Good morning, ladies and gentlemen, and welcome to Siemens Healthineers Q2 fiscal 20 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.
Thank you, good morning, ladies and gentlemen. Welcome to our Q2 conference call. The quarterly statement and Q2 presentation were released at 7:00 A.M. this morning. You can find all the documents on our IR website. As usual, Bernd Montag and Jochen Schmitz will be taking you through our results and be giving you an update on some important developments in our company. Following that, there will be a chance for you to ask your questions to Bernd and Jochen. Although these days a lot of our habits are changing, some things never change. May I just humbly remind you to limit yourself to two questions in the Q&A session. Now I pass the word on to the CEO of Siemens Healthineers, Bernd Montag.
Yeah. Thank you, Marc. Good morning, everybody, and welcome to our Q2 earnings call. As we said, the spread of the coronavirus has radically changed our lives within the last weeks. The pandemic is challenging us in ways we could have never imagined as individuals and also as a company. First of all, I want to take the opportunity and thank all Siemens Healthineers colleagues for their commitment, engagement, and solidarity. Colleagues providing imaging equipment overnight and across hundreds of kilometers, colleagues in plants continuing operations under difficult circumstances, or virtual teams driving new diagnostic tests and AI-based innovations in record speed. All these examples show the spirit of a global high-performing team living up to the enormous challenge to support healthcare providers and patients in this unprecedented phase.
On top of this, we have managed to produce a rather good set of results given this very challenging environment. Despite the COVID-19 impact of roughly -4 percentage points on our top-line growth, we managed to grow comparable revenue by 3.3%. This was driven by Imaging with 5.8% and Advanced Therapies with 5.7%, and held back by Diagnostics with -2.2%. Even Diagnostics was holding up well, considering a clearly negative central lab market, which accounts for about 85% of our Diagnostics revenues. The COVID-19 impact on the top line of the three segments was rather similar in scale, with Advanced Therapies being a bit more exposed than the other two. Despite a significant slowdown in business activity towards the end of the quarter, we managed to achieve an equipment book-to-bill for Imaging Advanced Therapies of 0.94.
For example, we were able to sign a major 10-year value partnership agreement with Geisinger Health System in Pennsylvania. The agreement will focus on driving innovation through AI-enabled digitalization and performance improvements, while also significantly growing our imaging equipment installed base. This shows that even, or maybe especially in these unprecedented times, we stand out as the right long-term partner for healthcare providers. With EUR 0.45, the adjusted basic earnings per share grew 11%. This was mainly driven by higher revenue, profitability was also slightly up, plus 10 basis points on group level. In achieving this, the COVID-19 impact was more or less counterbalanced by non-operational items. In terms of free cash flow, we had inventory build up due to COVID-19, therefore the cash in this quarter was low.
In light of the COVID-19 pandemic, the previous full year outlook is not valid anymore, as the assumptions underlying the previous outlook are to a large extent no longer applicable for this fiscal year. Looking at the consensus which we published on our webpage last week, this should not come as a surprise to the market. With visibility being as low as it is currently, we do not feel in a position to articulate a new outlook. In the course of this presentation, however, we will provide you with more color on our current thinking about the future and why we believe from today's standpoint that Q3 will be strong. The SARS-CoV-2 pandemic confronts healthcare professionals around the world with clinical and operational challenges.
At Siemens Healthineers, we are aware of the urgency and complexity of the current situation, and we are working hard to provide the best possible support to healthcare providers at each stage of the COVID-19 patient pathway. Diagnosis, prognosis, therapy, and follow-up. Our aspiration to drive innovation forward, thus enabling people to healthier and longer lives, is more relevant today than ever before. We are stepping up as a partner to support healthcare systems, helping them to deliver high-value care to patients and families. We are fully committed to supporting our partners throughout the healthcare system, to providing the best possible care for patients, to offering support for healthcare providers at each step of the pathway.
Our medical imaging, laboratory diagnostic, and point-of-care testing solutions can support physicians to make a prognosis about the severity of a COVID-19 case, help treat the patient, and assist in the follow-up to find out when the patient has recovered. Let me briefly lead through such pathway and especially highlight how we can help at the different stages. Our molecular Fast Track Diagnostics SARS-CoV-2 assay test kit is used to aid in the diagnosis of the infection with the virus that causes the COVID-19 disease. The assay is designed to help identifying the virus in less than three hours so that healthcare professionals can proceed as quickly as possible with the necessary next steps. With this molecular diagnostic assay, we want to make a contribution to fight the current COVID-19 global pandemic by delivering fast and accurate testing.
Once COVID-19 is detected, high-resolution chest CT images help assess the severity of the lung involvement, especially those with severe symptoms. This includes evaluation of the progression and remission of the disease. The AI-Rad Companion for chest CT can support the radiologist in reading the images and hence lead to faster diagnosis. Furthermore, immunoassay and chemistry laboratory tests play a critical role in assessing disease severity and managing comorbidities, since patients with comorbidities are at a greater risk of complications. As a further step to address the COVID-19 pandemic, we are expanding our infectious disease testing capabilities. Against this backdrop, we have developed a laboratory-based total antibody test to detect the presence of SARS-CoV-2 antibodies in blood. The test, which detects both IgM and IgG antibodies, has demonstrated specificity and sensitivity of greater than 99%.
