Elscint plans to retool company by streamlining regional divisions

ELGEMS joint venture exceeds expectations

Israeli medical imaging vendor Elscint on Nov. 6 announced a broad-based corporate restructuring designed to cut costs and make the company more responsive to customers, particularly in the U.S. The Haifa vendor will sharply reduce the number of business units operating around the world and will transfer several operations from Israel to the U.S.

Elscint plans to reduce its 17 sales and service subsidiaries to three geographic distribution zones: the Americas, Europe, and the rest of the world, which includes Australia, Asia Pacific, Africa, and the Middle East. Each zone will be managed by a corporate vice president and will be supported by technical, applications, and marketing personnel, enabling Elscint to eliminate redundancies in maintaining 17 separate networks, according to president and CEO Jonathan Adereth.

"By putting together units we are saving overhead (costs), which are quite substantial," he said. "We want to reduce overhead by forming larger (divisions) and avoiding duplication of management and management layers."

The Americas region will be led by Eliezer Tokman as corporate vice president. Tokman previously led Elscint's CT division from the company's Haifa headquarters and will be relocated to Elscint's U.S. headquarters in Hackensack, NJ.

The company also plans to combine its CT, MRI, and engineering and technologies division into a single radiology imaging product division, which Elscint expects will increase synergies between the technologies. The company will consolidate all manufacturing activities in Israel into a single facility, and will set up a new center for the development of CT and MRI applications at its Fort Collins, CO, facility. Finally, Elscint will move the headquarters for its nuclear medicine and connectivity business units from Haifa to the U.S. as part of an effort to increase the visibility of these activities in the U.S. market.

Adereth characterized the changes as the next stage in Elscint's business plan following the establishment of joint product development relationships with Siemens for CT technology and GE Medical Systems for nuclear medicine. Elscint established the relationships in hopes of generating new revenue streams by supplying products that will be sold through Siemens and GE marketing channels.

Both relationships are going well, according to Adereth. Elscint began shipping the first CT components to Siemens in the quarter, and the GE relationship, through the ELGEMS joint venture company, is progressing better than expected, he said.

"(ELGEMS) assumed responsibility for the supply of products, both to Elscint and GE, and successfully supplied both companies with all their needs for the period," Adereth said. "Our projections for ELGEMS' performance in the fourth quarter is somewhat better than initially planned, as was the case in the third quarter. So we feel that our short-term operational objectives are accomplished, and we believe it will be followed by accomplishment of long-term objectives."

Concurrent with the restructuring announcement, Elscint released financial results for its third quarter (end-September). Elscint had revenues of $75.1 million, down 4% compared with $78 million in the third quarter of 1996. The vendor's net income was $319,000, compared with $101,000 in the same period a year ago. Elscint's most recent third-quarter net income was affected by start-up costs related to the ELGEMS joint venture, although those losses were lower than originally planned, Adereth said.

Revenue fell because the company was unable to deliver $3 million in MRI equipment to Brazil due to new import license requirements, which should be received shortly. CT equipment made up 45% of Elscint's sales in the third quarter, with nuclear medicine accounting for 28%, MRI making up 22%, and sub-assemblies 4%. On a geographic basis, 40% of the company's sales came from Europe, 25% from North America, and 33% from the rest of the world.