Siemens Healthineers, Medical Imaging, Q4 2019 Sales Results

Siemens Healthineers AG, the German-based healthcare company, announced it’s consolidated financial results for the quarter ending 31st December 2019 on Monday. The results include reporting on its imaging business unit which provides medical imaging products, services and solutions. This primarily includes magnetic resonance (MRI), molecular imaging (MI), computed tomography (CT), X-ray and ultrasound equipment. The results show that the imaging business continued to grow during the previous quarter, although at a slightly slower pace. The sales revenue from medical imaging reached €2.22 billion, compared with €2.02 billion in 2018, an increase of approximately +10% year-on-year. On a calendar year basis, this took cumulative sales revenue to €9.14 billion, compared with €8.23 billion in 2018, an increase of +11% year-on-year. When excluding currency translation and portfolio effects, comparable sales revenue was approximately 8% higher year-on-year. So overall, a strong revenue growth year for the imaging business both on a nominal and comparable basis.

Sales growth during 2019 was driven primarily by strong equipment sales although the services business also materially contributed toward growth. The ratio between equipment (including software) and service revenues has historically been approximately 60:40 for the imaging business, although services are a core and growing part of the business model.

Sales results by geographic region

The company reports using three high-level geographical regions; the EMEA, Americas and Asia-Pacific. From a regional perspective, the imaging business achieved growth within all of these regions with an emphasis on the EMEA and Asia-Pacific. Growth from the Americas was strong for the majority of the year, although the revenue development for calendar Q4 2019 was flat, mainly driven by a slight contraction from the United States. That said the Q4 2018 comparable quarter was strong and therefore tough comparable. The EMEA grew significantly across all consecutive quarters with particularly strong results from the Middle East and Africa at the end of the year. Equipment order growth from the MEA region was reported to be north of +30% during calendar Q4 2019, relative to Q4 2018. The Asia-Pacific grew significantly, although with a slower start to the year. Equipment order growth from China was reported to be north of +20% during calendar Q4 2019, relative to Q4 2018. Comparable sales revenue growth from China was +17% over the same period.

Profitability development

The imaging business continued to deliver profitable growth, although margins were materially lower during the previous quarter. The adjusted EBIT margin in calendar Q4 2019 was 17.4%, compared with 19.9% in calendar Q4 2018, a decrease of -250bps. This resulted in an adjusted EBIT of €386 million, compared with €402 million, a decrease of approximately -4% year-on-year. This was due to a combination of factors, including, less favourable business mix, higher share-based compensation, lower economies of scale as well as other one-off expenses. During the Analyst Conference CallJochen Schmitz, CFO, commented that “the decline in margin was a temporary dip” and “we do not expect these effects to persist”. The decline was driven predominately by two factors, an unfavourable business mix as well as one-off expenses which combined accounted for approximately -200bps margin reduction. Jochen also commented “to give a concrete example of an unfavourable business mix, a bulk order for mid-range X-ray machines for a large hospital chain in India has a different margin profile than a high-end CT scanner in the US”, indicating that the strong sales performance from X-ray products in calendar Q4 2019 may have been this type of sales profile. The Indian market for general radiography equipment is very competitive in terms of pricing and it would not be unsurprising for growth within this segment to have had a dilutive effect on margins. On a calendar year basis, the latest quarterly result took the cumulative adjusted EBIT to €1.77 billion, compared with €1.52 billion in 2018, an increase of approximately +16% year-on-year. This resulted in an adjusted EBIT margin increase of 9 bps from 18.5% to 19.3%. Siemens has attributed this favourable profitability development mainly to its cost-savings program which encompasses both structural and standalone cost-savings as well as productivity improvements. As of FY 2020, Siemens is applying KPIs for adjusted EBIT margin at segment level.

Actual versus comparable results: FX component

Siemens Healthineers is exposed to exchange rate volatility, particularly involving the U.S. dollar and the currencies of emerging markets such as the Chinese yuan. The company is still a net exporter from the eurozone to the rest of the world, which means that in terms of absolute values a weaker euro is generally favourable for its business and a stronger euro is in principle unfavourable. Throughout 2019, comparable revenues were trending at approximately 3% lower than nominal revenues.

Sales growth expectations for 2020

The company is carrying some momentum from the previous year into 2020, which is reflected in a higher book-to-bill ratio of 1.2 during calendar Q4 2019 as well as an increasing backlog of equipment and services orders. For its imaging business segment, the Siemens Healthineers’ target range for comparable revenue growth during FY 2020 is between 5% to 6%, so a slightly slower growth year in comparison to FY 2019 which has been a “very strong” year.

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