Philips delivers strong margin improvement; flat comparable sales
due to further deteriorated demand in China; growth in rest of
world
October 28, 2024
Third-quarter highlights
- Group sales amounted to EUR 4.4 billion, with flat comparable
sales growth
- Income from operations was EUR 337 million
- Adjusted EBITA margin increased by 160 basis points from 10.2%
to 11.8% of sales
- Operating cashflow of EUR 192 million, with a free cashflow of
EUR 22 million
- Comparable order intake decreased by 2%, due to decline in
China
- Outlook for full-year 2024 revised to reflect deteriorated
demand in China: comparable sales growth within an updated range
0.5%-1.5%, Adjusted EBITA margin at around 11.5%, the upper end of
current range; free cashflow at around EUR 0.9 billion, at lower
end of current range
Roy Jakobs, CEO of Royal Philips:
“In the quarter, demand from hospitals and consumers in China
further deteriorated, while we continue to see solid growth in
other regions. We have adjusted our full-year sales outlook to
reflect the continued impact from China.
Strong improvement in profitability was driven by progress on
our execution priorities, productivity measures and the improved
margins of our AI-driven, industry-leading innovations.
Within a challenging macro environment, we remain focused on
successfully executing our three-year plan to fully capture growth
and margin expansion opportunities. With patient safety as our
number one priority, we are committed to delivering better care for
more people.”
Group and segment performance
Group comparable sales were flat on the back of 11% growth in Q3
2023 and deterioration in demand in China. We delivered growth in
all other regions and from an increase in royalty income. China
remains a fundamentally attractive growth market for Philips in the
long term, with market conditions expected to remain uncertain.
Adjusted EBITA margin improved 160 basis points from 10.2% to
11.8%, driven by a strong step-up in gross margin from innovations,
productivity actions and higher royalty income. Free cash flow was
EUR 22 million in the quarter, driven by higher earnings, offset by
working capital outflows.
Comparable order intake in the quarter declined 2% due to China,
with solid order intake growth in Diagnosis & Treatment,
particularly in the US. Year-to-date comparable order intake grew
1%, including China.
Diagnosis & Treatment comparable sales
decreased 1%, on the back of 14% growth in Q3 2023, with solid
growth outside of China. Adjusted EBITA margin was 12.6%.
Connected Care comparable sales were flat, with
growth in Enterprise Informatics and Sleep & Respiratory Care
offset by a low- single-digit decline in Monitoring, on the back of
high-teens growth in Q3 2023. Adjusted EBITA margin improved from
3.7% to 7.3%.
Personal Health comparable sales decreased 5%
due to a double-digit decline in China, more than offsetting a
robust performance elsewhere. Adjusted EBITA margin was 16.5%.
Productivity
Our productivity initiatives are on track and delivered savings
of EUR 188 million in Q3: operating model savings of EUR 54
million, procurement savings of EUR 58 million, and other programs
savings of EUR 76 million. Since 2023, productivity initiatives
delivered savings of over EUR 1.5 billion.
Outlook
The significant deterioration in China demand leads to an updated
comparable sales growth outlook range of 0.5-1.5% for the full year
2024. Comparable sales growth outside of China remains within the
3-5% range. Adjusted EBITA margin is expected to be around 11.5%,
the upper end of the range, with free cashflow at around EUR 0.9
billion, at the lower end of the range.
Within an ongoing challenging macro environment, Philips remains
focused on successfully executing its three-year plan to drive
operational improvement and create value with sustainable impact.
The uncertainties signaled in earlier quarters have intensified in
China and are expected to continue.
The outlook excludes the potential impact of the ongoing Philips
Respironics-related legal proceedings, including the investigation
by the US Department of Justice.
Customer, innovation and ESG highlights
- Philips expanded its next-generation cardiovascular ultrasound
platform with FDA clearance of two additional AI algorithms to
enhance structural heart disease examinations as part of the global
rollout of this technology.
- Philips secured FDA approval for its new LumiGuide Navigation
Wire, which uses fiber optic technology to reduce radiation for
both patients and physicians during minimally invasive
surgery.
- Carilion Clinic in the US will expand cardiac care access
through 11 specialized Philips interventional suites that allow
physicians to treat patients with complex cardiovascular conditions
closer to home using platforms including the Azurion Image Guided
Therapy System and EPIQ CVx cardiology ultrasound system with AI
capabilities.
- NYU Langone Health in the US successfully implemented Philips'
digital pathology solutions as part of an eight-year partnership,
enabling patients to be diagnosed faster using real-time digital
images instead of microscopes.
- Siloam Hospital Group, Indonesia’s largest private hospital
network serving close to 4 million patients a year, is partnering
with Philips for digital health and AI transformation. The
collaboration aims to improve healthcare access and enhance
clinical outcomes, delivering better care for more people in one of
the fastest-growing G20 nations.
- Supporting China in expanding access to care in a new private
hospital in Zhangzhou serving half a million patients each year,
Philips will be the sole provider of MR, image-guided therapy and
ultrasound technologies, enabling high-quality care for
patients.
- Philips launched the AI-powered Avent Premium Connected Baby
Monitor, which offers cry translation and SenseIQ technology to
track sleep, breathing, and movements, giving parents peace of
mind.
- Philips is collaborating with customers worldwide to help them
assess and mitigate their carbon footprints, including Jackson
Health System in the US, Rennes University Hospital in France, and
Champalimaud Foundation in Portugal.
