Philips' Fourth Quarter and Annual Results 2014


Philips reports Q4 sales of EUR 6.5 billion and operational results of EUR 743 million

January 27, 2015

Group Financials have been restated as of the fourth quarter of 2014 and for prior periods to show the results of the combined businesses of Lumileds and Automotive as discontinued operations in connection with the process of attracting third-party investors.

 

Fourth-quarter highlights

 

• Comparable sales declined 2%

• EBITA, excluding restructuring and acquisition-related charges and other items, amounted to EUR 743 million, or 11.4% of sales, compared to 12.9% in Q4 2013

• EBITA amounted to EUR 262 million, impacted by restructuring costs and other items, compared to EUR 789 million in Q4 2013

• Net income amounted to EUR 134 million, compared to EUR 412 million in Q4 2013

• Free cash flow improved to EUR 559 million, compared to EUR 481 million in Q4 2013

 

Full-year highlights

 

• Comparable sales declined 1% to EUR 21.4 billion

• EBITA, excluding restructuring and acquisition-related charges and other items, amounted to EUR 1.9 billion, or 9.0% of sales, compared to EUR 2.3 billion, or 10.5% of sales, in 2013

• EBITA amounted to EUR 821 million, or 3.8% of sales, compared to EUR 2.3 billion, or 10.4% of sales, in 2013

• Net income amounted to EUR 411 million, compared to EUR 1.2 billion in 2013

• Free cash flow improved to EUR 497 million, compared to EUR 82 million in 2013

• Return on invested capital was 4.5%, compared to 13.9% in 2013

• Proposal to maintain dividend at EUR 0.80 per share

 

Frans van Houten, CEO: 

 

“The fourth quarter underscored a challenging 2014 for Philips. Our transformation efforts continued to show good results, even as we addressed performance issues, ongoing softness in end-markets like China and Russia, and stronger than anticipated foreign exchange impacts, particularly in emerging markets.

 

Healthcare was down overall, mainly caused by operational issues and soft markets. We were encouraged by market share gains in image-guided therapy and recorded strong orders in Europe and the Middle East, where we signed four multi-year solution deals. Our Cleveland factory resumed shipments to customers in January, marking an important milestone. Consumer Lifestyle performed very well in the quarter, continuing its three-year market-outperformance trend. Our Health & Wellness business delivered double-digit growth and we saw overall strong growth in EBITA.

 

Lighting recorded 20% sales growth in LED and expanded its margins in LED despite strong price erosion. Performance was, however, negatively impacted by results in China, Professional Lighting Solutions North America and conventional lighting. We took action to further restructure our manufacturing footprint in conventional lighting.”

 

Update on Financial Targets

 

“Overall, 2014 was a setback in our performance trajectory. We have been taking clear actions to drive stronger operational performance across our businesses and expect sales growth and EBITA margin improvements in 2015 and beyond. However, looking ahead, we remain cautious regarding the macroeconomic outlook and expect ongoing volatility of some of our end-markets. We also anticipate further incidental costs in 2015 and 2016, mainly in relation to restructuring and the separation.

 

Due to these factors, we are tracking 1 percentage point behind on the path to achieving each of our 2016 comparable sales growth, EBITA and ROIC Group targets. We are convinced that this does not change our longer-term performance potential, considering the attractiveness of the Lighting Solutions and HealthTech markets and our competitive position. Later this year, as we progress with the separation of Philips and reallocation of IG&S, we will update the market about the integral performance targets for each of the two operating companies.”

 

Accelerate! and Separation Update

 

“Accelerate! continues to drive improvements across the organization, resulting in increased customer centricity, enhanced customer service levels, faster time-to-market for our innovations and better cost productivity.

 

In Healthcare Informatics, Solutions & Services (HISS ), a new Agile software development methodology was implemented that increases the number of new software releases by four times over the year, enabling us to introduce a record number of new clinical informatics solutions in the IntelliSpace family at the Radiology Society of North America (RSNA) trade show. In Consumer Lifestyle, our deep understanding of local shopper needs allowed us to successfully launch an optimized range of male grooming products in France, meeting key price points and customer needs. This locally relevant value proposition resulted in a 2 percentage-point market share gain since launch and a record number of Philips product listings at retailer Carrefour. In Lighting, Professional Lighting Solutions enhanced its product portfolio for the indirect channel in Europe, which drove more than 60% sales growth as a result of its strong price-performance ratio, locally relevant value proposition and delivery time commitment of 5 days.”

