Siemens Healthineers AG

XETRA:SHL

Earnings Call Transcript 2021-Q3

[Operator]

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 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 would 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, moderator, and good morning, ladies and gentlemen, and welcome to our quarterly conference call. The quarterly statement and presentation were released early this morning. You can find all documents on our IR website. I'm sitting in our offices in Erlangen, vaccinated and tested together with Bernd Montag and Jochen Schmitz, who will be taking you through our Q3 2021 results and be giving you an update on further developments on our company. Following that, there will be a chance for you to ask your questions to Bernd and Jochen.Now before I hand over to Bernd, a few housekeeping items. Firstly, I would like to remind you of our good old 2-question rule. We really would like to give as many of you a chance to ask something. Secondly, I wanted to thank everyone for taking part in our perception study. We were really flattered by the high rate of participation and the sheer amount of input. This was really very helpful for our daily IR work, but more importantly, for the preparation of our upcoming Capital Markets Day, which brings me to, thirdly, I wanted to get your eyes to the save the date, which we'll be sending around today in the course of the morning. We are planning to hold our virtual, sorry to say that, Capital Markets Day on November 17. You are heartly invited to take part. More details to follow, obviously, in the course of September, October.And now I pass the word to the CEO of Siemens Healthineers, Bernd Montag.

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

Thank you, Marc, and good morning also from my side. Thanks for dialing in and expressing your interest in Siemens Healthineers. Let me start by shedding some light on our financial performance in Q3. We saw an excellent order intake of more than EUR 5.5 billion, and hence, we are able to further increase our order backlog. The equipment book-to-bill came in at 1.18. However, not only the order intake was excellent, with 39%, we recorded outstanding comparable revenue growth. The resulting EUR 5 billion are a record for the Siemens Healthineers team in terms of nominal revenues for a single quarter. This growth was mainly driven by the anticipated peak of revenues in our rapid antigen business, taking the Diagnostics comparable revenue growth to a stellar 103% year-on-year.And also Imaging and Advanced Therapies contributed with excellent revenue growth of 17% and 12%, respectively. Varian enters solid EUR 591 million into the revenue books. Keep in mind, we have closed this acquisition only 2 weeks into the third quarter. Thus, this is, firstly, not a full revenue quarter. And secondly, means we will not report comparable revenue growth rates for Varian before Q3 next year.The reported adjusted EBIT margin of 18.8% is on a very solid level. On segment margin level, we see a mixed picture, where we had a good start in Diagnostics was boosted by the rapid antigen test sales, whereas Imaging and Advanced Therapies saw some quarterly volatility. Jochen will dedicate some time to take you through the results of the segment in more detail later on.Adjusted basic earnings per share almost doubled year-on-year, and were at EUR 0.56. With an excellent cash performance, we more than doubled the free cash flow to EUR 852 million compared to the previous year quarter. We are raising the outlook for comparable revenue growth from 14% to 17% to now 17% to 19%, and for adjusted EPS, we raised the lower band of the range by EUR 0.05 towards EUR 1.95 to EUR 2.05. This now incorporates an increased antigen revenue assumption of EUR 1 billion, better-than-expected operational developments in Imaging and a higher contribution from Varian for the second half. I keep the outlook discussion short here as Jochen will spend much more time discussing the raised outlook and its assumptions later.One of the key factors is the depth and breadth of our product portfolio, and our strong teams in the geographies. Thanks to this, we are uniquely positioned in the health care sector. Our innovative equipment, enhanced by our AI, digital and consulting offerings, enables us to provide individual and highly customized solutions to our customers. This depth and breadth are especially appreciated by the large and leading health care providers who are often the leaders in consolidation. Thanks to our ability to support our customers in enhancing their processes, improving their productivity and the quality of care, we have again significantly increased the order intake of our value partnerships by more than 50% in the first 3 quarters on a comparable basis. These value partnerships and large deals are signed across our portfolio and around the globe.Let me give you some examples. We closed a long-term partnership with Prisma Health in the U.S. combining Imaging and Advanced Therapies equipment with AI and consulting support. This marks the largest value partnership we have ever signed in the United States.On the Diagnostics side, we closed our partnership with Bernhoven in the Netherlands. The Varian team closed a deal for 30 LINACs with the Australian Icon Group, a dedicated cancer care provider. And we see the first cross-selling achievements between Siemens Healthineers and Varian. There is genuine interest and an increasing funnel of potential partnerships. For example, we entered into a strategic partnership with HMI Group in Malaysia to jointly further develop centers of excellence in the areas of cancer, neuroscience and cardiovascular disease. This is the first example showing how the combination of Varian and Siemens Healthineers will further broaden our unmatched portfolio, expertise and customer access. Together, we are the most holistic partner for