Siemens Healthineers AG (SHL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Siemens Healthineers Conference Call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the safe harbor statement on Page 2 of the Siemens Healthineers presentation. This conference call may include forward-looking statements. These statements are based on the company's current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties. At this time, I would like to turn the call over to your host today, Mr. Marc Koebernick, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Dear analysts and investors, I'm sitting in snowy Erlangen, together with our CEO, Bernhard Montag; and our CFO, Jochen Schmitz, who will be taking you through the detail of our first quarter results for fiscal '23 this morning. After the presentation, there will be a chance to ask questions. The Q1 2023 results were published this morning at 7:00 a.m., and you can find all the relevant documents as well as a recording of this call on the Investor Relations section of the Siemens Healthineers website. Before we start, let me give you the usual reminder for a 2-question rule in the Q&A. And now let me pass the word to our CEO, Bernhard Montag. Bernhard, the floor is yours.

Yes, thank you, Marc. Good morning, dear analysts and investors. Thanks for dialing in and expressing your continued interest in Siemens Healthineers. Let me start by shedding some light on our financial performance in Q1. Once again, we were able to significantly increase our order backlog with an excellent book-to-bill -- equipment book-to-bill rate of 1.36, thanks to double-digit equipment order growth in all segments. Comparable revenue growth ex-antigen was rather soft at 1%, primarily due to lower diagnostics volume in China and with Varian revenues held back by a supplier issue. Including antigen revenues, we saw a 5% decline, given the significantly higher antigen revenue in the previous year quarter. The drop in antigen revenues led to a comparable revenue decline of 24% in the Diagnostics business. Excluding antigen, Diagnostics revenues also saw a decline primarily due to the aforementioned lower testing volumes in China because of lockdowns followed by high infection rates. Diagnostics margin was slightly negative at minus 2% impacted by costs for the transformation program. And the margin was also -- the margin was also burdened by the lower volumes in China. Varian comparable revenue declined by 4% due to a spillover of supplier issues from Q4 into Q1, impacting margins as well. Imaging and Advanced Therapies had a solid quarter, both with 5% comparable revenue growth. Imaging showed a strong margin expansion of 100 basis points in Q1, leading to a margin of 20.9%. And Advanced Therapies had a margin of 12% in Q1. Our adjusted earnings per share came in at EUR 0.47 in Q1, down year-on-year essentially due to the mentioned tough comparable basis on the antigen side. Beyond this, increased procurement and logistics costs, transformation costs in Diagnostics and the mentioned temporary headwinds we faced in China were compensated by positive tax effects. For the remainder of fiscal year '23, we expect strong growth ex-antigen with meaningful margin improvement, particularly H2 rated. Drivers of these developments are our very strong order book, the success of our pricing measures and our expectation of a normalization of the COVID situation in China. Therefore, we reiterate our outlook for '23, expecting ex-antigen comparable revenue growth of 6% to 8%. And also our adjusted earnings per share range of EUR 2 to EUR 2.20. Including antigen, we continue to expect minus 1% to plus 1% comparable revenue growth. As always, Jochen will explain in more depth the Q1 numbers, but first, let me recap briefly what makes Siemens Healthineers so unique. Why are we such an attractive partner and what drives our sustained order growth. Three capabilities are the foundation of our success: patient twinning, precision therapy and digital, data and AI. They are our capabilities that make us truly unique. They fuel our present and future growth and make us the holistic partner of choice for our customers everywhere. They are the source of a constant stream of innovations in pioneering breakthroughs. Let's have a look at 2 of the most recent examples. At RSNA, we launched MAGNETOM Cima.X, the -- our strongest 3 Tesla MRI ever with its field strength and strong gradients performance, the scanner will be optimal for detecting the finest structures in the body more clearly. These micro structures can hardly be visualized with classical MR imaging, but with the help of a strong gradient system, these structures can be made more visible and can help to better understand. For example, neurodegenerative diseases such as multiple sclerosis. Thus, treatment could be initiated earlier, improving the outlook for patients. And by introducing AI-based algorithms on this high-end scanner for the first time, we reduced the scanning time in MRI by up to 50% by improving image quality, enhancing patient experience and enabling better inclusion of high-performance imaging into standard radiology workflow. On the precision therapy side, we are proud of the recently launched breakthrough innovation HyperSight from our Varian business. I'm really thrilled that we have received FDA approval for the HyperSight imaging solution earlier than expected. HyperSight will be an exciting option for new Halcyon and Ethos systems. Beyond this, it is available as an upgrade for existing Halcyon and Ethos systems and will also be available for TrueBeams in the future. HyperSight offers substantially improved image quality at a significantly increased speed. This new cone-beam CT imaging technology can achieve diagnostic imaging quality in just 6 seconds, a true breakthrough in speed and resolution. HyperSight allows for substantially improved treatment planning capability right in the treatment room. HyperSight is a proof point of our broad offering of comprehensive cancer care solutions that is leading in the industry, and a showcase of imaging and therapy coming together. And all of our products are enabled, are the glue of digital, data and AI, like the aforementioned AI-based algorithms to reduce the scanning time in the new MAGNETOM Cima.X Varian's oncology-as-a-service offering. Our breakthrough innovations fuel our future growth and allow us to be the holistic partner of choice for our