Good morning, ladies and gentlemen, and welcome to Siemens Healthineers conference call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on page two of the Siemens Healthineers presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Marc Koebernick, Head of Investor Relations. Please go ahead, sir.
Thank you, operator. Dear analysts and investors, I'm sitting in snowy Erlangen together with our CEO, Bernd Montag, and our CFO, Jochen Schmitz, who will be taking you through the detail of our first quarter results for fiscal 23 this morning. After the presentation, there will be a chance to ask questions. The Q1 2023 results were published this morning at 7:00 A.M. You can find all the relevant documents as well as a recording of this call on the investor relations section of the Siemens Healthineers website. Before we start, let me give you the usual reminder for a two-question rule in the Q&A. Now let me pass the word to our CEO, Bernd Montag. Bernd, the floor is yours.
Yeah. Thank you, Marc. Good morning, dear analysts and investors. Thanks for dialing in and expressing your continued interest in Siemens Healthineers. Let me start by shedding some light on our financial performance in Q1. Once again, we were able to significantly increase our order backlog with an excellent equipment book-to-bill rate of 1.36, thanks to double-digit equipment order growth in all segments. Comparable revenue growth ex antigen was rather soft at 1%, primarily due to lower diagnostics volume in China, and with Varian revenues held back by a supplier issue. Including antigen revenues, we saw a 5% decline given the significantly higher antigen revenue in the previous year quarter. The drop in antigen revenues led to a comparable revenue decline of 24% in the diagnostics business.
Excluding antigen, diagnostic revenues also saw a decline primarily due to the aforementioned lower testing volume China because of lockdowns followed by high infection rates. Diagnostics margin was slightly negative at -2%, impacted by costs for the transformation program. The margin was also burdened by the lower volumes in China. Varian comparable revenue declined by 4% due to a spillover of supplier issues from Q4 into Q1, impacting margins as well. Imaging and advanced therapies had a solid quarter, both with 5% comparable revenue growth. Imaging showed a strong margin expansion of 100 basis points in Q1, leading to a margin of 20.9%. In advanced therapies had a margin of 12% in Q1.
Our adjusted earnings per share came in at EUR 0.47 in Q1, down year-on-year, essentially due to the mentioned tough comparable basis on the antigen side. Beyond this, increased procurement and logistics costs, transformation costs in diagnostics, and the mentioned temporary headwinds we faced in China were compensated by positive tax effects. For the remainder of fiscal year 2023, we expect strong growth ex antigen with meaningful margin improvement, particularly H2 weighted. Drivers of these developments are our very strong order book, the success of our pricing measures, and our expectation of a normalization of the COVID situation in China. We reiterate our outlook for 2023, expecting ex antigen comparable revenue growth of 6%-8%, and also our adjusted earnings per share range of EUR 2.00-EUR 2.20.
Including antigen, we continue to expect -1% to +1% comparable percent comparable revenue growth. As always, Jochen will explain in more depth the Q1 numbers, first let me recap briefly what makes Siemens Healthineers so unique. Why are we such an attractive partner, and what drives our sustained order growth? Three capabilities are the foundation of our success: patient twinning, precision therapy, and digital data and AI. They are our capabilities that make us truly unique. They fuel our present and future growth, and make us the holistic partner of choice for our customers everywhere. They are the source of a constant stream of innovations and pioneering breakthroughs. Let's have a look at two of the most recent events. At RSNA, we launched MAGNETOM Cima.X, this our strongest 3 Tesla MRI ever.
With its field strength and strong radiance performance, the scanner will be optimal for detecting the finest structures in the body more clearly. These microstructures can hardly be visualized with classical MR imaging. With the help of a strong gradient system, these structures can be made more visible, and can help to better understand, for example, neurodegenerative diseases such as multiple sclerosis. Thus, treatment could be initiated earlier, improving the outlook for patients. By introducing AI-based algorithms on this high-end scanner for the first time, we reduce the scanning time in MRI by up to 50% by improving image quality, enhancing patient experience, and enabling better inclusion of high-performance imaging into standard radiology workflow. On the precision therapy side, we are proud of the recently launched breakthrough innovation HyperSight from our Varian business.
I'm really thrilled that we have received FDA approval for the HyperSight imaging solution earlier than expected. HyperSight will be an exciting option for new Halcyon and Ethos systems. Beyond this, it is available as an upgrade for existing Halcyon and Ethos systems and will also be available for TrueBeam, for TrueBeams in the future. HyperSight offers substantially improved image quality at a significantly increased speed. This new cone-beam CT imaging technology can achieve diagnostic imaging quality in just six seconds, a true breakthrough in speed and resolution. HyperSight allows for substantially improved treatment planning capability right in the treatment room. HyperSight is a proof point of our broad offering of comprehensive cancer care solutions that is leading in the industry, and a showcase of imaging and therapy coming together.
All of our products are enabled by the glue of digital data and AI, like the aforementioned AI-based algorithms to reduce the scanning time in the new MAGNETOM Cima.X or Varian's oncology as a service offering. Our breakthrough innovations fuel our future growth and allow us to be the holistic partner of choice for our customers. I will share a strong example for us being the holistic partner of choice on the next slide. We are the partner for the C-suite at a consolidating and transforming customer base. With the depth and breadth of our unique portfolio, we provide offerings for virtually all critical departments. Our service offerings range from the highest-rated product service to consulting to comprehensive Value Partnerships.
