Good morning, ladies and gentlemen, and welcome to the Siemens Healthineers 2019 first quarter conference call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor statement on page two of the Siemens Healthineers presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Florian Flossmann, Head of Investor Relations. Please go ahead, sir.
Good morning, everybody, and welcome to our Q1 conference call. The earnings release and Q1 presentation were released at 7:00 A.M. this morning. You will find all documents on our IR website. Our CEO, Bernd Montag, and our CFO, Jochen Schmitz, are here with us today to review the Q1 results. Bernd will start with the highlights of the quarter. Jochen will give you more details on our financial performance. Afterwards, we will have time for our Q&A. I would like to ask you to limit yourselves to two questions to give everybody the chance to ask questions. With that, I would like now to hand over to Bernd.
Thank you, Florian. Good morning, everybody, and welcome to our Q1 earnings call. Before diving into details of our quarter, let me remind you of our strategic priorities in fiscal year 2019 and beyond. With our Siemens Healthineers Strategy 2025, we are strengthening our unique position in the market and are instrumental in making medicine more precise. We are advancing the therapies of tomorrow, optimizing the patient's journey through the healthcare systems, and we are enabling our customers to have a more efficient and more patient-friendly healthcare delivery. Digitalization and artificial intelligence are important catalysts driving these changes, and we are proud to be leading in this field. In this exciting and dynamic environment, we have great market-leading products and a global motivated team of people. The global imaging, Advanced Therapies, and diagnostics markets are fully intact.
We expect to further expand our market innovation leadership in imaging, driven by recently launched products, including AI-powered applications and solutions, and by a well-paved product pipeline. Minimally invasive procedures see ongoing strong growth in areas like cardiology, interventional radiology, and surgery. Our Advanced Therapies products facilitate these treatment procedures through the use of image-guided therapy. These sustainable developments will continue to benefit our Advanced Therapies segment. In diagnostics, we will capitalize on Atellica Solution, which is a great product. A fact which we see confirmed in the current ramp-up phase. Digitalization and the application of AI will revolutionize the medical landscape. We are at the forefront and will play a major role in this revolution. However, we do not only look ahead and outside the company. We also challenge ourselves to maybe cooperate and maybe work and maybe do business.
With respect to this, the Healthineers Performance System will be a major catalyst for change, fostering a lean culture in our young company and driving continuous improvement going forward. Looking into our Q1. Comparable revenue growth has been moderate with 2.5%. As Jochen Schmitz will explain later, there is a mixed picture across the segments underlying this. We see a very healthy equipment book-to-bill of 1.13, which is the precursor for accelerating comparable growth in the coming quarters. Diagnostics instrument growth was again strong in the high single digits, and we are continuing the Atellica Solution ramp-up with more than 370 analyzers shipped in this quarter. The adjusted profit margin, however, with 16.5%, is 60 basis points below prior year quarter, impacted by - 40 basis points currency headwinds. Diagnostics adjusted profit margin has been weak with 8.1%.
The drop in margin in diagnostics has been driven by two main effects. Foreign exchange headwind of 130 basis points year-on-year and higher Atellica Solution ramp-up costs. While we do expect this to improve in the remainder of the year, we are monitoring the situation very closely. Atellica Solution is a great product, which will be successful in the global diagnostics market. I will give you more details on diagnostics in a couple of moments. Cash is low due to inventory build-up and CapEx for the diagnostics-related capacity expansion in the U.S. and China. I'm sorry. On the positive side again, basic earnings per share increased by 11% to $0.34. We confirm our guidance for fiscal year 2019. As I said in the introductory words, we are at the forefront of the digital revolution in the MedTech sector.
Let me give you more insights into our recently launched digital offerings in AI-powered applications and platforms which are transforming care delivery. AI-powered solutions capitalize on the ever-increasing volume of healthcare data and translate into concrete clinical and operational outcomes for our customers. We recently launched two digital companion platforms. The AI-Rad Companion for Chest CT, which is the first application of the new AI-Rad Companion platform. This intelligent software assistant identifies anomalies and potentially disease-relevant changes, thereby differentiating between the various structures of the chest, highlighting them individually, and mark and measure potential abnormalities. These findings are automatically captured in a qualitative report and thus increase productivity and quality in radiology. A second product launch is the AI-Pathway Companion, a clinical decision support system based on artificial intelligence. The first application of our AI-Pathway Companion for prostate cancer, and will be scalable for further clinical disorders.
