Siemens Healthineers AG

XETRA:SHL

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Siemens Healthineers 2018 Fourth Quarter 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 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. Florian Flossmann, Head of Investor Relations. Please go ahead, sir.

[Florian Flossmann, Head of Investor Relations]

Good morning, ladies and gentlemen, and welcome to our Q4 conference call. The earnings release and Q4 presentation were released at 7:00 this morning. And you can find all documents on our IR website.Our CEO, Bernd Montag; and CFO, Jochen Schmitz, are here with us today to review our Q4 and full year results. Bernd will start with the highlights and some strategic overviews. And Jochen will follow with more details on our financial performance. Afterwards, there will be enough time for a Q&A session. [Operator Instructions] And with that, I would like to hand over to Bernd.

[Bernd Montag, Chief Executive Officer]

Thank you, Florian. Yes, good morning, everybody, and welcome to our Q4 earnings call. Before diving into the details of our quarter, I want to spend a couple of moments reflecting on what happened in fiscal year '18. It had been a truly exciting and rewarding year for us with some major achievements. First of all, our IPO in the first half of the year started a new era for our company. It has been hugely successful and rewarding. Being a separate listed company gives us much more distinct profile and a much higher visibility. With the IPO, we also put a new, more agile organization into operation. We delayered the organization both vertically as well as horizontally and also implemented a more focused go-to-market approach. We also put our cost savings program into practice and achieved the first EUR 60 million savings in fiscal year '18. With the introduction of health care performance -- of the Healthineers Performance System, we will drive the change to become an even leaner organization.Despite all the challenge -- all the changes, our organization didn't get distracted. And we brought many leading innovations to market, the launch of Atellica Solution, which will put Diagnostics on a different performance track, and the introduction of 2 completely new Ultrasound platforms as well as many new Imaging products from a very strong innovation pipeline. True to our motto, we say what we do, we do what we say, we also delivered on our financial promises. Organic revenue growth came in with 3.7%, well within our guidance range. Our adjusted profit margin with 17.2% was in the lower half of our guidance range but has been heavily impacted by FX of minus 120 basis points in this year. Going forward, we are well positioned to further accelerate our growth dynamics. In the past years, we have been growing on average by roughly under 3%. Fiscal year '18 has already been a step in the right direction. A lot of work has been done in the last year in renewing our product portfolio and optimizing our sales organization. Now we can fully benefit from our attractive end markets and will bring our company on a new performance level with regards to growth and profitability. In fiscal year '19, we already will take a meaningful step towards achieving our mid-term targets. Jochen will give you more details on our expectations for the next year in a couple of moments.Before going through the Q4 highlights, I want to share some market share data for the U.S., which we just have received. In fiscal year '18, we have been again highly successful and have been winning significant market share in Imaging and Advanced Therapies. On a 4-quarter rolling basis, we won 2 to 3 percentage points in both segments. Gains in our Molecular Imaging business have been especially strong but also the other large Imaging businesses performed strongly. And as a highlight, every second MRI scanner sold in the United States is a Siemens Healthineers machine. This again proves how competitive our offering is and that we are leading the market in Imaging and Advanced Therapies.Now let's continue with our Q4 highlights. Revenue growth has been strong with 4.2%, especially if you consider that Q4 last year was our strongest quarter with 5% growth. That means we didn't have easy comps this quarter. Again, our very strong Imaging business has been the driver with roughly 6% growth. But also Diagnostics performed well this quarter with 3% growth. We continue to receive excellent customer feedback on Atellica Solution. And this also shows our shipment -- and shows in our shipment numbers. With 999 analyzers shipped this year, we are at the upper or, let's say, upmost end of our target range. Overall, instrument sales at Diagnostics grew in the low teens in this quarter and for the full year. That is an important leading indicator and points towards improving the reagent sales and overall growth going forward. Adjusted margins have been again heavily impacted by FX headwinds of minus 210 basis points year-over-year. Operationally, that means ex FX, we had strong performance this quarter with adjusted margins being roughly 150 basis points above prior year ex FX. Adjusted net income was slightly down year-over-year on FX and higher taxes. Free cash flow has been strong, roughly 30% above prior year, with a cash conversion rate of 1.05. Of course, we also want that our shareholders participate in our good performance this year. As promised at the IPO, we will pay a dividend for the full fiscal year and not just for the time after the IPO. We will propose a dividend of EUR 0.17 per share, which equals 55% of our reported net income. We focus on partnerships with our customers to jointly address their key challenges. Here, we made good progress this year. We recently won several large deals like our retention deal with Primary Health Care, which is the second largest lab provider in Australia. It takes more than 70 Atellica Solution analyzers in a lab automation setting with a contract duration of 7 years. With the Catholic Medical Center in Eunpyeong in Korea, we won a multi-modality deal, the largest so far in Korea. The deal included not only a range of imaging systems but as well the establishment of a center for artificial intelligence. In Germany, we won a managed equipment service contract with the Klinikum Braunschweig, which is one of the largest hospitals in Northern Germany. syngo Virtual Cockpit connects