hospitals and health care providers around the globe.Speaking of Varian. Varian had a very encouraging quarter and a strong part -- and a strong start as part of Siemens Healthineers. With a powerful rebound in order intake across all geographies, equipment book-to-bill was at 1.37. This confirms what we communicated in the last quarters, the recovery of orders and revenues comes later in Varian than in the typically smaller and less installation effort taking imaging business, but it comes -- and it comes at full speed across all geographies. To give you an indication of the growth dynamic, the estimated organic revenue growth for Varian was solid in the mid-teens. As mentioned earlier, we will not report Varian comparable growth for a while, but as a rough orientation, we felt it is important to give this comment at least.Furthermore, Varian was capable to reach a remarkable milestone by increasing its installed base of LINACs globally to 9,000, a truly unmatched level of scale, in cancer treatment.In Q3, the adjusted EBIT margin reached a strong level of 16.6%, thanks to the healthy revenue rebound to around EUR 600 million in this quarter, good product mix and first cost synergy effects. The good financial performance in Q3 also lets us become more positive on the full year prospects regarding revenue and margin targets for Varian. More on this from Jochen later with our updated 2021 outlook.The integration of Varian is progressing as planned, and we are well on track to deliver on our EBIT synergy targets of above EUR 300 million by 2025. The level of enthusiasm and the now united global team is very high and -- to make this combination a huge success. The joint integration groups reaching from accounting, treasury over to R&D, to sales, to service and many more are uncovering the full potential this combination has in store for us. Here are some examples.As mentioned before, we already had first successes in signing combined partnerships with health care providers like HMI. We see substantial opportunities to cross-sell and add Varian into existing partnerships and large multi-modality deals, but also into -- in entering new ones. And vice versa, Varian helping the Imaging team to get even stronger in customers specialized in oncology.On the R&D side, we are working on solutions to combine Varian's portfolio in cancer care with Siemens Healthineers expertise in in-vitro diagnostics, best-in-class imaging, intervention radiology and broader minimal-invasive therapies. Thus, we work on solutions that address the entire clinical pathway for cancer patients and for many other diseases. From early detection, diagnosis and therapy all the way to aftercare with digital and AI-riched offerings, enabling data-driven physician care.On the cost synergy side, we have already seen first benefits, thanks to our comprehensive day 1 readiness efforts with a smooth transition in key functions, like treasury, accounting and procurement and initial savings from topics like the delisting.So overall, we have seen a very healthy set of numbers for Varian with strong order intake and margins, and we are well on track to deliver on our synergy targets.The strong performance of Siemens Healthineers during this quarter and throughout the entire pandemic, the rebound at Varian and our continued significant expansion of value partnerships in large deals underpin the attractiveness of our business and our compelling investment case. Thanks to our broad regional diversification, high share of recurring revenues, but also our broad product portfolio, we have demonstrated high resilience of our business at all times throughout the pandemic. Our service business in Imaging, Advanced Therapies and also in Varian showed resilience throughout the entire pandemic, not declining a single quarter.At the same time, in our Diagnostics business, we were capable to quickly respond to a changing environment by ramping up our rapid antigen business, an area where we have not been active before.Even though last year, we quickly saw a rebound in the utilization of our equipment towards pre-pandemic levels, we experienced a very varied picture of phasing of recovery across the regions and businesses throughout the pandemic with quick recoveries in EMEA and China but a delayed recovery in Americas.From a business perspective, we saw a quick rebound and elevated demand in CT, x-rays and for COVID-19-related tests. While Advanced Therapies, MRI and now Varian, with its more installation heavy equipment, were later in the recovery cycle. However, this crisis has been a strong proof point that our business is ultimately driven by unchanged structural growth drivers and innovation and not by any short-term investment CapEx cycles and that temporarily postponed investment decisions create additional pent-up demand. Speaking of innovations. With the recent launch of our MAGNETOM Free.Max and the upcoming launches of Photon Counting CT and the Atellica CI 1900 mid-sized analyzer, just to mention a few, we will expand our market-leading positions by taking more market share.Another element of our investment case is our sector-leading margin with further scope of expansion in Imaging and Advanced Therapies. And in Diagnostics, we are on track to delivering improved margins over time on the back of accelerating growth.Expanding our portfolio into adjacent growth markets is another pillar in creating shareholder value. About 2 years ago, we acquired Corindus to further advance minimally invasive therapy by combining imaging and grow multi-guided intervention. And in mid-April, we finally closed the transformative acquisition of Varian to become an even more holistic partner for our customers and to reach a new level of profitable growth. These 4 elements show our unique positioning to create shareholder value and to shape the future of health care.And with this, I would like to hand it over to Jochen.

