Good morning, ladies and gentlemen, and welcome to Siemens Healthineers Quarter 2 Fiscal 2019 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 2 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 Hubernik, Head of Investor Relations. Please go ahead, sir.
Thank you, Claire. Good morning, ladies and gentlemen. Welcome to our Q2 conference call. My name is Marc Kuebernik. I joined Healthineers at the end of last year to take over the responsibility for IR from Fluorin.
I've been doing a bit of road showing. I've met the one or the other as a sell side analyst, but I'm sure there are still many more hands to be shaken for the first time in the coming months. In any case, I'm looking very much forward to your interesting views and many fruitful discussions with you. I'm sitting together with Perd Mortak and Jochen Schmitz, who will be taking you through our Q2 results and be giving you an update on some important developments in our company. Following that, as usual, there will be a chance for you to ask your questions to Bernd and Joachim.
May I just humbly remind you of the good old two question rule, yes, some things never change. And now I pass the word to the CEO of Siemens Healthineers, Dan Montal.
Yes. Thank you, Marc, and good morning, everybody, and welcome to our Q2 earnings call. Q2 2019 was a strong quarter with strong performance, especially in Imaging and Advanced Therapies. Both segments posted strong organic revenue growth in Q2. Imaging grew with 7% and Advanced Therapies even with 9%.
In both cases on the back of a healthy equipment order backlog. We have been highlighting this healthy order intake in preceding quarters, which now started to materialize in Q2. We continue to see a healthy order book driven by strong equipment growth and a book to bill that stays well above 1. In addition, the wins of several larger projects support this. Let me give you some color on these wins in Q2.
We have signed a 10 year partnership with the new hospital in Casareth, helping to become an innovative reference center. We also have signed a 10 year partnership with the Red Cross Hospital in Lisbon, which opens one of the most modern heart centers in Portugal, where we will manage the medical imaging equipment. In France, we signed a 12 year contract with Hopital Foch in Soren on a value partnership that goes way beyond the pure technology management, but includes operational consulting services. The adjusted profit margin in Q2 went up year over year by 50 basis points to 17.9%. On this adjusted margin, we have seen a headwind of minus 70 basis points from foreign currencies.
Our Diagnostics segment is in transition ramping up Atellica solution, hence profitability is dragged down by ongoing ramp up costs. Additionally, effects from foreign currencies are also a drag on the margin in Q2. However, the margin picture has significantly improved quarter over quarter, and we are seeing our initiated measures to improve the ramp up starting to bear fruits. I will talk in more detail on this in a few minutes. On earnings per share, on the back of increased profit, basic earnings per share increased by 24% versus prior quarter, prior year's quarter, which was burdened by high PO costs.
For the fiscal year 2019, we confirm our guidance. As you saw in the slide before, we are a strongly growing company. We believe in continued growth for Hutch in our core imaging markets. Hence, we are grasping the opportunity of a needed capacity expansion to significantly enhance our location in Folsheim with an innovative technology center for high energy photonics. We decided to expand this location in Folsheim in direct proximity to the CT and X-ray as well as advanced therapy businesses.
As a result, the new technology center will not only consist of an ultra modern factory for x-ray tube assemblies and x-ray generators. It will also include a new R and D and Logistics Center alongside the existing factories for CT as well as X-ray equipment. Having R and D and production under one roof is also a clear benefit and will further optimize processes. The close interaction of the existing final assembly factories and the 2 new production facilities that reduce production costs, enhance the quality of products and provide sufficient room for future growth. For example, CT scanners are built in Fosheim, thus shortening the supply channels for X-ray tube assemblies and generators used in these products to a minimum.
We will invest around €350,000,000 into this project. Production start is planned in 2023. With this capacity extension, our CT and X-ray factories will be able to supply demand until 2,030. With the new technology center for high energy photonics, we demonstrate our ability to innovate, adapt and improve to a dynamic market environment. We are determined to manifest our position as an innovation and market leader in imaging equipment.
Our leading position in advanced therapies is underlined by our new ARTIS, Icono, which sets new standards in especially neuroradiology. The ARTIS, Icono, is an angiography system, which is able to provide, on one hand, superior imaging support in a broad range of clinical use cases in the interventional lab. An extremely attractive proposition of the new system is its ability to conduct stroke diagnosis and treatment in one room. Compared to other existing systems, the ARTIS ICONO offers significantly enhanced 2 d and 3 d imaging. With this better image quality comes the ability to reduce the required radiation doors.
