Good morning, ladies and gentlemen, and welcome to the Siemens Healthineers Q3 Fiscal 2019 Conference Call. As a reminder, this call 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 expectation 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, moderator. Good morning, ladies and gentlemen. Welcome to our Q3 conference call. Earnings release and the Q3 presentation were released at 7:00 A.M. this morning. You can find them on the IR website or in your email box. I'm sitting together with Bernd Montag and Jochen Schmitz, who will be taking you through our Q3 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. May I just humbly remind you of the good old two-question rule. Yes, some things never change. Now I pass the word to our CEO, Siemens Healthineers, Bernd Montag.
Yeah. Thanks, Marc, for the introduction. Dear analysts and investors, with this third quarter 2019, we have been able to further strengthen our leading global market position in Imaging and have shown that also Advanced Therapies is on track for outgrowing their target markets this year. In total, this has resulted in an organic revenue growth of 5.8% for the group, continuing the very positive dynamic we were able to show in Q2. Imaging comparable revenue growth was at 8.4% and thus even stronger than the strong Q2 and the strong comparable from Q3 last year. Advanced Therapies delivered 5% comparable growth to also a good result in line with our medium-term ambitions for this business. With a continued strong order intake this quarter, we were able to bolster our level of comfort for the coming quarters.
Despite the good revenue, we have seen the profit margin coming down 80 basis points year-over-year to 15.2%. In the Diagnostics business, profitability was weak with only 7.5% adjusted profit margin. Comparable revenue growth was 1.3%, staying behind the level of quarters one and two. Earnings per share were again strong despite the weaker adjusted profit margin, obviously supported by the strong nominal sales growth, but also by a rather low tax rate and lower financing costs, thanks to a successfully completed debt restructuring. Finally, we are reiterating our guidance for 2019 for all key financial group KPIs. We have proven throughout the year that our strong portfolio, and especially our Imaging business, is stronger than ever and able to compensate for the transition phase we go through in Diagnostics. This will also be the case in Q4.
Before I start my main presentation, as you have seen, there has been a separate press release this morning regarding changes in the Managing Board of Siemens Healthineers. Michael Reitermann, currently responsible in the Board for the Diagnostics business segment, as well as for the regional sales and service organization, will be stepping down by the end of fiscal year 2019. Christoph Zindel, who is currently heading our global Imaging business, will join the Board. On the Board, Christoph will be responsible for Imaging and Advanced Therapies. I will assume responsibility for the Diagnostics business at Board level, as well as the enterprise services and customer services business horizontals and for our three global regions. Michael will be leaving the Board in amicable agreement. We wish him all the best for his future, and I personally want to express my deep gratitude and thank him for all his contributions.
As I said, I do not want to distract from the fact that the financial results of our Diagnostics business are not what we expected going into this year. Nevertheless, I would like to put it a bit into perspective. We are convinced, and the market confirms, that we have an extremely competitive product that is well-positioned to be a success in the mid to longer term. The way there, however, is clearly somewhat more bumpy than we anticipated. There is momentum, and shipments, for example, have continued to further pick up in the third quarter. We are now at a total of 1,230 analyzers shipped. Supported by the momentum, especially in Asia, we expect the shipment number to significantly increase further in the fourth quarter. This is happening on back of a continued very high competitive climate, with larger and complex settings still being the most successful bucket.
Especially this proves that the market sees and values the qualities of our Atellica Solution: scalability, modularity, efficiency. With regards to the complex settings, we have further successes to report upon, especially in Europe. We, for example, just recently won two important deals in Germany, one with over 25 analyzers. Both I would describe as lighthouse projects as they are with very renowned hospitals. One of the challenges that we are faced with is the speed at which we can take the systems live. As I explained at earlier occasions, our success in the more complex settings is at the same time the curse for the average time at which we bring the systems online. Here, we can report a clear improvement compared to Q2. We were able to get 380 analyzers live in Q3, which represents roughly 20% more than in Q2.
Despite this rather positive news, the overall results for the Diagnostics segment were weak. The unsatisfactory revenue development is very much an issue we can link to the Americas region. Both APAC, so Asia Pacific and EMEA are growing at mid to high single-digit rates, while the Americas is staying far behind. This is the picture for Diagnostics revenue as a whole, but also for the Atellica shipments. Here we initially had far higher expectations for especially the U.S. market. The underperformance there will make it impossible for us to reach our shipment target of 2,200 for this fiscal year. We currently expect to achieve around 1,800 for the year, which would still mean a marked acceleration to around 550 - 600 shipments in Q4, and would still mean an 80% increase compared to the 2018 number.
