Siemens Healthineers AG

XETRA:SHL

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to Siemens Healthineers conference call. [Operator Instructions] 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]

Dear analysts and investors. Thanks a lot for tuning in to our Q4 2021 Analyst and Investor Call. I'm very happy to be sitting here with Bernd and Jochen, who will be presenting to you our results of the fourth quarter and our outlook for 2022. You can find all the material, presentation, earnings release and later on, a recording of today's call on the Investor Relations section of the Healthineers web page. After Bernd and Jochen's presentation, there will be a chance to ask questions. [Operator Instructions]That said, I pass the word to the CEO of Siemens Healthineers Bernd Montag. Bernd, over to you.

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

Thank you, Marc. Good morning, dear analysts and investors also from my side. Thanks for dialing in again and expressing your continued interest in Siemens Healthineers. I will kick off today's call by looking back to fiscal year 2021, highlighting what we have achieved. It was an extraordinary year in a demanding environment. Remember, our fiscal year had just started off and only shortly after that the second wave of COVID-19 lockdowns was implemented. During these extraordinary circumstances, our team tirelessly supported our customers with excellent service, kept the supply chain running and reacted with utmost agility to new and ad hoc demands of health care providers. Despite the pandemic, the whole Siemens Healthineers team delivered an outstanding performance in fiscal year 2021. We seized the new opportunities by, for example, offering COVID-19 rapid antigen tests at scale. We launched breakthrough innovations like the MAGNETOM Free.Max and are days before the official launch of our Photon Counting CT. We gained further market share and established a comprehensive sustainability program. In terms of financial performance, it was also an outstanding year. We achieved our fiscal year 2021 guidance, which we raised 3 times during this year. We posted a record comparable revenue growth of 19%, which is clearly at the upper end of our guided range of 17% to 19%. Adjusted EPS reached EUR 2.03 per share, which is in the upper half of our guidance range as well. The order intake of more than EUR 20 billion is evidence of our team's excellent performance and the strength of our portfolio. We also generated an excellent free cash flow of EUR 2.3 billion. Finally, on back of this strong performance, we have decided to propose to our shareholders an increase of our dividend per share of -- to EUR 0.85. In April, we completed the transformative acquisition of Varian. And with this combination, we are making 2 leaps in 1 step: a leap in the fight against cancer and a leap in our impact on health care overall. We are combining our unique and highly complementary market-leading portfolios and capabilities to support clinicians around the globe to achieve improved outcomes in cancer care and to reach even more patients. And we defined a new ambition for the joint company, which we will disclose at our upcoming Capital Markets Day on November 17, which I'm very much looking forward to. With this review of an outstanding fiscal year 2021, I will close this chapter and will open the new chapter with our guidance for the new fiscal year 2022. For the fiscal year 2022, we expect another year with strong underlying performance fueled by our record high order book, the rollout of groundbreaking innovations such as the MAGNETOM Free.Max and the world's first Photon Counting CT, the overall continued strong momentum in our leading businesses that uniquely combine focus and scale and thus allow us to be the holistic partner for our entire customer spectrum and ultimately their patients. Speaking of our leading businesses, fiscal year '22 will also mark the first year for full year contribution of Varian. In addition, we expect in '22 to be a year -- we expect '22 to be a year with less impact from the COVID-19 pandemic, which in turn means that we anticipate materially less contribution from the antigen testing in our Diagnostics business. We expect 5% to 7% comparable revenue growth in fiscal year '22 excluding the year-on-year effect from antigen. This translates to 0% to 2% comparable revenue growth including antigen. We expect adjusted EPS to grow strongly by 17% to 23% excluding antigen, thanks to continued margin improvements. Including antigen, we look for an adjusted EPS range of EUR 2.08 to EUR 2.20. On a segment level, this means we continue to expect good growth momentum and expanding margins at Imaging, thanks to our strong order book and the aforementioned groundbreaking launches. For Diagnostics, we continue to see solid underlying growth and, at the same time, continuously improving underlying margins in our base business. However, for fiscal year 2022, we assume now materially less antigen contribution of around EUR 200 million, so significantly less than the over EUR 1 billion in the last fiscal year, but more on this later from Jochen. For Varian, we anticipate a notable acceleration of growth. On underlying margins, we expect a notable improvement despite a significant step-up of investments to drive synergies and our accelerating growth path. Advanced Therapies continues to benefit from the megatrend towards minimally invasive procedures, its market-leading portfolio and its healthy order book. We expect margins to be on a comparable level as in fiscal year '21 due to continued investments into Corindus. In short, we continue to aim for strong revenue growth and even stronger earnings growth. Before I hand over to Jochen, who will provide more insights on Q4 performance and more detailed financial background on our fiscal year '22 outlook, I want to invite and remind everyone to join our upcoming virtual Capital Market Day on November 17. It will be a day of in-depth strategic and financial updates for the group and all segments. The management team and I can't wait to tell you about our exciting strategic journey and our new growth and earnings performance ambitions for the midterm. And with this, I will hand over to Jochen. See you soon at the Capital Market Day.