With ARTIS Icono, the areas of the cranial base and skull cap can now be represented with practically no artifacts in a 3 d visualization. By improving the visualization of bleedings that occur in the cranial area, the ARTIS AICONO is now possible to skip prior conventional imaging for diagnosis in case of a suspected stroke. Together with perfusion data for therapy guidance, this is for the first time available in the ENGELAB, The patient can now be diagnosed and treated in one stop in the intervention room. This shortens the so called door to needle time, the time between patient arrival and clot retrieval in an acute ischemic stroke. Any time saved in treating strokes can make the difference between living independently and living in a wheelchair.
The incredible enhancement of image quality can be seen on the images below, especially on the lower right, where you see an extremely clear picture of a stent. Next to stroke treatments, the ARTIS Icono can be multidisciplinarily used in hospitals and the angio lab, therefore, optimally utilized for a broader range of interventions. Bialartis Icono is a perfect example of how we combine hardware, software and AI driven innovation in all our products, AI and digitalization will be the major drivers for transforming health care delivery in the future. We have a strong position in this area with already more than 45 AI based offerings. AI offerings are organized along the different levels of data consumption.
At the first level, we have data generation from scanners and instruments. This information contributes to AI offerings as product differentiators included in our devices embedded in the system itself. Like, for example, the Fast 3 d camera in CT, which aligns the patient body form and position with more than 100 avatars to help the operator to optimize the patient position in the CT and minimize radiation dose. The next step involves the immediate use of data such as software packages package offerings for reading, reporting and guidance sold together with the product. A good example is the AI Rad Companion platform and its first application for chest CT image reading, which I presented in the last earnings call.
One level further up, the complexity increases. Diverse data is being collected and analyzed around the patient. This is the level for predicting and planning and prescribing the right treatment at the right time for the individual patient. Our first product here is the AI Pathway Companion, a clinical decision support system based on artificial intelligence. The top level involves the analysis of patient cohorts related to population health and outcome analysis.
We are developing our AI and digital portfolio along this hierarchy, taking into account the increasing data integration effort, necessary access and rising complexity. We are perfectly positioned to drive the AI and digital development in health care. What makes us so optimistic with regards to our positioning, our installed base and our machine room. We have a large and rapidly growing data lake of curated images, reports and clinical data, which is crucial to develop new AI algorithms can be developed and trained. With our 20 petaflops supercomputer, we are able to run around 500 AI experiments per day.
Now let's have a closer look at diagnostics and in particular at Atellica Solution. We continue to see excellent customer perception of the features and functionality of Atellica Solution. This is represented in the ongoing high competitive win rate of well above 35%. In large settings, the Airtelica solution can fully use its competitive advantages like high throughput, we see an even higher win rate. These large settings are primarily at large customers, which we expect to play an active part in the consolidation of the lab market.
Therefore, this high win rate in large settings is obviously also of strategic importance to us. Our test menu for Atellica Solution is comprehensive and competitive, and we continue to add further tests to the menu. Looking at the ramp up of Atellica Solution in terms of geographies, as indicated previously, we now have received regulatory approval for Atellica Solution in China in early April, and this is very much in time with our plan. On shipments in Q2, we have shipped 410 plus analyzers in Q2 coming to a total of 7.90 plus in the first half year. Versus Q1, we saw an uptick in shipments, and we expect to see more acceleration quarter over quarter in the second half of the fiscal year, partially driven by the ramp up in China.
The indicated target of 2,200 to 2,000 500 analyzers shipped in fiscal year 2019 remains very challenging. Although we see acceleration in H2 shipments from China and from other geographies, it is likely that we rather approach the targeted range from below. However, shipments are a means to an end and to indicate the ramp up progress of the instrument placements. In terms of commercial outcome, it is probably not the best KPI. Therefore, let me make this clear at this point.
We continue to expect to achieve growth at market rates on the medium term and to draw from this a significant margin expansion at diagnostics. With regards to this, let me give you some color on the overall status of the ramp up of our Teleka solution. Last quarter, I had pointed out that we have tightened project management for this decisive phase of the ramp up, improving the overall processes. 1 quarter in, we are on track with the initiated process improvements. For example, we said in Q1 that we built a large backlog of analyzers being in installation.