We are addressing the U.S. market as one of the key initiatives of our Atellica Solution success program. Aim here is to significantly improve the go-to-market as well as the commercial execution. For that, we have also made changes to the Diagnostics management team. Another element of the Atellica Solution success program is the optimization of the platform. We have performed a system-wide hard and software update across the installed systems, bringing them to the latest soft and hardware version. This was a significant effort in the isolated third quarter and one important reason for the subdued margin. Clearly, of a rather one-off character. Making Atellica a success for Siemens Healthineers has always been a key priority for us. Obviously, this continues to be the case.
It will likely take longer than we initially thought, but we will get there, because this is a really strong product, and I'm fully convinced of this. Now switching to Imaging. In Q3, Imaging and Advanced Therapies again showed an impressive performance. Basis of this performance is our ongoing stream of innovations, with innovations that drives revenue growth and leads to outstanding margins. With major product innovations over the last 12 months, like the AI-Rad Companion, the ARTIS icono, and the Biograph Vision, our innovation power ensures an ongoing strong equipment order growth. We have been outspoken about the strong order book throughout the year. Also in Q3, we continued our strong equipment order growth with mid to high-teen equipment order growth, both in Imaging and Advanced Therapies.
This shows not only the strength of Imaging and Advanced Therapies this quarter, but also builds up a healthy base for our revenues in the coming quarters. Hence, it is not surprising that we are continuing to gain market shares. With growing market share, the installed base grows, again delivering the basis for solid service revenue growth. Growing revenue together with the price premium which comes with our innovative products, leads to market-leading margins with 20% and 19% year-to-date for Imaging and Advanced Therapies respectively. We are able to achieve these industry-leading margins while spending more than 9% of our revenue in R&D, which translates in more than EUR 900 million together for Imaging and Advanced Therapies. This ongoing virtuous circle, the cycle of innovation, market share gain, recurring services, innovator margins, and the ability to reinvest, is one of our key success factors.
Ongoing value creation is one part of our success. Another part are long-term partnerships as a foundation for our future. For example, we were able to close a long-term partnership with the University of Missouri, a deal size greater than EUR 100 million. The 10-year collaboration includes the launch of research initiatives in the areas of precision medicine and digital healthcare solutions. The clinic, for example, received the MAGNETOM Terra, the only seven tesla MRT scanner approved for clinical use. With its high magnetic field strength, finest structures of the body can be visualized.
This is especially useful for brain examinations and researching complex neurological disorders such as Alzheimer's disease. MR and other scanners in the network are powered by remote assistance via our unique syngo Virtual Cockpit. Our partnership includes not only access to innovations in diagnosis and therapy and digital health solutions, but as well, training resources for educations.
For example, mentoring programs and the development of joint curricula between Siemens Healthineers and the University of Missouri is an important part of the partnership. Students learn how to work with cybersecurity, data science, machine learning, and artificial intelligence in the healthcare system. By the way, with our systems. Another element in forming a strong foundation is extending our portfolio with new technologies. With the acquisition of Minicare BV, we strengthen our technology position in immunoassay point of care testing. Immunoassay testing is one of the highest growth segments in the point of care testing market. The point of care cardiac segment, for example, shows a strong clinical need for higher sensitivity troponin testing in a simple-to-use device. Minicare's mHealth technology offers us the capability to miniaturize mini immunoassay testing for point of care applications.
Together with the Atellica assay in our laboratory business, we create the industry's first end-to-end cardiac solution, aiming to provide standardized high sensitivity troponin results in the midterm. This acquisition also will enable the addition of point of care immunoassays beyond cardiac to further address clinical fields in the future. The integration of the analyte detection technology created by Minicare with our engineering expertise and global reach will enable healthcare providers to expedite immunoassay test results and deliver timelier patient care. With this, I hand it over to Jochen for a deeper look into these comments.
Yeah. Thank you, Bernd. Also, a very warm welcome from my side. Let us now have a closer look at Q3 financials, starting with order intake. We saw a very strong order intake in Q3 with 13% organic growth year-over-year, driven by strong equipment as well as service growth. Bernd has already given you some color on our very healthy equipment order performance in Q3, which is, so to say, the guarantee for future revenue growth and installed base growth fueling the service revenues. Let's now look at the Q3 P&L, starting with revenue. Comparable revenue grew in Q3 by 5.8%, driven by very strong growth in Imaging and also strong growth in Advanced Therapies. On the basis of our very strong order intake, we are confident that we can continue to see impressive performance in Imaging Advanced Therapies also in the coming quarters.
From a regional perspective, we saw significant growth in China, strong growth in EMEA, and slight growth in the Americas. The U.S. was sluggish, with the Diagnostics underperformance in the USA playing a major role here. Let's move over to profitability. Adjusted profit margin in Q3 came in at 15.2%. Year-over-year, this is a decline of 80 basis points. Q3 was again burdened by the ongoing transition of our Diagnostics segment. Diagnostics contracted the margin. The other segment, Imaging Advanced Therapies, improved their margins in Q3 and hereby compensated for the Diagnostics segment. Looking at the three segments without central items, the margin development would have broadly been even slightly positive. At central items, we had a positive one-off in the prior year quarter from a pension gain that impacted Q3 fiscal year 2018 positively with 60 basis points.
