Hello, everybody out there. Thanks for tuning in again to the IR quarterly wrap-up. So like last time, Bernd and Jochen are together with me here in beautiful Franconia. We've been touring Europe and virtually the US, and we will be in the US in person in December. We discussed our Q4 reporting with many of our existing and many prospective shareholders. In today's episode, by the way, happy birthday. This product is now a year old. We provide you with a candid summary of the key discussion points and our answers to the most frequently asked questions. This has proven good custom in the past editions. Maybe, Bernd, you kick it off with telling the audience your key points to have in mind regarding the past quarter.
Yeah. Thank you, Marc. For me, the key point, the team really has delivered an outstanding performance in Q4. We managed to grow revenue ex antigen by 7% on strong comps. I mean, as a reminder, in Q4 last year, we grew by 11%. This growth was on the back of very healthy global markets, reflected by the book-to-bill of 1.12 in this quarter. It was driven by strong growth in Imaging, Varian, and Advanced Therapies, and we also saw a strong 16% growth in Adjusted EPS, supported by the impressive margins, especially at Imaging and Advanced Therapies. And last but not least, I'm very, very happy about the good development of our free cash flow, which more than doubled compared to Q4 last year, supported especially by good progress in our inventory levels.
Thanks, Bernd. So also in our Q4 call, we gave our outlook for fiscal 2025. Jochen, could you summarize the key elements of the outlook for us? How should we understand the China assumption? How is that baked in?
Yeah, I mean, let me start with the outlook. We want to grow by 5%-6% the revenue line for fiscal year 2025, and we guide for adjusted EPS in the range of 235-250 per share. And if you look into this outlook, it means that we have expectations for a very good margin expansion in all segments, nicely overcompensating the year-over-year headwinds from lower financial income and a normalized tax rate. We also baked into the outlook an assumption for China that the revenue in the first half of fiscal year 2025 will decline mid-single-digit to higher single-digit percentage points and then be more flattish.
On the road, we sometimes got the questions with regards to this outlook, if it's actually conservative, especially with regards to the China guidance. Firstly, before I talk about this, we believe in the Chinese market in the mid and long term, no doubt about this, and there is a lot of potential coming from normalization and pent-up demand, yeah? We see our China guide for this year as prudent, not necessarily a margin of safety, but we have not seen really a trigger yet for China to get back to its long-term growth trajectory.
And like last year, yeah, we are the first ones who have to put a China assumption into the outlook, just to remind you, and we know that there's this stimulus and all of us know that there's a stimulus program announced, but the vast majority of the program is still work in progress and in the making. I mean, we have simply not seen a trigger yet, yeah, which would release this demand from normalization and pent-up.
Would you say we've changed the way we derive our outlook?
Actually, I would say no. Yeah, I mean, if you look at fiscal year 2024, the last fiscal year, we made our guidance, and for 2025, we guide for 5%-6% revenue growth and adjusted EPS growth, at least at the rate of top line and at the upper end in the low double digits. And this against headwind from lower financial income and tax rate, just to say that again, yeah? And we have also baked in this assumption, as outlined before, a prudent assumption for China. So we expect everywhere else a very decent year, which will be driven by high single-digit service growth on an ongoing basis by our strong order book and our great success in the global markets. Hence, when you take this all together, there is no change in the guidance philosophy. It is very comparable to last year.
Again, on a guidance topic, we were also asked why our guidance for the first quarter 2025 was so cautious.
I mean, we have always highlighted that we do have quarterly fluctuations and, that we guide for a full year number and not for a quarter. Having said that, we expect Q1 to be below the fiscal year guidance. Obviously, our assumption for China declining mid- to high-single-digit in the first half is a primary driver for this. We expect Imaging, Varian, and Advanced Therapies to be below their respective growth assumptions, and with the soft growth, we would also expect margin development in these three segments in Q1, year-over-year, to be rather held back versus the full year assumption of broad-based margin expansion. Bear in mind that, Q4, with a year-end finish, is not necessarily a good precursor for Q1, and, important to note, Diagnostics will stay on track on its transformation path.
Speaking of diagnostics, it was a little bit the weakest part of the overall very strong Q4 numbers. Everything on track in terms of the transformation program? I guess you could take that, Bernd.
Yeah, I mean, definitely. The team executed extremely well against the cost out targets and successfully achieved our transformation plans already end of fiscal year 2024, with further potential identified for the new fiscal year. The Q4 margin was held back by period effects of over 200 basis points, which clearly had one-off character. Excluding these effects, the margin would have amounted again to about 7% in Q4, and, having this in mind... We are very happy with the diagnostics development over the year, and as you know, guide to our margin expansion of 200-400 basis points for the next year. And in the midterm, we expect to reach mid-teens margins, and as a side comment, last legacy systems will be leaving the field in 2030.
Cash flow has really seen some good development in the second half of 2024. What are we actually doing to ensure that this was not just a one-timer? So how do we make this continue? We got this question often.
