Philips’ Third Quarter Results 2019

Third-quarter highlights

• Sales in the quarter amounted to EUR 4.7 billion, with 6% comparable sales growth
• Comparable order intake was in line with Q3 2018
• Income from continuing operations amounted to EUR 211 million, including a charge of EUR 78 million related to a goodwill impairment, compared to EUR 307 million in Q3 2018
• Adjusted EBITA margin was 12.4% of sales, compared to 13.2% of sales in Q3 2018
• Income from operations amounted to EUR 320 million, compared to EUR 451 million in Q3 2018
• EPS from continuing operations (diluted) amounted to EUR 0.23; Adjusted EPS from continuing operations (diluted) increased 10% compared to Q3 2018 to EUR 0.46
• Operating cash flow increased to EUR 356 million, compared to EUR 265 million in Q3 2018; free cash flow increased to EUR 126 million, compared to EUR 52 million in Q3 2018

Frans van Houten, CEO

“In the third quarter, we delivered mixed results for the Group. We recorded strong 6% comparable sales growth, driven by the innovative products and solutions across our businesses. This was reflected in the mid-single-digit comparable sales growth in mature geographies and high-single-digit growth in growth geographies, with double-digit growth in China.

Comparable order intake was flat, on the back of strong 11% growth in the third quarter of 2018, reflecting the unevenness of order intake dynamics and softness in North America. Over the last 12 months, comparable order intake grew 5%.

The Adjusted EBITA margin in the Diagnosis & Treatment and Personal Health businesses showed continued improvement. However, as we announced in our update on October 10, 2019, the Adjusted EBITA margin in the Connected Care businesses declined to 11.3%, due to increasing headwinds from tariffs and a delay in the impact of the mitigating actions, factory under-coverage and an adverse product mix impact. Adjusted EBITA for the Group was also impacted by lower license income in the segment Other.

For the full-year 2019, we continue to expect growth to be within the 4-6% range. We expect the Adjusted EBITA margin to improve around 10 to 20 basis points given the overall significant headwinds and the performance trajectory of the Connected Care businesses, which we are addressing. For 2020, we expect 4-6% comparable sales growth and an Adjusted EBITA margin improvement of around 100 basis points.”

Reporting segment performance

The Diagnosis & Treatment businesses recorded 9% comparable sales growth, with double-digit growth in Ultrasound and high-single-digit growth in Diagnostic Imaging and Image-Guided Therapy. Comparable order intake was in line with Q3 2018. The Adjusted EBITA margin increased 2.1 percentage points to 14.0%, driven by sales growth and productivity, partly offset by the impact of tariffs.

Comparable sales in the Connected Care businesses increased 5%, with mid-single-digit growth in Monitoring & Analytics and Sleep & Respiratory Care. Comparable order intake was in line with Q3 2018. The Adjusted EBITA margin decreased 4.5 percentage points to 11.3%, as outlined above.

The Personal Health businesses delivered comparable sales growth of 6%, with double-digit growth in Oral Healthcare and high-single-digit growth in Domestic Appliances. The Adjusted EBITA margin increased 0.3 percentage points to 14.7%, mainly due to sales growth, partly offset by investments and the impact of tariffs.

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

• Philips Reinforcing its global leadership in image-guided therapy, Philips launched its highly successful Azurion platform in China, following clearance from the National Medical Products Administration. Moreover, in the US, Philips launched the longer 150 mm and 200 mm versions of its Stellarex low-dose drug-coated balloons to broaden treatment options for peripheral artery disease patients.
• Philips’ app-based, mobile Lumify ultrasound solution delivered double-digit comparable sales and order intake growth, as it continues to set the industry standard by consistently delivering what customers need to provide the best care for their patients at the point of care – diagnostic clarity, reliability and continuous scanning, with a lightweight, replaceable transducer.
• Philips introduced an industry-first ‘Tube for Life’ guarantee on its new Incisive CT imaging platform in North America following its successful introduction in Europe and Asia. The new CT platform integrates innovations in imaging, workflow, and lifecycle management, helping healthcare providers with smart clinical decision-making, increased efficiency and improved experience for patients and staff.
• Philips further expanded its Enterprise Diagnostic Informatics portfolio with the completion of the acquisition of Carestream Health’s Healthcare Information Systems business. Adding a state-of-the-art cloud-based imaging data platform, Philips’ offering now includes advanced Vendor Neutral Archive solutions, diagnostic and enterprise viewers, interactive multimedia reporting, AI-enabled clinical, operational and business analytics tools, as well as tele-radiology and diagnostic patient management services.
• Reinforcing its leadership in patient monitoring solutions, Philips introduced the next-generation IntelliVue MX750 and MX850 bedside patient monitor platforms in Europe. These feature an extensive range of measurements and analytics, as well as new cybersecurity capabilities. Moreover, Philips signed multi-year enterprise patient monitoring agreements with the Kantonsspital Frauenfeld (Switzerland) and the University Clinic of Bonn (Germany) to improve workflow and clinical outcomes in these hospitals.
• Philips teamed up with Walgreens, one of the largest drugstore chains in the US, to integrate the clinically validated Philips SmartSleep Analyzer with the Walgreens Find Care platform, which helps connect Walgreens’ millions of mobile and online visitors to healthcare services. Walgreens Find Care users are now able to use Philips’ tool to help identify the potential reasons contributing to their sleep issues and connect to sleep diagnostics, guidance, products and solutions.
• Further broadening its product range in oral care, Philips has rolled out its connected Philips Sonicare ExpertClean globally. The new smart power toothbrush delivers superior oral care results with its sonic technology and deep clean brushing mode.

Cost savings

In the third quarter of 2019, cost savings totaled EUR 96 million, reflecting procurement savings of EUR 41 million and savings from overhead and other productivity programs of EUR 55 million.

Capital allocation

As of the end of the third quarter of 2019, Philips has completed 32.9% of its 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 sold all of its remaining shares in Signify (14.3%) for total proceeds of EUR 477 million.

Regulatory update

Philips continues to address the follow-up requests of the US Food and Drug Administration (FDA) as part of its efforts to fulfill its obligations under the Consent Decree [1] and remains in dialogue with the agency.

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

Quarterly Report

Third Quarter Results 2019 - Quarterly Report

Presentation

Third 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, October 28, 2019. A live audio webcast of the conference call will be available through the link below.

Q3 2019 – Third quarter 2019 results conference call audio webcast