We also said that we had initiated measures to bring the installation time down to bring more analyzers live. These measures had traction in Q2. We brought 20 to 30 analyzers per week live as we have had said in our Q1 communication. Consequently, in Q2, we now saw the number of analyzers going live picking up versus Q1. This leads to an increasing revenue contribution from Atellica Solution as well as the share of reagent revenues therein increasing.
With further progress on installation times and the organization moving up the learning this good momentum of analyzers going live to continue in the second half of the fiscal year. This increasing share of reagent revenues from Life analyzers stabilizes the top line contribution of the Atellica Solution franchise during the ramp up. In addition, this higher share of reagent revenues absorbs a higher share of costs, thereby relieving some of the margin pressure from the ongoing ramp up in Diagnostics. Jochen will later talk about how this is reflected in the financials of Diagnostics for this fiscal year. That said, let me just briefly preempt that this year's challenges in the Life ramp up and the FX impact at the Diagnostics segment are leaving some traces on our full year expectations for the business.
Still, we are convinced, and I hope I made this clear, that improving this is only a question of time. The commercial success of Atellica Solution remains a priority of the company. Atellica Solution is a unique instrument in lab diagnostics. It is an extremely competitive offering, and it is very successful in customer perception. Since its launch, we made progress in this commercialization, and we expect further progress in the second half of the year to make Atellica Solution also a commercial success.
With this, I hand it over to Jochen for the financials.
Yes. Thank you, Bernd. Also a very warm welcome from my side. Bernd has already mentioned the key topic in this quarter. Let me give you some additional color on Q2 financials, and let me start with our order intake.
We again saw solid order intake in Q2 with 5% organic growth. Equipment growth was particularly strong with double digit growth driven by imaging. Advanced therapies booked again very solid equipment growth also this quarter. So in total, we continue our strong momentum of equipment order intake and maintain hereby a very healthy order book for the remaining fiscal year. Let's now have a look at the slides, starting with revenue.
Comparable revenue grew in Q2 by 5.8%, driven by strong growth both in imaging and advanced therapies. As Bernd has alluded before, this strong growth was on the back of a healthy order book, now partially materializing in Q2. Regionally, we saw significant growth in China and in EMEA. The Americas included the U. S.
With very solid numbers. Now let's have a look at the profit line. Profitability increased year over year by 50 basis points, with significant improvements both in imaging and advanced therapies. These improvements were mainly driven by conversion from the strong top line performances and by our structural cost savings program. However, in Q2, the margin progression at group level was held back by negative headwind from foreign exchange of minus 70 basis points.
Please bear in mind that in Q2 prior year, we had a positive onetime foreign exchange effect in central items. Excluding the negative swing back in central item this quarter, foreign exchange headwind is more towards 30 basis points. Comparing the minus 30 basis points against the foreign exchange headwind in Q1 'nineteen of minus 40 basis points, we see a slight ease quarter over quarter. We also expect this ease to turn neutral or slightly positive for the remaining fiscal year. Finally, net income increased year over year on a higher profit despite a higher tax rate.
The tax rate this quarter was at 30%, which is currently the more normal level. The tax rate was with the 30% considerably higher than in prior year quarter, where positive income tax effects led to a lower tax rate of 20 1%. On the flip side, pretax profit in prior year was held back by the IPO cost. Now let's have a more detailed look at our segments, starting with Imaging. Imaging grew 7% this quarter with strong growth in molecular imaging, computed tomography and x-ray products.
As we said previously, we have a healthy order book, which now materializes partly in strong revenue growth this quarter. Regionally, we also saw strong growth contributing from EMEA and from the Americas. The adjusted profit margin improved by 170 basis points year over year, mainly from the conversion of the strong top line performance and in addition from the cost savings program. Let's look at Diagnostics next. Diagnostics grew by 2% this quarter with increasing revenues from Metallica Solutions.
In the previous quarter, I. E, Q1 fiscal 2019, we highlighted that the normalized diagnostic growth was also around 2%, since the posted 3% were on very easy comps. Coming from this normalized level of 2%, we see Diagnostics keeping the momentum on the top line with increasing revenue contribution from Metallica These increasing revenues from Metallica Solutions also supported the margin recovery from the low levels in Q1. Adjusted profit margin came in at 11.8%, 180 basis points below prior year, but significantly above the previous quarter. However, let me point out that we also had a positive non operational effect in Q2.
