Siemens Healthineers, Imaging, Q3 2020, Sales Results

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On November 2nd, Siemens Healthineers, announced its financial results for Q3 2020. Due to the Groups non-calendar reporting cycle, this is its fourth fiscal quarter. The results show that overall Group sales and profits contracted during the quarter, although showed improvement relative to the prior quarter. Total group sales reached €3.88 bn, compared with €4.14 bn during Q3 2019, a decrease of -6.4% year-on-year. When adjusting this figure for foreign exchange and portfolio effects, comparable sales revenue was -2% lower year-on-year. This sales contraction was driven by lower sales from all business segments, led by Imaging (-€148m) followed by Diagnostics (-€70m) and Advanced Therapies (-€49m). This took cumulative 2020 sales to €10.87 bn, compared with €11.22 bn during Q3 2019, a decrease of -3.1% year-on-year. PMI estimates that comparable cumulative 2020 sales growth is approximately -2% year-on-year.

Sales strength within Europe, offset by declines from the rest of the world

From a geographic perspective, the sales result during the quarter was driven by higher sales from customers based in the EMEA region, which were more than offset by lower sales from customers based across America, Asia and Oceania. It is worthwhile noting that Q3 2019 sales are a relatively tough comparable for America and Asia, which showed +10% and +12% growth in the prior year. Comparable sales declines within America began to recover during the quarter, from -10% during Q2 to -6% during Q3. In Asia, comparable sales from China were marginally lower (-1%), India reported growth and Japan reported declines.

Lower sales but order growth at record levels

Although overall Group sales continued to contract, the company reported a record order intake, the largest order intake during Q3 the company had ever achieved. This is reflected in a higher equipment book-to-bill number of 1.15. Equipment order growth was driven by a return to growth from the Imaging segment on the back of the record large deals from signed “Value Partnerships”. One of it’s latest partnerships is with Klinikum Lippe GmbH, which is a ten-year contract involving the replacement of approximately 150 imaging units across ultrasound, MR and CT. During the Q3 earnings call, CFO Jochen Schmitz, commented: “after two quarters with book-to-bill below 1, this is a clear precursor for a normalisation at our customers as we had anticipated, although we are carefully monitoring this development in the light of rising new COVID-19 cases.”

The Imaging Segment

The imaging segment encompasses the companies portfolio of medical imaging platforms and accounted for approximately 62% of overall Group sales revenue during the first nine months. The segment recorded third-quarter revenue of €2.4 bn, compared with €2.6 bn during Q3 2019, a decline of approximately -6% year-on-year. When adjusting this figure for foreign exchange and portfolio effects, comparable sales were approximately -2% lower year-on-year. This took cumulative 2020 sales to €6.87 bn, compared with €6.91 bn during Q3 2019, a marginal decrease of -0.7% year-on-year. PMI estimates that comparable cumulative 2020 sales growth is flat year-on-year.

During the Q3 earnings call, CFO Jochen Schmitz, commented “imaging revenue only moderately declined in Q4 with strong growth both in the Computed Tomography as well in the Molecular Imaging business. Please be reminded that we had super tough comps as Imaging grew double-digit last year. Service continues to be a stabilising element and grew nicely in Imaging. The ratio between equipment 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.

One of the metrics highlighted during the Q3 earnings call was that MR exams began to normalise during the third quarter. As the demand for MR imaging equipment and services are correlated with procedure volumes, a recovery in procedure volumes is precursors for growth. This is an encouraging trend, albeit the worsening of the pandemic across Europe and America. 

Actual versus comparable results, the 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 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. Jochen Schmitz commented “we saw a translational headwind in Q4 of about 5 percentage points. We assume this headwind to persist in fiscal year ’21. So we expect a negative impact from foreign exchange of close to 5% in the top line. This drops through to the EBIT level, but we do not expect a material additional negative transaction effect from foreign exchange.”

Sales growth expectations for 2021

Jochen Schmitz, commented “let me start with our outlook for revenue growth in fiscal year ’21. We expect the group to grow between 5% and 8% comparable. The wider range of growth caters for the higher uncertainty than normal and is based on the assumptions of recovery and stabilisation of procedures as well as additional opportunities from potential upside from COVID-19 testing. Breaking this down to the segment level, it means for Imaging, we expect growth to return to at or above 5%.

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