Welcome to our Meet the Management here at UBS offices in London. I'm very pleased to have such a sizable crowd here. Didn't hope that so many would turn up in the bad weather. So good that you came and made it. Also welcome to the people in the live stream.
So as you might be aware that we're streaming as well, which means that you can also listen to the presentations afterwards if you maybe missed something or fell asleep. I hope you don't. So my name is Marc Kuehnek. I'm the Head of Investor Relations at Siemens Healthineers. I hope you've been enjoying your lunch already.
It's the only chance you will get to eat kind of in a more structured form before 3 p. M, yes. Just going to
have a few words now
on the logistics and some housekeeping. And then I'll hand over to Bernd, Jochen and Christoph for setting the scene presentation. You should be aware that this webcast is recorded. And therefore, I also have to get your eyes to the safe harbor statement, yes? So I have to read this now.
I don't want to make a mistake. Legal stuff, no risk, yes. Conference may include forward looking statements. These statements are based on the company's current expectations and certain assumptions and therefore subject to certain risks and uncertainties. So that done.
Now on the way this whole thing is going to work out. It looks a bit complicated, but it's easy, yes, because you're only going to be sitting in one room, yes, each of you, yes? The logic is you have a color on your name tag, It's black, white and orange. It's just corporate branding. That's why we chose these colors.
And the black room will be your room. It's actually the one that's upstairs and the other two rooms are here downstairs. So we please ask you to stick to that color coding. That will be very helpful. What happens in these rooms?
So basically, you said you will be sitting there and the 3 management teams will be presenting their story of getting to the next level of profitable growth to you in a very structured form, I hope. And you get a chance to ask questions. And as you know, Capital Market Communications is a tight rope, yes? We always walk a thin red line between giving you more transparency, but not giving up too much information to competition. So please bear that in mind when you come into those meetings with the management teams, yes?
It's also the first time that our basically, how you call it, operational management is in front of the Capital Markets also bear that in mind, please. You will have a chance to break out for a few minutes in between the sessions. It's like 50, 15 minutes technical break for having a coffee or looking for the bathroom. And afterwards, at 3 p. M, we have a session in the experience area.
You might have had a glimpse at that before. It's a room where we will be serving some tea. And you will have a chance to look at some of our products, especially advise you to check out that HoloLens. Really impressive. It really shows what digitalization can do to our industry.
And that said, in your rooms, you have notebooks to take some notes. We are not printing out the presentations for environmental reasons. You will get them sent to you afterwards. And by the way, we are also sending you a small questionnaire where we beg you to give us some feedback on what you think about the day and the setup and the information you got. We'd be very happy if you answer that.
And with that, I'd be handing over to the 3 guys from the Board who will be presenting. They are setting the scene to you now.
Yes. Thank you, Mark. But first and foremost, thank you all for coming. I mean, this is great that there's such a big turnout. Thanks for the interest in our company in Siemens Healthineers.
I also wish to thank UBS for thank you, yes, for hosting us and for delivering this cozy pre Christmas atmosphere, yes, so very nice. And I mean, this day is really about giving you the chance to get to know us even better, by, on the one hand, more details on our plans moving forward, what we have achieved, what we plan to achieve. You will have the opportunity to touch our products a bit, get a feeling, as Mark has already said. So please don't miss that. But I think most important, it is that you get to know our people, yes, in more detail more depth.
And we want to start with this, yes? And 1st and foremost, I would like to introduce to you our new Board member, yes, Christoph Tindel. We have a long history together. Christoph is in this capacity now since October 1, and he will speak to you about little bit about himself, yes, and then about his plans for his primary area of responsibility, yes. So Christoph?
Yes.
And thank you very much, yes. And also a very warm welcome from my side, yes. Thanks for attending. And yes, few short a few words about me. Quickly, I'm probably the only medical doctor in the room.
Not sure about it, but Andre is also one. So I'm one of few medical doctors in the room too, yes, to be precise. I grew up in surgery actually, worked 5 years in this field before I joined Siemens 1998, worked primarily in diagnostic imaging and left for the USA for years where I also worked 1 year for Danaher, Bergman Coulter. Rejoined Siemens because it's really a cool company in 2015. So, what you see here is a stethoscope invented around 200 years ago and was really, let's say, leading into a significant transformation in healthcare, if you say so.
And we are now in front of a similar transformation. And I think you are pretty much aware about the things going on in the healthcare arena, yes? But just to pick on a few ones, I think needless to say that we face the healthcare providers are facing population growth on the grounds of more and more chronic diseases. I think we might be all more or less affected by it, yes. Also, staff shortage is a significant topic by 2,030.
It's expected the world has a shortage of 15,000,000 healthcare workers. So, this is really a significant number. Currently, we face a challenge of 2,600,000 missing medical doctors on the globe. So this is severe and has severe implications for our providers, for our customers as well. So they strive freely for more and more consolidation as you know and for industrialization in order to optimize their processes.
I can say we are well uniquely positioned for this, yes, because we work intensively together with our customers. I can proudly say, more than 90% out of 100 global healthcare providers, leading institutions on the globe, more than 90% we have the pleasure to co create with. And we do things like focusing on precision medicine. We invented the dual source CT, for example, or the 7 Tesla, still unique. We transformed the care delivery via telemedicine.
I come to this in a second. And we focused also heavily on patient experience. You all know, I think when we get sick, the first instance is Google and then you typically go to the medical doctor and tell the medical doctor what your recommendation for the therapy is. So I think this is patients are getting more and more into consumers, which is important. So we invented, for example, complete new workflows for diagnostic imaging, tablet based workflows, which makes it easier to manage the patients and all on the grounds of digitalization, where I want to show to you also that we are in the pole position.
So let me focus quickly. And I think Bernd and Jochende have shown already our priorities. So we started in October our upgrading phase. We want to bring our company onto the next performance level with accelerated profitable growth. Let me focus quickly on imaging and advanced therapies and let me start with imaging.
So we brought out we innovate continuously on our modalities. So, one example we brought out now is the somatome X Sight. Here, it's important to understand it's a scanner, which is also in reaction to the shortage of staff and lower qualification of staff in many areas. So, it has a completely one push button type of operation, easy to be installed. So, it can be installed, it can be brought to areas where you couldn't install it beforehand.
Secondly, the single vertical cockpit as one example, how we want to expand our diagnostic offerings. And this is really not only expanding in our core markets, it's also tapping into new markets, making new markets. This is a possibility and it's still unique with Siemens coming from the RSNA some days ago, where you can remotely control a scanner or an entire fleet and you can sit in Los Angeles and can drive a scanner examination, for example, in Tracel or in any other country. So that's very exciting and is also very important for our customers. Many of them have more than one scanner, as you know.
So secondly, I would like to focus on we want to really lead clinical decisions, which is also helping making new markets. We brought out last year already a platform, which is called AR Red Companion, indicating that the companion is not supposed to replace radiologists now, but it's helping radiologists in terms of quality, but also in terms of productivity. Burnout syndromes are now also pretty much in discussion in radiology amongst our customers. This is AI based, a decision making tool, which automatically analyzes chest CT data. We followed now with MR where we do the same for the prostate and the same for the brain.
So it's all about automated diagnosis, which is helping our customers and which is unique. We brought it now through the FDA because AI based technology is not so easy. It's a regulatory challenge, as you know. So we proudly can say we made it now also a product. So, let me come to advanced therapies.
And when I told you, I grew up in surgery and this was actually how I grew up, So pretty open. 60% of all, it's lunchtime, right? I think it's okay. I mean, this is a fascinating thing for surgeons, but for the patients and also for the providers, it's not because it comes with a lot of side effects, infections and so on. But every day in a hospital costs a minimum of US2,000 dollars So, if you can shorten it through minimally invasive therapies, it's a big help.
And this is why we focus on advanced therapies. The new kid on the block here is the ARTIS Icono with a very, very high significant change in the image quality and in the capabilities. So it's for cardiac, it's for neuro, it's for interventional radiology. This means 3 in 1 and is an innovation in itself. And as you know, we expand this now through robotic based intravascular interventions, which is super exciting to me and to our customers.
What you see here is the medical doctor in front of a console with joysticks and operating outside of the x-ray field. So this is for the personnel on-site already a very helpful technology. But even more exciting is when you can use it remotely. Same thing as with single vertebral cockpit, we can make markets because the expert can also sit in Los Angeles, Indiana, wherever in Erlangen and can drive the intervascular intervention remotely somewhere on the globe, which is a very exciting thing. And keep in mind, 50% of the world population has no access to medical care.
So, it's really helping here expanding the markets. And just to make this real here, what you see here is a case which makes us very proud. This is a neuro intervention done in Toronto. What you see here on the left is something you don't want to have. It's an aneurysm.
It's a, let's say, a very dangerous situation for the patient. If this ruptures, there is blood in it. And on the right side, you see with Corindus robot, it is a first intervention in the brain successfully done where you see that this aneurysm was treated successfully. So this is only one aspect. Corindus is already working in the coronaries.
And so from that point of view, this is a very exciting future for this. So I want to summarize quickly. In imaging as well as in advanced therapies, we will continuously invest to drive innovations in the modality space. We want to go more for tailored services, making markets. So on the left side, expand diagnostic offerings and going into procedures via Corindus on the right side, leading to more precision in advanced therapies and helping customers also with clinical decision making.
So I came back from we came
back from the
RSNA shaping the future of HealthCare. I can tell you I had really in half an hour shifts. I had customer interaction, which was very exciting. I say I can really summarize they respect us very much for our technology, for our innovation rate and for the co creation, for the partnership. So we are perceived as trusted partners.
And what you see is we followed very much our strategy. I don't want to repeat it again. But you see, with all the products and solutions we have shown, we could really conclude this was a very, very successful RSMA. So and with this, I would like to thank you for listening and thank you for giving me the opportunity to introduce myself and handing over to Jochen. Thanks.
Thanks, Christoph. After this exciting news, gets now a bit more technical. I have only one slide. And I do not convey new messages to you. I just want to reiterate what we have said on November 4, yes?
But I think it's maybe meaningful still to reiterate it. And our strategy is clear for the next 3 years. We want to grow more than 5% per annum. And we want to grow EPS, adjusted EPS by around 10% per annum. And the whole day today is about how we will get there.
And just to give you more a bit more glimpse on the different segments in this, Let me start with diagnostics because Christoph didn't talk obviously about diagnostic yet. On diagnostic, we expect to see for this fiscal year, yes, for this fiscal year, we plan to grow by 5% to 6% as a total company. For this fiscal year, we expect to see further acceleration of growth. Remember, last year was 2% roughly. So slight acceleration of growth.
We will not reach the lower end of the 5% to 6% for the overall company, but we expect to see acceleration of growth. And through this planning cycle until the end of 2022, we expect to reach mid single digit growth rates. On the profitability side, we will see in this fiscal year a slight decrease in margin most likely because primarily on the back of further headwind on foreign exchange as well as the integration effects on the acquisition of MiniCare. And you might have you might remember that we had a significant shipment quarter in last Q4. And we are still in that transition phase in diagnostic.
Therefore, we expect to see all the measures from the transformation and transition phase in diagnostic to pay off throughout the fiscal year with accelerated pace. And as you have seen last year, the first significant shipment has an initial burden on the P and L. Therefore, we expect to see Q1 in diagnostics from a top line as well as from a bottom line to be the weakest quarter in the full year. Just to remind you that it's not nothing new. That's what we have said beforehand.
But obviously, we expect to see diagnostics to reach then better margin levels starting with 2021, yes, up to reaching mid teens margin levels around 2024. That's the plan on diagnostics. On imaging, it's much more straightforward. We expect to see imaging well within the 5% to 6% growth rate this fiscal year and keep this level up for the next 2 years. We expect to see margin expansion in imaging in this fiscal year around the same level of prior year and also would expect slight margin expansion over the coming years.
In advanced therapies, we also expect to be this fiscal year well within the 5% to 6%. And we expect to see the growth rates in advanced therapies to grow up to high single digit over the planning cycle until the end of 2022, particularly on the back of the impact, the positive impact of Corindus. With regard to profitability, we will see a burden on the profitability in this fiscal year by Korindos. Remember, we guided there for 300 basis points impact just from Corindus in this fiscal year. But we expect to see over the planning cycle towards the end of 2022, again, levels which are close to the levels we have been in fiscal year 2019, yes, just to reiterate that frame.
And with this, I hand over to Bernd when he so say kicks off the whole storyline, how we will get there.
Yes. Thank you, Jochen. And again, I mean, you know the charts. Just want to reiterate, yes, so this is the these are the priorities we have set ourselves for the upgrading phase, as we pointed internally, especially for this is what we want to focus on in the next 3 years. What you see here is, on the one hand, clear strategies per segment, yes, for imaging presented by Andre for diagnostics presented by Lipac and advanced therapies, which will be presented by Michel.
Imaging going into digital diagnostics as the workflow company, the engineering company, solving the challenges, productivity challenges of our customers and advanced therapies. I mean, as Christophe bloodily illustrated, driving new procedures, innovating procedures. And I think what Christophe also shows nicely is how it fits all together by addressing the challenges of our customers, yes, which is doing more with less, yes, being efficient, dealing with staff shortage. He's dealing also with personnel costs, having to deliver more and more and better and better care, which means that the need for our core products is growing. But on the other hand, we have more and more adjacent opportunities to address topics with technology, yes?
