The agenda 2013 launched in November 2011 is the sector's proactive response to these challenges. Each presenter today will walk you through what he is doing in his area of responsibility and in implementing the agenda 2013. Let me come to the agenda of today, we will start with a presentation of the Healthcare sector CEO Hermann Requardt and the CFO Michael Sen, they will introduce the sector from a sector perspective. In the afternoon, we will continue with presentations from the divisions and deep dive into healthcare IT.Besides all the presentation, this day is an opportunity for you to get closer to the management to ask them questions, to give you feedback to the business. We've planned for two Q&A session, one at the end of this morning after the CEO and CFO's presentation and one at the end of this afternoon after the divisional presentation. This should give you ample opportunity to ask your questions. In addition, we have scheduled a one-hour lunch break and a casual get-together at the end of this afternoon and we will invite you to stay with us and spend some time with the management. On that note, also I want to remind you that we will be sticking to the financial disclosure. As you know it on the healthcare sector level. The one exception as you're familiar with is on diagnostics. Some housekeeping items just before we start today. The event is being webcast so I'll ask you please make sure that when you receive your microphone to ask your question and before that you've to just indicate your name. Also I would like to ask you to please put your mobile phones on mute or blackberries on mute and we do have wireless LAN access for those of you that are interested to access the network and the password being Siemens 101, lowercase Siemens.
On page number two of each of the presentation you will find the safe Harbor statement, please have a careful look at it. With this, I wish us all an interesting day, some fruitful discussions and Hermann may I ask you to please kick off the day with your presentation. Thank you.Hermann Requardt Well good morning to Siemens Healthcare, everyone here in the room and everyone outside there in the world. Healthcare is a fascinating business, fascinating and challenging these days and it's fun to be in there. It's even more fun when you're successful and I think it's fair to say that Siemens Healthcare has managed its way to become one of the leading players in our industry. Now having made that statement as a Siemens member that may sound a little biased, but if we look into the top-notch, Top league hospitals in the United States 8 out of 10 are doing their research work with our equipment and thus as we know is carried out through the opinion leaders in healthcare. We are talking here a discipline which is still heavily dominated by experience and opinions and opinion leaders play a big role. So owning the opinion leaders is a big, strategic advantage. It puts you in a position to be an opinion leader yourself. So thus we can state we are there, but healthcare is not only healthcare. In those kind of hospitals, we find healthcare more and more in environments like that and to be a little frank here, this is the kind of healthcare that is attributable to 6 billion people worldwide. I think it's obvious for everyone in this room and out there that the equipment that you need to put into this bus is somewhat different. It's a different equipment routed through different sales channels and meeting different boundary requirements. So something is different there, this is not a huge market, but it's a market that is rapidly growing due to political desires in all the emerging, but not only in the emerging economies.
And in order to cope with both keeping and defending and elaborating on the opposition in the high-end markets, but also somewhat coping with the challenges and the opportunities in these developing environments we have given ourselves to structure that Mariel just referred to what you find down here and which I will elaborate a little on. On top of that, you will find the numbers of last fiscal that Michael will refer to in his presentation in some detail, let me simply add that Q1 was also not too bad.If we go into that structure, you will find five well distinguished in terms of its characteristics businesses that are somewhat represented by the management team, the majority of them being in this room and that all supported by customer solutions group which is our common face, our global common face to the customer. Starting with Bernd Montag who is running our Imaging and Therapy Systems division. Bernd has a long-lasting history within Siemens, not only in Imaging, it was also responsible for healthcare IT, he was responsible for ultrasound, so he knows the spectrum and this is important for the messages later on. In this division, it is fair to say that we have leading market shares that we definitely have the largest installed bases and probably the best-in-class profitability. The largest installed bases also refers to that the resilience of our business is heavily dependent on having a strong installed bases and we will come to that later during the course of the meeting. All of that is supported by what we call the advanced visualization, all of these systems have the same software architecture, the same look and feel which is nice for us because of the R&D synergies and which is nice for our customers because of crosstraining of their users. Coming to diagnostics and as the headline says already we are not where we want to be in diagnostics. But we have a good basis to start from in recovering and that is outlined here. We are a number one or number two in the majority of segments. We have the biggest install bases with respect to instruments and we have Michael Reitermann. Michael has joined the Diagnostics group about 18 months ago and he has also a long-term record within Siemens. He understands X-Ray systems and also a background on Siemens management consulting. He however has also a turnaround experience, he turned around in the mind 90s our X-Ray products businesses and in that respect we have great confidence and great expectations that he and his competitiveness program which is part of the agenda 2013 that this will give us the momentum that this business needs and deserves.
