Konica Minolta, Healthcare, Q4 2019 Sales Results

On Monday 03 February 2019, Konica Minolta, the Japanese originated technology company, announced it’s consolidated financial results for its latest fiscal quarter ending 31st December 2019. These results show that sales revenue from its healthcare business contracted significantly during the quarter, as forecasted by KM management. During the quarter, overall sales revenue reached ¥18.1 billion, compared with ¥20.9 billion in 2018, a decrease of approximately -13% year-on-year. Despite this contraction, revenues are still higher for the year and on a calendar year-to-date basis, cumulative sales revenue reached ¥92.9 billion, compared with ¥90.7 billion in 2018, an increase of +2.4% year-on-year.

The sales growth throughout the calendar year 2019 has predominately been driven by higher sales of medical imaging equipment from the healthcare modality segment, although the medical IT segment also contributed toward sales growth after a weaker start to the year. The healthcare modality segment accounted for approximately 92% of sales revenue during 2019 and reached ¥85.2 billion, compared with ¥82.9 billion in 2018, an increase of +2.8% year-on-year. The medical IT segment accounted for the remaining 8% of sales revenue and reached ¥7.9 billion, compared with ¥7.8 billion in 2018, an increase of +1.3% year-on-year.

X-ray Business Segment

The X-ray business segment had a slightly challenging calendar Q4 2019 as overall sales revenue was lower than Q4 2018. That said, the sales volume of digital radiography equipment were strong across Asia and Europe as well as amongst clinic customers within the United States. Sales declined in Japan during calendar Q4 2019 following strong demand in previous quarters prior to the consumption tax increase. Between April 1st and September 30th 2019, both the volume of unit sales as well as overall sales revenue increased from the sale of digital radiography equipment. The sales volume originating from Asia and Europe increased, while sales volume originating from the United States remained stable. The growth within Asia was predominately centred around Japan and investment into hospital infrastructure, in part, due to increased consumption before the rise in consumption taxes on 1st October 2019. While sales volume from the United States was flat, there was a notable shift in the mix of business, with sales into the clinic segment growing faster than the hospital segment. This resulted in a reduction in the overall average unit selling price as a result of a shift in demand for specific products. One of the more interesting developments from Konica Minolta, in my opinion, was the announcement that its Dynamic Digital Radiography (DDR) technology received 510(k) FDA clearance during 2019. The solution combines Konica Minolta’s advanced imaging processing capabilities with Shimadzu’s RADspeed Pro radiographic imaging system, enabling healthcare providers to enhance their X-ray suites with the ability to capture movement and static images within in a single exam. This has been one of the more significant product developments within the digital radiography space in recent times and the firm has received favourable opinions from universities and medical institutions, particularly within Japan. 

Ultrasound Business Segment

The ultrasound business segment performed strongly during calendar Q4 2019 and overall sales were higher relative to Q4 2018. Sales growth was primarily driven by higher equipment sales from Japan, particularly within the obstetrics clinical segment, as well as Europe and the United States. Between April 1st and September 30th 2019, both the volume of unit sales as well as overall sales revenue increased from the sale of diagnostic ultrasound equipment. Growth within Aisa was again centred around Japan. The companies original ultrasound proposition, the SONIMAGE HS1, has developed a favourable reputation within obstetrics and internal medicine, despite some “teething troubles” from its product recalls. With the addition of its second ultrasound proposition, the SONIMAGE MX1, which originally received 510(k) FDA approval during August 2018, the companies product line-up has become increasingly focused toward point-of-care ultrasound (POCUS). Greater utilisation of ultrasound imaging as a utility within point-of-care has been a source of growth in the recent periods and has been forecasted to achieve higher growth in the coming years. This is due to a combination of increasing portability, miniaturization of imaging platforms, improved ease of use as well as greater access to training and awareness. POCUS is expected to expand primarily within maturer markets, such as the United States and Europe, and within areas of musculoskeletal, cardiac, critical care, emergency medicine and anaesthesia. The SONIMAGE MX1 expands the firm’s coverage of POCUS clinical applications with use approved for small organ, abdomen, musculoskeletal, and peripheral vascular ultrasound procedures. It’s likely that this product also materially contributed toward the recent growth within Japan.

Medical IT Segment

The medical IT segment encompasses the firms Acies picture archiving and communication system (PACS), as well as its service and support-related IT solutions. The medical IT segment reported mix results by geography during calendar Q4 2019. PACS sales declined slightly over the previous quarter in Japan. Several new contracts, including larger subscription orders, were acquired in North America. Between April 1st and September 30th 2019, revenues from the medical IT business increased, driven by a large-scale order of PACS in North America as well as steady sales growth from Japan.

Sales growth reported, but not expected to continue…

Despite the annualised cumulative sales revenue being higher year-on-year, the recent growth is not expected to continue and Konica Minolta have maintained their previous forecast that their healthcare business will end the fiscal year at ¥90 billion sales revenue, approximately -1% lower than the fiscal year 2018 result. This forecast implies a sales contraction of approximately -10% during the final quarter of its fiscal year 2019 (calendar Q1 2020).

Effects of Coronavirus in China on Konica Minolta

The company has suspended its operations in development, production and sales in China until February 9, 2020, except operations in Hong Kong and its healthcare business in Xiamen. There is a travel ban for employees who typically travel to China and Hong Kong unless the travel is urgent and imperative. The Konica Minolta operations within China include development and manufacturing for the global market as well as sales and service for the domestic Chinese market. While the business does not have any development or production facilities in Wuhan, it does have a sales and services branch. The companies primary production facilities in China reside in Wuxi, Dongguan, and Dalian, all of which are away from Wuhan, with other manufacturing sites in Shanghai’s Songjiang District and Xiamen. It’s other sales and services branches are spread across the country.

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