customers. I will share a strong example for us being the holistic partner of choice on the next slide. We are the partner for the C-suite at a consolidating and transforming customer base. With the depth and breadth of our unique portfolio, we provide offerings for virtually all critical departments. Our service offerings range from the highest product -- highest-rated product service to consigning to comprehensive value partnerships. This gives us unmatched relevance for our customer base and is well reflected in the fast-growing order backlog for enterprise-wide multiyear deals, or as we call them value partnerships, which stands now at EUR 4 billion. The recently announced value partnership with Atrium Health is another strong proof point of this. The agreement includes over USD 200 million in equipment and associated services with strong solutions across Imaging, Varian and Advanced Therapies. This is the largest value partnership we have ever signed in North America. We will support Atrium Health to modernize its health care infrastructure and the quality of patient care, and will jointly develop education and workforce solutions. Siemens Healthineers technology will help Atrium Health improve health care in rural and underserved areas by strategically strengthening economic mobility, health equity and access, and focusing on environmental sustainability. This will ultimately improve outcomes, efficiency and quality and reduce costs in health care across the infrastructure of Atrium Health, also supported by our cutting-edge AI solutions. This partnership is a strong example of the unique strength we have with the focus and scale and unmatched relevance of our portfolio. Turning to the next chart, you will see that at our Diagnostics business, our unique Atellica portfolio has also allowed us to close a significant multiyear agreement with Unilabs. As we highlighted in our full year reporting last year in November, we are driving a meaningful transformation process in our Diagnostics business, also as a reaction to the changed macroeconomic environment. It will ultimately lead to a significant portfolio and organizational simplification and enhanced internal efficiency. A key reason why it's the right point in time for this transformation is the launch of Atellica CI1900 at the end of last year, which completed the Atellica portfolio for immunoassay and clinical chemistry testing. Atellica Solution and Atellica CI1900 are based on the same technology, menu, reagents, software and workflow addressing low to very large volume labs and customers in hub-and spoke settings. With our Atellica solution, we are able to maximize productivity for large-scale customers for high-throughput testing. With our new Atellica CI1900, we address low- and mid-volume labs in developed and emerging markets that need a cost-effective integrated analyzer. Additionally, the CI1900 enables true standardization for an optimized hub-and-spoke setting by combining Atellica solution in the hub and the CI1900 in the spoke setting. Thus, with the launch of the CI1900, we are in a strong position to simplify our overall portfolio in diagnostics as part of our transformation program. The CI1900 is currently in a controlled rollout in Europe, and we aim to initiate a full-fledged market rollout later this year. This unique Atellica portfolio allowed us to, for example, to close a multiyear agreement valued over EUR 200 million with Unilabs for immunoassay, clinical chemistry and other testing solutions like hemostasis. Under this agreement, we will help Unilabs to modernize its testing infrastructure across its network to improve outcomes, throughput, clinical evidence and quality and ultimately improve patient care across the testing network. These 2 deals with Atrium Health and Unilabs, as different as they are, are the perfect proof points on how unique and relevant our portfolio is for our global customer base. It shows that we help our customers to drive productivity and overcome cost and staff shortage challenges, and ultimately to improve the quality of health care across an entire enterprise network, whether it is with our cutting-edge solutions in Imaging, Varian, Advanced Therapies or Diagnostics. Now this brings me to my next slide, which I have shown before, and I like showing again simply because it is and stays more valid than ever, why Siemens Healthineers is a unique investment case? We operate in structurally growing end markets that benefit from several secular growth trends. With our leading portfolio and consistent rollout of innovative solutions, we are convinced we will continue our path of outperforming our markets. The advanced ways of treating the most threatening diseases in cardio, cancer and neuro, our products and solutions enable next-level medicine and next-level medicine such as pharma and device innovations often drive our procedure growth. One could say the world innovates for us. In challenging times like these where our customers face staff shortages and inflation, our technologies are key to help improve productivity. This may be with our AI and tech-enabled services or with our generations of equipment that are faster and more automated than ever. Furthermore, we generate growth by consistently expanding our markets with new solutions if need be and possible in a value-adding fashion also via M&A. These drivers guarantee strong consistent growth. This growth and additional revenue comes with a high degree of resilience. About 55% of our revenues are recurring. Adding to this, value partnerships are a very fast-growing part of our business and make us even more resilient as they guarantee a reliable recurring flow of revenues for years to come. The just presented agreements with Atrium Health and Unilabs prove that these kinds of partnerships and long-term deals will continue to be an important source of growth. Our geographical diversification has proven to be an important resilience factor over the years. The strong and resilient growth prospects we have are also paired with market-leading profitability levels. We have sector-leading margins in Imaging and at Varian with further room for expansion. At the same time, we have a clear road map to generate significant margin accretion at Diagnostics and Advanced Therapies in the medium term. All of this combined makes Siemens Healthineers a unique investment case. And with this, I hand it over to you, Jochen.

