Siemens Healthineers AG

Thanks a lot for tuning into 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 webpage. After Bernd and Jochen's presentation, there will be a chance to ask questions.

May I please remind you to limit yourself to two questions each as usual. That said, I pass the word to the CEO of Siemens Healthineers, Bernd Montag, Bernd over to you.

Thank you, Marc. Good morning the analysts and investors also from my site.

Thanks for dialing in again and expressing your continued interest in Siemens Healthineers. I'll 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 in 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 hock demands of healthcare providers. Despite the pandemic, the whole Siemens Healthineers team delivered an outstanding performance in fiscal year 2021.

You see the new opportunities for example, offering COVID 19 rapid antigen tests at scale, the allowance breakthrough innovations like the FEMA [ph] and our 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 three times during this year.

We posted a record comparable revenue growth of 19%m which is clearly at the upper end of our guidance range of 17% to 19%. Adjusted EPS reached €2.03 per share which is in the upper half of our guidance range as well.

The order intake of more than €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 €2.3 billion.

Finally, on back of this strong performance, we have decided to propose to our shareholders and increase of our dividend per share to €0.85. In April we completed the transformative acquisition of Varian and with this combination via making two leaps in one step a leap in the fight against cancer and a leap in our impact on healthcare overall.

Yet, combining our unique and highly complimentary 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 Market Day on November 17th, 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 of 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 €2.8 to €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 €200 million. So significantly less than the over €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 in our accelerating growth path.

Advanced therapies continues to benefit from the mega trend towards minimally invasive procedures, its market leading portfolio and its healthy order book. We you 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 bank overview 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 strategics journey and our new growth and earnings performance ambitions for the midterm.

And with this, I would hand over to Johann. See you soon at the Capital Market Day.

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 four segments.

Then I will talk about the outlook for fiscal year 2022, the first full year outlook as a joint company Varian. In Q4, we had again a very strong order intake building on excellent equipment order growth and imaging in the low teens.

The strong equipment orders let 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 €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 €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 auto 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 the provision for €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 €50 million negative in Q4.

In terms of a year over year comparison, remember we had a positive impact in Q4 2020 from the US Cares Act, which resided in income of roughly €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 two effects out, you would have seen a more flattish development year over year in central items. Furthermore, we encourage, again, high incentive provisions in the quarter as expected as well as higher than expected for an exchange headwinds in imaging and energy advanced therapies.

If you take out the effect 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 in Q4.

Q4 were €0.53 year over year. This translates into a 13% increase taking out for an exchange.

The 13% increases include the immediate excretion of variant 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 earning side, very strong operational performance. Now let's have a look at the order line items.

Financial income was at minus €27 million years 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 the prior year. Q4 came in lower due to discreet tax items that take effect with the closing of the fiscal year.

The adjustments in Q4 for EBIT and EPS included €141 million of purchase price allocation there in around €110 million euros from PPA related to variant. Additionally, we adjusted for €40 million transaction related costs for various.

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 three businesses.

However, sizable headwind from foreign exchange in imaging and advanced therapies, imaging posted 12% revenue growth driven by strong growth in molecular imaging, computer tomography and ultrasound. As a result of the pent up demand all showed a strong performance on easier comms 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 base points drank 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 a hundred base 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 US as a result of the stronger than expected order intake.

And the current situation in supply chain and logistics did not help either. Diagnostic showed excellent growth driven by antigen sales, as well as solid core business grows.

Give them the normalization of the test volume for routine examinations. Excluding the antigen contribution revenue growth has come in strong at around 7%.

The margin and diagnostic was significantly up year over year on the contribution from the antigen business, excluding antigen, the core business sustained solid underlying profitability S in the previous quarters, despite a net drag of around hundred 70 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.

Maybe give more color on the phasing of the turnaround on our capital market days in two weeks’ time, advanced therapies posted very strong growth. This quarter is 14.5% compound 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 is up to around 350 basis points headwind over year. S sorry.

As highlighted previously, we continue to invest into Corindus, turning to variant as mentioned last quarter. Keep in mind that we will not report compra revenue growth rates for variant before Q3 fiscal year 2022.

Sorry. Varian recovers -- Varian recovery from the pandemic traffic is in full swing.

As you see demonstrated with the impressive equipment book to below 1.59 after sorry, language. So I'm sorry.

Yeah, I tested myself in the morning. So at least no COVID but just the co-occurrence sorry.

I try again, then very recover. The recovery from the pandemic trough is in full swing.