We had the revaluation of an accrual, which impacted profit positively in the magnitude of a high single digit €1,000,000 number. Taking out this effect, we would look at an adjusted profit margin in Diagnostics of around 11% in Q2, which is still significantly better than in Q1. This was driven by increasing revenue contribution from Materica Solutions, especially from reagents. The year over year margin decline in Q2 would then be at around 260 basis points compared to Q2 prior year and at under 10 basis points if we compare it with the full fiscal year. Please bear in mind, foreign exchange headwind in Diagnostics was in the same ballpark as in Q1 at around -140 basis points.
Now let's have a look at Advanced Therapies. Advanced Therapies posted a very strong quarter with 9% organic growth. Since Advanced Therapies is our smallest segment, it's also one with the highest fluctuations due to quarterly mix effect this quarter, obviously, to the upside. Similar to the dynamics in imaging, we also had a healthy order book at Advanced Therapies, which now materializes partially in strong revenue growth this quarter. The adjusted profit margin improved by 360 basis points year over year, mainly from conversion of the strong top line performance and from the cost savings program.
In all fairness, the profitability in Q2 last year was also relatively slow. Now let's turn to our free cash flow performance in Q2. In Imaging and the Grand Serities, we had a solid cash conversion of 0.9 and 0.8, respectively. This represents our reliable cash generation driven by our tight control of operating working capital. Also, with our business being in a steady state, we have a relatively low capital intensity.
When expanding capacity, Therefore, we do see in diagnostics a cash conversion
rate,
Therefore, we do see in diagnostics a cash conversion rate below 0, mainly from investments in the extension of the diagnostic factories as well as from additions to operating leases, which are currently a bit higher than normal. These investments ensure the future capacity and competitiveness of our Diagnostics segment. And with Diagnostics being in a steady state, we expect it to be a very, very sticky business with solid cash generation. At Diagnostics, we also see a growing share of larger deals, mainly driven by Atellica Solutions. These larger deals generally do have a higher share of leased instruments.
Therefore, we also saw increased efficiency of rail use in Q2. And now coming to my last slide, which is the outlook. As Bernd has already said at the beginning of our call, we are confirming our outlook for all 3 key KPIs at group level. I believe with the strong comparable revenue growth and the good margin, which we presented today, we have proven that despite the slightly weaker start into the year, we are well on track to achieve our full year guidance. Within the given ranges for revenues and profits, our confidence on revenue growth is a bit higher in terms of the ultimate level of delivery by year end.
At Diagnostics, we have explained this year's challenges in the life ramp up of Photilical solution and the major headwind from foreign exchange. We are now expecting the margin in Diagnostics segment to be in the ballpark of prior year numbers, excluding foreign exchange. Foreign exchange headwind for the segment Diagnostics was clearly above -100 basis points in the 1st two quarters. And for the full fiscal year 2019, we expect the headwinds still to be close to minus 100 basis points. And just to put this further into context, the margin for first half year was 10% for Diagnostics.
Bernd already pointed out earlier on his commentary on Diagnostics, and I take that this is obviously expected to improve in the second half of this fiscal year. And just to reconfirm what Bernd had highlighted, we continue to achieve growth at market rates on the medium term, and we want to draw from this a significant margin expansion at Diagnostics. With this, I hand back to
the operator for the Q
Wonderful, sir. Thank you. We will start today's question and answer session where we would like to ask you to limit yourself to 2 questions. And our first question today comes from Scott Bardo from Berenberg. Please go ahead.
Yes. Thanks very much for taking my questions. So the first question is on imaging and the imaging businesses, including Advanced Therapies. Clearly, we're seeing some strong performance in your fiscal ending March. I think the sort of growth that you're posting is clearly materially higher than we've seen for both GE and for Phillips.
So I wonder if you can talk a little bit about here whether your performance really reflects market share gains or whether there is, in your opinion, a continued healthy underlying market support and demand, perhaps extending those comments into China. Are you seeing any impacts and benefits from the statements from the Chinese authorities about increased provision for imaging solutions? Second question just relates to the Diagnostics division, please. I noticed that over the course of this quarter, the messaging surrounding the margin has changed somewhat. You're expecting to progress divisional margin here.
And now I think you're outlining somewhat of a contraction. Can you please comment a little bit as to what has changed over this quarter to reflect more conservative outlook? I think you highlight that conversion into functional and revenue generating systems has continued as planned. So I just wanted to understand on the cost side what is surprising you a little bit more than expected? Thanks.
Yes. Thank you. Let me take the question on imaging. I mean, we have clearly outperformed the market. So this is this growth comes driven by market share gains in all the businesses we are in.
