Philips' Third Quarter Results 2014 - Healthcare Sector

PhilipsRoyal Philips (NYSE: PHG, AEX: PHIA) has reported Q3 sales of EUR 5.5 billion and operational results of EUR 536 million. Healthcare comparable sales grew by 1% year-on-year. The EBITA margin, excluding restructuring costs and various charges, was 12%, a decrease of 2.6 percentage points year-on-year. Currency-comparable equipment order intake declined by 1%.

"We are making good progress in the remediation of the quality management system at our Cleveland facility. We have now also resumed production of the iCT and Ingenuity scanners, and production ramp-up will continue through the first quarter of 2015. This will contribute to improved performance in the fourth quarter and into 2015.

More broadly, we are seeing good traction with our programs that address government and health system goals of improving population health and delivering quality care more effectively. This is illustrated by our new 15-year contract with the Reinier de Graaf hospital in the Netherlands, the 14-year contract with the Karolinska University Hospital and the Stockholm County Council, and the 10-year contract related to the 700-bed Philippine Orthopedic Centre in the Philippines, where our systems and consultancy will help improve operational performance."

Business highlights

  • Reflecting its focus on long-term partnerships, Philips signed a 15-year alliance with the Reinier de Graaf hospital in the Netherlands that includes advanced imaging solutions, customized services and consultancy to continuously improve the hospital's clinical and operational performance.
  • Building on the strategic long-term collaboration with Stockholm City Council and the Karolinska University hospital announced earlier, Philips' scope has further increased to include image-guided therapy solutions and consultancy services for the hospital's stroke care workflow.
  • In a further advance to make affordable healthcare accessible to wider patient populations, Philips launched the VISIQ, an ultra-mobile tablet-based system for quality ultrasound imaging, in India. Philips also received US FDA 510(k) clearance for the VISIQ.
  • Helping patients' transition from hospital to home, Philips' first clinical applications for its HealthSuite Digital Platform, eCareCoordinator and eCareCompanion, received US FDA 510(k) clearance. These applications give clinicians better patient data access and analysis, and help patients manage their health.
  • Recognizing Philips' innovation in patient interface solutions, the US Department of Health and Human Services awarded Philips a three-year contract to develop portable and easy-to-operate ventilators for disaster preparedness in the event of a pandemic or other public health emergency.

Financial performance

  • Currency-comparable equipment order intake showed a low-single-digit decline year-on-year. Patient Care & Clinical Informatics recorded mid-single-digit growth. Imaging Systems posted a mid-single-digit decline.
  • Equipment order intake in growth geographies showed a high-single-digit increase, with strong growth in Middle East & Turkey and Russia & Central Asia, while China posted low-single-digit growth. Western Europe achieved mid-single-digit growth, while other mature geographies recorded a double-digit decline and North America posted a high-single-digit decline.
  • Comparable sales grew 1% year-on-year. Customer Services and Home Health Solutions achieved mid-single-digit growth, Patient Care & Clinical Informatics recorded low-single-digit growth, while Imaging Systems posted a mid-single-digit decline.
  • Comparable sales in growth geographies showed mid-single-digit growth. Western Europe recorded a low-single-digit decline, while other mature geographies achieved mid-single-digit growth. North America recorded a 1% decline.
  • EBITA amounted to a loss of EUR 151 million, compared to a profit of EUR 329 million, or 14.6% of sales, in Q3 2013. EBITA included charges of EUR 366 million related to the jury verdict in the Masimo litigation and EUR 49 million of mainly inventory write-downs related to the Cleveland facility.
  • Excluding restructuring and acquisition-related charges and other items, EBITA amounted to EUR 267 million, or 12.0% of sales, compared to EUR 330 million, or 14.6% of sales, in Q3 2013. The decrease was mainly due to operational losses related to the voluntary suspension of production at the Cleveland facility and negative currency impacts.
  • Net operating capital, excluding a positive currency translation effect of EUR 314 million, decreased by EUR 578 million. This decrease was largely driven by higher provisions and lower fixed assets, partly offset by increased working capital.
  • Inventories as a percentage of sales increased by 1.5 percentage points year-on-year.
  • Compared to Q3 2013, the number of employees was 229 lower, mainly due to overhead reduction and divestments. Compared to Q2 2014, the number of employees increased by 183, with reductions in North America more than offset by increases in Asia Pacific.

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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 115,000 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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