As you see, demonstrated with the impressive equipment book to bear of 1.59 after an already strong book to build in the previous quarter, this strong audit performance resided in a record record backlog for rain, a strong basis for revenue to come. One thing I would like to mention explicitly the order number includes the hundred order booking for the ESR system.

The leading system in adaptive therapy market surpassing the number of hundred orders for ethos is another proof point of various leading position. Also in the field of adaptive radiotherapy, Varian posted €709 million revenue in Q4 spot on in terms of what we planned for China and India contributed to revenue, the strong business performance in their region.

The US business of Varian continues to stabilize admits challenges, insight preparations. The adjusted EBIT margin came in with 17.3% positively impacted by one-time effects from reduced risk provisions, excluding these positive one-time effects.

The margin Q4 was around 15.7% bear in mind that we already saw a positive effect from the intro month closing in Q3. So the very 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 was skewed to somewhat towards the second half due to business.

Seasonality margins were on average around 150 basis points higher in half year, two than in half year one. So to put the underlying 15% in half year two 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 vain 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 you 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 anti-gun.

We expect five to 7% revenue growth and 17 to 23% adjusted EPS growth for fiscal year 2022. Let's now dive a bit more into the details of our drug for fiscal year 2022 for revenue, we expect five to 7% corporate growth, excluding revenues from the antigen business, both in fiscal year 2021 and 2022 in 2021, we booked around €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 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 zero and 2% comparable growth, including the very tough comes from auntie Jen in 2021.

It is important for us to be very transparent on the antigen business because SF previously, we see this as a temporary opportunity. Only if you look at the business without antigen, you see a very good growth momentum for fiscal year 2024 and 2022 in all four segments in imaging, we expect rows between five to 8% on the back of a very healthy order book in diagnostics, we expect the growth ex antigen to be between two and 4% continuing the solid and consistent growth trajectory towards mid single digit growth rates.

And and, 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 €200 million revenue in very envy expected adjusted revenue to come in between €2.9 billion and €3.1 billion for the full fiscal year 2022 in terms of growth is 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 grows for six months of various expected to contribute to the overall group grows with above oh 0.5 percentage points for advanced therapies. We expect revenue growth between five to eight, 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 expected adjusted earnings per share to grow between 17% and 23% in 2022, excluding antigenic revenues in both years in 2021, then two gen business contributed around €0.30 to the EPS of €0.02 and €0.03 for 2022.

We assume the antigen contribution to be significantly lower in the ballpark of €0.04 to €0.05 per share. Despite this assumed reduction in the antigen contribution, we expect the higher earnings per share between €2.08 and two years €0.20 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 criminalization of incentive over compensate for expected higher discretionary spend and for higher supply chain or logistic costs in diagnostics, we expect margins to expand to the high single digits with a significantly lower contribution for 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 variant.

We expect margins to come in between 15% and 17% for the full fiscal year driven by conversion and a slight net tearing from synergies and investments. In 2022, as previously said, we clearly see the term margin potential for variant above 20%, and we will give more color on the drivers and the phasing in our capital market days in two weeks' time for advanced therapies.

We expect margins to remain in the same ballpark to what we saw in 2021 weeks, between 14% and 17% due to the ongoing investment in core windows and the related market development activities, further assumptions for our guidance in 2022, are the 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 €100 million mark in 2022, and also in the medium term.

On financial income net, we expect between minus €50 million and my €70 million for tax. We expect the 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 the 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 on antigen tests, likely a bit less elevated than in the previous year quarter. Imaging compares against the 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 very indefinitely, 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 in 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.

Good morning, everyone. I just have a few please.

So the first one, I'm curious and obviously the logistic and supply chain. Thank you to some of the comments on that.

I'm wondering if you could just give us a little bit more color on, whether you see 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 -- some of that. That'd be the first one.

And the second one, I'm just curious, very, very strong order book in Varian. How was the sort of composition of that been?

Has that been mostly new bankers will replacing systems because this is 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.

Yeah. Thanks Patrick, for your question.

Let me give you some color on the supply chain situation. Now, first of all, as you have heard most likely in all of your calls, it's a very tentious situation.

I think we have a great team who measures perfectly and then so far, we have not seen any problems in being able to ship our products to our customers on time. And we're 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 can re-master this also in the future. With regard to shortages and costs, when we look at it, when we had already last fiscal year 2021, some headwind from supply chain and logistics costs, maybe in the ballpark of 10 basis points to 15 basis points, maybe 20 basis points, not significantly and we expect to see something between 30 basis points and 50 basis points headwind from this topic in the current fiscal year, which is a bit into our guidance.