This gives us unmatched relevance for our customer base, and is well reflected in the fast-growing order backlog for enterprise-wide multi-year deals, or as we call them, Value Partnerships, which stands now at EUR 4 billion. The recently announced Value Partnership with Atrium Health is another strong proof point of this. The agreement includes over $200 million in equipment and associated services with strong solutions across imaging, Varian, and advanced therapies. This is the largest Value Partnership we have ever signed in North America. We will support Atrium Health to modernize its healthcare infrastructure and the quality of patient care, and we'll jointly develop education and workforce solutions. Siemens Healthineers technology will help Atrium Health improve healthcare in rural and underserved areas by strategically strengthening economic mobility, health equity, and access, and focusing on environmental sustainability.
This will ultimately improve outcomes, efficiency, and quality, and reduce costs in healthcare across the infrastructure of Atrium Health, also supported by our cutting-edge AI solutions. This partnership is a strong example of the unique strength we have with the focus and scale and unmatched relevance of our portfolio. Turning to the next chart, you will see that at our diagnostics business, our unique Atellica portfolio has also allowed us to close a significant multi-year agreement with Unilabs. As we highlighted in our full year reporting last year in November, we are driving a meaningful transformation process in our diagnostics business, also as a reaction to the changed macroeconomic environment. It will ultimately lead to a significant portfolio and organizational simplification and enhanced internal efficiency.
A key reason why it's the right point in time for this transformation is the launch of Atellica CI 1900 at the end of last year, which completed the Atellica portfolio for immunoassay and clinical chemistry testing. Atellica Solution and Atellica CI 1900 are based on the same technology, menu, reagent, software, and workflow, addressing low to very large volume labs and customers in hub-and-spoke settings. With our Atellica Solution, we are able to maximize productivity for large-scale customers for high throughput testing. With our new Atellica CI 1900, we address low and mid-volume labs in developed and emerging markets that need a cost-effective integrated analyzer. Additionally, the CI 1900 enables true standardization for an optimized hub-and-spoke setting by combining Atellica Solution in the hub and the CI 1900 in the spoke setting.
With the launch of the CI 1900, we are in a strong position to simplify our overall portfolio in diagnostics as part of our transformation program. The CI 1900 is currently in a controlled rollout in Europe, and we aim to initiate a full-fledged market rollout later this year. This unique Atellica portfolio allowed us, for example, to close a multi-year agreement valued over EUR 200 million with Unilabs for immunoassay, clinical chemistry and other testing solutions like hemostasis. Under this agreement, we will help Unilabs to modernize its testing infrastructure across its network to improve outcomes, throughput, clinical evidence and quality, and ultimately improve patient care across the testing network. These two deals with Atrium Health and Unilabs, as different as they are the perfect proof points on how unique and relevant our portfolio is for our global customer base.
It shows that we help our customers to drive productivity and overcome cost and staff shortage challenges, and ultimately to improve the quality of healthcare across an entire enterprise and network, whether it is with our cutting-edge solutions in imaging, Varian, advanced therapies or diagnostics. Now, this brings me to my next slide, which I have shown before, and I like to show, I like showing again, simply because it is and stays more valid than ever, why Siemens Healthineers is a unique investment case. We operate in structurally growing end markets that benefit from several secular growth trends. With our leading portfolio and consistent rollout of innovative solutions, we are convinced we will continue our path of outperforming our markets. The advanced ways of treating the most threatening diseases in cardio, cancer, and neuro.
Our products and solutions enable next level medicine, and next level medicine such as pharma and device innovations often drive our procedure growth. One could say the world innovates for us. In challenging times like these, where our customers face staff shortages and inflation, our technologies are key to help improve productivity. This may be with our AI and tech-enabled services or with our generations of equipment that are faster and more automated than ever. Furthermore, we generate growth by consistently expanding our markets with new solutions, if need be and possible in a value-adding fashion also via M&A. These drivers guarantee strong, consistent growth. This growth and additional revenue comes with a high degree of resilience. About 55% of our revenues are recurring.
Adding to this, Value Partnerships are a very fast-growing part of our business, and make us even more resilient as they guarantee a reliable recurring flow of revenues for years to come. The just presented agreements with Atrium Health and Unilabs prove that these kinds of partnerships and long-term deals will continue to be an important source of growth. Our geographical diversification has proven to be an important resilience factor over the years. The strong and resilient growth prospects we have are also paired with market-leading profitability levels. We have sector-leading margins in imaging and at Varian, with further room for expansion. At the same time, we have a clear roadmap to generate significant margin accretion at diagnostics and advanced therapies in the medium term. All of this combined makes Siemens Healthineers a unique investment case. With this, I hand it over to you, Jochen.
Thank you, Bernd. Good morning to everyone. Glad that you are joining us again. Let me take you through the financials of our first quarter in fiscal year 2023. I would like to start by giving some color on equipment orders first. As Bernd highlighted earlier, we posted broad-based strong equipment order growth of 16% in Q1, a very healthy dynamic, both year-over-year as well as sequentially, since our impressive order growth momentum continues. In particular, we saw excellent equipment order intake in China. These impressive equipment orders resulted in an again very positive equipment book-to-bill ratio of 1.36. We are very pleased with this continued momentum of equipment orders, which will be an additional support for us to achieve the expected strong revenue growth in fiscal year 2023. Over to revenues.
