Philips’ First Quarter Results 2017

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The FINANCIALFrans van Houten, CEO:

 “We had a solid start to the year, with 2% Group comparable sales growth and a 90-basis-point improvement in the Adjusted EBITA margin. Despite continued volatility in the markets in which we operate, our HealthTech portfolio grew 3% and achieved further operational improvements, resulting in an 80-basis-point increase in the Adjusted EBITA margin.

Our Diagnosis & Treatment businesses and our Personal Health businesses delivered strong margin improvements, while our Connected Care & Health Informatics businesses reflected the unevenness of sales from large hospital informatics deals. Comparable order intake growth was 2%, driven by mid-single-digit growth in the Diagnosis & Treatment businesses.

During what was a very active quarter, in line with our strategic plan we decreased our shareholding in Philips Lighting to 55%. We continued to strengthen our position as a leader in health technology by launching several breakthrough innovations, forging strategic partnerships and winning various integrated solutions deals. The recent STOXX Europe 600 Index reclassification of Philips’ shares to ‘Health Care’ from ‘Industrial Goods & Services’ acknowledges our transformation into a health technology company.

As we execute our strategy, we will further improve our underlying performance and target to deliver 4-6% comparable sales growth and an improvement in Adjusted EBITA margin of around 100 basis points per year. Our outlook for 2017 remains unchanged as we expect further operational improvements and comparable sales growth in the year to be back-end loaded.”

HealthTech

In the first quarter, the Personal Health businesses increased sales by 5% on a comparable basis, with growth across the portfolio as Health & Wellness and Sleep & Respiratory Care recorded high-single-digit growth; the Adjusted EBITA margin improved by 150 basis points. The Diagnosis & Treatment businesses posted comparable sales growth of 2%, and the Adjusted EBITA margin improved by 190 basis points, driven by Diagnostic Imaging. In the Connected Care & Health Informatics businesses, comparable sales increased 1%, while the Adjusted EBITA margin was 30 basis points lower than in the same period last year, mainly reflecting lower growth and higher channel investments.

The continued focus and investments in R&D led to a number of breakthrough innovations and strategic collaborations:

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Philips reinforced its leadership in image-guided therapy solutions with the global launch of Philips Azurion, the next-generation image-guided therapy platform that enables clinicians to perform a wide range of routine and complex procedures, helping them to optimize interventional lab performance and provide superior care.

Philips Volcano continued its strong performance as the business reached an important milestone with the results of two large clinical trials demonstrating the benefits of Philips’ Instant Wave-Free Ratio (iFR) technology compared to Fractional Flow Reserve (FFR), the current standard, removing a critical barrier for the use and adoption of iFR to decide, guide and confirm appropriate therapies.

B. Braun and Philips entered into a strategic alliance to innovate and accelerate growth in ultrasound-guided regional anesthesia and vascular access. The alliance launched Xperius, a new co-branded mobile ultrasound system specifically designed as the platform to support current and future integrated solutions in this fast-growing market.

Building on its strategy to deliver relevant solutions and business models, Philips signed an agreement to acquire Australian Pharmacy Sleep Services (APSS), a pioneer in pharmacy sleep testing. APSS will complement Philips’ sleep and respiratory care portfolio and will help to accelerate the business’s home sleep testing offering through the pharmacy channel in Australia.

At the International Dental Show in Germany, the world’s leading trade fair for the dental sector, Philips revealed the Philips Sonicare DiamondClean Smart toothbrush and Philips Sonicare Breath care system with breath analyzer, an all-in-one connected oral care platform. Philips also presented the results of a new clinical study demonstrating the effectiveness of Philips Sonicare power toothbrushes and Philips AirFloss Ultra.

Demonstrating the success of telehealth technologies, Emory Healthcare (US) achieved savings of USD 4.6 million over a period of 15 months by using Philips’ eICU platform. Similarly, with the help of Philips’ Intensive Ambulatory Care program, Banner Health (US) reduced hospitalizations for chronically ill patients with multiple conditions by nearly 50%, reducing overall cost of care by more than one third.

Expanding its health informatics portfolio, Philips launched its IntelliSpace Enterprise Edition, an industry-first managed service solution for hospital-wide clinical informatics and data management. The high-performance, secure and scalable health informatics platform enables health systems to manage the growth and cost of their clinical enterprise with a pay-per-use model.

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Further strengthening its portfolio of imaging solutions, Philips received FDA 510(k) clearance for its ElastQ ultrasound imaging technology for non-invasive assessment of liver conditions. Philips also launched Access CT, a new CT system designed for healthcare organizations seeking to establish or enhance CT imaging capabilities at affordable cost, according to Philips.

Cost savings

In the first quarter, procurement savings amounted to EUR 41 million. Other productivity programs resulted in savings of EUR 54 million.

Philips Lighting

In the first quarter, the Adjusted EBITA margin improved by 130 basis points to 8.5% of sales, while comparable sales were flat, and free cash flow amounted to EUR 2 million. Full details about the financial performance of Philips Lighting in the first quarter were published on April 21, 2017. The related report can be accessed here.

On February 8, 2017, Philips sold 26 million shares in Philips Lighting, of which 3.5 million shares were acquired by Philips Lighting (and will be cancelled). Philips’ shareholding in Philips Lighting decreased to 55.18% of Philips Lighting’s issued and outstanding share capital, down from 71.225% prior to the transaction. Philips continues to consolidate the financial results of Philips Lighting and maintains its aim of fully selling down over the coming years.

Philips Group other

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.

Financing

On January 20, 2017, Philips completed the redemption of the outstanding 5.750% Notes due 2018 with an aggregate principal amount of USD 1.250 billion. The transaction resulted in a cash outflow in the first quarter of 2017 of EUR 1.247 billion excluding accrued interest. The transaction contributed to Philips’ plan to reduce its annual interest expenses by approximately EUR 100 million.

 

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