more than 100 outpatient clinics and hospitals with 64 Siemens Healthineers scanners in a joint network at Alliar in Brazil. syngo Virtual Cockpit helps to shorten scan duration and to give more precise diagnostics to produce rapid results by overcomes expert bottlenecks at one location. With the Medical University of South Carolina, we were able to form a unique partnership for joint innovation and transformation of care delivery. I want to highlight 2 of several projects we will drive to increase workflow efficiency and patient experience. The first project aims to improve the efficiency in stroke care by reducing the door-to-needle time from 90 to just 20 minutes. Reducing this time is critical for the patient's recovery. Getting the right diagnosis and treatment as fast as possible can make a huge difference for the patient. It's the difference between walking out of the hospital shortly afterwards or being dependent on nursing for the rest of life.The second project I want to highlight is the enhanced use of the digital twin technology. Kind of artificial intelligence, a digital twin is a digital replica of physical assets processed through our system. In this case, the digital twin enables planning teams to quickly determine the impact of changes that would be costly, if not impossible, to test in the real world. It helps to stimulate how efficient workflow solutions or health innovations actually are in a new facility and thereby helps to both optimize patient experience as well as to maximize hospital efficiency.In fiscal year '18, we continue to broaden our portfolio with many product launches, including a lot of industry-first features. Some key highlights are our new MRI scanners with our BioMatrix technology that automatically captures and corrects patients' physiology and motions coming from breathing, cardiac motion or head movements. For our next Ultrasound platforms, where we received excellent customer feedback, customers really appreciate the brilliant image quality and the very intuitive and efficient workflow. There are many more products on this page, but I want to emphasize that this is a typical pattern for our business. We typically introduce a new platform every 3 years in each of our Imaging modalities. This also shows the innovation power that is embedded in our organization and which will drive our future performance. Roughly 2/3 of our revenue is generated with products which are not older than 3 years. Looking at our current overall portfolio, I dare to say that this is the strongest portfolio we have had in many years. And we will see more product launches at RSNA with several new Imaging systems and a big focus on AI, artificial intelligence.AI and digitalization will be a major driver for the transformation of health care delivery in the future. We are perfectly positioned to profit from this development. We have the largest patent pool with more than 500 patents in machine learning, including deep learning patents. Also we have a large data lake of curated images, which is crucial to develop and train new AI algorithms and applications. Only with efficient, high-quality data, new AI algorithms can be developed and trained. With our supercomputer, we run around 40 AI experiments every day. As of today, we have 40-plus AI-enriched offerings. That is 10 more than in January when we hosted our Capital Market Day. As an example, chest CT scans are one -- are an excellent example where AI could support radiologists. The amount of imaging exams grows much faster than the number of radiologists. A typical radiologist has therefore less and less time to read an image and to make a diagnosis. Actually, reading a CT chest exam is highly complex since the radiologist has to examine many different organs at a low reimbursement. AI-trained software solutions could support the radiologist to make an automated analysis of the entire chest CT scan to recognize and quantify abnormalities, for example, lesions in the lung, coronary calcifications or vertebra fractures. This would significantly increase the speed, position and quality of a diagnosis. Together with our other product launches in Imaging, artificial intelligence will play a major role at this year's RSNA.Now let's have a closer look on the progress of our Atellica Solution. The product is very well received in the market. And we continue to win a high share of competitive contracts. More than 35% of our analyzers are placed in accounts where we have not been the incumbent provider. The 2 biggest deals this quarter have been: a large automation deal with 40 analyzers with a new customer, Laborizon in France; and Primary, a large retention deal. Also shipments this year have been a great success. With the famous 999 analyzers shipped this year, we'll reach the upper end of our target range. Next year, we expect further strong growth with additional shipments of 200 -- of 2,200 to 2,500 analyzers, which would bring the number of cumulative shipments to 3,200 to 3,500 by the end of the next fiscal year.Also the expansion of our market reach is well on track. We received approval for Japan in Q4 and expect approval in China in the second half of fiscal year '19. We also made excellent progress on our assay menu. Since our Capital Market Day, we received approvals for several additional assays both in the EU and in the U.S. We now have a very competitive menu with 202 approved assays in the EU and 100 approved assays in the U.S. With the excellent track record of this year, we are confident to reach our fiscal '19 Atellica Solution targets. With this, we are on track for our mid-term shipment target of 7,000 analyzers shipped by end of 2020.For the rollout of Atellica Solution, we have already been using methods of our Healthineers Performance System, or in short HPS. HPS introduces lean methods across the business to empower our employees to identify and eliminate waste by focusing on customer value. It has been launched this year. And more than 500 employees have already been trained in HPS core method. Based on the foundation of our 7 Principles of Healthineers, HPS enables us to deliver on our strategies, drive execution and develop our employees. This will be a big focus going forward and will help us to become an even more efficient and lean company driving overall performance.And with that, I would like to hand over to Jochen for the financials.