This AI tool is designed to help optimize the process along the clinical pathway by intelligently integrating all relevant medical data together with imaging and diagnostics biomarkers of the patient. The physician has all patient data at hand in one tool, for example, in multidisciplinary disease boards, can discuss diagnosis and recommendations for the patient treatment with his colleagues. This enables to drive the right treatment through the right diagnosis and treatment at the right time for each patient individually. In the area of digitalization, we developed syngo Virtual Cockpit, a remote scanning assistance. Medical staff can use this software solution to connect remotely to scanner workplaces to assist personnel at different locations. This is especially important for locations that are for sophisticated examination is required and an appropriate expert would not be available.
An experienced colleague can, so to say, tune in in real time via video and provide guidance on how to operate the scanner at the other location, including to adjust protocol parameters. The ability to deploy experts across multiple locations reduces the number of undesired variations in reports and hence, helps making more accurate diagnosis. This makes workforce management more flexible, leads to a higher level of standardization, and therefore increases provider productivity. Now let's have a closer look at Atellica Solution. With Atellica Solution, we have developed a unique instrument in lab diagnostics with an extremely competitive offering. This is confirmed by the feedback we are receiving from our customers around the world. Highest throughput per parameter, no separate stat analyzer or lab needed. Minimal hands-on time through automated calibration and quality controls, leading to a time reduction of over 50%.
Intelligent AI-enabled sample identification is also a strong enabler for increased productivity of our customers. However, in order to make full use of this unique instrument, you need a comprehensive assay menu. We had a very competitive menu from the start and have been adding additional tests over the last year. 22 assays are approved in the EU, as well as 185 in the U.S., including all important tests. As for example, innovations like our high sensitivity troponin I test. We see excellent feedback from the troponin test, for example, from the Hôpital Beaujon in Bichat in Paris. Let me summarize. All those capabilities make the Atellica Solution the comprehensive lab solution. A high scalability to adapt to customer space with diverse layouts, with diverse lab layouts.
Together with the high throughput and the high scalability, Atellica Solution is the preferred solution for large labs with large and highly automated instrument banks. We see this confirmed with the higher than average, significantly higher than average, I might add, win rate in large labs with automation. Now we are in the middle of the ramp-up phase of Atellica Solution. Therefore, let's have a closer look at the implication of the ramp-up in Q1 and fiscal year 2019. The ramp-up costs, unfortunately, had a higher than expected effect on diagnostics margins in this quarter. We have been highly successful in winning large automation contracts. We have won more deals than we initially expected. In the past, around 15% of all deals have been such complex automation projects. Now it's double the number, around 30%.
At the same time, the sales of our high throughput Atellica IM 1600 immunoassay analyzer has been very strong as they are ideally suited for this customer segment. These large deals are very attractive on the one hand, as they generate high revenue per box. On the other hand, they are also much more complex and need more time to get live. This is one of the key drivers for the longer than expected time from shipment until go live, until the start of the commercial use at a customer.
With the high number of analyzers shipped last year and go-lives only stepping up at the end of Q1, we have built a large backlog of analyzers being in the installation phase. We are working to bring the time down, but it will take a few more quarters until all required changes are implemented. The number of current installations in a fixed cost base to support further growth had an unfortunate effect on diagnostics margins in Q1. Therefore, the diluted effect of Atellica Solution on diagnostics margin increased by 200 basis points compared to Q1 last year. At the same time, our legacy business is performing well at margin levels in line with historic performance. Main driver for the low Q1 margin has been the larger number of analyzers in the installation phase, while there only has been limited top-line contribution from reagents from those new systems.
The high number of go-lives at the end of Q1 and in the following quarters, we expect reagent revenue to grow strongly and contribute increasingly to top and even more to the bottom line. The dilutive effect of Atellica will therefore get smaller quarter by quarter. With more analyzers in commercial operations, Atellica revenues will become a more meaningful indicator for the success of the solution. The Atellica ramp-up is the priority for the company. We have all hands on deck, and we have tightened project management for this decisive phase of the commercial rollout. Now, I would like to hand over to Jochen for more details on our finances.
