Hello, everybody out there. Thanks for tuning in again to the IR quarterly wrap-up. I'm here with Bernd Montag and Jochen Schmitz, and we are going to run through all the key questions that we encountered on our trip, our virtual trip to the U.S. and Europe, that we had in the past week after our reporting. So as usual, we should maybe kick it off with you, Bernd, giving us a brief summary of what you found worth highlighting with regards to our first quarter 2025.
Yeah, first and foremost, we were very happy with the strong development of our top line. Revenue growth came in at 5.7%, which was very well within our full year guidance range, and on top of that, we had excellent equipment book-to-bill of 1.21. We had a nice margin expansion, which created also a nice growth of the EPS to EUR 0.51 . Free cash flow was a clear exclamation mark, and with EUR 810 million, we more than tripled this compared to the Q1 of the last fiscal year. Looking at the segments, we had very good growth in Imaging and Advanced Therapies, and again, Diagnostics proved to be very well on track with its transformation.
Thanks, Bernd. So the good quarter was also part of many discussions with investors who were trying to grasp if this strong book-to-bill was now a new normal, and what would you say on this one, Jochen?
Yeah, I mean, obviously, we were very happy with our book-to-bill, and the book-to-bill was broad-based, but it also included quite a decent contribution from Value Partnerships. Therefore, we should not just extrapolate it to the full fiscal year. Probably getting again to a book-to-bill of around 1.1 for the full fiscal year would be a more realistic expectation. However, the strong Q1 clearly proves that our growth is fully intact.
Great. So with respect to the strong results, we also got the question on how to square this with the statements that we've made for the second quarter.
I mean, Q1 was clearly a beat on expectations, yes, but also for the group, still within the fiscal year guidance for comparable growth. We guided a bit more conservative for Q1 because we knew about the one-off at imaging and did not want to start into the year with a negative surprise on imaging. Adding to this, Q1 maybe did turn out on a bit of the higher end, thanks to the good transactional business we saw in the United States.
What are the regional dynamics that we should be aware of with regards to the rest of the year?
Yeah, I mean, first of all, keep in mind that, the U.S. is running against stronger comps in the course of the year, in particular in the second half. Then again, China was weak in Q1, with high single-digit negative as guided, and is expected to be broadly flat in the second half. Hence, we still feel very comfortable with our outlook for our China assumption and as a whole overall, and my statements on Q2 are clearly not contradicting this.
Thanks, Jochen. Now, changing topic a bit to our Diagnostics segment. People do see the good margin development, thanks to the transformation program, but would also like to understand the impact of volume-based procurement in China. Bernd, maybe that's one for you.
I mean, as I said already in the beginning, we are very happy with what we see in terms of the great progress of the transformation program and how the team in diagnostics is doing. Growth is, and will still be muted for some time, driven by two major headwinds. I mean, on the one hand, it's the well-known topic of our legacy business intentionally declining while switching to our double-digit growing Atellica franchise, and then as a kind of temporary ad effect, the volume-based procurement in China is a second topic. Yeah, these headwinds from this volume-based procurement are expected to hold back growth in margins in fiscal year 2025, but more strongly in the second half, and are included in the diagnostics growth and margins assumptions. We also expect these impacts to last until 2026.
That said, people wanted to understand this China volume-based procurement a bit better in terms of size and duration of this beyond the current fiscal.
So we expect this new pricing baseline to be fully implemented by 2026. It's a nationwide, if you wish, rebaselining of the pricing levels in diagnostics. It is not 100% clear, by the way, how this change is also impacting business partners versus us, but we have this development in our outlook. We expect a normal growth pattern after that rebasing in China from 2027. That said, volume-based procurement is only affecting diagnostics in China, hence, about 10% of the diagnostics revenue are affected, which is 2% of Siemens Healthineers' overall revenue.
So again, speaking of China, Jochen, we had quite a few people wanting to understand local market dynamics and our ability to defend our market position in China, mainly related to imaging.
I think we are successfully maintaining our market position over the years. In fact, last year, we even gained a notch. Our market share is below global average in China and has ever since been that way, and there's nothing changing. We are well positioned as a local player, meeting essentially all regulatory requirements in terms of localization, and we are probably a bit stronger in the higher-end product market segments.
What would you say in terms of market dynamics, short and medium term?
Well, in the short term, we have not seen a big change in the market dynamic yet, we do not see any signs currently. However, we are convinced that the market will swing back at some point, but this will then also show future growth for the business. And, what is, I think, most important, that our guidance is not depending on this potential swing back, yeah.
Now, speaking of the reason for this growth slowing in China, which was obviously somehow government intervention driven, so we also see some bigger interventions on a global scale in terms of potentially interfering into global trade. Many investors wanted to know how we were prepared and what the impact of the announced tariffs be on our growth and profitability. Bernd, maybe you can speak to this.
Well, on a group level, we expect only minor impacts from the U.S. tariffs on imports from Mexico if they are imposed. With regards to these Mexican tariffs, Varian would essentially be the only affected segment. The U.S. tariffs on Canadian and Chinese imports are even less of an impact for us. All in all, we expect these headwinds to be rather limited and manageable, and at the same time, we also expect a tailwind on adjusted EPS from a strengthening of the U.S. dollar. This means that we expect the headwind from the U.S. tariffs and the tailwind from foreign exchange to be more or less a wash for adjusted EPS in the fiscal year 2025.