This total antibody test will provide a clear view of patients' disease progression by identifying individuals who are still infectious with the virus and individuals who have developed an immune response to the virus, even if they were asymptomatic or never diagnosed with the disease. Going further down the clinical pathway, our Diagnostics business offers, with the RAPIDPoint 500e blood gas system and epoc blood analysis system, important point-of-care analyzers supporting COVID-19 response efforts. Blood gas testing plays a critical role in managing infected patients and monitoring their respiratory distress. Arterial blood gas tests provide a status of the patient's oxygenation levels, enabling caregivers to determine if adjustments to ventilator settings or other treatments are required. The analyzers integrate seamlessly into hospital networks with the point-of-care ecosystem, which offers remote management of operators and devices.
This example of remote management brings me to our backbone, our digital health solutions, services, and consulting, which can support the healthcare providers in protecting healthcare workers and increasing healthcare delivery capacity. Remote operations driven by digital solutions help reduce staff exposure to infectious patients and may allow employees who are under quarantine to continue working. For example, our syngo Virtual Cockpit is a remote scanning assistance which provides comprehensive scanning assistance to imaging personnel regardless of their geographic location. Even a medical technical assistant can now assist on up to three exams at once. With teamplay Images, the radiologist is able to share image studies in a secured environment to expand reading expertise and capacities. Healthcare providers always rely on equipment performance, even more during a pandemic. Our real-time 24 by seven system monitoring within our customer service can increase the required uptime with proactive remote and digital services.
For example, our Smart Remote Services expert can use advanced troubleshooting tools to remotely restore operations, and our LifeNet online portal enables 24 by seven performance and maintenance management of critical equipment. With PEPconnect, our personalized online education platform, we provide appropriate know-how on equipment applications, imaging protocols, and examination workflows, which is as crucial as clinical expertise. You see, Siemens Healthineers products play and will play a crucial role in the fight against the pandemic and in the fight to save as many lives as possible. A fight where one of the biggest problems is that we do not know the enemy well enough yet. On the following chart, I will take you through a summary of how COVID-19 impacted our business across the globe in Q2.
The spread of the SARS-CoV-2 virus from east to west could be also seen in the progress of restrictions implemented in each country/region. In China, we saw a very rapid progress and strict implementation of regulations in fighting COVID-19, followed by the implementation of restrictions in Europe and then in the U.S. The SARS-CoV-2 virus impacted our business in the same sequence. China with the longest exposure in Q2, starting in January, followed by Europe in late February, early March, and America in the second half of March. With the spread, hospitals started to concentrate on COVID-19 patient care, which led to a delay in installations as well as reduced service needs, especially in time and material services. Whereas the long-term service contracts were unaffected. At all times, we continuously provided 24 by seven service delivery to our customers.
This is mainly possible due to investment in digitalization of our service offerings, for example, our Smart Remote Services, as I stated a few moments ago. Furthermore, the focus on COVID-19 patient care made customers delay purchasing decisions, which should show up as pent-up demand in the future. With elective procedures starting to go down, we saw a decrease in testing demand. Especially in Europe, the border shutdowns put some pressure on our in and outbound logistics. Our employees worked diligently on workarounds, sustaining our supply chain during these times. Our supply chains were functioning at any point in time, and our factories were continuously running in all parts of the world, China, Europe and America. Now, Jochen, we'll have a closer look on the numbers and how these factors impacted our business in the second quarter of fiscal year 2020.
Yeah. Thank you, Bernd. A very warm welcome also from my side, and I hope every one of you is well, and that it also stays this way. After Bernd's comments on the quarter, let us now have a look at the financials in Q2. Let me start with picking up what Bernd already said. We had a strong performance in Q2 in top and bottom line. Taking out the headwinds from COVID-19, it would've been a very strong quarter, and we would've been well on track to achieve our guidance for fiscal year 2020. Also, we have said in March that we will be very clear on the impact from COVID-19 in Q2, so you can understand clearly what the underlying performance of the company is. With that, let's start with looking at the top line.
Revenue growth in Q2 has been resilient with 3.3% comparable growth, driven by strong performances in Imaging and Advanced Therapies. The impact from COVID-19 took around four percentage points of our comparable growth. Excluding these impacts, we had again a very strong growth quarter after an already strong start into the fiscal year in Q1. Regionally, we still saw strong growth in the Americas. I'm saying still because the U.S. has been impacted very late in the quarter by the imposed restrictions. EMEA had modest growth with COVID-19 impacting Europe earlier than the U.S. Asia posted soft growth only, mainly due to the impact from the pandemic in China, hitting the Q2 in full. As always, some additional color on the order development. Total orders grew by 4% comparably in Q2, mainly driven by the booking of the large Quest contract in Q2.
However, a better precursor, as you know, are the equipment orders, and here we achieve an equipment book-to-bill ratio of 0.94, with equipment orders slightly declining in Q2 with accelerated pace. For example, Imaging markets measured in equipment orders were low in Q2. We compensated this partially with strong share gains in the U.S. market. There are two sides to the metal with a book-to-bill ratio of close to one. On the one side, the ratio still being close to one shows that our business is not facing a sharp decline like in other industries. On the other side, the ratio below one is a key precursor for the following quarters that business is slowing down. We look into that in a more detail later in the presentation.
The adjusted basic earnings per share in Q2 grew by 11% year-over-year, driven by the revenue growth, which was converted by a stable margin development year-over-year. Let us have a quick look at the flattish margin development year-over-year. The impact from COVID-19 on the negative side are loss conversion from lost revenues and higher cost for logistics, for example. On the other side, there was less discretionary spend like travel, for example. The net impact overall is negative, though, weighing on the margin with slightly more than 100 basis points in Q2, considering the COVID impact in the revenue line accordingly. However, this was canceled out by two major non-operational effects. One effect came from how we account for the Siemens AG share plan that were already granted to our employees before the IPO. This is a topic we have to address frequently.
