Third Quarter Results 2015


Philips reports Q3 comparable sales growth of 2% to EUR 5.8 billion and an improvement in operational results to EUR 570 million

October 26, 2015

Third-quarter highlights

  • Comparable sales up 2%, driven by North America, Asia Pacific and Central & Eastern Europe
  • Currency-comparable order intake up 2%, driven by 6% growth in North America
  • EBITA, excluding restructuring and acquisition-related charges and other items, amounted to EUR 570 million, or 9.8% of sales, compared to 9.1% of sales in Q3 2014
  • EBITA totaled EUR 429 million, or 7.4% of sales, compared to a loss of EUR 62 million in Q3 2014
  • Net income amounted to EUR 324 million, compared to a net loss of EUR 103 million in Q3 2014
  • Free cash flow of EUR 58 million, compared to EUR 155 million in Q3 2014
  • Philips provides update on Lumileds transaction
  • Philips Lighting separation process on track


Frans van Houten, CEO:


“Philips delivered improved results for the third quarter of 2015, confirming that our operational performance continues to strengthen, despite deteriorating macro-economic conditions in a number of markets, most notably in China.


Healthcare comparable sales and order intake increased, driven by North America. Operational results also improved year-on-year, despite the impact of China and foreign exchange headwinds. Consumer Lifestyle again delivered a strong performance, with a significant product mix improvement driven by high growth in Health & Wellness and Personal Care. Lighting continued its trend of year-on-year performance improvement, driven by strong growth in our LED businesses, while we continue to actively manage the conventional lighting market decline.


For full-year 2015, we continue to expect modest comparable sales growth and an improvement of our operational performance.”


Accelerate! and Separation Update


“Our Accelerate! program continues to drive operational improvements across the organization. In Healthcare, for example, this resulted in reduced manufacturing cycle times and inventory in our Image-Guided Therapy facility in the Netherlands. In Consumer Lifestyle, we simplified the order fulfillment process in Spain, resulting in improved customer service. In Lighting, a new go-to-market model and customized offerings in Indonesia enhanced our business-to-government sales capabilities, resulting in street-lighting orders from five major cities.”


Overhead cost savings amounted to EUR 33 million in the third quarter. The Design for Excellence (DfX) program generated EUR 107 million of incremental procurement savings in the quarter. The End2End improvement program achieved EUR 63 million in productivity gains.


Philips is on schedule to complete the separation of the Lighting business in the first half of 2016. As previously stated, Philips is reviewing all strategic options for Philips Lighting, including an initial public offering and a private sale. The company now expects the related separation costs to come in at the lower end of EUR 200-300 million for 2015 and remain within that range in 2016.


Update on sale of majority stake in Lumileds to GO Scale Capital


In the course of seeking regulatory approvals regarding the sale of an 80.1% interest in Lumileds to a consortium led by GO Scale Capital, the Committee on Foreign Investment in the United States (CFIUS) has expressed certain unforeseen concerns. Philips and GO Scale Capital will continue to engage with CFIUS and will take all reasonable steps to address its concerns, but given these, the closing of the transaction is uncertain.


Q3 2015 Financial and Operational Overview


Healthcare


Healthcare comparable sales grew 3% year-on-year and currency-comparable order intake was up 2%. Excluding restructuring and acquisition-related charges and other items, the EBITA margin increased by 30 basis points to 12.3%, driven largely by cost productivity. This was partly offset by negative currency impact, higher investments for growth initiatives, and increases in Quality & Regulatory spend.


“We are encouraged by continued sales growth and the positive order intake across the majority of our markets. Our focus on delivering meaningful innovations that enhance patient care and improve efficiencies continues to pay off, for example with the introduction of HeartModel, an ultrasound tool with anatomical intelligence, designed to enhance diagnosis and planning in cardiology."


Consumer Lifestyle


Consumer Lifestyle comparable sales increased by 6% year-on-year, with double-digit growth at Health & Wellness and Personal Care. The EBITA margin, excluding restructuring and acquisition-related charges and other items, increased by 190 basis points to 12.5% year-on-year.


“We delivered significant EBITA gains in Consumer Lifestyle, as well as strong growth. This resulted in market share expansion across a number of product categories and geographies. For instance in Oral Healthcare, innovations including the Philips Sonicare DiamondClean Amethyst and Philips Sonicare AirFloss Ultra saw high-double-digit growth.”


Lighting


Lighting continued its operational improvement, with the EBITA margin, excluding restructuring and acquisition-related charges and other items, increasing by 40 basis points to 9.5% year-on-year. LED lighting comparable sales grew 24% and LED margins improved. LED sales now represent 44% of total Lighting sales, compared to 36% in Q3 2014. In line with industry trends, conventional lamps sales declined by 15%, resulting in an overall comparable sales decrease of 3% year-on-year.


“We are pleased with another quarter of strong performance from our LED business, which now represents close to half of Lighting sales. We continue to introduce LED innovations to customers. For example, Philips will outfit 32 Accenture offices with more than 140,000 LED-based products in India. The upgrade will enable significant energy savings and create a more pleasant work environment. Simultaneously, we will continue to proactively manage the conventional lighting market decline, allowing us to deliver improvements to Lighting EBITA margins.”


