Shimadzu, Medical Systems, Q3 2019 Sales Results

Shimadzu Corporation, the Japanese originated conglomerate, published it’s latest quarterly results this morning for its second fiscal quarter ending September 30 2019. This includes 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 and service efficiency solutions. These results show that sales revenue from medical systems returned to growth during the second quarter, offsetting revenue contractions earlier in the year and resulting in overall higher sales revenue year-to-date. The net sales revenue reached ¥21.5 billion during the second quarter, compared with ¥18.4 billion in 2018, an increase of +16.6% year-on-year (YoY). On a calendar year-to-date basis, net sales revenue reached ¥54.9 billion, compared with ¥53.1 billion in 2018, an increase of +3.4% YoY.

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Sales results by geography

The return to growth was led by increasing sales from customers based in Japan, which accounted for approximately 60% of overall sales revenue during the first nine months of 2019. Sales growth within its domestic market was sufficient to offset a contraction from export markets resulting in overall growth. Within Japan, sales increased for all x-ray system model lines with sales into the clinic segment particularly strong. The quarterly results referenced increased demand prior to the scheduled rise in consumption tax as one of the factors supporting growth.

In North America, the companies second-largest market, sales activity weakened for both general radiography and fluoroscopy systems, notably for mobile x-ray and multipurpose fixed RF x-ray systems. The quarterly results refer to a decrease in demand following a period of strong demand driven by measures to promote shifting to digital technology in 2018. Demand for digital radiography systems has continued to subside for the previous three consecutive quarters.

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. This is potentially indicating that the Made in China 2025 initiative, along with other fiscal policies, maybe 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 fiscal Q1 2019.

In India, the demand for angiography systems grew significantly during the first fiscal half. In South-East Asia, the demand for dedicated fluoroscopy systems decreased significantly following a period of strong sales activity.

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Looking ahead toward growth

Shimadzu has an ambitious growth strategy for its medical systems business, as outlined in April-19 by Kunimasa Ito, Senior Managing Executive Officer and General Manager of the medical systems division. 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 will be exhibiting at RSNA 2019.

For its aftermarket service business, Shimadzu has been targeting a compound annual sales growth of low single digits and is due to open it’s first customer support centres in China during January 2020.

Further investment into its manufacturing plant

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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