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Thank you, Bernd, and also a very warm welcome from my side. Let me start by saying that I'm very pleased to go through the financials for the first time including Varian as a new segment. I'm equally pleased that we achieved a stellar top line performance in Q3 both in orders and revenue. Total order intake was above EUR 5.5 billion in Q3, significantly above total revenue of EUR 5 billion. Especially regarding equipment orders, we again saw excellent growth in Imaging and Advanced Therapies, well above 40% with substantial growth in all regions.In the region, the equipment order intake in the United States stood out with over 100% growth. Even considering easy comps from prior year quarter, we had an extraordinary good order intake in Q3. Also, Varian booked equipment orders in Q3, significantly above equipment revenues, as Bernd highlighted before and with a book-to-bill rate of 1.37 -- sorry, all in all, this led to an equipment book-to-bill of 1.18, which means that we continue to see the very positive order momentum and a further buildup of backlog for the revenues to come.Now to the revenue for the quarter. Revenue came in exactly at a quarterly record of EUR 5 billion. This translates to a comparable growth rate of 38.9%, by far, the highest growth rate we have seen so far. Obviously, this excludes any impacts from Varian and other acquisitions and foreign exchange.The comparable revenue growth was driven by the peak sales of our rapid antigen tests of around EUR 600 million. Taking out antigen sales, we achieved excellent growth in all of our businesses and geographies, which included excellent equipment growth across the board, driven by expected pent-up demand on easy comps from prior year quarters. Bear in mind that Q3 prior year was the trough quarter during the pandemic.Turning to the regional distribution of growth. We see the momentum in the United States picking up further as expected, while the strong momentum in EMEA and Asia, Australia continues. This stellar revenue performance translates into an adjusted earnings per share nearly doubling this quarter to EUR 0.56. The EUR 0.56 include Varian, which is immediately accretive to adjusted EPS. The adjusted EBIT margin came in at 18.8%. The year-over-year increase of 480 basis points was driven by Diagnostics primarily from the profit accretion from the rapid antigen test sales. Additionally, helped by the positive contribution of the central items line this quarter, which included income related to the U.S. CARES Act and other smaller topics.Year-over-year headwinds in Q3 came from lower incentive provisions in the prior year quarter. As said, Q3 last year was a trough quarter, which meant that incentive provisions were also at a trough levels, significantly lower than what we account for this quarter. Additionally, since in the trough quarter last year, travel and other discretionary spend were also at a trough levels, we do not see a year-over-year tailwind from discretionary spend anymore. Now even a slightly or minor headwind.Adjusted financial income net was at EUR 2 million, which was adjusted for negative effect from the valuation of purchase price hedging related to the Varian acquisition. This negative effect of EUR 89 million was booked with the closing of the transaction in April, and it concludes all transaction-related bookings in our financial income. The tax rate in Q3 came in at 33% on prior year quarter level.When looking at the segment performance this quarter, we see excellent growth in all segments. Imaging and Advanced Therapies showed excellent growth driven by strong momentum and pent-up demand on obviously easy comps, benefiting from the same drivers that drove the Varian revenue performance as pointed out by Bernd before.Diagnostics stands out with over 100% revenue growth driven by the peak in antigen sales. Excluding the antigen sales in Q3, growth would still be above, well above 30% for Diagnostics in the quarter on weak comps. On the margin side, the picture is obviously a bit more diverse. Margins in Imaging and Advanced Therapies were negatively impacted year-over-year by the aforementioned incentive provisions, headwinds from foreign exchange and negative mix, while Diagnostic could overcompensate the negative impact from incentives with the profit accretion from antigen sales and tailwind from foreign exchange.We will have a closer look at the margin development of the 3 segments on the following slides. But before we move on, some remarks on the strong profitability of Varian in this quarter. Bernd has already mentioned the good product mix and the first integration cost synergy effects. Additionally, we saw some tailwind in the margin from intra-month closing. Revenues and costs are not equally distributed in terms of time within a quarter. So the closing on April 15 led to a more positive revenue cost mix in this quarter, adding some tailwind to the profitability in this quarter.Additionally, we saw some tailwind from first impact of cost synergies, whereas planned R&D investments to deliver our revenue synergies are not yet playing an important role. They will, however, going into fiscal year 2022. All in, these tailwinds are around 150 base points. Hence, a more normalized margins for the quarter would be around 15%.Regarding the transaction and integration-related costs for Varian, we booked around EUR 180 million of EPS adjustments, including the EUR 89 million related to the valuation of the purchase price hedging adjusted in the financial income net.PPA effects related to the Varian acquisition were around EUR 150 million in Q3. With that, we are in line with the expected EUR 200 million to EUR 300 million transaction and integration-related costs for Varian in the second half as well as the expected PPA effects of EUR 500 million to 700 million per annum.But now let us have a closer look at the margin development in the other 3 segments, starting with Imaging. As pointed out previously, we saw a year-over-year decline in this quarter in the Imaging margin to headwinds from incentive provisions, negative mix and headwinds from foreign exchange. However, if you change the view from a single quarter to a full fiscal year, you see that the Imaging margin is rock solid and expanding year-over-year on its very healthy growth momentum.On the chart, you see the margins in the last fiscal years expanding year-by-year while we have graphically shown the deviations of the highest and the lowest quarterly margin in the respective financial year. These deviations have been in the magnitude of more than 200 base points both for upside and for downside volatility. In essence, this quarterly volatility is normal course of business. Obviously, we track the different volatility impacts very diligently, for example, from foreign exchange, mix and others, and we also make this transparent in our quarterly disclosures. But when putting the focus on the full fiscal year, Imaging is full on track for margin expansion in fiscal year 2021 as in prior years.In our Diagnostic business, we saw the rapid antigen test sales peak in Q3 as expected, leading to around EUR 600 million revenues booked in Q3. We now booked revenues year-to-date of around EUR 920 million and update our assumption for the full fiscal year to around EUR 1 billion. We are very proud that the whole team, and particularly the team at our point-of-care business, build up that rapid antigen business from 0 last year: a proof point how agile we can react and also what we can do with our scale to help in a pandemic crisis.With the pandemic getting more and more, hopefully, under control, we also expect the importance of antigen tests in the pandemic to diminish. Therefore, we continue to expect revenues to decline sharply in Q4. When looking at Diagnostic without all COVID-related revenues, meaning revenues from antigen tests, antibody and PCR tests, Diagnostics continues to post solid comparable growth numbers in Q3. This underlines the positive development in the core diagnostic franchises, growth for routine testing continues to stabilize.When looking at profitability, it is mirroring the development in revenues. Profit accretion from antigen peaked in Q3, whereas we expect profit accretion in Q4 to decline sharply on significantly lower volumes and price erosion, while the latter is already materializing in recent tenders. We, of course, also have to consider these declines in prices and volumes in our books, leading to negative valuation effects in this quarter. This means that we do not expect any material adverse effects from the ramping down of the antigen business in the coming quarters.But now back to the Q3 performance of Diagnostics core business. Excluding all COVID-related margin accretion, we continue to see a profitability