Yes, thank you, Bernd. Also, warm welcome from my side. Bernd already ran you through the key KPIs briefly. Let me start with giving some more light on our order intake. We booked solid order intake in Q1 with 5% organic growth driven by strong service growth. Equipment order growth was particularly strong in Advanced Therapies, whereas imaging had been flattish against a very strong equipment order intake in the prior year quarter, which was in the very high single digits. In aggregation, we are happy with our order book development with an equipment book-to-bill of 1.13. Coming to revenue. The company revenue in Q1 grew by 2.5%. Underneath the group level, we saw a mixed picture, with on the one hand, a moderate growth of imaging and diagnostics, and on the other hand, Advanced Therapies with very tough comps.
Regionally, we saw strong growth in the Americas based on strong growth in the U.S. Also, Brazil contributed with very strong growth. Asia Pacific was soft this quarter with 1% on tough comps, especially in China. Remember, we posted revenue growth in the 20s in China in Q1 2018. EMEA was flattish this quarter on tougher comps as well. Q1 last year, EMEA grew by 6%. Now, let's proceed with profit. On group level, adjusted profit came in at EUR 545 million, with a margin of 16.5%. This margin decline of 60 basis points can to a large extent be explained by foreign exchange headwinds of 40 basis points, primarily in diagnostics. We also saw a mixed picture in our segments. On the one hand, the imaging margin was strong with an improvement year-over-year, also benefiting visibly from our cost savings program.
On the other hand, the segments Advanced Therapies and especially diagnostics, posted lower margin this quarter. Finally, net income increased year-over-year on decreased interest expenses as expected with our post-IPO capital structure. However, the decreased interest expenses was held back by a negative one-off effect from foreign exchange related to the financing of our business in Turkey. For the quarters to come, we expect interest expenses to revert back to the levels seen after the IPO. The tax rate was slightly below the also low prior year quarter due to a positive impact from an international tax procedure. Nevertheless, we continue to expect a tax rate of 28%-30% for the full fiscal year. Let's have a look at our segments. On imaging. The solid imaging growth was driven by strong growth, in particular in computed tomography and molecular imaging.
The adjusted profit margin in imaging increased year-over-year by 40 basis points from positive effects from conversion and visible benefits from the cost savings program. Look at Advanced Therapies on the very right side of the slide. Advanced Therapies had a stellar quarter last year in Q1, hence the business faced very tough comps in this quarter. As a consequence, revenue came down on these very tough comps by 4%. Just to remind you, Q1 2018, the business grew by 8.5%. As a result, and also due to less favorable business mix, the margin came down year-over-year by 270 basis points. Still with close to 20% margin, it is on a very healthy level and at the lower end of our midterm ambition for the segment. diagnostics. Diagnostics grew moderately with 3%.
Admittedly, this growth happened on the back of easy comps of -1% last year. Instrument growth was strong again in the high single digits. Going forward, we expect to see gradual sequential improvements in growth rates over the next quarters, again, like in 2018. Please keep in mind the easy comp situation this quarter, normalized, our growth would have been more around 2%. The margin in diagnostics was weak in Q1 at 8.1%. The drop in margin has been driven by two main factors, foreign exchange headwind of 130 basis points year-over-year, and higher Atellica Solution ramp-up costs. The foreign exchange headwind in diagnostics was primarily driven by the devaluation of emerging markets currencies versus the US dollar. The higher ramp-up cost from Atellica Solution impacted the margin negatively by 200 basis points year-over-year as explained before.
At the same time, our legacy business is sound and has been performing on a stable level in the last quarters. Therefore, in Q2, we expect an improvement versus Q1 on the back of additional reagent revenue with high contribution from the installations in Q1. Let's turn to our cash performance in Q1. Cash in Q1 was seasonally low due to the increase of operating working capital, which was driven by higher inventories. Especially after the strong Q4, the increase in inventories is not surprising. Having in mind our good order book, we need a basis for our future revenues in the coming quarter. Also quite expected in Q1, and a normal course of business, we saw an outflow in cash for incentive payouts for the full past fiscal year. Furthermore, as highlighted already last quarter, we see ongoing investments in our diagnostics factories, which drive CapEx spends.
Now we come to our last slide, our outlook for fiscal year 2019. As Bernd has already pointed out in the beginning, we confirm our outlook for fiscal year 2019. Procedure growths, i.e., the underlying growth drivers for all our businesses are intact for all segments. Thus, imaging and Advanced Therapies are fully on track for the full year, and we expect diagnostics to improve during the course of the year. Our expectations for the year on tax rate and interest rate expenses remain unchanged. Although foreign exchange was a headwind for the group this quarter, we do not see material impact from foreign exchange for the full year, since we hedged our US dollar positions for the first nine months in the fiscal year. With this, I conclude my presentation and hand over to the operator for Q&A.
