Philips' Third Quarter Results 2016

 

Philips reports Q3 sales of EUR 5.9 billion, a 14% improvement in Adjusted EBITA to EUR 649 million, and an 18% increase in net income to EUR 383 million 

October 24, 2016

Third-quarter highlights

  • Sales increased to EUR 5.9 billion, with consolidated comparable sales growth of 2% and the HealthTech portfolio growing by 5%
  • Adjusted EBITA amounted to EUR 649 million, or 11.0% of sales, compared to 9.8% of sales in Q3 2015
  • EBITA totaled EUR 567 million, or 9.6% of sales, compared to 7.4% of sales in Q3 2015
  • Income from operations (EBIT) amounted to EUR 481 million, compared to EUR 342 million in Q3 2015
  • Net income amounted to EUR 383 million, compared to EUR 324 million in Q3 2015
  • Operating cash flow totaled EUR 500 million, compared to EUR 281 million in Q3 2015; free cash flow of EUR 280 million, compared to EUR 58 million in Q3 2015

 

Frans van Houten, CEO:

 

“I am pleased with the solid 5% comparable sales growth and 8% order intake growth in our HealthTech portfolio in the third quarter. Overall, Philips posted 2% comparable sales growth, and the operational improvements at the Personal Health and Diagnosis & Treatment businesses, combined with continued improvements at Philips Lighting, led to the 120-basis-point increase in the Adjusted EBITA margin for the Philips Group.
 

Our outlook for 2016 remains unchanged, as we expect further earnings improvements in the fourth quarter of the year. Going forward, we remain concerned about risk due to volatility in the markets in which we operate.”

 

HealthTech

 

“Underlining our strategic focus on innovation, we saw healthy growth in order intake in the quarter, as well as solid sales growth and margin expansion. This was driven by recent product introductions across our HealthTech portfolio and by continued synergies from the integration of Volcano in Image-Guided Therapy. Our Accelerate! transformation program again delivered operational improvements across our businesses, while we also continue to invest significantly in quality and innovation, including in health informatics, wearable patient monitoring solutions and digital pathology.”

 

The Personal Health businesses grew by 7% on a comparable basis, with growth across the portfolio, most notably double-digit growth in Health & Wellness, and the Adjusted EBITA margin improving by 130 basis points. The Diagnosis & Treatment businesses showed comparable sales growth of 6% and the Adjusted EBITA margin improved by 210 basis points, mainly driven by Image-Guided Therapy and improvements at the Cleveland site. In the Connected Care & Health Informatics businesses, comparable sales growth in Healthcare Informatics, Solutions & Services was mainly offset by a decline in Patient Care & Monitoring Solutions, which also resulted in a decrease of the Adjusted EBITA by 180 basis points. Equipment-order intake increased by 8% on a currency comparable basis, driven by the Connected Care & Health Informatics businesses.

 

  • In line with Philips’ strategy of delivering solutions consisting of smart devices, software and services to address specific customer needs, the company signed a 3-year patient monitoring solutions agreement with Rush University Medical Center, Chicago.
  • Leveraging its expertise in cardiology, Philips signed a 5-year interventional cardiology solutions agreement with DeltaHealth in China for its new DeltaHealth Hospital Shanghai, which will specialize in cardiac care. The agreement comprises interventional X-ray systems, ultrasound imaging, software and services.
  • Philips introduced a range of personalized health programs at this year’s IFA trade show in Berlin, including the Philips Sonicare FlexCare Platinum Connected toothbrush and the uGrow medical-grade baby app. The health programs leverage Philips HealthSuite, a cloud-enabled connected health ecosystem of devices, apps and digital tools.
  • Philips acquired Wellcentive, a leading US-based provider of population health management software solutions. Wellcentive complements Philips’ portfolio with cloud-based IT solutions to import, aggregate and analyze clinical, claims and financial data across hospital and health systems to help care providers deliver coordinated care.
  • Building on its expertise in new care models based on telehealth technologies, Philips enabled Macquarie University’s MQ Health in Sydney, Australia, and Emory Healthcare in Atlanta, US, to provide continuous night-time critical care oversight to ICU patients back in Atlanta during daytime hours in Australia.
  • In the 2016 Interbrand annual ranking of the world’s most valuable brands, Philips’ ranking improved to #41 from #47, with a total estimated brand value of approximately USD 11.3 billion.
  • Philips became the Industry Group Leader in the Capital Goods category in the 2016 Dow Jones Sustainability Index, achieving the highest possible scores in three sections, including climate strategy and operational eco-efficiency.

 

Philips Lighting

 

In the third quarter, Adjusted EBITA improved by 250 basis points to 10.1% of sales, while comparable sales declined by 3% and free cash flow improved to EUR 164 million. Full details about the financial performance of Philips Lighting in the third quarter were published on October 20, 2016. The related report can be accessed here. Following the listing of Philips Lighting in Amsterdam, Philips holds a 71.225% stake with the aim of fully selling down over the next several years. As the majority shareholder in Philips Lighting, Philips continues to consolidate the financial results of Philips Lighting.

 

Group cost savings

In the third quarter, overhead cost savings amounted to EUR 12 million, the Design for Excellence (DfX) program generated EUR 102 million of incremental procurement savings, and the End2End improvement program achieved EUR 66 million in productivity gains.

 

Miscellaneous

As of September 30, 2016, Philips had completed 98% of the 3-year EUR 1.5 billion share buy-back program. The buy-back was completed on October 20, 2016. On October 19, 2016, Philips announced the final results of the tender offer for certain outstanding notes, which the company started on September 20, 2016. The aggregate principal amount of the purchased notes was USD 285 million, and in Q3 2016 the tender offer resulted in a EUR 98 million charge recognized in Financial expenses.

 

Quarterly Report

Third quarter results 2016 - Quarterly Report


Presentation

Third quarter results 2016 - 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 10:00 am CET, October 24, 2016. A live audio webcast of the conference call will be available through the link below.
Q3 2016 - Third quarter 2016 results 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

For further information, please contact:

Joost Akkermans

Philips Group Communications

Tel.: +31 6 3175 8996

E-mail: joost.akkermans@philips.com

 

Ben Zwirs

Philips Group Communications

Tel.: +31 6 15213446

E-mail: ben.zwirs@philips.com

About Royal Philips

Royal Philips (NYSE: PHG, AEX: PHIA) is a leading health technology company focused on improving people's health and enabling better outcomes across the health continuum from healthy living and prevention, to diagnosis, treatment and home care. Philips leverages advanced technology and deep clinical and consumer insights to deliver integrated solutions. Headquartered in the Netherlands, the company is a leader in diagnostic imaging, image-guided therapy, patient monitoring and health informatics, as well as in consumer health and home care. Philips' health technology portfolio generated 2015 sales of EUR 16.8 billion and employs approximately 70,000 employees with sales and services in more than 100 countries. News about Philips can be found at www.philips.com/newscenter.

Forward-looking statements and other important information

 

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, 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; and the state of international capital markets as they may affect the timing and nature of the dispositions by Philips of its interests in Philips Lighting and the combined Lumileds and Automotive businesses. 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 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 2015.

 

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 2015. 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 2015, unless otherwise stated.

 

Prior-period financial statements have been restated to reflect a reclassification of net defined-benefit post-employment plan obligations to Long-term provisions in accordance with the accounting policies as stated in the Semi-annual Report of 2016.

 

Market Abuse Regulation

This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.