Excluding rapid antigen sales, we saw soft revenue growth of 0.7% in Q1 due to lower diagnostics revenue impacted by lower testing volumes in China and Varian revenues being held back by the known supplier issue. Including rapid antigen sales, we recorded a 5% decline of comparable revenue. Before we look at the development in the regions, a quick reminder. In October, we announced that we split our Asia Pacific operations into China and Asia Pacific Japan. China is now its own region with its own management team, as it is the region Asia Pacific and Japan, which will allow both regions to address their full potential even better. Now to the Q1 development. The Americas region recorded solid 3% growth on tough comps. In EMEA, revenues declined as expected due to materially lower contributions from rapid antigen sales.
Excluding antigen, revenues on a comparable basis were on the prior year level. The new Asia Pacific Japan region achieved significant revenue growth, driven in particular by a sharp rise in revenues from rapid antigen sales in Japan. Excluding antigen, the region achieved solid growth on a comparable basis. The China region declined by 6%, mainly due to lockdowns at the beginning of the quarter, and due to high infection rates at the end of the quarter. Considering the situation in China in Q1 and the supplier issue at Varian, revenue ahead are well this quarter also thanks to very strong service revenue growth. Moving over to profitability and to the right side of the chart. Earnings per share were down year-over-year, essentially due to the lower antigen contribution.
Adjusted EBIT margin came in at 12.7% below the prior year quarter due to lower contributions from rapid antigen sales, which impacted the margin by over 150 basis points negatively year-over-year. We also saw increased costs, particularly for procurement and logistics year-over-year. One-time costs related to the transformation program at diagnostics and pandemic-related headwinds in China. These effects totaled to over 200 basis points of headwinds in Q1. Together with the lower antigen contribution, this adds up to over 350 basis points of negatives in Q1. I will talk in more detail later in this presentation with regards to what to expect for revenues and margins in the course of the remainder of the fiscal year. Let us have a look at all the other line items.
The Q1 tax rate came in significantly lower at 14% due to the release of a tax provision. Financial income net was -EUR 25 million, slightly less negative than expected due to the interest related part of the aforementioned tax provision release. Free cash flow was -EUR 77 million in Q1 due to inventory build up for the scheduled acceleration of equipment revenues in the following quarters. In addition, receivables from Q4 antigen sales remained in the balance sheet as of Q1 closing as planned, holding back the usually strong cash collection in Q1 after strong Q4 revenues. For Q2, we expect a significant rebound of cash from operating activities driven by cash in from the Q4 antigen sales receivable and by the reversal of the build-ups in operating working capital, particularly at Varian, after the resolution of the supplier issue.
Although we very rarely do have negative free cash flow in a quarter, we are not concerned since the basics of our cash generation are fully intact. We see the negative cash in Q1 as a merely timing topic, with future cash being kind of stored in the balance sheet over Q1 closing. As always, you find the EBIT to cash bridge in the appendix of this presentation. Let us have a look at the segments performance in detail, starting with imaging and diagnostics. Imaging showed solid comparable revenue growth of 5.2%, with broad-based growth in the businesses and in particular, very strong growth in MRI, even after very strong growth in the prior year quarter. On the adjusted EBIT line, imaging had strong margin expansion year-over-year of 100 base points, driven by very healthy conversion.
Foreign exchange tailwind of around 100 basis points was more than offset by cost increases, particularly for procurement logistics year-over-year. Going forward, cost increases will flatten out year-over-year in the course of fiscal 2023, and more so be overcompensated by our pricing measures. Foreign exchange is not the key to expanding margins at imaging in fiscal 2023. The two key drivers for imaging margin expansion in fiscal 2023 are conversion from growth and pricing. I will give additional color on that topic later in the presentation. To summarize it was a good start of the year for imaging. Diagnostics had a less good start of the year. In the core business, mainly due to the situation in China. Let me start with the overall business, including the antigen business.
Diagnostics saw a sharp revenue decline due to the expected lower contribution from antigen revenues in Q1, which were EUR 63 million, whereas EUR 329 million in Q1 last year. Excluding the antigen contribution core business, the revenue declined by 7.3%, impacted mainly by lower testing volumes from China due to the lockdowns at the beginning of the quarter and high infection rates at the end of the quarter. The margin in Diagnostics was down year-over-year, largely due to the lower antigen contribution. Diagnostics had EUR 34 million one-time costs related to the transformation program. These costs include initial steps on product portfolio simplification. As Bernd highlighted before, the completion of the Atellica platform with CI 1900 is the trigger for portfolio simplification.
For the full fiscal year, we continue to estimate one-time costs of EUR 100 million-EUR 150 million, as communicated in November. We expect the lion's share of these costs to be booked in the next quarter. In Q1, the margin contribution for antigen and the one-time costs related to the transformation program more or less balanced one another out. Therefore, the core margin was on the same level as the all-in margin. In the operational business, Diagnostics faced clear headwinds from the pandemic situation in China, from foreign exchange, and from increased costs, particular for procurement and logistics. Let's look at Varian and Advanced Therapies on the next slide. Varian has further expanded its strong order book with double-digit equipment order intake growth and an impressive equipment book-to-bill of more than 1.6 in Q1.