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Thank you, Bernd, and also a very warm welcome from my side. I believe this is the perfect handover to talk about our cost savings program. We are fully on track to achieve our targeted savings. In the second half of this year, we achieved the first savings of EUR 60 million, mainly from the so-called stand-alone savings. With the new delayered organization implemented in fiscal year '18 and further improvements like functional cost reduction, we will see further EUR 140 million cost benefit in '19. In total, we will realize EUR 240 million of cost savings. EUR 50 million of these realized savings will be reinvested in our strategic growth fields in digitalization and artificial intelligence, also highlighted by Bernd beforehand. The biggest part of the implementation costs have been booked in fiscal '18. For the next year, we expect additional charges in the neighborhood of EUR 30 million. In total, we will see less charges as initially planned. The initial planning on the implementation cost has been on the conservative side. In some instances, we also found alternative, less cost-intensive implementation solutions.Let's now have a closer look at our financial performance in Q4. Starting with orders. We posted very strong 13% organic order growth in Q4, driven by very strong growth in service orders. But also equipment orders were strongly growing in the high single digits. Now breaking the equipment orders down into segments. Imaging posted mid- to high single-digit equipment order growth. Advanced Therapies had an especially strong finish with equipment order growth in the low 20s while the Diagnostics grew at the same rate as revenue due to the book-and-bill nature of the business. Revenue in Q4 was strong with 4.2% growth against an already good Q4 in the prior year. We saw growth in all regions with strong growth of 5% in the U.S. and solid growth in EMEA with 4%. Growth in China has been soft. But this is against some very tough comps in the prior year. At the same time, order growth in the quarter and full fiscal year has been strong in China. And we expect China to be a growth driver also in fiscal year '19.Our adjusted profit margin in Q4 was 18.2%. Year-over-year, this is a decline of 70 basis points. However, we faced heavy foreign exchange headwinds in Q4, as indicated, of 210 basis points. This headwind came mostly from an unfavorable hedging position versus prior year quarter. Last year, we have been still hedged at a very favorable rate. While this year, our U.S. dollar exposure has been hedged at around 1.20. Taking out the foreign exchange headwind, we see a strong operational improvement year-over-year of 140 basis points from earnings conversion and the first impact of the cost savings program. Adjusted net income came in lower due to higher tax expenses this quarter compared to last year. This could only be partially compensated by lower interest expenses post IPO. These interest expenses in Q3 and Q4 represent now the new normal post IPO, and are a good estimate for our interest expenses going forward, adjusted obviously for foreign exchange fluctuations.On a segment basis, Imaging was driving growth in Q4 with a very healthy 6% organic growth. Ultrasound, Computed Tomography and X-Ray Products had a great finish to the fiscal year and achieved a significant revenue growth. Adjusted profit margin in Imaging decreased slightly year-over-year, primarily held back by strong foreign exchange headwinds of 220 basis points. Diagnostics sequentially improved growth quarter-over-quarter to 3% in Q4. Instrument growth continues to be in the low double digits. And for the first time in several quarters, our reagent revenues have also been growing. On the adjusted profit development, in Q4 '17, we had a low double-digit divestment gain from the sale of a smaller business to DiaSorin. Excluding this effect, profit margin developed flattish year-over-year. Advanced Therapies grew by 4% in Q4 with balanced growth both in equipment and in service. Growth has been especially strong in Asia, Australia, driven by China. Adjusted profit margins has been the most heavily impacted by foreign exchange with a headwind of around 350 basis points. If you exclude the foreign exchange headwind, Advanced Therapies showed strong operational improvement on earnings conversion and positive mix.Our cash conversion in Q4 has been very strong with a conversion above 1. Imaging and Diagnostics had a cash conversion rate of 1 and above on stringent cash management in the last quarter of our fiscal year. Advanced Therapies was below 1 due to a buildup of contract assets and receivables. The change in other assets and liabilities stems from increased liabilities in conjunction with personnel expenses. You see this typically at the end of the fiscal year, where we build up provisions for cash-outs, for example, for incentive payout in the upcoming quarters. Our capital expenditure of EUR 191 million is primarily driven by factory build-outs for diagnostics in China and in the U.S. Next year, we will see a further increase of CapEx spending driven by the build-out of our Diagnostics factories. This should ease after 2021 and decrease to a more normal level like we have had in the past.Now coming to our last slides, our targets for fiscal year '19. Next year, we plan to grow revenue by 4% to 5%, which is already within the target range of our mid-term framework. We expect that Imaging and Advanced Therapies will continue to perform well. Diagnostics will be the main contributor to the additional growth. There will be an improvement from this year's level of around 1%. But we still will be below our mid-term growth targets. Diagnostics is an installed base business with 90% of revenues coming from reagents. Although we had strong instrument growth in the low teens this year, it will take some more time until our installed base and reagent revenue grow mid-single digits. Nevertheless, our targeted Atellica Solution shipments of 2,200 to 2,500 next year will support our growth and margin ambition. Also, with regard to adjusted profit margin, we will see a significant improvement next year with a target range of 17.5% to 18.5%. The midpoint of our guidance range represents a margin of 18%, an 80 basis points improvement from this year's level. On segment level, we should see margin improvement at Diagnostics and at Imaging. Advanced Therapies will continue its high level of profitability.One short remark on foreign exchange. As we already have started hedging for next fiscal year, currently we are hedged at 1.17 for the majority of the first 9 months next year. Our fiscal year '19 targets are based on current foreign exchange rates. One last remark on tariffs. We have several mitigation measures in place to reduce our exposure on tariffs. After mitigation, we see an impact of EUR 30 million to EUR 40 million on pretax profit for fiscal year '19. On the net income and EPS level, this translates to a strong EPS growth of 20% to 30% next year. Please be aware that the EPS guidance is on reported EPS, it is not adjusted. It is not adjusted for severance payments or other effects.And with this, I conclude my presentation and hand over to the operator for the Q&A session.

