Siemens Healthineers Ag

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. Mark Kubanek, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning and welcome to our Q3 2025 earnings call. It's great that you are tuning in again today. At 7 a.m., we published our Q325 results. Since then, all the related materials for today's results release are available on the IR section of the Healthineers webpage. In a moment, our CEO, Bernd Montag, and our CFO, Johann Schmitz, will be presenting to you what you need to know about our fiscal 25 Q3 and about the near-term outlook. After the presentations, we'll have a Q&A session. To ensure everyone gets the opportunity to engage, we kindly ask that each participant limit themselves to one question each. That worked quite well last time. So, I'm sure you will manage again. Last time, you will also have, like last time, you will also have the chance to follow up and get back into the queue. Additionally, please note that a full transcript and recording of today's call will be made available on our investor relations webpage shortly after the session ends. Again, thank you for being here. And now I'll turn it over to our CEO, Ben Motag.

Thank you, Mark. Dear analysts and investors, welcome to our Q3 earnings call. Many thanks for joining. Today, I am happy to report that we are well on our way to achieve our targets as we add a further successful quarter to the fiscal year 2025. In Q3, we grew by 7.6% with all regions growing. We again outpaced the growth target we had set ourselves for the full year. Adjusted EPS grew significantly as well, by 23% to 64 cents per share. Growth was also driven by strong margin expansion. And that said, let me highlight that we achieved this margin expansion despite the impact of tariffs, which was constituting a roughly 100 million euros headwind in the quarter. Based on our strong performance and due to the now additional certainty on tariffs, we raised our outlook for fiscal year 25. We raised the midpoints of the ranges for comparable revenue growth and for adjusted earnings per share. The new range also entails an underlying operational improvement to our initial outlook for this fiscal year from November 24. Jochen will lay out the details later in his presentation. Now let us have a look under the hood and then Jochen will give you a run through of all the specs as usual. Equipment book to build was again good this quarter at 1.09. Imaging had impressive revenue growth of almost 12%, with margins improving nicely despite tariff headwinds to a strong 21%. Varian continued its growth path with 9% comparable revenue growth. While these strong growth rates feel almost in quotation marks normal for Varian, The recovery of the margin compared to Q2 is indeed noteworthy. The strong 18.8% margin has clearly brought the segment back on track. Advanced therapies had solid growth with 10.5% margin. Diagnostics transformation is on track, with margins going to 9.2%, while growth was slightly negative. Free cash flow was again strong this quarter, bringing our leverage factor below three times for the first time since the Varian acquisition. When considering the current geopolitical and macroeconomic context, our results underscore the resilience of our business. As a global leader, we might not be immune to terrorists in the short term, but we are well harnessed thanks to our unique capabilities. I would go so far to call these unique capabilities superpowers. We continue strengthening this power by innovating in each capability, in patient training, in precision therapy, and in digital data and AI. Why are these capabilities of such importance? Patient-winning creates a dynamic digital representation of an individual patient to support personalized, predictive and precise medicine. This approach goes far beyond collecting static electronic records. It combines real-time imaging, diagnostics, clinical data and AI models into a live model of the patients. Diagnosis, therapy decisions and response control can be based on this. Precision therapy means cutting-edge technologies to deliver individualized therapies with highest accuracy. This is exactly what Varian does with its unique technologies to personalize treatment in cancer care. We take advanced therapies with its next-level image guidance for stroke and cardiac interventions, as well as its push into robotic-assisted procedures. Our third capability is our competence in digital data in AI and the ability to scale this on a global level. AI algorithms are trained on vast clinical data sets to simulate and predict disease progression or therapy response. AI can assess tumor growth, evaluate cardiovascular risks, or guide surgical planning with greater accuracy. and digital solutions are the connecting element between our capabilities in which data is passed on between diagnosis and therapy, evaluated with algorithms alongside the customer workflow. Mastering and combining these three capabilities is at the heart of our efforts to ultimately achieve better patient outcomes and increase efficiencies of healthcare systems. This goes along with our second superpower, our unmatched relevance as a holistic partner for hospitals and healthcare systems. Why are we relevant to hospitals and healthcare systems? It is the depth and breadth of our portfolio and our strong teams in the different geographies that make us such a powerful partner. We enable hospitals and healthcare systems to improve the quality of care while reducing costs and unlocking new revenue streams. With our so-called value partnerships, we enter into long-term collaborative relationships with the customer that entails not only product and service business, but improves the customer's delivery of healthcare in a joint endeavor. These value partnerships transform our revenue streams from classical transactional product business into recurring revenue streams, thanks to their long-term nature. We have by now entered into more than 200 value partnerships and since the IPO, the order backlog of these deals has increased threefold. Consequently, the revenue share of these partnerships has consistently grown, also threefold, of what it was at the time of the IPO. elevating the revenue share to above 5%. By larger deals with healthcare systems, such as the deal with the Canadian province of Alberta, obviously move the needle a bit more than the average-sized partnership. There's a continuous flow of deals across regions and of different scale. And there's much more potential. To illustrate this, I will give you a few examples from the past quarter. In the U.S., we extended an existing value partnership that initially signed in 2021 into the radiation therapy space. A nice and typical example for how these partnerships can be prolonged or broadened. So often, the signing of the initial agreement opens additional opportunities which we can unlock in the years to come. A second example highlighting the importance of the breadth of our portfolio and our innovation leadership was a deal we signed with a hospital chain in Germany with a focus on comprehensive cancer care. This deal also included several photon counting CT systems. Adding the third partnership in France, which was focused on diagnostic imaging, we booked in total north of 100 million euros of orders only in these three deals. So, to summarize. Value partnerships are not only a witness to the relevance of our superpowers, they also over time reshape our revenue mix and increasingly contribute to our recurring revenue. Having now mainly spoken about the business in our synergistic core, I would like to also touch on our second core, the diagnostics business. Now that our CoreLab product portfolio is complete with Atelika solution and Atelika CI analyzer, the Atelika franchise is growing double digit and already accounts for 60% of our CoreLab revenues. The Atelika portfolio is shaping up as the winning offering in the CoreLab space and we continue to strengthen it. Atelika integrated automation makes automation accessible even for the smallest labs. It has built-in automation with revolutionary sample management technology, intelligent software and informatics to provide workflow efficiency and improve operator safety. We are the only major in vitro diagnostics manufacturer currently with a built-in integrated automation offering. However, it's not only the state-of-the-art equipment that drives productivity for our customers and makes us attractive, we also continue to innovate and add to our already competitive menu. So, as we speak, we are showing great things at the ADLM, the biggest trade show in the space, and all lights are on green for future growth. Thanks to the successful transformation program that we have embarked upon, our bottom line is already working very well. The decent margin expansion, which we have seen in the past years, proves this. We are also on a good track to get into the margin expansion range that we guided to at the beginning of the fiscal year, despite the bigger-than-expected headwinds from China. To maintain the momentum, we further sharpened the portfolio and have taken several decisions this quarter, leading to further portfolio simplification, which you see reflected in the transformation cost for the third quarter. With this, I would like to close my part for today and hand it over to Jochen.