Thank you, Bernd. Good morning to everyone. Glad that you are joining us again. Let me take you through the financials of our first quarter in fiscal year '23. I would like to start by giving some color on equipment orders first. As Bernd highlighted earlier, we posted broad-based strong equipment order growth of 16% in Q1, a very healthy dynamic both year-over-year as well as sequentially since our impressive order growth momentum continues. In particular, we saw excellent equipment order intake in China. These impressive equipment orders resulted in an again, very positive equipment book-to-bill ratio of 1.36. We are very pleased with this continued momentum of equipment orders which will be an additional support for us to achieve the expected strong revenue growth in fiscal year 2023. Now over to revenues. Excluding rapid antigen sales, we saw soft revenue growth of 0.7% in Q1 due to lower diagnostics revenue impacted by lower testing volumes in China and varying revenues being held back by the known supplier issue. Including rapid antigen sales, we recorded a 5% decline of comparable revenue. Before we look at the development in the regions, a quick reminder. In October, we announced that we split our Asia Pacific operations into China and Asia Pacific Japan. China is now its own region with its own management team, as it is the region Asia Pacific and Japan, which will allow both regions to address their full potential even better. And now to the Q1 development. The Americas region recorded solid 3% growth on tough comps. In EMEA, revenues declined as expected due to materially lower contributions from rapid antigen sales. Excluding antigen revenues on a comparable basis were on the prior year level. The new Asia Pacific Japan region achieved significant revenue growth, driven in particular by a sharp rise in revenues from rapid antigen sales in Japan. Excluding antigen, the region achieved solid growth on a comparable basis. The China region declined by 6%, mainly due to lockdowns at the beginning of the quarter and due to a high infection rate at the end of the quarter. All in all, considering the situation in China in Q1 and the supplier issue at Varian, revenue ahead up well this quarter, also thanks to very strong service revenue growth. Now moving over to profitability and to the right side of the chart. Earnings per share were down year-over-year, essentially due to the lower antigen contribution. Adjusted EBIT margin came in at 12.7% below the prior year quarter due to lower contributions from rapid antigen sales which impacted the margin by over 150 basis points negatively year-over-year. Other than that, we also saw increased costs particularly for procurement and logistics year-over-year, one-time costs related to the transformation program at Diagnostics and pandemic-related headwinds in China. These effects totaled to over 200 basis points of headwinds in Q1. Together with the low antigen contribution, this adds up to over 350 basis points of negative in Q1. I will talk in more detail later in this presentation with regards to what to expect for revenues and margins in the course of the remainder of the fiscal year. Now let us have a look at all the other line items. The Q1 tax rate came in significantly lower at 14% due to the release of a tax provision. Financial income net was minus EUR 25 million, slightly less negative than expected due to the interest-related part of the aforementioned tax provision release. Free cash flow was minus EUR 77 million in Q1 due to inventory buildup for the scheduled acceleration of equipment revenues in the following quarters. In addition, receivables from Q4 antigen sales remained in the balance sheet as of Q1 closing as planned, holding back the usually strong cash collection in Q1 after strong Q4 revenues. For Q2, we expect a significant rebound of cash from operating activities driven by cash in from the Q4 antigen sales receivable and by the reversal of the buildups in operating working capital, particularly at Varian after the resolution of the supplier issue. Although we very rarely do have negative free cash flow in the quarter, we are not concerned that the basics of our cash generation are fully intact. We see the negative cash in Q1 as a merely timing topic, with future cash being kind of stored in the balance sheet over Q1 closing. As always, you find the EBIT to cash bridge in the appendix of this presentation. Now let us have a look at the segment's performance in detail, starting with Imaging and Diagnostics. Imaging showed solid comparable revenue growth of 5.2%, with broad-based growth in the businesses and in particular, very strong growth in MRI even after very strong growth in the prior year quarter. On the adjusted EBIT line, Imaging had strong margin expansion year-over-year of 100 basis points, driven by very healthy conversion. Foreign exchange tailwind of around 100 basis points was more than offset by cost increases, particularly for