The good thing, this topic will go down in step functions and be completely behind us early in fiscal year 2022, sorry. The value changes of these plans flow as a cost item fully through our P&L because they are considered as debt instruments for us. This quarter, we saw a positive impact from these valuation changes due to the relatively weak performance of the Siemens AG share price during Q2. The other non-operational effect was an accounting topic at Diagnostics. We had higher capitalization of cost in Q2 that impacted the P&L positive. All in all, the COVID-19 headwind and the non-operational positives canceled each other more or less out in terms of margin. Besides the non-operational effect, we also saw some decent conversion from solid mix this quarter in Imaging and Advanced Therapies.
On group level, however, this improvement from conversion was eaten up by the low margin at Diagnostics year-over-year at the back of tough comps, leading to a flat year-over-year margin development for the total company. Let me add that the solid conversion this quarter also shows a clear operational improvement versus Q1, where we had a lower profitability in Imaging, driven mainly by unfavorable mix and by a few other topics. Let's have a quick look at the financing line. Financing expenses net went down year-over-year due to the debt restructuring, which makes use of the lower all interest rate. Our tax rate was 29% this quarter, over one percentage point lower than in the prior year quarter, leaving our tax expenses in Q2 flat year-over-year, despite the higher EBIT.
This adds up to an adjusted basic earnings per share of EUR 0.45 or 11% growth year-over-year. Let us now have a look at the segment performance. Looking at the segments, Imaging and Advanced Therapies were again strong in Q2, despite the headwinds from the COVID-19 pandemic. At Imaging, we saw strong comparable revenue growth in Q2 with 5.8%, driven by growth in all business lines. The computed tomography business stood out with significant growth this quarter for our efforts to support the diagnosis of COVID-19 with CT and the corresponding demand. The headwind from the pandemic took low to mid-single-digit percentage points off the comparable growth rate. Please bear in mind here that our revenues within a quarter tend to be more weighed towards the end of the quarter.
The delays in installation and delays in sales activities in Europe and in the U.S., which were primarily in March in the last two to four weeks, unfolded their impact on the quarter in the most important phase of our quarter. This effect is even more pronounced when it comes to equipment orders. On the margin side, we saw that the lost earnings contribution due to COVID-19 was overcompensated by a tailwind from the before-mentioned share plans and, to the most part, by conversion from the solid mix in this quarter. Let me point out that the normalization of mix is a development we had guided for in the last quarterly call. We saw some tailwind from foreign exchange in Imaging. We recorded a very strong margin improvement of 200 basis points year-over-year to 22.9% margin in Q2, despite the impact from COVID-19.
Now to Diagnostics. As expected, Diagnostics was a segment in Q2 where the pandemic impacted the P&L most directly. Lower hospital activity, mostly in China, but also at the end of the quarter in Europe, had an immediate impact on the testing demand and therefore on our reagent sales. In Q2, the impact from the pandemic took also roughly low to mid-single-digit percentage points off the comparable growth at Diagnostics. Consequently, Diagnostics posted declining revenues of -2.2%, driven by declining reagent sales, which represents 90% of our diagnostic business. As the reagent sales usually carry most of the gross margin in that business, a drop in reagent sales also dropped through to the bottom line to a large degree. Consequently, the decline in reagent sales drove margins down in Q2.
However, this was, by a big part, compensated by higher capitalization of cost in the low double-digit EUR millions, originated from an accounting-driven reclassification on Diagnostics balance sheet. In addition, also the tailwind from the share plan had a positive effect on the Diagnostics segment. Putting this together, the headwind from COVID-19 on the profit line was more or less compensated by these two non-operational effects. The 6.5, a rough indication of the underlying performance in Q2. Bear in mind that Diagnostics is still in transition, and we said previously that fiscal year 2020 will be tough. We also said that Q2 will be better than Q1, which is the case, admittedly on a low level.
Please also take into consideration when looking at margins year-over-year that the previous year quarter had the highest margin by far in fiscal year 2019, 11.6% in Q2 versus 9.1% in the full year. Additionally, Q2 prior year was also positively impacted by a revaluation of an accrual. Now to Advanced Therapies. At Advanced Therapies, we saw strong comparable revenue growth in Q2 with 5.7%. One of the growth drivers at Advanced Therapies was one of our recent innovation, the new ARTIS icono, which now started to ramp up in revenues in Q2. However, the headwind from the pandemic was most pronounced on the top line in this segment, taking mid-single-digit percentage points off the comparable growth rate. Advanced Therapies was the segment which was the most exposed, and there is no part of the portfolio which is directly benefiting from higher demand in the pandemic.
It bears the largest relative top-line headwind of the three segments. As in Imaging, the headwinds at the end of the quarter also have an overproportionate effect on the revenues in Q2. This is even more pronounced when it comes to equipment orders. On the margin side, we saw headwinds in Q2 from the lost conversion due to the COVID-19 and the dilution from Corindus. Margin tailwinds came from the share plans, foreign exchange, and to the most part, from the top-line conversion, resulting in a margin of 18.4% and a slight decline of 110 base points. Taking out the dilution from Corindus should give you a rough idea of the underlying performance of Advanced Therapies this quarter. Similarly, as in Imaging, we saw a very nice margin improvement year-on-year when taking out the effects from Corindus.