Thank you, gentlemen. We will start today's question and answer session, where we would like to ask you to limit yourself to two questions. If you wish to ask a question, please press the star or asterisk key, followed by the digit one on your telephone keypad. Again, ladies and gentlemen, please press star one on your telephone keypad. Our first question comes from Max Yates of Credit Suisse. Please go ahead.
Thank you. Just my first question would be around the imaging outlook. Could you talk a little bit around what you're seeing in imaging equipment, particularly CT and MRI scanners in both the U.S. and China? Obviously, we've had pretty strong growth rates there over the last 12 months. Has anything changed in the way you're seeing the outlook as we start to hit tougher comparators in those regions?
Yeah. Thank you for the question. I think the market is intact in both geographies. I saw a similar picture in the last fiscal year for us. We have a very healthy backlog. Revenue for the remainder of the year is secured. You will see better growth rates in imaging over the course of the year, also supported by these geographies.
Okay. Maybe just to follow up on free cash flow, could you just give any sort of detail around where you would expect free cash flow for the full year to come out relative to what you did last year? Should we assume that in line with profitability rising, assuming that happens, that free cash flow should also be up relative to last year? Or are there any incremental working capital headwinds that we should be aware of?
Generally speaking, I think we saw, as I pointed out, a seasonally soft Q1, yeah, which was not surprising. We expect to see free cash flow from a conversion standpoint relative to the profit level on similar or slightly up level relative to prior year, yeah.
Okay. Thank you very much.
Welcome.
Our next question today comes from Romain Zana of Exane. Please go ahead.
Yes. Good morning. Thanks for taking my questions. The first one will be on diagnostics. I was wondering if you could give us more granularity on the gross margin and versus prior year, just to note what extent that the pressure could have been due to more important pricing concession. Still on diagnostics, you mentioned the high single-digit instrument growth in Q1, but the organic growth was obviously including consumable and up only 3%. Can you clarify why the consumables were declining year-over-year? Maybe also useful to have the proportion of consumables versus instruments this quarter versus prior-year quarter. Thank you.
Let me start. Thanks for your question. First of all, on the revenue growth question, please have in mind that the revenue mix is 90/10. 90% revenue, reagent and consumables, 10% instruments. That does not mean that we were shrinking on reagents. It just says that the 10% of the revenue were increasing with high single digits. Some light on the gross margin side, as we pointed out, I would say the diluted impact on gross margin of diagnostics from the higher ramp-up cost in Atellica was in the ballpark of 200 basis points. Secondly, obviously most of the profit impact on foreign exchange also transpired obviously in the gross margin. This is, I would say, the main driver behind the development of the profitability. It was in the gross margin. I'm not so sure if you said something about pricing. I'm not sure I heard this.
Pricing was definitely not a topic.
Okay, got you. Just on the consumable side, the growth on diagnostics, can you give us a figure year-over-year?
It was in the low single digits.
Low single. Thank you.
Our next question today comes from Veronika Dubajova of Goldman Sachs. Please go ahead.
Good morning, gentlemen, and thank you for taking my questions. I have two, please, and they're both on the diagnostics division. The first question is the ramp-up cost, Jochen, that you've alluded to. I know in the past you've discussed some of the installation timelines taking longer. Is that what's going on here, or is there anything else? In the press release, you mentioned some measures that you have implemented. If you can discuss those and what those will mean, that would be helpful. My second question on the diagnostics business is the comment you have made in your remarks, Jochen, about gradual growth improvement as you move through 2019. Does that mean that your expectation for the fourth quarter is that you exit the year at 5% for diagnostics, or have I misunderstood what you're saying there? Thank you.
Thanks for your question, Veronika. First of all, yes, you're pointing with your, I would say, your first hypothesis with regard to longer installation times exactly in the right direction. As Bernd highlighted in his speech, what we see is several effects. First of all, we talk about that already for a longer period of time, we see higher competitive win rates than originally, I would say, planned. We talk about this higher than 35% on an ongoing basis. We win with a high portion of deals in high throughput, more complex settings. This effect, which is on the one side, a very positive one, as it shows the competitiveness, the extraordinary, I would say, feature set of Atellica, being lived up by, so to say, on the one hand.