Varian posted a comparable revenue decline of 4.5% as a result of the held back revenues due to the supplier issue I mentioned beforehand. This is the same supplier topic that held back performance at Varian in Q4 last fiscal. While the issue was resolved in course of Q1, it did still lead to substantial parts of Q1 revenues being pushed out into the next quarters, especially in the regions Asia-Pacific, Japan, and China. After seeing a strong month of December with significant growth, we are confident of strongly accelerating revenue growth in Q2. Q1 adjusted EBIT margin was down from the prior year at 14.5%, burdened by the missing profit contributions from the revenue pushouts due to the aforementioned supplier issue and cost increases, particular for procurement and logistics. Adding to this, we saw a margin headwind from foreign exchange.
In light of these substantial headwinds, I would like to emphasize that the margin held up quite well at Varian. Advanced Therapies had a solid quarter with 5% comparable revenue growth, driven by a healthy backlog. We are very happy with the continuous top line performance at Advanced Therapies. As you know, our smallest segment can be lumpy in the quarters, but we have seen solid growth numbers in Q3 and Q4, and now in Q1. The margin Advanced Therapies was down to 11.6% due to the cost increases, particularly from procurement logistics and also unfavorable mix effects. At the same time, Advanced Therapies saw tailwind from foreign exchange. The investments into endovascular robotics business continued to weigh on margins in Q1.
Moving on from the Q1 results, let us now have a closer look at the dynamics we expect to see in the remainder of the fiscal year. Good. Starting with pricing and with the graph on the left-hand side on the chart, which you already saw in our disclosures from the last two quarters, we continue to expect our successful focus on pricing to lead to stronger margins, notably in the second half. The pricing measures continue to positively impact price levels in the sizable and growing backlog, where these improved price levels are steadily gaining share. As stated previously, there's a time lag of around 3-18 months on average, varying from product to product between order entry and revenue.
We expect to see sequential margin improvements in fiscal year 2023, accelerating notably in the second half due to the phasing of cost increases and pricing measures, as shown in the schematic graph on the left-hand side. Let us now have a look at the revenue growth dynamic in fiscal year 2023, and at the schematic graph on the right-hand side of the slide. We expect comparable ex-antigen revenue growth to accelerate from Q2 onwards to a substantial higher level than the soft 1% ex-antigen growth we have seen this quarter. Three major drivers affirm this acceleration of growth. Firstly, our sizable and growing backlog substantiates our expected equipment revenue growth. As I alluded to just before, we also see the price levels in the backlog improving. This will be another tailwind for the acceleration of growth.
Of course, our recurring service revenues contribute with resilient continuous growth. Secondly, after the resolution of the supplier issue at Varian has accumulated pent-up deliveries, which will be shipped from Q2 onwards, and accelerated revenue growth up and above the momentum we would have anyway expected for the year. As said before, we already saw a strong revenue month in December with significant growth. Thirdly, China had weak revenues in Q1 due to the overall COVID situation. Initially in Q1, tough lockdowns followed by exploding infection rates. At the same time, we recorded double-digit equipment order intake in China. We believe that China should benefit from the lifting of COVID control policy and from government stimulus program. Hence, we expect a positive dynamic in China with revenue growth picking up from Q2 onwards.
This dynamic will obviously also be a positive for the diagnostic business, which was the most impacted segment from the overall COVID situation in China. To summarize, you see that all indicators like improved pricing, the scheduled backlog, and even the low free cash flow due to significant inventory buildup, are actually heading in the right direction and are supporting our expectations on revenue growth and margin expansion for the current fiscal year. This brings me directly to the final slide for today, the outlook. First message, we confirm our outlook for fiscal year 2023. Let me reiterate. On revenue growth. We see the outlook well substantiated by our strong order backlog, including the impact from our pricing measures, Varian pent-up deliveries, and the expected positive dynamic in China.
On adjusted earnings per share, we see it equally well substantiated by the profit conversions from revenue growth, improving margins from pricing measures, and tailwind from foreign exchange. The guidance for our segments remain unchanged. In Q1, the situation in China predominantly impacted Diagnostics. Hence, we would point only for Diagnostics to the lower end of the growth and margin band, also due to the fact that we do not expect the lower testing volumes in Q1 to come back as pent-up demand. With Diagnostics at the lower end of the guidance, the high end of the group outlook will obviously be more challenging to achieve. With US dollar weakening worth the euro, foreign exchange will still be a tailwind, but obviously to a lesser degree than before, as already well captured in the recent estimate updates and in the consensus.
All in all, we continue to see the outlook for revenue growth and adjusted EPS as a very balanced view on the company's performance in fiscal year 2023, and then therefore comfortably confirm the outlook for this fiscal year. Finally, let me share our current view on the current quarter, second quarter. As mentioned before, we expect strongly accelerating revenue growth in imaging and advanced therapies, and especially in Varian, with the accumulated pent-up deliveries for Q2, where we expect growth in the higher teens. Due to declining antigen sales, we expect revenue in diagnostic to decline year-over-year. Just to remember, in last year's Q2, we posted the highest antigen sales in a single quarter of around EUR 680 million, so there will be significantly tough comps in Q2.