in line with our first half year, another proof point that both top and bottom line are stabilizing after the trough in last year. All considering, we are very happy with the steady improvement in our Diagnostics segment and on track with our plan to turn around the business.In our Advanced Therapies segment, we continue to see excellent growth in Q3 both in equipment orders and revenues. On the margin, however, several headwinds came together and pushed the margin down to 9% in the quarter. Since Advanced Therapies is, anyway, quite lumpy in the quarters, let me quickly talk you through these headwinds versus the fiscal year '19 margin, a more normalized margin without Corindus acquisition dilution.We continue the investments into our Corindus business primarily to develop the robot for neuro applications, particularly for stroke. The investments now also include more heavily market development activities of this new technology, which drives the dilution on this segment margin towards 400 base points from previously around 300 base points. At the same time, we additionally, invested in our successful icono platform. The market entry of icono was very successful. The product ramped up significantly faster than its predecessors.We now invest in expanding this successful platform to build a new generation of connected and digital interventional suites. Consequently, this leads to a temporary higher R&D intensity, diluting the Advanced Therapies margins by another around 100 base points. Together, the new way of robotic treatments combined with the new generation of interventional suites will revolutionize interventional procedures, in particular stroke treatments. This will generate a new revenue and profit pool for Advanced Therapies for new profitable growth in the midterm.Another material headwind this quarter was foreign exchange. As you know, Advanced Therapies is a segment that is most exposed to U.S. dollar-euro fluctuations. The strong euro development led to around 200 base points of margin headwind compared to fiscal year 2019.Now switching gears to the more short-term headwinds. Also in Advanced Therapies, we saw headwind from higher incentive provisions but rather below the group average since there were no peak sales from pandemic-related demand in this segment. So the headwind from incentives was around 100 base points compared to fiscal year '19.Additionally, we also saw mix and other effects negatively impacting Q3. For example, from temporary higher logistic costs leading to another dilution of around 200 base points. The latter effect can be attributed to the usual lumpiness in the segment, so we expect the mix and other effects to reverse in Q4 and the margin to recover to mid-teens, also helped by the strong conversion usually seen in Q4. The other headwinds from foreign exchange and incentives are expected to remain a headwind for Q4 as well as the outlined investments into Corindus as well as icono.Let us now have a look at the excellent cash performance this quarter. Q3 has -- sorry, Q3 cash has more than doubled versus prior year quarter, continuing the very strong cash performance year-to-date. In this fiscal year, we generated nearly EUR 1.9 billion of cash on the back of our diligent execution on cash collection.In Q3, particularly, we saw the cash contribution peaking in Q3 from our rapid antigen business, which is in line with the peak revenues due to the short order-to-cash cycle in this business. Similar to revenues, we do not expect this cash contributions to continue in Q4. Overall, we are very proud of how agile the organization reacted in the pandemic, both in keeping up supply chains, managing them effectively, but foremost in building up the EUR 1 billion antigen business from scratch.This good cash performance has also helped us to a very healthy balance sheet, considering the first-time consolidation of the transformative acquisition of Varian for the first time. Net debt as of June 30 is at EUR 12.9 billion. This reflects, of course, the effect of the full consolidation of Varian and the solid financing for the transaction, which is fully in place. This translates into a leverage of 3.7x net debt, including the funding status of the pension commitments over EBITDA, which is already clearly below the pro forma leverage of around 4.2x from last quarter due to the strong cash generation in the quarter.Eminently, the antigen business has helped here in the denominator as well, and of course, this contribution has to be considered rather not being recurring. With our strong cash generation, we are in the position to delever further well within our solid investment grade territory.And with that, let us have a look at the outlook for fiscal year 2021. For fiscal year 2021, we raised our outlook again for 3 main reasons. Firstly, an updated assumption on the rapid antigen test sales; secondly, stronger growth in Imaging; and thirdly, the higher Varian contribution to the adjusted earnings per share versus the previous outlook.Consequently, the comparable revenue growth in fiscal year '21 was raised to now 17% to 19%, with Imaging expected to grow 9% -- above 9% and the Diagnostics above 35%. The raise for Diagnostics is driven by the updated assumption on rapid antigen test sales and a more positive view on the Diagnostics core business. Advanced Therapies growth expectations remain unchanged with above 7% growth.For Varian, we can narrow the band for expected revenue contribution in the second half to the higher end of the previous guidance due to the solid revenue performance in Q3. We now expect EUR 1.3 billion to EUR 1.4 billion of revenues in the second half.Now over to the bottom line on the right hand of the chart. The range for adjusted basic earnings per share for fiscal year 2021 was narrowed by increasing the lower end of the band. The new range is now between EUR 1.95 and EUR 2.05. By this, we increased the midpoint of the adjusted EPS guidance range, mainly due to the expected higher revenues versus prior guidance, but also due to an increased EBIT contribution from Varian.Let me share a couple of comments on how the profitability in this segment is expected to drive adjusted earnings per share in the updated outlook. As already pointed out, Imaging is on track to expand margins in 2021. We expect a very strong Q4 at Imaging again, but it's probably fair to say that it would need a new record Q4 margin to expand margin fully by 100 base points in the fiscal year. Not to say it is impossible, but clearly quite ambitious.In Diagnostics, we expect margins to well exceed 10%. With the revenue contribution and profit accretion from antigen sales expected to decline sharply in Q4, we expect Q4 margins to be lower than in previous quarters, more towards the margins level excluding COVID-19 tests towards mid-single digits. We now expect Varian to achieve margins in the second half of 15% to 17%, above the previously guided 12% to 14%. As commented before, we saw some one-off tailwinds in the Q3 margin of Varian related to the intra-month closing in April. That means the normalized margin level in Q3 going into Q4 would be around 15%.For Advanced Therapies, we now expect margins to come in at mid-teens for fiscal year 2021. As outlined before, Advanced Therapies faced several headwinds this quarter, which culminated in Q3. For example, headwinds from foreign exchange and investments for Corindus, which, of course, not only impact a single quarter but also the full fiscal year. To be very clear, some of these headwinds, for example, the investments for Corindus of around 400 base points and the weaker U.S. dollar exchange rate, should be assumed to remain for some time also after this fiscal year.We are investing in the future of a strongly growing business in attractive markets, and our investment horizon is beyond a single quarter or fiscal year. You could say that we are long-only investors in our business having a long-only view. We have a very solid financing in place for the group. Therefore, we can lower our expected financial expenses for fiscal year 2021. We now expect around EUR 30 million to EUR 40 million adjusted financial expenses net versus EUR 50 million to EUR 70 million expenses in the previous guidance. The adjusted financial income net excludes the Varian transaction-related financing expenses, but of course, includes the expenses for the debt financing of Varian.We continue to expect tax rate to be between 27% and 29% and do not expect a material impact from the Varian consolidation this fiscal year.To conclude, I can say with relatively high certainty that this was likely the last outlook raise in this fiscal year. Joking aside, we addressed what we believe to be the most important point in the quarter.And I'm now looking forward to your questions. With this, I hand over to the operator.