We see an overall healthy global market in both segments. China remains an important growth contributor. What we do not see is a special additional uptick, yes, based on this paper, which very often gets quoted. I mean, as we stated in several conversations, I mean, this is a paper which is not an investment commitment or so, but more outlining what is the theoretical need in the country, that China is growing healthy and also was a good and important growth contributor for us. But mainly take away, we see a healthy market.
The growth in both orders and revenue comes from gaining market share in a fleet market.
Scott, your question on diagnostics, yes, I think what we guided now for the full fiscal year on profitability is that we or that I said that we expect to be in the ballpark of prior year, excluding foreign exchange. This also leads directly to one of the reasons why we had the lower guidance, so to say, yes, because foreign exchange comes in a bit higher than we expected initially at the beginning of the year. And second main reason is, I would say, that we do not see us to be able to make off, so to say, fully the low number of Q1, yes? But as you rightfully pointed out, we see exactly the progress we pointed towards in the last quarter where we said, okay, with the increasing number of installed systems, we see a clear pickup in reagent revenue on Atellica, which will, so to say, help our profitability, and we could already see this in Q1, yes? And we expect to see, as Otto pointed out, a better profitability in the second half of this fiscal year relative to the first half of fiscal year.
I hope that puts shed some light the mix on the guidance for Diagnostics.
Very good. And in aggregate, just to understand the slightly softer margin development for diagnostics, is it a more fair assumption to assume the low end of your full year margin
Are you talking now total company? Or are you talking about
At the
group level, yes.
I would say I think I'm I also had a point to that in my speech. I would see I see the confidence level on revenue growth higher than on profitability to be in the upper end of the margin or the range. Therefore, I believe it is I would say it would be prudent to assume that we are in the lower half of the margin then for the full company for this fiscal year.
Very good. Thanks very much guys.
Thank you. Our next question today comes from Veronika Dubajova from Goldman Sachs. Please go ahead.
Good morning, gentlemen, and thank you for taking my questions. I will keep it to 2 myself. My first question is a follow-up on Scott's question actually. I'd love to understand when you look at your imaging order and imaging revenue growth, which segments of the market do you in particular see your share gains coming from, whether it's by modality, price or geography? I know you're going to say you've done well in everything, but if you can give us a little bit more flavor what in particular is standing out that would be great.
And then I'll have a follow-up after that if that's all right.
Okay. So thank you, Marika, and thank you for already knowing what I'm going to answer. So I mean, what we saw to give some more light, I mean, we have especially what stood out in terms of modalities were at this time CT, x-ray and molecular imaging. We have been particularly happy with the development in EMEA as our Greater Europe, so to say, and China. But in the end, also in all geographies contributed.
And when it comes to product mix within the modalities, no special thing to be highlighted. I hope that helped a little bit, okay?
No, that's very helpful. And then my second question is for Johan. Can you give us an update on where you are with the realized savings against your original plan that you had outlined at the IPO? Where are you tracking at the moment? What are the savings that you've been able to realize?
And what proportion have been reinvested versus drop through to the bottom line? Thank you.
Yes. Thanks for your question, Veronika. I think we are making good progress on the structural cost savings program, the €240,000,000 We have roughly slightly more than 50% realized on it already, yes, because including the portion of last year where we were above €60,000,000 out of the €240,000,000 So it's working very well. So as we also highlighted last year when we guided for this last year calendar year last year as we guided for this fiscal year, we are reinvesting some of the money into particular into digitalization and AI, yes? And this is also going according to plan.
So we expect to see from the roughly €140,000,000 saving this fiscal year about 50 plus 1,000,000 reinvested into digitalization and
That's very helpful. Thank you both.
Welcome.
Our next question comes from Romain Zana from Exane. Please go ahead.
Yes, good morning. Thanks for squeezing me in. First question is on Diagnostics. Can you please quantify the pickup of the number of analyzer going live in the quarter? And maybe the current mix between consumables and instruments?
If I remember correctly, you had an ambition to reach fifty-fifty ratio by the end of the year. And second question regarding the cost saving. I noted that you did not mention cost savings as an element fully diluted or overbalanced by Atelica ramp up costs and ForEx? Thank you.
Yes. Thank you, Romain. I mean, first part of the question was the go lights. So with the initiated measures we have, we have now speeded up the additions to 20 to 30 analyzers per week. And that should give you a flavor of how the ramp up also of the reagent revenue will now come over time.
