Siemens Healthineers lays out cost-cutting strategy ahead of IPO

January 16, 2018
by Thomas Dworetzky, Contributing Reporter
Siemens Healthineers is planning cost-cutting ahead of its scheduled listing on the Frankfort exchange, the company said Tuesday.

Future strategic plans call for structural changes to save about $293.9 million a year – with the impact of these savings beginning to show in 2020.

The company also announced plans to make the most of the shifting landscape in health care.

Siemens Healthineers is “a business well prepared to take advantage of the paradigm shifts in health care," said Michael Sen, chairman of the supervisory board of Siemens Healthineers and member of the Siemens Managing Board also responsible for the company's health care activities. "As a separate listed entity, Siemens Healthineers will have the entrepreneurial flexibility to actively shape its industry with a view to accelerating profitable growth and deliver return. It will also have direct access to the capital market, which will improve its ability to fund investment. Siemens will continue to actively support Siemens Healthineers as a majority shareholder."

The health care entity earned a robust fiscal 2017 revenue of €13.8 billion – over 55 percent of which is recurring, the company added in its statement.

Calling the Healthineers “a truly global innovator with unique scale,” Bernd Montag, CEO of Siemens Healthineers, stressed that given its positioning and global footprint, the organization will be “one of the main long-term beneficiaries of the significant structural growth inherent in our markets.”

The Healthineers revenue, he noted, is balanced globally, with 41 percent from the Americas, 32 percent from the EMEA, and 28 percent from the Asia-Pacific region.

More than 55 percent of its revenue is generated by reagents and consumables as well as services, and is therefore recurring.

In addition, organic annual revenue has grown an average of 4 percent since 2015.

The company added no new details of its planned listing in this latest announcement. Last week, however, Reuters reported that the listing would take place in March, according to unnamed sources.

Given the significant shifts in health care delivery, the company also stated that within its core markets, it anticipates growth of 3 to 5 percent a year from 2016 to 2021.

"We expect our sustained and profitable revenue growth and continued strong cash flow to support our planned dividend policy," stressed Montag.

Some of the trends driving this increase include the growing and aging populations, a rise in the care of chronic diseases, and better access to care in emerging markets.

“Given that health care productivity has historically lagged behind that of other industries, horizontal and vertical consolidation is progressing in the industry, and governments and insurers are changing financial incentive systems to transform health care delivery from volume to value,” according to the company.

This is coupled with the increasing precision of treatments and a growth in accessibility and patient empowerment.

“These changes are being accelerated by digitalization and the use of artificial intelligence,” it advised, adding that big data is playing a major role in these shifts and is “becoming a source of value creation in the sector.”

The Healthineers are industry leaders in imaging, the company's largest source of revenue, which accounted for €8.2 billion of income in fiscal 2017.

Diagnostics accounted for €4.2 billion of revenue in fiscal 2017. Estimates are for 5 percent annual growth from 2016 to 2021.

The recent launch of Atellica Solution, “holds great potential for becoming one of the company's future growth and profitability engines,” according to the company. Atellica Solution is able to run up to 440 tests per hour, and of transport samples up to ten times faster than conventional conveyers.

Another source of growing revenue is Advanced Therapies – which the company called “the forefront of the paradigm shift in health care, particularly in transforming surgery toward minimally-invasive procedures empowered by image-guided therapy.”

The Healthineers will continue to focus in five specific areas – maximizing its position in the in-vivo and in-vitro markets to further precision medicine, data and AI efforts to integrate and innovate therapy technologies, optimizing patient experience throughout the health care process, developing a “full range” of technical, operational and clinical service offerings, and a continued push into the application of AI into these areas.