Philips' Second Quarter Results 2013 - Healthcare Sector

Royal Philips ElectronicsRoyal Philips Electronics (NYSE: PHG, AEX: PHIA) announced that healthcare currency-comparable equipment order intake increased by 7% year-on-year, with both Imaging Systems and Patient Care & Clinical Informatics showing growth. Comparable sales were flat year-on-year as the growth at Customer Services, Patient Care & Clinical Informatics and Home Healthcare Solutions was offset by a decline at Imaging Systems due to soft order intake in the previous quarters. In growth geographies, comparable sales showed a double-digit increase. EBITA margin excluding restructuring and acquisition-related charges and the past-service pension cost gain in the US increased by 1.2 percentage points year-on-year to 14.3%.

Business highlights

  • As a leader in image-guided interventions and therapies, Philips has received 510(k) clearance from the US Food and Drug Administration to market its low-dose AlluraClarity interventional X-ray system in the US. The innovative technology is also available as an upgrade for the majority of Philips' installed base of interventional X-ray systems.
  • Executing on the strategy of delivering affordable solutions across the continuum of care, Philips and Georgia Regents Medical Center (US) entered into a 15-year alliance worth USD 300 million. Under the agreement, Philips will provide a comprehensive range of medical equipment, consulting and operational performance services with pre-determined monthly operational costs.
  • Highlighting the company's focus on locally relevant products for growth geographies, Philips introduced a broad range of mother and child care solutions in India and Africa, including the Efficia range of Infant Warmers and Incubators intended to help reduce infant mortality.
  • Further expanding its geographical reach, Philips will commence its joint venture with Al Faisaliah Medical Systems to provide Philips’ Healthcare solutions and services in the Kingdom of Saudi Arabia.
  • Combining its expertise in patient monitoring with clinical informatics technologies, Philips will carry out a hospital-wide installation of connected patient monitoring solutions at the VU Medical Center Amsterdam (Netherlands). This will enable remote monitoring from a central workstation and monitoring at an individual patient’s bedside, as well as providing immediate access anywhere in the hospital to real-time centrally held patient data.

Financial performance

  • Currency-comparable equipment order intake grew 7% year-on-year. Double-digit growth was recorded at Patient Care & Clinical Informatics, while low-single-digit growth was seen at Imaging Systems. Equipment order intake in North America showed mid-single-digit growth, while orders in growth geographies increased by 19% compared to Q2 2012. Western Europe equipment order intake saw a low-single-digit decline.
  • Healthcare comparable sales remained flat year-on-year. Customer Services recorded mid-single-digit growth, while Patient Care & Clinical Informatics and Home Healthcare Solutions achieved low-single-digit growth. Imaging Systems saw a high-single-digit decline.
  • From a regional perspective, comparable sales in growth geographies increased by 10% year-on-year, with strong growth in China and Latin America. Sales in mature geographies declined 3% year-on-year, with North America and Western Europe showing mid-single-digit and low-single-digit declines respectively.
  • EBITA was EUR 420 million, or 17.8% of sales, compared to EUR 308 million, or 12.8% of sales, in Q2 2012. Excluding restructuring and acquisition-related charges and other gains, EBITA amounted to EUR 338 million, or 14.3% of sales, compared to EUR 316 million, or 13.1% of sales, in Q2 2012. EBITA in the quarter included a EUR 61 million past-service pension cost gain in the US and a EUR 21 million gain on the sale of a business.
  • Net operating capital, excluding a currency translation impact of EUR 466 million, decreased by EUR 392 million to EUR 7.7 billion. This decrease was largely driven by improved working capital and lower fixed assets. Inventories as a percentage of sales improved by 2.6 percentage points year-on-year, with improvements seen across all businesses.
  • Compared to Q2 2012, the number of employees decreased by 617, as a result of reductions in North America and Europe

Frans van Houten, CEO, said: "We are pleased that in the second quarter our operational results improved year-on-year for the fifth quarter in a row and sales grew by 3% in a challenging economic environment, thanks to our highly engaged employees. The Accelerate! transformation program continues to drive performance improvement, resulting in a better product portfolio, higher gross margins, faster time to market, reduced inventory levels and a structurally lower cost base.

At Healthcare, order intake grew by 7%, supported by new product launches and significant customer wins. Sales were flat year-on-year, due to the weaker order intake growth in the previous quarters in the United States and Europe. Comparable sales at Consumer Lifestyle increased an impressive 13%, as locally relevant product launches and better operational execution helped to drive growth. At Lighting, all businesses delivered better operational results. We continued to see strong traction in LED, with LED-based sales growing 28% over the previous year.

Looking ahead to the second half of 2013, we are concerned about economic uncertainties around the world; however, we remain committed to reach our financial targets this year."

About Royal Philips Electronics
Royal Philips (NYSE: PHG, AEX: PHIA) is a diversified health and well-being company, focused on improving people's lives through meaningful innovation in the areas of Healthcare, Consumer Lifestyle and Lighting. Headquartered in the Netherlands, Philips posted 2012 sales of EUR 24.8 billion and employs approximately 116,000 employees with sales and services in more than 100 countries. The company is a leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as male shaving and grooming and oral healthcare.

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