The FINANCIAL — Frans van Houten, CEO:
“Philips’ first-quarter 2016 results reflect solid comparable sales growth across our HealthTech businesses and our LED Lighting business, bolstered by the successful launch of several new products. We also delivered continued operational improvements throughout the company, driven by higher volume and improved product mix. Our overall performance strengthened, supported by the ongoing benefits of our multi-year Accelerate! transformation program, despite challenging macro-economic conditions in several markets.
Our outlook for 2016 remains unchanged, as we continue to expect earnings improvements in the year to be back-end loaded, taking into account ongoing macro-economic headwinds and the phasing of costs and sales.”
HealthTech
“Our HealthTech portfolio delivered another strong quarter, with 5% comparable sales growth overall, despite anticipated lower royalty income. We also achieved significant operational improvements, which were partly offset by ongoing investments in high-growth businesses, such as wearable patient monitoring solutions, digital pathology and health informatics. Equipment-order intake in the quarter declined by 3% on a comparable basis, after a quarter with double-digit order growth, largely reflecting the unevenness of our order intake dynamics.”
In Personal Health, comparable sales growth was 6%, with the Adjusted EBITA margin improving by 130 basis points. Diagnosis & Treatment showed 5% comparable growth, and the Adjusted EBITA margin improved by 80 basis points. Connected Care & Health Informatics grew 9%, while the Adjusted EBITA margin improved by 310 basis points.
Philips’ new integrated Dream Family solution, which is designed to improve the sleep therapy experience for people with obstructive sleep apnea, is showing strong traction in Europe and the US, with more than 200,000 Dream Family users since its introduction in 2015, and is now being launched in Japan.
Building on the synergies of the Volcano acquisition, the Image-Guided Therapy business posted a strong first quarter across its markets, supported by the expansion of its Phoenix Atherectomy catheter product range and the strong synergies between its smart catheter and systems sales forces.
In line with our strategy of building multi-year strategic partnerships, Philips signed a 15-year, USD 90 million agreement with San Francisco Bay-based Marin General Hospital that includes a managed services agreement for imaging systems, patient monitoring and clinical informatics solutions.
Strengthening its Health Informatics portfolio, Philips partnered with Hitachi Data Systems to introduce a next-generation Vendor Neutral Archive system, supporting rapid access to medical imaging and digital health records across the enterprise. Philips also teamed up with Amazon Web Services to deliver a new cloud-based, enterprise-wide rapid and secure data recovery solution.
Philips’ Oral Healthcare business continued its growth trajectory, with a strong performance in Greater China where the Philips Sonicare Essence+ was recently launched, providing consumers with a high-quality brushing experience at affordable price points.
Lighting
“Philips Lighting’s first-quarter performance improvement signals its great future as a focused, stand-alone company. Lighting posted its sixth consecutive quarter of year-on-year operational improvements, underpinning the strong potential of our LED business and the transformation from individual products to connected lighting systems and services. As a result of our market success in LED and its growing share of the overall business, Philips Lighting is expected to return to positive comparable sales growth in the course of 2016.”
LED lighting sales grew strongly by 27% and now account for 50% of overall Lighting sales. Conventional lamps sales continued their anticipated decline, contracting 15% year-on-year. The Home business delivered double-digit growth for the second consecutive quarter, while Professional in North America returned to positive growth in the quarter. The Adjusted EBITA margin at Philips Lighting increased by 60 basis points, driven by cost productivity and product mix, according to Philips.
Philips Lighting introduced great innovations at Light + Building, a leading industry trade show, showcasing its connected LED lighting growth platforms for smart cities, smart retailing, smart offices and smart homes.
Philips Lighting has partnered with Vodafone to help increase adoption of connected LED street lighting for smart cities. Currently, of the over 300 million street lights globally, less than 12% are LED and less than 2% are connected. Philips Lighting introduced DigiStreet, its new range of LED street lighting luminaires which can wirelessly connect to CityTouch, enabling the street lights to be monitored, controlled and managed remotely for additional savings on energy and maintenance.
To further fuel its LED growth, Philips Lighting continues to innovate with the introduction of three new LED lamp families: the Philips classic LED spot range to replace the popular halogen spotlight, the Philips SceneSwitch LED lamp range with its unique three light settings in one light bulb, and the Philips classic LED with DimTone.
Underlining its market leadership in dynamic connected LED lighting to transform building facades and monuments, Philips Lighting lit up two iconic landmarks in Spain: the CEPSA Tower, one of Spain’s tallest buildings, and Baño de la Cava, a World Heritage site in Toledo.
Separation Update
As previously communicated, Philips continues to simultaneously prepare for an initial public offering (IPO) or a private sale of Philips Lighting. With equity markets’ sentiment improving compared to the first couple of months of the year, an IPO increasingly appears a more likely outcome, subject to further market developments and other relevant circumstances. However, the company has not yet concluded on all proposals in the private sale process and continues to assess the attractiveness of this route compared to the IPO, both in terms of value and conditions, while taking into account the best interests of Philips and its stakeholders. As such, Philips expects to update the market on conclusions and next steps shortly.
Costs related to the separation amounted to EUR 52 million in the first quarter of 2016. For 2016, Philips now expects separation costs to be in the range of EUR 200 – 225 million.
Cost Savings
Overhead cost savings amounted to EUR 19 million in the first quarter. The Design for Excellence (DfX) program generated EUR 67 million of incremental procurement savings in the quarter. The End2End improvement program achieved EUR 41 million in productivity gains.
Miscellaneous
As of March 31, 2016, Philips had completed 82% of the 3-year EUR 1.5 billion share buy-back program.
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