Central items face very tough comps year-over-year. To summarize, while the developments in the business areas roughly canceled each other out, the year-over-year margin reduction mainly resulted from central items due to the positive one-off in prior year quarter. Foreign exchange, we did not see a material impact on group level in Q3, but a more diverse picture in the segments. I will provide more detail on foreign exchange effect in the segments on the next slide when we look at the segment performances. Now to the bottom line of the P&L. Earnings per share grew by 22% in Q3 year-over-year on the back of increased profit and a lower tax rate. The tax rate was unusually low this quarter, following a one-off positive tax effect from the debt restructuring program. This should not be extrapolated.
We continue to see the tax rate in the lower end of the 28%-30% range for fiscal year 2019. Let me also point out the lower interest expenses that originated from the debt restructuring program mentioned before. We optimized our debt and capital structure for sustainably lower interest expenses. More on this towards the end of my presentation. Now to our segments, starting with the strong Imaging business. Imaging grew by 8.4% this quarter, continuing the strong momentum from the prior quarter. Considering that this very strong performance of Imaging was achieved despite the tough comps from the prior year quarter, we are very confident that Imaging is well set for the coming quarters. We saw particularly significant growth in computed tomography and molecular imaging, but also strong growth from magnetic resonance and from our enterprise services organization.
In the regions, we saw very strong growth both in EMEA and in Asia, Australia, the latter driven by a strong performance in China. In the Americas, we posted strong growth this quarter on tough comps from the prior year quarter. The adjusted profit margin came in at 19.1% and thereby improved by 170 basis points. The same improvement year-over-year as in the previous quarter in Q2. The drivers of this profitability improvement remained the same as in Q2, conversion of the strong top-line performance, and in addition, our cost savings program. Our cost savings program was initiated at the time of the IPO. Q3 2019 is the first quarter where we compare the cost savings, whereas this is the quarter with the first effect from the standalone savings.
Hence, the effects might be a little less pronounced due to a tough savings comps, but we still see the benefits from the delayering. From foreign exchange, we did not see a material impact on the bottom line of Imaging, if any, a slight tailwind. Let's now move to Diagnostics. Bernd already addressed the challenges we faced in Diagnostics this quarter. Let me now give you some additional color on the financials. Growth in Diagnostics was muted in Q3 at slightly above 1%. In the regions, we saw very strong growth in Asia, Australia, particularly driven by China, and strong growth in EMEA. The Americas were underperforming, stemming from the current underperformance in the U.S., which Bernd has already addressed. The adjusted profit margin was at 7.5% in Q3. The margin decline was driven by two major headwinds in Q3. Atellica Solution ramp-up and foreign exchange.
To better understand the year-over-year dynamics, you first have to remember that the prior year numbers was burdened by a large automation contract in the amount of 70 basis points. Somewhat in terms of an adjusted starting point, the year-over-year margin deterioration was even over 400 basis points. Let me put this into perspective and explain the drivers. Firstly, we see ongoing ramp-up costs for Atellica Solution due to the fact that we continue shipping instruments at increasing rates. This results in an increasing number of instruments in installation, which are cost items for us in the beginning. At the same time, we continue to increase the rate of getting analyzers live to drive reagent growth, which is the profit item for us.
Currently, we see the rate of cost items and profit items both increasing while shipments are still higher than go-lives, resulting in an ongoing headwind from the transition to Atellica Solutions, despite also growing reagents from the new platform. This ramp-up headwind, therefore, is somewhat standing still at 150 - 200 basis points compared to Q3 last year. This quarter, this headwind was even more pronounced due to a globally rolled-out performance update. Bernd mentioned this early on. This effort, which was clearly of a one-off character, explains again around 100 basis points of margin pressure. Speaking of one-off effects, Q3 was additionally negatively impacted by effect of 50 basis points from an accrual, putting further pressure on the margin level in Q3. Finally, the foreign exchange exposure of our Diagnostics continues to be a significant headwind this quarter with -120 basis points year-over-year.
Now to our Advanced Therapies segment. Advanced Therapies grew with 5% this quarter, another strong performance after the very strong previous quarter. In the regions, we saw significant growth in Asia, Australia driven by a very strong performance in China. The adjusted profit margin came in at 17.3% and thereby improved by 30 basis points year-over-year. The drivers of this profitability improvement are similar to Imaging, conversion of a strong top-line performance, and in addition, our cost savings program. From foreign exchange, we saw a tailwind this quarter. On the bottom line, however, this was eaten up by a less favorable business mix. Now let's look at our free cash flow performance in Q3. In Imaging, Advanced Therapies, we had again very solid cash conversion of 1x and 1.1x respectively.
