Siemens Healthineers AG

XETRA:SHL

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Siemens Healthineers Q1 Fiscal '20 Conference Call. As a reminder, this conference is being recorded. Before we begin, I'd like to draw your attention to the safe harbor statement on Page 2 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'd like to turn the call over to your host today, Mr. Marc Koebernick, Head of Investor Relations. Please go ahead, sir.

[Marc Koebernick, Head of Investor Relations]

Thank you, Emma. Good morning, ladies and gentlemen. Welcome to our Q1 conference call. The earnings release and Q1 presentation were released at 7 a.m. this morning. You can find all documents on our IR website. Next to me are Bernd Montag and Jochen Schmitz, who will be taking you through our Q1 results and be giving you an update on some important developments in our company. Following that, there will be a chance for you to ask your questions to Bernd and Jochen. [Operator Instructions]Now I pass the word to the CEO of Siemens Healthineers, Bernd Montag.

[Bernhard Montag, President, CEO & Member of Management Board]

Yes. Thank you, Marc, the analysts and investors. Let me first shed some light on the financial performance of our Q1 fiscal year 2020 before I give you a detailed update on where we stand in the upgrading phase of our Siemens Healthineers Strategy 2020 (sic) [ Siemens Healthineers Strategy 2025 ].We had a very good start in the year in terms of top line, with comparable revenue up 5.5% driven by Imaging with around 7% and Advanced Therapies with around 9% growth. Not only revenue had a good start, order intake was even stronger with an equipment book-to-bill of 1.2. This was the seventh consecutive quarter with a book-to-bill over 1. And this creates a sound foundation for strong revenue growth also in the quarters to come. In terms of profitability, the quarter was on the weak side. This was due to a margin dip in the Imaging segment and the margin development at Diagnostics, which has been very much in line with our guidance for the quarter which we gave in November and December. Hence, 2 effects, that kind of one-off characteristics occurred, a very bad mix in Imaging and the Atellica rollout and were the key reasons behind the comparably low-margin of 13.5%. This also led to end in absolute terms lower adjusted EBIT, which is the key driver behind the 6% EP -- cash reduction in this quarter. In terms of cash flow, the quarter was very positive. Group free cash flow increased year-on-year by EUR 268 million. To summarize, and Jochen will shed more light on the profit development in his part, we are confirming the outlook we gave to you in November. And let me make one thing clear at this point. The Imaging story is fully intact. Our growth momentum shows that we consistently outperformed in this attractive yield. In November, we introduced to you our internally so-called 6 pack, the chart summarizing our 6 strategic priorities in the Upgrading phase of our company. We are focusing on 3 key themes in the 3 segments, and we have kicked off 3 group-wide initiatives. On the following 2 charts, I will shed some light on the inroads we have made here. I will start with the successes from the 3 segments. For Imaging, our key theme is continuously innovating and making new markets as a focus on digitalizing health care, and we demonstrated this at the RSNA. An example for tapping into markets -- into new markets is our new SOMATOM On.site. With this mobile CT for head scans, we are bringing the CT scanner to the patient's bedside. This scanner revolutionizes head scanning especially for intensive care patients, significantly reducing the risk of complications and also reducing time and staff intensity of the scanning procedure. The next example is also from our CT business. We are making further inroads when it comes to implementing the benefits of digitalization and artificial intelligence into our products. Our new single-source CT scanner, SOMATOM X.cite, comes with a revolutionary user-guiding system, the myExam Companion. This is an AI-based intuitive user interface. The simple questions, it allows even less experienced staff to perform complex procedures -- scanning procedures with high-quality outcomes. And in addition, it improves average quality and saves time.Finally, a few words on our progress in AI. I've spoken already a year ago about the introduction of the AI-Rad Companion Chest CT. And now we have achieved the 510(k) adherence for the product. The positive feedback we have been getting from our customers is encouraging. And we are consequently broadening the application of AI in interpreting images. As you know, the Rad Companion is there to reduce workload and increase the speed for the radiologists -- speed for the radiologists by taking over routine tests. At the RSNA we have introduced 2 new applications, the AI-Rad Companion Prostate and the AI-Rad Companion Brain MR. With the new AI-based