I move on to the next topic, which always has been important but may get more focus in this crisis, our financial framework sheet, starting with cash. Our free cash flow pre-tax in the first half increased by 45% year-over-year to EUR 605 million. This translate into a conversion rate from EBIT into cash of 4.6. There was a tailwind in cash in the mid-double-digit EUR million range from the introduction of IFRS 16. Taking this out, we still saw a considerable increase in free cash and an improved cash conversion rate in the first half of this fiscal year. This is because our business is a resilient cash generator, driven, for example, by recurring revenues from our service contracts as well as in the Diagnostics business.
The trend towards larger contracts, often with a kind of fleet management for equipment, makes the equipment revenues more recurring. As Bernd said, also in the crisis, we continued to close large deals like the Geisinger deal in the U.S. Our days sales outstanding remain on a very stable level in Q2 compared to previous quarters, with the exception of our Q4, which is always a bit elevated due to the fiscal year-end. We did not see customers default above and beyond normal levels in Q2, which are anyway on a very low level. With the crisis peaking, for example, in the U.S. with its large private health market, we are looking very carefully at the development of the accounts receivable in the coming quarter and beyond. In case our customers have liquidity constraints, we have a wide range of financing offers for our customers with strong financing partners.
Of course, there remains a risk of delayed payments and increased defaults depending on how the situation develops further. A quick comment on the development of the inventory. The cash in Q2 has been held back primarily by a build-up in inventories related to COVID-19. We saw an increased level of finished goods on stock, both in our factories as well in our sales companies, due to the delays in installation at customer site and the restraints in global logistics. There was some build-up of raw materials and unfinished goods to build up safety stock for critical materials in the crisis to keep the supply chain up and running. Let us have a look at our current leverage. On the right-hand side of the slide. Our leverage as of March 31st was 2.1 times net debt over EBITDA.
Within our debt, there is roughly EUR 5 billion of loan volume with a balanced maturity profile, with loans maturing between 2021 and 2046. There is obviously more detailed overview on the loan maturities in the appendix of the presentation. On the net debt side, the increase versus prior year Q2 was mainly driven by the two acquisitions, Corindus and ECG Management Consultants, and by the raised dividend payout versus prior year. We also had an effect from the introduction of IFRS 16 on our debt. It increased our net debt by roughly EUR 400 million in fiscal year 2020. Take this out, that would be around EUR 6 billion or at a leverage around two times. This shows that after the two acquisitions and the raised dividend, our leverage remains with headroom to a solid investment-grade rating.
To conclude, with that headroom, we retain our flexibility to actively engage the challenges and opportunities in the current crisis. One last comment, since we talk about net debt, including pensions, our provisions for pension obligations remained rather stable despite the current volatility in the financial markets. Let us now have a closer look on the impacts from COVID-19 on Q3 and beyond. Let me start with the main graph on top of this slide. You see here a schematic development of our comparable revenue growth. The starting point is growth above 5%. The comparable growth that we have achieved in fiscal year 2019 and which was the outlook for fiscal year 2020, and which we also achieved in Q1. As we have just discussed when looking at the Q2 numbers, Q2 growth already saw a headwind of around four percentage points of comparable growth.
We ended with more than 3% on the back of particularly strong performances in Imaging, Advanced Therapies, although 3% growth is already below our underlying potential due to COVID-19. Another reason why we still saw growth in Q2 was due to the timing of the impact. In Europe, and especially in the U.S., the headwinds rolled in into the end of the quarter. With Q3 assumed to see the peak for the crisis in Europe and the U.S., we also expect Q3 to be trough for the revenue development in the crisis with regard to comparable growth. As outlined before, the declining equipment orders in Q2 are also a clear precursor for declining revenues in Q3. Much from me on the presentation for now. Bernd will now shed some more light on our views for the development post Q3.
Yeah, thanks, Jochen. We are heading through uncharted waters. Our globalized world has not gone through this kind of crisis before. This means that we have to move with caution. While we are optimistic that we can help in the crisis with our products, the visibility with regards to the timing and the intensity of the pandemic on our business remains low. If at all, as Jochen has commented, we believe we have some kind of understanding of what is and what will be happening in the running quarter, and of the rough shape of the shock and recovery path for our businesses. Beyond this, there are just too many questions. How will the further development be of this first wave in our key markets, especially in the U.S.? Will there be a second wave? Will there be a medical treatment reducing mortality?
How quickly, if at all, is a vaccine found? Will we get through the winter without a further economic full stop? In principle, however, our key belief is that this is a one-off shock and that the general long-term trends of our business remain intact. Our current expectation is that the trough for our business will be our Q3, and that Q4 should see first stabilization. This, by the way, seems to be in line with the assessment of many other corporates or macroeconomists. Looking at the consensus expectations of the sell side for our full year, this seems to roughly be the expected shape of the shock. Timing and intensity and ultimate shape of this crisis, however, remain highly uncertain. There are a few beliefs that I would like to share.
For this, I would like to draw your attention to the three smaller graphs at the bottom. In equipment, we believe there will be pent-up demand if the crisis does not change the underlying healthcare drivers. Service, as mentioned at different parts of today's presentation, is expected to be a stabilizing element in our portfolio, even in Q3. The situation in Diagnostics is more difficult, as many procedures, either elective in hospitals or in private physicians' premises, are being canceled or postponed. We do not expect to see a lot of pent-up demand in terms of reagents coming from delayed procedures. In general, and now I'm looking again at the upper graph, we believe that slower recovery should also lead to overall more pent-up demand. Now, what comes thereafter?