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Thank you, Bernd, and also a very warm welcome from my side. I'm obviously also very pleased with achieving our commitments and how we are moving forward with our priorities. Let us now have a closer look at our financial performance. I will go through the Q4 performance of the group and of the 4 segments. Then I will talk about the outlook for fiscal year 2022, the first full year outlook as a joint company with Varian. In Q4, we had again a very strong order intake, building on excellent equipment order growth in Imaging in the low teens. The strong equipment orders led again to an excellent equipment book-to-bill ratio of 1.17. This adds to our healthy order backlog, supporting revenues to come. Turning to revenues. Revenue came in at a quarterly record of above EUR 5.1 billion, continuing the momentum from Q3, driven by excellent equipment and service revenue growth even considering easier comps in prior year quarter. This translates into a very significant comparable growth rate of 14.4%. This is now the fourth consecutive quarter of double-digit revenue growth for Siemens Healthineers. Obviously, this excludes any impacts from Varian and other acquisitions and foreign exchange. Now let us look at the regional distribution of growth. In the Americas and in Asia, comparable growth was 14% and 10%, respectively, compared to declines in the same quarter of the previous year. Since the antigen tests were mainly sold in Europe, this had a clearly positive impact on growth in the EMEA region, leading to an 18% growth. Excluding the tailwind from antigen, growth in EMEA was at around 7%. In the segments, we saw again excellent revenue growth in Diagnostics with 22% growth, including around EUR 160 million revenue related to the antigen business. Imaging and Advanced Therapies continued to grow strongly at 12% and 14%, respectively. Varian contributed to the quarter. In Q4, we again saw very positive order momentum with an excellent equipment book-to-bill of 1.59. The adjusted EBIT margin for the group came in at 15.3% in Q4. In Q4, we also booked a provision for EUR 56 million special bonus directed to our non-senior management employees worldwide, which impacted the central line accordingly. Taking out the special bonus booking, central items would have been at around EUR 50 million negative in Q4. In terms of a year-over-year comparison, remember, we had a positive impact in Q4 2020 from the U.S. CARES Act, which resulted in income of roughly EUR 30 million on the central line back then. Both the special bonus this year and the positive impact in Q4 last year led to the more pronounced negative central line. Taking those 2 effects out, you would have seen a more flattish development year-over-year in central items. Furthermore, we incurred again high incentive provisions in the quarter, as expected, as well as higher-than-expected foreign exchange headwinds in Imaging and in Advanced Therapies. If you take out the effects from incentive provisions and foreign exchange and the special bonus in the central line, the Q4 adjusted EBIT margin for the group was well above the prior year quarter. Our adjusted earnings per share Q4 were EUR 0.53. Year-over-year, this translates into a 13% increase taking out foreign exchange. The 13% increase include the immediate accretion of Varian on an 11% higher share count and the headwind from foreign exchange. Taking out the special bonus in Q4, EPS would have been up by 20% year-over-year. So also on the earnings side, a very strong operational performance. Now let us have a look at the other line items. Financial income was at minus EUR 27 million. Since we have closed the Varian acquisition, there are no further adjustments on the financial income line from financing-related activities. The tax rate in Q4 came in at 22%, below previous quarters and more or less in line with prior year Q4. Q4 came in lower due to discrete tax items that take effect with the closing of the fiscal year. The adjustments in Q4 for EBIT and EPS included EUR 141 million of purchase price allocation therein, around EUR 110 million from PPA related to Varian. Additionally, we adjusted for EUR 40 million transaction-related costs for Varian. Now let us take a look at the segment performance this quarter, starting with Imaging, Diagnostics and Advanced Therapies. We saw excellent growth in all 3 businesses, however, sizable headwind from foreign exchange in Imaging and in Advanced Therapies. Imaging posted 12% revenue growth driven by strong growth in Molecular Imaging, Computed Tomography and ultrasound as a result of the pent-up demand. All showed a strong performance on easier comps from prior year quarter. On the adjusted EBIT line, Imaging showed a good performance in absolute terms. However, margin was 50 basis points below prior year quarter due to a circa 250 basis points drag from incentive provisions and headwinds from foreign exchange. Overall, it was a very successful year for Imaging, which ended fiscal year '21 with 11% growth and 21.1% adjusted EBIT margin. Our originally envisioned margin expansion of 100 basis points for the year was eaten up by the significantly increased incentive provisions and higher foreign exchange headwinds. Foreign exchange was especially higher than expected in the fourth quarter. Finally, we also saw higher-than-expected sales commissions in Q4, primarily in the U.S., as a result of the stronger-than-expected order intake and the current situation in supply chain and logistics did not help either. Diagnostics showed excellent growth driven by antigen sales as well as solid core business growth given the normalization of the test volume for routine examinations. Excluding the antigen contribution, revenue growth has come in strong at around 7%. The margin in Diagnostics was significantly up year-over-year on the contribution from the antigen business. Excluding antigen, the core business sustained solid underlying profitability as in the previous quarters despite a net drag of around 170 basis points from incentive provisions and from positive foreign exchange effects. This is another proof point that the Diagnostics core business is stabilizing, which should give some comfort that the business turnaround is slowly yet steadily progressing. We will give more color on the phasing of the turnaround on our Capital Market Day in 2 weeks' time. Advanced Therapies posted very strong growth this quarter with 14.5% comparable growth, driven by a very healthy backlog. On the margin side, Advanced Therapies was also negatively impacted year-over-year by the aforementioned incentive provisions and headwinds from foreign exchange, which adds up to around 350 basis points headwind year-over-year. As highlighted previously, we continue to invest into Corindus. Turning to Varian. As mentioned last quarter, keep in mind that we will not report comparable revenue growth rates for Varian before Q3 fiscal year 2022. Varian's recovery from the pandemic trough is in full swing as you see demonstrated with the impressive equipment book-to-bill of 1.59 after -- sorry, I tested myself in the morning. So at least no COVID, but just a cold. Sorry, I try again. Varian's recovery from the pandemic trough is in full swing as you see demonstrated with the impressive equipment book-to-bill of 1.59 after an already strong book-to-bill in the previous quarter. This strong order performance resulted in a record backlog for Varian, a strong basis for revenue to come. One thing I would like to