assistance, we are expanding our diagnostic offering to help our customers increase efficiency and improve the quality of care. Now over to our Diagnostics segment. We are focused on manifesting our workflow leadership to successfully getting this business to market growth. Here, we have made an important step ahead. Siemens Healthineers will be the sole supplier of Quest's immunoassay testing. Atellica Solution will enable Quest to significantly increase its capacity, productivity as well as clinical performance by not compromising our menu there. For us, it means having won the globally biggest player in diagnostic testing for Atellica Solution with all its growth potential. We are proud that Quest has chosen us as partner for their future growth and is a great proof point for the unique proposition that Atellica has to offer. Now over to Advanced Therapies, which has continued its strong growth path also in this quarter in revenue as well as in order intake. Our focus here is to take the business to a new level of growth also by tapping into direct procedure growth as well as focusing on growing clinical needs. For this year, it is very much an innovation from the core business which will be very supportive, the ARTIS icono. However, beyond this year, it will be about more than innovations in the core. Corindus will be an important factor in achieving our targeted high single-digit growth rates for the sector. Speaking of Corindus, we have successfully closed the transaction and are happy with the way the integration is going. Also, the customer response is very promising. In terms of product development, we have also seen important milestones with the first transcontinental in robotic PCI procedure via 5G with the first robotic-assisted neuro intervention and the first robotic-assisted coronary intervention in Germany, thus, systematically improving feasibility of the remote case by tapping into new clinical fields and expanding geographical reach. Now let me continue with the second half of our so-called 6 pack, our group-wide initiatives, and please turn to the next chart. As you know, the revenue growth targets of the Upgrading phase are supported by 2 specific group-wide initiatives. Firstly, we have identified additional growth potential in the emerging markets. The key market here, obviously, is China. For us, this is a EUR 20 billion market. Further focus areas are the region Middle East and Africa as well as India. For these 3 markets, we have concrete action plans for above-market growth ranging from go-to-market, enhanced presence, dedicated products and solutions addressing the local needs. In Q1, we have seen outstanding equipment order growth in 2 of these 3 focus regions. Both in China and in Middle East/Africa, we grew orders double digit, north of 20% in China and even north of 30% in Middle East and Africa. In India, we are already very happy with the current performance, yet we are very excited about the prospects to come, leveraged by our action plan for this growth market. Furthermore, we also see some potential from a more focused go-to-market and from dedicated offerings when it comes to key account. In this second group-wide horizontal initiative, we utilize our product strength and breadth and market-leading global service franchise as well as our approach to digitalizing health care in order to drive share gains with the leading providers. In Q1, we have been able to prove again that we have the right products and setup to prevail in the race for the consolidators. For example, in Canada, we have won an important CAD 270 million deal with Hamilton Health as part of a 15-year strategic partnership, delivering around 200 imaging modalities as well as the attached service for that period. A similar success was achieved in Russia with a EUR 100 million deal with the Moscow Healthcare Department in a 10-year life cycle agreement, again, focused on imaging products and services. And last but not least, I would also like to mention the contract with Quest at this point. This client is really a market consolidator which we are partnering with here. The multiyear agreement for the deployment of around 120 Atellica Solution immunoassay analyzers is the largest contract for Atellica deployment for us so far. As I said earlier, this is a lighthouse contract for us that proves that we have the right products in a bifurcating market. On the third horizontal initiative driving ahead our own digital transformation, we are also making good inroads supporting our agenda for further digital processes ultimately driving productivity. This brings me to the end of my part. We are well on track for delivering on our upgrading priorities. And this also makes me optimistic for our medium-term perspective, i.e., our ability to grow sustainably over 5% and turn this around into around 10% per annum of adjusted EPS growth. With this, I pass the word on to Jochen, who will run you in more depth to the Q1 results.

