Siemens Healthineers, Medical Imaging, Q1 2020, Sales Results

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On the 5th May, Siemens Healthineers, announced its consolidated financial results for Q1 2020 (calendar year). These results show that sales revenue and profitability developed positively during the quarter. Overall Group sales revenue reached €3.69bn, compared with €3.51bn during Q1 2019, an increase of +5.1% year-on-year. When adjusting this figure for foreign exchange and portfolio effects, comparable sales revenue growth was +3.3% year-on-year. This sales growth was driven by higher revenue from the Imaging and Advanced Therapy segments, partially offset by lower revenue from the Diagnostics segment. While overall sales continued to grow, the company estimates that the Coronavirus pandemic had a negative impact on top-line sales growth of approximately -4%, indicating a strong underlying quarter. In terms of underlying profitability, the Groups adjusted EBIT margin improved by +10bps year-on-year, from 17.8% to 17.9%. The company estimated that the net impact of COVID-19 on Group margin was approximately -100 bps during the quarter, although this was more or less counterbalanced by non-operational items.

The Imaging Segment

The imaging segment encompasses the companies portfolio of medical imaging platforms and accounted for approximately 60% of overall Group sales revenue during the first quarter. The sales revenue origination from imaging reached €2.31bn, compared with €2.14bn during Q1 2019, an increase of +8.1% year-on-year. When adjusting this figure for foreign exchange and portfolio effects, comparable sales revenue growth was +5.8% year-on-year. During the analyst conference call, CFO Jochen Schmitz, commented that the comparable sales growth of +5.8% was “driven by growth in all business lines” and that “the computed tomography (CT) business stood out with significant growth this quarter from our efforts to support the diagnosis of COVID-19 with CT”. He also noted that the headwind from the Coronavirus pandemic reduced comparable growth from imaging by a low to mid-single-digit percentage point. These negative effects were primarily due to delayed installations, lower service needs as well as delayed sales activity as some customers deferred purchasing decisions. This was more pronounced within Europe and the U.S. toward the end of the quarter during March, when quarantine and movement restrictions were increased. Sales growth was driven primarily by strong equipment sales although stable services revenue from long-term service contracts supported 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.

The imaging business continued to deliver profitable growth and margins improved during the quarter. The adjusted EBIT margin in calendar Q1 2020 was 22.9%, compared with 20.9% in calendar Q1 2019, an increased of +200bps. This resulted in an adjusted EBIT of €528 million, compared with €447 million, an increase of approximately +18% year-on-year. This was due to a combination of factors, including more favourable business mix, share-based compensation and favourable FX movements. These were partially offset by lower volumes as well as additional operational costs arising due to COVID-19.

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

For its imaging business segment, the Siemens Healthineers’ target range for comparable revenue growth during fiscal year 2020 was between 5% and 6%. Due to the COVID-19 pandemic, the assumptions underlying the companies original forecast for fiscal year 2020 are to a large extent no longer applicable. Accordingly, this growth expectation is no longer valid.

“There are no reliable forecasts for the duration or intensity of the COVID-19 pandemic, or for the associated opportunities and risks. Consequently, from today’s point of view, it is not possible to make assumptions related to business development with certainty. For the time being, we will therefore not communicate any specific expectations regarding the development of Siemens Healthineers and its segments for fiscal year 2020.”

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