[Operator]

[Operator Instructions]

[Marc Koebernick, Head of Investor Relations]

Okay. Great. Thanks, operator. So the first person on the line, you made to the pole position again, Patrick. That's you. So Patrick Wood.

[Patrick Andrew Robert Wood]

Yes. Two questions, please. And apologies if you covered any of these, I missed it. But on the first one, within Imaging and looking at the order book, I'm just curious how many of these are replacement systems comparatively versus new sockets? And has that mix changed versus the past? Are you seeing incremental bunkers being built out? Or is it very much a replacement? I'm just curious on that.And then, on the second side, just curious, in some of the emerging markets and things like that, how you're seeing the recovery curve and has Delta had any effect of limiting your ability to get back into hospitals and work on installations? Just curious what you're seeing there.

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

Yes. Okay, Patrick, maybe I'll take this one. I mean when it comes to question one, we don't see a big mix shift, so to say, when it comes to replacement versus new built out. Yes? I mean, of course, a lot of the growth we have when it comes to the fundamental growth drivers comes from Asia, from emerging countries, but also the strong growth in China, which I don't call an emerging country anymore, where it is by the nature of the topic is that its capacity expansion. Yes? And since we have seen a little bit of a muted U.S. business for a while, where the replacement piece is higher, it is likely that currently, there is a bit more of new installations compared to replacements. Yes?And this also from a pandemic point of view, makes sense. Yes? I mean, if you have systems, it is more easy to just prolong the systems you have than when you are complexity constrained, you do the new investment. Yes. When it comes to the growth in LMICs, however you want to call it, we see this on a very, very good level. Yes. I mean, of course, depending on the pandemic situation different impacts in the respective markets. But overall, very good momentum and no holding back of investments. Yes.

[Marc Koebernick, Head of Investor Relations]

Okay. So the next question in line would be Michael Jungling from Morgan Stanley.

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

Great. I hope you can hear me.

[Marc Koebernick, Head of Investor Relations]

Yes. Yes.

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

Great. Great. I have 2 questions. Firstly, on Varian. We've seen the draft reimbursement codes come out in the U.S. for both hospitals and for freestanding centers, sort of points to some fairly material reductions in reimbursement. And I was hoping you could comment on how you feel about the coding in relation to your own planning when you bought Varian.Secondly, when it comes to Varian, have you had a chance to now talk to your end customers about the revenue synergies that you're trying to achieve, and I'm talking both about your distributor relationships, but also about hospitals and bundling that you're offering between imaging and radiation therapy? What's the feedback been? And is that part of the synergy argument still as fruitful as you thought it was or perhaps better? Some direction would be nice.

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

Yes. Thank you, Michael. On the reimbursement side, I mean, this is in the foreseeable corridor. And I mean, as you know, and you follow the sector very long and also, this is a normal course of business, so to say. And for us, I'm convinced it is a wash, yes, because these reimbursement changes also encourage upgrade of the equipment towards the more modern hypofractionated treatment schemes. And on the other hand, I think we also always need to put the perspective on this, yes, that this is U.S.-only topic, yes, and also there only part of the U.S. market and that the U.S. equipment revenue is, I think, just 18% or so of the Varian top line. Yes? So from that point of view, no new, so to say, compared to the assumptions we had when we announced the acquisition a year ago.On the revenue synergy side, I mean, I think we have -- we see a very, very positive picture. And now let me distinguish from customer feedback 2 things. Yes? On the one hand, there is -- the aspect, the bucket of the large customers, yes, where we have existing value partnerships, where we are in very good discussions now also in bringing Varian in addition, yes, there are very concrete examples in the U.S., yes, where we can expand and are in discussions of expanding the existing relationship into oncology. Yes? So this is more the aspect of the strength Siemens Healthineers brings to Varian. Yes? And the HMI example I gave in the speech is one of them now also coming from Malaysia.And then there's the other side of it, and this is where Varian is strong in radiation oncology and where it's now the -- it's the opportunity to expand the scope of our deep relationship which Varian has, which is often in little bit of also research and partnership way of developing oncology further where it's now possible to expand, so to say, left and right of treatment into also integrating imaging and response control in the scope of the collaboration with Varian. Yes? And this is super exciting for radiation oncology customers and the day-to-day reality of sales conversations now.