Click here to view the release online
For further information, please contact:
Elco van Groningen
Philips External Relations
Tel.: +31 6 8103 9584
E-mail: elco.van.groningen@philips.com
Ben Zwirs
Philips External Relations
Tel.: +31 6 1521 3446
E-mail: ben.zwirs@philips.com
Dorin Danu
Philips Investor Relations
Tel.: +31 20 59 77055
E-mail: dorin.danu@philips.com
About Royal Philips
Royal Philips (NYSE: PHG, AEX: PHIA) is a leading health technology
company focused on improving people's health and well-being through
meaningful innovation. Philips’ patient- and people-centric
innovation leverages advanced technology and deep clinical and
consumer insights to deliver personal health solutions for
consumers and professional health solutions for healthcare
providers and their patients in the hospital and the home.
Headquartered in the Netherlands, the company is a leader in
diagnostic imaging, ultrasound, image-guided therapy, monitoring
and enterprise informatics, as well as in personal health. Philips
generated 2023 sales of EUR 18.2 billion and employs approximately
69,300 employees with sales and services in more than 100
countries. News about Philips can be found at
www.philips.com/newscenter.
Forward-looking statements and other important
information
Forward-looking statements
This document and the related oral presentation,
including responses to questions following the presentation,
contain certain forward-looking statements with respect to the
financial condition, results of operations and business of Philips
and certain of the plans and objectives of Philips with respect to
these items. Examples of forward-looking statements include
statements made about strategy, estimates of sales growth, future
Adjusted EBITA *) , future restructuring and acquisition related
charges and other costs, future developments in Philips’ organic
business and the completion of acquisitions and divestments.
Forward-looking statements can be identified generally as those
containing words such as “anticipates”, “assumes”, “believes”,
“estimates”, “expects”, “should”, “will”, “will likely result”,
“forecast”, “outlook”, “projects”, “may” or similar expressions. By
their nature, these statements involve risk and uncertainty because
they relate to future events and circumstances and there are many
factors that could cause actual results and developments to differ
materially from those expressed or implied by these statements.
These factors include but are not limited to: Philips’ ability to
gain leadership in health informatics in response to developments
in the health technology industry; Philips’ ability to keep pace
with the changing health technology environment; macro-economic and
geopolitical changes; integration of acquisitions and their
delivery on business plans and value creation expectations;
securing and maintaining Philips’ intellectual property rights, and
unauthorized use of third-party intellectual property rights;
Philips’ ability to meet expectations with respect to ESG-related
matters; failure of products and services to meet quality or
security standards, adversely affecting patient safety and customer
operations; breaches of cybersecurity; challenges in simplifying
our organization and our ways of working; the resilience of our
supply chain; attracting and retaining personnel; challenges in
driving operational excellence and speed in bringing innovations to
market; compliance with regulations and standards including
quality, product safety and (cyber) security; compliance with
business conduct rules and regulations including privacy and
upcoming ESG disclosure and due diligence requirements; treasury
and financing risks; tax risks; reliability of internal controls,
financial reporting and management process; and global inflation.
As a result, Philips’ actual future results may differ materially
from the plans, goals and expectations set forth in such
forward-looking statements. For a discussion of factors that could
cause future results to differ from such forward-looking
statements, see also the Risk management chapter included in the
Annual Report 2023. Reference is also made to section Risk
management in the Philips semi-annual report 2024.
Third-party market share data
Statements regarding market share contained in this
document, including those regarding Philips’ competitive position,
are based on outside sources such as specialized research
institutes, as well as industry and dealer panels, in combination
with management estimates. Where information is not yet available
to Philips, market share statements may also be based on estimates
and projections prepared by management and/or based on outside
sources of information. Management’s estimates of rankings are
based on order intake or sales, depending on the
business.
Market Abuse Regulation
This press release contains inside information within
the meaning of Article 7(1) of the EU Market Abuse
Regulation.
Use of non-IFRS information
In presenting and discussing the Philips Group’s
financial position, operating results and cash flows, management
uses certain non-IFRS financial measures. These non-IFRS financial
measures should not be viewed in isolation as alternatives to the
equivalent IFRS measure and should be used in conjunction with the
most directly comparable IFRS measures. Non-IFRS financial measures
do not have standardized meaning under IFRS and therefore may not
be comparable to similar measures presented by other issuers. A
reconciliation of these non-IFRS measures to the most directly
comparable IFRS measures is contained in this document. Further
information on non-IFRS measures can be found in the Annual Report
2023.
Presentation
All amounts are in millions of euros unless otherwise
stated. Due to rounding, amounts may not add up precisely to totals
provided. All reported data is unaudited. Financial reporting is in
accordance with the accounting policies as stated in the Annual
Report 2023. Prior-period amounts have been reclassified to conform
to the current-period presentation; this includes immaterial
organizational changes.
Effective Q1 2024, Philips has revised the order intake policy to
reflect the full contract value for software contracts that start
generating revenue within an 18-month horizon, instead of only the
next 18-months-to-revenue horizon. This change has been implemented
to better align with the specific business model of our software
businesses, simplify the order intake process, and better align
with peers. Prior-period comparable order intake percentages have
been restated accordingly. This revision has not resulted in any
material changes to the order intake percentages for the periods
presented.
Per share calculations have been adjusted retrospectively for all
periods presented to reflect the issuance of shares in the second
quarter of 2024 in connection with the 2023 share dividend.
*) Non-IFRS financial measure. Refer to Reconciliation of
non-IFRS information.
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