procurement logistics year-over-year. Going forward, cost increases will flatten out year-over-year in the course of fiscal '23. And more so, we overcompensated by our pricing measures. So foreign exchange is not the key to expanding margins at Imaging in fiscal '23. The 2 key drivers for Imaging margin expansion in fiscal '23 are conversion from growth and pricing. I will give additional color on that topic later in the presentation. To summarize it, it was a good start of the year for Imaging. Diagnostics had a less good start of the year in the core business, mainly due to the situation in China. But let me start with the overall business, including the antigen business. Diagnostics saw a sharp revenue decline due to the expected lower contribution from antigen revenues in Q1, which were EUR 63 million versus EUR 329 million in Q1 last year. Excluding the antigen contribution core business, revenue declined by 7.3%, impacted mainly by lower testing volumes in China due to the lockdown at the beginning of the quarter and high infection rates at the end of the quarter. The margin in Diagnostics was down year-over-year largely due to the lower antigen contribution. In addition, Diagnostics had EUR 34 million onetime costs related to the transformation program. These costs include initial steps on product portfolio simplification. As Bernd highlighted before, the completion of the Atellica platform with CI1900 is the trigger for portfolio simplification. For the full fiscal year, we continue to estimate one-time costs of EUR 100 million to EUR 150 million as communicated in November. We expect the lion's share of these costs to be booked in the next quarter. In Q1, the margin contribution for antigen and the onetime costs related to the transformation program more or less balanced one another out. Therefore, the core margin was on the same level as the all-in margin. In the operational business, Diagnostic faced clear headwinds from the pandemic situation in China from foreign exchange and from increased costs, particularly for procurement and logistics. Now let's look at Varian and Advanced Therapies on the next slide. Varian has further expanded its strong order book with double-digit equipment order intake growth and an impressive equipment book-to-bill of more than 1.6 in Q1. Varian posted a comparable revenue decline of 4.5% as a result of the held back revenues due to the supplier issue I mentioned beforehand. This is the same supplier topic that held back performance at Varian in Q4 last fiscal. While the issue was resolved in course of Q1, it did still lead to substantial parts of Q1 revenues being pushed out into the next quarters, especially in the regions, Asia Pacific Japan and China. After seeing a strong month of December with significant growth, we are confident of strongly accelerating revenue growth in Q2. Q1 adjusted EBIT margin was down from the prior year at 14.5%, burdened by the missing profit contribution from the revenue pushouts due to the aforementioned supplier issue, and cost increases, particularly for procurement and logistics. Adding to this, we saw a margin headwind from foreign exchange. In light of these substantial headwinds, I would like to emphasize that the margin held up quite well at Varian. Advanced Therapies had a solid quarter with 5% comparable revenue growth driven by a healthy backlog. We are very happy with the continuous top line performance at Advanced Therapies. As you know, our smallest segment can be lumpy in the quarters, but we have seen solid growth numbers in Q3, in Q4 and now in Q1. The margin in Advanced Therapies was down to 11.6% due to the cost increases, particularly from procurement logistics and also unfavorable mix effects. At the same time, Advanced Therapies saw tailwind from foreign exchange. The investments into endovascular robotics business continued to weigh on margins in Q1. Moving on from the Q1 results, let us now have a closer look at the dynamics we expect to see in the remainder of the fiscal year. Starting with pricing, and with the graph on the left-hand side on the chart, which you already saw in our disclosures from the last 2 quarters. We continue to expect our successful focus on pricing to lead to stronger margins, notably in the second half. The pricing measures continue to positively impact price levels in the sizable and growing backlog, where these improved price levels are steadily gaining share. As stated previously, there's a time lag of around 3 to 18 months on average varying from product to product between order entry and revenue. Hence, we expect to see sequential margin improvements in fiscal year '23, accelerating notably in the second half due to the phasing of cost increases and pricing measures as shown in the schematic graph on the left-hand side. Let us now have a look at the revenue growth dynamic in fiscal year 2023 and at the schematic graph on the right-hand side of the slide. We expect comparable ex-antigen revenue