[Operator]

[Operator Instructions] And our first question comes from the line of Michael Jungling from Morgan Stanley.

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

I have a question on Atellica and secondly on the adjusted profit margin guidance for the current fiscal year. On Atellica, if I look at the shipments, can you talk about the price stability that you are achieving with reagent sales? Are they as good as you expected at the beginning of last fiscal year? And on Atellica as well, the utilization trends of reagents on the machines installed earlier this year. On the adjusted profit margin, the guidance of 17.5% to 18.5%, can you please clarify what would take you to the bottom end of the range and the high end of the range and just clarify what impact FX at current rates would have on the group margin?

[Bernd Montag, Chief Executive Officer]

Okay. So let me start by answering the Atellica question. We are satisfied with the pricing levels, so -- and that comes in as planned. I mean, certainly this is a competitive market. But the product is very convincing since most of the positive impact comes from the tremendously positive business case that the product enables for the customer. And that's how they look at it. And that is also what gives us good pricing power. When it comes to throughput, I mean, this is early in the ballgame because it takes time until the analyzers are fully online and on an asymptotic behavior. But also there, we have no reasons to be concerned and are happy with the developments. Regarding profitability questions, I hand over to Jochen.

[Jochen Schmitz, CFO & Member of Management Board]

Yes, Michael, good question. First of all, as I mentioned in my brief update, we have hedged roughly the dollar exposure for the majority for the next 9 months at a level of 1.17. And this gives us some very minor tailwind for next year, year-over-year, very minor, talking about low teens in basis points. So no real significant impact expected from foreign exchange so far, but we never know, yes? What will bring us to the upper and lower end, I think this will then -- let's assume foreign exchange stays according to assumptions, this should be, I would say, relatively clearly a function of growth and mix. And growth, we gave you a range of 4% to 5%. This gives you some indication on that. And mix obviously always plays a role. But generally speaking, we feel confident with our guidance.

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

Great. And when you say mix, are you talking about the growth differential between your various divisions? Or what do you mean by mix? How could it impact, let's say, the business by 50 basis points or 100 basis points?

[Jochen Schmitz, CFO & Member of Management Board]

The mix comes in a lot of fashion, yes, can be the mix between the different segments, can be a regional mix, can be a modality mix in Imaging. So mix comes in a lot of fashion. And I -- we know a certain -- I would say we have a backlog. And therefore, we have a certain insight into the revenue development. But this is not as big as it is in a classical, I would say, large project business. Therefore, mix is still a certain level of uncertainty or opportunity, however you want to see this, but it comes in a lot of fashion.

[Operator]

Next question comes from Ian Douglas-Pennant from UBS.

[Ian Douglas-Pennant]

Yes, it's Ian Douglas-Pennant from UBS. Firstly, on the Chinese quota that we had out last week, could you comment on that and what you're hearing from central agencies on their enthusiasm for health care capital equipment spending going forward? And so does that signal a new era of growth? And secondly, given the strong order growth we've seen over the course of this year and also very strong growth in Q4, why shouldn't we expect continued mid- to high single-digit growth in Imaging and AT next year?

[Bernd Montag, Chief Executive Officer]

Yes. I mean, on China, what we need to be clear on is that these are maximum quota which are issued, but that there is no investment commitment behind this. So this is -- and I've read comments from colleagues of you already, which I find very precise. I mean, this is a slight positive because it shows that the potential is there. But it is not an investment plan. And it's, in the end, it is priced in, so to say, in our guidance for the year. Then the other question, regarding growth in the Imaging segment, I mean, we are happy with how the fiscal year has turned out. And we aim for a similar momentum in the next quarters.