And it's a positive it's a very positive development in terms of process improvement.
Yes. And coming Romain, coming to the mix topic, I think we are moving well into this range anticipated range of fifty-fifty. We're currently also with the current shipment volume, also depending on where you ship, depending on if it's an operating lease or is it a cash sale, the card is even slightly ahead of this fifty-fifty with regard to reagent. So that works relatively well as we have a good, I would say, we made good progress on setting our instruments live with the 20 to 30 per week, which is a solid development. And coming back to the structural cost savings, we see also, I would say, the positive contribution from those topics in the bottom line of diagnostics, but they are, so to say, overrated by the other topics.
And therefore, we did not highlight them in particular, but they are also there. So your assumption was right. Okay.
Just a quick follow-up on the first question. So is that fair to assume around like 700 machine being live compared to the 400 in Q1?
Yes. As a broadband number, I would say yes.
Yes. Thank you very much.
Thank you. Our next question comes from Patrick Wood from Bank of America. Please go ahead.
Perfect. Thank you very much. I obviously have 2 questions, please. The first would be on Atellica. Just helpful to understand how you feel about the long term placement targets, given this slightly softer year so far?
And sort of what's the change relative to your expectations in terms of the number of placements that mean that it's slightly behind this year versus maybe where you had hoped earlier? So that's the first question. The second one I'm going to ask essentially the same imaging question everybody else did, but maybe from a slightly different angle, which is, okay, you guys are taking share, but the market overall does appear to be accelerating if I look at the aggregated number, particularly if I look at the order books. It does seem like it's doing better. What's going on?
What are you hearing from your customers? Is this still a case that in hospitals in North America, they're investing a little bit more? It'd be really helpful to understand how sustainable you see that and what's driving it. Thank you.
Yes. Thank you, Patrick. I mean, with regards to the long term, Atellica shipments, yes? And for us, the communicated shipment targets have always been a means to an end for measuring the progress of the ramp up. I mean, there's other factors, go lights, how much what is the ratio of competitive conversions, how is the development of the legacy business and so on and so on.
And looking at the positive developments also on the competitive win rate, we continue to expect to achieve growth at market rates on the medium term and to draw from this a significant margin expansion in diagnostics, which is in the end what you all exercises are talking to see it in the P and L. In the imaging question, I said it's a healthy market. And I mean, potentially, the market is now a percentage point maybe or so in the last quarters above the historical growth range, yes? The looking at order books, I mean, financially, first of all, there's a clear our growth is very much based on market share gains, very good market share gains in this healthy market. On the order side, what I would also highlight is that there is a tendency towards orders getting bigger, more bonded, but then they turn into revenue over a longer period of time, yes?
So this is an indirect or let's say, this is a bit of consequence also of a more consolidated market of people making longer term decisions for one partner, yes? Where we have also big successes, yes? But this makes the order book bigger, while revenue the book to bill time is a bit different from what it used to be, yes? So compared to, let's say, years ago, it is now it has become more important to also look at revenue, yes, to look at what is happening in the market, yes, because many of these larger deals have a long time to be fully converted into and having P and L effect.
And maybe I think if you look carefully into the numbers also of our competitors in the imaging field, in our therapy field, you see exactly what Brian has alluded to that this translation of orders into revenue is not a timing wise, not a 1 to 1, equation. And just to give you some flavor also on our numbers on we always gave guidance that we expect to see service growth with 5%, yes? And this is holding up well in this arena, yes? So I think this is something you need to look into to find out what the quality of the order book with regard to revenue timing would mean is a key topic, yes?
Very helpful. Thank you for taking my questions.
Thank you. Our next question today comes from Martin Wilkie from Citi. Please go ahead. Your line is open.
Thank you. Yes, it's Martin from Citi. Just coming back on atelica. I know you say that your shipments is not necessarily the key KPI, but obviously there has been some difference. And I know you touched on it already.
But just to clarify, you mentioned win rates in larger settings. I mean, would you say the difference versus your original expectations has mainly been with smaller customers in smaller projects? Or has there been a regional difference? I think in previous quarters, you've mentioned the U. S, for example, tracking a little bit behind other regions.
And so just to understand a little bit more about either the customer type or the regional effect in terms of that shipment rate? Thanks.
