Siemens Healthineers sees profit margins at main division dropping

Siemens Healthineers said measures to speed up installations of its new blood testing machines were bearing fruit, but ramp-up challenges would squeeze full-year profit margins at its diagnostics division.

The German health technology firm is pinning its hopes on its Atellica machine to turn around its In-Vitro diagnostics business, which lags market leader Roche, but lengthy installation times at large and complex laboratories have dragged down profit in the division.

Healthineers said it had shipped over 410 Atellica Solution analysers in the three months to the end of March, and over 780 machines in the first six months of its fiscal year. It has also won approval for the device in China.

“The measures taken to ensure a successful market launch of our laboratory diagnostics platform Atellica Solution have shown an early impact in the second quarter,” said Chief Executive Bernd Montag.

Steps to reduce installation times mean the number of analyzers that are operational and able to book sales of the highly profitable tests used in the machines had increased to 20-30 per week, he said.

But despite an expected acceleration in shipments in the second half, Montag told analysts the target to ship between 2,200-2,500 analyzers this year remained “very challenging” and that it was likely Healthineers would fall slightly short of the range.

The company also said the ramp-up would squeeze profit margins at its diagnostics division to below last year’s levels, while comparable sales growth would lag its mid-term target range of 4-6 per cent.

Berenberg analyst Scott Bardo said diagnostics was “still to stage a turnaround” and the placements of 410 for the quarter were below the implied run rate of 600 machines per quarter at the start of the year.

Shares in Healthineers were flat. They have gained just 6 per cent this year, while shares in Philips have jumped almost 21 per cent in the same period, reflecting a poor first quarter for Healthineers’ diagnostics business. The European healthcare sector has increased 9 per cent.

Despite the costs associated with the Atellica launch, Healthineers reported a 24 per cent rise in net profit for its fiscal second quarter to 381 million euros ($427 million), beating consensus forecasts for 374 million euros.

Currency-adjusted sales rose 5.8 per cent to 3.5 billion euros, also ahead of analyst forecasts, helped by strong sales of molecular imaging, computed tomography and X-Ray gear as well as products in its Advanced Therapies division.

This outperformed Dutch rival Philips which on Monday reported comparable quarterly sales growth of 2.3 per cent, held back by a decline in demand for hospital equipment in Europe and flat sales in the United States.

Montag said Healthineers had made market share gains in all its imaging businesses and noted healthy global demand, particularly from China.

The company confirmed its full-year guidance for a profit margin of 17.5 to 18.5 per cent for its 2019 fiscal year, and comparable sales growth of 4 to 5 per cent.

Chief Financial Officer Jochen Schmitz said he was more confident Healthineers would hit the upper end of its target range for revenue growth, but added it would be prudent to assume the profit margin would be at the lower end of its target.

Meanwhile, Siemens is well placed to win the bulk of orders flowing from a $14 billion scheme to rebuild Iraq’s electricity infrastructure following years of war, the country’s Prime Minister Adel Abdul Mahdi said in Berlin.

The announcement, at a joint press conference with German Chancellor Angela Merkel, is a blow to arch-rival GE, which has also been in the running to upgrade the country’s power grid

The US company later said it expected to win other projects in the country and said it was in talks with Baghdad on electricity projects.

“We expect to deliver a number of other key power projects, including 750MW of additional power by the end of the year,” GE said in a statement.

Abdul-Mahdi, speaking after bilateral talks between the two leaders, said Siemens had a good chance of being awarded a majority of contracts generated by the project.

Siemens said it had already signed three contracts worth a total of $700 million - one to build a 500 MW gas-fired power plant, one to upgrade 40 gas turbines and another to install dozens of substations and transformers across Iraq.

Last year, Iraqi officials said they had come under heavy pressure from the US government to choose GE over the German company.

As part of the deal, Siemens has committed to building a health clinic, donating $60 million dollars of software to Iraq’s universities, and providing training to 1,000 Iraqis.

Reuters