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Philips’ Second Quarter Results 2019

Philips delivers Q2 sales of EUR 4.7 billion, with 6% comparable sales growth and 8% comparable order intake growth; income from continuing operations increases to EUR 260 million and Adjusted EBITA margin improves to 11.8%


WEBWIRE

Second-quarter highlights

  • Sales in the quarter amounted to EUR 4.7 billion, with 6% comparable sales growth
  • Comparable order intake increased 8%
  • Income from continuing operations increased to EUR 260 million, compared to EUR 186 million in Q2 2018
  • Adjusted EBITA margin was 11.8% of sales, compared to 11.2% of sales in Q2 2018
  • Income from operations increased to EUR 350 million, compared to EUR 298 million in Q2 2018
  • EPS increased as income from continuing operations per share (diluted) amounted to EUR 0.28; adjusted EPS increased 23% as adjusted income from continuing operations per share (diluted) amounted to EUR 0.43.
  • Operating cash flow amounted to EUR 390 million, compared to EUR 130 million in Q2 2018; free cash flow was EUR 174 million, compared to a free cash outflow of EUR 41 million in Q2 2018

Frans van Houten, CEO

“I am pleased with the 6% comparable sales growth in the second quarter, with all businesses contributing. We also recorded strong 8% comparable order intake growth, driven by the continued demand for our innovative product portfolio across the Diagnosis & Treatment businesses. Adjusted EBITA margin for the Group improved by 60 basis points, mainly driven by the performance improvement of the Diagnosis & Treatment businesses, despite adverse currency and tariff impacts.

We continue to expect our performance momentum to further improve in the second half of the year, supported by sales growth and our productivity programs. We maintain our overall targets of 4-6% comparable sales growth and an Adjusted EBITA margin improvement of 100 basis points on average per year for the 2017-2020 period.”

Reporting segment performance

The Diagnosis & Treatment businesses recorded 6% comparable sales growth, led by double-digit growth in Image-Guided Therapy. Comparable order intake showed a double-digit increase, driven by double-digit growth in China and Western Europe. The Adjusted EBITA margin increased to 12.3%, reflecting sales growth and productivity, partly offset by the impact of tariffs.

Comparable sales in the Connected Care businesses increased 6%, with mid-single-digit growth in Monitoring & Analytics and Sleep & Respiratory Care. Comparable order intake showed a mid-single-digit decline, reflecting the uneven order intake dynamics. The Adjusted EBITA margin decreased to 12.1%, mainly due to tariffs, adverse currency impact and mix.

The Personal Health businesses delivered comparable sales growth of 5%, with high-single-digit growth in Oral Healthcare and mid-single-digit growth in Personal Care and Domestic Appliances. The Adjusted EBITA margin decreased to 13.4%, as the operational leverage from sales growth was offset by investments in advertising.

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

  • Philips signed a 10-year agreement with Centre Hospitalier Régional Universitaire de Nancy in France to implement Philips’ IntelliSpace Enterprise Imaging Solution. The collaboration will enable the hospital, which provides 1.2 million consultation visits and inpatient stays each year, to streamline complex medical image data management across its departments.
  • Philips announced a 10-year agreement with Rutherford Diagnostics to deliver advanced imaging solutions to its five new diagnostic centers across the UK. As the technology partner, Philips will provide advanced imaging systems and software, as well as managed technology services, including training and consultancy, and will establish a joint innovation program.
  • Strengthening its leadership in cardiac ultrasound, Philips extended the advanced automation capabilities on its EPIQ CVx cardiology ultrasound platform, making exams faster and easier to conduct while improving clinician productivity.
  • Philips’ Image-Guided Therapy Devices business delivered double-digit growth, driven by all major coronary and peripheral vascular product families. The company presented the three-year results from two major Stellarex clinical studies involving approximately 600 patients, demonstrating that its Stellarex drug-coated balloon (DCB) is the only low-dose DCB with a significant treatment effect and high safety profile through three years. Both studies showed no difference in mortality compared with the current standard of care.
  • Philips teamed up with US insurance company Humana to improve care for at-risk, high-cost populations. The pilot program will support independent living for high-acuity patients with congestive heart failure by providing 24/7 access to care. Philips’ remote monitoring capabilities will allow care managers to deliver timely interventions for these patients.
  • Philips’ solutions to treat obstructive sleep apnea, a condition that affects more than 100 million patients globally, continue to garner healthy demand, supported by the continued strong reception for DreamStation GO’s expanded portable therapy options.
  • Broadening its leading portfolio of power toothbrushes, Philips launched Sonicare DailyClean, an entry-level proposition to address lower price segments, and Sonicare ExpertClean, featuring premium brush heads, connectivity and design, in the US.
  • Following the successful roll-out of the Philips Shaver Series 9000 Prestige in Q4 2018, Philips has gained significant market share in the premium shaver market, especially in China, Germany and the US. Consumers appreciate the shaver, with global Rating & Review scores of 4.7 stars.

Cost savings

In the second quarter of 2019, cost savings totalled EUR 146 million, reflecting procurement savings of EUR 48 million and savings from overhead and other productivity programs of EUR 98 million.

Capital allocation

In the second quarter of 2019, Philips completed its EUR 1.5 billion share buyback program for capital reduction purposes that was announced on June 28, 2017. As of the end of the second quarter of 2019, Philips has completed 21.1% of its new EUR 1.5 billion share buyback program for capital reduction purposes that was announced on January 29, 2019. Further details can be found here

In the quarter, Philips completed the cancellation of 30 million shares that were acquired as part of the share buyback programs mentioned above.

Additionally, Philips successfully placed a EUR 750 million 0.500% Green Innovation Bond due 2026.

Regulatory update

Philips continues to fulfill its obligations under the Consent Decree [1]. The US Food and Drug Administration (FDA) reverted to Philips with follow-up requests, on which the company is currently acting.

[1] Under the Consent Decree, Philips continues to export its range of AED devices and manufacture and distribute its H1/OnSite/Home automated external defibrillator (AED) model in the US. The company also continues to service the AEDs and provide consumables and the relevant accessories.

Quarterly Report

Second Quarter Results 2019 - Quarterly Report
 

Presentation

Second Quarter Results 2019 - 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, July 22, 2019. A live audio webcast of the conference call will be available through the link below.

Q2 2019 – Second quarter 2019 results conference call audio webcast


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