Innovation, Group & Services


Comparable sales increased by 15%, driven by IP Royalties and very strong growth in Philips’ emerging businesses such as Digital Pathology and Photonics. EBITA was a net cost of EUR 139 million, compared to a net cost of EUR 151 million in the third quarter of 2014.


“We are driving leadership positions in emerging business areas such as digital pathology. In Europe and Asia Pacific, leading health institutions such as Germany’s largest telemedicine platform and Singapore General Hospital digitize their pathology workflows with Philips’ IntelliSite Pathology Solutions to enhance disease diagnosis, underpinning our leadership in this field.”



 


Quarterly Report

Q3 2015 - Quarterly Report
 

 

Presentation

Q3 2015 - Quarterly Results Presentation
 

Conference call and audio webcast

 

A conference call with Frans van Houten, CEO, and Abhijit Bhattacharya, CFO, to discuss the results, will start at 10:00AM CET. A live audio webcast of the conference call will be available through the link below.

 

Q3 2015 conference call audio webcast


More information about Frans van Houten and Abhijit Bhattacharya

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

Click here for Mr. Bhattacharya's CV and images


Philips and Catharina Hospital sign technology agreement for new and largest cardiovascular center in the Netherlands

 Leveraging its strength in interventional cardiology, Philips signed a multi-year technology agreement with the Catharina Hospital, the largest cardiovascular center in the Netherlands, comprising the equipment, software, upgrades and maintenance services for five interventional rooms and two hybrid operating rooms.

Philips strengthens collaboration with Amazon Web Services to expand digital health solutions in the cloud

 Philips expanded the capabilities of its HealthSuite Digital Platform, a secure cloud infrastructure for health data and devices. The company strengthened the collaboration with Amazon Web Services to broaden the platform’s connectivity capabilities. In collaboration with Radboud University Medical Center and Salesforce, Philips developed a prototype app that runs on the platform to enhance diabetes care.

Philips announced personal health systems at IFA

Philips expanded the capabilities of its HealthSuite Digital Platform, a secure cloud infrastructure for health data and devices. The company strengthened the collaboration with Amazon Web Services to broaden the platform’s connectivity capabilities. In collaboration with Radboud University Medical Center and Salesforce, Philips developed a prototype app that runs on the platform to enhance diabetes care.   

Philips Oral Healthcare delivered double-digit growth

 Further expanding category leadership and driving market share, Philips Oral Healthcare delivered double-digit growth, with strong performance globally. Innovations supporting healthier teeth and gums, like the Philips Sonicare DiamondClean Amethyst and Philips Sonicare AirFloss Pro, coupled with digital marketing and professional.

Philips Hue Lightstrip Plus: light bright enough to paint a whole room

 Philips expanded its leadership in the connected lighting business with the introduction of Philips Hue Lightstrip Plus, the Philips Hue wireless dimming kit and Philips Hue Bridge 2.0. The new bridge enables Philips Hue to interact with other Apple HomeKit devices and become voice-controlled.   

Philips introduced ColorSpark

 Further expanding its technology leadership in LED, Philips introduced ColorSpark, an innovative LEDbased technology that increases the brightness of projectors by a factor of three compared to existing LED-based solutions. It will be brought to market by major brands in the first quarter of 2016.

Leading global health institutions digitize pathology workflows with Philips to enhance disease diagnoses

 Philips’ Digital Pathology Solutions continues to gain traction in the market. In Europe and Asia Pacific, leading health institutions such as Germany’s largest telemedicine platform and Singapore General Hospital digitize their pathology workflows with Philips’ IntelliSite Pathology Solutions to enhance disease diagnoses, while in the US, Genomic Health will utilize Philips’ solutions in their operations to optimize their genomic testing process.

Philips became Leader in the Industrial Conglomerates category

 In the 2015 Dow Jones Sustainability Index, Philips became Leader in the Industrial Conglomerates category, with top scores for its Best in Class performance on Climate Strategy, Product Stewardship and Supply Chain Management.

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

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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 2014 sales of EUR 21.4 billion and employs approximately 106,000 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.

 

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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 the completion of acquisitions and divestments. 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 2014 and the “Risk and uncertainties” section in the semi-annual financial report for the six months ended June 30, 2015.

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 in the Annual Report 2014.

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 2014. Independent valuations may have been obtained to support management’s determination of fair values.

Presentation


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 2014, unless otherwise stated. The presentation of certain prior-year information has been reclassified to conform to the current-year presentation.


In 2014, we announced plans to establish two standalone companies focused on the HealthTech and Lighting opportunities. The proposed separation of the Lighting business impacts all businesses and markets as well as all supporting functions and all assets and liabilities of the Group. Philips expects to complete the separation of the Lighting business in the first half of 2016. We expect to continue reporting in the existing structure until the changes in the way we allocate resources and analyze performance in the new structure have been completed.

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