mention explicitly, the order number includes the 100th order booking for the Ethos system, the leading system in adaptive therapy market. Surpassing the number of 100 orders for Ethos is another proof point of Varian's leading position also in the field of adaptive radiotherapy. Varian posted EUR 709 million revenue in Q4, spot on in terms of what we planned for. China and EMEA contributed to revenue with strong business performance in their regions. The U.S. business of Varian continues to stabilize amidst challenges in site preparations. The adjusted EBIT margin came in with 17.3%, positively impacted by onetime effects from reduced risk provisions. Excluding these positive onetime effects, the margin in Q4 was around 15.7%. Bear in mind that we already saw a positive effect from the intra-month closing in Q3, so the Varian margin in second half includes positive effects both in Q3 and Q4. If you exclude these positive effects, the margin in second half was around 15%. Bear in mind that this 15% margin is for the second half of the fiscal year. Historically, top and bottom line were skewed to -- somewhat towards the second half due to business seasonality. Margins were on average around 150 basis points higher in half year 2 than in half year 1. So to put the underlying 15% in half year 2 into the right context. Full year margin would likely be more in the ballpark of 14% to 15%. This is important to understand in order to have the right jump-off basis for the Varian margin evolution going into fiscal year 2022. And this brings me directly to our outlook for fiscal year 2022. After a record year in 2021 in a demanding environment, we now have a new ambition for fiscal year 2022, an ambition where we continue to create value for our customers, our employees and shareholders. In concrete terms, this means excluding antigen, we expect 5% to 7% revenue growth and 17% to 23% adjusted EPS growth for fiscal year 2022. Let me now dive a bit more into the details of our outlook for fiscal year 2022. For revenue, we expect 5% to 7% comparable growth excluding revenues from the antigen business both in fiscal year 2021 and 2022. In 2021, we booked around EUR 1.1 billion revenue from antigen impacting the growth in 2021 by around 7.5 percentage points. Our assumption for antigen in 2022 is considerably lower at around EUR 200 million revenue on the back of significantly higher vaccination rates and very different price points per test. Consequently, the outlook for fiscal year 2022 is between 0% and 2% comparable growth, including the very tough comps from antigen in 2021. It is important for us to be very transparent on the antigen business because, as said previously, we see this as a temporary opportunity only. If you look at the business without antigen, we see a very good growth momentum for fiscal year 2022 in all 4 segments. In Imaging, we expect growth between 5% to 8% on the back of a very healthy order book. In Diagnostics, we expect the growth ex antigen to be between 2% and 4%, continuing the solid and consistent growth trajectory towards mid-single-digit growth rates and the development we have seen in fiscal year 2021. In total, Diagnostics i.e., including antigen revenue, we expect growth to be negative in the mid-teens due to our assumption of antigen dropping off in fiscal year 2022 to EUR 200 million revenue. In Varian, we expected adjusted revenue to come in between EUR 2.9 billion and EUR 3.1 billion for the full fiscal year 2022. In terms of growth, this translates into low teens. But please bear in mind that in our comparable growth definition, we exclude M&A effects for 12 months after closing. So the low teens growth will be contributing to the group comparable growth only in the second half of the fiscal year. As a rough calculation guide, the low teens growth for 6 months of Varian is expected to contribute to the overall group growth with above 0.5 percentage point. For Advanced Therapies, we expect revenue growth between 5% to 8% as in Imaging on the back of a very healthy order book. The strong development on the top line is the basis for further growth on our earnings per share. We expect adjusted earnings per share to grow between 17% and 23% in 2022, excluding antigen revenues in both years. In 2021, the antigen business contributed around EUR 0.30 to the EPS of EUR 2.03. For 2022, we assume the antigen contribution to be significantly lower in the ballpark of EUR 0.04 to EUR 0.05 per share. Despite this assumed reduction in the antigen contribution, we expect a higher earnings per share between EUR 2.08 and EUR 2.20 on the back of a very solid margin development in the segments. In Imaging, we expect margins to expand from 21.1% into a range of 22% to 23% in fiscal year 2022, primarily driven by conversion as well as by a normalization in the incentive provisions. Conversion and normalization of incentive overcompensate for expected higher discretionary spend and for higher supply chain and logistic costs. In Diagnostics, we expect margins to expand to the high single digits with a significantly lower contribution from antigen as seen in fiscal year 2021. Excluding antigen, we expect the Diagnostic margin to be in the mid- to high single digits, continuing the solid and consistent trajectory that we already saw in fiscal year 2021. In Varian, we expect margins to come in between 15% and 17% for the full fiscal year, driven by conversion and a slight net tailwind from synergies and investments in 2022. As previously said, we clearly see the midterm margin potential for Varian above 20%, and we will give more color on the drivers and the phasing in our Capital Market Days in 2 weeks' time. For Advanced Therapies, we expect margins to remain in the same ballpark to what we saw in 2021. We expect between 14% and 17% due to the ongoing investment in Corindus and the related market development activities. Further assumptions for our guidance in 2022 are that tailwind from lower incentives to be partially compensated by higher discretionary spend, for example, for normalizing travel costs and by higher supply chain and logistic costs. We expect the adjusted EBIT in the central line to be around the minus EUR 100 million mark in 2022 and also in the medium term. On financial income, net, we expect between minus EUR 50 million and minus EUR 70 million. For tax, we expect a tax rate of 27% to 29% for fiscal year 2022, unchanged to last year. Before I close my presentation, I wanted to share our latest thoughts going into fiscal year 2022. In Q1, we would expect a solid comparable growth rate above our guidance of 0% to 2% since we compare against a relatively clean quarter, meaning we do not expect a big year-over-year revenue impact in Q1 from the antigen business. In terms of margins, of course, the Diagnostic margin will still be elevated due to the antigen business, though due to the price erosion of antigen test, likely a bit less elevated than in the previous year quarter. Imaging compares against a stellar Q1. But as a proxy also for the Advanced Therapies, it is easiest to take the low end of the guide for growth and profitability as a yardstick. And for Varian, definitely, the same logic on the profitability side. This is what you would generally expect with performance within fiscal years often skewed towards the end of the fiscal year. I do hope we have given you the necessary transparency on what we have achieved and what we plan in the future. And with this, I would like to close my presentation and hand it over to the operator for Q&A.