Thank you, Bernd. I will start with some color on the good equipment book to build of 1.09 in Q3. Book to build was above one in all segments for equipment. Also across the regions, equipment booked to build was above one, with the exception of China, where booked to build continued to be around one. Revenue in China also continued to be around the 620 million euro mark in Q3, as in previous quarters, which means there is no indication in our numbers yet pointing towards a sustained market recovery in China. And consequently, the 6% growth in China this quarter is mostly a function of the lower comps in the prior year quarter. Aside from China, we saw revenue growth across the board with excellent growth in the Americas. This strong revenue growth drove the equally strong earnings growth. Margin expanded by 160 base points despite headwinds from tariffs of around 100 million euros in the quarter. Operationally, in Q3, the Holy Trinity of margin expansion came together. Growth, conversion, and business mix drove margin expansion and EBIT growth. The EBIT growth of 15% also dropped through to earnings per share growth, with an additional year-over-year tailwind in financial income net. This was due to 85 million income from the revaluation of an equity investment in other financial income. All in all, earnings per share grew by 23%, mainly driven by the strong EBIT growth. And now let me run you through the segment performance, starting with imaging. In the very strong imaging growth of 11.7%, molecular imaging and computer tomography stood out this quarter. If you double-click on these two businesses, you'd see that within molecular imaging, the PetNet business, and within CT, the photon counting portfolio, were both significant drivers of the respective growth. On adjusted EBIT, Q3 was a quarter where operationally it all came together. Growth, conversion, and as I said, a very favorable business mix, leading to an excellent margin expansion in Q3 despite the tariffs. And now to our segments focusing on therapies, variant and advanced therapies. Varian continues to grow in the high single digit as expected. Similar to imaging, year-over-year margin expansion was driven by growth, conversion, and business mix. Additionally, the margin had a year-over-year tailwind from foreign exchange of around 100 base points. Sequentially, we saw a very strong margin rebound. Q2 had an unfavorable mix, especially in the equipment service split, whereas Q3 had a very favorable business mix across the board. There can be some lumpiness from quarter to quarter because we're in manufacturing big ticket items with still relatively low unit volumes in a single quarter. Advanced therapies can also be lumpy in quarters because it's our smallest segment. After a strong Q2, Q3 was softer, especially on the margin side. Solid revenue growth of 4.5% generated only low margin conversion. Adding to this, negative impacts from tariffs and headwinds from foreign exchange weighed on the Q3 margin. Since our smallest segment has only little value-add in the United States, it is in relative terms more exposed to U.S. tariffs and to the U.S. dollar than the other segments. In absolute terms, though, it does not move the needle too much for the group. And now let's complete the segment run-through with diagnostics. In diagnostics, we had already guided for the impact from volume-based procurement to be more skewed towards the second half of the fiscal year. and to carry over into the next fiscal year until the VBP impact is fully reflected in the revenue line as the new basis. And we see this now in Q3, actuals even a bit stronger reflected than expected, resulting in a slightly declining revenue line. However, the margin expansion in diagnostics remains very well on track. The margin in Q3 was driven by operational improvements and additionally by a positive one-off from a release of pension liabilities related to prior periods. The contribution to the 180 base points margin expansion was probably 50-50 between the positive one-off and the operational improvements. So operationally, the adjusted EBIT margin would be around 8% in Q3, which puts it well on track. One comment regarding the EBIT adjustments in Q3, Bernd has mentioned before we have taken some decisions this quarter leading to further portfolio simplification. This has led to a higher adjustment in the line item other restructuring expenses this quarter. Since this is an adjustment, it does not impact the adjusted EBIT margin, but it shows that we do whatever it takes to crystallize the full potential of diagnostics. And with this, let me move back to the group and look at our cash performance. In Q3, free cash flow increased by 50% year-over-year, amounting to 1.9 billion euros of free cash flow in the first nine months of this fiscal year. Hence, free cash flow to date doubled compared to the prior year period, which enabled us to further deleverage below three times this quarter. We have a continued focus on deleveraging within our financial framework. Firstly, we continue to drive cash performance while at the same time doing the necessary investments for our innovations, like for photon counting CT or for whole helium-free MRIs. Secondly, we obviously pay out our dividend of over a billion euros each year, consistent with our dividend policy. And finally, we are disciplined in M&A, moving opportunistically for strategic tuck-ins, like the expansion of our radiopharmacy network to Europe. This disciplined focus led to our leverage going consistently down since the combination with Varian is still a way to go, but we see each metric for deleveraging EBITDA, cash, and