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April 23, 2018

Philips' First Quarter Results 2018


Philips reports Q1 sales of EUR 3.9 billion, with 5% comparable sales growth; net income from continuing operations of EUR 94 million, and Adjusted EBITA margin increased 130 basis points to 8.7%

First-quarter highlights

  • Sales in the quarter were EUR 3.9 billion, with comparable sales growth of 5%
  • Comparable order intake increased 10% compared to Q1 2017
  • Net income from continuing operations was EUR 94 million, which includes higher restructuring and acquisition related charges and bond redemption costs of EUR 52 million, compared to EUR 128 million in Q1 2017
  • Adjusted EBITA margin improved by 130 basis points to 8.7% of sales, compared to 7.4% of sales in Q1 2017
  • Operating cash inflow totaled EUR 92 million

 

Frans van Houten, CEO:


“While there is more work to be done, 2018 started well, with 10% comparable order intake growth, 5% comparable sales growth and a 130 basis point improvement in operational profitability. Good traction of new products and solutions introduced last year contributed to 9% comparable sales growth in the Diagnosis & Treatment businesses. Across our markets, we continue to see strong customer interest in our innovations, as demonstrated by the mid-teens order intake growth in the Diagnosis & Treatment businesses. In the quarter, we continued to make good progress with our productivity programs and took action to further reduce our interest expenses.

 

We strengthened our position as a health technology leader with our innovative, integrated solutions as our strategy in Image-Guided Therapy is delivering results, evidenced by the robust order growth of the new Azurion platform and the continued strong growth in the device business, built on the Volcano and Spectranetics acquisitions. Furthermore, we signed 8 long-term strategic partnership agreements across the US, Europe and the Middle East. For example, in the UK, Philips signed an 11-year agreement with Wye Valley NHS Trust to transform radiology services across its sites. Philips will deliver its latest diagnostic imaging systems and advanced informatics, while also providing on-site collaboration and staff training to meet the agreed goals. Additionally in the Netherlands, Philips signed a 15-year partnership with ZorgSaam Hospital, comprising imaging and image-guided therapy systems, healthcare informatics and a range of services to advance the diagnosis and treatment of patients.

 

Looking ahead, we reiterate our targets for the 2017–2020 period of 4-6% comparable sales growth and an average annual 100 basis points improvement in Adjusted EBITA margin.”

Business segments

 

In the first quarter, all business segments continued to deliver operational improvements and increased profitability.

 

In the Diagnosis & Treatment businesses, comparable order intake grew by 15%, driven by double-digit growth across all businesses. Comparable sales increased by 9%, with strong growth in Diagnostic Imaging, Ultrasound and Image-Guided Therapy. The Adjusted EBITA margin was 140 basis points higher than in the same period last year, mainly due to growth and improved mix.

 

In the Personal Health businesses, comparable sales growth was 4%, reflecting high-single-digit growth in Sleep & Respiratory Care and mid-single-digit growth in Personal Care. Lower demand in the Air purification market in China impacted the comparable sales growth of the Personal Health businesses by 150 basis points. Overall, the Adjusted EBITA margin increased by 30 basis points.

 

In the Connected Care & Health Informatics businesses, comparable order intake increased by 1%. Comparable sales growth was flat year-on-year and included double-digit growth in Healthcare Informatics. The Adjusted EBITA margin improved by 180 basis points, mainly due to operational improvements.

 

Philips’ ongoing focus on innovation resulted in the following highlights in the quarter:

 