This highlights our ability to reliably generate cash in the segments Imaging Advanced Therapies, which operate in a steady state. In a steady state, we are able to convert profit to cash at a rate of one or slightly less while funding growth at the same time. In Diagnostics, the transition to Atellica Solution also remains a challenge in terms of cash. This segment, we have a cash conversion below zero because we are investing in capacity expansion, i.e. diagnostic factories in China and the U.S. for future growth. Also, additions to operating leases, funding an increasing share of larger deals at Diagnostics and ongoing capitalization to further build out our Atellica Solutions platform are an investment for future growth at Diagnostics. On a group level, we saw increased cash outflows for income taxes paid in Q3.
A bit of background on this, in fiscal year 2018, we saw extraordinary positive effects on income taxes paid caused by the transfer out of the tax group of Siemens AG to our now standalone group, Siemens Healthineers AG. Now in fiscal year 2019, the Siemens Healthineers tax group is in its second year. The tax profile has normalized. This led to a catch-up effect on income taxes paid in this quarter. Now let's have a look at our debt and capital restructuring program that positively impacted our net income this quarter and will continue to do so in the coming fiscal year. In our legacy debt structure, more than 90% of our loans are denominated in U.S. dollar. For that reason, we look for opportunities to adjust our capital debt structure and to take advantage of the more favorable EUR interest rates.
We moved U.S. dollar debts to euro-based entities with respective foreign exchange hedges. The result of this move is that we now have around 70% synthetic debt denominated in euro. This reduces our total average interest rate from around 2.6% to about 1%, which reduces our interest expenses going forward. We implemented this new debt and capital structure in May 2019, we will see the first markedly lower interest expenses in Q4. For the coming fiscal years, we expect a reduction of interest expenses per annum in the double-digit millions. Speaking of the coming fiscal years, for fiscal year 2020 onwards, we have decided to slightly change our earnings KPI, the adjusted profit. We will move from our current definition, which was earnings before financing interest, tax, and PPA, adjusted for severance, to a simple EBIT figure, again, adjusted for PPA and severance.
One advantage of this EBIT figure is that there's no longer the need to distinguish between operating and financing interest. The change to the new KPI will have a minor negative effect on the margin. Obviously, earnings per share will not be affected by this change. You will find some more information in the backup of the analyst presentation on the investor relations website. Also, we will have to implement IFRS 16 in fiscal year 2020, which will have a minor positive effect on our new earnings KPI and minor negative effects on EPS. As said, this is only a technical upgrade to inform you in due course. There will be no material effect in fiscal year 2020 and beyond from these two changes. As a matter of fact, they are somewhat offsetting each other. This brings me to my last chart on the fiscal year outlook.
As Bernd has already said in the beginning of this call, we are confirming our outlook for all three KPIs at group level. We confirm our comparable revenue growth target. The strong comparable revenue growth in the last two quarters and comparable revenue growth of 4.7% in the first nine months, we are well on track to reach the upper half of our revenue growth guidance at year-end. We confirm our margin guidance for the full fiscal year. An important factor of our reliability and resilience is our strong, balanced portfolio. This well-balanced portfolio gives us the ability to achieve our margin guidance, driven by the strong performances of our Imaging and Advanced Therapies segments, despite Diagnostics being in a transition phase. In addition, we expect a foreign exchange tailwind, and again, a corporate item line comparable to Q2 and Q3.
We will most likely end up toward the lower end of the margin guidance, which we have been indicating with our Q2 disclosure call already. Having said this, let me point out that at the time the margin target was given at the beginning of this fiscal year, we expected a mild tailwind from foreign exchange on our adjusted profit margin. This mild tailwind was, as we discussed earlier in our fiscal year, expected to cover for the impact of additional tariffs, which are currently slightly shy of 20 basis points negative. A different revenue mix and thereby a different net currency exposure than previously expected, plus change foreign exchange development during the year turned this mild tailwind into a mild headwind. This is not meant as a softening of any statement with regard to our guidance confirmation.
On the contrary, this is an example how reliable and resilient our portfolio is in absorbing these unexpected headwinds. We also confirm our EPS growth guidance for fiscal year 2019. Our strong performance in the top line and thereby strong performance in the absolute profit line, supported by lower interest expenses, put us well on track to achieve our EPS guidance for the year. For the first three quarters, we have achieved an EPS growth of around 20% year-over-year, with the strongest quarter, our Q4, still to come. In addition, Q4 will see the full benefit in our reduced interest expenses from our debt restructure, which was implemented in May. Overall, we feel comfortable with our given guidance for EPS. With this, I hand back to Bernd for some final remarks.
Thank you, Jochen. Your comments around the 2019 outlook are the perfect bridge to this closing chart. The Capital Markets Day in which we introduced our company is now over 1.5 years ago, and we have progressed as a company. Already earlier this year, we decided that we would like to give you the chance to meet key managers in person. We will give you this opportunity in December, when we plan to have the business area managements present their capital market stories in London. We plan these presentations to be a deeper but still compact look into what Jochen and I will be presenting to you in November as part of the Q4 results. For that day, we are envisaging a strategy and financial update to make this clear from the start. This does not mean we are abandoning our midterm targets.