On the other hand, I would say the initial downside of it is that the installation takes much longer because these are all projects. It's not just plug and play. Like if you would just sell one analyzer for sale. This leads then to, first of all, the higher and longer installation times means higher cost at the beginning, which also plays a role, in particular in the gross margin development, a delayed, so to say, relatively speaking, a delayed start of the reagent revenue stream. What we see and what we're very happy about is the stability of our, so to say, legacy portfolio or retention, which also is holding up very, very well. Therefore, we have on the one hand, a very strong message, which was not planned that way. Therefore, it was a bit surprising about the intensity of this.
On the other hand, we see the initial, I would say, negative impact on financial KPIs. This is the storyline. On the growth side, what I said is first of all, we saw almost 3% growth in Q1. The 3% were on weak comps. We normalized it, I normalized it to 2%-ish, so to say. Then I said, I expect to see acceleration quarter by quarter as in prior year. Will it then be five? We will see. Acceleration starting with two. That was the storyline.
Okay.
Do you want to.
Can I just.
Yeah, go ahead.
Sorry.
As I look at your guidance, you are anticipating more Atellica installations throughout the remainder of the year. What's your degree of confidence in margins actually improving from here? Because as I think about Q2, Q3, Q4, you're going to have more than the 370 analyzers than you had this quarter. How is that not going to be greater headwind to margins as we move through the rest of the year?
I think the main difference will not be so much the cost side, but the how and the amount or the degree of kicking in of reagent revenue stream with the obviously high profitability levels on top. That's driving the margin improvement on the Atellica side. Not so much the lower cost, because we expect to ship and install throughout the year a lot of instruments. The main profitability push will come from the increasing reagent revenue stream whenever we have more and more instruments being live and producing reagent revenue streams. Okay?
Thank you.
Our next question comes from Michael Jüngling of Morgan Stanley. Please go ahead.
Great. Thank you, and good morning. I have two questions around the diagnostics. Firstly, on Atellica. Of the total Atellica shipments that you've had so far, I think it's 1,300. How many are live and producing revenues as of today or last week? Secondly, on diagnostics, your weak growth in Q1 is perhaps a little bit inconsistent with what we're seeing, for instance, from the Abbott result, which is showing 9% organic growth driven by Alinity. Is it possible also that you are seeing some greater competitive headwinds from Abbott and the like that is causing a bit more of a challenge for you in diagnostics? Thank you.
Okay. Thank you, Michael. The answer to the first question is easy. 400 is the number. We had by the end of Q1 400 analyzers live. Note this is end of Q1, so that doesn't mean that they have contributed the profitable reagent revenue for the entire quarter. It is a very good and encouraging sign. We will see this continuous ramp-up following the date of installations. When it comes to growth rate, this is clearly just a continuation of what we have seen over the last years, that simply our install base is, because of the lower productivity of the legacy systems and so on, is not driving the same reagent growth. This is the picture and new system installations do not change the picture yet in our case.
Sorry. I think just to have the numbers, the shipments are 1,370+ . That's more in the 1,400 arena than in the 1,300. Just to have this clear. Maybe one aspect also. The shipment KPI was just used because at the beginning, the revenue line will be dominated obviously only by instrument revenue. As you know, the normal revenue mix is 90/10. 90 reagent, 10 instruments. Therefore, it is at the end of the day to also give a good prediction on what we can expect also from a bottom-line perspective, it only makes sense to talk about really about revenue, really on this side, when you have achieved a certain meaningful mix of those two components.
Okay. Can I just follow up on is, if I look at the Alinity success so far with Abbott, can I just confirm that you believe this has not had a negative impact on your shipments in your first quarter of a bit of a 300 or so Atellicas?
Yes, I can confirm that. We are very happy with Atellica, very happy as a data point that the competitiveness is still great. Again, significantly more than 35% of the Atellicas we sold/shipped have been competitive wins, which is more than we anticipated. And especially these are wins in the bigger customers which have high demands. We are very happy and see the competitiveness of Atellica more than confirmed.
That's also why we feel not too bad about the topic, generally speaking, because the win rate in those high throughput accounts is something which should also lead, generally speaking, in the future, also to higher revenue per box. This is, at the end of the day, what drives profitability levels in this business.