So this is a little bit of a common theme, which you probably will realize in all the three segments. What we will not speak about so much today is also what we do, so to say, horizontally on a group level or from a SUGEN's Healthineers wide perspective, which is complementary to the growth strategies of the individual segments and helps the segments in addition, yes, in their growth stories. So this is, on one hand, our initiative to drive share gains in the growth markets. This is especially China, India, Middle East and Africa. And then a very detailed program to gain share to further gain share and to expand our offerings when it comes to the leading providers, yes, where we have a program targeted to the 130 biggest accounts, yes, because as Christoph said, health care is consolidating and addressing the C level of the consolidators is one of the big themes we have as a company.
And you also know that our the acquisition of ECG Management Consultants, which is to be seen in this framework. And then we also drive our internal digital transformation, yes, so that we can also do more with less. Yes, so I think this frames it, I hope. And now I hand it back to Marc. So
in order to give you the chance to ask some group related questions before we head into the segment discussions, We have a few minutes of time now for a short Q and A. So if I may ask you to raise your hands. First, Veronika and then Scott.
Good morning, Veronika Dubajev from Goldman Sachs. If I can please 2 big picture questions. 1, Brendan, would love to hear your updated thoughts around capital allocation. And in particular, when you think about some of the segments of the diagnostics market that you're not participating in today, whether it's molecular or some of the other faster growing segments? Do you think that's something that you need to build out organically?
Do you need to acquire it sort of big picture strategy? What do you think needs to happen in the diagnostics business?
Just one question. Okay. So I mean capital allocation or call it M and A priorities. I mean, if we now the slide has disappeared here. I mean, to some extent, when you look at the slide, it also shows where we I mean, on one hand, they want to go organically, but then also what our strategic priorities, yes?
And you can see, I mean, looking back, yes, we have when you look at the 3 acquisitions we made in the last year, yes, Corindus clearly driving the agenda of advanced therapies of innovating procedures, yes, and also addressing staff shortage and so on and so on, yes? ECG management consultants, strengthening the company as a whole addressing the C level, yes? So this is a strategic theme. And when it comes to Mini Care it is about how do we address where the market is going on the one hand, yes, which is here in the point of care, immunoassay at the point of care. So and since you, in particular, asked about diagnostics, what we show here is our it's a big word, our raison d'etre in diagnostics is to be the productivity company, to bring, to lead when it comes to addressing the customer challenge of productivity space efficiency to make the core lab more efficient.
And when we look at acquisition opportunities, we look at it through that lens. What are areas which need to get automated? Or what are areas which or companies which make us would make us even more successful in automating and digitalizing our offering, yes? So it's not just that we want to be big or whatever, yes? We want to follow this strategic team, yes?
So from that point of view, I don't think that there will any will be any surprises, yes? I mean, you have that picture in mind, yes? And the kind of 6 priorities here, M and A will fit to it. I'm this is from that point of view, and you can ask the question then in more detail also in the to Deepak and Martin. This is an area where I am skeptical, yes, whether this is, yes, because molecular, I mean, there's 2 flavors of molecular, yes, there's the sequencing type, which is more in the life science currently still, yes, and very specialized.
And there's areas which is which are the PCR testing, which are there, which are often not then also not often not blood based and so on and so on. So let's say medium, yes?
Thank you.
Scott Borger from REMA.
Thank you. Scott Borger from REMA. Two small picture questions, please. Just to understand a little bit, there's a lot of proposals about the U. S.
Medtech tax next year. Just wondering if you could give us a flavor as to your potential exposure there. And second, probably more pertinent question, you've been doing quite well with respect to winning large reference laboratories with Atilico. I know there's been a lot of discussion around this Quest Diagnostic contract, which should have been awarded or should be awarded round about now. Can you give us a little bit of an update here and also a flavor?
If you do win this, will this be negatively impactful to your guidance in the near term?
Thank you.
Yes. Thanks, Scott. I think on the medical device tax, yes, we're obviously in the hands of others, yes? And we hope that people do consider what it does to the industry and ultimately to patients, yes. So and you all know the tax is suspended until the end of this calendar year.
Nobody precisely knows what will happen, yes, with January. And we hope that it will be that it stays suspended. On this note, if it would not stay suspended, we will obviously become tax compliant. In this regard, that would mean on a gross basis for this fiscal year for us roughly something about €40,000,000 on a gross basis impact. We need to see how the dynamic in the market would be, how what we can do with those €40,000,000 to reduce it to a meaningful net basis, yes?
But we still have high hopes that it also can be suspended again, Yes. Maybe on the topic just one on the when we talked about this diagnostic deal, I think I said that it is so to say, it will not change our guidance if it comes or not comes.
And I mean to say a little bit more, I mean, you just need to be a little bit, let's say, respectful here since I'm now talking about another publicly listed company, yes? So I mean but still, I mean, we are in a and Deepak will share more also, yes, in the session. So we are in very good discussions, yes, in, so we call it, final stages. I mean, what is positive, yes, is that this is another proof point, yes, that Atellica is the right product and that we are the right company for where the diagnostics market is going, yes? And without Atellica, we wouldn't be where we are in this discussion.
I think this is the one topic, yes? So this is more the overall confidence builder or proof point in this, and this is not a one off, yes? I mean, we had said, yes, that in the mega lab, yes, as defined as more than 30,000 tests or tubes per day, we have a win rate of more than 80%, yes? So this is it would not be a one off. It would be just another proof point.
And yes, this is the biggest customer on the planet when it comes to diagnostics and certainly a very, very professional customer. You asked about the financials. I mean and Jochen answered, I mean, in the end, on a group level, it will not change the guidance. And I mean, Jochen made clear, yes, I mean, that this year, from a profitability point of view, I mean, as we said, yes, it will get slightly worse before it gets better. And that would contribute, yes, for this year, this is an investment case.
Yes, I mean, this contract has a classical characteristic of a complex contract, means investment phase first, return phase later. That is clear. Therefore, it's classic.
I think there was one hand raised over here.
Lisa Clive from Bernstein. Two questions. 1 on the IVD installations that you have done. There's been a lot of discussion about how more of them have been going to large labs. These are more complex installations.
You've had to hire a number of new technicians. Are you fully staffed up now, given the run rate of your installation process and the new hires that you've made? Are they fully trained up? Or is this still a bit of a bottleneck?
So I mean, we will go into more detail in the diagnostics session, yes? So but I mean, overall, main message, when it comes to the additional cost, yes, we have in the, as I always call it, early innings of Atellica, that staffing has happened, yes? So you additional cost coming from hiring is not to be expected, yes? So more personnel costs around this, yes? So this has more or less now reached the peak, yes?
And the second question on the imaging business. The installed base in the U. S. And Europe is pretty old. And I guess there's a question of whether new product introductions, AI enabled platforms can help persuade hospital systems to actually upgrade sort of old machines.
Do you are you seeing any progress there? Do you think there's any room for volume uptick in this market?
Yes. I mean, first of all, I'm not I think when it comes to age distribution, it's it is a, let's say, kind of a Gaussian distribution. I mean, not Gaussian, but it is not of a particular yes, because sometimes people try to come up with, is there a replacement wave and so on. But I mean, we are dealing with 160 different health care economies, yes, and it averages also a little bit out here. I mean, there is maybe there is a bit of an effect like this, here that there's still a bit of a pent up demand, for example, in Southern Europe, where the health care system has been starving and so on and so on.
So but I think the other question is more, are there technologies which could, let's say, make people pull in or move forward with a decision. And I would say, yes, yes. I mean, topics we have on the some of the AI based what AI powered scanners, yes, as the certainly will help, but also basic innovations like the and which is more on the mid term, yes, the counting CT, which is really revolutionizing how CT what CT can do as a from a in the core technology. These events can create, let's say, demand, yes, simply by because people want to be at the forefront. But in addition, there's also the topic of expanding the market, yes, of going where there is no installed base before, yes?
And we have this we have introduced a somatome on-site, yes, a CT scanner in RSNA, which moves to the ICU, yes? So it's a movable thing, yes? And we are working, as we also talked about, on a technology to democratize MRI, which is mainly meant to also go into places, yes, where there is no system before. So that it is not just in the developed markets. It's not just a replacement game, yes?
So it is also about gaining new sockets, and we are very new customers here. We are very positive about that.
Okay. I think we're already going a lot into segment questions. And since we want to have give the chance to the operational management also to answer these questions, in the dedicated rounds, I would say we wrap it up now. And you orient yourself where you have to go. You have a few minutes left to grab some food before you then need the energy to digest all of the information we're giving you.
And so I hope you enjoy the day. See you later. Then we have a Q and A session where Michel and Christian and then the other teams will be answering your questions. Since this room is the one that's being streamed, I would beg you to ask your questions only once you have the microphone in your hand. We'll be bringing that around so that also the people listening will get the chance to hear the question online, okay?
And I think we can start, right? Okay. So please welcome the management team of Advanced Therapies here. Michel is going to present to you Advanced Therapies and our plan for that segment to get to the next level of profitable growth. And floor is yours, Michel.
Yes?
Thank you, Marc. Welcome to the Advanced Therapy breakout session. My pleasure to introduce you to our business area. My name is Michel Perrin. I'm heading Advanced Therapy for now almost 18 months, and I joined Siemens at the time of the IPO, coming after 25 years of experience in the medtech industry.
I'm here with my finance partner, Christian Klausner, and we will both of us address your question at the end of that presentation. Before to come into the detail of our growth strategy, let me first introduce you to who we are and what we are doing currently. So basically, to make it simple, we are designing, developing and commercializing imaging systems that are in use in cath lab or in OR in order to drive and to enhance the eyes of the physician to develop and to perform minimally invasive procedures. Some of those systems that looks like that, this is the brand new product that we are launching at the moment as we speak, but we have produced generation already existing in multiple leading hospitals across the world. So many of the most prestigious academic institutes have equipped with Siemens system like this one.
I can mention the Charite in Berlin, Sartre Freres in Paris or here in London, the King's College or the Royal Hospital. With those kind of image, we generate with this kind of system, we generate images like this ones. You basically can see with those systems things that you cannot see with your eyes and could not be seen before with previous generation systems. So let me pick up 2 examples. I don't know if in the back of your of the room you can see all the details, but this is the carotid artery at the base of your skull.
And you can see here a stent that has been deployed behind the lower jaw. And you can see that despite the overlapping of the bone of the jaw, you can see very in detail all the struts of the stents. In the past, the stents were visible only thanks to the landmark at both extremities. And with those kind of fast generation imaging system, you can see now all the details and how the stent is deployed in the artery. And it is important because you can see, for example, that you have a narrowing, which were not feasible before with previous system.
It's those systems allow you also to see the anatomy at a level of accuracy that was not seen before. And you have that on the right end of the slide. This is the base of your scale. This is the vascularization of the brain. And these kind of details, which indicate the presence of collateral vessels, indicate to the physician the ability of the brain to recover after a shortage of blood supply for example.
So that kind of imaging are extremely useful to drive even further the penetration of minimally invasive procedures in various domain. But providing image is nice, but today we are doing much more. And let me go through an analogy with you, which is very simple, but I think very insightful. If you want to come to that building, you can know how to come by experience. But if it is your first time, you can rely on image coming from Sky with higher accuracy.
That's a little bit the analogy with the image I showed you just before. And you can know where the building is. Now if you land in the airport and you want to reach that building, that image might be important, but not critical for you to reach the right location in the most efficient way. So down the road, we are moving more and more to helping physician to see, to help physician to guide. And this is what we do with that kind of system here.
So you have a map. You can help yourself to understand how to go to the building. It's even better if the map is indicating you the crowded places and the alternative approach. And at the end of the day, it's even better if the system is helping you to decide when it is right time to turn right or left, okay? So this is the GPS.
We are doing exactly that now. So we are taking the raw image, and we are defining the best road map to reach your target and to help to guide the physician in these procedures. So here you have, for example, a liver and you have a cancer in that liver, which is hard to see with the raw image. If you overlay and combine and fuse different source of images, you can enhance the visibility of the tumor. And more importantly, you can start to segment the vascularization to get to that tumor.
And you can see here from where the catheter is, the right approach to get to that tumor. If you look at here, for example, the crossing which is here, it's not that obvious on that whole image to understand which one is going to the tumor, okay? Thanks to that registration and segmentation, it's becoming very clear where it is the right time to turn on the left or on the right. We can even make the image even clearer by subtracting everything which is not relevant to the procedures. And now the physician has just to follow the green line in order to reach the tumor and do what he has to do.
So here for example, underlining particles to stop the tumor and get it shrunk, okay? So moving from raw image to more and more guidance is an overall trend in our domain. So that is done, thanks to those kind of approach. And that next generation system will combine more and more of those customized guidance per type of procedures or per type of disease. So this is the future of our core business.
This is the platform called Alcono that we have introduced to the market mid last year and for which we will go full speed in commercialization in February this year. So this will represent the future growth of our core business. You can see that there are different features associated to it. First of all, that new platform will be connected to the external world. So they will be the physician will be able to download application a little bit like you do on your iPhone to have specific features dedicated to specific procedures.
You have seen already example of the enhanced anatomy that you can see, thanks to that improved image quality. You will have also some precise workflow that are adapted to specific disease and adapted also to specific physicians. So the physician will be able to quickly go through the sequence of event that he wants to go through. And that system is also very versatile. In fact, it's 3 system in 1.
Here you can see the floor mounted system, the ceiling mounted system and the combination of the 2 is called a biplane when they are working together. And thanks to that kind of combination, you can generate images like this one. This is another specific application for brain for better understanding of the brain vascularization. You have this is called a 4 d DSA. And you can see and better understand the complexity of this malformation, which has to be treated in order to prevent any bleeding in the brain.