growth to accelerate from Q2 onwards to a substantial higher level than the soft 1% ex-antigen growth we have seen this quarter. Three major drivers affirm this acceleration of growth. Firstly, our sizable and growing backlog substantiates our expected equipment revenue growth. As I alluded to just before, we also see the price levels in the backlog improving. This will be another tailwind for the acceleration of growth. And of course, our recurring service revenues contribute with resilient continued growth. Secondly, after the resolution of the supplier issue at Varian, Varian has accumulated pent-up deliveries, which will be shipped from Q2 onwards and accelerated revenue growth up and above the momentum we would have anywhere expected for the year. As said before, we already saw a strong revenue month in December with significant growth. Thirdly, China had weak revenues in Q1 due to the overall COVID situation, initially in Q1, tough lockdowns followed by exploding infection rates. At the same time, we recorded double-digit equipment order intake in China. We believe that China should benefit from the lifting of COVID control policy and from government stimulus program. Hence, we expect a positive dynamic in China with revenue growth picking up from Q2 onwards. This dynamic will obviously also be a positive for the diagnostic business, which was the most impacted segment from the overall COVID situation in China. To summarize, we see that all indicators like the improved pricing, the scheduled backlog and even the low free cash flow due to significant inventory buildup are actually heading in the right direction and are supporting our expectations on revenue growth and margin expansion for the current fiscal year. And this brings me directly to the final slide for today, the outlook. First message, we confirm our outlook for fiscal year 2023. Let me reiterate, on revenue growth, we see the outlook well substantiated by our strong order backlog, including the impact from our pricing measures, Varian pent-up deliveries and the expected positive dynamic in China. On adjusted earnings per share, we see it equally well substantiated by the profit conversions from revenue growth, improving margins from pricing measures and tailwind from foreign exchange. The guidance for our segments remain unchanged. In Q1, the situation in China predominantly impacted Diagnostics, hence, we would point only for Diagnostics to the lower end of the growth and margin band. Also due to the fact that we do not expect the lower testing volumes in Q1 to come back as pent-up demand. With Diagnostics at the lower end of the guidance, the high end of the group outlook will obviously be more challenging to achieve. And with the U.S. dollar weakening versus the euro, foreign exchange will still be a tailwind but obviously, to a lesser degree than before, as already well captured in the recent estimate updates and in the consensus. All in all, we continue to see the outlook for revenue growth and adjusted EPS as a very balanced view on the company's performance in fiscal year 2023, and therefore, comfortably confirm the outlook for this fiscal year. And finally, let me share our current view on the current quarter, second quarter. As mentioned before, we expect strongly accelerating revenue growth in Imaging and Advanced Therapies and especially in Varian with the accumulated pent-up deliveries for Q2, where we expect growth in the higher teens. Due to declining antigen sales, we expect revenue in diagnostics to decline year-over-year. Just to remember, in last year's Q2, we posted the highest antigen sales in a single quarter of around EUR 680 million, so there will be a significantly tough comps in Q2. With the expected normalization in China, we expect the growth in the core Diagnostics business to improve. On margins, please bear in mind that we expect to book EUR 100 million to EUR 150 million of one-time costs related to the diagnostic transformation program in this fiscal year that are not adjustable in our KPIs according to our financial performance systems definition. Let me highlight that this is important for us that we keep our KPIs consistent over time and at that time are transparent about such very specific onetime costs that we currently incur with the transformation program at Diagnostics. In Q1, we booked EUR 34 million related to the transformation program, and we expect to book the lion's share of the remaining costs, which are not adjustable in Q2. With regards to the free cash flow, we expect a significant rebound of cash from operating activities in Q2. Also bear in mind that we will see the dividend payout again after our Annual Shareholders' Meeting in February that will impact our cash flow from financing activities in Q2 as it does every year. Of course, this does not affect the operating cash or free cash flow, but it will affect the leverage development in the single quarter. And with this, I hand over to Marc for Q&A.