[Jochen Schmitz, CFO & Member of Management Board]

Thank you, Bernd. A very warm welcome also from my side, and good morning to everyone. After Bernd gave you the highlights of the quarter and a deeper insight of the progress on our strategic priorities, let's now have a look at our financial performance in Q1. Starting with order intake. We had a very strong start into the new fiscal year with 13% comparable order growth. The main contributor to the strong order performance was again the excellent equipment order growth in the high teens. Therein, Advanced Therapies grew equipment orders impressively in the double digits. Imaging had also impressive equipment order growth in the lower teens. As Bernd has pointed out, this is the seventh consecutive quarter with a positive equipment book-to-bill, underlying our outlook to grow the top line at above 5%. Obviously, this strong total order growth, i.e., equipment and service, grew our order backlog. Let me point out that this grown backlog fits our pipeline equally for revenues in the remainder of this fiscal year as well as beyond. In addition to our order performance this quarter, our revenue performance in Q1 is also a proof point for sustained revenue growth above 5%. In Q1, revenue grew by 5.5% comparable with growth across all of our businesses. Imaging posted strong growth. Advanced Therapies was even stronger. And also Diagnostics posted solid growth this quarter. Let me remind you that our revenue growth KPI is comparable, which excludes year-over-year effects from foreign exchange and from portfolio, meaning revenues from our recent acquisition, Corindus and ECG Management Consultants, are excluded from our growth KPI. When looking at our regional performance, we achieved excellent revenue growth both in EMEA as well as in Asia, with China again posting excellent growth rate, 17% comparable growth in Q1. In the Americas, we saw a flat development mainly driven by a slight decline in the U.S. Let me put this slight decline into perspective. Revenue growth in Q1 prior year as well as in the previous quarters were very strong. Hence, we see this rather as a normal fluctuation among quarters in one country. We remain positive on our top line growth in the U.S. for the remainder of the fiscal year. Now let us move over to adjusted earnings per share in Q1. Adjusted earnings per share declined year-over-year by 6%. The decline in adjusted EBIT and, respectively, a lower adjusted EBIT margin was not fully compensated by a very favorable development in the interest expense and tax lines. Let us now look at the development line by line. And let me remind you briefly that we adjust both EPS and EBIT for amortization from PPA, severance and M&A-related transaction costs starting this year. The adjusted EBIT margin decreased by 290 basis points year-over-year due to the margin development at Imaging and at Diagnostics in Q1. At Imaging, the margin decreased due to a combination of mix effects and individual negative effects with one-off characteristics. At Diagnostics, the margin development was basically as guided in our outlook for fiscal year '20 from November last year. We expected a low Q1 margin related to the ongoing ramp-up of Atellica Solution. Imaging and Diagnostics impacted the adjusted EBIT margin on group level on a similar level leading to the 290 basis point margin decline for the group. I will give much more color on this development in the segments later in the presentation. Within the segment margins and in the group margin, respectively, we also saw a negative impact from share-based compensation. This more technical topic has a significant impact. The way how we account for the Siemens AG stock awards that were already granted to our employees before the IPO means that fair value changes of these awards go as a cost item fully through our P&L because they are considered as debt instruments for us. These valuation changes can be substantial within a quarter, depending on the relative performance of the Siemens AG share price. This negative impact year-over-year was in the ballpark of EUR mid-20 million in Q1 for the group, impacting the year-over-year margin with around minus 70 basis points for the group and the segment. In addition, we saw several other year-over-year negative effect also adding up to around minus 70 basis points, primarily showing up in Imaging. This means about minus 130 -- 140 basis points year-over-year from so-called non-operational development. In addition, we got burdened year-over-year with around minus 100 basis points from negative mix and, finally, the expected impact from the ongoing ramp-up of Atellica Solution. Now moving from the EBIT line to the interest line. In our financing interest, we saw a positive figure of EUR 7 million. This was firstly driven by lower interest expenses from our debt restructuring from Q3 last year, which reduces our debt interest by making use of the lower euro interest rates. Secondly, we saw in Q1 higher interest income year-over-year turning the overall financing interest positive. The higher interest income was driven by a positive effect from an international tax procedure. This brings us directly to the tax line. The tax rate in Q1 was 27%, at the lower end of our tax rate guidance for the full fiscal year. If you do the year-over-year comparison, the tax rate in Q1 '19 had been even lower with 23% due to positive discrete tax items in prior year. With our first quarter being already at the lower end of the full year guidance with 27%, we clearly feel more comfortable with that range for the full year. To conclude this slide on the Q1 group performance, let me add that we had a very good start in the new fiscal year in terms of cash. The free cash flow in Q1 amounted to EUR 244 million. In Q1 prior year, we had a rather soft start with minus EUR 24 million negative free cash flow. More importantly, in Q1, we saw a very good cash conversion of 0.87 of EBIT into free cash pretax. This was driven by an excellent conversion in Imaging, Advanced Therapies had a lower conversion due to cash outflows related to the Corindus transaction. And with this, let us move on to the segment performance. On segment level, we saw in Q1 top line growth across the board and a mixed picture on the margin side. Let us now have a look at the Imaging in Q1. At Imaging, we again saw strong comparable revenue growth of 7% driven by significant growth in X-ray products, molecular imaging and MRI both contributed with strong growth. The adjusted EBIT margin at Imaging declined year-over-year by 250 basis points to 17.4% despite some tailwind from foreign exchange. The decline was driven by a combination of 2 main factors impacting Q1, negative mix effects and various individual negative effects, which I described a few seconds ago on a total company level. On the next slide, we will look closer at these effects impacting the year-over-year margin development at Imaging. Before taking the deeper dive into Imaging, let us now look at the other 2 segments. Diagnostics posted solid revenue growth of 2.6% comparable, carrying on the momentum from the previous quarter. On the adjusted EBIT margin, we saw, as expected, a decline primarily related to the ramp-up of Atellica Solution. The decline is partially a function of high numbers of shipments in the prior