And that will be used to guide embolization or opening of some vessels in the brain that are critical for the survival of that patient. So our strategy will be organized around 3 main pillars. I mentioned the core, so the imaging system as you have seen on that previous slide, which will continue to be the growth driver for the core platform. So we delivered 60% of growth last year. With that new platform, we expect to do the same level of growth, as Jorgen mentioned in the introduction, north of 5%.
To that, we will apply more and more diversification or expansion in adjunctive season. And the second pillar is highlighting the expansion in some of those adjunctive season. So we'll have definite strategy by area of clinical focus. And the acquisition of the Corandus robot is the first example how we will leverage synergy between the imaging system and the robotic assistant. I will come to that in a second.
And the 3rd level of growth expansion will be to even further expand in fast growing procedures. And you will see that we are enhancing through our imaging system rapid penetration of procedures that are relatively new and that are here to continue to expand. So taking benefit proportionally of the procedural growth will help us to even further develop growth above the 5 plus percent that the core imaging system will allow us to achieve. So before to jump to that last step, I need to cover the intermediate one, which is the value of combining robotic assistance to the imaging system. If you take again the analogies that I used at the beginning between the image and the GPS, The robot is basically the car who is using the GPS.
So here you have now 2 systems that can enhance on one side the eyes, the vision of the physician and on the hands, it will enhance the hands of the physician. And what is exciting for our customers is when the 2 will start to collaborate to each other. You can see them as 2 independent technologies. But what is also very attractive for us is what we will do when we will start to integrate the GPS within the car. So how the imaging system will communicate with the robot and potentially drive the execution of the robot.
So you can explore, you can imagine that there might be some opportunity to further develop semi automated procedures or other technology like that. Before to get into too much detail there, let me remind you today what is the current workflow when you operate patients at the table side of our imaging system. So the staff is there, close to the patient bedside, manipulating the instrument based on the image he's seeing captured from the imaging system. And this is summarized here in 4 steps. First of all, you visualize the lesion.
So you can see here a narrowing, it's called a stenosis. And so you can see here a narrowing. It's called a stenosis. And the first step will be to reach that point with a guide wire, which is here, with guiding catheters and then with therapeutic devices here, the balloon landmarks. Then you inflate the balloon to expand the stenosis and then you deliver a stent, okay?
All those steps are done manually just based on the visualization of the raw data by the physician, okay? Now let's imagine that you put a robot in between or a machine in between the ends of the physician and the patient, you arrive through that scenario. Now the patient and the the physician and the staff can stay apart from the patient bedside. So one first benefit is that they get out of the exposure to the radiation. And now that you have a machine, a computer in between the physician and the patient, then you can start to exploit much more seamless the information coming from the imaging system.
And you can easily imagine applications which are empowered by artificial intelligence, which is correcting, for example, the motion of the patient and help the robot to reach the right place. The imaging system can also, in the future, teach the robot what is the most effective procedures to cross that lesion or to reach that vessel taking that extreme acute U-turn, for example. So the robotic platform can be a way to enhance the agility of the physician. And what is also exciting is that as soon as you are moving the physician away by a few meters out of the patient bedside, you can also imaging to have the physician even further remotely based. And instead of bringing the patient to the physician, you can have the robot doing the procedures when the where the patient is under the control of the experts.
So that remote concept can be a breakthrough of how to treat some very severe disease that are extremely dependent on the time of the delivery of the therapy. Of course, everybody is thinking about stroke for that. You can dramatically reduce the time to treatment if you apply this kind of concept. This is true also for other kinds of acute disease like acute myocardial infarctus. It can be also an help when we are talking about giving access to people who are remotely based, that would take days to reach out in expert centers.
So that vision could be seen as very futuristic, but it's not that much. I mean, from a technology standpoint, all the ingredients are there to make it feasible. And by the way, the first series of patients operated on a remote base have been published a year ago in The Lancet. That was a major achievement to publish that in The Lancet. As you know, it's a very respected publication.
And those first series of patients were successfully treated for coronary intervention, 30 miles away from where the expert was, okay? And more recently, this is the case that Christophe mentioned during the introduction, which is the 1st neuro intervention done in Toronto, which was the treatment of that aneurysm by Koi, okay? It looks like it has been painted or brushed using a software application, but this is a real image. So that and the reason is full of 13 coils that have been all deployed by the enhancements of the robotic arm with a precision which is millimeter based, okay? So to summarize a little bit the value driver of that robotic system combined to the image system, you can highlight 4 main drivers of values.
Today, before developing any clinical evidence or any large investments in technology development, you can claim already that, first of all, you deliver a much safer environment for the physician to run his daily operation. When you know because you are moving him away from the exposure to radiation. When you know that physician are at 6 times higher risk of developing cataract when they are working in a cath lab or 3 times higher risk of cancer, I can tell you that this value proposition is resonating to a physician, especially the youngest generation 1. The second key value driver is the precision that you allow for doing stuff that are minimally dependent. So having the physician comfortably seated in front of a cockpit when he have his concentration fully on the screen of his procedures and being able to maneuver 1 millimeter by 1 millimeter independently all the consumable that he has within the body of the patient it's also perceived as a very key value driver.
It's not specific to that robotic assessment. It's true with any physician that are used to work on the robot. They feel that they can do a better, more precise job when they are in an ergonomic way, sitting in front of an assistant, which help them to deliver more precision to their procedures. So this is today's value proposition. Tomorrow's value proposition is to start to integrate the 2 systems together and to have the imaging system teaching the robot what is the best approach to cross that vision or to make that turn.
That's what I mentioned before. This is where all know how in term of artificial intelligence, smooth workflow profile will help the robot to reach that level. And finally, another exciting approach is to imaging how we can revolutionize stroke treatment or acute treatment when the treatment can be done without the experts in the same room where the patient will reside. So all those four value proposition will be 2 will be available right now. 2 will necessitate some clinical evidence generation, clinical validation and some level of technical development, but all will be in scope in the integration plan of the robot through the imaging system.
Lastly, I would like to the 3rd pillar, you remember, was to expand in fast growing procedures. If you combine what I described on the imaging system with the robot assistance, you can deliver significantly significant higher value in, for example, those 4 procedures that are listed here. All of them as a growth rate from a procedural standpoint, which is which are much higher than the market growth of our imaging system. So any revenue that we can capture, which is proportional to those procedural growth, will be highly accretive to the overall growth trajectory that we have before CapEx equipment in the cath lab. So in other words, for example, the robot has a single use cassette, which is plugged on the robot, which will receive the consumable that are necessary for the procedures.
Each cassette is a recurrent revenue, a disposable component. Each cassette which is used for stroke, for example, or for complex percutaneous coronary intervention will drive incremental revenue that are proportional to that market growth rate. So complex the cardiac application are on the right side. You have two example of procedures that are growing pretty fast at the moment: complex coronary arrhythmia, so ablation for arrhythmia treatment, both growing high single digits or low double digits. And on the left hand side, you have the phenomenon growth in the mechanical tranectomy for stroke, which is growing 20% at the moment.
I remind you that today, only 150,000 thrombectomy are done in the regions who have the capacity to do it versus numbers of patients, which is roughly estimated at 3,000,000. So you have a coverage of the population or an access to the population, which is less than 5%. So that 20% of growth is here to stay for a very long time. And the last one is the growth, the growth of the minimally invasive procedures for cancer treatments. And here, we are focusing only on very complex procedure in the lung and the liver, potentially in pancreas and prostate, which has also higher benefits of to expect from the combination of the robot to the imaging system.
So the 3 pillars, growing the core, leveraging the Icono platform, leveraging what Elzenia can also provide by combining modalities together, Minimally invasive procedures need to have a high resolution in soft tissues. And there is a lot also to gain by combining, for example, MR, X ray, CTs together. This is something that we can enhance also. The second move of the pillar for growth is the expansion in the robotic assistance, combining the 2 together to improve precision and to potentially consider remote treatments. And the last one is to take benefit of the fast procedural growth in key segments that are of growing importance.
With those three pillars, we commit to deliver to engineers accretive growth, so 5 plus percent on the short term, popping up to the high single digit at the end of the period. That will correspond to some market share gain as well. We I have not discussed about one important aspect of our business, which is the service side. So the recurrent aspect of the service contract that we have with every system that we are selling And the expansion in highly growing procedures through consumables or specific application that can be charged on a case by case use or on a monthly based fees will also contribute to that TWD growth in recurrent service components. With that, I would like to pause and be ready with Christian to answer any question that you may have.
Seb Walker here from UBS. So thanks for taking my questions. I've got a few on the recurring revenue side of the business. So what proportion for advanced therapies does recurring revenues represent today?
And
then assuming that you start selling more of the cassettes on the Carintha side, what proportion of revenues can represent, say, in 5 years' time from now? And then following up on that just separately, the one area on the consumable side that you're not in right now is on the catheters like Philips is. So I was wondering is there as you're thinking around that, I think at the time of the IPO you said it's not an area you were interested in. Is that now something that you're looking at in more detail?
Yes. Thank you. So three questions, in fact. So the today, the service revenue is roughly around 42%, 43%. 43%.
So that's the first part. The second part, the consumables, the cassette will pick up really at the end of the period because we need to drive the installed base first. And then the recurrent option the recurrent revenue will pop up later. So difficult to give you today right away the percentage of contribution it will have on our recurring revenue, but it will be significant. A significant portion of the business case rely to that consumable business, which is popping up.
Today, something that I have mentioned, but maybe not enough is that the robot is agnostic of the catheters, of the guys' wires. So it's compatible with almost all commercially available catheters on the market. On the short term, we will continue that model and penetrate progressively those procedures through the consumables that are represented by the cassette themselves. On the longer term, penetrating the device, because the question which is behind is will we enter the device, we are exploring all options. But today it's not a short term priority.
The and anyhow if we do would do that, that will be in a way that we did with the robot with the imaging system. So that means that they will be to have very strong potential synergy and technological complementarity between the device side and the imaging plus the robot side. So I can give an example outside of the space of the angiography procedures, but if we would develop for example MR guide or therapy that are in need of a specific component that is necessary to be able to do procedures under an MRI that might be something that we could consider. It's just, for example, to highlight the strong familiarity that should exist between any technology that we would bring to the to our core.
Hi, Veronika Dibaba from Goldman Sachs. You mentioned cancer and oncology is one of the areas that you're interested in. Just curious, is this an organic development or something that you'll have to bring in over time? And how you're thinking about that. There's quite a lot of stuff happening in the interventional oncology space.
So be understand good to understand your ambitions. And then if I can just follow-up on your comment, why are you opposed to owning devices? What is it that you think about that doesn't generate value for you? Because the truth is the growth is primarily procedure driven. And I understand your ambitions grow, but it's quite hard to see how you move into some of these other areas without actual you sort of start to benefit from them without owning the consumable aside from the Corindus cassette?
So the I may start with the last part and go back to the cancer. We are not saying that we are opposed to consider device. We are just saying that by principle, if the device is not strongly connected in term of technological synergy with the imaging or with the imaging and the robotic system that may not make that much sense. And I will quote my boss, Bernd, who is always referring to an image which is the car industry. Industry.
The car industry, even if you have 4 tires on every car, that doesn't mean that Volkswagen is owning a tire manufacturer or the gasoline provider. So it's a little bit the same. There needs to be strong synergy between the technology that we integrate. And that was the case, for example, for the robot. The way they will communicate in the future is creating something which is further developing the proprietary synergies.
Cancer is a very important domain. You know that it's a growing trend. It's becoming more and more chronic disease. People are surviving more and more, but there are still some difficult subcategory of population in that space. And with the new technology, you have more and the early screening of those patients, you can tackle them at an early stage, which is highly beneficial to curative minimally invasive treatment like the one that I have described.
So the specific application that we are developing to guide the procedures is something that can contribute also to recurrent elements of revenue. Those application could be used as a pay per use model, for example, or as on the monthly fee base something. And for dedicated centers who are doing a lot of those procedures, that may make a lot of sense for them. So that will be one example. Might be also expansion beyond that, but today that's what we will do organically.
But this would be a specific application for the Icono as opposed to buying a dedicated oncology system
or developing an That's right. That's right. So you can see that those imaging system in the past were mainly generic to any disciplines. And that was more or less the same system that were used across the different clinical disciplines. More and more, the base will remain the same, but the feature on the top will be more and more specific to a clinical domain.
So interventional oncology and within interventional oncology, you may have specific application for driving mobilization, for example. Or the imaging system will be also enhanced by other modalities. We have already combined system between imaging, X-ray based imaging and CT or MRI. And the application can be developed to be run across the 3 system as a unique platform to move independently from CTE to MRI to fixed rate guided procedures.
So first, David, Daniel and then Lisa.
Thanks. David Allen from JPMorgan. Just wondered when you go in and pitch this offering to the hospitals, what how do you pitch against Azurion from Philips and the rest of the competition? That's the first question.
So the value proposition that I mentioned are resonating very highly that the fact that it is now an open system that can download in the future different kind of digital application that the work the customized workflow can be also something that is unique to that kind of system. So you can start to design shortcuts to which different kind of successive steps in the procedures, which is also resonating. The kind of image that I showed you on the especially on the head size or the quality of the image that is really impressive for customers. All that constitute the value proposition. I can go a little bit more in features by clinical segment, but it might be a little bit too long.
But there are more and more of those that are resonating
Daniel Vande of Commerzbank. First question would be on the remote access features and the future of remotely conducting procedures. I assume that requires a well functioning broadband network in the countries you try to market this. So is there a specific goal you have in terms of what geographies you will try to approach first? And how does it look now?
