Hello, everybody out there. Thanks for tuning in again to the IR quarterly wrap-up. What an equity market it is these days! The volatility has really been unprecedented in the past months. In light of that, it makes sense to provide a timestamp for this recording. This podcast was recorded on the twenty-seventh of May, 2025, in the morning. I am sitting here with Bernd Montag and Jochen Schmitz in a meeting room in Erlangen with a coffee and some Coke Zero, although I think there is enough energy in this room, so we could probably do without the supplements. We have been on quite an extensive roadshow with management, and IR only, seeing investors across Europe and in the U.S., mainly in person, but also virtually, and had lots of interesting discussions.
As usual, in this podcast, we will try to sum these discussions up for you in an efficient way. What do you think, Bernd? Do you want to get us going in this round with your summary of the Q2 highlights from your perspective?
Yeah. Thank you, Marc. I think one clear highlight has been the continued very, very good book-to-bill we had. We see nice growth across the board, nice margin expansion, especially in Imaging and Advanced Therapies. Diagnostics is very well on track, delivering margin expansion from the transformation program. Varian, again, very, very strong growth, which had also, because of the strong equipment portion in it, an effect on a little bit of a muted margin in this quarter. Free cash flow was again good and much higher than in the prior year quarter. We did confirm our outlook when it comes to the top line and when it comes to EPS. We have widened the range from EUR 2.20 to EUR 2.50, coming from EUR 2.35 to EUR 2.50 because of the tariff impacts, which we certainly will discuss further.
Let me pick up on that topic. Jochen, would you want to run us through the logic of the guidance change?
Yeah, sure. Let me start with what we have not changed. We left the revenue guide unchanged, so we expect to grow with 5%-6% for this fiscal year. Now, coming to adjusted EPS, and after the good H1, we would have been at least at the upper end of our original range at the EUR 2.50, and now we have to incorporate our assumption of the net effect of tariffs between EUR 200-300 million EBIT, which translates into about EUR 0.15 on the EPS side. And then when you then do the math and deduct, so to say, the EUR 0.15 from the upper, original upper end of EUR 2.50, you end up at EUR 2.35, which is, so to say, the new midpoint of our range.
Okay. With the impact of tariffs, topic of the day, people also wanted to understand our underlying assumptions.
Yeah, I mean, the assumption for the new guide were, so say, that the tariff as formulated at the point of time of reporting, yeah? And that means that the EU to U.S. tariffs would move from 10% today to 20%, starting in early July, I think ninth of July, and also at the China pre-pause rates, which were not so relevant for us as we have, first of all, a lot of value add anyway in China and for those, well, for the stuff which is not, so say, coming out of China, for China or from the US to China, we had certain exemptions already in place. This leads then to a net effect of EUR 200 - 300 million, and the mitigation is about EUR 100 million in there.
As you know, the main exposure comes from the export of finished goods from Europe into the United States, in particular, on Imaging as well as Advanced Therapies.
Okay. So mitigation, as you just mentioned, were also often discussed, Jochen, so maybe you could remind the audience which mitigations are actually reflected in these around EUR 100 million?
Yeah, I mean, first of all, we try to stay also, I would say, prudent in what we consider as mitigation potential. Initially, I think our—I mean, obviously, we did what we could do on inventory optimization. This is obviously a topic which will dry out over time. And then we looked into the supply chain and tried to optimize when you have the multi-source supply to take, so to say, the supplier who has less exposed to tariffs for us. And then, obviously, we have the ability also to think about pricing and pass-through of tariffs based on terms and conditions which are in place. Obviously, we are here also very mindful about our relative position in the market, and we will see how much we can get from this.
And then lastly, I think we also are being even more cost-conscious than normal and try to, so to say, mitigate a certain portion of the effect also by being more cost-conscious.
Okay. But next to understanding the 2025 outlook dynamics, investors were also keen to understand our view on the tariff situation impacting 2026 and beyond, and that's obviously a difficult one in light of the volatile situation, but, we gave it a try, right?
Yeah, we gave it a try, but I mean, the environment, as you rightfully said, is still very much in flux. Yeah. I mean, we have seen that end of last week, over the weekend, yeah, telephone calls can change things quickly, as we have seen, yeah? And when the EU. negotiations are still ongoing, China is also paused only, so we will likely see changes by the time we give, I would say, the hard guidance for 2026. But assuming the tariff environment, as we set out in April by the current U.S. administration, then we believe that the conservative case is roughly double the number of what we have seen or what we have guided for the H2 of this fiscal year, so EUR 400 million-EUR 600 million.
Thanks, Jochen. So we often got the question why we call this a conservative case, and this may be one for you, Bernd.
... See, one way to look at tariffs is that their impact is something like a stretched one-off, similar to how when inflation hit us in 2022, 2023. We have seen in this quarter, for example, how Imaging is back at margins above 22%. We saw a nice margin expansion, and that is also how we look at tariffs. There will be a temporary dip of our margin levels, but then mitigation will kick in. Mitigation meaning on the, on the cost side by adapting our value add structure if needed, and we have proven to be able to do this, and of course, also by taking measures on the pricing side.
Thanks, Bernd. So before we move on, let me briefly comment on one topic that did come up quite often. The situation with the Siemens placement, potential further placement or placements and their Capital Markets Day in December. We would, in the first place, obviously refer investors to the Siemens AG to discuss this topic in detail, and we have always been outspoken that we do not see important synergies between Siemens and Siemens Healthineers, and that we would consider a higher free float in our shares as beneficial for the share. Now, back to you, Bernd. People wanted to get a feel of market dynamics, starting with our book-to-bill, which was pretty strong in H1. What should we expect for the rest of the year?