We have different timelines, we believe that short term we can fix the shortcomings of the bottom-line, the top-line will take us or the fixing of the top-line issues where we continued to lose market share over the past years and it will take us a little longer and Michael will refer to that during his presentation. Clinical products have technologically a lot in common with our Imaging and Therapeutic Systems, but the technology is not the driving element to separate this division. It is the go to market approach. We have the small tickets as we sometime called that, the products business which is routed through a different sales channels and the go-to-market approach is the major difference.In the ultrasound, system is sold out of the trunk, it is sold via dealers. X-Ray systems are typically the first imaging device that primary care physicians buy in order to also leverage their services on imaging, on the state-of-the-art imaging opportunities. Therefore we wanted to really focus management attention on these businesses. Needless to say that in particular, the emerging markets that I refer to in my second slide are somewhat receptive to these systems, but it's not just an emerging market or entry level systems, there is high-end equipment associated with it, but the go-to-market approach is different. It's very cost sensitive, it's very say international with respect to value added, therefore we have also added our internal supplier which we call components and vacuum technology to this group. So this is the ultimate way of addressing new market opportunities, growth opportunities in specific areas of emerging countries. As I said, we have one common CRM process and service process and it is run by Tom Miller. Tom has a long-lasting history in imaging devices, but also in healthcare IT. So he's pretty familiar with all kinds of businesses that he now has to bring to market with a worldwide homogenized processes, sales processes, customer systematics and so forth that also includes our service approach. We're definitely leading in remote control of our equipment, all of our equipment is remote controlled and these processes are owned by Tom.
A part of customer solutions is also our healthcare, health services business. This is hospital information systems and the reason for putting it here is simply due to the fact that healthcare information systems are very local, there is no real global player in HIS systems because of local regulatories, of local cultural elements and so forth. So HIS is always local and therefore a natural harbor for that is the customer solutions group. Our HIS business is run by John Glaser whom we managed to recruit from Partners, where he interlinked with HIS systems all the Howard Hospital institutions and thus has a big name in the industry and John has made a major impact by joining us already as of today.I want to mention although we were not going to detail today, but it needs reference, our Hearing Aids business, we have here a nice and attractive business that is margin negative. It fits well into our structure and also our recent moves in acquiring a retail chain so far has worked out and is on plan. It's run by Roger Radke and we are pleased with the progress that this group is making. All-in-all, we work and we have a clear assignment with entrepreneurial accountability and responsibility, but we work together. We work together because we find value in working together and the areas where we work together are somewhat listed here, technology and innovation integrated services. I will not go through all of them because they will be covered during the course of the day by various speakers. Let me focus on two of them. The first one being technology and innovation. We are sharing talents, we are in the translational business. That means we translate a clinical need into a technical solution. That is the core of our business. And therefore we need the right people to do that. There is no education in universities to do that, we need to somewhat educate them ourselves and 10% of workforce are medical professionals. 1% are even medical doctors and that already indicates they are not specialists in modalities, ultrasound specialists although they are specialists in practicing medicine and that is the attitude that we share among all our divisions.
We have cross functional teams because we find that the reimbursement schemes are changing that they are more related to the disease and to the service. We have disease boards for cardiology, oncology and neurological disorders. We have the Healthcare Academy to educate our people and this is also something that we are sharing on our technology and innovation part and we are sharing technology. And that's not only software, famous Syngo, famous Soarian, that's also core elements like ASICs, we are sharing our knowledge in the new materials which obviously have a big impact on the progress in medical devices.We are sharing architecture, we are sharing design, all over systems, looks somewhat similar and some are recognizable and we are sharing reconstruction algorithm and stuff like that. So we do work together on a technology basis, but also on the service basis. As I indicated already, the majority of our systems is remote-controlled and that means the first-time fix rate, when the service engineer goes there, has dramatically improved. The people go there, they know what's wrong with the machine, and sometimes they know what's wrong with the machine before the use of the machine would know and that is something that people appreciate and that they are willing to pay for. This somewhat condition mandatory and this is what's the service business will turn into that we somewhat do the maintenance of the machine before it is broken. And we will apply that knowledge that has a long-term history in our imaging systems. We are applying that also now into diagnostics. We are having the first engineers that are cross trained. We are building our devices that make them remote controllable into the diagnostics machines and therefore are confident that we would have the same productivity and diagnostics and servicing our diagnostics instruments that we have and where we have a proven record for in our imaging devices.
Obviously, healthcare is an attractive business to be in because of its resilience and primarily, resilience comes from the fact that the majority of any the revenue, in particular, the majority of our profits are made with install bases. We are selling upgrades into our install bases. We are selling reagents to our installed instruments bases. We are selling service contracts and this is somewhat recurring revenue and recurring profits.So it’s attractive but that also attracts the new players and we all know there are, in particular, the big Asian economies. They are about to also bring out healthcare device industries and we see new players. So what make us feel comfortable that we, although we appreciate the new competition that we have something to defend our position. While the first thing, as I indicated already, we are the ones that are invited to speak to the customers. Others have to make sure that they talk to an opinion leader once in a while. So there is this strong collaborative aspect that makes us distinguished here. We can draw patent fences around some countries. We can draw patent fence around India, around China, around Korea, and make sure that although they have a big internal market that they are inroad to into the big markets and the biggest market is still the United States, will be somewhat difficult one and that they have to pay remarkable entrance fee to us. Regulatory is something very decisive. The regulatory releases and the, say, expertise associated with it becomes more and more a competitive factor. Just to give you an idea, last year we had something like 25 to 30 FDA inspections. So this is and this is one regulatory body only, others following similar rules. So being competent, being networked of regulatory bodies also gives you a competitive advantage, in particular, when it comes to getting your new products out on a fast track.