Therefore if we keep our performance obvious, we got to delivery I'm not worried about the situation, but again, it's a tentious 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 -- 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 the only topic, which we still recognize is that there is from a room preparation standpoint, a bit, I would say a muted situation still in the US market, but this is only a timing topic and it will create and so to say pent-up demand from a revenue recognition standpoint, which will give us generally speaking that, if we get over this good tailwind into next year on the revenue side.

And, if I may add the order book in the last quarter is across all geographies, especially it's of course, good to see the development in also the emerging countries, which are net new. 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.

So next in the line would be Scott Bardo from Berenberg. So Scott, you should be live by now.

Go ahead with your questions.

Yeah. Thank you and good morning, everybody.

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 focus on 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 the 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.

Thank you.

Yes Scott, thank you for the question regarding Photon counting. So we only saw the first small contribution compared to what it will be in the existing order to give you a feeling, kindly we've reviewed the real commercial release yet.

We'll be following our Shape 22 event, which is, I think two weeks from now, where we introduce on the 15th of November, where we introduced the product. There will be a special event, virtual event also that also gets its official name and so when it comes to being fully, normally commercially available and so we're just approaching this super-important milestone.

The excitement is extremely high. I'm very, very happy about the reception.

I mean, also not surprised because it just confirms what the -- why we built the product and have been working on this technology since 2003. A big endorsement came from FDA.

Maybe you saw that and they released the -- when they get 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 we're just waiting for the virtual launch event.

So I see we're very much on track to the very concrete financial number. This is baked in the guidance we give for the year.

Scott on the only incentive topic, maybe I'll give you some more detail on this. First of all, we were clear about the €56 million on profit sharing in Q4.

This is about 110 basis points impact on the quarter, year over year. This translate into a whatever 30 base points for the full fiscal also.

On top of this, on the 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 base points came from two effects.

It's just the excellent performance 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 base points negative we faced in fiscal year '21 to be replaced by a positive 100 base points, or the half of its slightly lower than half of it as tailwind now it's tailwind for fiscal year 2022.

I hope that helps.

It does. Thank you very much guys.

Thanks Scott. So next first on the line would be Falko from Deutsche Bank.

So you should be live now Falco. Please go ahead with your questions.

Thank you, Mark. 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 how you're progressing in rolling out the Varian device internationally and within your system?

And then secondly on diagnostics, can you elaborate a little bit on where you and the routine business, so excluding and sales is now trailing versus pre-pandemic levels, pre-pandemic run rates, and in that regard also update us on any progress with the Atellica rollout. Thank you.

Yeah Falko, thank you for the question. Regarding Varian, we definitely see this, 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 they are sites.

Opportunities they wouldn't have had before. So it's 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 site. This is this oncology as a service play which often is a C-level a C-level conversation where the Siemens Healthineers contacts 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 focuses on oncology to bring in the imaging equipment.

So that is very concrete, not only projects, but one deals and the momentum is not only there, but accelerating. We'll 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.

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 '19th level on the diagnostic business. There's one aspect also in there.

It just exclude antigen. There's some revenue in there from other COVID 19 related tests in the ballpark of 3% to 5% also therefore, but even if you take this out and you don't assume anything on headwind still from in routine.

We are clearly above the fiscal '19 level. On Atellica, we make good progress on our 10 point program.

On the stability of the system, on the commercial execution around on 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.

Thank Falko. Next one in the line would be Lisa Clive from Bernstein.

Lisa, you should be live online. Please go ahead.

Hi. Just a specific question about the low helium MRI you launched, could you just remind us where you are on the commercialization of that and just like to get an understanding of who the customer base is?

Thank you, Lisa for the question. First of all, if I may this is much, much more than a low helium MRI am.

Low helium is, 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, citing requirements lowering service costs and so on and, and, and, and ease of use and so on.

So here and it is definitely a topic now, which, which is in, in part of the program to go beyond trust way, gaining market shares in imaging, but expanding new markets. And this is what we see the product doing.

Yeah. It goes to places in, on the one hand in classic in rate 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, in the emerging countries for that, for that type of product. You will see yeah.

That we will expand the, this to a family of product yeah. At our Shape 22 event.

And I'm very happy with how I see the demand curve shaping up there. So it's following the market creation expectation which we have put into our plan.

Okay. Thanks.

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

Yeah. Yes, so I want to be let's say I, I make a step back.

I mean, what, what basically the here the program is when you look today at what x-ray does. Yeah.