With the expected normalization in China, we expect the growth in the core diagnostic business to improve. On margins, please bear in mind that we expect to book EUR 100 million-EUR 150 million of one-time costs related to the diagnostic transformation program in this fiscal year that are not adjustable in our KPIs according to our financial performance systems definition. Let me highlight that this is important for us that we keep our KPIs consistent over time, and at that time are transparent about such very specific one-time costs that we are currently incur with the transformation program at diagnostics. In Q1, we booked EUR 34 million related to the transformation program, and we expect to book the lion's share of the remaining costs which are not adjustable in Q2.
With regards to the free cash flow, we expect a significant rebound of cash from operating activities in Q2. Also bear in mind that we will see the dividend payout again after our annual shareholders meeting in February. That will impact our cash flow from financing activities in Q2, as it does every year. Of course, this does not affect the operating cash or free cash flow, but it will affect the leverage development in a single quarter. With this, I hand over to Marc for Q&A.
Thanks, Jochen. Before we get into the detail first, let the operator remind you of the rules to register for the Q&A.
Thank you, gentlemen. We will start today's question and answer session where we would like to ask you to limit yourself to two questions. If you wish to ask a question, please press the star key followed by the digit five on your telephone keypad. Again, ladies and gentlemen, please press star five on your telephone keypad.
Thanks, operator. We start the Q&A with Hassan from Barclays. Hassan, you should be live now.
Good morning, thank you for taking my questions. I have two, please. Firstly, could you talk about the strength in the order book, how this is constituted by modality, and particularly interested in Varian, as well as by region? What was the contribution from the two larger contracts you announced in terms of the order book for the quarter? Secondly, could you talk about the weaker growth in Varian, and the extent of supply challenges in fiscal Q1? Have you already started installations in fiscal Q2, and could you talk about your confidence around mid to high teens growth that is implied by your guidance for the remainder of the year? Thank you.
Hassan, thank you very much for your question. I will start with the order book and try to describe it a bit in more detail. Let me start. When we talk about order book, we primarily focus on equipment orders. That means the Unilabs deal Bernd was referring to is not part of this. The double-digit growth, the 16% is without the Unilabs deal. It obviously entails the Atrium deal, but only the equipment portion of it, just to clarify that. That means when you look at this, I think this is a significant part of it, but not driving so say, the numbers alone.
Bernd gave you also guidance on what is the order backlog of our ES business. Overall, it's EUR 4 billion out of, I would say, total order book of EUR 30 billion+ . That means we talk about at max 15% of orders coming from ES. The current quarter was not very different in this regard. When we look at the regional distribution, we saw very, very healthy orders coming in across the geographies. We saw double-digit order growth in EMEA, in Asia Pacific Japan, in China, and we saw high single-digit order growth in Americas. It was healthy across the board.
When you also look via business areas, we saw double-digit equipment order growth in imaging, in advanced therapies, as well as in Varian, yeah. That's why it was, you can say very broad-based, yeah, across the board, regionally as well as business-wise. Yeah.
As to the second question, maybe stated in other circles already, what is the background of the topic? We have one supplier of a key electronics component, who has shifted production from China to Mexico and has faced significant yield problems. Which led to the fact that we had to produce Corindus for delivery, but needed to wait for that component. The situation is under control. We have in December already had a very normal delivery schedule, and now the team is catching up with the deliveries.
The topic is fixed and that is also why we are very confident about the Varian growth target price of the full year. Maybe as another comment, I also said this in the press call. This is one of the things where in the long run, Varian will in addition benefit from being part of the Siemens Healthineers organization and its larger scale. Because typically components like this, we tend to have in-house, so that it's also much easier to manage situations like this. As specified, a transient problem, and I am very, very confident in the Varian team here.
Very helpful. Thank you. If I can just follow up, Bernd, obviously a very impressive order number, but are you seeing any caution in the US market incrementally in your customer discussions, given what some of your competitors are saying?
No, actually not. I mean, we have this. I think the US market is very healthy. When you look at it, there I mean, what we provide is, on the one hand, helping in big problems of our customers, which means, the labor cost topic and also the staff shortage topic. It is of utmost importance here to also invest into productivity. Yeah, you can look at our type of equipment as an investment to overcome the challenges. In addition, that is especially true for imaging, you know, imaging is the front door of a hospital. Yeah.
If you are not competitive there and also as that is not an area where we see artificial ways of holding the breath at the moment, and we don't see that the situation is changing. This discussion about hospital topics and so on has been with us for a long while. Yeah. You have also seen that the order book is proving the opposite, and I see no reason why this shouldn't continue. Yeah.
Okay. Thanks, Hassan. We'll go on to the next caller online. That would be Veronika Dubajová from... Veronika should be live.
Excellent. Good morning, and thank you, gentlemen, for taking my questions. I will keep it to two, please. My first one is on the imaging margin, and Jochen, your degree of confidence and progression as we move through the remainder of the year? With the almost 21% is a good starting point. I was just hoping you can spend a little bit more time quantifying the benefit you expect from price and the benefit you expect from declining procurement logistics. If you can put some numbers around that, so we can feel more comfortable with the full year take there. That'd be a good starting point. My second question is a bit of a follow-up on the top line discussion. Just curious, Bernd, about the competitive environment on the order side of things, in particular in imaging.