And how will this look in 5 years?
Yes. Of course, as soon as the robot is not anymore directly cabled through the cockpit, you need to rely on hospital type of connectivity. So we have tested and we have published recently the first transcontinental remote simulation between the East Coast of the U. S. And the West Coast of the U.
S. And that was worked on 3 type of connection, public Internet, 5 gs and optical fibers. And both and the 3 of them were highly efficient in driving both the flow of information coming from the imaging system as well as the flow of information coming from the robot. So the for example, in the U. S, most of the hospitals are connected through optical fibers.
So you can right away rely on those. For other geography that may require specific setup, but for example, in India, the test that has been done, it's more than a test. It's a clinical trial that has been done, was extremely successful, yes, like optical fibers over there. Different options are open depending the model of remote. The short term model is probably the hub and spoke model.
So having a master center, delivering treatments through limited numbers of centers, which are distributed around that hub. That will probably rely more on optical fibers, which is the safest way to validate the circulation of information.
Thanks for that. My second question would be still on the ARTIS icono. How big could this product be for you? And as you said, it's somehow also an open system. How many parts do you already produce now on your own?
So is that something already coming from
the 3rd parties?
Yes, so
ICONO is the name of the new platform that we are releasing. So for us, it's a very important launch, of all. This is the kind of launch that happened only once a decade. So this is the real next generation platform that is just starting to be released. So in 2020, we are releasing 2 BEM system, which is the biplane that you have seen on the pictures and also what we call the simpler one, which is just the floor mounted system.
So a single C Harm, which is operated from the floor of the cath lab. So those two systems will be released in 2020. And the rest of the family, because they will be yes, it's a family with many with several members, I would say, will be released down the road over the next couple of years with different kind of setting depending the sophistication of the system. And so that's and we are all doing that organically. So this is all done internally.
Lisa Clive from Bernstein. I have three questions. I'll just go one at a time. You mentioned recurring revenues is about 43% of sales. Would you be able to split that into a sort of standard service contract for machine maintenance versus add on software as a service, I guess, revenue streams that you can tack on to a traditional device?
So the vast majority is coming from the first category that you mentioned. Down the road, we aim to develop more and more the second category, which is which will be accretive to the first one. So that could include training, education, guidance, potential application assistance between the robot and the imaging system. So that would be the way we will develop that business.
Okay. And how much would that rely on the robot part of this?
Today, the vast majorities will be on the imaging system. This is the system that is ready to host those kind of application, I would say. For the rest, it will be necessary to develop a little bit the robot beyond what he's doing today. So a little bit more down the road.
Okay. And then second question, you mentioned the sort of base system that it's an open system. What do you mean by that? And I guess where I'm going with this is, what are the risks that you end up producing the machinery, but then there's the opportunity for 3rd parties to develop software applications that then can be overlaid onto your systems for a specific oncology focus or something like that?
So we will it's an open, but we control the openness, I would say. But for example, today we have a partnership with simulation company, Mentis, and they can run their simulator directly on our imaging system. So that means that we can train physician as they would do their procedures on real patients, but it's on the simulation. And this is feasible, thanks to the fact that the imaging system is open to receive the module coming from the simulators. We were running demo at the RSNL last week with exactly that system on the booth and the physician could simulate procedures as they would be live almost.
Okay. And then third question, where are your R and D centers located today? And particularly as you get into robotics, you're going to be competing for software engineers, etcetera, against large tech companies? And what's your competitive advantage in hiring?
So the for the imaging system, our center of gravity is in Germany, where we have our main resources. We have other we have 2 other centers in China, where we develop also locally systems over there. And now with the acquisition of Corandus, we have the R and D center, which exists in Corandus, so in Boston, in the neighborhood of Boston. And we will continue and another important element is that we have a pretty large software tech center in India, in Bangalore. And so all those R and D center will contribute with their respective know how and capacity to the effort that we are envisioning in the presentation.
So in terms of integration of Corandis, we'll keep them over there in order to keep the talent and to continue to capitalize on their entrepreneurial spirit that they have shown in the last years. And we bring the support where needed. So from Bangalore for software, from Germany for more the mechatronic aspects and the image treatments, etcetera.
Thanks.
Scott Waldy from Berenberg. 3 for me, please, on Corindus. Can you talk a little bit more about this neurovascular applications for Corindus? I think you submitted for FDA approval in February. Still not approved yet for the U.
S, I understand. So what's the hold up there? Just like to also follow on a little bit as to the discussion about this remote capability. I'm just trying to understand, I can certainly see how that would increase access of health care. But I'm trying to understand if there's a degree of this being a gimmick because a lot of these procedures can go wrong and you need a cardiovascular surgeon or a neurovascular surgeon present in case a minimally invasive procedure goes wrong.
So in a sense, is there really a huge advantage
in
at least the invention of cardiologists being away when you need those core staff on-site in case of an error?
Yes. So first question, neurovascular indication in the U. S. Is not available yet. That's correct.
So the neurovascular indication is available outside of the U. S, in Europe, in Australia and several countries. But the FDA has required some human clinical data. So we will gather the human clinical data and get back to the FDA with those data later on in probably at the end of 2020. So that's the ADS side.
The gimmick versus breakthrough, if you take that in the context of stroke, the time that you can save, if you apply that urban spoke model to patients is the difference is pretty significant. It can drop the time to treatment by several hours, okay? And several hours in the treatment of a stroke is the difference between being in a home nurse institute, getting washed and being independent for the rest of your life. So that's a case which is pretty resonating, especially if you take that into account with the shortage in staff who are in the comprehensive stroke center that can deliver those kind of treatments. That's something that physicians get and hospital gets immediately.
The potential benefit in terms of taking care of very acute disease. The other benefit will be for rural condition for people who are getting who have difficult access to academic centers that could be also a high value. And finally, I would highlight a little bit in the spirit of that second example, the situation in China. So in China today, you have a very strong push by the government to keep the patients where they are, so in the 2nd tier cities in the province and to encourage the academic center in the large cities to help to develop those capabilities locally. So a remote concept could help them to bridge that because today they are struggling to do that at a large scale.
So those are examples of opportunities that are not a toy for geeks, but really changing the life expectation for many patients.
Thank you. And last question for me. I think Grundis did a relatively good job placing some of these robots despite being a relatively small company. But some of the discussions that we've had would be that the hospital has purchased one of these instruments but doesn't use it much. So the question I would ask you is, what initiatives are at play to really increase utilization of these instruments?
So this is a very important aspect. You have the sales process of the capital equipment and then you have the assistance to really get the staff trained to use the robot and to make sure that the specificity of the robot is integrated to the workflow of the procedures. And that require some assistance on-site. And that's why that due to their size, Corandus had limited means to do that. And that will be part of the investment case for us is to develop that capability internally in order to support that usage.
That's exactly the same for other type of robotic assisted procedure. And that was exactly the same for Intuitive 15 years ago That required some level of involvement to make sure that the training of the staff is adequate for the clinical adoption of the robotics procedures. One last question, maybe more and a half.
It's Faggo Friedrichs from Deutsche Bank. Just a quick one. On the artist icon, what is the expected launch time line by geography?
So we have FDA approval, CVMark, Japanese approval, Australia, New Zealand. So all that is going in parallel starting almost now. So the full release is really starting mid of Q2, but we are starting to ship the 1st system as we speak. China will come a little bit later to complete my answer.
It's Max from Credit Suisse. Could I just ask, we've talked about the 300 basis points dilution from Corinda. So how should we think about the recovery back to 2019 levels? Will you have to invest in the business in 2020, 2021? So could it be a sort of back end loaded recovery?
Or do you see that the level of investment in the business is adequate?
Maybe that's a question that you can tackle, Christian.
I mean, first of all, the 300 basis points is indication for 2020, obviously, will not go up to 0 in the following year. So what we currently see and plan is a recovery and accretiveness to our original margin levels in the midterm perspective and see there also not a stepwise function but a linear. We see a lot of investment also in the combination that Michel indicated earlier of the 2 systems. So there's a lot of scaling up invest now in the front end. And the 2nd phase obviously is then scaling up the R and D and the combination of the 2 systems.
It's a little bit the phased approach there, but on the midterm we should then also with the launch of the combined system and feedback there.
Okay. I think that wraps up our first session. You have 15 minutes of time to do whatever you like. And then I ask you to be back at 1 p. M.
For the next session, which will be diagnostics in this room. Thank you. Thanks to the team. Okay. So maybe 1 or 2 people missing, but we have a tight schedule.
So should continue and you should have your time for questions sufficiently as well. So I hand the floor over to Deepak to give you the presentation on the Diagnostics segment.
Thank you, Marc. Good afternoon. It's great to be here. It's good to see you all. So by way of introduction, Deepak Nath, I'm President of our Laboratory Diagnostics Business.
I joined Siemens early last year. I came to the company from Abbott. I was President of Abbott's Vascular Division and one of the executive officers of the company. Prior to this, I was President of Abbott's Molecular Diagnostics business. So I came to Siemens because I believe in the opportunity we have to turn around diagnostics and position it among the top tier performance and close to 2 years in the role, I still believe in that opportunity.
So I wanted to talk today about the path we've laid out to get to that market levels of growth. So before I go into it, Maarten, let you introduce yourself. Yes.
Very briefly, Martin Fischer, Head of Finance for Diagnostics with the company 17 plus years, held various positions in the finance capacity in commercial operations, I. E, sales and service operations, in corporate functions as well as in the imaging business. I'm in the lab diagnostics business now for no, since April 2019 and together with Deepak, more than happy to give you more detail and insight into our business.
Great. So diagnostics is very much a business in transition. We've got a solid path here to get to market growth capitalizing on our leadership and workflow. So that's what I'm going to talk about. To start us off, we've got a good position in diagnostics.
We are the number 2 player in the core laboratory. We are the number 2 player today in the point of care segment. And in automation, that's total lab automation in terms of number of tracks installed, we are the number one player. In terms of the market in which part of diagnostics in which we participate, we are in a $28,000,000,000 market terms of the markets we serve, which is today growing at mid single digits. We've got good scale.
We have an installed base of 300,000 instruments, 70,000 of that is laboratory diagnostics or core laboratory. And we've got global reach that's similar to what you see in other parts of our business. We see global healthcare trends shaping diagnostics. 1st and foremost, we see an increase in demand for testing on the back of demographic factors, on the back of new testing, new modalities coming into play. We see as was remarked this morning in the general session, a consolidation in the laboratory space and industrialization of laboratory testing.
And then we see a drive towards clinical integration in terms of integration of testing and results in different settings, whether it's point of care or in the larger laboratories. So we do speaking of which we see a bifurcation in the market in terms of where all of this testing is actually taking place versus the near patient testing, the point of care, whether it's in physician offices or smaller urgent care centers and the like. Then you've got the larger laboratories, reference labs and testing moving into the larger hospitals. The needs or the pain points of customers are different. On the point of care side, it's managing the complexity of different instruments for built for different purposes to manage that fleet through an ecosystem or a software that ties together testing across those modalities and connectivity, connectivity not only within the point of care setting, but also connectivity in terms of testing in the core lab versus in a point of care setting, for example, Troponin.
And in the large laboratories and the reference laboratories or imperative for greater productivity, space efficiency or efficiency in general as a theme and staff shortages. And it takes different forms around the world, but it is a common theme that we see in the larger laboratories. And well positioned to serve those or adjust those pain points. So when we look at our portfolio, when we talk about us being the number 2 player in the core lab, when you look in the core lab, we've got the broadest offering. When you look at the immunoassay segment, clinical chemistry, hematology, coagulation, plasma protein, centralized urine analysis, no one's got the breadth in the portfolio that we do.
In the point of care space, we've got leading positions in selected areas, whether it's in blood gas or urinalysis or in the software and the cardiac spaces. So when you look at our tally of where we enjoy the number one position, it's automation, as I said earlier, it's in COAG through our partnership with Sysmex, with plasma protein and in urinalysis, whether individually in the centralized urinalysis or the point of care decentralized urinalysis segment and in the A1C segment for diabetes. In terms of our path to market growth over the next 3 to 5 years, we see ourselves doing this in 3 phases or 3 pillars of this pathway. The first really is what we've labeled the grow phase is delivering on the promise of Atellica. On the back of managing the product scale up, improving cycle times, whether it's installation times, the time from implementation from shipment to when our analyzers are in routine use or the time to fix or troubleshoot instruments, improving those cycle times.
And third is commercial execution, and I'll talk more about that later. The second phase is what we've termed expand. It's continued R and D investments to extend and expand the range of Atellica to go into segments to better compete than we're able to today. The second is to focus on our menu richness, whether it's breadth of menu in terms of across disease states or depth in terms of number of tests or differentiated tests in a particular disease area or in a panel. And third, on the point of care segment is continue to invest in targeted areas to achieve market leadership or expand our market position in selected areas.
The 3rd phase we're labeling Elevate is capitalizing on our heritage and identity as an engineering company, a company focused on productivity to bring the laboratory into the digital age and the digital era. And I'll talk about what we've done so far and why I believe that gives us a unique position to lead the way in digitizing the laboratory. So that's the 3 phases that I believe allows us to kind of get to market levels of growth and otherwise achieve our aspirations. First off, on the growth phase, Atellica is our cornerstone for achieving market leadership in this space. We've designed Atelica with the evolving needs of our customer in mind.