Yes. I mean, a little bit of flavor here. Let's say, when it comes to customer type, maybe what we are happy about is that especially customers who want to change how they do how they organize their lab, yes, who really are upping their capacity, look at how to improve productivity and their cost position, yes, because of I mean, there is, of course, also reimbursement pressure and so on and so on. These customers in these customers, we have a win rate, which is higher than we anticipated. And this is something which makes us very confident and is a very good sign also for the future here because this is these are real partnerships.
And these are customers where we play a key role as a partner with extreme examples or very like the case of this MegaLab, Pardini, in Brazil and other examples where we had also nice wins in the last two quarters. So this is a positive. What we see in the mid market is that there is a tendency in the market that customers hold on a little bit longer to their systems, yes? So the time analyzers are used to is getting a little bit prolonged in this piece of the market as when people don't see when they are not the movers or shakers of the market, when they are not investing into new capacity and so on and so on. In these customers, We see a little bit less business or less shipments than we anticipated, but this is made this is also not as dramatic, yes, because they stick on also to the legacy systems, yes?
And these are also not the customers which are vital for capturing future growth. These are not the consolidators or these are not the customers in which you grow your with the customers, so to say, yes? From a regional point of view, we are let's say, we see more positive development than anticipated in especially in Europe and in Asia Pacific. I mean, now with China coming online, we will see the next effect, while the U. S.
Is a little bit behind.
Okay. Thank you very much.
Thank you. Our next question today comes from Sebastian Walker from UBS. Please go ahead.
Hi, there. Just two questions please on Diagnostics, if I could. So first of all, in China, so Roche saw some major distributor de stocking happen in the diagnostics business there. Is that something that you're seeing any signs of as well? And then related to that, I just want to ask how reliant the Atellica shipment targets and the diagnostic growth ambitions are on the China development?
And also any initial feedback that you may be getting there from on Atellka? Thanks.
Yes. So, Nasse, thank you. I mean, regarding what you asked about loss, yes, or a competitor, I mean, I don't know exactly what is going on there. My assumption is, yes, I mean that this is not market behavior, yes, and but that this is a particular situation, which is something you have to have an eye on in all in every business, whether it's diagnostics or smaller imaging equipment or whatever, and when you work via distributors that you avoid channel stuffing, that you whatever airline you try and let distributors try to make their yearly targets by or somebody tries to make the yearly targets by putting stuff in the inventory of distributors. And then at some point in time, this fires back, yes?
So my assumption, yes, without having the insight is that this is not a market topic, yes, but in the particular situation, which one company had, Yes? And this is these are topics where we have a razor sharp focus on, yes, because these topics are firing back badly, yes, if you don't manage your distributors tightly and in close partnerships, yes? So and from what we see, from what I've seen, the China team, our Chinese team is extremely well prepared for the Atelica launch. I mean, the benefit is also that, I mean, some of the learnings we had in other regions, we can now we will have we can take into account as a huge excitement in the team. So I'm super positive about the launch there.
Great. Thank you.
Thank you. Our next question today comes from Conor Romer from Deutsche Bank. Please go ahead.
Gunnar, Romer, Deutsche Bank. Thanks for taking my questions. The first one would be coming back on imaging. I was wondering whether you can talk a little bit about price dynamics in the market right now. Now that's apparently there is somewhat higher demand, I was wondering whether you can translate that also in better pricing also relative to historical standards.
So any comments around pricing would be very much appreciated. And then coming back on the FX effects, I think, Jochen, you were very precise about the effects you expect for the Diagnostics business also in the remainder of the year. How does it look for the group as a whole? I think you had minus 40, now minus 70 basis points, obviously, against this comp effect. What would you expect in terms of FX tracks for the group as a whole in 2019?
Thanks.
Thanks, Gunnar. First of all, on the pricing side on imaging, yes, I think we got a lot of questions on the imaging dynamics already Bernd. Explain them how we see it. We do not see an exaggerated change in the market dynamics in imaging. And this is also true for pricing environment, yes?
Therefore, we do not see any significant difference in pricing behavior, so to say. And as you know, in new equipment, The pricing is year over year developing in the 2% to 3% negative arena every year, which we cover normally with our standard productivity programs very well. This is not changing, yes? As pointed out in different instances, and this is something which is in the nature of our business, we sometimes see quarterly fluctuations of orders moving into the revenue line, which can carry different price erosion levels in it. This is just quarterly fluctuation that has nothing to do with market dynamics, Jerry speaking.