We've seen some very divergent performance from you and some of your peers. I'm just curious what you're seeing out there in the market, maybe a comment on China specifically, and whether that is a market where you're doing very well relative to peers? Thank you.
Yeah. Veronica, thank you for your question. As I think I can cross that, we were very satisfied with the margin profile of imaging in the first quarter, considering that the growth was very solid, but below our fiscal year guidance with 7%-9%, yeah. When you look at the margin expansion opportunity we have seen there with 100 basis points, really net-net, yeah, because as I said, the foreign exchange tailwind was more than offset by still year-over-year, higher procurement logistic cost. Yeah. We always need to remind ourselves year-over-year means October to December 2021, that was quite a different world we lived in at that point in time, yeah. That's why it's still increasing, yeah.
What we have more or less penciled in in our full year margin profile for imaging is at the end, not a significant contribution from lower procurement costs year-over-year, but more from two things, conversion from the top line as well as. This goes hand in hand, yeah, because conversion from top line, better pricing kicking in. What is really, really good is that we see those pricing topics we have seen in the order book now already starting to find its way into the P&L. When you look at our equipment businesses, we have in imaging the modalities which have shorter lead times between orders and revenue than, for example, in AT or Varian.
Therefore, we have seen here already in Q1 the first good signs of better pricing and revenue, which helped for the conversion, yeah, which we have seen, yeah. I hope that clarifies it a bit, yeah. This, and Bernd is taking the second question.
Yeah. Thank you, Veronika. I mean, looking at the competitive situation we see, I'm very proud of the team here, yeah, continued market share gains in orders, across the globe and in the key geographies, the U.S., also in China. Some comments on China since you asked specifically about it. We are here clearly in the leading position when it comes to the peers. What we also see is especially in a quarter like the last one when there is also government programs, that there is a bit of a momentum in the local competitors, yeah.
That is something which, I think, has two sides, yeah. On the one hand, it shows that it's a local topic. The Chinese market remains extremely attractive and super important for us. It might be that in the long run, the competitive dynamic is a little bit shifting. Let's say, you know, in China you can choose, here's the world market leader and innovation leader, but then there's also a little bit of a local hero. It makes it harder, I believe, yeah, when you are a global number three or four to stay a viable alternative, yeah.
That is a bit of what I see in China, and overall for the year, in both orders and revenue, but also when it comes to the margin contribution. I'm very, very optimistic and also very, very happy with what the Chinese team is doing.
That's very clear. Can I just ask, Bernd, was the China order growth much higher than the 16 that you reported, or was it similar to the 16 that you were talking about for the order book overall?
A bit higher. A bit higher, yeah. I mean the positive thing is, I mean, there was the, I mean, Hassan's question in the beginning about, you know, the ES contribution or ES, enterprise services, Value Partnerships, which is more in the 15% range or so in the rest of the world, yeah. In China, it is a pure transactional business, yeah. This is not a market for Value Partnerships, mostly since it is, it is more hospital by hospital. Very good order growth there.
Terrific. Thanks, guys.
Thanks, Veronika. We go head over to Graham from UBS. Graham, there's time for you. Your two questions now, please.
Morning. Morning, guys, and thanks for taking my questions. Just one on the guidance. I know at the end there you sort of talked about the upper end of the range being a little more difficult to achieve. Just thinking about some of your comments around cost tailwinds maybe not being in your guidance, do you feel like things like freight and chips might make things a little bit easier for you in the second half? Is that maybe some sort of upside or a fact there? Then could you just talk more generally about supply chain? Is that now really improving for things like imaging as well? Thank you very much.
Graham, I believe it is a bit too early to pencil in, I would say, more tailwind from potentially lower costs in the second half, yeah. Obviously, we are well prepared to participate if that really happens, yeah. As I said, yeah, our guidance for the businesses is built in, I would say, on a solid print with regard to the cost items, yeah. If there is upside to this, we will update you accordingly.
As we said, yeah, with the first quarter in diagnostics, yeah, which was a tough quarter also in the core business, yeah, due to China, I think it, we are currently, I would say, I do not see us moving out of the guidance range at all, to the upper end, yeah, just to say this, yeah. Even if there is a bit better cost position, yeah. As we go through the year and as we see how that stabilize and becomes sustainable, we might update you on this, yeah. Just to say that. Sorry, Graham, on the second part, I'm not sure what was the additional question you had there on the SM side? Can you please repeat that?
Sure. It's just around supply chain. Obviously you've seen an easing of the situation in Varian. I'm just wondering if you were comparing maybe imaging now to maybe where you were in the summer of last year, how much better have things gotten? Do you still need, you know, are you still struggling for some components in some areas?
I mean, I'm not sure. I think the Varian topic is a very specific topic, yeah, as Bernd alluded to. I think that is, I mean, you could even argue it has nothing to do really, not really, something to do with the supply chain challenges we were talking about, due to the, I would say, the consequences of the pandemic, right? It's.
The world is talking about.
