Philips' Third Quarter Results 2018

Third-quarter highlights

• Sales in the quarter were EUR 4.3 billion, with comparable sales growth of 4% 
• Comparable order intake increased 11% compared to Q3 2017 
• Net income from continuing operations increased 17% to EUR 307 million, compared to EUR 263 million in Q3 2017 
• Adjusted EBITA margin improved by 40 basis points to 13.2% of sales, including a 60 basis points adverse currency impact, compared to 12.8% of sales in Q3 2017 
• Income from operations (EBIT) increased to EUR 451 million, compared to EUR 299 million in Q3 2017 
• Operating cash flow totaled EUR 265 million, compared to EUR 295 million in Q3 2017

Frans van Houten, CEO:

“While I am pleased with the continued strong 11% order intake growth in the quarter, operational improvements were partly offset by increased foreign exchange headwinds. This resulted in a 40 basis points improvement in Adjusted EBITA margin on the back of 4% comparable sales growth.

The Diagnosis & Treatment businesses continued their strong performance, driven by our innovative product and solutions portfolio. Our Connected Care & Health Informatics businesses also showed continued solid order intake growth; however, sales decreased 2% compared to a very strong third quarter in 2017. I am encouraged by the step-up in sales growth of the Personal Health businesses compared to the first half of 2018, but the recovery was slower than expected as good growth in our growth geographies was partially offset by lower growth in our mature geographies.

Looking ahead, while observing continuing headwinds, for which we are taking appropriate measures, 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

All of the Diagnosis & Treatment businesses recorded a double-digit increase in comparable order intake, driven by double-digit growth in China and Western Europe and high-single-digit growth in North America. Comparable sales increased by 6%, with double-digit growth in Ultrasound, high-single-digit growth in Image-Guided Therapy and mid-single-digit growth in Diagnostic Imaging. The Adjusted EBITA margin was 40 basis points higher than in the same period last year, mainly due to growth, partly offset by investments in growth.

The Connected Care & Health Informatics businesses delivered a mid-single-digit increase in comparable order intake, driven by Healthcare Informatics. Comparable sales decreased 2%, compared to 8% comparable sales growth in Q3 2017. The Adjusted EBITA margin decreased by 190 basis points year-on-year, mainly due to lower sales and an unfavorable mix impact.

In the Personal Health businesses, comparable sales growth was 4%, with mid-single-digit growth in Sleep & Respiratory Care and Personal Care. On a geographical basis, this reflected high-single-digit comparable sales growth in the growth geographies, and flat growth in the mature geographies. The Adjusted EBITA margin increased by 10 basis points, reflecting operational improvements, largely offset by adverse currency effects and higher advertising & promotion spend.

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

• Continuing Philips’ success in long-term strategic partnerships, the company signed six new agreements across the globe. Philips partnered with Children’s Health hospital in Dallas – one of the top pediatric hospitals in the US – to improve pediatric care with its patient monitoring and healthcare informatics solutions. In Australia, Philips announced its first two long-term strategic partnership agreements, which aim to support precision diagnosis and therapy and drive operational performance improvements across nine hospital sites.
• As a leader in image-guided therapy, Philips launched its EPIQ CVxi ultrasound system combined with the latest version of its unique EchoNavigator software specifically designed for minimally invasive structural heart repairs, a fast-growing image-guided therapy segment. Moreover, the adoption of Philips’ proprietary iFR technology reached a major milestone after its inclusion in the European Society of Cardiology’s updated guidelines for the assessment of coronary artery lesions.
• Continuing the renewal of its diagnostic imaging portfolio, Philips launched the Ingenia Ambition X 1.5T MR with fully sealed BlueSeal magnet technology in the US. As an industry first, Ingenia Ambition X enables imaging departments to perform more productive, helium-free operations.
• Building on its strengths in healthcare informatics, Philips entered into a multi-year partnership agreement with St. Andrew’s Toowoomba Hospital in Australia for the hospital-wide installation of Philips Tasy EMR. Philips will fully digitize the hospital’s entire care management processes and enable anytime, anywhere access to clinical analytics.
• Philips completely renewed the high-end range of its leading male grooming portfolio with the introduction of the Series 9000 Prestige shaver, which cuts facial hair feeling as close as a wet blade, while being very gentle on the skin.
• Philips’ Sleep & Respiratory Care business continues to garner traction for its market-leading home ventilation offerings, such as the new Trilogy Evo ventilator platform, which is the only portable life support solution designed to stay with patients as they change care environments.
• As the leading provider of digital and computational pathology solutions, Philips teamed up with Oxford University Hospitals NHS Foundation Trust to create a digital pathology network in the UK. Philips also released a new version of its AI-powered TissueMark, which will enable molecular research labs to reduce variability in tumor estimation and related costs.

Cost savings

In the third quarter, procurement savings amounted to EUR 72 million. Overhead and other productivity programs resulted in savings of EUR 52 million. With year-to-date savings of EUR 330 million, Philips is well on track to deliver annual savings of EUR 400 million in 2018, as the company is taking additional measures to mitigate the increased headwinds.

Capital structure

Details of Philips’ current EUR 1.5 billion share buyback program, which was initiated in the third quarter of 2017 for capital reduction purposes, can be found here.

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.

Quarterly Report