quarter. We shipped over 600 instruments in Q4 '19 and the associated installation cost of these instruments. Consequently, these costs now impact this quarter until the number of instruments under installation normalizes and are compensated by the future healthy [ reagent ] revenue streams. Furthermore, we also saw a drag on the Diagnostic margin in Q1 due to a voluntary quality action in relation to our molecular offer. Together with the previously mentioned effect from share-based compensation, these 2 effects burdened the Q1 margin with around additional minus 100 basis points. Now to Advanced Therapies, which got off into the new fiscal year with a very good start. Advanced Therapies posted very strong comparable growth of 9% driven by significant equipment growth especially in our angio portfolio. The adjusted EBIT margin remained nearly flat year-over-year despite negative effects from Corindus. Since Corindus was closed 1 month into the quarter, the expected dilution from Corindus for the full fiscal year of 300 basis points did not impact the quarter in full. Positive effects from business mix and some tailwind from foreign exchange then lifted the margin close to prior year quarter level. Let me quickly summarize to one regard -- in regards to the segments. All segments posted revenue growth. Advanced Therapies compensated margin dilution from Corindus with strong growth and a positive business mix. Diagnostics margin declined as expected, related to the ramp-up of Atellica Solution. And the Imaging markets declined driven by negative mix effect and other effects with one-off characteristics.Let us now have a closer look on these effects in Imaging. Looking at Imaging, we see this segment on track with our expectations. This continued strong top line momentum positioned for further share gains and hereby driving further profit growth. The decline in margin in Q1 was a temporary dip driven by a combination of 2 main factors: negative mix effects and other effect with one-off characteristics. We do not expect these effects to persist and, therefore, expect Q2 and fiscal year Imaging margins to be significantly better. The negative effect from unfavorable business mix was the most pronounced in this quarter. Within our business mix, there are 3 factors that can impact the financials within a quarter: businesses within the Imaging geographies and market segment. In our businesses, we see different margin profiles, e.g., the strong growth in our X-ray products business had a dilutive effect. In our geographies, we saw in Q1 very strong growth in EMEA, which is a very, very competitive pricing landscape and, hence, had a dilutive impact on the margins. In our different segments, from low end to mid-end to high end, there are also different margin profiles between a high-end offering and a value offering. The mix of different offerings also impact the margin development within a quarter. To give a concrete example for an unfavorable business mix, the bulk order of mid-end X-ray machines for a large hospital chain in EMEA has a different margin profile than a high-end CT scanner in the U.S. However, while all this can have a material impact within a quarter, these effects normalize in the fiscal year. Also let me make clear that it is highly unusual for all factors in the mix to be negative in a single reporting quarter. You could say we saw the perfect storm in terms of mix in Q1. Those effects drove year-on-year drag of about 100 basis points. As mentioned previously, we also saw a negative impact from share-based compensation in Imaging of about minus 70 basis points. In addition, our OpEx spend in Q1 in absolute terms were broadly as expected, with ramp-up especially related to investments into the digitalization field. However, with Q1 being the lowest revenue slice in the fiscal year, we saw lower economies of scale in OpEx in Q1. Consequently, we will see some positive conversion from OpEx in the coming quarters with the quarterly revenue sizes increasing and hereby normalizing OpEx relative to revenues for the full fiscal year. Lastly, we also had other negative effects impacting Q1 year-over-year with one-off characteristics that we do not expect to persist in the course of the fiscal year, in the ballpark, again, of minus 100 basis points for the Imaging segment. All in all, as we have pointed out regularly during the last 2 years, we see some fluctuations on a quarter-by-quarter basis. There can be quarters where many variables point toward the same direction, which was unfortunately the case in this quarter. Looking at the fundamentals though, Imaging is running like we expect it to. Like Bernd said, the story is fully intact. And this brings me to our outlook for fiscal year 2020. We confirm our outlook for fiscal year 2020 with 5% to 6% comparable revenue growth and adjusted earnings per share growth of 6% to 12%. With a 5.5% revenue growth posted in this quarter, we are well on track to our revenue growth targets. Diagnostics delivered growth within the guided bandwidth for the full fiscal year with 2.6% growth in Q1. Diagnostics sees an acceleration of growth yet below the lower end of the group range of 5% to 6%. Imaging and Advanced Therapies were both above the guided bandwidth of growth. For Imaging, the guidance was to grow within the group range. In Q1, Imaging grew above that with 6.7%. For Advanced Therapies, the guidance was to clearly grow within the group range. In Q1, Advanced Therapies grew clearly above that with 9.5%. With Imaging and Advanced Therapies now posting growth well above the guided range, we see both Imaging and Advanced Therapies being in the position of achieving growth rather towards the higher end of the group outlook of 5% to 6%. This strong top line development will obviously also support the absolute adjusted EBIT development, further driving the adjusted earnings per share. Let me briefly run you through the implications of this Q1 on our full year margin expectations, starting with the segments. For Imaging, achieving a margin improvement at prior year has obviously become more challenging. However, we continue to expect Imaging to [ expand ] margins in the remainder of fiscal year '20 versus prior year. For Diagnostics, we continue to expect Diagnostics margin to slightly decrease in fiscal year '20 versus '19 due to foreign exchange headwinds, the integration of the Minicare acquisition and the low Q1 contribution. Therefore, we should have seen trough in the X margins in Q1. For Advanced Therapies, we continue to expect margins to significantly decrease due to the acquisition of Corindus Robotics and [ by the ] Q1 does show that the business is in great shape and able to compensate some of the downside organically. Regarding our interest expenses for fiscal year '20, we had outlined EUR 60 million to EUR 80 million interest in fiscal year '20. With the higher interest income in Q1, we would now expect interest expenses to be at the lower end of that range or even below. And regarding our tax rate, we assume it to be in the range between 27% to 30% for the fiscal year. Overall, we confirm our earnings per share growth of 6% to 12% in fiscal year '20 particularly driven by a strong revenue contribution with some support from the interest line and the tax line. And with this, I hand it back to the operator.

