Philips' Second Quarter Results 2017

 

Philips reports Q2 sales of EUR 4.3 billion, with 4% comparable sales growth; net income from continuing operations amounted to EUR 161 million, driven by a 15% increase in Adjusted EBITA to EUR 439 million

July 24, 2017

Second-quarter highlights

  • Sales increased to EUR 4.3 billion, with comparable sales growth of 4%; comparable order intake increased 8% compared to Q2 2016
  • Net income from continuing operations amounted to EUR 161 million, compared to EUR 118 million in Q2 2016
  • Adjusted EBITA improved 15% to EUR 439 million, or 10.2% of sales, compared to EUR 383 million, or 9.3% of sales, in Q2 2016
  • Income from operations (EBIT) amounted to EUR 252 million, or 5.9% of sales, compared to EUR 265 million, or 6.4% of sales, in Q2 2016
  • Operating cash flow totaled EUR 73 million, compared to EUR 177 million in Q2 2016
  • EUR 1.5 billion share buyback program to start in the third quarter of 2017
  • As of Q2 2017, Philips presents the results of Philips Lighting as a discontinued operation

 

Frans van Houten, CEO:


“Philips’ performance in the second quarter of 2017 was solid, with 4% comparable sales growth in our HealthTech portfolio driven by Western Europe, North America and China, and a strong 8% increase in our order intake. We achieved a 90-basis-point increase in the Adjusted EBITA margin, driven by higher volumes, operational improvements and cost productivity.

 

Our Personal Health businesses delivered another strong quarter, with 6% comparable sales growth and a 120-basis-point improvement in the Adjusted EBITA margin. In a soft market, our Diagnosis & Treatment businesses showed a robust 3% comparable sales growth, strong order intake growth and an 80-basis-point operational improvement. Our Connected Care & Health Informatics businesses recorded a 90-basis-point increase in the Adjusted EBITA margin, and I am confident that the performance of these businesses will continue to improve in the second half of the year, based on the strength of their order book.

 

In the second quarter, we extended our portfolio with targeted acquisitions that we identified in the past two years. For example, to strengthen the leading position of our Image-Guided Therapy business and expand its portfolio of therapy devices, we signed an agreement to acquire Spectranetics, a leader in vascular intervention and lead management solutions. We also acquired CardioProlific, a US-based start-up company that develops catheter-based thrombectomy technology to treat peripheral vascular disease. I am also pleased with the progress of several of our organic growth initiatives, such as the FDA clearance of our comprehensive Digital Pathology solution for primary diagnostic use in the US. Furthermore, we completed the Lumileds transaction and reduced our stake in Philips Lighting to 41.16% net.

 

In line with our Capital Allocation policy, which aims at a balanced mix of investments in organic and inorganic growth opportunities, actions to drive balance sheet efficiency and returns to shareholders, we also announced a new EUR 1.5 billion share buyback program to be launched in the third quarter of 2017. This program will more than offset the share dilution in connection with Philips’ long-term incentive programs and dividend in shares.

Despite continued volatility in the markets in which we operate, our outlook for 2017 remains unchanged as we expect further operational improvements and comparable sales growth in the year to be back-end loaded, supported by a strong order book. We are on track to deliver 4-6% comparable sales growth and an improvement in Adjusted EBITA margin of around 100 basis points per year.”


Business segments

 

The 6% comparable sales growth of the Personal Health businesses was driven by double-digit growth in Health & Wellness, high-single-digit growth in Personal Care and mid-single-digit growth in Sleep & Respiratory Care; the Adjusted EBITA margin improved by 120 basis points. The 3% comparable sales growth of the Diagnosis & Treatment businesses was driven by mid-single-digit growth in Ultrasound and Image-Guided Therapy, while the Adjusted EBITA margin improved by 80 basis points. Comparable order intake increased by 7%, with all business groups contributing. In the Connected Care & Health Informatics businesses, comparable sales increased by 1%, reflecting low-single-digit growth in Patient Care & Monitoring Solutions. The Adjusted EBITA margin was 90 basis points higher than in the same period last year. Comparable order intake increased by 8%.

 

Philips’ ongoing focus on innovation through organic and inorganic growth initiatives resulted in the following highlights in the quarter:

