Tag Archives: Shimadzu

Signify Premium Insight: Vendor Financials Roundup – The Health of the Imaging Sector Q2 2022

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here.

Medical imaging vendors, like their counterparts in other industries, are having to tackle challenges that haven’t had to be faced in years or even decades. Some of these are universal. Inflation, for example. In some countries inflation is at levels not seen in forty years, energy costs have hit new highs impacting manufacturing and shipping, and logistics headaches continue to disrupt supply chains. Some problems are more specific to healthcare such as staff shortages and staff burnout after the toll of the Covid-19 pandemic and enormous backlog of elective procedures that are yet to be undertaken.

Given this gloomy outlook, it would be natural to expect that these challenges are being reflected in medical imaging vendors’ bottom lines, however, for the most part, their Q2 financial results appear remarkably robust.

 

The Signify View

Almost across the board, vendors have reported revenues higher than they did so in the equivalent quarter a year ago. In most cases these gains are modest, with GE HealthCare, for example, seeing growth of 1.4% while Philips saw growth in its diagnosis and treatment business of 1.9%. However, even given the size of the increases they are still notable, particularly given that for the same quarter a year earlier the market was performing strongly and had largely recovered from the lows seen in 2020 at the pandemic’s peak. Other vendors are seeing even more pronounced gains, with Shimadzu’s Medical Systems group and Konica Minolta’s Healthcare group seeing rises of 11.9% and 12.2% respectively.

There are several reasons for this outwardly surprising robustness. Chief among them is the natural delay inherent in healthcare procurement. Medical imaging, as with healthcare in general, tends to react slowly to changes in the market. Contracts are increasingly lengthy, procurement plans are in place well before they are acted upon and, barring unusual spikes such as that caused by the Covid-19 pandemic, demand is consistent and predictable. As such, wider trends that will, in time, come to have an impact are not yet severely damaging medical imaging vendors’ bottom lines. This could well change over time as economic challenges at hospitals start to filter through to their purchasing plans and therefore medical imaging vendors, while these vendors will at the same time be hit by supply-side costs, with energy, raw materials and logistics all becoming more expensive.

In response to these rising costs, vendors will raise prices. Several vendors referenced this in their financial presentations, with some even producing schematics to illustrate the price increases in the short-to-mid-term, as pricing measures chase cost increases to restore margins. The results of these price increases will not be felt right away. This is both a reflection of the implementation of the increases, but also stemming from vendors’ willingness to accommodate the budgetary challenges of providers.

Results to Order

Another factor supporting the financial results of medical imaging vendors is that a glut of orders seen in Q3 2021, which vendors’ boasted about in their financial presentations for that quarter, are presently being turned into revenues. This wealth of orders was the result of both the supply chain issues that plagued vendors for much of last year and the fruits of emergency Covid-spending that providers began to wield against the backlog in procedures rather than Covid-care itself. The rapid inflation seen over the last year will have compromised the margin vendors could have expected from these orders, but they have at least helped sustain revenue growth.

As these orders are fulfilled, vendors will need to carefully watch their order books. In doing so they will be best placed to react quickly and balance their need to raise prices and sustain margin with customers’ ability to pay. At present, for most vendors, order books continue to look healthy. In its presentation, Philips boasted of an ‘all-time high orderbook’, Canon noted record order levels for its Medical business, Siemens Healthineers mentioned ‘very good growth in equipment orders’ and GE referred to 1% order growth, albeit comprised of 5% service order growth and a 1% decline in equipment order growth.

Demanding Clientele

Medical imaging vendors do, at least, have the luxury of continued demand. The disruption caused by the Covid pandemic means that providers are servicing a backlog of both elective procedures and other delayed imaging exams, with for example, screening programmes paused amidst the pandemic. To meet this elevated demand, providers are, for the time being, willing to invest in equipment that is proven to deliver improved operational efficiency, both on the hardware and software side. This willingness is, in many countries, and for the time being, supported by post-pandemic economic stimulus packages. As economic pressures mount, governments could reduce or remove this extra spending, impacting hospitals’ ability to purchase new equipment and therefore presenting a challenge to vendors. This is likely to be further exacerbated by the servicing of the procedural backlog. As the size of the backlog diminishes, so too does the necessity for new equipment.

As these effects take hold, vendors will have to react. That could mean simply becoming more aggressive on pricing, focusing on value product ranges or becoming increasingly flexible with regards to payment schedules and purchasing options. Regardless, it is unlikely that this demand will be sustained indefinitely.

So the World Turns

Another factor that held significant sway over the fortunes of medical imaging vendors over the quarter was the regional differences. In some cases this proved a boon, with, for example, Japanese vendors Fujifilm, Canon, Konica Minolta, and Shimadzu all benefiting from the depreciation of the yen, making their products more affordable in export markets.