First off, we've got the fastest immunoassay engine on the market. The second, we've built Atelica with a high level of flexibility and customizability to suit the needs of the laboratories around the world and also across different segments, whether it's really the largest or large segments or the midsized kind of laboratories. The third is automating more and more aspects of the workflow. Atellica itself as an analyzer is built in really industry levels of leading levels of automation, but we are actually expanding beyond just the analyzer itself, but automating more and more parts of the workflow, this pre analytical or post analytical. And third, Atellica is built with the intelligence to be able to consolidate more of the workflow in the laboratory, for example, to consolidate stack testing, emergency testing with routine workflow.
We've got good traction in the market. When we've gone head to head with each of our competitors, we've done quite well. Our win rate stands continues to be above 35% over the 2 years of that we're in launch mode here. And in the mega lab segment, what we call the mega lab segment, where we've described the threshold as 10,000,000 tests per year or 30,000 tubes per day. We have a win rate that's above 85%, and that's across the world and whether it's in the U.
S. Or Latin America or EMEA or Asia Pac. And we've seen very our customers experience tangible impact of implementing the Teleka within their laboratories, whether it's in reducing the operator touch points, I. E. Hands on time or the amount of capital we need to meet the testing needs of a laboratory largely driven by the best in class immunoassay engine of Atellica or in terms of the number of operators we need to deliver on the throughput of a particular lab.
So we're quite pleased with the traction we've gotten in the market. In terms of AI capability or big data kind of capability that we've built at Telekent Mind, here we've derived benefit from our leadership position in the imaging space. We're quite far along in our AI capability imaging. We've taken that know how and that knowledge and adapted it towards the laboratory space. So there's a few areas that I'll describe.
1 is around predictive monitoring or maintenance of Atellica. We've built Atellica with 80 plus sensors that monitor the state of the instrument and its performance over the course of time. And we've got the ability to remotely monitor it and look for things such as failures, early failures, routine kind of wear and tear items and basically to reduce downtime that laboratories expect to see. So second is related to that is empowering our service organization to troubleshoot faster. We've got a lot of AI capability built in than iPad enabled kind of ways in which a service engineer can go in and more quickly troubleshoot what's wrong with the instrument.
So we've built a Teleka with that kind of intelligence in mind. The other 2 are in extending kind of the capabilities of a Teleka in the hands of a customer. The door vision system, for example, AI enabled that recognizes all different tube types that allow an operator to just load a sample, load a teleco with tubes and the machine does the hard part of understanding the different tubes. For example, a hospital can take pediatric tubes together with adult sized tubes and have the machine treat those and work with those differently. It's AI enablement allows us to do that.
What that translates into is more streamlined workflow for the The machine recognizes, for example, things such as fluid levels, the quality of the tube and make adjustments to the workflow or the analysis to account for these types of things. So these are examples of features that we've built at Teleka with AI capabilities, really sexy technology for fairly mundane kind of tasks with real tangible workflow productivity benefits for the laboratory. As this group knows, we've had our teething issues with the Telica. We've navigated those over the last 2 years. I can honestly say that the worst is behind us at this point.
We've been on quite the journey over the last 2 years to address various challenges that we've seen. We've got a fairly robust action plan that we've implemented over the last 2 years, and we are continuing to adapt those plans when necessary, but to basically rise to the challenge of delivering this game changing innovation. It comes in 3 buckets. I'll highlight those. First is continuous improvement to address some of the stability and reliability challenges that we've seen in the hands of our customers, some of the most complex laboratories that we went out the gate with.
Many ways to measure that, many ways to put your hands around it. One readily identifiable metric or measure is the service time required to operate this instrument. And over the last year, we've seen a 45% reduction in the effort. And what drove that is about the middle part of the year, we went out with a series of hardware and software upgrades that we installed fleet wide that has resulted in a very significant reduction in terms of the service effort required to keep those instruments operational, one tangible example. 2nd, as I talked about cycle times, I'll call out a cycle time to install, to mechanically install the analyzers and also the overall implementation time for when we ship to when an instrument goes live.
And here, we've seen nearly a 50% reduction over the last 12 months in the time it takes for us. We started the year at roughly 8 months, a little over 8 months in terms of the time from shipment to go live. We ended the year at around 5 and we see a glide path for us to further reduce that to our targeted levels of cycle time. 3rd, in terms of sharpening our commercial execution, we're doing quite well in most regions around the world. Our problem area is North America.
And there, which is about 35% to 40% of our business as has been highlighted by our Board in various earning calls and other forums. This has been a focus area for us and we've made some great strides over the last year. We recruited a new leader for North America reporting them to directly, and we've made some pretty significant changes deeper in the organization, not only in terms of people and the caliber of people that we've got, but also in terms of the sophistication with which we approach our commercial efforts within the market. So again, we call out competitive win rate as an example. I've previously said 35%.
We've got really good levels of competitive win rates around the world. It's about bringing North America to comparable levels of performance that we are seeing elsewhere within our business. In terms of our roadmap for the future, we're thinking about it in 2 big buckets. 1 is further improvements on the workflow dimension, on productivity. I'll talk about that.
And then the second dimension is on clinical excellence, where on the back of us standardizing onto Atellica over the course of time, that gives us the degree of freedom to be able to innovate in the clinical space and bring about differentiated assays and tests and markers and the like. So on the workflow side, I talked about automating different parts of workflow beyond just the analyzer itself pre and post analytics. That's a suite of products called the integrated sample management suite. Over the next three quarters, we bring different modules to market. They're basically add ons to the existing Atellica platform.
The second is standardizing results, particularly for the mid volume segment, where we see a need to extend the range of current ATALICA to more profitably serve that segment. And that's an integrated chemistry and immunoassay analyzer platform that we are planning to bring to market in the midterm. And the third is on the clinical chemistry segment is to really penetrate that high volume chemistry segment, which is important in certain markets like China, parts of the U. S. And parts of Europe.
And that's also an important development program that we've got and that we're funding. On the clinical side, the first step as you're consolidating on to Atellica is take tests that are today on one of our 3 legacy platforms and make sure that those tests are available on Atellica. On that, 95% of the work is behind us. So Atellica, we launched with a pretty broad menu that we've only added to over the last year and some change. So, we feel very good about where we are positioned relative to that.
Now it's about using that as a starting point and making our menu richer, deeper and broader in selected disease areas and then taking advantage of the tremendous capabilities of Atellica, which we haven't talked a lot about, but we've built Atellica with features that enable assay designers to extract the last little quantum of performance from our existing kind of chemistries to deliver the leading levels of performance assay performance. And we're taking advantage of that capability of Atelica, whether it's in temperature control, environmental control, other types of features of Atelica to really bring forward differentiated assays. Hisense Tropon is one example of that. Because of some of the unique features of Matelica, we're able to deliver industry leading assays like Hisense troponin. We're going to other areas like ELF, liver fibrosis bringing forward unique tests there.
And here, it's about us making targeted investments, cardiac, metabolic, parts of infectious disease. Those are the areas that we're targeting here. So on the point of care side, it's 3 buckets. 1 is on the blood gas space. We are the number 4 player there with RP 500e, which we plan to bring forward in the coming quarters is we've got a next gen instrument on the back of enhancements in user interface and software and cost position, we hope to be able to go from number 4 to number 2 position in the blood gas the bench top blood gas segment of Point of Care.
The second, with our acquisition of Conworks some years ago, we've got a great position in the software part of point of care, which is on an open platform basis. We're able to connect different analyzers to be able to streamline workflow in a point of care setting. So we're bringing forward the next generation of software. We call it PoXcelerator, that's the name of the product that came out of Conworks, bringing that forward in the coming quarters. And 3rd, with the acquisition of MiniCare, we've got a beachhead now to expand into immunoassay, point of care.
And here, cardiac is the Holy Grail, particularly Hisense troponin, to be able to bring core lab levels of sensitivity and performance into the point of care setting. So that's our beachhead and that's our first assay that we're working on the MiniCare platform, the handheld version that we're working on that came as a result of the MiniCare acquisition. So that's point of care in a real high level. And if we now take a step back and look at our overall diagnostics position, our uniqueness is on the workflow side, where we're the clear productivity leader, whether as measured by automation or the kind of capital intensity that we bring into the lab. Or on the digitization side, I gave you some examples of how we're leading the way in applying AI capabilities into the laboratory setting.
And then I talked about the breadth and scale of our solutions, particularly in the core lab. I believe that positions us well as we look to the lab of the future, where already the laboratory space is if there's one area of medicine that's kind of industrializing, if you will, it's the laboratory and we see even more of that as labs the testing is getting consolidated and we see ourselves being well positioned against that dynamic. Secondly, the lab isn't where the imaging world is in terms of adoption of digital technologies, and we believe that we've got a position to kind of lead the way there. And then in terms of the 3rd element here is concordance of testing, I. E, to be able to bring the confidence to institutions that whether the testing is performed in a point of care setting and a core lab setting that those results are reliable and comparable.
We see ourselves being well positioned to be able to deliver against that need. So taking a step back now across the three elements, the Grow has what we've labeled to Grow, expand and elevate components of our path. We believe we've got the plans and actions in place in order to deliver mid single digits levels of performance over the next couple of years and improve our margin profile by, as Joakim said, by 2024. So I'll pause there and I'll turn it over to you for questions.
Okay. Seb was quickest.
Hi. Seb Walker from UBS.
Thanks for
taking my questions. I've got 2 if I could. So maybe if we could just do a bit of a diagnostic looking at the growth rate over the course of the last year and a half. It's been a little bit disappointing in the context of the Atellica launch. So could you maybe give us your view on what went wrong there?
Was it a technology issue? Was it a commercial issue? Or was there an issue in the base or the non Atellica business? And then the second thing is, from the time of the IPO, one of the things that we tracked was looking at shipments and go lives. I think the management team have kind of moved to push us away from that metric as a lead indicator of growth.
What do you think is a good lead indicator of growth that we should be paying attention to ahead of the revenue growth and the margin expansion that should come through?
Sure. Let me take a stab and I'll invite Martin to come in. So the first part of the question, if we look at our performance in terms of growth across geographies, in EMEA, there were pluses and minuses, but as an area, we're generally in line with the market. Last year, and I would take that back even a couple of quarters before that. Asia Pac, non China.
China, we were at relatively market levels, more give or take. Rest of Asia Pac, we're actually ahead of the market. Latin America, were largely ahead of the market. So if you take all of those pieces, the part that remains now is North America. And as I said earlier, and I think as you've heard, our Board talk earlier in various other forms, North America has been the most challenged market.
Now we've got to double click on that some. We are the market leader in North America. So we are different and say in other parts of the world where we are the number 2 or the number 3 player. So therefore, a point of growth when you're coming from that position versus a point of growth in the North American market where we're already the market leader has different kind of flavor to it. So coming back to answer your question, the most disappointing aspect of it is in North America.
And here, it was not necessarily just a Metallica issue, it's just a broader commercial execution issue in North America. So that is the growth question. In terms of Atellica,
yes, you've seen us kind
of step away from shipments in large part because we had become overly reliant on that driving the kind of behaviors commercially that really we didn't want to see. As I've said in this presentation, Atellica is the cornerstone of our growth, but it's not the only piece. We've got a broad portfolio and one of our misses collectively as an organization is we've taken our eye off the ball for other parts of the portfolio where we have a great position, whether it's COAG or plasma protein or other areas, we have room to do better than we have in those segments. So the reason why we've gone away from it is to make sure that we as a team focus on the breadth of our portfolio. Telepica is an important part, we don't want to shy away from that, but we want to make sure that the rest of our portfolio gets the attention and the focus from our team perspective that it deserves.
So what I would say in terms of leading indicators is Telica around the world, which we'll continue to talk about. Those are some of the things that we look at. So we talk about one more thing. You talked about go lives and kind of rated which we're turning analyzers live. We today have we've made tremendous progress over the last year.
I mean, if I give you a percentage, we started the year with roughly 20% of our analyzers that we had shipped that were actually in routine use. We ended the year with about 50% actually between 50% 60%. And we've got a glide path as we improve cycle times beyond or better than the 5 months that it's roughly taking us to do even better than that. So that's another kind of measure that you look at in terms of our ability to gain traction with the market not with the Teleco.
Martin, do you
want to add something to it?
Yes.
Perhaps only one additional perspective. At the end, win rates that we are able to capture customers translate into how we are able to grow our installed base. And that includes customers where we are currently and customers which we are able to capture new, assuming that we are also able, which is the second thing we look at, to have a complete menu running over our analyzers that is a leading indicator in addition to the wins.
Just to follow-up on that. So I guess the win rate or the information that's been provided since the time of the IPO with Atellica, the win rates have looked very positive in terms of new customers and also win rates amongst existing customers or maintain some of those contracts. So I mean should we expect those rates to improve further from here and therefore we see an acceleration of growth or I guess if they've been positive in the past and have led to not so good growth, why should we expect that to change?
So the growth one of the things that we've been hampered by is we've had those wins. But in terms of getting our reagents flowing through the instruments that we've shipped, that's where we've lagged. And what you've seen is when you're looking at a cycle time of 8 months and why did it why was it 8 months? Because we had great traction in the largest of large labs. Great news, right?
But the flip side of that is the challenges that we encountered in getting analyzers live and operational in those largest labs led to a lag in the reagents coming through. So what you should see now is, like I said, we went through this pretty big bolus of effort in the middle of last year, where we took and deployed a relatively large number of hardware and software upgrades across the entire fleet around the world that has led to some of the results that I showed you. What that will translate into is greater revenue, greater reagent flow through from those analyzers. That's the other thing that you would look for.
