Philips Second Quarter Results 2014 - Healthcare Sector

PhilipsPhilips reports Q2 sales of EUR 5.3 billion and EBITA of EUR 415 million. Healthcare comparable sales showed a 4% decline year-on-year. The EBITA margin, excluding restructuring and acquisition-related charges, declined to 10.5%, a decrease of 3.8 percentage points year-on-year. Equipment order Q2 2014 Quarterly report and Semi-annual report intake in Europe and growth geographies showed a high-single-digit increase, while North America posted a double-digit decline.

Frans van Houten, ‎CEO, said: "In the second quarter, we continued to see results of our focus to win large-scale multi-year partnerships - such as the recently announced agreement with New Karolinska Hospital in Solna, Sweden - designed to structurally improve patient care at lower and more predictable costs. Further, our strategic alliance with salesforce.com on a new cloud-based health care IT platform demonstrates our holistic innovation approach to health care, enabling us to rapidly launch new clinical applications for home care and care coordination. Our recently announced new management structure will further drive operational excellence and agility to restore performance over the next several quarters.

"While the voluntary temporary suspension of production at our Cleveland facility continued to impact our performance this quarter, our corrective actions are progressing according to plan and shipments are expected to resume gradually in the course of Q3 2014. In light of this and the recent strong equipment order intake in China and Europe, we expect the performance improvement in the second half of the year to be back-end loaded."

Business highlights

  • In an innovative collaboration to address future health care challenges, Philips and Stockholm City Council signed a 14-year solutions partnership across the continuum of care. This comprises a research and innovation hub and education programs, and state-of-the-art medical imaging equipment for the new Karolinska Hospital in Solna, Sweden.
  • Recognizing Philips' expertise in enabling effective care management, Community Health Systems selected Philips as a dual-source service provider for almost all of their 208 facilities across the US. The partnership will help lower operating costs while delivering higher-quality care and improved patient outcomes.
  • Driving industry transformation in collaborative care, Philips and salesforce.com announced an alliance to deliver a cloud-based health care platform. The platform leverages Philips' leadership in medical technology, clinical applications and clinical informatics, to enhance clinical decision making and enable patients to manage their personal health.
  • Leveraging its deep clinical knowledge and strong base in clinical informatics, Philips will supply the National Taiwan University Hospital's cardiovascular center, the largest in Asia, with Xper information management and Xcelera image management systems.
  • Advancing affordable, high-quality diagnostic imaging worldwide, Philips introduced VISIQ, its first ultra-mobile ultrasound system, in Africa and India. Featuring a tablet-and-transducer design, VISIQ makes ultrasound available for patients in a wide range of environments.

Financial performance

  • Currency-comparable equipment orders showed a low-single-digit decline year-on-year. Imaging Systems posted low-single-digit growth, while Patient Care & Clinical Informatics recorded a double-digit decline.
  • Equipment order intake in growth geographies showed a high-single-digit increase, with strong growth in Latin America and Russia & Central Asia, while China posted mid-single-digit growth. Western Europe recorded high-single-digit growth and other mature geographies showed low-single-digit growth, while North America posted a double-digit decline.
  • Healthcare comparable sales showed a 4% decrease year-on-year. Home Healthcare Solutions posted mid-single-digit growth, Customer Services achieved low-single-digit growth, while Patient Care & Clinical Informatics showed a mid-single-digit decline. Imaging Systems recorded a double-digit decline.
  • Comparable sales in Western Europe were flat and other mature geographies showed low-single-digit growth, while North America recorded a high-single-digit decline. Growth geographies recorded a low-single-digit decline.
  • EBITA amounted to EUR 225 million, or 10.5% of sales, compared to EUR 420 million, or 17.8% of sales, in Q2 2013. Q2 2013 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.
  • Excluding restructuring and acquisition-related charges and other gains, EBITA amounted to EUR 224 million, or 10.5% of sales, compared to EUR 338 million, or 14.3% of sales, in Q2 2013. The year-on-year decline was mainly due to negative currency impact and the voluntary production suspension at the Cleveland facility.
  • Net operating capital, excluding a negative currency translation effect of EUR 330 million, increased by EUR 103 million. The increase was largely driven by higher working capital, which was partly offset by lower fixed assets.
  • Inventories as a percentage of sales increased by 0.9 percentage points year-on-year. The increase was mainly due to the voluntary production suspension at the Cleveland facility.
  • Compared to Q2 2013, the number of employees decreased by 113. This decrease was due to overhead reduction, industrial footprint rationalization and divestments, offset by investments in growth geographies. Compared to Q1 2014, the number of employees increased by 651, mainly due to investments in growth geographies.

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About Royal Philips
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 2013 sales of EUR 23.3 billion and employs approximately 113,000 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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