  • As part of Philips’ new introductions to drive growth in Diagnostic Imaging, the company launched the Ingenia Elition, a new 3.0T MRI solution which offers superb image quality while performing exams up to 50% faster. In the US, Philips received FDA 510(k) clearance to market ProxiDiagnost N90, its latest digital X-ray system designed for low dose, high image quality and fast workflows.
  • The expansion of the Ultrasound business beyond its core strength in cardiac ultrasound into attractive adjacencies continues to be successful. For example, the new OB/GYN ultrasound innovations that Philips introduced in 2017 for its EPIQ and Affiniti ultrasound systems drove the strong double-digit growth in comparable order intake for the business in the quarter.
  • Leveraging its expertise in cardiology, Philips provided the University of Ottawa Heart Institute, the largest heart center in Canada, with image-guided therapy and patient monitoring solutions. Also in Canada, Philips provided image-guided therapy solutions to Royal Victoria Regional Health Centre.
  • Philips’ Image-Guided Therapy Devices continued its strong momentum, supported by a growing amount of clinical data. The recent results of the DEFINE FLAIR trial demonstrated that an iFR-guided strategy reduces costs, improves patient comfort compared to an FFR-guided strategy, and delivers consistent patient outcomes.
  • To expand its leadership in patient monitoring solutions, Philips launched FocusPoint, a web-based operational performance management application for its patient monitoring solutions. The application aggregates, processes and stores statistical and alert information, which are presented on a dashboard for optimal management of the technology.
  • Highlighting Philips’ leadership in Healthcare Informatics, IntelliSpace Portal, Philips’ advanced data integration, visualization and analysis platform, has been named 2018 Category Leader in the Advanced Visualization category in the 2018 Best in KLAS: Software & Services report.
  • In line with Philips’ focus on innovations, the company launched the new Philips Sonicare ProtectiveClean power toothbrush in North America, with further roll-out planned in the coming quarters. Furthermore, Philips introduced the Philips OneBlade Face + Body, its latest innovation in male grooming technology, in the US, UK, France and Canada.
  • Building on the success of Philips’ integrated Dream Family, the company introduced the DreamWear Full Face mask, the third option available for its award-winning DreamWear mask system. Helping drive clinical education in its growth geographies, Philips opened South-East Asia’s first Sleep and Respiratory Education Center in Singapore to train healthcare professionals from across the region to better diagnose and treat sleep and respiratory disorders.

 

Cost savings

 

In the first quarter, procurement savings amounted to EUR 50 million. Overhead and other productivity programs resulted in savings of EUR 51 million. Philips continues to target annual savings of EUR 400 million in 2018.

 

Capital structure

 

Philips In the first quarter Philips completed a further EUR 350 million of the EUR 1.5 billion share buyback program, which was initiated in the third quarter of 2017 for capital reduction purposes. Details about the transactions can be found here.

 

As part of the plan to reduce interest expenses and extend maturities, on March 27, 2018, Philips started the redemption of the outstanding 3.750% Notes due 2022 with an aggregate principal amount of USD 1.0 billion. The transaction will be completed on April 26, 2018 and resulted in a charge in the first quarter of 2018 of EUR 29 million, reflected in the Financial income and expenses line on the income statement. The resulting cash outflow on this transaction is expected to be approximately EUR 840 million, excluding accrued interest, in the second quarter of 2018.

 

Regulatory update

 

Philips continues to make progress in line with the terms of the consent decree, which is primarily focused on the defibrillator manufacturing in the US; this included inspections by independent auditors and resumption of shipments of its FRx and FR3 AEDs to markets outside of the US.

Quarterly Report

First Quarter Results 2018 - Quarterly Report

Presentation

First Quarter Results 2018 - 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, April 23, 2018. A live audio webcast of the conference call will be available through the link below.

Q1 2018 – First quarter 2018 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

 

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 2017 sales of EUR 17.8 billion and employs approximately 74,000 employees with sales and services in more than 100 countries. News about Philips can be found at www.philips.com/newscenter.

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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 Adjusted 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: global economic and business conditions; political instability, including developments within the European Union, with adverse impact on financial markets; 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 currency exchange rates and interest rates; future changes in tax rates and regulations, including trade tariffs; pension costs and actuarial assumptions; changes in raw materials prices; changes in 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; cyber-attacks, breaches of cybersecurity; 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 disposal by Philips of its remaining 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 2017.

 

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-IFRS information

 

In presenting and discussing the Philips Group‘s financial position, operating results and cash flows, management uses certain non-IFRS financial measures. These non-IFRS 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-IFRS 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-IFRS measures to the most directly comparable IFRS measures is contained in this document. Further information on non-IFRS measures can be found in the Annual Report 2017. As the Philips Group is applying IFRS as its Generally Accepted Accounting Principles (GAAP) we have changed the term non-GAAP information into non-IFRS information.

 

Use of fair value information

 

In presenting the Philips Group’s 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 2017. In certain cases independent valuations are 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 2017, unless otherwise stated.

 

As part of a financial reporting simplification project we have further simplified our Q1 and Q3 reporting by excluding the balance sheet as it is not required to be disclosed. In our semiannual and annual report we will continue to present this statement. Net debt to group equity information is provided in the Philips performance section of this document. Additionally we have combined HealthTech Other and Legacy Items in this report.

 

Market Abuse Regulation

 

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

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Media contacts

Ben Zwirs

Ben Zwirs

Philips Group Press Office

Tel: +31 6 1521 3446

Steve Klink

Steve Klink

Philips Group Press Office

Tel: +31 6 10888824

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