Bernd, when you talk about, in the press release, about your being a little bit more sharper, so in terms of the Atellica rollout, does this mean you have to employ more people, that you have to be a little bit more cunning? What specifically gives you the confidence that you'd be able to sort of sharpen the Atellica issue here? Just curious what it is. More salespeople, more technicians?
Okay. That's the little issue behind. First of all, we are here in a situation where we have success with the product, and we are, to some extent here, paying the price short-term for the success because of the high number of installations which we have now in the field. You can do the math, how many systems have been in transit, so to say, have been in the field, without being live yet. When you look at the numbers I gave you. This is one topic, it's the sheer amount of systems. The second topic is that take Atellica Solution literally. This is more than a box here. This is not about just unboxing an analyzer. It is about significant changes at a customer site, which the customer wants. They want to re-engineer their lab.
This is a process which takes longer on their end and on our end, especially because of that high amount of bigger projects. What we have to do and what we are doing is making the organization fully ready for this change also in how we deploy systems. It is not only about delivering, it is about installing more complex solutions. We have put our most experienced people on these installations. We are backfilling in other areas to make sure that we have the best people on this topic. We also, because this is a huge transition also for our organization, we run this for the next nine months as a project. With direct attention of the board, with very streamlined remote reporting and communication lines.
This is the all hands on deck project to turn the Atellica product success and confidence into commercial success as quickly as possible.
Thank you.
Our next question today comes from the line of Sebastian Walker of UBS. Please go ahead.
Hi there. Thanks for taking my questions. I've got two, if I could. Just first on diagnostics and Atellica. 400 live systems implies something like a seven to eight-month lag time between shipments and go live. Could you talk about where you expect that time could reasonably go to? Also just on that, whether you're still comfortable with the 16%-19% medium-term guidance for the margins. The second question is on imaging and AT on the China quotas. Your commentary seems a little bit more muted here than some of the radiotherapy players in the market. Could you talk about perhaps why you're less positive on the opportunity and whether you've seen any pickup in activity in discussions with customers? Thanks.
Okay. Question on the time between installation and go live. We anticipate this number for fiscal year 2019 to go, on average, down to five months. The number varies between small installations and large topics like, for example, the Pardini deal we talked about. It's more than 100 analyzers in one huge installation and so on. We are targeting a significant reduction, but it still will be five months. Maybe as possible to qualify this a little bit. In our current install base, 15%, as I said, 15% of the analyzers are connected to Aptio. In the Atellica deals, it is 35%. There's the aspect of automation. The second topic is that even if there's no automation, it is very often now that we're placing a set of independent, quote-unquote, "boxes" at a customer site with one integrated modular Atellica Solution.
It is about the customer making the change of, for example, switching off their stat lab. This can be done now with one system. This can be emergency testing in one topic. It is about changing customer habits and making the customer feel comfortable with this workflow, which gives a lot of productivity gains in the future. Imagine this to be more than just switching on a box here. This is about making significant changes to enable somebody to have a much more productive, sophisticated medical factory. This is what this is about. I think the second question was about the China?
Imaging, China.
I'm not too literate on what other companies say. I think I read recently in a report, I think about Varian, that they are also a little bit careful about these expectations. What I want to make clear when it comes to this Chinese quota, this is not a tender document. This is an intent, or let's say this is not even an intent. It is what is theoretically possible. There's no funding behind it. There's no purchasing process behind it. And from what I know, without being an analyst, I don't see that others are too bullish about this either. We don't see on the ground in China that this document is changing behavior of our customers.
We still expect high single-digit growth rates out of China in imaging. We're still seeing this as a very important growth driver for our imaging franchise.
Yeah. The good thing is, let's say that this document is not pulling the brake. It is, and I think I had that in many one-on-one conversations with you and your colleagues. This is not a document I would use to assess the outlook of the Chinese market. The Chinese market is healthy. We have good high single-digit growth there, and expect it to grow like this. I think, with or without this document, this is the fact, okay?
I think you also asked about the midterm guidance on.
Definitely, yeah
Diagnostics with regard to profitability. We stick to this guidance. Remember we said at the capital market day three to four years. This is still holding up, yeah?
Perfect. Thank you.
Our next question comes from the line of Patrick Wood of Bank of America. Please go ahead.
