backed up with all the, the bottom-up planning, and we have a lot of not only planning here, but also with the scheduled backlog we have in China. Yeah. So, I hope that double click gives you a little bit of a feeling, yeah, why we see stabilization and now a return to growth. With this, I hand it over to Jochen.
Yeah, Veronika, on when we look at the, and I said that for the group overall, that we have about 150 basis points higher loss than anticipated when we started into the year from China. Yeah. And, 150 basis points for the group is about EUR 300 million-plus revenue. Yeah, and that comes with a decent conversion, yeah, and I would say if you use, for example, the gross margin, that is not a bad assumption, yeah, for using the profit impact of it. So it's a significant aspect, yeah, because you cannot really do a lot on the cost side in the short term for that thing, yeah? And as you know, we see this as a temporary effect, yeah. So that's roughly what it is.
As said, Imaging and Advanced Therapies are affected higher by this than the other two businesses, yeah. And when you do then the math, you see that, also the assumption on Imaging, for example, the 4.5-5.5 now is, if you use a number which is a bit above 150 basis points, yeah, that you would be well in, in the range we guided for initially, the 6-8, yeah. With regard to 2025, I think we, we expect to see China in, for example, in Imaging, to decline this year in the high single digits, yeah. And we expect this to be reversed well next year. Yeah.
I can't give you a precise number, but just being back to more, to a normal situation would already cater for a significant growth line coming out of China. Just to say that, yeah. And that is what we currently have baked into our assumption, and which is also, I would say, the basis for our confidence with regard to margin expansion in Imaging of the 100 basis points we were referring to last quarter and this quarter again, yeah.
Excellent. Thank you, guys, so much.
Thanks, Veronika. So we move over to Graham from UBS. Graham, you should be live. Go ahead.
Morning. This is [audio distortion] filliing in for Graham . Just two questions, please. So firstly, on Imaging, given you have a strong order book and therefore have good visibility, just wanted to check if there's a supply chain issue or any kind of customer installation issue, that might be contributing to some uncertainty. And then, sorry, again, on China, it's obviously been a tough market for the past year, but whereas the vast majority of your revenue is generated outside of here, for your local competitors in China, the reverse is true. So just curious as to whether you've seen any changes in behavior from these competitors, and do you expect the market to bounce back to be on similar competitive terms and dynamics to before? Thank you.
Yeah, maybe I take this question. I mean, first and foremost, we don't have any supply chain issues. Yeah. So, if there are topics about it, it is missing, as Jochen explained, a bit of missing book-to-bill business, yeah, in China. And what is a minor topic is that sometimes customers are hesitating to do the final installation. Yeah, because it also requires sometimes to quote-unquote, "order civil engineering" and type of topics, yeah, which is in the current environment, sometimes also a topic where people are cautious.
Yeah, so these are the topics which have continued to hold back China revenue in the past quarter to some extent. But as I said in the answer to Veronika, I mean, we see a stabilization of the revenue line, yeah, with a very small quarter-over-quarter improvement from Q2 to Q3. With the improved and now book-to-bill above one, yeah, and with a visibility of returning to growth in Q4. Local competition, we don't see a general change from the past quarters. And currently, what we see in the market is an overall topic across the entire industry, which is affecting the multinationals as much as the locals.
Thank you.
Thank you. So, next one would be, David Adlington from J.P. Morgan. David, please go ahead. Individual life.
Thanks for the questions. So maybe just on Q4, as you look into Q4, I just wondered what risk there is, further slippage in revenue recognition. Also, what about China? You know, what risk do you attach to maybe not hitting your targets? Then just a more technical one, just on the tax rate, obviously much lower, and you've lowered it for the full year. Just wondered, any thoughts on impact on midterm tax rates? Thanks.
Dave, I start with the second part of the question. When we see over the years, well, we have seen over the years a constant, relatively constant decline on the tax rate, yeah, from more the higher twenties now to the mid-twenties arena, yeah. I think we guided also for this, that is, I would say the different value add structure, the different profit distribution across the globe, also triggered by the acquisition of Varian, will help or has helped the tax rate to become lower. This year, I would say is, it is particularly low due to certain one-time one-offs, yeah, and I mentioned that before.
And so I would say that tax guide on a general level, over the next two to three years, between 24%-26% is still a prudent assumption, yeah. On Q4 revenue recognition, yeah, I mean, when we have a guide out there, we have adjusted the assumption on Imaging. Yeah, and as we guide normally, we see this as an ambitious but realistic picture for the company as a whole, as well as for Imaging. Yeah. Yeah.
Good. Thanks, David. Then, I'm moving over to Hugo from Exane. So, Hugo, you should be live now.
