Why Sectra offers customer financing
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 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.
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 that shows customers we are a longterm, stable partner.
Where we are now
Sectra Customer Financing has grown rapidly. This growth is linked to Imaging IT Solutions’ successful sales of multiyear managed-services agreements for medical IT systems in recent years. The majority of sales come from multiyear customer contracts in the UK. Accordingly, the segment has a significant currency exposure to the GBP, which has had a negative impact on its results since Brexit in 2016. This also means that the movement of the GBP in relation to the SEK has a major impact on the operating area’s forecast revenue.
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.
The graph above 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 conjunction with installation at the customer’s site.