We believe the long-term macroeconomic consequences will be severe, and it is unclear how governments will prioritize spend on healthcare in light of tighter budgets. However, the past has proven that our business is relatively immune to spending cuts, since our products make up only a small part in the overall spend, but our technologies influence most of the clinical decisions, and thereby influence how effective care is delivered. The need for more productivity is often even a positive for our business. It seems to be obvious that the crisis has brought the importance of functioning healthcare systems into public focus, which should overall be a positive stimulus. It is, of course, unclear where the focus of policymakers will be in reflecting this fact. It is all too early to judge.
What we believe will change is the speed of adoption of digital products in healthcare delivery, and we have great products that will shape the future of healthcare, which may now be coming quicker than we thought. Speaking of potential beneficiaries of the crisis, please go to the next chart. As I already commented in the first part of the presentation, we have several products across our portfolio that can help in the crisis. The Diagnostics segment plays an important role with delivering, so to say, purely COVID-19-focused products. You could go so far as to say they have somewhat a hedge character, as they might be helping us if the crisis takes longer. Let me enlarge mainly on one of these products.
Two weeks ago, we announced that we have developed an antibody test for testing at scale in large labs with the production potential of over 25 million tests per month. While pricing of this test and the ultimate demand are somewhat uncertain, it is clear that this has the potential to be an important positive contributor in the second half and possibly also beyond. However, and that is why we show this as a dotted line, the economic success of this test is dependent on many variables, somehow hinging on the same uncertainties and more as our view described on the prior chart. For example, when will there be a vaccine? Does it all help to know if a patient had contact to the virus when it comes to estimating herd immunity, for example? Will there be a medicine driving down mortality, making antibody testing less important?
Just to name a few. Next to these uncertainties, we first need to get the test approved. If you look at the transcript of this call and count the word uncertainty, and sorry for that, it will likely pop up more than once. That is why we have decided the previous outlook is no longer valid. We have also come to the conclusion that articulating a new outlook at this point in time does not make sense due to all the uncertainties. On the following chart, you will find the new outlook wording from our quarterly statement. Don't worry, I will not read this to you. Rest assured that we will become more concrete on guidance as soon as visibility improves. With this, I hand back to the operator for the Q&A.
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 or asterisk key, followed by the digit one on your telephone keypad. Again, ladies and gentlemen, please press star one on your telephone keypad. We'll now take our first question from Patrick Wood from Bank of America. Please go ahead. Your line is open.
Perfect. Thank you very much for taking my two questions. I guess on the first one, on the serology testing side, I'm just kind of curious. The thing I can't quite wrap my head around is how the mechanics of this will work, i.e., from your perspective and planning, how are patients going to give samples? I mean, if everyone goes to a clinic to get their blood drawn or to their local physician, doesn't that somewhat defeat the purpose of the social isolation in the first place? I'm just kind of curious literally how you think the sample catchment side is going to work, because I can't work it out.
Then, for the second one, just curious on Imaging, how are the discussions that you are having with hospitals at the moment, I mean in terms of order bookings and that side of things, I guess everyone's obviously focused on doing what they're doing and nobody knows what the quarters will bring. What are hospitals saying to you in terms of projects that they were planning, how long that pause might be? Just a little bit of extra color around that would be great. Thank you.
Thank you, Patrick. I mean, on the serology test, yes, this is a normal blood test. There are ways to deal with it with caution in a socially distant society, if you wish. As much as there are ways to go to the supermarket, there's also ways to get your blood drawn. Maybe a very trivial answer. It is the normal way of doing a test, and I believe this is especially a test for a little bit normalized world, where it's about, hey, can I go back to work? And so on. It's about more normal questions. In the end, it is a normal way of doing a blood test. The second topic on hospitals' behavior on the Imaging and Advanced Therapies business.
Currently, there were a couple of weeks where we, especially in the hospital segment, all the focus was on getting ready for the pandemic. It was simply just the wrong time for two things. On one hand, it's the wrong time to install an MRI, which is always some kind of a construction. As an example. It's also not the highest priority to finalize a purchasing decision. This is clearly just a delay. When it comes to installations, we have a very healthy order book, and this is just a timing topic. When hospitals get back to taking deliveries and when it comes to orders, I am optimistic that it stays the same, that in the end, it will come back to normal. Procedure growth, as we always said, and innovation, medical innovation, are the drivers for new installations and taking orders.
If you look at the development of the pandemic so far, you see that in late February, early March, in a lot of countries in Europe, hospitals were shuttered, so to say, to change their strategy to be prepared for the pandemic. On the other hand, this is now turned around to a certain extent. The hospitals get relieved. They can get back to more elective kind of procedures. This will, as the pandemic normalizes over time, this should then also normalize relative to our demand, so to say. The tricky thing is intensity and timing of the development of the pandemic, and therefore, we had those graphic displayed. We don't know this, because at the end of the day, we don't know what the virus will do.
Perfect. Thanks so much for taking my questions, and apologies if you got a screaming child in the background.
Oh, no. I didn't hear it.
Lucky me. Thanks.
You don't know who's with us.
Our next question comes from Veronika Dubajova from Goldman Sachs. Please go ahead. Your line is open.