Thanks, Jochen. And before we get into the detail, first, let the operator remind you of the rules to register for the Q&A.

[Operator Instructions]

Thanks, operator. So we start the Q&A with Hassan from Barclays. Hassan, you should be live now.

I have 2, please. Firstly, could you talk about the strength in the order book, how this is constituted by modality and particularly interested in Varian as well as by region. What was the contribution from the 2 larger contracts you announced in terms of the order book for the quarter? And secondly, could you talk about the weaker growth in Varian and the extent of supply challenges in fiscal Q1? Have you already started installations in fiscal Q2? And could you talk about your confidence around mid- to high teens growth that is implied by your guidance for the remainder of the year?

Hassan, I will start with the order book and try to describe it a bit in more detail. Let me start. When we talk about order book, we primarily focus on equipment orders. That means the Unilabs deal Bernd was referring to is not part of this. The double-digit growth of 16% is without the Unilabs deal. It is and obviously entails the Atrium deal, but only the equipment portion of it, just to clarify. So that means when you look at this, I think this is -- it is a significant part of it, but not driving, so to say, the numbers alone, yes. And Bernd gave you also guidance on what is the order backlog of our ES business. Overall, it's EUR 4 billion out of, I would say, a total order book of EUR 30-plus billion. That means we talk about at max 15% of orders coming from ES, and the current quarter was not very different in this regard. So when we look at the regional distribution, we saw very, very healthy orders coming in across the geographies. We saw double-digit order growth in EMEA, in Asia Pacific Japan, in China, and we saw high single-digit order growth in Americas. So it was healthy across the board. And when you also look via business areas, we saw double-digit equipment order growth in Imaging, in Advanced Therapies as well as in Varian. So it was, we can all say, very broad-based across the board regionally as well as business-wise. Bernd?

And to answer to the second question, I mean, as maybe stated in other circles already. I mean, what is the background of the topic, we have one supplier of key electronics component who has shifted production from China to Mexico and has faced significant yield problems, which led to the fact here that we had to produce Linux for delivery, but needed to wait for that component. The situation is under control, yes. We have in December already had a very normal delivery schedule and now the team is catching up with the deliveries, the topic is fixed, and that is also why we are very confident about the Varian growth target or guidance for the full year. Maybe as another comment, I also said this in the press call, this is one of the things where in the long run, Varian will in addition benefit from being part of the Siemens Healthineers organization and its larger scale, yes, because typically, components like this we have -- we tend to have in-house, so that it's also much easier to manage situations like this, but specified a transient problem. And I'm very, very confident in the Varian team here.

And if I can just follow up, Bernd, obviously, a very impressive order number, but are you seeing any caution in the U.S. market incrementally in your customer discussions, given what some of your competitors are saying?

No, actually not. I mean we have this -- I think the U.S. market is very healthy. And when you look at it, the -- I mean, what we provide is, on the one hand helping in big problems of our customers which means the labor cost topic and also the staff shortage topic. It is of utmost importance to also invest into productivity. So our -- you can look at our type of equipment as an investment to overcome the challenges. And in addition, and that is especially true for Imaging, you don't -- Imaging is the front door of a hospital. If you are not competitive, they are also a source of profits. So that is not an area where you -- where we see artificial ways of holding the breadth or so at the moment, and we don't see that the situation is changing. And I think this discussion about hospital CapEx and so on has been with us for a long while, yes. And you have also seen that for a long while, the order book is proving the opposite, and I see no reason why this shouldn't continue.

So we'll go on to the next caller online, that would be Veronika Dubajova from Citi.