[Jochen Schmitz, CFO & Member of Management Board]

And then think, at that point, I'd also, we see China on the order side and then also on the revenue side definitely a growth driver also for '19. This has been kind of backed up by the announcement given last week is how I would see this. And with regard to Imaging, I would say for the next quarter, we would expect a decent growth again.

[Operator]

Next question comes from Romain Zana from Exane.

[Romain Zana, Research Analyst]

I have two. The first one would be on Diagnostics. Instruments are up double digits, as you said, which implies consumables are rather declining. When do you expect consumables utilization to pick up, I guess from your new customers mainly? And is that something we should already see in '19 with a positive impact on margin? The second question is on the adjusted profit margin guidance and the cost saving actually. Looking at the cost saving program, it seems pretty new to me that this EUR 50 million of reinvestment in artificial intelligence and digital, at least on the communication, but you keep the same mid-term profit margin target. So are these investments new? Or were they already planned? And in that case, is there something that is balancing these extra investments?

[Jochen Schmitz, CFO & Member of Management Board]

Yes, Romain, thanks for the question. I do start with the Dx question. I think we saw decent instrument growth over the full fiscal year for Diagnostics in the low double-digit arena. And as I pointed out, in Q4, we saw growth also for the first time this -- the last fiscal year also on the reagent side, was a huge growth. You should always have in mind revenue is split 90% reagents, 10% instruments. And we expect to see -- and I think, in the last calls, I always mentioned that the normal mix of reagent and instrument revenue is 90 to 10. And obviously, with the new franchise, Atellica, it is more the opposite. And we expect this to change rather quickly, not directly to the -- no 90 to 10 but definitely to a more balanced or slightly positive revenue portion from reagents already in fiscal year '19 with corresponding positive impact on margin.

[Bernd Montag, Chief Executive Officer]

To the question about reinvestment from the cost saving program, this is not new. So this is baked in, in our mid-term profitability targets. So there was always the assumption that a part of the savings we will have by moving to this more agile organization and also the stand-alone savings, that a portion of it will be reinvestment into the future fields, into much more value-added aspects and especially in our efforts in digitalization and AI.

[Jochen Schmitz, CFO & Member of Management Board]

But as you point out, it's important to know that we did not change our mid-term targets despite of the investment.

[Romain Zana, Research Analyst]

Okay, very clear. And just to -- can you just also clarify that the target for next year -- for this fiscal year basically on margin already includes the mitigating impact on the U.S. tariff? Or will it be adjusted?

[Bernd Montag, Chief Executive Officer]

What it -- as they are today, I mean to -- regarding there currently be an impact of EUR 30 million to EUR 40 million after mitigation on our bottom line before tax. And this is part of the, baked into the guidance. Of course, if there is -- if there are completely new developments, we don't know. But I mean, the current scenario as known is baked in.

[Operator]

And we can now take our next question from Patrick Wood from Bank of America.

[Patrick Andrew Robert Wood]

I have two, please. Firstly, on Atellica, again you're still running ahead in terms of the proportion of the systems that are placed relative to plan with the competitors, i.e., at about, I think it was 35% relative to, I think, your budget was for 20%. And the economics of this system are obviously heavily leveled towards that, given an incremental reagent stream when you replace a competitor's system. So my question is, is there a risk if you still remain at this higher-than-expected or budgeted level of upside to the guidance range, not necessarily for '19 but more for the longer term? I'm thinking in terms for margins more specifically. And the second question I had is on the reported EPS growth range. It's quite a large window, the 10% split between the bottom and the top end of the range. I'm just curious as to what's driving such a large gap in that reported growth.

[Jochen Schmitz, CFO & Member of Management Board]

Let me start with the easier one, it's the second one. On the EPS side, I think the 10% delta between 20% growth and 30% growth equals almost 100 basis points on adjusted profit margin. It's slightly higher because they are -- but only slightly if you do this -- if you do the math. And this is just to put some, I would say, some, not rounded -- rounded numbers into play. And we also know that we have a few other items below profit, which are interest expense, in particular, which are, so to say, exposed to foreign exchange variations on the translation side, therefore difficult to hedge. And then secondly, tax rate, which will be between 28% and 30%, could also have an impact, which comes on top of the 17.5% to 18.5% adjusted profit margin.

[Bernd Montag, Chief Executive Officer]

Yes, I mean, on the Atellica question, I mean, we are very happy about this 35% of wins, where we haven't been the incumbent before. These are especially wins in customer segments which are about throughput, which are about people who really optimize their setting for clinical excellence and productivity. And these -- but these are also the wins we need in order to grow our top line here, because just replacing existing units will not do the trick alone. So from that point of view, it's a positive. We are confident about placing the additional 2,200 to 2,500 units in this year and to reach the 7,000. But that's also what we need in order to start growing with end above markets in the mid-term.

[Operator]

Next question comes from Lisa Clive from Bernstein.