Perfect. Thank you. I think I have two remaining. Firstly, just a point of clarification on the imaging side. Just to confirm, the confidence that you guys have at growth improving through the year despite the tough comps is because of what you're seeing in your existing order book within the imaging franchise. Just to confirm that that's the case as question one. Question two, I'm just curious on the diagnostics side, maybe to follow up on the points made on Abbott. I'm curious, who do you think you're taking the installations from? If you're holding your base installations sort of in your base estate kind of flat with a legacy platform. Who do you think Atellica is replacing mostly in the market? It doesn't look like it's Abbott, so should we conclude that's Beckman, or? I'm just curious. Thank you.
Okay. I think question one on imaging, yes, it is on the one hand the order book. I spoke about the very healthy book-to-bill on the equipment side of 1.13. It's also the funnel which we see of orders which we will generate. We are very confident that imaging will have a very healthy year. We'll have a very strong remainder of the year. Partially, when you look at one of the reasons, by the way, for the low cash flow in Q1 is also building up the "inventories" for the revenue to come in imaging in the next quarters. Here we are very confident, and I think when you have followed us for a while, you know sometimes the growth rates in imaging fluctuate a bit quarter-over-quarter. We have seen this pattern. Imaging is in a very healthy state.
The second question was?
Abbott.
The big three us, Roche, Abbott, have about 48% of the market. Which means that when you are in a position like we are in here, with that 14- 16 or whatever percent market share, there's 86% of markets you can grow. From, yeah. You can take instruments from. This is not like a two or three participant game. Yeah. I can say that there is one particular competitor we win, especially from. What makes me very, very confident is, and something the team is also very proud of, that we have won deals and especially very important deals against all big competitors with Atellica, especially with customers who are very demanding when it comes to solutions for the lab of the future.
There, Atellica is a great weapon to have.
Fantastic. Thank you for taking my questions.
Our next question comes from Scott Bardo of Berenberg. Please go ahead.
Yeah, thanks very much for taking my questions. It seems to me that the placement targets that you set for Atellica, I think towards the end of the year being 3,200-3,500, were heavily underpinned by your own installed base of systems in the market. Whilst I appreciate you're making some good success with commercial wins, it feels a little bit that your existing install base is somewhat sluggish to swap over to Atellica. I wonder if you could comment on this a little bit. Is there any reticence from your customers, and the placement targets that you've put out for this year, are you concerned about those at all given the dynamic you see in Q1?
Just following on diagnostics, I think a few months ago, there was some confidence from the management board about improving diagnostics margins about 100 basis points or so from what was actually a relatively weak last year. Obviously, we've started off pretty soft here. Is it still an attainable target to improve margins in diagnostics, 100 basis points year-over-year? Thank you.
Okay. Thank you. Let me give you a little bit more of background here. When I look back, when I look at where we are today and compare what we have expected and communicated a year ago when we started also the IPO marketing with our technical application. We are extremely happy about the competitive wins, about the more than 35%, that the system is received so positively by the professional customers. When you talk about installed base conversion, I would draw a little bit of a simple picture. There are customers who basically want to leave their lab as is. There are quote, unquote, "boxes," The boxes come off contract, and they want to replace one box with another box. Then there are customers who really want to change how to do things, yeah, bring their automation, bring their operation to the next level.
We have a high win rate when it comes to those who want to bring their lab to the next level. When it comes to those who trust on a regular basis, so to say, are up for renewal, they are sometimes a little bit slow in adopting the idea because they say, "Well, before I have a new system, I want to make sure that it's really running because I don't want to change things." "I'm happy how things are." There, the adoption is a little bit slower. This is a nice problem in this mix. This is a nice problem to have because changing the installed base to Atellica without having more reagent revenue is not super critical for the P&L. The critical aspect is winning new customers and winning in the high productivity environments.
From that point of view, the change in the installed base, it's a bit slower, but the good thing is that we have more wins on the competitive side, and more net new deals, and more high throughput, high productivity deals. This is also one topic for the financial effect. We have very well secured the installed base. We are happy with the legacy business, and how it's holding us. On the other hand, the Atellicas we put on top are currently not yet contributing as much as they do in the future in terms of reagents revenue, and that is why for the time being, we have this, especially in Q1, we have this negative impact on the gross margin.