Hi. Hello. Thanks for taking my question. Just on diagnostics, can you maybe discuss the moderate decline in the US here? And on the EUR 1 billion Atellica business, can you maybe help us give us the split between I and [II throughput] CI Analyzer on the installed base and the revenue split basis, and are you seeing any cross selling synergies? Thank you.
Mm. Yeah. So on this moderate decline, I mean, well, let me start differently. I mean, what we see in diagnostics in this quarter, for the first time, is that the legacy business is smaller than the Atellica business in the central lab. Yeah. So which is actually. And I spoke also about the EUR 1 billion, crossing the EUR 1 billion line with Atellica. Atellica growing nicely in the double digits, yeah. And this function of in legacy business going down and Atellica business going up also is the explanation for the U.S. contributing more on the decline side, because historically, simply, we have a very strong installed base of legacy systems in the U.S. Yeah.
So this is not a topic of a weakness in the U.S., it is just a topic of the product mix normalizing, yeah, to how the world has developed in the last, let's say, 10 years. Yeah, where simply the installed base of legacy systems in the U.S. is higher than in the rest of the world here. And then, sorry, the second question was about? Sorry, I forgot the second question, Hugo, was-
Yeah.
-about?
No, I in the one-
Analyzer, yeah.
If you-
Yeah.
Yeah, the split between high and mid throughput.
This is not so straightforward to answer simply because the CI analyzer is currently in the ramp-up of placing instruments, and this is developing very nicely. Yeah. In terms of placed instruments, not only the number of placements, but also the customer satisfaction is very, very high. But on the other hand, it is very clear that these instruments don't pull through yet the same revenue per box, yeah, as the longer installed larger Atellica systems. Yeah.
But I can say, you know, that overall, the completion of the Atellica with the portfolio, with the CI Analyzer is a huge success, and there is a lot of excitement about the CI Analyzer, but then also about the combined setting, yeah, of having one system or one family of systems in the hub and spoke settings. And this type of, quote-unquote, “cross-selling” or combined selling of the two is a big topic also for addressing the hospital-based systems and the IDNs in the United States moving forward. Yeah.
Thank you very much.
Thanks for these questions, Hugo. So, moving on to Julien Dormois from Jefferies. Julien, please go ahead.
Hi, good morning, everyone. I hope you can hear me okay, and thanks for taking my questions. Still giving you a break on Imaging and following up on Hugo's questions on diagnostics. I think, Bernd, you mentioned in your prepared remarks that we should probably not expect the same pace of improvement on margin in diagnostics going forward for obvious reasons. But I think you previously had a guidance for, I think it was 8%-12% margin in fiscal year 2025. So from where you stand, is that something that would still be valid? And whether the mid-teens % margin is something realistic then beyond 2025. So just a comment on the general shape of the diagnostics margin would help.
The second question, still on margin, but this time with Varian. Just curious, where you see Varian going from here. I mean, you have previously indicated that you would like the margin to go towards Imaging, kind of, of margin in this business. You're now out of a very strong year of margin expansion for Varian. How should we think about the next two, three years on this side?
Yeah, Julien, first, on the diagnostics margin, I mean. So first, the technicalities, so to say, yeah. I mean, this year, we see and are very, very happy about the margin uptick coming from the transformation program, yeah, as Jochen and I said, and this is to some extent, a one-time step change in terms of lowering the cost base, which was possible by streamlining the organization and by switching off costs which are directly related to the legacy portfolio, which we don't need anymore, yeah? And with this, for example, I mean production of the instruments, or certain R&D work for new assays or whatever. Yeah.
So there is a certain portion of cost reduction which were one-off efforts, and then create a step change. The further margin expansion comes out of two sources. One is the gradual decline, quote-unquote, or moving of the legacy costs related to the legacy portfolio, because we still, of course, need to continue to do service, to have spare parts, to have the reagent supply. Yeah. So this will step by step move out of the P&L, but not as a one-time effort, yeah, which is why this effect of margin improvement will come but not at the same speed. And the second improvement comes from growth of the Atellica business and growth and also the conversion from accelerated growth. Yeah.
So we are very positive about the future trajectory, yeah, but we will see not the same acceleration, yeah, of margin improvement as we have seen it in the last, in the current year. You asked about the 8%-12%. Yeah, we are confident and to get into the range. But I would shy away, as we at this point, to say that next year will be in, margin will be in the double digits. Yeah? So to qualify this a little bit. And when it comes to the mid-teens, in the midterm, they are definitely reachable. On the Varian side, I think you see a very good and stable performance.