On the contrary, we feel extremely comfortable for Imaging and Advanced Therapies with regards to growth and profitability. On Diagnostics, the tone is obviously a bit different. While the fundamental aspiration on Diagnostics is unchanged, i.e., reaching market growth and competitive margins, it is clear that it will take longer than we initially thought. At Q4 and the Meet-the-Management, we will present how and on what path we will get to the fundamental aspiration. We are currently developing the set of numbers and KPIs we will ultimately present to you to give the most holistic picture for the group prospectus. While we know continuity is something very valuable, we also incorporate the insights that we gain from observing, speaking, and listening to you.
To add some color, if I look at consensus expectations for the next two years for comparable revenue growth and EPS on a group level and compare this to our current view of the group prospectus, I feel very comfortable. That brings us to the end of today's presentation, I'm eager looking forward to questions now in the Q&A or to interesting discussions during our upcoming road shows and conference participations. With this, I hand back to the operator for the Q&A session.
Thank you, gentlemen. We will start this 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. Our first question comes from the line of Max Yates from Credit Suisse Bank. Your line is open. Please go ahead.
Hi. Thank you. Just my first question is around Q4 margins, and I think to get to the lower end of guidance of 17.5%, you need to see margin expansion of something like 180 basis points in Q4 at group level. Given the year-to-date trajectory of group margins, I was just wondering if you could give a little bit of color, either on a divisional basis or maybe specifically around Atellica costs, what gives you confidence in seeing such improved margin trajectory in Q4 versus what we've seen so far this year? That's my first question.
Good. Thanks for the question. Not unexpected, I would say. I gave some guidance on the topic already during my speech. I will reiterate and maybe give a bit more color on it. First of all, if you look at the margin expansion during the last two quarters on Imaging, they were in both quarters, 150, 170 basis points. I do expect to see at least the same level in Q4. We have a good visibility on the expected revenue line in this regard for one quarter because everything is already in the factory and left already the factory. Therefore, this will be a significant contribution. This is, as you know, it's more than 50% or two-thirds of our business. Secondly, I mentioned that we expect foreign exchange tailwind in Q4. We didn't have tailwind for the last three quarters.
Actually, we had headwind in the first two this year. This quarter, Q3 was flat-ish, and now we expect in the ballpark of 30-50 basis points foreign exchange tailwind. Third aspect I brought up was, which is the central item line. You might recall last year, the central item line was, with roughly EUR 40 million, a bit heavy in the fourth quarter. We expect to see here some normalization along the lines of Q2, Q3 of this fiscal year, which was more in the ballpark of EUR 20 million- . If you add this together, assume a decent Advanced Therapies quarter, and we will target definitely a double-digit profitability level on Diagnostics. This will do the trick.
Okay. Numbers.
Okay. Thank you. Maybe just to follow up, could you talk a little bit more around the Diagnostics performance in the U.S.? I think you've called out a little bit of softness around the top line. Is that anything related to market shares? Is it execution issues, timing of delivery? Maybe if you could give a little bit more color on the situation and what you're less happy about specifically in that region.
Yeah. Let me take this question. What I highlighted in my speech was, on the one hand, that we are happy what is happening in Europe and in Asia Pacific, where we see mid and high single-digit growth rates in our Diagnostics business. Which shows that we can do it, and that we really have pockets where growth is picking up. Now, the special situation in the U.S., a little bit of a history. This is our historic stronghold, because this is the businesses which are the foundation of our Diagnostics business have been headquartered. We are the market leader in the U.S. We have a commercial team which basically played defense for a very, very long time. We had a strong installed base, but not really a competitive product.
What turned out to be more difficult than we thought is to really get to the execution of rolling out the new platform in a flawless manner. To your question, this is mainly an internal execution topic. We have streamlined also processes. We made the business report directly to the Diagnostics headquarters. Now we have changed management. It is a commercial execution topic.
Okay. Thank you very much.
Thank you. Our next question comes from Sebastian Walker, from UBS. Your line is open. Please go ahead.
Two on Diagnostics as well. First, maybe on the 7,000 placement target, can you give an updated timeline as to how we get there, and then how that impacts the timing of the growth and margin improvement in terms of your midterm goals? I'll wait to ask my second one.
Okay, Sebastian. The 7,000 target has always been a means to an end. In the end, it is about profitable growth. What you have seen and what we discussed in the last quarters and meet in road shows and so on, has been that the shipment number has its pros and cons. We are very happy about the competitive wins, while the installed base conversion takes a little bit longer, with the U.S. being one of the reasons. The way to look at it is, will we get to, as I said, competitive margins and competitive growth rates in Diagnostics? Yes. Will it take potentially longer than originally anticipated? Maybe to probably, this is what we will give you an update on. With what mix of shipments in terms of new customers and what speed of installed base conversion we will talk about.