Good morning, gentlemen, thank you for taking my questions. I will also keep it to two. One, I want to follow up on Patrick's question and understand a little bit more what's the kind of equipment order growth dynamic that you're seeing in the market right now. Obviously, we got some comments from Q2, but that is somewhat backward-looking. I think you had a sort of, one of the large players in the U.S. talk about 15%-20% declines in orders in April. I'm curious if you can comment if you're seeing something similar. Is it better or worse? Just so we can think about modeling the revenue growth over the following couple of quarters. My second question is thinking kind of bigger picture about the market opportunity for the serology test.
Curious how you guys are thinking about what role it might play as we do go back to normal. I guess we've had a number of data points on pricing. Some of your competitors are giving the test away for free. I guess if you can give us a little bit of sense for how you are thinking about the price per test, and the kind of related margin to that would be helpful. Thank you.
Yeah. Veronika, thank you for the question. I mean, talking orders, it is, in my opinion, a little bit premature to really look at market to, let's say, to have a visibility on what is market behavior. One reason for this is, and beyond, I mean, that in our industry, when it comes to equipment orders, quarters are typically very back-end loaded. I mean, not only for us, but for everybody. The last month of a quarter is typically where decisions get finalized. Yeah, this is how the world of sales works, yeah, whether you like it or not. Yeah. We saw now a different impact. For example, in the U.S., the last two weeks of the quarter, in Q2, were heavily impacted by COVID. Yeah.
Now, how material is a delay from March into April, May, or whatever, when it comes to decision-making, and is that a new norm? It's a little bit hard to judge from a data point of view. That is, I think, also the comments you heard from others. Yeah. It is, from my point of view, a little bit early to really have a fact-based view on what market orders may look like. What I want to draw your mind to, by may, I mean in the end, the fundamental drivers of, I need a better MRI for cancer care. Here is cardiovascular disease, and I have more and more patients, and so on. They are intact. Yeah.
We have always seen the business going back to normal, even when there were shocks like in the financial crisis, 10 years ago or 12 years ago, and you can look up the numbers, how things recovered and how resilient the business always was. Yeah. I mean, when it comes to the serology test, I mean, first and foremost, this is very much about how can we help as a leading company in that difficult situation. It is about ramping. I mean, first of all, it was really about being as fast as possible in having a test, in having the production capacities, and so on. The topic of how is pricing working, and so on exactly, and is not the major top-of-mind thing in the beginning of doing such a topic, and we will have to see on it.
I mean, this is a major effort for us, so it's not something which is there. I mean, we are in a position to give it for free. Typically, tests like this are in a range of a low single, let's say. How should I phrase this? Low single digit dollar amount. Yeah. Which would be the normal price, yeah, this goes to our customers. Yeah.
Yeah, maybe only to also say, give some certainty on the Q3 numbers, just from revenue. I mean, in Imaging and Advanced Therapies, most of the revenue is locked in via order backlog. If we do not see significantly hindering facts coming from anything out of the pandemic, this should be relatively assured. Therefore, we feel very comfortable. The more tricky number is the revenue number on Diagnostics, because that is more book and bill, and here we don't know how quickly the U.S. will recover or not, and people will go back and ask for elective blood testing. This is, I would say, the more the uncertainty around it. On the other hand, with regard to pricing, we will have competitive pricing, and it should be in the normal immunoassay range. There should not be something.
Yeah.
It will be attractive. The good thing is that we have capacity because of things we have discussed in the previous quarters a lot, because we are building out more volume. Therefore, we have capacity also to.
The orientation is really, what is an immunoassay test, a non-commoditized immunoassay test, and there are, I think, relatively established price points for this.
That's very helpful. Can I quickly just ask a follow-up? I guess it'd be really helpful to understand, when you speak to labs, how they're thinking about their need to expand their own footprint to accommodate COVID-19 testing. There's been quite a lot of discussion around how much capacity labs have. I think that's been mostly for PCR testing, but I guess, and apologies, my question's probably a little imprecise on that. As you do think about serology testing, what do you think are the triggers for labs to think about adding another machine so that they can accommodate more COVID-19 serology testing? Is it just too early to have that discussion?
Yeah, currently, on the one hand, see, of course, that labs also have, to some extent, less tests in the normal spectrum. Is it something that I would say this is now a prerequisite, that first of all, many labs need to add capacity? I would say no. I think they should be equipped. In the end, it is a positive for us. When you look at the productivity challenge we talked always about, also when we discuss Atellica and who we are in the lab. Productivity, that is also why our test, by the way, when it comes to two parameters. Throughput, how many tests you can perform per hour of that serology test. When you look at the time to result, how quickly does a lab have a result and how many tests can you run, around 400, I believe.
440.
440 per hour, yeah. Here the test is leading. In the end, as we also discussed multiple times, the capacity, adding an analyzer, for us, it's a cost. The good thing is to have tests. When it comes to productivity, we feel to be in a very strong position to help customers with it.
Understood. Thank you so much.
We'll now take our next question from David Adlington from J.P. Morgan. Please go ahead. Your line is open.
Morning, guys. Thanks for taking the questions. Maybe firstly, just to press you a bit on the order growth. I'm sorry, I may have missed it, but just to get some further color around how the order growth developed through the quarter, and I suppose more recently into the third quarter. I know you indicated it's back end loaded, but just to get some dynamics in terms of how it's evolving over the last couple of months. Just on your revenue growth through Q3 and Q4, I just wondered how you're thinking about your ability to manage costs in response to, obviously, that uncertainty around the revenue growth would be great. Thank you.