Maybe first, Veronika, then Lisa and then Michael.
Great. Thank you. Veronika Dubajova from Goldman Sachs. Two questions for me as well, please. One, can you discuss some of the changes you've made to the commercial execution piece of the puzzle, either in terms of the feet of On the Street, how you're remunerating them, etcetera?
And when do you expect those start generating some positive returns? Because I think you're fairly early on in that process. And then my second question is just thinking a little bit more broadly about the portfolio and maybe following up on some of the comments that Bernd made earlier, your desire to expand the business in some of the other parts of the market. Obviously, if you look at someone like Russia Rabbit, they compete in multiple modalities you're only into. Is that a strategic disadvantage?
Is that something that you're intending to resolve over time? And if so, how? That would be helpful. Thank you.
Absolutely, Veronica. So, the first part of the question, there's many facets to the story, but I'll focus on the North America piece of it. Let me start at the top. So, we've got a new leader leading the North American organization. She's been in place now for about 4 months and I couldn't be happier with her performance over this period of time.
So very seasoned leader, domain experience within deep and rich domain experience within our space, but also tenure and seniority within the space. So it starts there. 2nd, underneath that, if you look if I look at her leadership team and two levels below, we've had been making we have made very thoughtful changes where those changes were warranted there. I don't want to put a number out there, but just to give you a feel for how comprehensively we've looked at it. So those changes have already occurred.
In terms of feet on the street, there have been some selected investments we've had to make because we were not as well positioned to capitalize on things like coag and plasma protein as we needed to be. We suffered some attrition and we weren't consequent or deliberate in filling those holes. And we've not only filled those holes, but we've taken very deliberate steps to performance manage and roughly 30 plus percent of our organization in terms of that the frontline organization we've turned over. That's already occurred. To your point, there is a lag between when you make those changes and when those start to pay off.
What I can share with you there is as we start the new year, we feel good about some of those changes, some of those new people on board having gotten trained, familiar with our product, familiar with our processes and kind of a new way of managing that business that over the certainly the back half of this year, we expect to see real points on the board as a result of those changes for North America. So that's the first part of the question. There's other changes around it. For example, in global marketing and so forth, we promoted an internal candidate into a senior level position to bring commercial savvy and commercial know how and expertise and credibility into a global marketing organization that needs it, right. And there's a whole set of changes that follow with that.
And there's other parts of the business we're doing it, but North America was the focus area. The second in terms of adjacencies, look, I talked about the breadth of our portfolio. And truly for someone like me coming in relatively at this point new not new, but not 15 plus years in Siemens either. I was struck by the breadth of the portfolio that we have and I think we've undersold it. And so we need to kind of really take measure of it and commercially execute better than we have against that broad portfolio.
But if you look at adjacent modalities, I mean, you asked the question earlier this morning about molecular and you heard Bernd and you have an answer around it. I ran Abbott's molecular business. I'm intimately familiar with that space. What I'll say there's parts of it, as Bernd said, that are amenable to what we do. At the end of the day, if we have to get into the space, we have to answer the question of, well, why us and what do we bring to the party?
And you firmly believe we are the productivity leaders, we are the engineering company and there are certainly certain parts of molecular that are amenable to that. Now the question is, where are the unmet needs in the market and does it need another player or a player like us to come in and step in. And we are looking at that very actively, both or you asked about organic and inorganic, both of those kind of facets to it. So just suffice it to say, we've looked at it, we're looking at very critically and looking at whether or not we need to be in the space. The headline is, we believe there's plenty of opportunity for us in better doing better serving the markets in which we participate today.
We've got a rich portfolio and today I would molecular be great to have along with all the other things we have? Yes. Is it a must have? No, in order for us to be successful in this other space. That's how I'd answer
that question.
Lisa, next.
Lisa Clive from Bernstein. Two questions. My understanding is that the revenue split in IVD is normally about 90, 10 reagent and equipment. So as we've been in this Atellica ramp up phase for the last 2 years, what has that been in the last fiscal year?
Martin, you want to I have a top line answer, but you've got a better buy more refinanced. So I'll let you take that.
As we continue to ramp and as we are still I mean, below expected shipment numbers, but we are still in the high instrument shipment number, it was way below the 50. So it was in the range 40 to 50
as a mix. Okay. And just on the Atellica shipments, it sounds like your sales force may have taken their eye off the ball and the other parts of the portfolio you mentioned, plasma protein, etcetera. So it's pretty straightforward how you focused on remedying that. But on Talica, have you had any issues with price discipline as the sales force has perhaps been too focused on installations or just shipments?
And if that was a problem, has that been addressed as well?
Yes. So I mean, there's a spectrum of behavior, right? There's certainly places where we had this and other places not. By and large, we've had a number of challenges. Pricing discipline hasn't been one of them.
And we've got a fairly robust process for monitoring that escalation levels and the like. And we feel by and large good about the deals that we've approved. What we've been challenged by is if you look at a contract cycle, let's say 7 or 10 years, I mean, you see now on average what used to be a 7 year contract cycle creep into 8 and beyond, right, for nothing reasons having to do with that, but just really driven by customer situations. The 1st couple of years are the investment years. And of course, the larger the deal, the deeper that trough before you make your way out of it.
We've had a pretty big tranche of new business, whether we've turned over our own installed base from mature platform into an Intellica platform that's higher support costs, higher product costs, nonetheless, it's had a detrimental effect on our P and L or competitive business where we've been quite pleased with the level of traction we've had, similar dynamic. But those both have converged. On top, you've had pretty high share of large complex deals that have had a further rosive effect on the P and L that's giving us a short term P and L challenge. But if I take a step back and look at each of the deals that underpin this and look at the economics of the deal, they're good. I mean, we see pricing pressure as everybody sees in the world at varying levels.
But the deals themselves inherently are we feel okay about maybe the conscious decisions that we've made. So that's how I'd answer that. It's not that we have a particular pricing issue, but just kind of where we are in the contract cycle. Thanks, Lisa.
It's Michael Yooning, Morgan Stanley. I have three questions. Firstly, if I look at Atellica, what proportion of your immunochemistry or immuno and clinical chemistry business does Atellica currently address? Secondly, how long before you can address with Atellica the middle market and perhaps the lower end of the market? Because I think there was an idea of putting everything onto a telecom.
And then question number 3 is on tenders. Can you comment on the pipeline of what material tenders that are coming up, whether it's SynLab, you talked about Quest, so we can ignore that. But Sonic LabCorp, LabCo, are there some significant deals coming up that we should be looking forward to over the next 12 months?
Yes. So the first, on the immunoassay side, I'd say, I don't want to say 100%, but well north of 95% of our current immuno business is servable by Atellica. The reason I say it's not 100 is allergy, for example, and there's a few esoteric that today are available at Immulite where the business case to port those over to Atellica doesn't make sense. So we don't quite have plans to do those and those are isolated cases. But by and large, today, routine, more than routine lab flow, Atellica serves the need.
And that's one of the pluses of our launch strategies. We launched Atellica with really broad menu that we've only added to. At this point, we're down up to 190, 187 some odd tests that are available in the Telekent and that number is in and of itself is not terribly meaningful. But point is the vast majority of testing needs can be served with Atellica on the immunoassay side. Number 2, your question around I'm sorry, I lost your second.
I remember your third one, but second one I
The second question was in terms of pipeline, how to address
the middle market and perhaps the lower end of the market. So today, Atellica has broad reach, whether it's middle, upper middle, highest of the high volume, Atellica is able to serve. The question is how profitably can we serve those different segments. And on top, if you go to the lower middle plus low volume, we have a combination of Atellica plus one of the legacy analyzers dimensions or what have you to serve the segment. So today, it's not like there's a segment of the market that we cannot serve.
It's the question is how do we serve it? Whether we standardize on Totalica and to your question about the middle market, the integrated analyzer immunoassay and chemistry is aimed at that mid market. In the U. S. It's hub and spoke plus that middle lower middle volume market and in the rest of the world similar kind of dynamics maybe not quite hub and spoke.
What that does is today you can serve that with dimension. Let's call it dimension. In fact, there's other ways to serve it. So you'd have Intellica do. We have very good concordance of results between dimension and Atellica.
So you can do that today. It's just that it's not as elegant and a streamlined as you could do it with Atellica, hence the development program. So I would say in terms of dates, we'll communicate that when we're closer to a launch date. We're kind of in the middle of the window that we're talking about in terms of planning horizon, terms of when we want to when we would be able to bring that to market, right? So that's the second question.
In terms of 3rd deals, I don't think it's fair for me to comment on RFPs that haven't been disclosed yet. But I would say there's a number of things we're in active discussions with some of the ones that you referenced, very much in active dialogue with. And if we look at our funnel in terms of line of sight to the large deals coming up, We feel pretty good about the size of that funnel, whether it's the largest of large deals or the mid volume segment. But as you know, what we're seeing is there is delays in decision making. I mean, even if you take Quest as an example to the comment that was made earlier this morning, it's taken some time to go through the overall cycle.
So we're seeing in general the timelines for these contracts be spread out relative to what was the case, say, several years ago.
Briefly follow-up on these large tenders. Are these tenders where it might be a 5 or 10 year program where a large lab operator would give you virtually all of their business? Or is it that you might get only a portion of the business?
You pick a flavor and we see it. But in general, on top of consolidation of volumes into the largest lab, what we're seeing is the drive to consolidating vendors. It doesn't necessarily always mean 1 vendor. It could be going from 3 or 4 down to 2, for example. In some cases, we're seeing 2 vendors down to 1.
So I don't mean to be glib about it. We really are seeing a range, but the consolidation comes not only in terms of volumes going to these labs, but also as these labs seek to get productivity improvements in gains. So one of the ways in which they're doing that is by consolidating onto one platform that gives them operational synergies, right? So the less capital intensity that I spoke about earlier has very real operational benefits to a lab, so in spinning the volume across, as you can imagine, 3 or 4 types of analyzers to streamlining workflow into 1.
So maybe 2 single questions from Daniel and then from
Ed.
Daniel Vande of Commerzbank. Thanks for the questions. When you think of the Atellica systems up and running and you think of the consumable consumption, has this been developing in line with your expectations so far? And is there any chance you can share such a number like average consumable consumption per a telecom average per year at some point in the future?
I'll answer the first part, maybe I'll turn it over to you, Martin, for the second one. The first part, as I remarked earlier, it's taken us longer for that consumable reagent stream to develop than we had projected. But if you look at the shape of the curve, while it's shifted in time, the shape is per contract and per expectation. Martin, you want to get the second one?
Yes. Let me add here. I mean, the ramp up of our reagent flow on the instruments we place will also be one of the key contributors to the profitability profile that you saw. Perhaps also good to capture on both aspects, not only because of the nature of reagents being the more profitable piece and the shape of every deal that we see, but also as we ramp up, it will allow us to see the scale that we also need in the production of our reagents in the Atellica solution to improve also on the profitability in that. So the product cost topic that Jorgen was mentioning is not only an instrument topic, but it's also aviation topic that is impacted by the delay in the original assumption of the rollout, if you wish.
Hope that helps to qualify a bit.
Thanks. Edward Diddeh, Redburn. Quick follow-up, Atellica year end, what percentage of your installed base in the core lab was that?
What percentage?
Of your core lab installed base.
Oh, yes. So let me do the math real quickly. So it's we've got an installed base of 70,000. I think we've reported 18 more than 18 20.
No, live 1600.
Yes, live 1600, I think your installed base was 18 20 is what we reported. We had another 999 the year before that. So that's, call it, 29,200. 2,807, so you go onefour.
Let me just qualify that we have the 2 10 millimeter base. I think it's live installed base you refer to, so that it would be the 1600 to Yes, 1600 by choice.
So you're still dealing with a legacy base, which dimension you have the product for the middle market, but let's
face it,
as you say, they are not as elegant as the competition. How are you managing those products? Because ultimately, that is really the core of the challenge around the switch, right?
Yes. So the transition time is not a 1 or 2 year thing. It's a 5 plus year journey. I mean, but if you look at our lot of 5 year plus plans, even by the end of the 5th year, we've only turned over a large fraction, but still nearly half our installed base is still one of the legacy platforms. So, what we need to do is make sure that we maintain support and service and service and support for those programs.
So, the short answer to how we're managing that is we are. I mean, not to be too glib about it, but we are continuing to support those products for our customers.
Let me add one comment. I mean, as we do so and we do not let down on the installed base of our customers because they are the prospective Atelica and the future of us, I mean, this is one of the reasons why we invest in additional capacity in service for the ramp up and for the installation of Atelica. It was also touched this morning, and let me qualify the comment from the morning. Yes, we do feel comfortable with the capacity we currently have in our service force to serve both needs, the legacy installed base as well as the Telica ramp up based on our current assumptions when it comes to volume. However, also please note that since we have the right capacity, we scaled it up during the last fiscal year.
We will see as these costs become P and L effective also some, let's say, impact on this year's P and L as well.
That's fair. Very quick follow-up then. If you win some of these exciting new contracts, do you have the capacity in place for those contracts?
We do. We do. For an answer, we do.
We do.
Okay. I think we have to wrap it up because we need to get the guys a break for the next presentation. You will have the chance to catch up with them in the experience area in the slot between 34. So any questions, you might still have to take them to them. Thank you.
Good afternoon, ladies and gentlemen. Enjoy lunch, and welcome to the imaging session. My name is Andre Hartung. I joined Siemens 2000 and 1, so I'm 18 years with the company, went through various roles before I took over conventional X-ray for 4.5 years, and I took over computer tomography for another 4.5 years. And now I'm responsible for imaging.