The shipment number is not the ideal thing. Currently, I would say the 7,000 would be difficult to reach at the given time simply for the same reason as we also see in this fiscal year that we are a bit behind the 2,200 which we originally planned for.
Okay. That's fine. Thank you. Just specifically on the hardware and software upgrades that you did in the quarter, what exactly did those relate to, and why do you have confidence that perhaps some of those issues are now behind you?
Yeah. This has been a big concerted effort. Let me shed some light on it. Yes, there have been some teething issues. This is a brand new platform. We have a complete new hardware, our first modular system, a lot of software functionality and so on. It is normal that after a version 1.0, so to say, you do a 1.1. The system is super intact. The promise is fulfilled. It is about further stabilizing the system. Now, what we have done in Q3 especially is that basically after a year or more than a year of experience of systems in the field, there is a learning curve. The systems leaving the factory have that learning curve built in, and now it was about a concerted effort to bring all the systems in the field to the same status of performance, incorporating that learning curve.
That is ideal for customer satisfaction, but it's also exactly what we need for productivity and service, that there's one status of systems out there. That also frees up the resources which we need for bringing systems live.
Could I just ask to follow up quickly? I guess, was it one particular issue that you were seeing in the installed base that was live, or was it a range?
No. This is a multitude of smaller topics which we are addressing from certain parts which haven't been super reliable in practical use, software updates, topics with the interface to the automation lines. A variety of topics. Smaller things, they add up. To some extent, normal at this stage, that you need to refresh things, that you bring the smaller teething issues out of the system. Nothing to worry about when it comes to the overall performance and promise of the system.
Great. Thank you.
Thank you. Next question comes from the line of Romain Zana from Exane BNP Paribas. Your line is open. Please go ahead.
Yes. Thank you for squeezing me in. The first question is on Imaging. You mentioned that the division was well set for the next quarters. Can we fairly expect that you sustain at least mid-single digit growth in Q4 then? To what extent the strong organic growth is currently fueled by the improving product mix? I will ask my second question after.
Yeah, Romain. Thank you. On the Imaging side, I think this is a fair assumption. Basically, making the growth. What we see is really a competitive strength which we have. A lot of the growth we have seen is actually due to market share gains. When you look at the details of what competitors announced and what they say about diagnostic imaging, you see that and that is attributed to the strength of the entire portfolio. Does that answer your question?
Yeah, definitely. The second one would be on Diagnostics. I was wondering also looking at the most of the IVD peers year- to- date, what extent, let's say, the weakness or, let's say, the lower growth as compared to expectation of Diagnostics can also be due to a kind of slowdown seen across the market? Maybe just to follow up on Diag, if you could please share with us what will be the first new measures that you will take as the head of the Diagnostics division. Thank you.
Yeah. Okay. When it comes to overall growth in the market, I think I'm convinced that market growth is intact. Which shows it's in our hands. You also know that in Diagnostics, things don't move super quickly because you need to get your systems installed, you need to get the reagent revenue up and so on. The market is intact. I think that overall, when you add up the numbers of competition, our peers, I think that confirms the overall picture. Now, coming to what you said. To be clear, what will be our setup moving forward. The Diagnostics business and in particular the lab diagnostics business, which is headed by Deepak Nath, who joined us 1.5 years ago from Abbott, is the core of where this happens. This business reports to me, Deepak reports to me. We work very closely.
It is really about streamlining the commercial execution. That is also why the regions and service and Diagnostics are, so to say, one cluster of responsibilities now in the Siemens Healthineers Board, so that there is the utmost attention given to the topic and that there is no indirect reporting and whatever, so that the topic really has right of way. I will spend a lot of time in the upcoming weeks. There will be AACC next week. I think it helps us a lot that we have a strong team in Imaging. With Christoph, we have somebody who, so to say, frees me up so that I can fully focus on helping the Diagnostics team.
Very helpful. Thank you.
Thank you. Our next question comes from the line of Michael Jüngling from Morgan Stanley. Please go ahead.
Great. Thank you. I have two questions, they're both related to Diagnostics. Firstly, a question for you, Dr. Montag. You sort of partly answered it, but I would like to get more clarity what you intend to do differently compared to the situation that we had previously now that there is direct reporting to you. In light of that question also, why would you not bring in an experienced leader or proven leader in diagnostics that can turn this business around rather than perhaps doing this sort of indirectly as you suggested in the press release? Question number two is, if I look at your visit to our conference in March of 2019, I pretty get the impression you expressed positive confidence in the turnaround, and I think you mentioned that the global installation team that you had sort of installed was working well.
Sort of three, four months later, we see a material change in the management board. I am just curious why we suddenly see such a difference in action over the last three to four months, if everything was coming along nicely with the green shoots that you mentioned sort of in March. Could you explain a little bit what has changed, why we now have this material change compared to your comments in March 2019, please? Thank you.