 

Overhead cost savings amounted to EUR 35 million for the quarter, bringing the total overhead cost savings in 2014 to EUR 284 million. The Design for Excellence (DfX) program generated EUR 123 million of incremental savings in procurement in the fourth quarter, bringing total DfX savings for 2014 to EUR 284 million. The End2End productivity program achieved incremental savings of EUR 22 million in the quarter, which brings the total End2End productivity savings to EUR 79 million for full-year 2014. Philips expects restructuring costs in 2015 of approximately EUR 250 million.

 

In September of last year, Philips announced its plan to separate into two standalone companies, positioning each one to better capitalize on the highly attractive HealthTech and Lighting solutions opportunities. Philips is confident in its ability to deliver additional growth and create more value through enhanced focus and agility. As indicated previously, the separation process will take approximately 12-18 months and further updates will be provided over the course of the year. The company currently estimates separation costs to be in the range of EUR 300-400 million in 2015.

 

The company is in discussion with external investors for the combined Lumileds and Automotive lighting businesses and expects to complete a transaction in the first half of 2015.

 

As of December 31, 2014, Philips had completed 41% of the EUR 1.5 billion share buy-back program.

 

Q4 overview

 

Philips' Fourth Quarter and Annual Results 2014

View infographic

FacebookTwitterMore...

 

Healthcare

 

Healthcare comparable sales were 3% lower. The EBITA margin, excluding restructuring and acquisition-related charges and other items, was 14.8%, down from 19.0% year-on-year. Currency-comparable equipment order intake showed a mid-single-digit decline, although it improved in Western Europe. The impact of Cleveland on sales and order intake was approximately 4 percentage points, which will also impact growth performance in 2015.

 

“In Healthcare, our strategic focus on large-scale and multi-year partnerships continues to gain traction. Furthermore, our pending acquisition of Volcano, announced in December, will enable us to deepen customer relationships, gain share and accelerate revenue growth for Philips’ leading image-guided therapy business.

 

The updated quality management system at our Cleveland facility recently passed the third-party audit and we have now resumed shipments of our Brilliance iCT systems. Due to the slower than anticipated ramp-up of production and shipments, the impact on 2014 EBITA was larger than previously anticipated. Passing the thirdparty audit for the production of the Brilliance iCT systems is an important milestone that enables us to focus on building further momentum as we deliver imaging innovations to our customers. We are also ramping up the production of CT systems in our facilities in Haifa and Suzhou, initially for customers outside of the United States. Our remediation work will continue to weigh on 2015 and we expect our global CT system production and shipment volume to only gradually return to 2013 levels by the end of the year.”

 

Consumer Lifestyle

 

Consumer Lifestyle comparable sales increased by 6%. The EBITA margin, excluding restructuring charges and other items, improved 260 basis points to 16.0%. The margin increase was largely attributable to higher volumes and improved gross margins.

 

“In Consumer Lifestyle, we were pleased to see that our focused approach continued to deliver strong results, resulting in an improved product mix and strong sales, in particular in Health & Wellness. Our Mother & Child Care line continued to deliver strong double-digit growth, through innovations supporting the healthy development of children. Notably, the new Philips Avent Classic+ bottle is clinically proven to reduce colic and over-eating by allowing newborns to control the milk flow. Our Beauty, Male Grooming, and Oral Healthcare products were successful through the holiday and gift-giving season, including the ‘Double 11’ shopping event in China.”

 

Lighting

 

Lighting (excluding the combined businesses of Lumileds and Automotive) comparable sales declined 3% yearon- year. LED-based sales grew 20%, offset by a decline of 14% in overall conventional lighting sales. LED sales now represent 37% of total Lighting sales, compared to 31% in Q4 2013. The EBITA margin, excluding restructuring and acquisition-related charges and other items, amounted to 9.0%, compared to 8.8% in the fourth quarter of 2013.

 

“As one of the leaders in providing lighting solutions for businesses, cities and consumers that deliver value beyond illumination, we signed a contract to provide the city of Madrid with what is the world’s largest street lighting upgrade to date, involving the replacement of 225,000 luminaires. Our performance in North America was unsatisfactory and our business in China was affected by deteriorating market conditions. We have taken further steps, including the appointment of a new head of our Americas Lighting business, to significantly strengthen our ability to deliver new levels of business value. We’ve also launched exciting new offerings, such as the SlimSurface LED downlight, the thinnest luminaire on the market, which will prove very effective for commercial real-estate customers.”