Yeah, the world is talking about, you're right. I think therefore it is of a different nature, yeah. I think the important topic is we have fixed it, yeah. We have now the yield we need to work through our pent-up deliveries in Varian, and the team is full steam working on it, yeah.
Okay, super clear. Thanks a lot, guys.
Thanks, Graham. We head on to David Adlington from JPMorgan. David, please ask your questions.
Morning, guys. Thanks for the questions. Obviously one of your competitors canceled some orders with their customers during the quarter. I just wondered if you've seen any benefit of that on your orders in the quarter. I suppose in, on a sort of more medium term view, do you see potential for further gains as a result of some of those issues at your competitor? Just on China, just given the evolving situation, obviously very rampant COVID situation in China, just wondered if any risks around installations in the second quarter that we should be thinking about.
Yeah, David, I, this is not, when it comes to this cancellation topic, this is not something we consider, and we also don't see it as an issue, yeah. I mean, when we give the guidance, or the, let's say the perspective for the full year, including Jochen's chart, yeah, how margins will recover with the pricing measures kicking in, it takes into consideration that we have some older orders, yeah, at different price levels. What we don't have is orders at crazy price levels. I think Siemens Healthineers always was disciplined in pricing, yeah. Also because we have a little bit of a more global approach to it.
We are a company which values its commitments, and the price for valuing our commitment is not high. I believe, I mean, to your point, there is a potential upside, yeah, that this is not helping customer satisfaction when it comes to what other companies are doing, yeah. I mean, I don't want to quantify this, but I believe, when you want to be a trusted partner, you should stay to your commitments, yeah.
David, you also talked about the potential installation risk in China, and but when we look at what happened in the last quarter of the calendar year, that I would say the highly populated areas in China went through a real pandemic heatwave. To say, our assumption is that we have most of it behind us and that we get back to normalization. Therefore, we also expect that we should be in the position to install in a more normal fashion than we have seen over the last quarters in China due to the more to the lockdown situation than the COVID policy release situation.
I don't have a crystal ball what all can happen, but I would say the current signs we have and also I would say the messaging from our local teams is clearly, I would say, cautiously optimistic that we are back to normal in China with regard to supply chain and logistic processes, with regard to downstream installation processes and things like this.
That's great. Thank you. Maybe just a cheeky follow-up. You mentioned that you had very strong service growth. I just wondered, I may have missed it, but were you able to quantify the growth in service revenues?
David, normally we said, we strive for 6%, yeah, service growth, and in Q1 it was even a bit better than six, yeah.
That's great. Thank you very much.
Thanks, David. We move on to Sezgi from HSBC. Sezgi, please ask your questions.
Hi. Thanks for taking my questions. I will have two, please. First of all, given how much in focus the photon counting was in RSNA, now some peers are also talking about doing similar, bringing similar products to the market or RSNA was talk of it. How does the outlook now look, what's the weight of CT counting within your order books? Are you seeing any market share gains in CT versus other imaging segments? That's the one question, please. The second, the tax provision that you saw, was that related to Varian or a different matter that we would know? Do you expect, I mean, if it was reserved, I would assume that you expect it to remain so.
Does that have any impact, any changes on your tax outlook for 2023 and beyond?
Yes, Sezgi, thank you very much for the question on counting CT. I mean, first of all, it was really very amazing to see, you know, the momentum at RSNA. I mean, one of my personal highlight was being at a user meeting where the first customers were presenting on what that technology is doing and how it is really changing clinical practice. I mean, something we normally internally don't like. You know, many people say, "Well, you know, I can do stuff which I normally do with MR." There's also topics of which were simply unheard of, plus the additional benefit you always have of much lower patient dose, yeah, or dose, or X-ray dose, yeah.
Really amazing momentum. The positive is also that it, that there is violent agreement, yeah, in the community that this is where the field is going, that it will become the standard, like multi-slice CT was in the beginning of the century. That is also what I sort to say like, and it sounds arrogant, but it's meant seriously, yeah. In the statements of our competitors, yeah, that they don't doubt the technology and say, "Hey, we will do this too," yeah. That means it is a big confirmation.
The good thing is that we are extremely ahead in terms of where we are, not only in the technologies, but also when it comes to having user meetings where people look at how they deal with patients, how they change clinical practice and so on and so on, which is something completely different than having a prototype installed in two years from now or so. To quantify it, I mean, a little bit, I mean, CT is 30% roughly of our imaging volume. Out of that 30%, I mean, the high end is maybe in the 10%-20% range, yeah. Extremely margin accretive, yeah.
This is an area where, I mean, we are basically a little bit a league on our own already with the dual-source CT. In a way, this is, in this segment, it is not so much a market share game. It is a market expansion and a make market game.
I think you asked very, very, very widespread questions. We go to the tax topic, yeah. Sezgi, as you rightfully said, it was a provision, yeah. There was a trigger in our Q1 which led us to release the provision. It is, I would say it is a more normal topic which can happen. The trigger was set by the process of a tax audit of a country, yeah. Therefore, I would say something in the normal course of business, what can happen. Is it something which drives in a sustainable manner our tax rate outlook down? I would say no, yeah.
As you know, we had for five years a tax range guidance, 27%-29%, yeah, for our first five years. We lowered that by one percentage point for this fiscal year to 26%-28%. This release of the provision obviously, is tailwind to end up more in the lower end of the band than in the upper end of the band, yeah. Just to say this, yeah. I think it's not necessarily a precursor for expectation that we will lower the band quickly again, yeah. Just to say this, yeah.