[Operator]

[Operator Instructions] And our first question comes from the line of Scott Bardo from Berenberg.

[Scott Bardo, Analyst]

So I just really wanted to explore the softer Imaging margin this quarter. I think, Jochen, you mentioned that there were about 100 basis points of non-operational one-offs within this quarterly margin. I just wonder if you could provide a little bit more clarity as to what they were, please? And just to understand, I think you were very clear about the various product and geographic mix weighing on the division this quarter. It's my feeling that most of the major radiology players have been talking about somewhat softer dynamics in X-ray. I wonder if you can confirm whether the end market for X-ray has deteriorated at all? Or is there any notable price pressure which is a little bit more operational than one-off in nature?

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Thanks, Scott, for the first question. Yes, the -- I mean, I referred to 3 aspects in the Imaging margin development. Yes, as you referred to, it was mix with minus 100 basis points is what is kind of awkward thing on the share-based compensation, valuation of Siemens AG. Stock awards with roughly 70 basis points negative impact. And the last topic, I think your question was referred to, was about the other one-offs, yes, or items with one-off characters. These were a bunch of things, yes, which had a positive impact last year in Q1, yes, so not so much a negative this year. And we had also in '18 in similar -- in the similar amount of positive things, very similar in Imaging, yes. Therefore, this was not to say highlighted last year in '19, yes, but obviously, with having nothing like this, this year, yes. And referring to what I've said on the mix side with regard to, so to say, perfect storm, yes, on the mix side, yes, this put the additional 100 basis points negative to the Imaging margin. Definitely a topic which is not expected for the remainder of the fiscal year.

[Bernhard Montag, President, CEO & Member of Management Board]

Yes, Scott, to the other question regarding X-ray, I mean, to put some -- put things into perspective, first of all, I mean the X-ray business, what we call [ key ] X-ray products, it's about, like, around 12% of our Imaging business for us, yes. So it has -- had a big -- had a very good growth contribution in this quarter. It is a business which on the margin side is more on the lower side, yes, traditionally and then the, let's say, more and more advanced, to our more higher-end technologies like MRI and CT and contributed with this also to the mix impact here, which Jochen explained. I do not see a particular margin pressure also in the X-ray business itself, yes, so it's a normal course of business. And maybe bear in mind, I mean, Jochen in his explanations, yes, did not mention price, yes, as a topic, yes, when it comes to comparable products.

[Scott Bardo, Analyst]

Very good. And perhaps just one follow-up. As you've been announcing some pretty strong strategic partnerships with Hamilton and others, can you please just remind us of the differences in these sorts of contracts as compared to straight capital sale, what that means to your cash positioning and predictability of the business? And perhaps does that -- do these contracts announced meaningfully contribute to your order book growth in a given quarter?

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Scott, thanks for the question. And if you -- I mean no contract is the same, yes. So even if they are large, then they differ in nature, yes. Generally speaking, those large contracts do give you, I would say, a better predictability for the future because they are obviously larger and they last for several years, yes. This is one classical characteristic. Often, almost always, they are combined with the financing component which, at the end of the day, is done by a third party, not by ourselves, yes, often, out of historic reason, with Siemens Financial Services, yes. So therefore, this is also not a cash flow rain for us, yes. It is -- it does not make a big difference from a cash flow perspective.And I think it's the -- obviously, when they enter the order book, we book them according to the IFRS rules. We do not do any adjustments to this. So if we have a clear commitment for a several-year contract, the full contract volume according to the contract we have signed enters the backlog calculation, yes. Often, we see with those contracts over time, yes, above and beyond the signed contract, an increase in share of wallet in those account. It is -- but this is obviously not accounted for at that point in time in the backlog. This is something which really does help, yes, obviously make a huge difference if an institution enters in such a large contract. And then we have almost daily interaction on what are the needs of the customer. This gives you an intimacy, which allows you to better understand the customer and ultimately then benefit from this, this higher share of wallet. We have experience in those kind of contracts in certain areas for more than 2 decades, yes, U.K., the Netherlands, particularly in Europe, but this is now a trend which accelerated significantly in the U.S. also.

