On February 6th, Shimadzu Corporation published it’s latest quarterly results for its third fiscal quarter ending December 31st 2019. These include reporting on the performance of its medical systems business unit, which encompasses its portfolio of diagnostic x-ray systems, advanced diagnostics products as well as procedure support solutions. The results show that sales revenue from the medical systems business contracted during the quarter. The sales revenue from medical systems during calendar Q4 2019 reached ¥15.4 billion, compared with ¥16.5 billion in Q4 2018, a decrease of approximately -6% year-on-year. Despite the weaker quarterly sales activity, overall cumulative revenues remain higher for the year. On a calendar year-to-date basis, cumulative sales revenue reached ¥70.3 billion, compared with ¥69.5 billion in 2018, an increase of +1.1% year-on-year.
Sales results by geography
The revenue contraction during calendar Q4 2019 was driven by declines across international export markets, partially offset by higher sales from Japan. The picture for the annual results is similar, although sales growth from Japan more than offset the contractions from export markets, resulting in the overall annualised growth figure of +1.1%. Sales revenue from Japan accounted for approximately 60% of overall revenues during 2019.
In Japan, sales increased across all imaging product lines with sales into the clinic segment particularly strong. The prior quarter earnings report indicates increased equipment demand prior to the rise in Japanese consumption tax on the 1st October 2019, as one of the factors support growth.
In North America, the companies second-largest market, sales activity continued to weaken for general radiography systems during calendar Q4 2019. This marks the fourth consecutive quarter where the demand for digital radiography systems, notably mobile x-ray, has subsided. The demand for fluoroscopy systems also weakened, notably multipurpose fixed RF x-ray systems. It is worth noting that the 2018 comparables are relatively tough as additional demand was stimulated during 2018 driven by healthcare reimbursement terms promoting a shift to digital technology, which the majority of the market has already implemented.
In China, overall sales revenue declined for both general radiography and fluoroscopy systems, driven by a combination of project delays, intense competition from domestic suppliers as well as lower capital investment due to budget cuts at a regional government level. The quarterly results refer to preferential policies for domestic products as a contributory factor for the lower demand for Shimadzu systems. Could this be that the Made in China 2025 initiative, along with other fiscal policies, is having a negative impact on the demand for imported x-ray systems, despite their technological and pricing competitiveness?
In Europe, sales were predominantly driven by customers based in the UK and Germany. The demand for multipurpose RF x-ray systems as well as angiograph systems decreased. Sales were notably strong for new mobile x-ray systems during calendar Q2 2019.
In India, the demand for general-purpose fluoroscopy and angiography systems grew significantly. In South-East Asia, the demand for dedicated fluoroscopy systems decreased significantly following a period of strong sales activity.
Looking ahead toward growth
Shimadzu has an ambitious growth strategy for its medical systems business, as outlined during its 2019 strategy briefing. The firm’s medium-term strategy for achieving continued growth and profitability appears to be centred around three pillars: its angiography, North American and aftermarket service business.
For its angiography systems business, Shimadzu has been targeting a compound annual sales growth of mid-double digits. The firm’s focus has been on expanding and improving its product lineup in order to cater for a wider range of clinical applications and capture the growing market for image-guided minimally invasive procedures as well as filling the need for urgent care. This is reflected in the firms Trinias series of angiography systems, in particular, the unity smart edition which has been designed specifically with procedural dexterity in mind.
For its North American business, Shimadzu has been targeting a compound annual sales growth of high single digits. This has been above the general market growth in order to capture market share away from the incumbent market leaders of diagnostic x-ray systems, GE Healthcare, Siemens Healthineers and Philps Healthcare. This is expected to be achieved, in part, by evolving its distribution model through the acquisition of CORE Medical Imaging Inc, a U.S.-based distributor. This will help enable a transition to a direct sales model and greater corporate oversight over the sales process. From a product perspective, the business expects that the expansion of its North American business will be led by expanding sales of both angiography and diagnostic x-ray systems. In particular, angiography for cardiovascular and lower extremity applications as well as increasing the usage of its multipurpose RF examination rooms within the clinic segment based on its SONIALVISION G4 proposition, which it was exhibiting at RSNA 2019.
For its aftermarket service business, Shimadzu has been targeting a compound annual sales growth of low single digits and was due to open it’s first customer support centres in China during January 2020.
Further investment in manufacturing
The firm made a 1.74 billion yen investment into expanding its existing manufacturing plant at Izumo City (Shimane) which was completed during February 2019. This is the firm’s core manufacturing plant for its diagnostic x-ray systems and the expansion will enable approximately a +50% increase in production capacity due for delivery by 2025. Along with additional capacity, the investment is expected to enable improved operating margins from cost reductions as a result of increased automation, improved production efficiency and further centralising product distribution.
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