Sectra Customer Financing operating area

The company’s strong financial position is used to finance major managed-services agreements with healthcare customers. This financing is managed within the fast-growing Sectra Customer Financing segment. Being able to offer customers this type of opportunity provides a competitive edge in certain procurement scenarios and generates an attractive return in today’s low-interest environment.

Why Sectra offers customer financing

Just as many regular consumers have changed to buying monthly subscriptions for various software programs, our customers’ purchasing behavior is shifting toward buying IT systems as a service. Being able to offer financing for major customer contracts gives Sectra a competitive edge over new players in the market, which rarely have the long-term strength to offer this type of service. Offering customer financing also promotes long customer relationships and the Group’s overall strategies. It is also an important indication of value – a way of showing customers that we are a future-proof, stable partner.

Mats Franzén, CFO of Sectra AB

Delivering medical IT systems as a service generates cost and operational benefits for both customers and suppliers. Accordingly, customers are increasingly purchasing IT systems and software as a service – for example, in the form of long-term managed-services agreements – instead of making capital-intensive investments in complete IT systems. Resource requirements and costs during the installation phase are offset by the higher rate of recurring revenue. The contracts have terms of up to ten years, which contributes to a stable development for Sectra over a number of years.

Where we are now

Sectra Customer Financing has grown rapidly and accounted for 10.5% of consolidated sales in 2016/2017. This growth is linked to Imaging IT Solutions’ successful sales of multiyear managed-services agreements for medical IT systems in recent years. Most of the financing pertains to customer contracts in the UK, which means that currency effects in British punds has large impact on the operating areas outcome.

More stable development with managed-services agreements

In the case of Group-financed managed-services agreements, revenue and earnings in the Group are eliminated during the installation phase and distributed evenly over the duration of the agreement. This differs from traditional customer contracts, where most of the Group's revenue and earnings are settled in conjunction with installation and deployment at the customer’s site. In both cases, service and support agreements are distributed across the entire duration.

Comparison traditional customer contract vs Group-financied customer contract

The graph shows how traditional customer contracts and Group-financed managed-services agreements impact the Group’s financial performance. This example pertains to an agreement generating revenue of SEK 100 million over a ten-year period. In reality, there are major variations depending on the duration and content of the contract.

In the business area Imaging IT Solutions, Group-financed managed-services agreements have no effect on the area’s financing reporting compared with traditional contracts, meaning that the major part of revenue and earnings in both cases are recognized in conjuction with installation at the customer’s site.

Further reading about Sectra Customer Financing

Further reading about Sectras operating areas

 

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