Okay. Thanks, Michael. I mean, [audio distortion] . First of all, let me maybe get back to the fundamentals on the Diagnostics side, yeah. Atellica is the right product. Yeah. We are super convinced. The market confirms this, customer confirms it. What we face, and what I called more bumpy than expected, is the flawless execution of the launch. That means from really getting to an installation process, which is a solution and not a box. Having all the service functions in place, having commercial execution in place and turning people who and that is maybe mainly the topics we had in the U.S., yeah, who were more used to be farmers of the installed base to hunters of getting new systems installed. Yeah.
This is what Siemens Healthineers needs to get right, what we need to get right, yeah, to fully capture the Atellica opportunity. The change which you now heard, yeah, is maybe sounds now more dramatic. It is something which now for us, it was not a surprise. It is something which was, let's say, in the air for a while. To just make clear, yeah, that now we make it, as we call it in Germany, a Chefsache , yeah, and really bring this super important topic to the next level. Maybe your question about leadership. We have an industry expert who joined us, yeah. That is Deepak. I am very convinced of him, yeah. He has his arms around the topics. He is as convinced as I am about Atellica as a product. Yeah.
There's no need to make changes. It is about now fully streamlining things and getting really every aspect of the organization in the full execution mode.
Great. Maybe I can quickly follow up on this. When you give us more details at the Capital Markets Day, you will not surprise us with any material changes to the strategy. It will be more of a focused way of approaching the market. Is that a correct interpretation?
Yes. Maybe let me give you a little bit of a flavor, yeah. I don't know whether you have been at our Capital Markets Day in 2018, January 2018, yeah. This Meet- the- Management or the update will be in December, yeah, so which is now two years later. What we will do more is, I think in the initial Capital Markets Day, we introduced the business, yeah. We spoke about, this is who we are in Imaging, this is who we are in Advanced Therapies, and this is where we want to go in Diagnostics. We didn't speak so much about where we want to go in Imaging, where we want to go in Advanced Therapies. Yeah. We will speak a lot, yeah, also about what is the projection of the exciting businesses in Imaging and in Advanced Therapies, yeah.
Where you also know, yeah, that in the last two years we have, or since Capital Markets Day, I think we have rather outperformed expectations. Yeah. We will also speak about how we will continue this momentum, yeah, and grow into new opportunities. While on the Diagnostics side, yes, we were in this business, we were behind expectations, and we will speak about how we will catch up and what the exact timeline will be. As a guide rail, yeah, it is clear that we stick to the overall expectation of you guys, yeah, for the top line of the group, top line development, plus EPS. Yeah. More details are to come, yeah, because otherwise we could have the meeting now, yeah.
Thank you.
Thank you. Next question come from the line of Patrick Wood from Bank of America. Your line is open. Please go ahead.
Perfect. Thank you much. Two from me, please. On the Imaging side, obviously, you've had very strong growth for a little while now. Your margins are already high. I'm just curious, if you were in our shoes, how would you think over the next year or two, not so much about the growth, I think you guys have commented on that, but more about the margin structure as warranties begin to run off and some of the service revenues come through. Just curious how you think we should be getting our heads around that. The second one is just, again, on Diagnostics, not to belabor the point. In Americas, it seems to imply that you guys are declining there.
I guess my base question is that a function of either a higher attrition rate in the base business or alternatively, could it be that some of the base labs that you're selling into in the mid-sized lab area are seeing lower test volumes as tests migrate to the reference lab? Just help us understand how that business is declining at the moment. That'd be helpful. Thank you.
Let me start on the Imaging question. You see the strength of this business. It's growing mid-single digit or higher. We see strong momentum on equipment orders. We see also a solid conversion into the margin. We had year- to- date at 20%, we expect still a strong Q4 to come. There should be definitely upside to the 20% year- to- date number on a fiscal year date number we gave 1.5 years ago, the guidance, that we want to be midterm in the 20%-22%. Some of you have heard me saying anyway, that this midterm guidance on the margin on Imaging was more of a short-term guidance. Generally speaking, it became a short-term guidance.
What I envision, and maybe it's a bit of reiteration of what Bernd said, is that we see when we give also, I would say, an update on midterm targets for the businesses that we will see maybe some further room also for margin expansion in Imaging. It will not be skyrocketing because we are clearly here on a path, also on an investment path, with regard to digital. Here we enter then immediately into the strategic side of things. We always guided that we believe to keep this business running as it is or even better, and transform this into something, I would say, more promising in the future, we need to keep the R&D intensity up. Therefore, we do not expect to see skyrocketing working margins, even with solid growth numbers. There might be potential for some margin expansion.