In other cases, the trends were less favourable. Unlike many major markets, China continued to enforce Covid restrictions in some regions throughout the quarter. Such restrictions severely impacted vendors’ fortunes in the market. This not only manifest in the form of weaker sales, with declines in revenue for a number of vendors, but also added to the logistical problems vendors faced. Philips, for instance, noted that production at several of its Chinese factories, as well as those of its suppliers was suspended for two months during the quarter. This exacerbated supply chain challenges and increased costs, as well as impacting the vendor’s ability to pursue sales activities in the region. One of the only vendors to have enjoyed growth in China was Mindray, which saw overall revenues improve by more than 16% in the quarter. While still affected by lockdowns, the domestic market offered the vendor an advantage compared to some of its international peers. This is likely to continue in the future given the economic conditions which benefit domestic companies, as well as Chinese initiatives such as the Thousand Counties policy and Sunshine procurement plans which can, either directly, or incidentally support Chinese healthcare vendors.

Chinese firms such as Mindray are also looking to target emerging markets such as India. Now could be an opportune time for the likes of Mindray to capitalise, particularly if large international vendors look to limit their exposure to some markets amidst increasing economic volatility. Conversely, in the case of India, Chinese vendors may also find they have increased competition from Indian companies, while themselves facing increasingly protectionist procurement policies.

Accepting the Flow

Such details are, however, eddies in the broader currents of medical imaging. More generally, despite the economic headwinds, vendors are in a relatively strong position. Margins may have to temporarily be sacrificed in the near term to secure and store raw materials and components to ride out disruption to supply chains, and to absorb price shocks and offer flexibility to customers. Vendors may also choose to sacrifice some opportunities for rapid growth in emerging markets in a bid to reduce their exposure to the subsequent volatility and to be able to devote themselves to their core, established markets. Such moves, however, are priced into vendors’ outlooks, a fact reflected in their financial forecasts which remain steady or show only a slight decline.

Ultimately, these vendors exude stability amid broader economic volatility, and will do so for at least 12-18 months. Beyond this, the levels of inflation, energy prices, stability in emerging markets, geopolitical challenges, government spending priorities, staff shortages and recruitment challenges, additional waves of Covid-19 and backlogs for diseases like cancer make forecasting difficult. In these times, the onus is on the leadership teams at individual vendors to be able to capitalise on their strengths. Vendors will, in essence, be forced to chart their own courses.

About Signify Premium Insights

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here

Signify Premium Insight: Vendor Financials Roundup – The Health of the Imaging Sector Q4 2021

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here.

Although 2021 may seem a distant memory, vendors’ performances in its final quarter, along with the circumstances which shaped them, offer mixed fortunes for medical imaging’s biggest companies in 2022.

The quarter’s results showed some continuing reticence as a result of the coronavirus pandemic’s ongoing disruption, with new variants causing further headaches for vendors and providers alike. More broadly however, vendors’ results were mixed. Many fell into the ‘unremarkable’ category, such as Philip’s Diagnosis and Treatment business, and Nuance’s Healthcare business. These vendors were able to deliver low single digit revenue growth over the quarter, enough to appease, but not delight, investors.

Other vendors had more dramatic quarters. Fujifilm presents the highest quarterly growth compared to the same quarter in 2020, with a huge 47% increase, including a 56.7% increase in its Medical Systems business. The vendor did have a good quarter, noting in particular the demand for its ultraportable digital X-ray imaging systems and ultrasound systems, however much of this growth was only on paper as a result of turning Fujifilm Healthcare, which includes Hitachi’s diagnostic imaging business, into a consolidated subsidiary. Other standouts were Siemens Healthineers’ Imaging segment, which posted revenues 12% higher at EUR2.53bn, and Change Healthcare which posted revenues 10% higher than a year ago at $866m. Sitting at the other end of the spectrum was GE Healthcare and Shimadzu Medical Systems, which saw revenues fall by four and six percent respectively.

The Signify View

One of the central factors determining how vendors performed in the quarter, stemmed from their response to one of the quarter’s most significant challenges; the immense disruption to supply chains. This disruption and its impact was highlighted by many vendors, and, as explained in Signify Research’s Q321 analysis, its management would be among factors that defined their performance.

These differing approaches were apparent in the vendors’ financial figures. Siemens Healthineers revenue growth of 12% looks good on paper, but this came at the cost of the vendor’s margins. Siemens’ Imaging EBIT margin was still strong at 20%, but this was 340 basis points below those of the prior year quarter. Looking ahead the vendor said that margins would continue to be affected throughout 2022, with the most significant impact to be felt in the first half of the fiscal year.