the loan volume moving steadily in the right direction. Speaking of moving in the right direction, In Q3, we again grew revenue and expanded the margin. As already explained, revenue grew by 7.6% on a comparable basis. However, mainly due to the depreciation of the U.S. dollar, there was a significant translational year-over-year headwind on the absolute Q3 revenue number. In Q2, there was still a tailwind from translation, so excluding foreign exchange, we grew revenues both year over year and also sequentially in absolute terms. The impact from foreign exchange on the adjusted EBIT margin for the group was not material in Q3 due to our global value-add structure and our hedging of our net currency positions. If the US dollar remains on the current level, all things being equal, we expect a year-over-year headwind from foreign exchange for fiscal year 2026 as the dollar was still stronger in the first half of this fiscal year. also because the hedging which currently protects the margin from depreciating dollar will roll off over time. But now let's take a step back to our actual performance in Q3. This quarter we expanded margins for the seventh consecutive time, both year over year and sequentially in the respective year, and this despite tariffs. The tariff impact was around 100 million euros in Q3, In Q4, we would expect more than that due to the tariffs going up to 15% as per August 1st. So between 200 and 250 million euros net impact on pre-tax profit would be the best assumption as of now for this fiscal year. Of course, all things being equal. Also, if you analyze this for the next fiscal year, the 4 to 500 million euros tariff impact for full fiscal year 2026 now becomes the most realistic case. Since so far not all details of the trade deal between the United States and the EU are clear, it is unfortunately too early to make structural decisions on midterm mitigations. But let me clear, we would have all the means to mitigate impacts from tariffs thanks to our existing global footprint over the medium term. Ultimately, mitigation measures need to be deemed as economically meaningful to safeguard our earnings growth, which brings me to the outlook for fiscal year 2025. We raised our outlook for fiscal year 2025 based on our strong performance in the first nine months and due to additional certainty from tariffs. We raised the midpoint of the ranges for both comparable revenue growth and adjusted earnings per share. We now expect revenue growth of 5.5 to 6% and adjusted earnings per share from 230 to 245. We believe this new outlook documents our great underlying performance in fiscal year 2025 in both revenue growth and earnings per share. Let me briefly give you some additional color on the underlying performance in earnings per share. The positive impact in the financial income net in Q3 and the expected headwind in the second half from foreign exchange roughly cancel each other out in EPS for the full fiscal year. Now considering the current tariff assumption of 200 to 250 million euros on pre-tax profit, this would impact EPS by around 15 cents. And now keeping in mind these roughly 15 cents of tariff impact on adjusted EPS this year, the new EPS range, excluding tariffs, would be 245 to 260. And therefore, like for like, clearly better than the initial outlook from last November of 235 to 250. To conclude, some comments about the dynamics of the remainder in this fiscal year. This fiscal year, we successfully rebalanced the load in the quarters, taking load off Q4. In the first nine months of 24, we grew by 4.3%, and then had a strong finish with 5.6% growth in Q4. The fiscal year, we already grew by 6.8% in the first nine months. Q4 remains, in absolute term, the strongest quarter in the year, but it will be less loaded compared to the Q4 in last fiscal year relative to the prior quarters. And while we expect still growth, good growth in Q4, we expect it to be below the level of the first nine months. And this is not an indication of slowdown of business, but an indication of us actively managing the equipment backlog over the quarters. And on what we expect for growth in the segments, For modeling purposes, the best assumption for revenue growth would be our segment assumptions from the beginning of the fiscal year, also for Q4, meaning mid-single-digit revenue growth for imaging and advanced therapies, towards high single-digit growth for Varian, and low growth for Diagnostics. Regarding margins for the segments, this obviously depends on how tariffs will impact profitability in Q4. However, based on our current tariff assumption, we would expect for imaging and advanced therapies, sequential margin expansion in Q4, but below the very good prior year quarter, also due to the tariffs. Especially imaging had a stellar quarter in Q4 last year. And bearing in mind that the tariff impact is slightly increasing sequentially, Q4 margin this year would be closer to Q3 margin of this year in imaging. Variant and diagnostic had very good margins in Q3, and due to increasing tariff headwinds in Q4, the level from Q3 would be a reasonable assumption also for Q4. In DX, this obviously relates to the operational level of 8% margin without the positive one-off in Q3. And lastly, one comment on the dynamics below the EBIT line. On financial income net, the positive income from an equity investment in Q3 will increase the financial income net by 85 million euros this year. making it less negative. At the same time, this obviously means a year-over-year headwind for next year on the financial income line, all things being equal. And with this, I hand back to you, Mark, for the Q&A.