We said always that there are three main ingredients bringing us to what we called Imaging-like margins, and they are absolutely intact. So this is number one, volume, yeah, and conversion. I mean, you see, and we continue to see invariant high growth, yeah, in the range of 10%. You know, we guide for 9%-12% in our midterm targets. And that results in conversion, and the current book-to-bill in the business and so on is... And the order backlog is absolutely substantiating this. This is number one. Number two, we still have a bit of a effect from pricing, yeah, because of the longer book-to-bill times in this business.
And number three is productivity, or meaning you're really getting Varian online and fully integrated into the Siemens Healthineers' overall global supply chain, using all the internal suppliers and competent centers we have, using the economy of scale. But also using the art of local design to cost will help us in addition to improve the gross margin in the business on the equipment side. And all these levers are intact, so I feel confident that we will, step by step, over the next years, reach the Imaging-like margins.
Thank you. Thank you very much.
Thanks, Julien. So we move to the next Julien from Bank of America. Julien, please, go ahead.
Hi. Thank you very much. Good morning, everyone. The first one, so sorry to coming back on China, but I mean, we start to hear on the stimulus that, I mean, it might be a bit lower than expected for healthcare specifically. It seems that it's like all the sectors are being like prioritized here. So that's the first question. The second one on the sales guidance, I mean, like for the group. I mean, after the miss today, the revision of the Imaging growth guide, how should we see the sort of group sales growth guidance? Is it more realistic to be in the lower half of the range?
Just looking at the, let's say, like upper end, it implies a plus 12% growth in Q4. You mentioned in your comment, sort of ambitious but realistic guide, but I mean, does it, like, does it include the, like, the upper end of the, like, of the sales growth guidance as well? Thank you.
Julien, let me start with the second part of the question. When we lowered, and I said that clearly, yeah? Relative to our initial assumptions when we entered into the year, we have less growth from China, amounting to about 150 basis points for Siemens Healthineers overall, yeah? And our guidance range is 200 basis points, yeah? And if you do the math, you automatically come into the lower half, yeah? And here, I would say we see us more at the lower end of the range for the overall, for the group, yeah, for this fiscal year. Yeah, and by the way, it's very similar for Imaging, but a bit more pronounced.
That's it on China, yeah.
Do you want to comment on number one?
Mm-hmm.
Okay, on the stimulus. I mean, first of all, let me qualify a little bit, you know, how we talked about it, because, I mean, we have never, let's say, been overly emphasizing the stimulus, and let me explain why, yeah? Because we are, as you maybe know, if you follow our discussions on a regular basis, yeah, I always emphasize, "Hey, let's please look at the underlying growth drivers." And yes, even there's might be an anti-corruption campaign, this lasts for a couple of quarters, but it comes back, and there will be pent-up demand, yeah?
At the same time, I also don't want to over-advertise as an opportunity topics like the stimulus program, yeah, because the real topic is how do we address the underlying demand? And then, when you look at that underlying demand curve, yeah, there is some kind of a wave of positives and negatives in a given country coming from short-term exogenous topics holding back investment decisions or accelerating investment decisions until things come back to the overall underlying growth curve. Yeah, so just as a general remark, yeah. When looking at the outlook for China, first of all, as Jochen also said, we will see growth in the next year simply-...
because going back to normal is already growth. Yeah? The second source, and the reason to be optimistic, is that there will be pent-up demand over the next quarters, and, you know, we will see how long it takes. Yeah, and the number three is the stimulus program. Yeah, and the stimulus program will help in addition, yeah, but it is not the primary reason, yeah, why China is an interesting market. It is a one-time opportunity, yeah, and we are happy about it.
But the real topic is, as I said, yeah, how do we address the underlying growth, and the underlying demand? And the swinging back to the underlying demand is already a very, very good topic, including the pent-up demand, yeah. Stimulus comes on top, and we believe to be well positioned for it.
Perfect. Note that. Thanks. I mean, like, thanks a lot, Bernd. If I can, like, follow up quickly on that. So, I mean, in the 2025, let's say, like, Imaging 100 basis points, like margin improvement kind of guidance that you gave, I mean, do we have the impact from the stimulus, or it just come on top, and so it could be, it's like above the. I mean, what, like, what are the expectations really, from the stimulus in your, let's say, like, in your margin guide or, like, growth guide for Imaging next year? Just to have a rough idea.
Yeah, Julien, let me, let me take that. Yeah. When I said in Q2, and I reiterated in this quarter, that we feel good about 100 basis points. What and how this will exactly be, so to say, to be described, we will talk about in Q4 when we guide for the next fiscal year, yeah. I think it's a bit too early, because we are still working our way through our own budget assumptions. Yeah, we will have the discussions with the teams, but I still feel good about the 100 basis points, yeah.
Perfect. Thank you very much.