Great. Thanks, Sezgi.
Yes. One I'll put in the past. Thank you. Yeah.
We still have quite a long queue, and actually, the call, according to our invitation, is already over. I think we extended another five minutes, but we will not make it fully through, and we'll get back to you guys. The next one in the queue will be Julien from Bank of America. Julien, please, go ahead and ask your questions.
Thank you very much. Matt, good morning, everyone. Very quick follow-up for me on Graham and David's questions. Very strong order intake, and you stressed a very strong revenue, from MRI, within molecular imaging.
One of your peer recently mentioned that basically they couldn't take any new order in MR, due to a lead time exceeding a year. Could you for the first question, do you take new orders, like, in this modality? Could you maybe share your lead time for MR and also the rest of the businesses, if it's possible? Thank you.
Yeah, sure, yes. Thank you. I mean, we take orders. Simply because, I mean, our lead times are completely under control. I mean, typically, yeah, to give you a little bit of a flavor, the lead times in imaging vary a little bit by business, yeah. Because the, let's say it's all. There are, like, basic X-ray systems, ultrasound or so which are almost, you know, they are there's no installation required. Typically, so on the CT side, it's more in the 3-6 months, yeah, if it's not a long-term multimodality contract where you have multiple installations over time. In MR, it is typically a little bit longer, and that is more a customer topic, yeah?
The MRI also requires typically measures on the siting site. It's room preparation. There is the shielding which is necessary for the radio frequency and the magnetic field and so on and so on. Yeah. Typically, on the MR side, it is more, you know, in a six to nine months range. We did not have any situation, yeah, where we had to walk away from an order or from a deal because we could not offer a delivery time for the customer, yeah. I hope that answers the question. We won some orders because of this, yeah.
I wouldn't make this a big part of the market share gains we have. It's just another, let's say aspect of being the company with the leading portfolio and also the biggest scale, and with this also the biggest stability of the business, yeah.
Perfect. Crystal clear. Thank you very much.
Thanks, Julien. We come to the last one for today's Q&A, and that will be Robert Davies from Morgan Stanley. Robert, We give you two questions.
Thank you. Yeah. Just my first one was just around the ex-antigen profitability against some of the other global diagnostics peers. Just there's been a bit of a differential lately in terms of profitability. Just if you could give us a little bit more color of what's going on there and the expectation over the full year and into next year? Where's the medium term kind of run rate on that business? The second one was just around your comments you made on Varian. You seem to sort of obviously have a high conviction that that's coming back mid-teens next quarter. Just in terms of the profitability of that business, are we expecting a sort of disproportionately large kicker on that volume growth into 2Q and then normalizing into the range?
Just if you could kind of, I guess, walk us through what your expectations are around profitability for Varian specifically. 'Cause obviously you've had a couple of quarters now where you've been below the range on the supply chain shortages. Are we gonna see a sort of spike and then a kind of normalization back into the range? Thank you.
Yeah. Thanks. Thanks, Robert, for the question. Let me start with diagnostics. We have a clear target out there for 2025 on diagnostics to be ex transformation costs if there remain any in 2025, around 8%-12% margin, yeah? Yeah. Which is still below the best peer group there, yeah, which is clear, yeah? Therefore, it is intermediate step, yeah? I think we felt that it is meaningful to keep that time box in place, 2025, and give guidance on the margin there. We expect us to move with the transformation measures which lead to EUR 300 million additional cost savings until 2025, yeah, gradually into that window of 8%-12%.
I hope that clarifies it. As we said, over the last two years, we were in the low single digits margin territory. When you now look year-over-year, we had in addition, yeah, supply chain, foreign exchange, China had within the quarter, yeah? If you add this all together, it's about 600 basis points or so, yeah, negative year-over-year in the core, yeah? Without the antigen topic, yeah? That is not too far off to where we have been in the past, yeah? We all know this business has high contribution margins. When you are faced with negative growth, yeah, then you also are faced or impacted by this heavily, yeah? On the Varian side.
Mm.
To be honest, when you, in this quarter, we shrank by 4.5% on the revenue line, and we grew significantly on the order line, yeah. Our outlook for the fiscal year.
Mm.
Is 9%-12% growth, yeah? You can say double-digit growth.
Mm.
That means, yeah. When you look at the margin level of 14.5% relative to the full fiscal year margins, that's also why of 16%-18%, that's also, I feel relatively good about Q1, considering the very low revenue line in that quarter. Therefore, I was more, I would say, more positive about the margins, considering the low revenue line, yeah. Therefore, I expect us with conversion, better pricing, move up into that margin band relatively quickly, based on the high teens margins revenue growth we guide for in the current quarter, Q2.
Okay, thank you. That was great. Thanks.
Thanks, Robert. That brings us to the end of today's call. Thanks for all the questions. Promise you guys who are still in the queue, we'll make sure that you get prioritized tomorrow morning in our sales at breakfast. We look forward to communication in the next few weeks and days on roadshows and conferences. At latest, here and see you at our Q2 call in May. Bye-bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the Investor Relations section of the Siemens Healthineers website.