I think that's a perfect lead over to your second question, Scott. The margin improvement in diagnostics is primarily a function of the speed of installation, and then there's the timing and the amount of reagent revenue coming in. Obviously, with Q1 being weak on this side, I think the margin improvement obviously became more ambitious, no doubt about this. At the end of the day, I think the mechanics are holding up very well. It's about the speed of installation and how quickly we see additional reagent revenue coming. That is also one of the reasons why we tighten management on the topic. At the end of the day, our ambition is that we will at least, at foreign exchange, improve margin year-over-year.
Okay, understood. Thank you. Perhaps just one quick follow-up, if possible. Just on the Advanced Therapies business, which I appreciate can be a little bit lumpy, but there has been somewhat slowing growth over the last several months in that business, whilst your competitor has been reporting quite good growth from its comparable business. I just wondered if you could talk a little bit to your future in this segment. Are there any major product launches to support better growth here? Perhaps just a little bit of a feeling for that business, please.
Yeah, I think it's got you said a lot already. I think it's a bit more fluctuating, this business, because it's smaller. It's relatively dependent on single deals you either can take revenue for or not. Therefore, the volatility of the business is higher than the others. We are very happy with the business, in particular with the very, very strong order intake we saw over the last four quarters on the equipment side. Therefore, we have a very good order book now, and we expect a very, very healthy revenue growth coming in the next quarters. I would say more for the strategic aspect of the question, I would hand over to Bernd.
Strategically speaking, this is a growth engine for us, both from a business point of view but also from a medical system point of view. We see diagnosis and treatment grow together. More on the short-term basis, we have a very strong product pipeline with significant introductions within this year, which will contribute not only to the order book but also to revenue. I'm very confident about this business.
Very good. Thank you, guys.
Okay. Operator, let's take the last question, please.
Our last question today comes from Gunnar Romer of Deutsche Bank. Please go ahead.
Gunnar Romer, Deutsche Bank. Thanks for taking my questions and thanks for all the explanations you've provided around diagnostics. On the diagnostics business, one left from my side. Just curious whether you have an update for us when it comes to your strategy in molecular diagnostics and in particular, your relative preference of driving this organically or via M&A. My second question would be on imaging. It seems to me also in looking at numbers of your competitor, that we're seeing a temporary market slowdown. Just curious on your comments around market shares. You've been upbeat on that over the last couple of quarters. Just curious whether these comments still hold true. Then also related to imaging, just a follow-up. Can you remind us of what the order intake was?
I think you talked about the book-to-bill, what was the order intake growth you've seen in imaging equipment? Thank you.
Okay. Thank you. I mean, comment on your molecular question. I think what became very clear in this call again is that we are the automation and industrialization, the high productivity company in diagnostics. If and when we are interested in growing and when it comes to molecular, it is about what are ways to bring molecular out of the, let's say, the niche of our specialty lab. This is what our view on molecular is. To make sure that at some point this becomes as much an automated, easy-to-do test like immunoassay in clinical chemistry. This is the target. This is what we work organically on, this is also where we have made inorganic moves like the acquisition of Fast Track diagnostics to speed up the development when it comes to abilities which we better find outside.
On the imaging side?
No, I think, Gunnar, I can take it over.
Yeah.
Gunnar, I think you already touched on the topic. imaging had been flattish against a very strong equipment order intake on equipment side last year. Remember last year in the prior year quarter, we were at very high single-digit equipment orders. We are very, very happy with our imaging business, yeah, and we expect accelerated revenue growth in the coming quarters.
In terms of market shares?
Yeah. Okay. Market share. I'm very, very confident that when you look at the last four quarters, that we have on market share, is also how to, in marketing, how to look at it. I can tell you about the last quarter. I don't even have data. This is to be looked at in a long-term trend, and I'm extremely happy about the trend line of the last transformation.
That's great. Thank you. Just a very final one, if I may, on tariffs. Do you still expect the EUR 40 million drag or has anything changed in that regard? What was the impact in the first quarter, please?
Jochen speaking, we don't have better information than you. We still expect the same thing, EUR 30 million- EUR 40 million, as pointed out, in the first quarter, mid to high single digits amount of millions affecting or impacting our numbers, and obviously, more on the imaging and laboratory side than on the other businesses.
Thank you very much.
You're welcome.
Okay. Thank you everybody for participating today. As always, the team and myself will be available for more questions if there are. Thank you everybody for participating.
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 Investor Relations section of the Siemens Healthineers website. The website address is www.corporate.siemens-healthineers.com/investor-relations.