And last, but not least, the global sales and service organization, we are there already. We are everywhere because we are appreciated everywhere. This is difficult for other parties to cope with that. And it’s going to cost them something.Nevertheless, we are living in a free market environment. We always appreciate new competitors. However, if we look at who are the biggest companies in China that do medical devices, well, one of the biggest is Siemens; Siemens in China. So from that perspective, we are a Chinese company, but a Chinese company with a worldwide patent portfolio. Having said that, healthcare is somewhat at the juncture, and it’s not only but also the debt crisis that made a lot of people think whether the return for the investment into healthcare is wisely spent. That is not necessarily a disadvantage for us, but it is something that needs reflection, in particular, when we look at Southern Europe where the readiness to buy new equipment is somewhat limited by the situation of their public cash boxes and a lot in Southern Europe, a lot of healthcare is somewhat public healthcare. Now, although, say, new equipment sales are not that easy as is these days. They’re not necessarily is only a disadvantage because healthcare is replacement business and we are replacing businesses. If we keep the old system, we keep the service contract. If we are putting a new one, we have to go on warranty. So, at least there is a somewhat balancing factor on the bottom line but the top line is obviously an issue therefore the minus. On the other hand, we see ongoing momentum into our arena. We’re getting older. I’ll refer to that in a minute. We see bigger demand because we see that the knowledge what is possible in healthcare that this is spread via the new media and people who know that what is possible, want to have access to that.
So that is kind of a tailwind, and then we have a somewhat mix head and tailwind with moving more and more into accountable care. That means we do only these procedures which have a proven record to work, that helps for some arenas, in particular, healthcare IT, that is at least a challenge for others. So we see a mix of pluses and minuses with a little overweighting of the pluses. So let me refer to that a couple of minutes, with respect to ongoing technical and medical progress.That means the readiness for innovation in the developed markets, if not just product innovation. So how can I do an x-ray with half of the dose? It’s also process innovation. This year is a stroke unit and the majority of this will probably knows, if you have a stroke, you have a certain time window and what you need to diagnose a stroke is imaging equipment. You will need hemostasis, and in particular, you need a work flow engine. You’ll need a very sophisticated healthcare IT; these strong units. And we can deliver them. We can design them according to the local opportunities with where comes a consulting division and then we can design it and then sell it as a total. In the emerging markets, we realize there is a lot of money now going into the rural areas and how do we help them taking advantage of imaging opportunities is something where innovation and technology are helping. With respect to an ageing society, well everyone knows that with ageing society, healthcare services become more, say, receptive. Elderly people need more of that. Interestingly enough, since the economic basis of the western countries, in particular, is ageing. Health becomes more and more a productivity factor because its not only that they get older, they have less children and then the combination of both means that health becomes more and more a productivity factor, which is kind of a tailwind. Once healthcare improves that it can somewhat contribute to more active working days and stuff like that.
And in particular, when it comes to ageing, Alzheimer is on your mind, a proper Alzheimer diagnosis is of utmost value. 30% of the Alzheimer patients have no Alzheimer. They are simply not correctly diagnosed, and that means they are curable. Alzheimer is not curable these days. Non-Alzheimer’s are curable or at least treated in a different way than Alzheimer’s. So you will need somewhat a fundamental diagnosis, which exceeds the typical Alzheimer diagnosis where you ask the patient about the first name of his mother, and in that regard, there is momentum also from this ageing society.Now, that is different throughout the world, but its converging. And all extrapolation say that by 2050 the life expectancy in China and in Europe and the United States are all in the same ballpark. So, even the emerging countries, only with a delay, will face the ageing phenomenon. We see an increased demand in the rural areas and as the graphics here to the left shows, there is a strong demand in emerging economies to invest more and more, means more than their GDP growth, into healthcare while in the, say, developed countries there is a strong desire to reduce cost. So we have this kind of a equilibrium and, say, it looks a little like we will have something like sustainable healthcare, somewhat in the lower right arena. What does that mean? Well in developed countries, that means that more and more services go into the point of care where the triaging of the patients take places into then high specialized hospitals, while in emerging countries this infrastructure is just to be developed. And we know from the China’s 12th five years plan, that they are more than willing to build 2000 and more country level hospitals; huge opportunity for us.
The involvement of the patients also means that there is a different how our customers look at healthcare. If we look at cost distribution, patients realize well there is a lot spent for therapy. There is not too much spent for diagnosis or prevention or so, and they tend to get involved.And they look at it and simply the fact how many people are Googling healthcare specifics in the United States, gives you already some feeling for the growing, say, involvement of the patients into treatment decisions. All of that somewhat leads to, yes, something’s going to change. It will not change rapidly. But continuously, we will see some changes and it is somewhat, is condensed for our traditional markets, which are somewhat more related to the diagnosis from what’s wrong with the patient towards what’s going to help the patient, given his specific boundary conditions, his specific diseases, his specific metabolism but also his specific financial situation. Read the rest of this transcript for free on seekingalpha.com