I will keep it to 2, please. My first one is on the Imaging margin, and Jochen, your degree of confidence and progression as we move through the remainder of the year, basically almost 21% is a good starting point. But I was just hoping you can spend a little bit more time quantifying the benefit you expect from price and the benefit you expect from declining procurement logistic costs. And if you can put some numbers around that so we can feel more comfortable with the full year expectations there. That would be a good starting point. And then my second question is a bit of a follow-up from the topic that Hassan was touching upon. Just curious Bernd about the competitive environment on the order side of things, in particular in Imaging. We've seen some very divergent performance from you and some of your peers. And I'm just curious what you're seeing out there in the market, maybe a comment on China specifically and whether that is a market where you're doing very well relative to peers.

I think as it came across, we were very satisfied with the margin profile of imaging in the first quarter, considering that the growth was very solid, but below our fiscal year guidance was 7% to 9%. And when you look at the margin expansion opportunity, we have seen there with 100 basis points, really net-net because as I said, the foreign exchange tailwind was more than offset by still year-over-year higher procurement logistic cost. And we always need to remind ourselves year-over-year means October to December 2021, that was quite a different world we lived in at that point in time, and that's why it's still increasing. So what we have more or less penciled in, in our full year margin profile for Imaging is at the end, not a significant contribution from lower procurement costs year-over-year, but more from 2 things conversion from the top line, as well as -- and this goes hand-in-hand, because conversion from top line, better pricing kicking in. And what is really, really good is that we see those pricing topics we have seen in the order book now already starting to find its way into the P&L. And when you look at our equipment businesses, we have in imaging, the modalities, which have -- which have shorter lead times between orders and revenue than, for example in AT or Varian. Therefore, we have seen here already in Q1, the first good signs of better pricing and revenue, which helped for the conversion, which we have seen. I hope that clarifies it a bit. And Bernd is taking the second question.

Thank you, Veronika. I mean looking at the competitive situation we see, and I'm very proud of the team here, we have continued market share gains in orders across the globe and in the key geographies here, the U.S., but also in China. Some comments on China since you asked specifically about it, we are here in -- clearly in the leading position in the -- when it comes to the peers. What we also see is, especially in a quarter like the last one, when there is also government programs that there is a bit of momentum in the local competitors. But that is something which I think has 2 sides. Here on the one hand, it shows that it's a local topic. The Chinese market remains extremely attractive and super important for us. And it might be that in the long run, the competitive dynamic is a little bit shifting, say, in China, you can choose -- here's the world market leader and innovation leader. But then there's also a little bit of a local hero. But it makes it harder, I believe, when you are a global #3 or #4 to stay a viable alternative. So that is a bit of what I see in China. And overall, for the year, in both orders and revenue, but also when it comes to the margin contribution. I'm very, very optimistic and also very, very happy with what the Chinese team is doing.

And can I just ask Bernd was the China order growth much higher than the 16% that you reported, or was it similar to the 16% that you were talking about for the order book overall?

A bit higher, a bit higher. And I mean, the positive thing is I think there was a -- I mean, Hassan's question in the beginning, about the ES contribution or ES Enterprise Services value partnerships, which is more in the 15% range or so in the rest of the world. So in China, it is a pure transactional business, yes. So this is not a market for value partnerships mostly since it is more hospital by hospital. So very, very good order growth there.

So we head over to Graham from UBS. Graham, there's time for you, your 2 questions now, please.

Just one on the guidance. I know at the end there, you usually talk about the upper end of the range being a little more difficult to achieve. But just thinking about some of your comments around cost tailwinds, maybe not being in your guidance. Do you feel like things like freight and chips might make things a little bit easier for you in the second half? And is that maybe some sort of upside or fact there? And then could you just talk more generally about supply chain? So is that now really improving for things like Imaging as well?

Graham, I believe it is a bit too early to pencil in, I would say, more tailwind from potentially lower costs in the second half. But obviously, we are well prepared to participate if that really happens, yes. As I said, our guidance for the busineses is built in, I would say, on a solid print with regard to the cost items. And if there is upside to this, we will update you accordingly. But as we said, with the first quarter in Diagnostics, which was a tough quarter also in the core business due to China, I think we are currently, I would say, I do not see us moving all of the guidance range at all to the upper end, just to say this, even if there is a bit better cost position, yes? But as we go through the year and as we see how that stabilizes and becomes sustainable, we might update you on this. Just to say that. Sorry, Graham, on the second part, I'm not sure what was the additional question you had there on the SC in second? Can you please repeat that?