Yeah, thanks, David, for the question. On the order growth side, as we pointed out, we saw, in particular in the end of Q2, a decline in equipment order growth. In particular coming from the U.S. market, also Europe was relatively weak. China was not fully back yet. The question is, we will see Europe hopefully coming back in this quarter towards the end. We don't know about the U.S. yet. We will see China coming back. There is a lot of uncertainty, and that's the main driver why we are cautious, not giving new guidance yet because we do not have enough visibility on this. Our customers do not have visibility on this. Therefore, it does not really help currently to talk to customers about this topic, because they have currently other fish to fry, so to say.
This is what Bernd pointed out beforehand. This is the $100 million question we also have. How is that developing over time? The important topic is we see this all as, or primarily all as pent-up demand. It's only a question of timing at the end of the day in equipment. Your second question was on revenue. Was it revenue?
Your ability to adjust the cost base.
Yeah, cost base under. Here, we have a lot of measures in place already. We have built up response plans for different scenarios. Depending on when certain triggers hit, we do take more severe measures and less severe measures depending on the triggers which are coming. We're obviously benefiting from things which do come almost automatically, like significant less travel. Significantly less discretionary spend. No trade shows, nothing like this currently happening. That helps significantly. We are doing things on the vacation accruals and things like that, people, overtime, everything is built up. I think we have certain measures. At the end of the day, not everything can be covered, but we feel relatively comfortable to stay in very healthy territory.
Perfect. Maybe just a follow-up just on China, in terms of what you've learned as you've come through the crisis, how has the demand there panned versus your expectations?
In China?
In China, first of all, the business was holding up quite well on the Imaging side. We also saw positive effects here of the modalities which were in special need. Jochen mentioned CT. When it comes to the Imaging Advanced Therapies business, we feel quite good how it is developing currently. From that point of view, it feels getting close to normal. When it comes to Diagnostics and the elective procedures, we still see lower demand. Bear in mind, in China, for example, the schools are still closed. Kids are taught from home. That means that when it comes to normal medical business, so to say, China is not yet fully back.
When it comes to planning the future of a hospital and so on and so on, and not putting pandemic readiness in the center of a hospital's minds, the country is much further ahead, and it feels very close to normal.
Perfect. Thanks so much, guys.
We'll take our next question from Scott Bardo from Berenberg. Your line is open. Please go ahead.
Yeah. Thanks very much for taking my questions. You can hear me okay?
Yes.
Perfectly. Yeah, I just want to have a little bit of discussion about the recovery and appreciate you mentioned some pent-up demand or period of abnormal growth you would expect when things start to normalize. I just wonder if you could share some thoughts about replacement cycles and whether you would expect or having discussions surrounding delaying replacement cycles. What sort of strategies you can adopt to mitigate that or to accelerate replacement cycles, be it through financing partners or offers. A little bit of discussion around that, please. Also, on that topic, your upcoming cadence of new product launches, which you've highlighted some excitement for, photon-counting CT and a new MRI. Are they still very relevant products, should you say, in a post-crisis environment? I wonder if you could talk about that.
Second question, please, just relates to serology and congratulations for being quite quick with that approach. Can you give some more detail, please, and just provide some sense of benchmarking versus competitors, why your product is different compared to competitors or not? What informed your decision to ramp up to 25 million tests? Do you have capacity plans in place to expand that further? Maybe some thoughts there. Just remind us what your installed base is, please, for the relevant testing instrumentation. Thank you.
A lot.
Good.
Yeah. Pent-up questions. Thank you, Scott. The topic of basically it's about how will the equipment market and so on develop. First of all, I am very convinced, and I have no signs not to be, that when it comes to the topics of all other diseases but COVID-19, they are still there. There is the prolapse, there is the stroke, there is the heart attack, there is cancer, there is chronic diseases, and so on. People need care. This will not change. It is currently, maybe a little bit of attention is not on that very topic in a public debate or on people's mind, but this will definitely return, and the fundamentals are intact. You also, as I said in the call, we are not a luxury item.
What we deliver is, when you look at the top line of a customer and a rather minor aspect of 1% or so of the top line of a hospital, which is spent for the type of equipment we provide, but 70% of the decision making is depending on it. You can also look at it as an investment into productivity and medical quality. That is what has always happened. It was never in doubt. It's not a luxury item. It is a necessity, and maybe in a future even more rational healthcare system, even more so. I'm not worried about the world going back to the fundamental demand curves. It is a little bit of a question of the exact U and V and whatever in the next months, but that is the main topic. You had the serology question.
I think here the topic was the scaling up. We said in June it will be more than 25, not up to 25 million. It can be more than 25, that's what we said. There is no threshold. Production is taking place in Walpole, Massachusetts.
I can also add in. You asked on the installed base. We're currently developing the tests, the serology test for Centaur and Atellica. There we have a very healthy low five-digit installed base number in there for this. Depending on, I would say, on the success or the clinical need for this kind of test, we could even go to the other assay technology we have in-house, the LOCI technology, and address another installed base, the Dimension installed base. This we could do, but it's also depending on how we see the clinical demand popping up.
It's certainly an upside that we have a strong installed base in the United States. As we have discussed multiple times, this is certainly a strength here.
Yeah.
Very helpful comments. Sorry, just one that wasn't touched upon was, how do we think about this test as compared to other competitive solutions? Is it kind of similar or are there differentiation points?
Yeah.