Yes, of course, Johan, love to take over. So let's go to Q&A. As stated earlier, we would like to ask you to limit yourselves to one question each. So if you wish to ask a question, please press star, the star key followed by the digit 5 on your telephone keypad. Again, ladies and gentlemen, please press star 5 on your telephone keypad to get into the queue. And now we will start. The first caller on the line was Hassan from Barclays. Hassan, please go ahead and ask your question.

Morning, and thank you for taking my question. So the question is, you highlight photon counting as one of the drivers of the imaging strength on revenues. Can you talk about how photon counting at a lower price point and how orders for this modality are trending, given that you now have a quarter under your belt in the U.S.? And for the entire photon counting modality, how much does this now represent of your CT order book and which regions are doing the best? Thank you.

Thanks for the question. Yeah, as you rightfully said, we highlighted photon counting CT as one of the growth drivers within CT. And when we look at, I would say, the success of our, meanwhile, three product lines in photon counting, we are very satisfied with what we see. Very good growth momentum and here it's equipment, very good growth momentum on orders translating into very good, meanwhile also very good growth momentum on the revenue line. That's why we highlighted this. Over time, this photon counting CT is meanwhile a dominating factor in our order book, in particular in the high-end segment of CT. And we see global success with photon counting. That means it is the driving force behind our high-end CT technology. market share gains globally. And globally really means everywhere. I think that is really a very, very nice story. And as you know, you don't hear us too often to highlight things at that level of detail. But meanwhile, it's worthwhile doing it.

Thanks, Hasan. So we move over to the next call on the line. That would be Veronica from Citi. So, Veronica, you should be live. Go ahead. Ask your question.

Hi, guys. Good morning, and thank you for taking my question. I will also keep it to one. I guess it's both for Bern and Jochen. As you guys think about the moving parts for fiscal 26, I'm just wondering, Beyond the annualization of CARE headwinds, what other headwinds do you see as we move into next year? And I guess maybe on a revenue side of things, clearly the market seems to be holding up a lot better than I think many investors assumed would be the case at the outset of the year. So just curious, Bryn, how you think about the sustainability of that as you move into next year. Thank you, guys.