 

Innovation, Group & Services

 

EBITA was a net cost of EUR 339 million, including a EUR 201 million provision for ongoing legal matters. Sales decreased from EUR 224 million in Q4 2013 to EUR 184 million in Q4 2014, mainly due to higher one time settlements in IP royalties in Q4 2013.

 

“We were pleased to receive the CE mark for diagnostic use of our Philips Digital Pathology system and software in the fourth quarter. Pathologists will now be able to use the full digital solution as an aid in diagnosis for routine pathology, which will improve workflows and collaboration and, in turn, increase efficiency and productivity. In the quarter, it is exciting to see that sales in the Healthcare Incubator almost tripled. We also opened a new healthcare imaging systems refurbishment facility in the Netherlands, which marks the next step in bringing the financial and environmental benefits of ‘circular economy’ to the healthcare industry.”


 

Quarterly Report

Fourth quarter and Annual Results 2014 - Quarterly Report 

 

Presentations

Fourth quarter and Annual Results 2014 - Quarterly Results Presentation

 

Speech

Fourth quarter and Annual Results 2014 Press Briefing Speech 

 

Conference call and audio webcast

A conference call with Frans van Houten, CEO, and Ron Wirahadiraksa, CFO, to discuss the results, will start at 12:00AM CET. A live audio webcast of the conference call will be available through the link below.

Q4 2014 conference call audio webcast 

 

More information about Frans van Houten and Ron Wirahadiraksa:

Click here for Mr. van Houten's CV and images 

Click here for Mr. Wirahadiraksa's CV and images

Philips' Fourth Quarter and Annual Results 2014 Infographic

Philips' Fourth Quarter and Annual Results 2014 FacebookTwitterMore...

Download infographic (3 MB) 

Philips to acquire Volcano to expand global leadership position in image-guided therapy market

 Expanding its global leadership position in image-guided
therapies, Philips has entered into an
agreement to acquire Volcano Corporation, a global
leader in catheter-based imaging and measurement
solutions for cardiovascular applications. Volcano’s
complementary portfolio and expertise will create
opportunities to accelerate revenue growth for
Philips’ image-guided therapy business.

Philips signed patient monitoring and software maintenance agreements for all Mayo Clinic-owned hospitals

 
Continuing its focus on long-term partnerships with
large organizations, Philips signed patient monitoring
and software maintenance agreements for all Mayo
Clinic-owned hospitals. These agreements include
hardware and software solutions, as well as a number
of services.

Philips held leading market positions in the Male Grooming on Double 11

  On China’s biggest day of the year for online
shopping, ‘Double 11’, Philips held leading market
positions in the Male Grooming, Oral Healthcare and
Mother & Child Care categories. Sales grew 40%
year-on-year, driven by dedicated digital campaigns
and partnerships with the largest online sales
platforms.

Philips Oral Healthcare reported continued growth

  Philips Oral Healthcare reported continued growth
globally, with Philips Sonicare delivering record
market share growth, driven by advanced
propositions endorsed by dental professionals and
celebrities, as well as collaboration with key retailers.
The new Philips Sonicare 2 Series was well received
by consumers in North America and was rated 4.2 out
of 5 in online reviews.

Madrid upgrades city infrastructure with Philips lighting

  Philips is to provide the city of Madrid, Spain with
225,000 energy-efficient street lights. The renewal of
the city’s entire street lighting system makes it the
world’s largest street lighting upgrade to date.

Philips connected lighting system with luminous textiles to light up Lexus showrooms across Russia

   Designed for the high-end retail market, Philips’
connected ambient lighting system will light up Lexus
showrooms across Russia. The innovative system
combines LEDs with textile and dynamic content.

Philips digital pathology solution receives CE mark

 
Philips reached an important milestone in the
development of its emerging Digital Pathology
business by obtaining the CE mark to market its
Digital Pathology Solution in Europe for routine
diagnostic use, such as the diagnosis of cancer. This
follows the FDA clearance for Philips’ digital manual
read of HER2 pathology slides, which is used in the
diagnosis of certain breast cancers.

Philips takes circular economy to healthcare and inaugurates a new imaging systems refurbishment facility in the Netherlands

  Reflecting its continued commitment to
sustainability, Philips inaugurated a healthcare
imaging systems refurbishment facility in Best, the
Netherlands. This facility brings the financial and
environmental benefits of circular economy to the
healthcare industry. Philips was also recognized, for
the third consecutive year, as a leader in both carbon
disclosure and performance by the Carbon
Disclosure Project.