[Operator]

[Operator Instructions]

[Marc Koebernick, Head of Investor Relations]

Great. So we have the first person on the line, that will be Patrick Wood from Bank of America Merrill Lynch.

[Patrick Andrew Robert Wood]

I just have two, please. So the first one, I'm curious, obviously, the logistics and supply chain, thank you for some of the comments around that. I'm wondering if you could just give us a little bit more color on whether there's -- you're seeing any pressure on the semiconductor side? And if it's possible for you guys or if you have been taking any pricing to offset some of the headwind there. So that'd be the first one. And the second one, I'm just curious, very, very strong order book in Varian. How has the sort of composition of that been? Has that been mostly new bunkers or replacing systems because there's a very large backlog. I'm just curious to get a little bit of color on the composition of the backlog and the order book there.

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Thanks, Patrick, for your question. Let me give some color on the supply chain situation. First of all, as you have heard most likely in all of your calls, it's currently a very tensious situation. I think we have a great team who manages perfectly and so far we have not seen any problems in being able to ship our products to our customers on time. And we are also very confident about the current quarter, Q1. Obviously, we don't have a crystal ball to look into the future, but seeing the performance of the team in the current situation, I'm very confident that we will master this also in the future. With regard to shortages and costs. When we look at it, we had already last fiscal year 2021 some headwind from supply chain and logistic costs maybe in the ballpark of 10 to 15 basis points, maybe 20 basis points, not significantly. And we expect to see something between 30 and 50 basis points headwind from this topic in the current fiscal year, which is built into our guidance. And therefore, if we keep our performance up with regard to delivery, I'm not worried about the situation. But again, it's a tensious situation which needs a lot of management attention and, based on our strong team, I'm very, very confident about the topic. On the Varian order intake, it is -- to be honest, there is no -- I would say, no specific pattern. On this, I would see it broad-based. It's not necessarily only replacement business, it's going across -- also across the regions. And therefore -- and the only topic which we still recognize is that there is, from a room preparation standpoint, a bit or, I would say, a muted situation certainly in the U.S. market, but this is only a timing topic. And it will create then, so to say, pent-up demand from a revenue recognition standpoint, which will give us -- generally speaking of that, if we get over this, a good tailwind into next year on the revenue side.