You see that x-ray has in the beginning been a modality and then has been the basis, ASIS technology for totally different incarnations. Yeah.

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. Yeah.

And we see MRI, or we not only see we drive MRI following that pass so that you can look at not only as one imaging modality, but as a method, which so to say has different incarnations where, where it is the core tool for radiology, but then also becomes a tool for guiding interventions becomes potentially a tool for even dentists. Yeah.

over time. And this is the program we are driving, and to some extent you can look at the maximum free max as the first off many in that category.

Okay, great. Look forward to hearing more on CMD.

Thanks.

That Lisa. So next one in line would be Julian [ph] from Exane.

You should be live now, Julian. Go ahead with your questions, please.

Hello. Hi, good morning, everyone.

Good morning. Be good morning.

Jochen, thanks for taking my questions. The first one would relate to the outlook for variant in 2022 it's maybe marginally below what consumption had in mind for 2022.

Is that purely a reflection of the synergies here more kicking in from, from 2023 onwards, or is that maybe also a component of you guys spending a bit more in order to capture growth opportunities in, 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 will probably have a contribution broadly similar to the one you had last year.

And because we saw a jump in the, in the sales for that test in Q2 and Q3 should we see your relatively cautious guidance of €200 million contribution being exactly this I just, I too cautious and possibly following the same trend that we had last year depending on how the epidemic goes on.

Yeah. Thank you for the question.

I think you answered it in the right way. You know, when it comes to the to the margin profile of error in the 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.

Yeah. So there is a period of reinvestment yeah.

Of the synergies into additional growth potential. We will show the margin and growth profile.

We will give you feel for the multiyear margin and growth profile at the Capital Market Day. But you can be rest short year.

So, what we have communicated so far will be confirmed and maybe there's even room for more. Yeah Julian on your antigen questions, you got it, right?

We expect a similar volume of antigen revenue in, in our current Q1 relative to prior year that remember prior year was about €140 million. And then we expect this to run out over time.

Yeah. And why do we believe this?

Why do 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 this yeah.

Is first of all, we only have currently primarily market access in Europe. Yeah.

And the decision making is driven by government. It is a very volatile, discreet.

Yeah. you either win or do not win.

Yeah. One topic.

Second topic is the, the vaccination rates in central Europe is relatively high. Yeah.

Therefore, we are relatively sure that the emphasis on, on further vaccination is, is going, will go up again. Yeah.

And thirdly, when we look at the price development yeah. We are current only and last year we sold on average about €5.

We sold it on €5 per test. We are currently in, in, in, 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 quick approval for when, when testing moved from professional testing into self-testing in, in certain areas of Europe.

And that, that drove our, say our success in this, but we will also leave this business. Yeah.

In particular when it, it, it does not entail an opportunity for us anymore. Yeah.

Going forward. Yeah.

Therefore this is why we have built in an assumption of 12 million revenue for antigen. Yeah.

So now we come to Veronika Dubajova with Goldman Sachs. Veronica, the floor is yours.

Go ahead with your questions.

Thanks so much mark and good morning team burned and Johan. Thanks for taking my questions.

I have two please. One is on China and just would love to get an update from you on what impact you you're seeing.

If any, at all, from the made in China for China initiative, we've obviously heard different comments for 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 a 100%. So that's my first question.

And then my second question is on, on variant apologies to be circling back to the margin guidance in particular, but just kind of curious what impact specifically for vary end 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 are seeing same Diane and modeling those or whether those dynamics might be specific to your competitor instead. Thank you.

Yeah, Veronica. On China, some again, looking from it or edit from a, from a big picture point of few we have a very, very strong presence in China, not only, you know, 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, and manufactured in China on, 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 in amino assay.

We have a very strong presence in Beijing from, for radiation oncology. So, by the way we are it might be that we are the biggest mid Chinese mid tech player.

So to say, yeah the, and this is why most of our, the vast majority of our products is produced locally. Or so the higher and producible locally, also the high end units and that is why we are very, very well equipped for this for these requirements.

And we feel confident about the, the growth protections we have in China quickly before on the other topic, when it comes to the vary margin and cross margin. I mean, just as a comment, I mean, there is no difference yeah.

To the other businesses. Yeah.

There's nothing special when it comes to, you know, 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.

Sorry, go. Yeah.

I just wanted to add, I think I did not understand, well, we did not understand the comment from elector relative to, to cost only yeah. To, to make this.

Yeah, I think that was what burnt also said. Yeah.

On the, on, on the, and just to reiterate. Yeah.