[Elisabeth Decou Bedell Clive, Senior Analyst]

Two questions. First, just on your Ultrasound business, could you provide a bit more commentary on the strength in Ultrasound? I assume this is mainly coming in cardiovascular. And just to clarify, does this show up in the Imaging reporting, or are there any components that are within the Advanced Therapies business? And then second, as you continue to build out all these partnerships with big health care systems, could you comment on the data sharing components within those agreements? I assume you attempt to get access to patient records so that you can use that for data analytics, artificial intelligence, as just access to data is going to become increasingly important in those arenas.

[Bernd Montag, Chief Executive Officer]

Yes, thanks for the questions. I mean, first, Ultrasound, the 2 platforms which we introduced, I mean, on the one hand the Juniper, and then even more importantly the Sequoia, which is the new mid-range -- which is Juniper, the new mid-range, and Sequoia, the new gold standard in the high end. They have a clear focus on what in Ultrasound is called general imaging. So this is where their strength at the moment is. Going into the cardiovascular space is a next step. I mean, they are -- but they are many general-purpose machines, which is the biggest segment. Ultrasound, from a segment reporting point of view, is exclusively shown in Imaging. I mean, yes, there is also a combined -- there's more and more a combination of interventional labs with real-time ultrasound. But then the revenue is split and shown in their respective segments. Then the other question regarding data access, I mean, this is a very important topic. And we handle this on a case-by-case basis. There's no general theme about it. We have, as I mentioned, I mean, also when we talk about the 2 cooperations, for example, in the Catholic Medical Center in Korea, we have an AI research program in place. We do the digital twin research and project with MUSC. And there, we always have agreements in place so that both parties benefit from the data. We have a clear strategy overall, I mean, independent of individual customer partnerships, to grow our so-called data lake, which is -- comprises more than 300 million imaging and other studies, which is vital for training our AI algorithms and is one of the core assets of the company.

[Operator]

We can now take our next question from Martin Wilkie from Citi.

[Martin Wilkie, Director]

It's Martin from Citi. Just a couple of questions on Imaging. You talked about gaining share in the U.S. And I was just wondering if you could let us know normally, how persistent over time can share gains be once you have a certain technology? Is it something that you sort of hold for a few quarters? Or can it be longer in terms of, if you have a better product than the competition? And just also in Europe, GE mentioned that they had some product launches there, suggesting that they would grow faster in Europe following that. So on the flip side, do you feel that some of that gain in the U.S. has been offset by any losses you may have seen in market share in Europe?

[Bernd Montag, Chief Executive Officer]

I mean, answering the second part first, no, we have -- this has not been offset. And we see this, the continuous market share gains, on a global level. And now let me explain a little bit. I mean, this is not a cyclical thing. This is not about the one guy has a new product and then it takes a little bit of time and then somebody else is there. This is -- there is a long -- when you look at the last 10 years, you can almost put a straight line into our market share gains. Because in the end, what you see there is a continuous stream of innovations. I mentioned in my talk that every 3 years in every modality -- in every segment in each modality, whether it's high end, mid-range or low end, we come up with a new product. So having -- and this may sound a little bit arrogant -- but having the best product is -- every year is -- and having the next level of innovation in each segment, in each product line is for us the normal course of business. And the market share gains are more a -- especially when you look at them from a rolling 4-quarter basis and when you average around all Imaging modalities, they are a clear indicator of overall innovation power of having the best sales force, of reinvesting into innovation, of making your service network more efficient and so on and so on. It is not just the flavor of the day because there is one little product novelty here.

[Jochen Schmitz, CFO & Member of Management Board]

And maybe one other aspect, which is important for the -- or related to the market share gains, is the growth of the installed base. And if you look at our growth, revenue growth on service, we are very, very stable in the 5% comp of our growth arena in this case. And this is only doable if you have this ability with your innovation pipeline.

[Operator]

Next question comes from Veronika Dubajova from Goldman Sachs.

[Veronika Dubajova, Equity Analyst]

I have two, please. The first one is actually on the margin guidance for 2019. And I'm still struggling a little bit to reconcile the 17.5% to 18.5% with some of the benefits that you're going to get this year, whether that's the cost savings or the currency. And if maybe you can comment a little bit more on that. Because if I do the math, even with the reinvestment, I mean, you should be seeing at the very minimum at least 80 basis points of margin improvement year-on-year. And so I'm surprised that the low end of the range is as low as 17.5%. So if I can follow up on that, I know you've addressed that partially, but I'd like to get a little bit more detail. And my second question is looking at the cash flow statement, the cash tax is quite low this year. Is there something going on with your cash tax structure that we should be aware of? Or is this just a function of timing?