And I'd like to hand over to my colleague, Matthias, to introduce himself.
Yes. Dear ladies and gentlemen, good afternoon and warm welcome to our imaging session. My name is Matthias Plage. I'm 26 years in the company. And from 2011 onwards, I'm the CFO of our Imaging business.
And in between, I was heading as CEO of our exciting service business. So with that, warm welcome and handing back to Andreas.
Okay. So just to recall, what is the value of imaging in the clinical arena? I think it's important to understand that imaging is doing the care cycle of a patient, delivering that critical information for clinical decision making, starting with screening, diagnostic, therapy monitoring, follow-up and this multiple times through the care cycle. The demand is increasing, and we are leading that business. So I'm going to talk a little bit how did we do when we did start from the time point of the IPO?
How is our innovation strategy looking like moving forward? And how is the performance looking like moving forward? So I brought one example to you. Is somebody driving motorcycles? Somebody?
Okay. Right if you so drive safely, yes. And because that's just one of the typical examples you've got, yes. So you see, this is a severe fracture of the spine, unfortunately. At the same time, there is a couple of rib fractures over here, here, destabilizing the thorax.
It's a young woman. She's intubated right now. Why is this picture important? Because this is potentially lifesaving. It's a trauma examination.
You have to make a decision. What do you treat first in order to make sure that the patient has a good chance to survive? So how is the performance looking like since the IPO? So we did grew more than 6% 2 years in a row at an industry leading margin of 20.5%, expanding further our number one position. So we are number 1 in all the large modalities, magnetic resonance, computed tomography, x-ray.
We took over again the number 1 in molecular imaging. Had room in ultrasound and we as well leading AI portfolio on the digital space. What is important is that by expanding our number one position, we roughly per year add about 10,000 units to the installed base. And this results in this 40% of recurring revenue, again giving us multiple touch points in multiyear service agreements with the customers to update, to upgrade and install base, keeping close to the customer and making sure that they stay with us to increase the stickiness. Looking at the marketplace, we have seen last year the market being at 4%.
We expect pretty much that level as well in the upcoming year in a market of SEK 20,000,000,000, 3% to 4%. There's as well some digital markets up there, not yet that large from a size point of view, but more dynamic. And with our digital offerings that you will learn about later, we are well positioned to tap as well into these adjacent market fields. So how is our business working? That's actually how innovation is the driver of growth in imaging.
You can see that because 2 thirds of our revenue is coming out of innovations not older than 3 years. They come with USPs, unique selling points, helped us to increase significantly market share, 200 basis points since the IPO, again resulting in an increase of our installed base, feeding our recurring service business, which is today roughly 40% of our revenue and as well delivered a decent improvement on the margin side with 100 basis points margin improvement in fiscal year 2019 versus prior year. And that allows us to fuel the future, to fuel the future with 9.4% of total revenue that we spend and invest in R and D to make sure that this wheel is spinning all over again. So what is impacting our customers right now? You referred it.
You heard from Christoph, from Bernd. The demand is steadily increasing. There's 50% of the world not having really access to health care. At the same time, there's a significant lack of stuff, be it in underserved areas like in parts of India, parts of China, in Africa, where you hardly find any qualified staff. But as well in developed markets, you have an issue to find high qualified and educated people for the health care system.
So it's actually all about doing more with less. And when you look into other industries, what is the main driver One of the main driver to increase productivity and speed is digitalization, and so it's for us for imaging. There's another aspect that is important, delivering more personalized and more customer centric medicine. You need to understand that the diagnostic information is coming out of various sources. A critical one is imaging, but there is lab tests.
There is the EHR related information. There's genetic information. There is information about histopathology, so about the tissue. But that all pretty much sits in various silos. And I personally have been part of various tumor boards.
Tumor boards, it's exactly the thing where all this information need to come together to make a qualified decision. And you would think when there is a tumor board and the people are there, information is there, they talk about based on their expertise and make an informed decision. Sometimes this is like this. Various times, it's like, oh, this little piece is spinning. Oh, that one I have only on paper, but it's not the latest information.
I need to call somebody. Why is that the image from the prior study on the screen? So all these topics that you need actually to make an informed decision are frequently missing. So now first, we have to integrate this information and to make sure that they do more informed decision making. And we have products around that, and I'll show you this in a couple of minutes.
So what is our innovation spree looking like? It's actually centered around the critical control points along the care path of a patient Where you do the diagnosis, I mean, if you make a mistake there, it has serious consequences because you may draw the complete wrong conclusions out of this. It's about innovate the modality business, making scanners smart, make them easy to operate, do the full automation of the entire imaging process that you really can focus on the reading part, but not in working up to the part where you can actually read the images. And addressing as well the fact that qualified staff is a very rare asset today. Secondly, it's around expanding diagnostic off run standardization throughout enterprises.
And the 3rd element is about leading clinical decisions. This is about taking the data, doing analysis with the data and supporting physicians doing their job better. And at the same time, putting together the data out of the various diagnostic silos, integrate them, provide them to the clinicians in a way that they really can make an informed decision out of it. And I will now go step by step through these three types of innovations. Starting with innovate the modality business or innovate the equipment, if you wish.
Four examples that I brought with me. One is about digital pet. And you see already by the name, digitalization as well is here already a game changer. And that started not only with the IPO. We started actually a couple of years earlier, driving digitalization as an innovation driver into the company.
This makes pets faster, more accurate. Pets study does take time. You want to don't wait long, you want
to have fast results and
you want to have throughput. The second thing you want to have, you want to don't miss anything. You want to see the smallest findings in an early stage in order to be sure that you can react right. This is what this, it's called Biograph Vision, is doing, just being launched and brought us back into the number one position in the EMI PET market. The second one I'd like to highlight is around mammography, breast imaging.
It's the MamaMart Revelation. It's not just a good mammography system with an integrated biopsy unit. It comes as well with an integrated AI powered reading tool that helps you to identify all the critical findings and to avoid that you miss findings actually in mammography. So supporting this process and it's important because it's pretty much a high volume reading environment. So you read fast and quick.
You need to be very concentrated and having a tool that supports you then not to miss something is of great help. Biometrics technology is around for 2 years now, makes a big difference. It's all as well around digitalization. What is it doing? It takes into account how patient breathe, the heartbeat of a patient, whether a patient moves during examination, the weight, the size takes everything into equation and make sure that the exam being performed on the MR is adapted specifically to this patient, so that the image quality, independent of the condition of the patient, is of high diagnostic quality.
Makes a big difference, starts in one area of the portfolio and will be then later on as well available on a broader range of portfolio from MR. MRR. The next thing I'd like to highlight is about augmented reality. It's what we call fast 3 d camera. It appears to be a simple thing.
You put the patient on the table and you have to make sure that you will center him rightfully in the gantry of a scanner. The problem is you need to center them in the ISO center. So you may say, well, it's just a matter of practice and training. But it's more when you're small, your idle center appears to be at a different spot than when you're tall. So it doesn't really help to practice a lot because you anyhow will estimate a little bit differently depending not only on the experience, but as well the viewing angle you look at it.
This is being solved with the 3 d camera. It's capturing the body, a 3 d model. It's an eye supported tool that then calculates automatically how does the patient have to be centered ideally. And why is it important? 2 centimeter offset means 20% more dose in CT.
So it's actually a dose saving tool and as well a quality control tool because image quality is better as well. And it's a one push button thing. So you push a button and it's being done automatically. Brand new, the Zumatism X Sight, it's just coming back from RSNA, where we launched this one. It's not only a high performance CT system.
It comes with an inbuilt navigation system. Think about you were in a city you don't know and you want to find an efficient way from A to B. You use a navigation system. And although you have no idea about the city, you'll find your way and you even find a way in a convenient way typically. That's pretty similar.
You want to do an exam that is a little bit more complex. You haven't done this quite a few times, but not so often. And now you don't recall exactly how to do it in order to make it really good. This system guides you through the process step by step by just moving with the Go button forward and forward and tells you exactly what has to happen next to make sure that the image quality and the result is going to be diagnostic. We call that MyXM Companion, and it's going to be part not only on CT, we will see that in the next couple of years, these type of guidance as well in other systems and MR, but as well in conventional X-ray.
One thing which is not here yet is the Zumrutom on scene. Bernd mentioned that. It's a mobile scanner. So there we really tap into completely new segments because this is for patient in the ICU. And instead of bringing the patient into the radiology department, we drive the scanner to the ICU.
And that's critical because ICU patients, they have a lot of life support. They are frequently sedated. A lot of people being needed to make sure that you can bring them to the scanner. Then you have to get rid of all the life support kind of that you don't compromise the image quality. And this is extremely cumbersome, labor intense and dangerous for the patient.
So what we do now, we bring the scanner to the patient, making sure that he can stay in bed. And what they typically want to do when patients lay down in bed, they look for stroke because that's one of the most serious complications when you lay in bed and you can't move yourself. So what is the future bringing? When you look into the future, you will see a new disruptive platform in MR to enter new markets. You know MR, it's heavy, large, pretty bulky.
You have to have shielding. So that limits actually the ability to put an MR somewhere. So what we are now doing is we're making it small from a footprint. The shielding can be minimized. So all of a sudden, there's no quench pipe anymore as well.
So what is going to happen is, at the same time, great image quality. We will be able to put MR into spaces where MR in the past simply you could not bring into just due to the limitations in terms of room that you need to do there. The second thing I'd like to bring your attention to is an AI driven as well with the fast three d camera, augmented reality supported radiography system that is coming to the marketplace that helps you to automatically position the patient where it needs how it needs to be positioned without a great know of a technologist how to do, for instance, a shoulder exam, which is pretty complicated to center. They had a detector in the tube around the patient and frequently these examinations have to be done twice. This technology is going to be avoided.
And then photon counting technology, it has been mentioned a couple of times. I was with CT before, so my heart is beating a little bit for this one. In particular, this is changing the world of CT. A, it's a different way to acquire images. So today, you have x-ray translated into light, translated into an electrical signal.
Tomorrow, x-ray directly translated into an electrical signal and even energy specific. And that means the way it's being built, you can significantly increase the resolution by more than a factor of 2. At the same time, you dramatically reduce the dose. So it brings you really into a completely new indication space. And you always have multiple spectral information available that helps you to not only say that you see something, but that you can consider better what you see actually, which will bring CT in a new area from that point of view.
So moving to the next topic, expand diagnostic offerings. So first of all, team play. It's important to understand cloud based agnostic, GDPR compliant and HIPAA compliant platform to address our customers with various solutions about fleet management and standardization of operations. So first of all, dose management. Let's assume you have an enterprise with 35 different CTs.
You want to have them driven on a very good standard and you don't want to see sites that have an excessive dose and then other sizes have a very low dose. What you want to have is you want to have the dose that is necessary to get a good diagnostic result. And you want to be able to monitor that and to make sure that all sites are compliant with this. This is today not by far not the case. So this can be enabled with the dose management.
You get very good ideas about utilization of your fleet. And at the same time, with insights, analytic tools that gives you ideas what can I do to make sure that I optimize the way my fleet is utilized in a better way? So I want to have a more efficient business, a more productive business, better outcomes. And I can as well benchmark with others. So how am I doing as compared to other enterprises, of course, in an anonymous fashion, yes, in my area?
We are about in 4,700 institutions already. And one thing I'd like to mention as well, it's currently the largest research exchange platform available with 110,000,000 images where customers do research across the globe and use our solution to share their results based upon team play. The second thing I would like to touch on is Zingo Virtual Cockpit. Today, let's assume you have a large hospital with a lot of subsidiaries, smaller outpatient centers, and you have a complex exam. Let's take an MR cardiac exam.
Typically, you are in the situation that you have done an outpatient center, complex cardiac cases coming in this outpatient center maybe once a month. So now you have staff there that need to deal with this challenging case and to know how really do this case in the right way. And instead of now asking the patients, yes, please drive 200 to 300 miles to the next place where we have qualified staff, you bring the expert to the site virtually where the patient currently is. So from the central command center, you bring the expertise to a site that can be pretty much everywhere and then deliver the expertise, control the scan, set the scan up and even perform the scan. And this is working today with MR and with CT.
And we put that into we have a lot of these larger deals. We put that into the appraisal of a lot of this and that makes a big difference for customers because they say, hey, we can't have the same quality of stuff all over the place, but we do underutilize in terms of complex exams our fleet. So what can you do to help us? And this is the answer to that. The third thing is around leading clinical decisions.
Let's start with the AI Rad Companion. We are the 1st large vendor that has a 510 clear comprehensive solution for the entire chest. We did start now recently. We have now 15 installations and we do a controlled ramp up, but because we do a lot of interactions to make it really super smooth. But what is it about?
Think about Chest CT. 15 years ago, a Chest CT was max 100 images. And you looked at them typically in a 2 d fashion And you made a relatively more serious findings, not so much quantification, more descriptive type of report. And that was basically it. And you had maybe 10 of those cases a day.
Today, it's 4,000 images. They're all submillimeter. They are highly interactive. They have all the 3 d volume information included. And at the same time, you have not 10 cases a day, but maybe 30 to 40 to read.
So there's the dilemma. You have to read more and at the same time, you need to keep the quality on the high level. This is creating a lot of issue and there are errors as well that occur that you can prevent when you have this tool that actually helps physicians and radiologists in particular to perform their job better. Everything is automatically highlighted and quantified And then you are guided through that images in a very structured way and you just confirm whether you agree or not agree, saves significant time and at the same time is an important quality control tool. The last point on the innovation side I'd like to make is about this integrated diagnostics.