[Marc Koebernick, Head of Investor Relations]

Okay. So then we move on. Next one in the queue would be David Adlington from JPMorgan. So David, the floor is yours.

[David James Adlington]

So first on Imaging, please. I don't think you disclosed it. So I just wondered if I could check the year-to-date revenue growth in Imaging. I think it's around about 11%, maybe a little bit more. And that obviously implies a bit of a slowdown in the fourth quarter. Just wondering if you could sort of -- whether that's just some conservatism still or whether you're seeing any particular headwinds that we should be thinking about.And then secondly just on -- into next year, obviously, very strong order growth, might be a bit early, but it would be great to get your thoughts in terms of how you're thinking about the demand side for next year on Imaging. And also any particular headwinds you might be seeing on the supply side, given some of the supply chain issues you're seeing across the market at the moment?

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Thanks for your question, David. I think on the year-to-date revenue growth, we are about -- above -- slightly above 10%, yes? I think it's 11% or so. And we guided for more than 9% for the full fiscal. We currently might see us slightly below the 11%, but not far. So -- and as I said, more than 9% does entail -- or does not exclude 10% from being possible for the full fiscal. Yes? So I think we do not see a significant drop in both profile on Imaging in Q4.On the outlook for next fiscal year, as you know, we normally talk about outlook topics later in the year, in the calendar year when we announce Q4 numbers. But what we see is, I would say, a healthy environment, yes, and most likely, it will be normalizing more to because we don't -- we have -- I think we have gotten a lot of the portion of the pent-up demand already built into this fiscal year. Yes? So I would see us more in the north of 5% growth environment in the Imaging business in next fiscal year. But it may be a bit too early to say. And man, as you have seen, we saw good momentum on the order book, yes, that is helping. So I'm very confident about the development on Imaging.

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

I'll add one more comment here. I mean when you look at it, there is now the recovery setting in, in the U.S., yes, with quite substantial order growth, yes. And I mean, as we said in the first half of the year, yes, I mean the contribution to overall growth of Siemens Healthineers from the U.S. market was 0, yes, across all segments, yes? So this -- of course, this recovery, which is now underpinned also by this order intake, it gives us, of course, momentum. Yes? And not all of this order growth in Q3 will turn into revenue in the next quarter only, yes? So there will be a -- so this gives us, of course, a boost also for the several quarters.And maybe as another small indication, yes, I mean I'm also very happy to see the development on the market share side. Yes, I mean you can also read this in the commentary now when you compare the growth rates, yes, but also when looking at the additional data we have, yes. It was, again, also from a shear perspective, a very good quarter on the order side.

[David James Adlington]

Perfect. And any comments on the supply chain? How comfortable are you there with that?

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Fair point. I think on the supply chain, obviously, the situation, I would say, is more changes than normal? Absolutely. Yes. I mean they are -- and these are still pandemic-related issues, yes, in certain areas, but there are also other topics, unfortunately, the flooding in Germany had an impact on one of our suppliers for special piece and things like this.Overall, I would say, a more tense situation than normal. But so far, our teams are working diligently through the additional changes. And so far, we are confident that we can fulfill our demand patterns in a meaningful way. And we would -- we do not foresee in the near term, any -- I would say, any headwind from supply chain issues in the Imaging.

[Marc Koebernick, Head of Investor Relations]

So now we move over to Scott Bardo from Berenberg. Scott, the floor's yours.

[Scott Bardo, Analyst]

First question, please, just on Imaging. I wonder if you could firstly please confirm what the order book growth was this quarter, that would be helpful. But more importantly, clearly, a business that's recovered in line, if not above with your COVID recovery squiggle. Could you please, Bernd, talk a little bit to the market demand for MAGNETOM Free.Max and how that's trending versus your expectation? And also, if you like, some confident levels about where you are with the Photon Counting program, that would be helpful.Second question for Jochen, please, just some line item clarification. Clearly, some material burden on margin for compensation rewards. Help us understand, please, the shape of how they look going forward, whether there's any changing in accounting? And also on tax rate, you alluded to potential benefits from the Varian integration. You have one of the higher tax rates in medtech. Can you give us some flavor as to how that could unfold?

[Jochen Schmitz, CFO & Member of Management Board]

Maybe I briefly start on the Imaging order book very briefly. I mean we had on the equipment order side, a very healthy quarter with also north of 40% equipment order growth in Imaging and then a book-to-bill ratio of north of 1.1%, yes. so very, very healthy, and therefore, a good addition to the order book, yes?I proceed with your more technical questions, and then I hand over to Bernd. The compensation or the bonus incentive topic was on a year-over-year basis, very particular in this quarter because we released last year incentive accruals due to the fact that we foresee that we will not make our, I would say, guidance or budgeted numbers, yes, which were initially laid out. And therefore, the year-over-year impact on Imaging, for example, is north -- clearly north of 300 base points in this quarter, yes?This will be slightly less in Q4, yes? So I would say I would expect a number which is more in the 200-plus base points arena, yes? Because we don't -- we did not release anything anymore in Q4 last year, yes? But it's still, we are still accruing this year on a high level, yes? Don't worry, yes? And looking into the next year, I would see some tailwind from this on a year-over-year basis. Yes?On the tax rate side, I mean, what I said in my speech is that we do not expect this year already any impact from Varian on the tax rate. So -- therefore, we expect to be in that 27% to 29% tax rate environment. Yes, that is higher than a lot of our competitors, which are not headquartered out of Germany. Yes, this is a fact we have to live with, to a certain extent. And it's currently a bit difficult to predict what the Varian acquisition will do because we need to see what will happen from a tax legislation standpoint in the United States, from the Biden administration, and you also follow what is going on with regard to minimum tax and what this all means, yes, to -- on a global level for companies who are currently below those levels and things like this.So I think there's a lot in motion in this regard. Therefore, a very tricky field for mid- or -- or for near or mid-term predictions on this, yes? But I would not expect any significant change for the next fiscal year on tax rate. Yes?