[Jochen Schmitz, CFO & Member of Management Board]

Yes, thanks, Veronika. It's Jochen speaking. And on the -- I understand on the second, you asked about the cash-out for taxes. There's in Q4, as you rightfully pointed out, very low cash-out related to taxes due to the fact that we funded last quarter in the U.S. our pension scheme. And so the tax benefit cash-wise came in, in this Q4. So this was an extraordinary item, so to say. On the adjusted profit margin guidance, I think we said 17.5% to 18.5%. Midpoint is 18% means 80 basis points improvement year-over-year if we make the midpoint. And as we had the discussion on that, we do not expect any major tailwind from foreign exchange. And when one of your colleagues asked beforehand, talking about the bandwidth between 17.5% and 18.5%, I said this will be a function of growth on the one hand and of mix on the other hand. And as you can see in particular, in Imaging but also in Advanced Therapies, mix can play a significant role. And as our business -- the reach of our order backlog is maximum 50% of revenue, this 50% is still open for mix changes in all kinds of fashion. And therefore, this is just to be cautious here. And therefore, we give 17.5% to 18.5%. But I don't -- we also feel today not bad about using the midpoint.

[Operator]

Next question comes from Scott Bardo from Berenberg.

[Scott Bardo, Analyst]

A question on Imaging, please, obviously performing strongly within this segment at around 6% growth in the fourth quarter. So I wonder if you can dissect a little bit more, please, what you think is driving this strong growth. Is the market more buoyant than you envisaged at the Capital Markets Day? Is this Siemens-specific reasons? Or is there some evidence of some competitor disarray? So I wonder if you can just walk us through that a little bit more, please.

[Bernd Montag, Chief Executive Officer]

Yes, thank you for the question. I mean, now 2 ways to look at it, more on a general basis. You have -- Imaging is -- 40% of the Imaging top line is service and 60% is equipment. Our service business grows by 5% typically. And so that is always a solid growth contributor. Then on the equipment side, I mean, our assumption for the mid-term is that the market on the equipment side grows by 3%. So when you add -- when you can add 1% to 3% or so to that as -- for outperforming the market for the continuous market share gains we talked about, so that brings you into a 5% range when you do the math overall for the Imaging segment. Now when we have -- currently, it might be that the market is growing a little bit more than the 3%, which I would be careful to consider a new normal. Because these are investment decisions. And once the investment decision is made, it shows there's no additional investment needed and so on and so on. But to rationalize a little bit where this growth comes from, I hope this math helps a bit here. So you see 5% service, you see the outperformance of the market, and then you probably also see 1 percentage point or so currently, which comes from a little bit higher market growth than usual.

[Scott Bardo, Analyst]

Very good. And perhaps just a financial question for Jochen, please. If one were to assume the midpoint as the margin guidance for 2019, as you highlight, around 80 basis points, can you give us some feeling actually as to how you see that developing across the lines in the P&L? Is this more gross margin-driven? Or should this be operational leverage amongst your functional costs?

[Jochen Schmitz, CFO & Member of Management Board]

Generally speaking, I would say the majority should come out of the gross margin, we will see some benefit I would expect also from the SG&A line, not so much from the R&D line. That will be my best guess now.

[Operator]

Next question comes from David Adlington from JPMorgan.

[David James Adlington]

Just for following up from Scott's point really just on the Imaging market. And I think that you've kind of intimated the market is probably growing a little bit quicker than it has done historically maybe for the last 4 or 5 quarters. Just wondered what you thought maybe what has driven that uptick in market growth and how long do you think that, that higher growth rate might be sustainable for? And then secondly, just a near-term question on the tariffs, EUR 30 million to EUR 40 million. That's obviously the whole year number. Would we expect to see some greater headwinds in the first half and then as you put through the offsets, to see that coming through as a tailwind in the second half? Just wondering about the phasing of that EUR 30 million to EUR 40 million.

[Bernd Montag, Chief Executive Officer]

Yes, I mean, on the Imaging side, I think what currently is a positive is that globally every market is intact. So we don't see in a major geography -- in a major geography, I say -- that there is -- that people are holding back investment decisions here. And that is one of the reasons, yes, so when you have a healthy market in the U.S., I mean, not spectacular but healthy market in the U.S., a healthy low single-digit growth in Europe, healthy situation in the major emerging markets, that helps. So it's not -- and this is what currently is, from my perspective, the reason why I'm convinced that this is the reason why it's a little bit higher. It's not -- there's nothing like a global cycle. I mean, that is sometimes a question we get here. So there's not a global replacement cycle or something else. So this is more the sum of 100 to 160 different health care economies here, which currently are more on the healthy side. And that can also change here, I mean, not dramatically. We don't look at -- we don't foresee any dramatic changes. But I mean, currently this is the main reason for it, yes, so it's not a technology or replacement with, I'm leaving out also not some kind of a global health care cycle. The second question was about the tariffs?

[Jochen Schmitz, CFO & Member of Management Board]

Yes, I can take that if you like, Bernd. On the tariff side, I would not expect to see significant fluctuations between the quarters. I think there is -- maybe the risk in brackets that it might be a bit higher in the beginning until all the mitigation measures really do its work. But I would not expect significant fluctuation by quarter.