And I tried to make clear that we saw a margin profile of, of variant in the fiscal year 2020 to one between 14% and 15% that take the midpoint 14.5. We guide now for a midpoint 16%.

This is 150 base points improvement year over year. This obviously includes the minor or the headwind from supply chain logistic costs as highlighted beforehand, as I said, not very different to the rest of health and years yeah.

Between the 30 and 50 base points. On the other hand in, in where end we are, as you know, in a very strong position in particular on the radiation on oncology side.

Yeah. On, we have certain, I would say certain ability on, on the pricing side and things like this.

So I think the 150 base points improvement, knowing that we will reinvest most of the synergies we will see on the cost site for future revenue synergies is from our standpoint exactly the right development into a margin level in the midterm of north of 20%.

Understood. Thank you.

And, can I just quickly follow up on the China topic? 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, do you have a number for what proportion of your portfolio today is already certified as locally manufactured?

Yeah. There, most of it is certified, most of it.

Yeah. We currently have when I said that also in a conference that, that there is that we are awaiting something on the high end ultrasound side.

Yeah, and minor pieces on the CT portfolio but overall, I think we are in a as Bernd highlighted, extremely good position in regard with our high value and our socio regulatory approvals, which we have already enhanced.

Thanks Veronica. So it brings me to Daniel Vineyard from Commerce Bank.

Daniel go ahead with your questions, please.

Very good. So, yeah.

Thanks for taking my question. That's actually Daniel Vineyard from Auto BHF.

Two questions please. One is on your growth guidance for diagnostics in 2022.

The two to 4% X 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, the second question is on the strong equipment book to bill when you look at the imaging division is, is there any modality really sticking out here?

Is that picture actually similar to the overall performance on, on sales, you, you showed what you talked about for the different modalities in Q4. Thank you.

So maybe I start with the second part of the question and Daniel, this is, goes across modalities. And I and I don't see, or we don't see a particular pattern because in the end, the strength of the business is, is, is very evenly con distributed and the portfolio is and the market demand confirms this.

When you look in a little bit into, into the detail, what happens over the last quarters? It is the story we told several times here, that there was a little bit of a, over a period.

Where we saw more demand for CT and x-ray because there was a pandemic special meet and a little bit of more muted demand for the products, which are not COVID 19 related. Yeah.

And there are sometimes things have been deprioritized. Yeah.

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 here when you model it here from a margin point of view and so on, there's no need to expect a certain modality mixed effect, which has an impact mm-hmm, Daniel on your diagnostic question, yeah, we have built in some revenue for other COVID related tests, which are not antigen related and with the with a slight decline of relevance.

Yeah. Therefore, if you would do the calculation, this would school.

So say the business without those tests even a bit closer to the upper end of the range we have guided for yeah.

Thank you. And to be quite honest, I only have phone numbers on my screen here.

So I would 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 Seski [ph] from HSBC. And so because it is offline, I hope I'm right.

Go ahead, Seski.

Hi. Thanks for taking my questions.

I just wanted to ask, first of all, in terms like the incentive ranges and incentive payments for employees for 2022, you're guiding 0% to 2% per revenue growth. And in terms of incentives, when do they kick in?

I think like they happen like from like 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 like, to have like the incentives start like taking away from margins and like after what range it doesn't affect that anymore.

Like, 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

On the incentives, I, try to explain this. Yeah.

When I said that, when Scott asked the question, yeah. The, the, the logic is the following.

Yeah. If and when we are in line with our guidance yeah.

We have normalized incentive of payouts around a hundred percent. Yeah.

Yeah. And if we exceed what we guide for initially then, or not achieve what we, then we have either headwind or tailwind.

Yeah. As we had in 2021 significant headwind making the guide for fiscal year 2022 would just as a year over year effect, bring us a tailwind of what I said beforehand, about a hundred base points from incentives.

Yeah. This is not fully equally distributed.

Why are the segments? Obviously various is not impacted by this.

Yeah. Cause variant was not part of this.

Yeah. But it and, and, 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, man we are currently around the mids profitability level and it will take some time until we get good relief from the investments.

It is more in the midterm and I would also consider us moving steadily after fiscal year 2022 upwards towards a midterm region 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 two weeks.

Thanks, Seki. 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 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 AM and roughly 4:00 PM 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 four second CEOs on the businesses and the run up to that, let me also highlight the Shape 22 event that Bernd has already alluded to, which would be taking place on Monday the 15th in the afternoon, again, 4:00 PM Central European Time where our most relevant innovations will be presented for roughly one 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.