Essentially, Siemens has shouldered much of the increased costs caused by supply chain disruption and component shortages. Philips also saw margins decline, falling from 14% to 13% on an adjusted EBITDA basis, however, comparable sales growth was flat, suggesting that the vendor was less willing to absorb the additional expense in a bid to protect margin. The vendor claims that this hasn’t cost it any business. It has, however, reported double-digit growth in the order book for its Diagnosis & Treatment business, implying that the vendor is enjoying similar demand to its German competitor, but could be less willing or able to spend more on fulfilling those orders immediately, instead choosing to wait to convert them into sales, but, hopefully, without sacrificing margin.

GE Healthcare also appears to fit this mould. At $5.3bn, the segment enjoyed a 7% increase in orders, however these future sales are contrasted by a 4% fall in revenue to $4.6bn, an 18% drop in profit to $800m and a 290 base point decline in margin to 16.5%. Another vendor fitting a similar pattern is Canon, which, in its Medical segment, saw net sales increase by 4.6%, but profit fall by 20% from 10.3bn Yen to 8.2bn.

Of course, these headwinds didn’t impact all vendors equally. Supply chains and logistics are obviously of less importance to vendors focused on software and imaging IT, a fact borne out by Change Healthcare and Sectra’s Imaging IT Solutions group, showing strong results, with revenues 10% and 7% higher respectively.

Expanding Inflationary Pressures

These supply chain difficulties also come amid global inflationary pressures. Many of the tracked vendors have increasingly been moving clients onto longer and ever more comprehensive managed service contracts. While this brings stability, with providers tied into deals for extended periods, vendors may lack the flexibility to raise their prices, despite facing higher costs themselves. While these eventualities will have been somewhat priced into deals, it could hurt vendors’ margins over an extended period. Such effects would hit those vendors who have most readily adopted these sorts of deals hardest, but, it could also have knock-on effects further in the future, as providers coming to the end of a managed service contract could find themselves suddenly hit with a dramatic increase in costs. Effectively being forced to stomach several years of inflation all at once.

Some vendors will also benefit from more positive currents over the coming years. Fujifilm and Canon, which are strongest in their home nation of Japan, were well supported throughout the pandemic by the Japanese government, which invested strongly in order to bolster the nation’s ability to fight the pandemic. Canon and Fujifilm benefited from this spend both in the near term, with hospitals acquiring additional systems for use in Covid care but are also likely to reap rewards for years to come, with the possibility of additional service revenues and upsell opportunities stemming from those additional hardware sales and expansion of their installed bases.

More broadly, vendors offered limited commentary about less developed markets. Philips noted that its Diagnosis and Treatment business enjoyed double-digit growth in Latin America and India, as well as mid-single-digit growth in China, but otherwise information was limited. This absence suggests that for most vendors, performances in emerging markets, excluding China, were neither remarkable, nor an area of particular focus. This makes sense. Although there is potential in these markets in the future, at present, the lower vaccination rates among their populations, the proportionately higher costs of tackling the pandemic compared to more developed regions, and wider pandemic-induced economic instability means that these are poor areas on which to focus, particularly when so much attention is required to deal with the challenges in their core markets. Vendors need to ensure resources are delivered to their highest-margin products, particularly in instances where they have had to absorb additional costs.

Fighting Fires

Headwinds facing the tracked vendors are, in many cases, more severe than they have been over the preceding few quarters, but, for the most part vendors are doing a fair job of managing them. Judging solely by the fourth quarter results (for those that have published at time of writing), vendors have, to a greater or lesser extent, been able to mitigate the impact of the headwinds by shouldering costs themselves, pushing out installations and sales, and relying on their service sales and add-ons to drive revenues.

These are primarily defensive moves, which see the tracked vendors protecting their revenues, and protecting their customer bases. Expending effort on such defence will naturally mean that these companies will have less capacity with which to address their longer-term objectives, meaning that advances in broader industry directions such as precision medicine, AI and digital twinning, for example, could be delayed. There are tailwinds that are set to offset some of these headwinds. If vendors can service demand, then the enormous backlog of elective procedures will provide a boon to those vendors who offer interventional imaging and therapy technologies, these will be strong growth drivers. Other vendors will see changes in some product categories offset changes in others. CT, for example was used heavily in Covid care, so the improving coronavirus situation will see demand for new systems diminish, however, this will be somewhat offset by increases in MR system sales, which were dampened during the pandemic.

The culmination of these various factors means that 2022 will be a challenging, albeit manageable year. Instead of being able to focus on long-term ambitions, vendors must be reactive and dynamic, shifting their resources to deal with the issues of the moment. Several vendors have suggested that supply chain conditions will improve in the second half of 2022, at which point increasingly normal service will resume. Until then, however, the vendors that perform the most strongly, are likely to be those that can most effectively juggle this breadth of challenges, without dropping any important balls.

About Signify Premium Insights

This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here