I mean, yes, we are very happy what we have seen in the free cash flow development, in particular in the second half, and with the doubling in Q4, we got ultimately to a very good free cash flow year for the full fiscal year, and generating more than 60% more free cash flow than in the prior year with EUR 2.1 billion, yeah. This was obviously driven by the higher earnings and by lower inventories, and when you looked at the inventory turns in Q4, they significantly improved year-over-year. The trajectory within the year was not helpful for operating working capital improvements, and this also means that we will see more improvement also in, in this fiscal year. So we expect another year of strong cash conversion.
You remember, mind you, last year, the cash conversion was but at 0.9, and this good free cash flow generation will further help to deleverage the company. We are currently at 3x net debt over EBITDA, including the funded status of pensions , and we aim to get into a solid 2.x territory this year.
Speaking of inventory, Varian did contribute to the good cash development as well, as it also saw a very strong finish in terms of revenue. But we did get questions in terms of the margin performance. What is your take on that, Jochen?
First of all, Varian delivered a very strong finish in Q4 with more than EUR 1.1 billion of revenue. A great achievement also in terms of consistency, making significant progress in comparison to the fiscal year 2023. Varian achieved a solid 17.1% margin. That was the highest margin quarter in fiscal year 2024, after continuous sequential margin expansion every quarter in fiscal year 2024. And I think this is a really decent and resilient performance, taking into account around 100 basis points currency headwinds in Q4 alone, year-over-year.
Again, on Varian, so why do we actually see margins expanding faster there than at imaging in 2025, and when do you see the business moving towards these imaging-like margins?
I mean, in 2024 and in 2025, and in even the years before, we saw Varian to grow faster than the rest of the portfolio, and we expect that to continue, yeah. And expand margins from fast growth will be also the theme for the coming years, and we will further benefit from making use within Varian from the Siemens Healthineers ecosystem in the supply and value chain, yeah. And, maybe a very prominent examples are components and parts out of our mechatronic factories, yeah, like, the patient bed, for example.
Do you believe that we can keep up this growth pace at Varian, and what drives this growth? Is it only market share gains? Maybe you can take this, Bernd.
Yeah, this is an important topic because what drives the Varian growth is, on the one hand, it is the procedure growth in cancer, which delivers mid- to high-single-digits growth. On top of this comes the software business, the upgrades, and new fields of treatments and digital offerings. So the Varian story is much more than gaining market share. I would estimate that about 6%-7% comes from outperforming in the classic radiation therapy market, and the rest is the additional business we have developed around these offerings. Some examples are prominent deals like the oncology partnerships we talked about with Ballad Health or the very, very groundbreaking Nova Scotia arrangement, which we entered.
So again, speaking of growth potential, we did get asked what makes us so certain about our midterm growth prospects, and that you, Bernd, highlighted in the Q4 charts at the very end of the presentation.
See, I mean, maybe I start with the non-equipment part, yeah, because it is sometimes a little bit underrepresented. I mean, as one aspect is service is a super reliable driver of revenue growth. We have elevated the growth rate in service to high single digits in 2024 and also expect this to continue in 2025. We have the value partnerships, which make our more volatile equipment revenues even more plannable. And in the end, I mean, the real growth driver of Siemens Healthineers is the secular growth drivers around procedure growth, the customer needs of dealing with workforce crisis, and looking at long-term ways of dealing with more and more patients. And then the aspect of the world innovating for us and many, many innovations of the device companies or the pharma companies needing our type of solutions in order to make these new treatments possible.
Now, let me tap on this, innovation topic. You, in your deck, pointed at the potential that how photon counting could impact cardiac care, but the technology is still very expensive. So how are we planning to change this, and, how does this actually drive growth for us?
Yeah, I mean, maybe two comments. I mean, on the one hand, we use cardiac care as one example, but photon counting is about much, much, much more, which is why there are about 500 publications out there highlighting how it is transforming radiology, which is why not only us, but basically the market is convinced that this is, at some point, the standard technology. And as we said from the beginning on, we are on a path to make this available, the standard in our portfolio. As an analogy, I'm sometimes a little bit ashamed of because it's, it's a bit trivial. When you take a car analogy and look at BMW with the three, five, and seven series, the current offering is something like a nine series BMW.
We are now in the process of expanding the offering, yeah, so that the seven series segment is also addressed with Photon Counting CT. So we will have a portfolio of products, and this is the first step towards the longer-term goal to make the entire portfolio Photon Counting CT-based. So I can only say stay tuned or come to RSNA, likely we will have news to report by then.
Thanks, Bernd. So speaking of RSNA, let me remind our listeners that we are hosting booth tours and also have management time available and reserved for analysts and investors there. So, it's not too late to get in touch when you hear this. Might be too late to book a flight from Europe, but at least if you're in the US, you might still be able to organize that. And even if you don't catch us there, we're actually planning a special episode of our podcast, a new format, a deep dive on photon counting, together with André Hartung , our head of Diagnostic Imaging, and Philipp Fischer, our head of CT, likely to be published the second week or the end of the first week of December. So stay tuned and stay healthy. Thanks, Bernd and Jochen. Bye-bye.