We call the tool around that AI pathway companion. We have now the first clinical utilization test ongoing in Switzerland. It's basically integrating on the existing IT infrastructure in a hospital, taking the relevant data for a specific disease out of the records, putting them into one tool with all the critical information that is necessary to make a decision regarding the treatment of a specific disease. And then you can start looking how does this compare, for instance, to the current guidelines that are recommended and or uses as facilitation for research and or identification of subgroups that have a similar pattern and where you want to figure out why this therapy is working in that person well, but why isn't it working in that person. So it's as well from a research point of view to get new insights, a very important tool.
This will take a little longer. It's more project based work. It's not just a product you ship and you have to do some integration work. But we are very committed and are very convinced that these type of solutions are going to be the future in order to facilitate decision making. So having said that, it will be around innovating our equipment, not only on the hardware side, but in particular as well as digital offerings.
We will expand further with diagnostic offerings. We will have a very important role in the clinical decision making aspects. And this embedded in the customer workflow, which is very critical because that's the issue that as I sometimes have, you have one solution, but it is not well embedded in the workflow of the customer and then it's disruptive and it may be nice as a standalone tool, but actually it's not going to be used because the people want to have that integrated in what they do in daily routine. And having said that, we believe we are very well positioned to deliver in the next couple of years north of 5% growth by continuing gaining market share, further increase our installed base and therefore increasing service revenue out of this, so expanding our number one position and stay the undisputed leader in imaging. Thank you very much for listening.
Okay. You were first, but I still let Scott start.
Yes. Thank you. Thanks very much. Good presentation. I wonder if you could just talk a little bit more about these new innovations that you bring to the market, particularly with reference to the new MR and the photon counting CT.
So just on the MR specifically, how do you get around this with no quench pipe? Does this product have no helium or so? And where with respect to pricing would such a device be as compared to a more normalized MR, so to say? And putting these both in a bucket, can you give us some sense of how ahead Phillips are to the best of your market intelligence as compared to competitors in the IP estate surrounding it? So that's the first question bucket.
The second one is, clearly, the biggest opportunity is in Asia, where your market shares are probably not as strong as in North America. What are you doing there to maximize that opportunity?
Okay. Good questions. Thank you for that. Let's start with the MR side first. First of all, not having a quench pipe just kind of come along with that you have no helium consumption, very little helium, yes.
That is going one aspect of it. However, that's only one. When you look into the weight and the size and the cheating requirements, these are significant and very impacting topics when it gets to the investment on the customer side, yes, because you have easily investments in bringing up the rooms, which is in a similar level than you have to spend on the CapEx side for the equipment. So it's not that we will not build a cheap system, but we will build a system that enables you to bring in particular those costs significantly down. And that is not really just the pipe.
That's just one aspect of it. There are a lot of other topics that are as important. I cannot unveil now all specifics. Please understand that. And it's a few years out.
So we are about to understand where the market prices are. But you can be sure we are making money with this business. The second aspect around China. We have some headroom in China. We didn't do so well, to be clear on that one.
Basically, I mean, everybody, you know that, is doing this business via intermediates. You have to be super cautious there. And we are certainly this is our number one focus. We find that more important than just hunting the numbers. However, you have heard from Bernd, we are now in an investment program.
We are about to increase coverage again there, but carefully and in a very audited way. And at the same time, we are as well pretty sizable right now, in particular, on the M1 arena and gaining some very good traction there. So we are convinced that we can gain significant market share in China throughout the next couple of years.
Just a question on how far you are
ahead with intellectual property with CT photon counting and the other?
Yes, okay. Sorry, I'm talking about that one. The average estimate right now is minimum 3 years, maybe more.
Veronica Dubajah from Goldman Sachs. Two questions for me. 1, one, can you comment on sort of the competitive dynamics that you see in the imaging market? In particular, I'm curious about some of the smaller players. I was at RSNA last week and got comments from a number of your peers about some of the smaller players behaving aggressively on price.
So it would be good to kind of get your perspective on what you're seeing there. And then second, thank you for all your insights into digital efforts. It seems to me that PAX is going to be the gateway to successful digitalization. Wonder if you agree or disagree with that and maybe give us some insight into how large your PAX business is today and how you think competitively you're positioned there?
Thank you. Okay.
Let's get started with the first question. I'm now 18 years in this business. I can't recall a single year where I haven't heard there are aggressive small players around. So not a single year. This is one as well, the cost pressure argument.
This is around since health care is around. So I think the trick is really to figure out how we come up with more efficient solutions in order to address exactly those points. And I believe there as well, what is the value that you bring with your innovation in order to overcome the challenges actually determines as well how well you are positioned at the market and how much are you affected by price pressure, which is always around. And then there's another aspect I believe is important to understand. A lot of this erosion or price erosion or price pressure is coming from ourselves.
It's a completely natural thing because when you innovate, we have kind of a young generation and a not so young generation. And what typically happens when you have a new generation, the not so young generation gets feels a little bit more price pressure. It's actually a very natural development. On the other hand, typically, we can realize with the new generation a certain upside. I think it's well balanced.
And when we look back, we haven't seen in any to any extent a more significant price erosion throughout the years. That's pretty, pretty, pretty stable. Whether PAX is now that's an interesting question. And now you can look from various angles. If I would be a PAX vendor, I most likely would use a similar argument.
But we are a system integration business. And I'm pretty convinced, in particular, those AI based solutions. They need to be close to the modalities. In particular, as you know, that the way how good an AI based algorithm performs depends pretty much on the data we use. So there is an optimized approach to deliver the best data, which is what we're doing.
We have protocols optimized for the utilization of AI to make sure that these algorithms really perform well. I can give you a concrete example the AR Red companion. We have currently a rejection rate which in the range of 3%, 3%, so 97%. There's no change at all being done by the physician who is looking at it, yes? And we are not yet satisfied with this.
When you look what you may be familiar how that's happened, typically you have residents that are not yet fully qualified. And then there is a second read by a full qualified radiologist in the room. They have rejection rates more than a rate of 10%. So this is actually what you would consider the most likely the average. And now PAX, I mean PAX is one ZILO where data is sitting in and that's the imaging data, the imaging DICOM data.
Why now? In particular, when you think about integrated diagnosis and really bringing all the various forms of information together, Why this now should happen in one of the silos? I am not so sure. I rather think that imaging enterprise solutions that can release the data out of the silos, bring it in an aggregated data level and then you run on that intelligent algorithms is, A, the more sustainable solution looking forward, B, does not mean that you have to again invest in completely new infrastructure on the IT side, but rather having a vendor neutral thing on top. So when I look into the future and taking all the various IT infrastructures infrastructures around, I believe imaging enterprise solutions that surface full reading and reporting capabilities are going to be the future.
And we have something like this in the pipeline. And our PAX installed base is currently in around 2,200.
Hi. Seb Walker from UBS. So I had two questions if I could please. First, I was wondering if you could just give us some detail on hardware versus software growth last year. And then the second one is on margin.
So HealthNews has leading margins in the imaging industry, but I think you're calling for further expansion of those margins. So what is it that actually drives that improvement over the coming years?
Okay, fair point. I'm starting with the first maybe and then you take the second one. When you talk software, I think there's I have seen a couple of reports. It's so what is in software and what do you count being software business? First of all, to be very clear, when I talk about new digital business, then I'm not talking about the classic software business.
I'm not talking about advanced visualization where we currently, by the way, lead with 9,100 installed base by far on that level, but that's pure software. I'm not talking about all the software that we sell together with the machines to make sure that you can use the capability of the equipment to the full degree. This is in a range of 20%, 25%. But this is business we did since ever. What I'm interesting in is what is the new topics about.
This is really what can we establish in terms of recurrent revenue models on the AI side? What can we establish in terms of new and adding revenue models on the of the integrated diagnostic side. These are the interesting buckets. And they start small because we're currently really investing there heavily and have relatively small installed base. And as I mentioned, we do that in a controlled way.
But you need to understand, the ARRAD Companion is a platform. It's a platform that grows then with modules. So we add clinical support, competence, module by module to this platform and then from there, we scale.
I mean, if you look at our
revenue of roughly SEK 9,000,000,000, then roughly 40% out of it is recurring revenue. And what we do actually over the last years is an increasing contract capture rate, which is driving up that recurring revenue. And of course, also in that classical recurring revenue, you have a strong portion already in there. And we were talking about earlier around team play, which is not a classical CapEx model, but there we are actually selling licensees. And Andre was alluding to it.
We are moving more and more into business models, which is pay per use or pay per scan, yes, which then, of course, taps into a new revenue stream as well, yes? From a margin point of view, and you know that we make money with everything what we bring to the market, yes, in the modality business as well as in the recurring revenue service business and in particular also with the new business models, which then step by step will also shift our P and L to become a bit more software ish in the long run. But as Andre was alluding to it, it is a minor portion currently. And of course, it will take a few years that this takes a full effect.
Just on the hardware and software component. So I mean the recurring revenues that you generate have come at a higher margin than on the hardware side. So I guess I also wanted to just understand what the hardware growth was like last year to get a feeling for what portion or what installed base is going to come off their warranty and therefore you're going to generate service revenues this year.
That's a
way that's a material driver margin.
We do have on the hardware and on the service side similar profitability levels. So it's not actually a huge difference. And of course, the R and D and these SG and A efforts are very much intertwined. So we do not have a significant difference between that one. Due to the very strong growth on the equipment side, in particular over the last 2 years and you have seen the more than 6% growth over the last years, of course, we're adding significantly new installed base, which is on the one hand side after the warranty period, which is normally a year long.
We enter into a 5 year standard service contract. But much more important than looking towards future revenue streams is the possibility that this, of course, is the foundation for a database game and for the new business models which we are currently introducing to the marketplace?
Magnus, this is Max
from Credit Suisse.
Just my first question is on could you just comment on conversations with customers in the North America imaging market? I think there's a bit of a debate over whether we are seeing any softening there. So how they're thinking about next year, whether anything is making them incrementally more nervous? And then just the second question is on longer term service contracts. So how much of your imaging revenue currently is linked to longer term service contracts?
And how do you ensure that, that incremental growth doesn't come at the cost of margins as sort of these deals become increasingly bundled?
Okay. I mean, first of all, when you talk about American market dynamics or is there any concerns about the dynamic in the United States? That was interesting at RSA. I had it's a little bit speed dating, 15 times 30 minutes a day. This is how we do it.
So I had exposure to 60 customer groups. Not a single one was concerned about capital budgets. And there have been years in the past where these discussions have been pretty present. So that is one topic. So from that point of view, I won't see why the market dynamics should be significantly different from what we have seen.
And we see it in the low single digit, and it is basically a replacement business. However, there is no major concerns right now.
I mean to your point, contracts become larger and longer. This is also the reason why you see a slower contraction actually between the book to bill cycles. We have a very, very healthy order book above €5,000,000,000 With regard to the margins in larger contracts, we don't see differences when it comes to the margin. We do, of course, see that as a great opportunity because with those longer customer contracts, of course, we normally drive up our share of wallet in those customers. And of course, this increases our stickiness with those customers.
And we see it all around the world. So it's not actually only a U. S.-based phenomenon. We have, meanwhile, a business which is
How much of your revenues is related to contracts over 5 years in imaging? Is there a number
We have a growth in those larger contracts of more than 10%.
The percentage of total revenues?
It's roughly in the double digit.
Hi, I just wondered if you had any I don't have anything from JPMorgan. Have you had any feedback on what how customers are thinking about the appropriate imaging rule that's coming in, I think soft launch next year and the harder launch the year after?
Can you I'm not sure whether I Just
wondering how customers are feeling about the appropriate imaging rule that's coming in?
Okay. First of all, it's a good opportunity for us that we have acquired a company called Medicalis, which is exactly doing that, providing our customers tools to make sure that they are compliant and appropriate. And there's only a couple of customer a couple of companies around doing that. What I frequently hear as well that some of the larger institutions have kind of done their own solutions to make sure that they are compliant with that law. But for us, actually, this is an additional business opportunity.
Are customers expecting to see the number of images fall?
No. No. And you'll see a continuous increase throughout the geographies.
Daniel, I think it's probably the last question.
Daniel van den of Commerzbank. Thanks. One question. Now I lost the track. Yes, all right.
The increase in your market share you have experienced since the IPO, can you potentially say according to or in terms of the modalities, in particular, having contributed to that? And I assume you also have an internal goal of where you want to be in like 5 years' time in terms of your global market share. Is that a number you could share with us?
No. I mean, we currently project 3 years. If you're happy with that, I'll give you an idea about the next 3 years.
Perfectly happy with that.
So but it's actually, when you look into the various modalities, all modalities gain market share, not all to the same level, but all modalities gained market share. And we believe it's absolutely realistic given on the innovation strategy and the strength of our current portfolio that we are having the 2 new platforms that are being delivered on the CT and MR side that we set ourselves the aim that we are in a range of 100 basis points market
share gain per year.
That's a nice closing statement. Thank you very much. So maybe if I may just remind you, you got in your e mail box a request for feedback from you. So since we fed you and fed you with bread and information, we'd be very thankful if you could give us a bit of information back. So thanks for that.
Thanks for taking part. There's still the chance to meet with the management in the experience area and have a tea with us. And there was one thing I was supposed to remind you. What was it? Yes, okay.
Of course, yes. And to those who've been truthful to us in the webcast, also thanks for being so whatever standing up for 3 hours and just listening. Thank you. Yes? Good.