[Bernhard Montag, President, CEO & Member of Management Board]

Yes. And definitely something, I mean, which plays to our strength. And maybe one more comment, yes, I mean, regarding what is booked as an order and whatnot, yes. So I mean the Hamilton, it is part of the order book. And we look at the other 2 bigger transactions or bigger "deals" you mentioned. They are not part of the order book here. So the Moscow is on one tender, yes, which will be booked over time. And the same holds true for Quest, yes. So there's something, so to say, on top giving us confidence for our revenues to come, yes.

[Operator]

We'll take our next question today from Patrick Wood from Bank of America.

[Patrick Andrew Robert Wood]

Thank you for taking my 2 questions. The first one, I'm afraid is going to kind of predictable. Just questioning around China and whether you think the viral outbreak could have either an effect on the rate of installations of new systems. So again, obviously, the systems, people will get them, but the rate of installation or, alternatively, if you think that there's going to be any kind of effect on the production facilities that you guys have in the country, just some color on that would be helpful. So that would be the first question. Second question, I'd love to know within the order book roughly what the growth was ex Hamilton. And particularly in the U.S., what you're sort of hearing from customers there, how far do you think we're through this larger replacement cycle that we've been going through. It sounds like you're still pretty confident there, but some color would be helpful.

[Bernhard Montag, President, CEO & Member of Management Board]

Yes. I mean, Patrick, corona, I mean, thank you for putting the disclaimer in front. This is the expected question. Then it's -- and probably I need to give you also the expected answer, yes. So I mean for the time being, our priority is, of course, to safeguard our employees and to help wherever we can help, yes. So we have made rapid donations, installed systems there, where there was the need. And we are very carefully watching our employees in China as well as globally, yes. So this is priority #1. The factories are up and running, yes, so, so far, we don't see an impact. Certainly, there can be delays, yes, in terms of installation and so on and so on. We don't see this yet, yes, but we have our eyes wide open. Of course, priority is helping where we can help, making sure that our employees are fine and then making sure that business continuity is there. But bear in mind, yes, I mean this is something that's adverse, so to say, is a delay and will be caught up, yes. So from that point of view, I think we -- it's nothing we need to be super concerned about in the long run, yes.The second question, I mean, regarding Hamilton, I think...

[Jochen Schmitz, CFO & Member of Management Board]

Yes, I can take that. I mean if you do rough calculation, their order growth was in the ballpark of 13% plus, yes. If you would take [ them out ], you are slightly shy of 10, yes, so still very, very healthy, yes, And actually, when we have discussed that, we have even put this topic as one of the priorities on our, what we call, 6 pack, yes. We can take it out. On the other hand, we see a clear trend in the market towards larger deals, yes, and therefore, this becomes much more normality, so to say, yes, and therefore, they ought to be not the right approach to take it out, generally speaking. At the end of the day, it's part of our business.

[Bernhard Montag, President, CEO & Member of Management Board]

Yes. And I mean, Patrick, then there was the other connotation about the U.S. market in general, yes. So I mean I don't -- first of all, I don't really see, yes, and we have much discussions on this, a replacement rate or whatever, yes, a daily pattern, yes, in demand. I mean Imaging is a growth technology, yes, because of procedure growth, because of end customer and clinical demand. The U.S., to put things into perspective, yes, it's clear, this is more a single-digit, lower single-digit growth market. But also bear in mind this is 30% or so of our total market. We see a very healthy development in Europe, yes, I mean in this quarter. Of course, more on the spectacular side, yes, with the 20% on the revenue side. But yes, we are definitely acting in the high single digits, plus the growth markets in especially China, India, Middle East, Africa, yes. And also bear in mind when it comes to the revenue line, yes, we had a bit of a shy start in the U.S., yes, which contributed to the mix effects Jochen spoke about. We have a super healthy backlog in the U.S. which we will convert in the next quarters, yes. So from that point of view, I'm also very positive about the development in the U.S.

[Operator]

Our next question today comes from Veronika Dubajova from Goldman Sachs.

[Veronika Dubajova, Equity Analyst]

I would like to follow up on a couple of questions that have been asked. Just trying to understand better the moving parts in Imaging. And Jochen, thank you for your explanation. I'm just a little surprised because, heading into the quarter, you should have had fairly good visibility on the 100 basis points of one-offs that you had last year and also fairly good visibility on the mix. So slightly surprised that you hadn't flagged the margin softness the same way that you had done for Diagnostics. And maybe if you can help us understand what, if anything, has changed in Imaging as you look at the business because it sounds like, on a full year basis, you're also somewhat more cautious on the margin improvement. I'm not sure I fully understand that, so if you can give us some color on that, that would be helpful. And then my second question is a follow-up on the coronavirus question that Patrick has asked. Obviously, there's a fair amount of disruption to both the supply chain and the manufacturing operations, I think, of pretty much everyone who operates in China. So if you could help us understand kind of what your inventory build is for this market. And maybe just remind us how much of your production across the business sits in China today.