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

Patrick, if I may add, the order book in the last quarter is across all geographies. I mean, especially it's, of course, good to see the development in also the emerging countries, which are net new LINACs. On the other hand, also nice share gains in some areas where we can take over certain key accounts. So it's a very mixed bag, but overall, a very positive one.

[Marc Koebernick, Head of Investor Relations]

So next in the line would be Scott Bardo from Berenberg.

[Scott Bardo, Analyst]

Yes. so first question, please, on Imaging. Clearly, strong growth achieved last year and I think a pretty dynamic expectation for 2022. Can you help us understand, please, the reception to your recent approved near-term Photon Counting CT, whether this has, in any way, contributed to order book and whether this is -- I'd like to understand to what extent this product is included in your growth expectation for the coming fiscal. So if you could talk a little bit around that, that would be helpful. And a question please for Jochen. Just to understand, could you quantify in absolute terms what the employee-based compensation was in fiscal '21? And help us understand what your base case assumption is then for fiscal '22?

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

Yes. Scott, thank you for the question regarding Photon Counting. So this -- we only saw the first small contribution compared to what it will be in the existing order book. I mean to give you a feeling, I mean, currently, we have -- we are pre the real commercial release here. There will be following our Shape 22 event here, which is, I think, 2 weeks from now where we introduce -- on the 15th of November, where we introduce the product. There will be a special event, virtual event also, where it also gets its official name. And so when it comes to being fully normally commercially available and so on, we are just approaching this super important milestone. The excitement is extremely high. I'm very, very happy about the reception. I mean also not surprised, yes, because it just confirms what we -- why we built the product and have been working on this technology since 2003. A big endorsement came from FDA. Maybe you saw that when they released the -- when they got the regulatory approval, they issued a press release themselves. This is the biggest breakthrough in CT in more than a decade. And we have an enormous number of customers registering for this virtual launch event. So I feel we are very much on track to the very concrete financial number. This is baked in the guidance we give for the year.

[Jochen Schmitz, CFO & Member of Management Board]

Scott, on the incentive topic, maybe I'll give you some more detail on this. First of all, we were clear about the EUR 56 million on profit sharing in Q4. This is about a 110 basis points impact on the quarter year-over-year. This translates into, whatever, 30 basis points for the full fiscal also. On top of this, on the, so to say, normal incentive logic, we had a tailwind year-over-year of about 200 basis points -- headwind, sorry. Good point, headwind. Thanks, Marc. And this enormous amount of 200 basis points came from 2 effects: it's just the excellent performance in this -- in last fiscal year and the relatively low performance in the year before. So when you look at it, what would be the impact of 2022, if and when we achieve our guidance, which we now gave to you, you could expect the 200 basis points negative we faced in fiscal year '21 to be replaced by a positive 100 basis points or the half of it -- slightly lower than half of it as tailwind. Now it's tailwind for fiscal year 2022. I hope that helps.

[Marc Koebernick, Head of Investor Relations]

Right. Thanks, Scott. So next person on the line would be Falko from Deutsche Bank.

[Falko Friedrichs, Research Analyst]

Thank you, Marc. Good morning, everyone. Two questions, please. Firstly, on Varian, impressive numbers. Can you speak a little bit about whether you already see any meaningful cross-selling activities starting to kick in and also on how you're progressing in rolling out the Varian device sales internationally within your system? And then secondly, on Diagnostics, can you elaborate a little bit on where you are on routine business, so excluding antigen test sales, is now trailing versus prepandemic levels, prepandemic run rates. And in that regard, also update us on any progress with the Atellica rollout?

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

Yes. Falko, thank you for the question. Regarding Varian, we definitely see this. I mean, on the one hand, in terms of the momentum in the field of the team where the teams are extremely excited to work together because it opens both sites, if there are sites, opportunities they wouldn't have had before. So it helped already very much and concretely. When we look at the existing value partnerships we have in Siemens Healthineers where we now bring in Varian, it helps a lot on the CTSI side, this oncology-as-a-service play, which often is a C-level conversation where the Siemens Healthineers contact can help accelerate this business. But also the other way around in areas where Varian simply is so super strong when it comes to customer relationships to customers who are focused on oncology to bring in the imaging equipment, yes. So there is -- there are very concrete, not only projects but won deals. And the momentum is not only there, but accelerating. We will speak about this also in particular at the Capital Market Day, give some more concrete examples. But overall, I'm very encouraged by what I'm seeing.