Thank you, Veronica. Actually, I'm pretty optimistic when it comes to the environment we will have in the next year. I mean, of course, the tariffs, I mean, we have discussed at length. I mean, at least we have some level of clarity and now know exactly what to work, so to say, against from a mitigation point of view. And again, I mean, it is a topic which we will also make up for in the midterm, as Jochen stated. I mean, as much as we whether the inflation headwinds over time, bringing us back to quarters like this with an imaging margin of 21%, just as an aside. I mean, from a market point of view, The U.S. is very robust. I mean, you see also a lot of procedure growth, a lot of demand in the U.S., really when it comes to the final, final customer, so to say, the patient. Europe stable on a high level. China stable. with the potential of a further, of the recovery kicking in. I mean, I don't want to speculate about the time exactly, but it is certainly a topic to bear in mind here that the current results and the growth we are managing is happening without China contributing and looking in the next year. It's a question whether it always needs to stay like that. So from that point of view, then looking at the global environment, but then also when it comes to the topics we are addressing in terms of really answering the key medical questions. the photon counting CT further rolling out and getting a lot of traction, the low helium MRs, the growth in theranostics, the growth in PETnet also when it comes to Alzheimer's, all the topics we are addressing in minimally invasive therapies, the momentum invariant, the further more growth dynamic in diagnostics. So I think there are many reasons to be positive and not too many to be worried about.

Not a lot to add, I think. But if you do a bit the math and you look a bit into our segmentation, you see us growing in imaging variant and AT, if you would combine that, in the higher single digits. And the dynamic in diagnostics is out of different reasons, but, for example, out of the VBP program, very different currently. It's more in the flattish or low single-digit environment. And when I look into next year, I would expect a similar picture in general. Just to say that.

Okay, thanks, Veronica. We'll move on to the next caller. That would be Graham from UBS. Graham, please go ahead and ask your question.

Morning, guys. Thanks for taking my question. It's really around guidance and just some of the points you pulled out for us there. So when I think of 2025 in terms of what we have today versus where we were at the last quarter, so FX is worse, but that's offset by financial charges, so call that a wash. The tariffs presumably are, if anything, a bit better, given where China settled and the EU, and the underlying performance for the first nine months is better, presumably, than expected. But the guide hasn't really changed. So when I look at Q4, presumably that implies a weaker margin. So it would be good to get a sense of what's driving that, increment the things we just flagged there. But really it just matters in terms of when we think of 2026, it seems pretty obvious you should be able to do the sort of mid to high single-digit growth that you guide for over the midterm. But is it realistic on the bottom line to do double-digit EPS growth for next year, i.e. to expand margins quite meaningfully? So it's a slightly long question, but effectively what's changed and should we feel good about quite a bit of margin expansion next year?

Graeme, let me try to give you an answer. First of all, when you look at our development this fiscal year and our outlook we gave for this year, which started without having tariffs, I think we had a decent operational performance. I tried to point this out. About $0.10 higher than we initially thought. But then, unfortunately, we have the 15 cents headwind from tariffs in the numbers. So, just to put this into perspective. And this comes from a very good momentum in in top line in the three segments I mentioned beforehand, imaging, variant, and AT, and in particular if you take them together, not all at the same level, but in general, good momentum, and also a decent margin development, and what is different to prior years, which I appreciate very much so, is that this is much more linearized, And the linearization, which we actively drove, is related only to, so to say, one revenue stream, which is equipment revenue from backlog. At the end of the day, it's the only thing where you can have certain direct management into it. is either recurring, which is the vast majority, and the other pieces, anyway, if you need book and bill in a quarter, depending on your success in the marketplace, you cannot really manage it differently, just to say that. So, and I think there we see this trend, as I mentioned before, and on the top line ongoing. We will have a good growth momentum next year in industry segments entirely. We expect still muted growth in diagnostics due to the ongoing VBP topic in China. And we expect good underlying margin growth. margin development in the segments. The topic of tariffs, I was clear about this, is currently best estimate is something between 400 and 500 million. The tariff situation unchanged to the assumptions we had in place before and the only change is 15%. are going from 20 to 15% in the United States. The biggest exposure remains to be in imaging as well as in advanced therapies. They are more exposed. Therefore, we see the bigger impact in their margins than in variant or diagnostics because of their respective value-add structure. And this may be a bit too early to say what that exactly will mean year over year from a margin. improvement, but we have to work against, I would say, the 200 to 250 million additional tariffs next year relative to this year, which is not nothing. And I would say this is the main message. And when you look at, I would say, on a tax rate, I would not expect significant changes. We will have a relatively stable interest income line year over year. but we cannot plan for such re-evaluations. We had this in particular in Q3 on small equity stakes we have in certain companies because this can happen or not happen. You never know. Therefore, there is a certain headwind from this. And last topic is foreign exchange. We need to see what foreign exchange will do. So far, the trend is Not in favor for us, in particular, again, not for imaging and advanced therapies who are more exposed to a weaker U.S. dollar. It's a bit the opposite for diagnostics and variant. And obviously, hedging is only a delaying factor of impact. So far, we are relatively protected year over year with margins, but translation is already kicking in. And if everything stays equal, we will see also a headwind from foreign exchange next year on margins. We have to be prepared for this. Maybe last point on tariffs. I forgot to say that beforehand, and I think it's important. We will be able to mitigate the full impact over time in the midterm. And here we are very confident. This is, you can, it's different than inflation, but you can compare it from a development standpoint like the inflation topic. We will be able to protect our profit pool over time by either price quality and or value-add structure changes. Sorry, long answer for a long question.