What about the bigger picture? People are also concerned about a full-scale trade war between the U.S. and the E.U.
Of course, we share the concerns with regards to a global trade war, and we are definitely not immune, yeah. But on the other hand, when you look at our industry, healthcare and med tech, we are certainly on the lower risk side, since a functioning healthcare system is typically a high priority for any government. And additionally, our addressed markets are, looking at the size of total flow of goods in the world, relatively small, but while having a huge impact on healthcare systems and the care for patients. So our sector usually is not in the center of trade wars.
We also have a well-diversified global manufacturing footprint, with the U.S. playing an important role, right?
Yes, and I think this is really, really noteworthy to highlight. We have a very balanced value add structure. Two out of the four segments are headquartered in the United States. Even in the imaging business, two out of five businesses are headquartered in the United States. We have more employees in the U.S. than in Germany, so we, even from that point of view, we are more on the lower-risk side.
Thanks, Bernd. It's tricky to bridge to this topic, as it's not really coming from an operational context, but it's just as important to shareholders. What can we say to take concerns away from shareholders about the potential consequences of a change of control for Siemens Healthineers? This is probably one for you, Jochen.
Yes, Marc. So firstly, the change of control, this is all speculation, in particular with regards to ifs and whens, yeah? So if change of control would be triggered, then the question will remain: when will that happen? A change of control, and here I continue to speculate, will likely not happen in the short term just because of the size of the transaction. And if there were a change of control, Siemens AG would need to opt out and terminate the loan, so this would be a willing of Siemens, yeah? And if they opted out, there would be still a grace period of about 12 months. So as said, if this would happen, it will not impact us in the short term.
It will only have a relatively small impact in the medium term, potentially a mid-range, one-digit cent amount on EPS from refinancing in the mid-term, based on current, interest rates. In the short term, this does not change anything in our financing structure and in our direction. We continue to focus on de-leveraging to pay down debt.
Very clear. Thanks, Jochen. What became clear to us is that investors are beginning to really understand the great cards we have on our hands when it comes to continuing to win in the CT market, and they would like to understand how we expect to benefit from this competitive advantage, which we've gained with our innovative strength.
What we do in photon-counting CT is executing a well-thought-through long-term plan, yeah, from starting the technology development years ago to then very mindfully select early adopters with the first version of the product, which is the lighthouse of photon-counting CT, if you wish. We are working with the key opinion leaders in the world of radiology, with the early adopters in academic medicine, but also in quality-oriented imaging centers, and that is super important to create the buzz in the market, while at the same time also making money, yeah, with these premium products. But most importantly, it is about creating the conviction in the community that this is the way to go.... This is achieved with, now in the meantime, 500 white papers published around the technology.
I think as everybody knows, it is an industry and medicine-wide conviction that this technology will be the future standard. Yeah, it's not only what scientists say, it's what every radiologist says, and it is what also all our competitors confirm. And now, in a next step, we use that bus to come up with the next products, which are at more affordable price points. And the good thing is that we have clear visibility in our roadmap that we can also meet the cost points of traditional technology with the new generation of products, yeah. And another good message is that these new products will be accretive to the imaging gross margin.
Great. In terms of winning in the market, we have already seen impressive signs of what this new technology can achieve looking into the deal we announced, right?
Yes, and I think this is a deal which is important out of two reasons, yeah. Because on the one hand, it shows that Photon-counting CT makes inroads in also the traditional customer base, meaning in two hospital systems. This is a private hospital system in the United States, yeah, which is using this to revolutionize in their practice, how they do cardiovascular care, but also how they do CT scanning. So it shows that the technology is spreading, but on the other hand, it shows also what a competitive weapon the technology is, yeah, because this customer so far has been a stronghold of a competitor.
Great, Bernd! Finally, to close it off, maybe you want to briefly touch on our successful closing of the Advanced Accelerator Applications molecular imaging acquisition from Novartis, and why this is an attractive business for us to invest in.
Yeah, I mean, we have this PETNET business in our portfolio, which is... I mean, in the meantime, I wouldn't say anymore a hidden gem, but for a while it was a hidden gem of the business, yeah, because we are the market leader in the distribution of radiopharmaceuticals in the United States, and we are now expanding this position by creating a very, very meaningful presence also in Europe. And I always smile when I say this in consulting language, yeah, being in the PETNET business, being in the production and distribution business of radiopharmaceuticals, is really owning a strategic control point because basically, every customer who adopts these new technologies or these new ways of treating cancer or diagnosing Alzheimer's, needs a partner like us. But as importantly, everybody who is developing IP and is developing tracers or theranostic agents, needs to work with us.
A really nice add-on to our business, and not only theoretically, but the growth of this business currently is very, very nice to watch.
Great! That brings us to the end of today's edition. So thanks, Bernd and Jochen, again for taking the time to do this. I do think it's time well spent. And to the listeners out there, I can only say stay healthy and bye-bye till the next time.