[Jochen Schmitz, CFO & Member of Management Board]

Falko, on the Diagnostic underlying performance of the top line, the fiscal year '21 growth rate, excluding antigen, was around 15%. Recall, in fiscal year 2020, we dropped by 4%. So that means we are clearly above fiscal year '19 level on the Diagnostic business. There's one aspect also in there, it just excluded antigen. There's some revenue in there from other COVID-19-related tests. It's in the ballpark of 3% to 5% or so. Therefore -- but even if you take this out and you don't assume anything on headwind still from -- in routine yes, we are clearly above the fiscal year '19 level. On Atellica, we make good progress on our 10-point program, on the stability of the system, on the commercial execution around excellence on Diagnostics. And we have still good competitive win rates with Atellica. We have much stabilized, what we call, profitability levels on new deals and things like this. So everything is showing into the right direction so that we are well on track to reach our midterm targets, as highlighted with mid-single-digit growth rates and mid-teens profitability levels around 2024, 2025.

[Marc Koebernick, Head of Investor Relations]

Thanks, Falko. Next one on the line would be Lisa Clive from Bernstein.

[Elisabeth Decou Bedell Clive, Senior Analyst]

Just a specific question about the low-helium MRI you launched. Can you just remind us where you are on the commercialization of that? And just would like to get an understanding of sort of who the customer base is?

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

Thank you, Lisa, for the question. I mean, first of all, if I may, this is much, much more than a low-helium MRI. The low helium is one of the exciting aspects of the product, but there are many more with the target to -- basically to bring MRI to places where it couldn't go before by making it super easy to operate by overcoming the claustrophobic challenges by lowering TCO, lowering siting requirements, lowering service costs and so on and ease of use and so on, yes. So here, and it is definitely a topic here, which is in part of the program to go beyond just "gaining" market shares in Imaging, but expanding new markets and this is what we see the product doing. It goes to places in, on the one hand, in classic in radiology, where people wouldn't have put an additional MRI in an outpatient center or in buildings where a normal bulky MRI wouldn't have fit. We see new customers going into MRI like orthopedic clinics, but we also see a lot of traction in the emerging countries for that type of product. You will see that we will expand this to a family of products at our Shape 22 event. And I'm very happy with how I see the demand curve shaping up. So it's following the market creation expectation, which we have put into our plan.

[Elisabeth Decou Bedell Clive, Senior Analyst]

Okay. And any comments on the potential for sort of even smaller units, I know Hyperfine has one that is even lower [ than ] Tesla and very portable, specifically just for brain MRI. But is that sort of an area that seems to be another sort of logical extension as you continue to move this innovation path forward?

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

Yes. So I want to be -- let's say, I make a step back. I mean what basically here the program is when you look today at what X-ray does, you see that X-ray has in the beginning been a modality and then has been the basis technology for totally different incarnations. So you have the mobile X-ray, you have the standard X-ray, you have X-ray to guide interventions then you call it a cath lab and so on and so on. And we see MRI -- or we not only see, we drive MRI following that path so that you can look at MRI not only as one imaging modality, but as a method, which, so to say, has different incarnations where it is the core tool for radiology, but then also becomes a tool for guiding interventions, becomes potentially a tool for even dentists over time. And this is the program we are driving. And to some extent, you can look at the MAGNETOM Free.Max as the first of many in that category.

[Marc Koebernick, Head of Investor Relations]

Thanks, Lisa. So next one in line would be Julien from Exane.

[Julien Dormois, Research Analyst]

The first one would relate to the outlook for Varian in 2022. It's maybe marginally below what consensus had in mind for 2022. Is that purely a reflection of the synergies here more kicking in from 2023 onwards? Or is that maybe also a component of you guys spending a bit more in order to capture growth opportunities in that business? So that would be the first question. And the second question relates to the antigen test for COVID, just making sure I understood your comments correctly. I think you said that in Q1, in fiscal Q1, you would probably have a contribution broadly similar to the one you had last year. And because we saw a jump in the sales for that test in Q2 and Q3, should we see your relatively cautious guidance of EUR 200 million contribution being exactly this, i.e., too cautious and possibly following the same trend that we had last year, depending on how the epidemic goes on?

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

Yes. Julien, thank you for the question. I mean the -- I think you answered it in the right way when it comes to the margin profile of Varian in this new fiscal year. I mean we are balancing here the positive synergy effects with strong investments into the great growth opportunities we have in this business and especially with the combination. So there is a period of reinvestment of the synergies into additional growth potential. We will show the margin and growth profile. We will give you a better feeling for the multiyear margin and growth profile at the Capital Market Day. But you can be rest assured here so what we have communicated so far will be confirmed and maybe there's even room for more.