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

Yes. Thank you, Jochen. Now I come to what I call technical topics, yes? So MAGNETOM Free.Max, I'm very happy with the response we see in the market, yes, and also with the uptake of orders.But let me shed some additional light on the topic, yes? And because there's another angle, I think we haven't been so vocal about, but which I find super exciting, yes, as also somebody who grew up in MR and CT, yes? So on the MR side, what the MAGNETOM Free.Max is also just the beginning of a movement which transforms MR from a modality, yes, to a method. And what I mean by it, when you look at x-ray, yes, x-ray is an omnipresent thing, yes, and you have x-ray somewhere you build it into, you can bring it to the bed side, yes, you get an x-ray at the dentist, you do x-ray, to some extent, in CT scanning, yes? You do x-ray in the cath lab, yes?MR so far is an imaging modality. But what we are doing is transforming it into a method, yes, where this generic way of producing an image, yes, goes into new places, yes? And the MAGNETOM Free.Max is the first incarnation of that movement. And when you look at what this platform or this type of technology can bring is MRI at that dentist, yes? I mean it can be guiding procedures in the future. It can bring new form factors and so on and so on. Yes? So there is an entire program where we are just seeing the beginning, yes? And this is also one of the topics we will definitely talk more about in upcoming moments, yes? So it's not just a product, yes, it's an exciting product, yes, but it is also the beginning of a movement, yes?Then on Photon Counting program is fully on track. I mean, first, investigational devices are out there, yes, and are behaving very well, yes? Not only from a stability point of view, but really bringing this modality to a new level. And I recently was on a call with a retiring friend, I have to say, unfortunately, yes, one of the leading radiologists in Europe and first-time users also, yes, [ Augustine Erasmus ] in Rotterdam and he said, "Hey, Bernd, this is super-exciting," yes. And he's convinced every CT will be a Photon Counting CT, yes? Yes, now every CT is a multi-slice CT which was the revolution in beginning of the century, yes, in my youth, so to say. So I give you, as you hear, a positive outlook.

[Marc Koebernick, Head of Investor Relations]

So thanks, Scott. Now slowly coming to the end of the show. Veronika, the floor is yours.

[Veronika Dubajova, Equity Analyst]

I'll keep it short and sweet. Two questions for me. One is just trying to understand the new EPS guidance for the full year. Just if I look at how strong the performance came in, in the third quarter, the EUR 1.95 to EUR 2.05. It seems to me like the beat just in the quarter was EUR 0.06. It should -- yet the top end of the guidance range is unchanged and the bottom's coming up by less than the beat in the quarter. So just kind of trying to think -- trying to understand a little bit better what that's reflecting as you think about the fourth quarter, and I know, Jochen, you spent a lot of time talking through the margin moving parts, but is there anything else that you would call out that explains that?And then my second question is just I think, for all of us circling back to the Imaging order growth. And I would love to understand from a product modality perspective, where are you seeing the strongest demand? Is it in the MRI? Is it CT? Is it broad-based? And then I know in the past, you've called out the tailwinds you've seen from COVID to CT. Are there any of those either in sales or in orders in this quarter from COVID-19?

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Thanks, Veronika. We knew your questions were tough, yes. So but okay, we still go for it, no doubt. On the EPS side, as you know, we raised the midpoint by EUR 0.025. Yes, you could say, is that a bit conservative relative to what we did on the top line. Yes, you could argue this. I mean, but we still have a range out there and the range has also an upper end, yes? And I would not exclude that also this, that we also maybe use the range, yes? Therefore, we will see. I mean, we should have in mind the following.I think we saw that the Advanced Therapies business cannot fully cover, I would say, the high investment for the future build out of the business as we might initially have thought or have hoped for. Therefore, we made the guidance a bit more concrete in the mid-teens, yes? Although with -- I would say, with a hint that this might lead also into next year on this level. This is maybe something which explains why we are maybe a bit muted relative to the top line raise on the bottom line raise, yes? And we also see a significant shift in margin profile. Obviously, in Diagnostics from Q3 to Q4, yes, we will see from north of 20. We will see a backdrop into more -- into the mid-single-digit-plus arena, assuming that we will not see a significant contribution from antigen testing, yes, and we will not see a lot.And as we pointed out, price erosion is another topic even if we ship some tests more than. We might think the price erosion is severe in this field, yes, because it is not high tech, yes? This is and there's a lot of supply now. And these are the main driving forces, yes? And when you also look at corporate items, I think we expect to be more or less in line with prior year's on a fiscal year level, yes? And also tax rate is not on the lower end of the margin than I would expect, on the 27% side. Yes. So these are some of the effects, but nothing to worry about, yes? But just a reflection of being -- I would say, giving good guidance that we will see some lift, yes, from the midpoint, but not, I would say, being too aggressive on the bottom line.

