Philips Q1 Profit Drops

Philips Q1 Profit Drops

Philips Q1 Profit Drops

The FINANCIAL -- 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, according to Philips.

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.