Philips’ Second Quarter Results 2018

Second-quarter highlights

• Sales in the quarter were EUR 4.3 billion, with comparable sales growth of 4%
• Comparable order intake increased 9% compared to Q2 2017
• Net income from continuing operations was EUR 186 million, compared to EUR 161 million in Q2 2017
• Adjusted EBITA margin improved by 100 basis points to 11.2% of sales, compared to 10.2% of sales in Q2 2017
• Income from operations (EBIT) increased to EUR 298 million, compared to EUR 252 million in Q2 2017
• Operating cash flow totaled EUR 130 million, compared to EUR 73 million in Q2 2017

Frans van Houten, CEO:“In the second quarter, we delivered 4% comparable sales growth, a strong 9% order intake growth and a solid 100 basis points improvement in operational performance driven by our growth and productivity programs. I am pleased with the continued strong performance improvement of the Diagnosis & Treatment businesses, driven by the breadth of our innovative product portfolio, which resulted in 8% comparable sales growth and double-digit order intake growth. At the same time, I am encouraged by the mid-single-digit order intake growth of the Connected Care & Health Informatics businesses. After a slow start, the Personal Health businesses gained momentum in the quarter, and we expect this to continue in the second half of the year. Demonstrating our ongoing success in building our solutions business, we signed seven long-term strategic partnership agreements in the quarter. In Germany, Philips announced two multi-year agreements with Clinics of Cologne and Munich Municipal Hospital to deliver medical imaging solutions to support precision diagnosis and therapy, innovation and productivity improvements. We also signed a seven-year agreement with the governments of the Netherlands and Ethiopia to design, build and equip Ethiopia’s first specialized Cardiac Care Center for state-of-the-art diagnosis and treatment of cardiac diseases. Looking ahead, we reiterate our targets for the 2017–2020 period of 4-6% comparable sales growth and an average annual 100 basis points improvement in Adjusted EBITA margin.”

Business segments

 The Diagnosis & Treatment businesses recorded a double-digit increase in comparable order intake, driven by strong double-digit growth in China and North America. Comparable sales increased by 8%, with double-digit growth in Image-Guided Therapy and high-single-digit growth in Ultrasound. The Adjusted EBITA margin was 180 basis points higher than in the same period last year, mainly due to growth and operational improvements. The Connected Care & Health Informatics businesses delivered a mid-single-digit increase in comparable order intake, driven by double-digit order intake growth for Healthcare Informatics. Comparable sales growth increased 2% year-on-year, reflecting high-single-digit growth in Healthcare Informatics and low-single-digit growth in Monitoring & Analytics. The Adjusted EBITA margin improved by 40 basis points year-on-year. In the Personal Health businesses, comparable sales growth was 2%, with high-single-digit growth in Sleep & Respiratory Care and low-single-digit growth in Personal Care. The growth of the Personal Health businesses was impacted by a high-single-digit comparable sales decline in China, mainly due to an inventory alignment at our distributors and lower demand in the Air purification market. The Adjusted EBITA margin increased by 80 basis points, driven by operational improvements.

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

 To further strengthen Philips’ businesses through targeted acquisitions, the company acquired EPD Solutions*, an innovator that has developed a breakthrough technology for image-guided treatments for cardiac arrhythmia. Philips also acquired Remote Diagnostic Technologies, a leading provider of advanced monitoring, cardiac therapy and data management solutions for the pre-hospital market. RDT’s portfolio will complement Philips’ Therapeutic Care business and strengthen its leadership position in the EUR 1.4 billion resuscitation and emergency care market.

• Driven by recently introduced innovations such as an advanced transducer optimized for OB/GYN and General Imaging applications and the telehealth capabilities of its Lumify app-based ultrasound solution, Philips continued its strong growth across the Cardiology, OB/GYN, General Imaging and Point-of-Care clinical segments.
• Philips and Jackson Health System – one of the largest public health systems in the US – entered into an agreement involving an industry-first ‘enterprise patient monitoring as a service’ business model. This will enable Jackson to standardize patient monitoring at all acuity levels for each care setting across its network for a per-patient fee.
• Partnering with Showa University, Philips launched the first tele-intensive care eICU program in Japan. This delivers near realtime remote patient monitoring and early intervention through predictive analytics and advanced audio-visual technology. It has already been successfully implemented in the US, the UK, Australia and the Middle East.
• Philips partnered with the Dana-Farber Cancer Institute to deploy best practices in cancer care. The incorporation of the Institute’s Clinical Pathways in Philips’ IntelliSpace Oncology Platform will help oncologists reach the most appropriate cancer treatments for patients, based on a unified view of the patient across diagnostic modalities and the embedded knowledge of both partners.
• As the only provider of a digital pathology solution for primary diagnostic use in the US, Philips teamed up with life sciences leader LabCorp to fully digitize pathology workflows for LabCorp’s clinical laboratory and drug development services. 
• Following the successful launch of the DreamWear Full Face mask in the US at the end of the first quarter, the roll-out of this new mask in additional markets resulted in strong growth for Philips in the largest mask segment. Moreover, to further drive growth in the emerging sleep therapy market in China, Philips launched the connected Dream Family solution.

* Philips announced the agreement to acquire EPD Solutions on June 5, 2018. The transaction was completed on July 9, 2018.