Thanks, Julien. So, starting to run out of time, but still, let's say, a few questions. Robert Davies, please go ahead.
Sorry, can you hear me now?
Yes, we hear you.
Yes. Great. Thanks for taking my questions. My first one was just, if you could give us a little more color. I know you mentioned in the release that the backlog was higher. Perhaps you could give us some quantification around where the backlog sits now versus, beginning of the year. That was my first question. And then the second one was just in terms of order development, across the regions, I know you provided some color on sales growth, but perhaps you could give us some color on order development, just the sort of magnitude of, kind of declines, I guess, in China, just to give us a sense, and then the relative growth in the Americas would be very helpful. Thank you.
Robert, on the backlog side, I think when you look at our equipment book-to-bill ratio, you see we are currently slightly ahead of this one. I think we are at 1.08, yeah. Year to date, we expect, as pointed out at the beginning of the year, to be at the end of the fiscal year north of 1.1, yeah, because we expect a solid Q4, a very solid Q4.
Mm-hmm.
When we look at equipment book-to-bill, I think we see about. Let me do the math. I think about a 5%, 4%-5% growth on equipment backlog in this fiscal year.
Okay.
Yeah.
Okay. Thank you.
Yeah.
The second one was on the difference in orders by regions.
I think, as you know, we don't talk about order growth, yeah. But when we look at markets, yeah.
Mm-hmm
... I think in general, we are very satisfied what we see with regard to activity in all markets. Yeah. And we see a healthy U.S. market, we see a healthy Europe, Middle East, and Africa market. We see also a very solid APJ market, and I would say the only market which is currently, as discussed now at length, yeah, which is currently muted-
Mm-hmm
... is the Chinese market. Yeah. And that drives also the book-to-bill ratios above one, despite the fact that we see the muted China situation, yeah? And going forward, we also expect to see this continuing, yeah.
Okay. That's great. Thank you.
Okay, so maybe one question for [Sezgi], the time, if you keep it short. Thank you.
Hi. Hope you can hear me. I had two, but I, I have to. I'll try to narrow it down to one. Imaging, you mentioned, some, the, some new therapies and diagnostics and growing demand in Alzheimer's. Do you see that reflect to your order books? Do you see increased demand for PET scans and other products? And also, how, where do, do you see-- or do you also see the same way radiotherapeutics demand reflect to your order book similarly? Thanks. I mean, the, thank you for the question. I mean, we see, good growth in Molecular Imaging. I think it also highlighted in, in the earnings, report, yeah, as, as one, as a, as, as, well, I think the fastest growing business in this quarter. And we, we see, this.
That's also why we, I mean, one of the reasons why we highlighted it, yeah, that, that, I mean, there's a lot of excitement about CT and photon-counting CT, which is super great. There is a lot of strength in MR, and that sometimes over, well, let's say, draws so much attention, yeah, that, that there's not so much talk about Molecular Imaging, where there is really a lot of momentum. Yeah, we see all this, the, this, growing need for PET and SPECT/ CT scans. But on the other hand, we are also benefiting from these new radionuclides. It is very good to see that our PETNET business is now in the mid triple-digit EUR millions as a business and an additional growth contributor.
If I may then add a follow-up there. You mentioned also that you have the largest, broadest portfolio. That should presumably lead to better margins in this product because competitive picture looks different on this product. Wouldn't that support a higher incremental margin accretion in the, in the midterm for Imaging?
I mean, this is one, certainly one contribution. Yeah, I mean, you know, when you look at a little bit of details on the Molecular Imaging business, this is about, I would say, 15% of the Imaging top line, yeah. At Imaging, at the midpoint, more or less, of the Imaging margins. Yeah, so, CT and MR are a bit accretive. So, it is one of many reasons, yeah, why we are very positive about Imaging growth. I mean, Jochen made the calculation also about this fiscal year, that we are losing about 2.5% or so of growth because of China and Imaging. Yeah.
So, when you add this back, yeah, to the numbers, it shows how fast the growth in Imaging is, yeah, and what the true potential is. And that is also why we are very positive about the margin expansion and accelerating growth in the next year. Yeah. I mean, and Molecular Imaging will definitely also contribute to this.
Okay, thanks, Sezgi .
Thanks very much.
So we are really out of time now, so I need to wrap it up. So sorry, Falko, we'll give you pole position in the sell-side breakfast on Friday for your questions. Yeah. And that brings us to the end of the call today. Looking forward to the roadshow next two days in U.K. and the U.S., and then obviously lots of conference participations in September. If we don't meet and speak there, we hear ourselves at latest with the Q4 reporting in November. Till then, stay safe and sound. Bye-bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the investor relations section of the Siemens Healthineers website.