[Jochen Schmitz, CFO & Member of Management Board]

Julien, on your antigen questions, you got it right, yes. We expect a similar volume of antigen revenue in our current Q1 relative to prior year that, remember, prior year was about EUR 140 million. And then we expect this to run out over time. And -- why do we believe this or why we believe this is a meaningful assumption, and the main topic is that we want to give you a clear assumption what we have built into our guidance so that you know this. First of all, we only have currently -- primarily market access in Europe. And the decision making is driven by government. It is very volatile, discrete. You either win or do not win, one topic. Second topic is the vaccination rates in Central Europe is relatively high. Therefore -- and we are relatively sure that the emphasis on further vaccination is going -- will go up again. And thirdly, when we look at the price development, we are currently -- last year, we sold on average about EUR 5 -- or we sold it on EUR 5 per test. We are currently in tenders where we are clearly below 150. So therefore -- and then also, as you know, this is not a business we have been in, in the past. We joined the business with a partner. We got to a quick approval for -- when testing moved from professional testing into self-testing in certain areas of Europe and that drove our -- so to say, our success in this. But we will also leave this business, in particular, when it does not entail an opportunity for us anymore going forward. Therefore, this is why we have built in an assumption of EUR 200 million revenue for antigen.

[Marc Koebernick, Head of Investor Relations]

So now we come to Veronika Dubajova, Goldman Sachs.

[Veronika Dubajova, Equity Analyst]

I have 2, please. One is on China and just would love to get an update from you on what impact you're seeing, if any, at all, from the Made in China for China initiative. We've obviously heard different comments from some of your peers on this. So would be really kind of helpful to get your pulse for the situation on the ground? And maybe also what proportion of your portfolio today could be classified as locally produced and how long until you get that to 100%? So that's my first question. And then my second question is on Varian. Apologies to be circling back to the margin guidance in particular. But just kind of curious what impacts specifically for Varian you see from some of the higher freight and higher raw material costs? We've obviously heard from your competitor in the space about some pretty significant gross margin headwinds. Just curious if you're seeing same dynamics and modeling those or whether those dynamics might be specific to your competitor instead.

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

Yes. Thank you, Veronika. I mean, on China, some -- again, looking from it or at it from a big picture point of view, we have a very, very strong presence in China. Not only with a super strong sales and service team, but also when it comes to R&D and manufacturing, more than half of our CT scanners are developed and manufactured in China. In MRI, I think it's between 35% and 40% as an example. Similar in X-ray. We are building out of a factory for immunoassay. We have a very strong presence in Beijing for radiation oncology. So in a way, by the way, we are -- it might be that we are the biggest mid -- Chinese med tech player, so to say. And this is why most of our -- the vast majority of our products is produced locally, also the higher -- and producible locally also the high-end units. And that is why we are very, very well equipped for these requirements. And we feel confident about the growth projections we have in China. Quickly before on the other topic. When it comes to the Varian margin and gross margin, I mean just as a comment, I mean, there is no difference to the other businesses. There's nothing special when it comes to supply chain and material cost. And so -- and maybe as a small comment, margin is always a topic between pricing and cost and maybe this is the explanation for what you see elsewhere.

[Jochen Schmitz, CFO & Member of Management Board]

Yes. I just wanted to add, I think I did not understand -- or we did not understand the comment from Elekta relative to cost only, to make this clear. I think that was what Bernd also said here. On the -- and just to reiterate, I mean I tried to make clear that we saw a margin profile of Varian in the fiscal year 2021 between 14% and 15%. Take the midpoint, 14.5%. We guide now for a midpoint of 16%. This is a 150 basis points improvement year-over-year. And this obviously includes the minor -- or the headwind from supply chain, logistic costs, as highlighted before, and as Bernd said, not very different to the rest of Healthineers, between 30 and 50 basis points. On the other hand, in Varian, we are, as you know, in a very strong position, in particular, on the radiation oncology side. We have certain, I would say, certain ability on the pricing side and things like this. So I think the 150 basis points improvement, knowing that we will reinvest most of the synergies we will see on the cost side for future revenue synergies is, from our standpoint, exactly the right development into a margin level in the midterm of north of 20%.

[Veronika Dubajova, Equity Analyst]

Understood. And can I just quickly follow up on the China topic? I know that I think every product has to go through a designation process with the new Chinese FDA to make sure it's classified as local. Bernd, do you have a number for what proportion of your portfolio today is already certified as locally manufactured?

[Jochen Schmitz, CFO & Member of Management Board]

Yes. Veronika, most of it is certified, most of it. We currently have -- I mean I said that also in a conference that there is -- that we are awaiting something on the high-end ultrasound side and minor pieces on the CT portfolio. But overall, I think we are in, as Bernd highlighted, an extremely good position in this regard with our high value add and our, so to say, regulatory approvals which we have already in hand.