Yes. I would agree. Yes. On the Diagnostics first, you ask about the U.S. A little bit of a feeling, in the end, when we look at it is currently a bit of a question of the speed of how quickly we can win new customers to compensate for also historic losses in our installed base. When you lose a customer, like when we did one or two years ago, there is a bunch of contracts which have expired now. Now it's a question of how quickly can we make up for it with new installations. Currently, this has been a slight net negative. Which is basically a toll we have to pay for not having a competitive solution for the high-throughput settings. Now we have it, but we have not been fast enough in winning over.
This is the switch which I, as a former basketball player, I call the switch from defense to offense in the U.S. too. It is mainly attributed to this. We are in extremely positive discussions with larger systems when it comes to, on the one hand, IDNs or academic medical centers, where we can also use our strength in imaging to use the context to industry level and so on. We are also in very good discussions with the commercial labs. From that point of view, I'm optimistic. What we see here is still a bit of the ghost of the past. That we didn't have a competitive portfolio and now it's up to us to fully, also in the U.S., use the strength of Atellica.
Perfect. Thank you for taking my questions.
Thank you. We will take our next question from Daniel Gleim from MainFirst. Your line is open. Please go ahead.
Yes, good morning. Thank you very much for taking my questions. The first one would be, could you shed a little bit of color on what was the intended share, the budget for the U.S. and China in the 7,000 units you initially planned for 2020? That is question number one.
Yeah. Question number one. I thought number two was coming. I can't give you. This is now a little bit of a wild guess, or more than a wild guess, because I don't have the breakdown in front of me. The reason also being there's a time lag between the launch in the U.S. and the launch in China. There is a one-year topic or one-year gap behind it or between the two because of regulatory reasons. What I can give you as a, this is not a secret, you know that our Diagnostics business the revenue share of the U.S. is around 40%. Yeah. A bit higher than the revenue share in the group overall. I would guess that China is in the range of 15%-20%.
Let's say in the steady state, this is also how I would look at Atellica shipments.
It was maybe a bit lower, I would say 30%. I would say around 30%-40%, I would say, yeah.
Okay.
Because it's a big volume market. Yeah.
Question number two would be, we're roughly at 25% below the previous guidance midpoint. We should take the new guidance for 2019. Could you give us some color on how much the other regions are below your initial budget, and what are the drivers here? What I'm alluding to is that we know that on the new customer, the competitive gains you have been stellar versus your previous expectations, but on the existing customers, you're still lagging. Does the new product address the needs of these customers, too? When would you expect the conversions to go up? That is question number two. Thank you.
Mm-hmm. In first order of magnitude, the shortfall as compared to the original shipments target is a function of the U.S. Yeah. I am very happy, yeah, about what we see in Europe, where we won very important deals. We have areas there, zones we call it, they are clusters of countries, so to say. Yeah, we won up to 80% of the deals which were out there. We are also very positive about Asia Pacific and Latin America. We had very good deals in Australia. We have very good deals in Latin America. China, as you know, because of regulatory reasons, we are just starting. It feels very good. Here we are on track, and it shows that the product delivers. Yeah. Is hitting what the market needs. Yeah.
Now it's really about making sure that we translate this momentum also through the U.S. market.
All right. Thank you very much.
Thank you. Our last question for today comes from the line of David Adlington from JP Morgan. Your line is open. Please go ahead.
Morning, guys. Just two quick questions to both of you. Firstly, on the Diagnostics, one of your competitors has talked about some players applying deep discounts. I just wondered if price is something you'd reflect upon with Atellica. Secondly, just on Imaging in China. Just wondering if you've seen any impacts from the Chinese quotas so far, and whether we should see an acceleration in China going forward from here. Thanks.
Thanks, Dave. On the pricing topic, you discuss that deal by deal. We do not see a particular pressure on pricing. As I said, deal on deal, and depending on, is it the competitive situation? Is it your own install base? Is it the length of the contract? So on and so on. There are a lot of factors which play into pricing decisions you make. We do not see any difference in pricing development compared to the past. Relatively stable.
Yeah, to your question on China. China is a growth market. We see a very healthy growth contribution there, especially on the revenue side. As you may know, I'm more on the skeptical side when it comes to these quota. I always say these quota are more intense or intentions than investment plans of the Chinese government. It doesn't mean that there's money behind it or that there is an education program for radiologists behind it. It is a positive in the way that there's a clear political will and not an upper threshold for imaging. The effect on the market is more indirect than one maybe as would assume when reading the documents. We are very positive on China. I'm convinced we will see in the market high single-digit growth.
We are very confident and determined to further win market share in China, which gives us, in the end, a double-digit growth contribution in a sizable market, which we intend for the future.
Thank you.
Thank you.
That was our last question for today. Thanks for time you dedicated to us this morning. We answered most of your, let's say, most burning questions. For all of the ones that we have not answered, we'll be on road show the next two days in London and Frankfurt and obviously be around at the conferences in September. That's it from us. Have a nice day.
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. You may now disconnect.