So market dynamics are holding up well also in pricing, but we do not see a significant advantage currently. Coming back to foreign exchange. So I think what we said right the beginning is that we will see negative impact in the first half and some ease or slightly turning to the positive in the second half for the total company. The minus 70 basis points in this fiscal year quarter were the effect of a positive one time primarily an effect of the positive onetime effect of last year's where we you remember in Q2, we were still in the process of setting up the group structure also from a legal entity standpoint under the regime of Siemens, and we hedged, so to say, the buy of our subsidiary in China and had a positive foreign exchange impact of this in the ballpark of a lower double digit number, which we did not rightfully so, which we did not allocate to the segment, kept it in central. And this is roughly 40 basis points of the minus 70 basis points comes from this effect of this not repeating effect, so to say.
On the imaging side and advanced therapy side, we were flat on foreign exchange in Q1. We saw very small positive effects, tailwind effects in Q2 on imaging and therapies and expect them to accelerate in the second half of this fiscal year. No, it's quiet. Next question, please.
Thank you so much for prompting, sir. Our next question today comes from Ed Riley Day from Redburn. Please go ahead.
Hi, good morning. Thank you. Just a couple of follow ups. Thanks for some of the detail you've given on your imaging modality growth. But if we could go a little bit further, could you comment on ultrasound growth and MRI?
That would be helpful. And another quick follow-up on your bundled agreements that you have. Can you give us a rough number of what those have reached now globally?
So on number 1, the I mean, talking about Modernities, I mean, our in our MR business is super very healthy. I mean, it is it is certainly one of the icons of the company. It just did not contribute as much to the growth in this quarter revenue growth, yes. But looking at the market share levels, yes, plus the market share growth, I am extremely happy, yes? And we will see a significant growth contribution on the revenue side coming from this business in the second half of the year.
And maybe I also this is also the business where the book to bill times are longer than in the let's say, simpler to install modalities like X-ray and GP. I mean, in ultrasound, we are introducing the new products, which are gaining a lot of traction, But at the downside of it is that, let's say, the older systems are not getting enough or are not getting the same traction anymore. And also, this is something which will help in the second half of the year, yes, when we have the full impact of the new products in the top line then, yes? What was yes, these were the questions?
Yes, okay. We have time for one more question.
Thank you, gentlemen. That last question comes from Daniel Wendoff from Commerce Bank. Please go ahead, sir.
Yes. Good morning and thanks for taking my questions. One on imaging. How important are software revenues meanwhile for the division? If you could give a quantitative number here, that would definitely be helpful.
And my second question is on Atellica. Again, can you potentially describe again what qualifies an Atellica placement as such, I. E, what needs to happen that you tick the box internally and also communicating externally when you talk about an Atellica shipment? Thank you.
Okay. So Imaging, I mean, when you look at the imaging top line, I mean, first of all, we need to make sure again, I mean, 40% of the imaging top line is service, 60% is equipment. We count or let's say, I mean, equipment sounds a little bit hardware ish, yes? I mean, what is meant with equipment is, so to say, the CapEx portion. So the piece of part of the deal, which is paid up at delivery.
A lot of I mean, more than 50% of R and D and Imaging is software development, plus additional software plus additional software, which is typically part of the initial deal, yes? What is a smaller portion only is software which is sold independently, yes, as a later upgrade or so, yes? And what currently is not yet, let's say, common in the market, and it also depends very much, I mean, simply also how hospitals and health care providers can purchase, yes, is other models like pay per use or cloud services and so on and so on, yes? So this takes time to be established in Healthcare. So a lot of the software business is, so to say, embedded in the initial CapEx yield.
But when you look at the source of differentiation more than I mean, this is hard to quantify. But when you look at product differentiation, definitely more than half of what makes a product special is the software and the workflow enabled by it, yes? But it is hard and would probably be a little bit artificial to break this out as a separate revenue stream.
And coming back to your Atelica question, this is very straightforward. We count as shipments as we would count for revenue recognition, yes? That means whenever a customer accepts, so say, the product, we count it as a shipment, yes? This is it is not always with revenue recognition depending on the business model because sometimes it's operating lease, but the timing is exactly the same, yes?
Okay. Thank you very much.
You're welcome. Well, thanks a lot for taking part in the call today. As always, the team and I myself will be available for questions. And here's from you again at latest for the Q3 call. Thanks.
Bye. Thank you.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference will be available on the Investor Relations section of the Siemens Healthineers website. The website address is www.corporate.siemenshealthineers.com/ investor relations. Thank you.