[Jochen Schmitz, CFO & Member of Management Board]

Bernd, you want to go first.

[Bernhard Montag, President, CEO & Member of Management Board]

Yes. Veronika, on China, I mean, as I said, I mean, currently, so far, factories are up and running and producing as planned. A lot of the Chinese production is from China for China, yes. And when it comes to export, we also have -- we would have alternatives, yes. Because we have some kind of, say, twin factory setting in -- for most of the topics, yes, where we can, depending on demand and depending on end-user location, yes, decide whether -- especially on the MRI and CT side, whether products are shipped out of the German locations or Shanghai, [ next ] Shenzhen.

[Jochen Schmitz, CFO & Member of Management Board]

Yes, Veronika, on Imaging, I mean, first of all, I mean this is important, and we said that also very, very clear. There is no change in storylines for Imaging. This is -- therefore, yes. And the top line is anyway fully intact, yes. The temporary dip on the profitability side, while the emphasis is on temporary, yes, the insight into the predictability of dip, yes, is clearly on the -- on the one-offs was clear, yes. We knew this, yes, no doubt, yes. On the mix side, entering into the quarter, we have hoped for a bit more U.S.-based revenue, yes, which, obviously, for whatever reason, did not materialize, but it's just postponed into later quarters, yes, because actually, based on our current backlog forecast, how it will transmit into revenue and the prediction for the full fiscal year, we see the mix effect to fully come back and to, say, turn around in the coming quarters, yes. And therefore, we feel very, very confident on margin improvement versus prior year in Imaging, yes. Obviously, with 17.4% in Q1, yes, it might have been --- it might be a bit more prudent to be a bit more cautious on how much additional margin we will produce in that business. But what I can see, and therefore, I'm very, very confident is I see even more momentum, more momentum on the top line, than maybe even more momentum than we have anticipated entering into the year. I look at the backlog, the backlog and how the backlog reach for this fiscal year is this year relative to our revenue forecast higher than it was last year on Imaging, yes, which gives me a lot of confidence in that business. And again, nothing, so to say, to announce, yes, because the storyline is fully intact.

[Operator]

Our next question comes from Ridley-Day from Redburn.

[Edward Nicholas Ridley-Day]

Firstly, just on the Chinese situation. On another note, clearly, CT and X-ray are the prime means of diagnosing the virus. I presume that's also going to be -- you're going to be very active in that space. So both, either on the Imaging side or the Diagnostics side, would this in any way increase demand for your business? Secondly, on Diagnostics, can you give us some of the information that you have historically given us? I mean, what was your new customer win rate on Atellica? And can you give us a guide on the third quarter shipments, please?

[Bernhard Montag, President, CEO & Member of Management Board]

Yes. In China, yes, I mean, as I said, we had -- whenever we -- we were asked to help in the last phase, we helped. It was under the headline of helping and under the headline of generating additional business, and then you look into now how things will develop over time. I mean it's also a question is the infrastructure in place not only from an equipment perspective but also from are there -- is there the hospital, is there the trained staff and so on and so on. And so that a really -- a hike in demand is not really what I would expect. And it's also not currently our priority. I mean the priority is still, I mean, as I said, to help where we can, to protect our employees, yes, but then also to make sure that we have proper business continuity. Then the second quarter is on...

[Jochen Schmitz, CFO & Member of Management Board]

Diagnostics.

[Bernhard Montag, President, CEO & Member of Management Board]

Yes, on Diagnostics. I mean we continue to see very good win rates. I mean Quest being one example, yes, and I should say one because reflect already in previous communications, yes, that when it comes to the big labs, yes, we are very happy with the win rate of above 80% in the case of labs doing more than 30,000 tubes or tests per day. And it is also true for the mid-markets and so on, where we've been in segments where we haven't been winning before, yes. And that is the main message. And that is why we built the system, yes. I mean, without Atellica, we wouldn't have that perspective. We see good growth geographically in Europe, in Asia and in the U.S. I mean we talked about this. I mean it is now about capitalizing on the opportunity. And I'm also very happy what I see there. You asked about shipments. I mean, yes, we are -- we don't want to make this the key KPI here. What I can tell you -- I mean we talked about the high amount of shipments we had in Q4, which are now under installation. So much we have shipped in this quarter Atellica according to plan, yes. It's a number between 350 and 400, yes, so I think in the 370 range is what I say, recall, yes, yes, just confirmed. And what is also a good aspect is in this quarter, we got more systems live than we shipped, yes, because that is also one of the big topics, yes, burdening the P&L that we have these instruments in transition, yes, which is certainly the result of shipping and now have been in the installation phase at some point in time, yes. We need to convert that, in abstract term, backlog and it is a good development that in Q1, we saw the go-lives beating the shipments, yes.