We expect Book-to-Bill of at least 1.1 for the full year, which is a good number. It was 1.1 in fiscal year 2024, which was also a very good number, and this implies a decent H2, well above 1, with good transactional business. And, keep in mind that our assumption in China means still no growth contribution in the H2.
So market stay intact, right? Especially in the U.S. What is your take on the situation there? Any risk of economic uncertainty spilling over onto our markets?
I mean, what history has shown, yeah, and sometimes I always say this preamble of answering now as the veteran or dinosaur in this business, you know, that the growth in imaging and type of technologies we provide is much more driven by procedure growth and capacity expansion in order to meet patient demand than by discretionary investment decisions. You can basically look at it much more like an OpEx-like decision than a huge investment decisions done by our customers. And that is why the business is much less dependent on macroeconomic factors. Sometimes people speculate about about cycles and so on and so on. But when looking at the data also of the past, the growth in imaging and also radiation therapy and advanced therapies has proven to be extremely robust.
Okay, and how about China? People are wondering if we were seeing any reason to turn more optimistic on this important market.
First of all, there is a lot of reason to be optimistic about China coming back to more normal levels, but we have not seen this normalization yet, and also don't see currently a step towards this direction. So, currently, the anti-corruption campaign is still ongoing. We also don't see yet that the need for satisfying the pent-up demand and the stimulus program is overcompensating this. Yeah, so it's not yet, but I'm optimistic at some point in time, China will get back to the normal levels.
Thanks, Bernd. Aside from a lot of the more market macro-focused topics, we also got some questions on the Q2 margin at Varian, a temporary issue. Jochen, maybe that's one for you.
Yeah, I mean, first of all, Varian continued its high growth momentum with a 12.5% growth in Q2, yeah, and proceeding on this, I would say, a very good growth path. Within the 12.5%, there was a significant and overproportion share of equipment revenue, which is per se not a bad thing because it creates new sockets for future, also future service growth. But we have in Varian, in particular, different to imaging margin or gross margin delta between equipment and service, because LINAC platforms are, generally speaking, longer in the marketplace than in imaging as a main reason for it. And therefore, it can happen that such a mix between service and equipment leads to lower profitability, which is per se not a bad thing, but it has an impact on the quarter.
We expect the margin for the current quarter, means Q3, already significantly better. When you want to model it, I would say, as we said also at the call, think about a flat margin year-over-year for Q3.
Speaking of Q3, can we say how the running quarter is going for the rest of the business?
I mean, as, as I said before, and when we talked about outlook in general, I think we also expect for this current quarter, Q3, on revenue growth and unchanged development in more or less the guidance range, which we guide for the full fiscal year, 5%-6%, and also the segments in line with the respective assumptions laid out as of Q4 of last year. On the margin side, as I just said, on Varian, we also expect, or we think it's maybe best to model flat margins year-over-year for the segments due to the tariff impacts we see in the Q3 for the first time.
We also got some questions regarding phasing, so Q3, Q4, what can we say on this one?
Talking about phasing, it's maybe a bit too early, but we expect the tariff impact in absolute terms to be larger in Q4 than in Q3. Also, due to the fact that Q4 is also larger in absolute terms, but also some of the mitigation measures we put in place also drying out, you know, the inventory topics. And then, obviously, as Imaging has the largest absolute EBIT number and also the absolute share of revenue, the largest absolute tariff impact will show up in Imaging. Nevertheless, Q4 is still expected to be a strong finish in absolute terms, our usual strong year-end performance.
Okay. Next to this, people wanted to understand what had been especially driving imaging growth in Q2. Maybe that's one for you, Bernd.
Yeah, maybe let me go into one topic we are normally not talking too much about, but I'm extremely proud of the success of our PETNET team. This is now turned into a really meaningful business. In the meantime, it's clearly north of EUR 500 million in revenues now on an annualized basis. Growth rates are double digits, and it confirmed why we continue to invest into this business, and also why it was the right decision to invest into the enormous productivity and the dense network and all the logistics around having such a network. Because now with all the vibrant innovations coming from the pharma companies, whether it's in Alzheimer's or whether it's in diagnostics, we are really their partner of choice, or if you wish, we are we own a strategic control point and participate from their growth.
Great. Now to round off today's session, maybe some comments on Photon Counting. Where do we stand in the rollout, and what do customers say? A topic that seems to be on almost every investor's mind.
I mean, a lot of good news. I mean, all FDA approvals are now there for all three Photon Counting systems we have on the market now. We have a full family of systems still in the high end, yeah, but now we're in, covering many more price points. A data point now, currently, 20% of our orders in CT are already Photon Counting, and when looking at the future, we have clear visibility to be able to match all price or cost points, yeah, and with this also in the long run, price points, of conventional CT with Photon Counting CT technologies. And it is very clear that radiology community sees this as the future.
I don't think you find any radiologist who said, "I will never have this." It's just the question of, when is the right point in time from a budget and replacement cycle point of view. So we have lots of reasons to be happy what we have achieved, but lots of reasons to be happy about what's ahead.
Great! So that rounds it up for today. I would like to briefly remind our listeners that we have launched our perception study, which will be important input for us in terms of preparations for the Capital Markets Day on November seventeenth in London. So I encourage you to take part in this perception study. We appreciate every little bit of outside and feedback, and the Healthineers team wishes you a nice summer period, maybe some nice time off. In the meanwhile, so you don't get bored, we are preparing a further deep dive podcast focusing on the topic of Theranostics that Bernd just talked about. So stay tuned. Bye-bye.