  • Building on its portfolio of long-term strategic partnerships, Philips signed multiple new agreements in the quarter. For example, Philips has partnered with the Singapore Institute of Advanced Medicine Holdings to provide its new oncology center with a range of Philips’ advanced diagnostic imaging systems, combined with clinical informatics and services for a multi-year term. Philips also signed a new 10-year Managed Equipment Services agreement for patient monitoring solutions with Le Confluent, one of the top three private hospitals in France for cardiovascular care.
  • Demonstrating further progress on advanced data analytics, Philips received FDA clearance for its IntelliSpace Portal 9.0 and a range of innovative applications for radiology. The platform gives clinicians a comprehensive view of each patient, helping them to diagnose conditions. Further highlighting its leadership in health informatics, Philips signed several multi-year agreements with hospitals in the US to provide them with enterprise imaging informatics solutions.
  • Philips’ IntelliSite Pathology Solution is currently the only digital pathology solution in the US to receive FDA clearance for primary diagnostic use. This achievement reinforces Philips’ leadership in digital pathology, a solution that is central to the diagnosis of complex diseases such as cancer.
  • Building on its leadership in power toothbrushes, the Philips Sonicare DiamondClean Smart pilot with top Chinese online retailer JD.com reached a 94% rating (out of a full score of 100%), with consumers highlighting the benefits of the coaching app and the premium design.
  • Strengthening its Personal Health businesses, Philips acquired UK-based Health & Parenting, a leading developer of mobile applications for expectant and new parents, used by one in two expectant mothers in the UK. The company also signed an agreement to acquire Respiratory Technologies, a US-based provider of an innovative airway clearance solution for patients with chronic respiratory conditions.
  • To further strengthen its Diagnosis & Treatment businesses, Philips signed an agreement to acquire Spectranetics. Its highly complementary portfolio, including laser atherectomy catheters, the AngioSculptX drug-coated scoring balloon and the Stellarex drug-coated balloon, will support Philips’ expansion in image-guided therapy devices. Furthermore, to reinforce its leadership position in ultrasound, Philips acquired TomTec Imaging Systems, a leading provider of clinical applications and intelligent image-analysis software.

 

Cost savings

 

In the second quarter, procurement savings amounted to EUR 61 million. Other productivity programs resulted in savings of EUR 48 million.

 

Capital Allocation

 

As announced on June 28, 2017, Philips will launch a share buyback program for an amount of EUR 1.5 billion in the third quarter of 2017, to be completed in two years. As the program will be initiated for capital reduction purposes, Philips intends to cancel all of the shares acquired under the program. Philips intends to execute part of the program through a series of individual forward transactions, unevenly distributed over the two-year period.

 

In July 2017, Philips made a contribution of USD 250 million to the Philips US pension fund to further improve the funding ratio. This will further decrease Philips’ interest costs going forward.

 

Miscellaneous

 

As previously reported, Philips continues to be in discussions on a civil matter with the US Department of Justice representing the FDA, arising from past inspections by the FDA in and prior to 2015, focusing primarily on the external defibrillator business in the US.

 

Philips Lighting

 

On April 25, 2017, Philips sold 22.25 million shares in Philips Lighting, of which 3.5 million shares were acquired by Philips Lighting and were cancelled. Philips’ shareholding in Philips Lighting decreased to 40.97% of Philips Lighting’s issued and outstanding share capital, down from 55.18% prior to the transaction. In addition, in Q2 2017, Philips Lighting acquired 0.65 million of its own shares in connection with its long-term incentive programs. As of June 30, 2017, Philips’ shareholding in Philips Lighting was 41.16% of the issued and outstanding share capital. Philips continues to consolidate Philips Lighting under International Financial Reporting Standards (IFRS). As loss of control is highly probable within one year due to further sell-downs, Philips Lighting is presented as a discontinued operation in the financial statements of Philips as of the second quarter of 2017. Full details about the financial performance of Philips Lighting in the second quarter were published on July 21, 2017. The related report can be accessed here.


Quarterly Report

Second Quarter Results 2017 - Quarterly Report

Presentation

Second Quarter Results 2017 - 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, July 24, 2017. A live audio webcast of the conference call will be available through the link below.

Q2 2017 - Second Quarter 2017 Results conference call audio webcast

 

More information about Frans van Houten and Abhijit Bhattacharya

 

Click here for Mr. van Houten's CV

Click here for Mr. Bhattacharya's CV

 

For further information, please contact:

Steve Klink

Philips Group Press Office

Tel.: +31 6 10888824

E-mail: steve.klink@philips.com 

 

Ben Zwirs

Philips Group Press Office

Tel: +31 6 1521 3446

Email: 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 2016 sales of EUR 17.4 billion and employs approximately 71,000 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, including the tender offer for and merger with Spectranetics. 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 Spectranetics, 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 disposition by Philips of its interests in Philips Lighting. 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 2016.

 

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 2016. Comparable order intake and Adjusted EBITDA are measures included to enhance comparability with other companies.

 

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 2016. 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. Due to rounding, amounts may not add up precisely to totals provided. All reported data is unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2016, unless otherwise stated.

 

In addition, we have simplified our Q1 and Q3 reporting by excluding the cash flow statement, the statement of changes in equity and certain other tables in the detailed financial information section not required to be disclosed. In our semiannual and annual reporting we will continue to present these statements and tables. Summary cash flow information is provided in the Philips performance section of this document.

 

Prior-period financial statements have been restated for the treatment of the segment Lighting as discontinued operations.

 

Market Abuse Regulation
 

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