That's a long question. Thank you.

Thanks, Graeme. So moving on to Hugo from Exxon. Please go ahead, Hugo. You should be live. Hi, guys.

Thanks for taking my questions. Just a quick one. Yoshan, you already commented on the implication from a debt perspective regarding the potential next step from your parent company. Could you maybe expand a bit on the implication for SFS and your ability to continue to help hospital and systems to finance acquisition under attractive conditions? That would be my question. Thank you.

Hugo, I hope I understood you right. You asked about Siemens Financial Services as a, I would say, sales financing partner for us.

Yeah, and the event of the consolidation.

Yeah, yeah. The relationship with SFS is, by the way, within Siemens, but also with regard to Siemens and Siemens Healthineers, today already absolutely fully at arm's length. They have a bank license, they are behaving like a third party. We work with SFS if and when it makes sense for us, and they work with us if it makes sense for them. Nothing in between. We have a lot of markets where SFS is not active, therefore we work there with other parties. We work in markets where SFS is active in certain cases with SFS, but in others with third parties, for example, the United States. And therefore, I would expect no change to this relationship even after a significant change in stake at the Siemens side.

Thank you very much.

You're welcome. Thanks, Hugo. Moving on to Olli Metzger. Please go ahead.

Yeah. Good morning from my side. Question on diagnostics. So could you elaborate about the underlying diagnostic performance meanings, excluding the China BBT headwind and also specify the track related to the legacy shutdown? Thank you.

Olli, you were a little bit hard to hear. I understood the question as diagnostic, so to say, without a China impact. And, I mean, first of all, to bring everybody on the same level of data, so to say, I mean, the impact we are seeing in China together with the entire industry is that switch to a new purchasing theme. the volume-based pricing, where basically the price for individual tests is fixed for the healthcare system, which is also changing how the whole commercial model works, what is the role of business partners and so on and so on. It is a one-time reset of the price levels. Maybe you have seen also when looking at our peers here that it has impacted also their growth rates, I mean, even more significantly than us, also because their portion of their China business is higher than in our case. I cannot give you a super detailed answer to the question, what it would mean without China, but roughly I would say you could add back one to one and a half percentage points in terms of growth rate as a global number, so to say, if China was on a comparable level. And now this is a wild estimate. I would basically say something like 50 base points or so on profitability. I'm looking at Jochen and he is nodding.

I think when you look at it, China is significantly down on an already not very high level. And if you would just... make China flat, which is not normal China, from a growth standpoint, you would already be at that, what Bernd said, roughly, a low single-digit growth rate as indicated for the year. And then, as a lot of this impact is a direct, it's a price reduction, it goes directly into the P&L, so it has a, it drops through, unfortunately, in the wrong direction, and then maybe last point, I'm not sure if you also asked about that, this one-off, this two-up on the pension side had a positive impact of of about, not 100 base points, around 80 base points or so. So if you take out of the 9.2, this one-off, you are at 8% plus, and then margin, and then if VBP normalizes over time, I think you could add another half a percentage point on top.

Okay.

Great.

Thanks, Olly. Moving on to David Adlington from JPMorgan. So, David, please go ahead.

I hope you can hear me. Just a follow-up on the diagnostic side again. If you could give us some further colour structure in your undertaking quickly, which you might be able to see that come through in terms of payback on margins, please.

Is it? No, no, no, I think so. David, you were a little bit hard to hear. Can you repeat the question?

I just wondered if on the diagnostics restructuring you announced this morning, if you could give us some further colour in terms of what you're actually undertaking, so we might see that pay back on margins.

These were primarily two things which affected this transformation, those adjusted charges on transformation. Particularly these are, and they come from two ways. First of all, we did the final closure of a major site in the United States, Flanders. And secondly, we decided to commercially stop one product line, which also triggered then revaluation of certain capitalized items related to this product line. These were the two things, because we felt that this product line is not helping us in the future to drive our growth and profitability agenda.

Okay. Okay, thanks David. Moving on to Falco from Deutsche Bank. Falco, please go ahead, ask your question.