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

Yes. Maybe some more comments, Veronika. I think one important comment, I mean, maybe to everyone, here, I mean when it comes to this antigen topic, yes? I think what we -- what I want to make clear is also what is our claim to fame in this business, yes? And what have we -- why have we contributed so strongly, but also why is the demand curve for our business as we project, yes?Our "claim to fame" was we were super early in getting the regulatory approval, yes? We were first to get the self-test claim in Europe. And -- so we were -- so the claim to fame was to be first. And then on the other hand, and this is even more important, yes, that we were seen for the public, yes, for the government, for the federal governments in Europe or of the German states, yes? We were a super-reliable partner in the first phase of the testing, yes, to make sure that we can deliver millions of tests, yes, when governments want to reopen schools and offer tests for school children and so on. This is what we brought to the table, yes? We are not a company which is now addressing as the right channels and everything when it comes to delivering to pharmacies and supermarkets and so on and so on, yes?So that also means that not only that the sweet spot for us, yes, has been supplying the initial public demand, yes? And this is something we did really, really well, yes? But now the business has also gone into a different, let's say, phase, yes? And we are also not in the business, so to say, of OTC medicines, yes? And I hope that explains a little bit the dynamic, yes, and why we are very, very happy with what we achieved, yes, but why we also believe that there is for this sweet spot not so much left, yes? We are looking in areas, by the way, now in South Asia, in Australia and so on and so on where undervaccinated countries are possibly in similar situations, yes? But even there, it is getting -- the demand is much, much lower, yes?Then to your other question regarding imaging growth. I mean we see growth basically across all the modalities, yes? I mean the special CT pandemic demand is not something we see continuing, yes? But still very, very strong growth on CT simply because of the -- also the ease of installation and so on and so on. And it's a book and build -- it's more of a book and build basis than MR and also the AT business, yes? So I still -- so when it comes to order growth still, especially in the U.S., MR and AT are behind the -- not yet at the same level as growth in CT, yes, which is also a good news, by the way, yes, because that means also that there is still some pent-up demand to work on, yes?

[Marc Koebernick, Head of Investor Relations]

Okay. So we've 2 questioners left in the line. And next one would be Sezgi. And following that, we have Falko and -- which would then conclude the session for today. [Operator Instructions] So Sezgi, the floor's yours.

[Sezgi Bice Oezener, Analyst]

Mine relates to the Diagnostics segment. It looks like in addition to the antigen tests, you also had some pickup in antibody and PCR and other types of COVID tests. So what's the outlook and the margin outlook when we're looking into 2022 when these tests might cease to flow in?

[Jochen Schmitz, CFO & Member of Management Board]

Okay. We will go into this level of detail with regard to 2022 anyway, I would say, a bit later because not because we don't want to tell you, but this is a very volatile situation on the COVID side, yes? Therefore, it's really not -- I would say, we cannot responsibly forecast this now today, I would say, for 2022. But I would also believe like we believed it with antigen that we will see less volume in fiscal year 2022 than we saw in 2021, yes, overall, on those kind of tests, in particular, on the PCR side, yes, which is currently bigger portion of the nonantigen COVID-19-related tests, yes? That's how I would see this.

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

And I mean, overall, I mean, when it comes to the nonantigen business, so to say, I think the positive news also in Q3 was a very, very strong recovery of the base lab diagnostics business, yes, with a growth in the almost 40% range, yes? And also a good development on the margin side, yes, which shows also that this -- that the underlying business is well on track.

[Jochen Schmitz, CFO & Member of Management Board]

May also to quantify or qualify that again, the antibody and PCR-based tests made about 5 percentage points of the 100% growth, yes? So it is anyway a smaller portion of our business, just to clarify this.

[Sezgi Bice Oezener, Analyst]

Okay. I was just hoping that just the way you quote the window of opportunity at a very opportune time with the antigen test, maybe like with antibody just to measure like the effectiveness of the vaccines and other opportunity might arise in 2022. So that was the purpose of the question, but thanks very much. I believe it's clear that we have to think in the margins of like mid-single-digit profits for -- going forward for the Diagnostics segment.

[Jochen Schmitz, CFO & Member of Management Board]

Yes. And Sezgi, I think we, as we always said, we will be prepared -- if there is demand, yes, we will be prepared to supply, yes, on the antibody, on the PCR and on the antigen side, yes? This is definitely assured.

[Marc Koebernick, Head of Investor Relations]

Okay. Now Falko. Finally.

[Falko Friedrichs, Research Analyst]

One question, please. It's also on the core Diagnostics business. Could you update us on the progress with your Atellica platform rollout? And is that picking back up again? And now -- and do you still see the same rate of competitive wins that you have seen before the pandemic?

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

Yes. So last question. Yes, I mean, when it comes to the competitive win rates, I mean, we see, especially, the very good redevelopment on -- the larger the deal, the higher the win rate, yes, which is exactly what we wanted. And otherwise, when it comes to Atellica rollout, things are pointing in a very good direction when looking at win rates, deal profitability, but also when it comes to the more internal factors of improving cost position, improving service costs and improving installation times, yes? I mean, it's not a sprint, yes? It's -- and maybe also not really a marathon, yes? It's a longer-term effort, which we have here. But I'm very happy with what the team is delivering from further system improvements to the performance of the U.S. team, which always was a bit of a -- for a while was a weak spot, yes. I really like what I see.

[Jochen Schmitz, CFO & Member of Management Board]

And not to forget, Bernd also mentioned that, yes, we will see the control rollout starting of CI1900 in the next fiscal year, yes. This is a building block also for our mid-term targets on Diagnostics, obviously.

[Marc Koebernick, Head of Investor Relations]

Okay. So thanks a lot to everyone for participating today. I know it's a busy day for you with all the conflicting reporting dates. I can't promise that we avoid that in the future, but we'll work on that. And then I would say, I hope you have a good weekend. We speak to you with our Q4 reporting at the latest, and I hope you stay healthy. Bye.

[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 corporate.siemens-healthineers.com/investor-relations.