For further information, please contact:

Steve Klink
Philips Group Communications
Tel: +31 6 10888824
E-mail: steve.klink@philips.com

 

Joost Akkermans
Philips Group Communications
Tel.: +31 6 3175 8996
E-mail: joost.akkermans@philips.com

.

About Royal Philips

Royal Philips (NYSE: PHG, AEX: PHIA) is a diversified health and well-being company, focused on improving people’s lives through meaningful innovation in the areas of Healthcare, Consumer Lifestyle and Lighting. Headquartered in the Netherlands, Philips posted 2013 sales of EUR 23.3 billion and employs approximately 105,000 employees with sales and services in more than 100 countries. The company is a leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as male shaving and grooming and oral healthcare. News from Philips is located at www.philips.com/newscenter.

.

Forward-looking statements

This document and the related oral presentation, including responses to questions following the presentation, contain certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forward-looking statements include statements made about the strategy, estimates of sales growth, future EBITA, future developments in Philips’ organic business and completion of the tender offer and merger of Volcano Corporation and its benefits. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.

 

These factors include but are not limited to domestic and global economic and business conditions, developments within the euro zone, the successful implementation of Philips’ strategy and the ability to realize the benefits of this strategy, the ability to develop and market new products, changes in legislation, legal claims, changes in exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, the ability to identify and complete successful acquisitions, including Volcano, and to integrate those acquisitions into the business, the ability to successfully exit certain businesses or restructure the operations, the rate of technological changes, political, economic and other developments in countries where Philips operates, industry consolidation and competition. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in the Annual Report 2013 and the “Risk and uncertainties” section in the semi-annual financial report for the six months ended June 29, 2014. Third-party market share data Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.

 

Use of non-GAAP information

 

In presenting and discussing the Philips Group financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. Non-GAAP financial measures do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. A reconciliation of these non-GAAP measures to the most directly comparable IFRS measures is contained in this document. Further information on non-GAAP measures can be found inthe Annual Report 2013.

 

Use of fair-value measurements

 

In presenting the Philips Group financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data are not readily available, fair values are estimated using appropriate valuation models and unobservable inputs. Such fair value estimates require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in the Annual Report 2013. Independent valuations may have been obtained to support management’s determination of fair values. All amounts are in millions of euros unless otherwise stated. All reported data is unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2013, unless otherwise stated. Prior-period financials have been restated for the treatment of the combined businesses of Automotive and Lumileds as discontinued operations and for two voluntary accounting policy changes applied as of January 1, 2014. The first voluntary accounting policy change relates to a reclassification of cost by function in the income statement. Company-wide overhead and indirect Business function costs will be brought more in line with the actual activities performed in the markets. This change has no net effect on Income from operations. The second voluntary accounting policy change relates to a change in the presentation in the cash flow statement. Up and until 2013 the cash flows related to interest, tax and pensions were presented in a table separate from the primary consolidated statement of cash flows. The presentation change results in the separate presentation of the interest and tax cash flows in cash flow from operating activities. The pension cash flows are separately presented as part of the pension disclosures. The presentation change has no impact on the net cash flows from operating activities nor the total net cash balance as these cash flows previously used to be part of other aggregated sub lines of the primary consolidated statement of cash flows. An overview of the revised 2014 and 2013 figures per quarter is available on the Philips website, in the Investor Relations section.

.

Additional information

This communication is neither an offer to purchase nor a solicitation of an offer to sell any shares of common stock of Volcano or any other securities. Philips has filed a tender offer statement on Schedule TO with the SEC and a Solicitation/Recommendation Statement on Schedule 14D-9 has been filed with the SEC by Volcano. The offer to purchase shares of Volcano common stock will only be made pursuant to the offer to purchase, the letter of transmittal and related documents filed as a part of the Schedule TO. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ BOTH THE TENDER OFFER STATEMENT, AS FILED AND AS IT MAY BE AMENDED FROM TIME TO TIME, AND THE SOLICITATION/ RECOMMENDATION STATEMENT, AS FILED AND AS MAY BE AMENDED FROM TIME TO TIME, BECAUSE THEY CONTAIN IMPORTANT INFORMATION REGARDING THE OFFER. Investors and security holders may obtain a free copy of these statements and other documents filed with the SEC at the website maintained by the SEC at www.sec.gov or by directing such requests to Georgeson Inc., the Information Agent for the offer, at (866) 856-2826.

.