Thank you and good morning. My question is on the recent news that China is restricting medical device imports from the EU if they go over a certain monetary amount. Does that affect your business in any shape or form?

The answer is no. So out of two reasons, yeah, because on the one hand, most of the business in China is China from China to China because of the localization efforts we have made. And then There is a very high threshold set for packages above, I guess, 5 million euros or so, which is an extremely rare event. So this is not a topic which really plays a role also in our internal discussions.

Thank you.

Thanks, Marco. Moving on to Julien Donois from Jefferies. Julien, you should be live now.

Hi. Good morning, Ben, Tioran, and Marc. Thanks for taking my question. This is essentially a follow-up to Grant's questions previously on 2026, and you've been very kind in letting us know what could be the headwinds into next year, so obviously a larger impact on tariffs, ethics running against you, and probably this financial one-off. also having an impact at the EPS level. So just wondering when you come up with your new mid-term plan at the Capital Market Day, should we see 2026 as maybe a reference year or basis on which to elaborate a new multi-year program? Is that the way to think about the next few years?

Good question, Julien. Luckily, we have still some time to think that through. But on the other hand, when I look at the two main topics, which are not necessarily so much in our hand or less in our hand than others, it's tariffs and foreign exchange. Foreign exchange, we will make an assumption, and normally when we talk about a mid-term or longer term aspect, we keep the foreign exchange rate environment which is currently there, or we assume that this stays, because we don't know better, just to say that. We most likely will do the same thing at the capital market day in November, depending on where that then stands. That is foreign exchange. Tariffs, I believe we have made that clear. Over the medium term, our assumption is that we will be able to mitigate this. And this will be then also reflected in the medium term guide we will give at the capital market day. That's how I would see it. And then, obviously, these are the surrounding factors. And then, hopefully, we have... a lot of time to discuss what we will do, all of great things to make healthcare better in the future globally.

Thank you very much.

Thanks, Julio. Moving over to the other, Julio at BOFA. So Julio, BOFA, please go ahead.

Thank you. Good morning, everyone. I just wanted to talk quickly about the elephant in the room and the parent company ownership. Just if you can give an update, I mean, what's the latest update on their strategy to finance some acquisition by selling some shares, potentially also review the entire ownership structure this year. And given this topic is an important overhang for the health news share price. I mean, do you think it's possible to get any sort of communication from either part before the parent CMD, which is in December. You just mentioned your own CMD a few weeks before, so any info here would be super helpful.

Thank you. Also a good question. But we are the wrong addressee. This is also not, I would say, an unexpected answer from us. At the end of the day, it's a Siemens decision, and Siemens needs to decide that. I think we are very clear that clarity would help in every regard, and we are hopeful for this.

Perfect. Thank you.

Thanks, Julio. So moving over to Olli from Kepler. Please go ahead, Olli.

Thanks very much for taking my question. I just wanted to follow up on the kind of terror situation to get some kind of more clarity there. So when you talk about 400 to 500 million impact next year, that means basically 225 incremental impact. I mean, is this a kind of net number? Because you said you haven't decided any kind of countermeasures specifically at this stage. What does it mean that you see more action actually to mitigate this kind of number? And also, do you see any kind of product groups where a competitor may be better positioned, where there is a certain risk of market share loss in one product category? And finally, do you think that it's probably long-term or 2027 already means that there's already significant relief on any kind of tariff impacts? Thanks very much.

Oliver, first of all, your math is right and this is a net number after mitigation. When we talk about the ability to mitigate the whole impact, it comes in two ways. As I already said, price quality and potential value-add structure changes. Value-add structure changes do not happen immediately. They need to be decided and then implemented. Therefore, they are particular medium term they would have they would have if we apply them they would have a medium term more medium term impact and not a short term impact the price topic will kick in over time and that means we should expect to see already clearly better numbers, assuming that everything stays the same from the tariff regulation environment, we should see a year-over-year improvement, clearly from 2026 to 2027. To quantify this already, I think, is a bit too early to do, but clearly an improvement over time.

And maybe, I mean, there was the question regarding, you know, competitiveness and so on. So, I mean, first of all, I mean, everybody in this industry is hit by tariffs. I mean, you know, whether it is our competitors, whether it's our peers, because supply chains are very, very global. And it's not only the point of where is the final assembly of the product. It's also, you know, where are certain components manufactured and so on and so on. So I sometimes compare this topic of, you know, short-term advantages or not in the cost position One way to look at it is to compare it with currency fluctuations. I mean, we have seen in the last years and decades, for example, the euro-dollar exchange rate has been changing significantly over the years. which you could also argue it puts one company as a disadvantage over the other or the other way around. But what is always how we act here is about market pricing and not about looking at what exactly is the margin given a fluctuating cost base and then trying to to play games or trying to not participate in deals. And that is hopefully a kind of meaningful analogy for also how we will deal with that transitional period, which now everybody will go through in the industry in terms of a change to the cost position of individual product lines. That's helpful.