[Operator]

We can now take our next question from Gunnar Romer from Deutsche Bank.

[Gunnar Romer, Research Analyst]

Gunnar Romer, Deutsche Bank. The first one would be with regard to your comments on the divisional outlook. I'm just curious why you wouldn't expect some acceleration for your Advanced Therapies business in light of the very strong order intake you talked about in the fourth quarter. And then also on the divisional outlook, what do you think are the main drivers of margin expansion that you are hinting to for your Imaging business? And then a housekeeping question, just on CapEx, I don't know whether I've missed it, but do you have any guidance for us regarding CapEx in the current year?

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Should I, I'll start with CapEx. I would say CapEx, I would expect to see it in a similar or slightly higher level than fiscal year '18 and '19, generally speaking as we are full in the bid -- the phase of bidding out reagent manufacturing sites in Walpole and China. So I would say that we'll be in that ballpark, including operating this in the EUR 800 million arena, I would say. On the margin side, in Imaging, yes, we expect to see Imaging in the 4% to 6% arena, obviously. And this helps from a conversion standpoint in that business. And also Imaging will also benefit obviously from the cost saving program. On Advanced Therapies, we do not expect a significant tailwind or we expect them to be on a relatively high level. We had a very strong Q4 in profitability with more than 22%. So that lifted them up to almost 20% for the full fiscal year, 19.6%, if I'm right, on adjusted profit. We are -- we'll introduce a major platform at the end of the -- or within the fiscal year, more toward the end -- might be that we see some more or some higher intensity on R&D to finalize that project and so on and so on. But generally speaking, we feel that with Advanced Therapies, we are well on our track to achieve our mid-term targets on the 20% to 22% but no significant lift-up this fiscal year.

[Bernd Montag, Chief Executive Officer]

And I mean, there was the question around growth. I mean, yes, we are, of course, very happy about the order growth we have seen. I mean, this typically also in this business takes a little bit of time until these systems are installed. I mean, they are -- there's more to be done than when a piece of Imaging is installed typically, because this is like a clipping, an interventional room. And you also -- when you look into our past [ material ], we had a very strong growth quarter in the Q1 of last fiscal year. So this strong order book also will -- is necessary to replicate the growth because of a period of tough comps, which we had.

[Operator]

Last question comes from William Mackie from Kepler Cheuvreux.

[William Mackie, Head of Capital Goods Research]

I'd just like to focus on the market growth again if I may. Looking back over the quarter, there's been a reasonable amount of volatility in comparable growth across Europe or the Americas or Asia this year. I note you're more optimistic about the current level of demand across Imaging in a number of other markets. With reference to your guidance for full year revenue growth, can you perhaps talk through how you see the U.S.? I hear you've been more optimistic about China and also Europe and specifically Germany developing in 2019. So what is in your assumptions with regard to market growth by geographic breakdown?

[Bernd Montag, Chief Executive Officer]

I mean, this is now more a question regarding Imaging and Advanced Therapies I assume because, I mean, the Diagnostics market is relatively -- it's a more stable market because of the, 90% of reagents stream is of recurring nature. So there's been -- question typically about market growth is the investment decisions, which are done in Imaging and Advanced Therapies. So I mean, we believe, looking forward, that in the U.S. and Europe, it will be a low single-digit market growth on the -- while in the emerging countries, it will be in the high single digits typically. And the mix is about -- of our business is about 2/3 to 1/3 developed to emerging countries. And when you do the math, you end up at -- our assumption as specified in the Capital Market Day is 3% for Imaging equipment and focusing on the Advanced Therapies side, now potentially this is currently -- you can add 1 percentage point or so but no big dramatic change. And the geographies, as I said in another question, are more or less intact. So we -- it's -- we don't see declining markets at the moment.

[William Mackie, Head of Capital Goods Research]

Is it a fair observation to say you have a very high comparative in the first quarter at least in China but a much lower one in the U.S., so as the year develops, at least for the beginning of the year, we should see good growth within the U.S. but perhaps lower growth in China initially?

[Bernd Montag, Chief Executive Officer]

That could be the case. But I mean -- as I said, I mean, there's also 2 ways to look at it. When you look at -- I mean, there's the order side and there's the revenue side. I mean, we have been extremely happy with the finish of our -- in the United States in terms of orders. These orders take time -- on the other hand, take time until they get translated into revenue. And also when we speak about these larger partnerships, also the revenue can be split over a -- even over multiple years. But in general, it's true. We had that last year, we had a stronger start in China and a not-so-strong start in the United States so that the comps are as you said.

[Florian Flossmann, Head of Investor Relations]

Okay. So thank you, everybody, for participating today. As always, myself or the team will be available if you have any more questions. So thank you, and see you soon.

[Bernd Montag, Chief Executive Officer]

Thank you.

[Jochen Schmitz, CFO & Member of Management Board]

Thank you. 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 www.corporate.siemens-healthineers.com/investor-relations.