Any benchmarking versus other available competitors?
Okay. Some comments. First of all, let me dissect it in two different terms. One is more the productivity of the test. When it comes to how many tests can be done by a lab and how quickly they have the result, it is leading. When it comes to this, and it also goes back to Veronika's throughput question. Also the time to result is an important one. When it comes to the other fundamental criteria of the test is sensitivity and specificity. This is both well above 99%, so super great, very happy about no compromise in quality. It is a comprehensive test, which is looking not only at the so-called IgG. It's a total assay test, which gives you a more complete picture of the immune reaction. Whether this clinical difference will make a difference, the future will tell.
It is not unlikely that in the end, a test is a test. That when you compare our test clinically to that of others, there is no fundamental big difference. There could also be developments, also depending on will there be a vaccine and whatever, where it makes a difference. Bear in mind, what this test does is it tests are there antibodies. Is there an immune reaction? What we don't know yet, we meaning mankind, is immune reaction, does it mean you are immune? Yeah. From that point of view, we will also see what the result of different Diagnostics of these tests, whether they are better or worse, better able to give more details on whether somebody's really ill or not.
Maybe one, and you asked us about the new product launches, and they are all well on track.
Right
We do not stop them. When we have talked about this, in particular, the photon-counting technology in CT might trigger, because it's really a breakthrough in technology. It might trigger replacement cycles heavier than in the past. Yeah.
Yeah. This can trigger, and then, also, when you look at, as an aside, we talked about also this, say, lower or entry level or whatever, MRI system. What could happen in the long run is that one effect of COVID is that there is a more clear separation of stationary, of acute care, and ambulatory care. Yeah? Having equipment, inexpensive equipment, so to say, or super cost-efficient equipment, which works in ambulatory settings on the Imaging side could be a potential upside in the future. Yeah? It is a multifaceted aspect when looking at if there will be changes in investment priorities and whether that is a good or a bad thing for us. Yeah?
Thanks so much indeed.
We'll take the last question now. I think there's a few more in the queue. Please excuse us, but we'll approach you after the call. Okay?
We'll take our last question from Michael Jüngling from Morgan Stanley. Your line is open. Please go ahead.
Great. Thank you. Good morning. I have two questions. The first question is in relation to slide nine of your presentation deck, and I'm trying to sort of interpret what your expectations are for the second half. Is it reasonable to assume that in Q3, if the scale is correct, does that mean you're expecting around -2% to -5% comparable growth, and in the fourth quarter, somewhere between 0 and -2%? Is that a correct interpretation of your best estimate? Question number 2 is, if that chart is correct, then I suspect the budget that you've geared towards the cost space for the second half should give you some idea of what the margins should be like in the second half.
Could you perhaps give us an indication of what that means for margin if slide nine is the right interpretation of what will happen to your business in the second half? Thank you.
Yeah. Thanks for your question, Michael. This picture is a scribble. Yeah? It should give you the direction we see the growth rates develop over time. Yeah? It is not measured, I'm not sure what the linear is, yeah-
Ruler
with a ruler. Yeah. You can do this, but you might end up with the wrong number. We have decided, for good reason, that we currently feel not well enough prepared to lay out solid assumptions for a good guidance for this fiscal year. Therefore, we would also refrain from giving certain guidance now. Yeah. As we see, as we get more visibility into the development of the pandemic, into the uncertainty we see, for example, around the serology tests. Yeah. The respective demand and the potential upside and things like that. The order, equipment order growth, maybe a potential acceleration of customers asking for the equipment faster than they normally do or whatever it is. Yeah. We don't know yet. Yeah. As soon as we see this and we have visibility, we will get more clearer on the outlook for the fiscal year.
Today, we cannot do this, I would say, in a meaningful way.
Okay. Thank you. May I follow up on the midterm guidance? You mentioned a lot of uncertainties in relation to your business today. Any comments around your midterm guidance that you provided as part of your Q4 results? Can we still-
Yeah
place a good degree of reliance on that, or should we also be thinking that the world's changed and the midterm guidance is perhaps also no longer.
Yeah
the right way of looking about it?
Yeah.
Thank you.
Okay. Let me, Michael, let me carefully approach this one. Yeah. When looking at what is the message we gave in November, and the message is that we are a business, which feels comfortable to grow by 5% and more, and to produce 10% or roughly twice of the growth in terms of EPS growth. I'm very confident that we are and remain this type of a business, that this is the engine we have built, driving us. The only question is, when will we be exactly back on the "normal road," quote-unquote? It's a question of the shape to the return. The fundamental driver, the 5% and the twice and the earnings conversion or the EPS of this, I am very confident is intact. Now, of course, we have shapes and so on.
We will have, as you also know, what will be the discussion in a year from now, it will be the weak comps in Q3. We have seen trough. The 5% growth next year will not be something very spectacular and so on. We will live with that overlay. You can look at us at, and I think the Q2 numbers showed that. The Q2 numbers clearly outperformed this 5% topic. Without COVID would have, and at a very decent profitability. It is now about managing the shock and the positive effect of the shock and the next year's growth rates and so on. The fundamental of the health of the business is intact.
Thank you. I think that is a nice ending statement, Michael.
Okay.
To be quite honest.
Understood.
Yeah. I would hope that we hear each other in other occasions in the next few months and look forward to speaking then. Thanks, guys.
Thank you very much. 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. The website address is www.corporate.siemens-healthineers.com/investor-relations. Thank you. Good day, and stay safe.