[Operator]

We have a question now from Michael Jungling from Morgan Stanley.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

My first question is around share-based payments. Can you comment how this impacts profitability for the remainder of the third -- or the next 3 quarters if the share price actually decreases, do we see a reversal in charges, i.e., does your P&L actually get a tailwind if that were to happen? And then question number two is, if I look at sort of the Q2 or the next quarter, Q2, after a fairly tough Q1, can you provide some comfort that you expect the margins for Imaging to show a year-on-year improvement? Is that something that you would endorse a positive year-on-year margin development in Imaging?

[Jochen Schmitz, CFO & Member of Management Board]

Yes, thanks, Michael. I'll start with the first question, yes. I mean I tried to explain that share-based payment topic. This is -- everything reflect here is only related with the stock awards which were ended or granted to our employees of Siemens AG stock awards, means everything which happened pre-IPO. That means this is over in 2 years, generally speaking, because then they are all vested. Secondly, it is a bit complicated well, I would do most likely different things in my life if I would know what the impact would be next year because, at the end of the day, it is the relative performance of the Siemens AG stock price relative to a peer basket, yes. And this is difficult to predict, yes.Obviously, last Q1, we had a slight positive. This Q1, we had a significant negative, which made up the year-over-year minus 70 basis points I was referring to beforehand, yes. Therefore, difficult to say, yes.With regard to Q2, and we definitely expect significantly better, as I said, significantly better profitability levels in Imaging, yes. Maybe I remind you, you know that last year's Q2 was a relatively strong quarter for Imaging, one of the strongest, yes. While I would hope for a better one, yes, but I would not say this. Remember, it was 20.9% last year, yes. That was almost on Q4 level, yes. So we will see. But what I clearly laid out is that we expect margin expansion for the remaining 9 months relative to price, yes.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

Okay. Great. And just to follow up on the share-based payment, just to make sure I understand this. So if there was a change, given that this is related to past grants before the IPO, if the share price now moves of Siemens AG, will there be an impact in the remaining 3 quarters of this fiscal year? Or is that done, and therefore, we no longer have to worry about the share price movements?

[Jochen Schmitz, CFO & Member of Management Board]

No, no, you have to worry, so to say, for the remainder of 2 years, yes, because at the end of the day, if the Siemens share price develops positively relative to the Siemens AG peer basket, this is a negative for us generally speaking and vice versa, yes. So it's not -- yes, this is a bit -- yes, this is how...

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

That's very useful. So just hypothetically speaking, if there was an underperformance in Siemens AG against the basket, would you have to reverse it? And therefore, the charge that you booked in Q1 would reverse, and that means you could hypothetically see a tailwind in the remainder of this fiscal year?

[Jochen Schmitz, CFO & Member of Management Board]

Yes, absolutely. I mean technically speaking, it's not a reversal because it's a fair value calculation every quarter on this topic, yes, at the end of the day. And at the end of the day, depending on logic Siemens has built up there, and we have to, say, use this at the end of the day. But generally speaking, yes.

[Marc Koebernick, Head of Investor Relations]

One more question.

[Operator]

We have a question now from David Adlington from JPMorgan.

[David James Adlington]

Just a quick clarification first on the orders. I think you said you've included the Hamilton order but excluded the Moscow and the Quest order. I just wondered what was difference between those orders, which meant that you recognize one and didn't recognize the other 2, just to make sure I got that right. And then secondly, just on the margin for the year, you started the year with a 17% to 18% margin target. It doesn't look like you've reiterated that this morning. I just wanted to check, should we be thinking about below for the group level below that 17% margin target?

[Jochen Schmitz, CFO & Member of Management Board]

Yes, I mean on the order logic, yes, I think I said that we book orders according to IFRS, yes. It means when there is signed order with a clear commitment around it, yes, and this is moving into the order backlog. Obviously, the Quest order was not signed in Q1 but in Q2, yes, so this is an easy one, yes. And then I think Bernd also pointed -- therefore, it's not in the Q1 order book. And Bernd pointed out to the Moscow, I think this is a tender we won, yes. And the tender has a different commitment level, yes, therefore, we book it as they ask for the equipment based on the tender we won, yes. So that's just the nature of the different wins or the timing of the wins, which makes it a different handling with regard to the order book, yes.On the 17% to 18% profitability level, I mean, first of all, I think we made that clear, our guidance is what's top line 5% to 6% growth and adjusted EPS growth of 6% to 12%. Adjusted EBIT margin is [indiscernible] lever -- operational lever to reach the 6% to 12%. Obviously, with this relatively weak Q1, it was much more difficult to end up in the upper range of the 17% to 18%, yes, but we are not changing the guidance now, yes, not even in this -- on this level, yes. While there is still 9 months to go.

[Marc Koebernick, Head of Investor Relations]

Okay. Thanks a lot for everyone who participate today. And as always, the team and myself will be available for questions during the day. Thank you.

[Operator]

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. The website address is www.corporate.siemens-healthineers.com/investor-relations.