[Marc Koebernick, Head of Investor Relations]

Thanks, Veronika. So it brings me to Daniel Wendorff from Commerzbank.

[Daniel Wendorff, Analyst]

Yes. Can you hear me?

[Marc Koebernick, Head of Investor Relations]

Yes.

[Daniel Wendorff, Analyst]

Very good. It's actually Daniel Wendorff now from ODDO BHF. Two questions, please. One is on your growth guidance for Diagnostics in 2022 in the 2% to 4% ex antigen. Can you potentially explain what you have baked into this number from other COVID-related products you also just mentioned? so I'm just trying to figure out what the true underlying number here might be? Second question is on the strong equipment book-to-bill. When you look at the Imaging division, is there any modality really sticking out here? Or is that picture actually similar to the overall performance on sales you showed or you talked about for the different modalities in Q4?

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

So maybe I start with the second part of the question, Daniel. This is -- goes across modalities. And I don't see -- or we don't see a particular pattern because, in the end, the strength of the business is very evenly distributed and the portfolio is -- and the market demand confirms this. I mean when you look a little bit into the detail what happens over the last quarters, I mean it is the story we told several times here that there was a little bit of a period where we saw more demand for CT and X-ray because there was a pandemic special need and a little bit of more muted demand for the -- for products, which are not COVID-19 related and there sometimes things have been deprioritized here, that was especially MRI and Molecular Imaging. But when we look at the order book now, it is basically the traditional mix, which also means when you model it from a margin point of view and so on, there's no need to expect a certain modality mix effect, which has an impact.

[Jochen Schmitz, CFO & Member of Management Board]

Daniel, on your Diagnostic question, we have built in some revenue for other COVID-related tests, which are not antigen related, and with a slight decline of relevance. Therefore, if you would do the calculation, this would skew, so to say, the business without those tests even a bit closer to the upper end of the range we have guided for.

[Marc Koebernick, Head of Investor Relations]

Thank you. And to be quite honest, I only have phone numbers on the screen here. So I will -- I guess this is now going to be the last caller on the line. I'm guessing from the origin of the line, this is Sezgi from HSBC. Because this was off-line, I hope I'm right.

[Sezgi Bice Oezener, Analyst]

I just wanted to ask, first of all, in terms of like the incentive ranges and incentive payments to employees, for 2022, you're guiding 0% to 2% per revenue growth. And in terms of incentives, when do they kick in? I think they happen from a segment category. So in terms of Imaging, for example, you're guiding 5% to 8%. In what range do we have to get to, to have the incentives start taking away from margins. And after what range it doesn't affect that anymore? Can you maybe give a color about those ranges? And my second question would be about Advanced Therapy margins. When do you expect -- or do you expect a return to above 20% margins at any point in the future? And if yes, when?

[Jochen Schmitz, CFO & Member of Management Board]

On the incentives, I try to explain this. I said that when Scott asked the question. The logic is the following: if and when we are in line with our guidance, we have normalized incentive payout, around 100%. And if we exceed what we guide for initially then -- or not achieve, then we have either headwind or tailwind. As we had in 2021 significant headwind, making the guidance for fiscal year 2022 would just, as a year-over-year effect, bring us a tailwind of what I said before and about 100 basis points from incentives. This is not fully equally distributed via the segment. Obviously, Varian is not impacted by this because Varian was not part of this, but it -- and obviously because antigen helped in primarily Diagnostics, it's a bit skewed towards Diagnostics. But also Imaging had a strong year. So I hope that explains it for you. On the AT side, when -- we are currently around the mid-teens profitability level and it will take some time until we get good relief from the Corindus investments. It is more in the midterm. And I would also consider us moving steadily after fiscal year 2022 upwards towards a midterm, reaching the area of 19% to 21% again. But bear with us, this is definitely a discussion point we will also address at the Capital Market Day in 2 weeks.

[Marc Koebernick, Head of Investor Relations]

Thanks, Sezgi. Okay. So since I said we cannot identify the last caller, I would say thank you to the audience listening to our call today and the people on the call asking the questions. Although it has been alluded to several times today, I would like to take the opportunity to highlight our upcoming fully virtual CMD. On the 17th of November, between 10:00 a.m. and roughly 4:00 p.m. Central European Time, we will be presenting to you our new group story -- strategy with new midterm targets as well as detailed presentations by our 4 segment CEOs on the businesses. And the runup to that, let me also highlight the Shape 22 event that Bernd has already alluded to, which will be taking place on Monday, the 15th, in the afternoon, again, 4 p.m. Central European Time, where our most relevant innovations will be presented for roughly 1 hour show. And you can also follow this in a webcast. The whole IR team and the management team are strongly looking forward to welcome you on the 17th. Till then, stay healthy, and goodbye.

[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.