Okay, another question to follow up. Thanks, Ollie. So moving on to Richard from Goldman Sachs. So Richard, please ask your question.

Thank you very much. Good morning, everyone. Just a follow-up on diagnostics. So the 1% to 1.5% headwind that you called out from China, can you give us any sort of color on how to think about that headwind into Q4 and to FY26? When is that headwind sort of fully annualized and in the base? And also, is that 1% to 1.5% headwind, is that purely from the VBP price adjustment, or are there also some market share impacts in that number as well? Thank you.

So, I give you a rough, or let's say a not too detailed answer, because I think this is a topic we will also be more specific about when we have our next, and can be more specific about, when we speak about, you know, when we enter in the next fiscal year, including also our multi-year plan. But the main answers, I mean, this is... It is VBP. It is nothing else. Of course, I mean, as I said, VBP is a topic which is, on the one hand, a re-basing of pricing in the Chinese market. But On the other hand, it is also changing basically how distribution works because there are the quote-unquote OEMs and there are the business partners who so far have been used to selling, so to say, the equipment and the instruments and the test to customers, having a markup and so on and so on. And now when the prices are fixed, yeah, it's also changing. It's changing dramatically. who has what role in distribution and very often the role of the so-called business partner becomes more the one of a logistics partner than a sales agent and so on. So there are some ripple effects in that caused by that change, but largely What we see here is a rebasing of the price levels. I would, as a first hint, say that this is a process which takes about a year, so that from next year, mid-next year on, we can say the market is price levels are re-based across the country and then growth can re-kick in on that lower, from that lower base starting point.

Great, thank you. Thank you very much.

Thanks, Richard. So let's see how many we can still do, but first Robert from Wong Stanley. Please go ahead, Robert.

Thanks for taking my question. I just want to drill in a little bit more about the China dynamics. I've seen over the last sort of few months people talking about green shoots, yet the sort of tone, I guess, of the comments remains still pretty conservative slash cautious. So I just wonder if you can give us a bit of a picture of what you're seeing on the ground, how much sort of customer conversations are moving along. Is it actually translating into tenders? And if so, in which modalities? Thank you.

You know, let me, let's say ideally it's good to look at the facts. I mean, when you look at our Q3, I mean, our book to build in China was about one, yeah? So, which means it's, let's say, good but not great, yeah? So, or in other words, means that there is not yet a significant change to the better. And, okay, revenue growth was 6%, but that is based on low comps. I think in the year before, the Q3 was minus 60, minus 12, yeah? I would be, I mean, I'm optimistic in the midterm, but when it comes to, is now the moment where we see the light at the end of the tunnel, I would still be a bit careful.

Understood. Thank you. Thanks, Robert. So I guess we'll have the last caller now. That would be Ed from Redburn. Ed, go ahead, please.

Thanks very much. In terms of the pet net strength that you called out and the molecular imaging strength, can you just confirm the companies that you're working with on Alzheimer's, I believe you're certainly working with Lilly, but also with GE Healthcare and Life Molecular as well. And also, has there been any benefit from the Flacado launch from GE Healthcare?

I think when we look at the PetNet revenue streams, I think we are very, very satisfied. First of all, Great business to have, fast-growing, as we highlight that explicitly in the call. The growth comes, I would say, in general from more pet usage per se, but in particular in the neurodegenerative field, which is primarily Alzheimer's, and as well as in, I wanted to say, PSMA and slash theranostics, yeah, driven, yeah, because PSMA is not only ending up in a theranostic treatment, that's why I'm differentiating, yeah, but also the base tests are running nicely, yeah, the FTGs of the world, yeah, so... But the others are significantly growing faster. The partnership with Lilly is working well. We have no agreement with GE on Flycado, just to say this.

Thank you. That's very helpful.

Thanks, Ed. So that brings us to the end of the call. Leads me to thank you for the good Q&A round. Also, all the participants in our perception study that we conducted. So we had a, I was going to say, record return rate of answers. So thanks a lot for all that input that we are definitely going to take into account when we think about our Capital Market Day and the things that we talk about there. And finally, that said, the invitation for this Capital Market Day should be in your inbox. If you haven't seen it, if you've maybe got lost somewhere, just pick up the phone or send an email to the IR team and we'll get you on the list there. So, Looking forward to seeing you in person at latest at the Capital Market Day. And other than that, we obviously have some roadshows coming up and a few conferences in September. Bye-bye. Stay healthy and safe.

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.