Philips' Fourth Quarter Results 2014 - Healthcare Sector

PhilipsRoyal Philips (NYSE: PHG, AEX: PHIA) has reported Q4 sales of EUR 6.5 billion and operational results of EUR 743 million. Healthcare comparable sales were 3% lower. The EBITA margin, excluding restructuring and acquisition-related charges and other items, was 14.8%, down from 19.0% year-on-year. Currency-comparable equipment order intake showed a mid-single-digit decline, although it improved in Western Europe. The impact of Cleveland on sales and order intake was approximately 4 percentage points, which will also impact growth performance in 2015.

Frans van Houten, CEO, mentioned: "In Healthcare, our strategic focus on large-scale and multi-year partnerships continues to gain traction. Furthermore, our pending acquisition of Volcano, announced in December, will enable us to deepen customer relationships, gain share and accelerate revenue growth for Philips' leading image-guided therapy business.

"The updated quality management system at our Cleveland facility recently passed the third-party audit and we have now resumed shipments of our Brilliance iCT systems. Due to the slower than anticipated ramp-up of production and shipments, the impact on 2014 EBITA was larger than previously anticipated. Passing the third-party audit for the production of the Brilliance iCT systems is an important milestone that enables us to focus on building further momentum as we deliver imaging innovations to our customers. We are also ramping up the production of CT systems in our facilities in Haifa and Suzhou, initially for customers outside of the United States. Our remediation work will continue to weigh on 2015 and we expect our global CT system production and shipment volume to only gradually return to 2013 levels by the end of the year."

Business highlights

  • Expanding its global leadership position in image-guided therapies, Philips has entered into an agreement to acquire Volcano Corporation, a global leader in catheter-based imaging and measurement solutions for cardiovascular applications. Volcano's complementary portfolio and expertise will create opportunities to accelerate revenue growth for Philips' image-guided therapy business.
  • Continuing its focus on long-term partnerships with large organizations, Philips signed patient monitoring and software maintenance agreements for all Mayo Clinic-owned hospitals. These agreements include hardware and software solutions, as well as a number of services.
  • Exploring a new health care delivery model in Africa, Philips opened its first Community Life Center in Kenya. With Philips supplying solar energy solutions, medical equipment and services, the Center is an integrated facility for providing primary health care, lighting and healthy living resources.
  • Continuing its expansion in fast-growing markets such as the Middle East, Philips signed a six-year agreement comprising advanced imaging and monitoring equipment and services for multiple hospitals of the AMECO Group in the Kingdom of Saudi Arabia.
  • In an advance for innovation that enables confident diagnosis, Philips' IQon Spectral CT achieved FDA 510(k) approval. The IQon system delivers anatomical information and the ability to characterize structures based on their material content within a single scan.

Financial performance

  • Currency-comparable equipment order intake showed a mid-single-digit decline year-on-year, with a low-single-digit decline at Patient Care & Monitoring Solutions and a mid-single-digit decline at Imaging Systems.
  • Equipment order intake in Western Europe showed mid-single-digit growth, while other mature geographies recorded a mid-single-digit decline and North America posted a double-digit decline. Growth geographies showed a low-single-digit increase, with strong growth in Middle East & Turkey and Russia & Central Asia partly offset by a double-digit decline in China and Latin America.
  • Comparable sales declined 3% year-on-year. Mid-single-digit growth at Customer Services and Patient Care & Monitoring Solutions was offset by a low-single-digit decline at Healthcare Informatics, Solutions & Services and a double-digit decline at Imaging Systems.
  • Comparable sales in Western Europe and North America showed a low-single-digit decline, while other mature geographies were in line with Q4 2013. Growth geographies recorded a mid-single-digit decline.
  • EBITA amounted to EUR 390 million, or 13.7% of sales, compared to EUR 541 million, or 19.1% of sales, in Q4 2013. Restructuring and acquisition-related charges amounted to EUR 47 million, compared with a release of EUR 3 million in Q4 2013. Q4 2014 EBITA also included a EUR 16 million past-service pension cost gain in the Netherlands.
  • Excluding restructuring and acquisition-related charges and other items, EBITA amounted to EUR 421 million, or 14.8% of sales, compared to EUR 538 million, or 19.0% of sales, in Q4 2013. The decrease was mainly due to operational losses related to the voluntary suspension of production at the Cleveland facility, an increase in overhead costs, and negative currency impacts.
  • Net operating capital, excluding a positive currency translation effect of EUR 758 million, decreased by EUR 630 million. This decrease was largely driven by higher provisions and lower fixed assets.
  • Inventories as a percentage of sales increased by 2.7 percentage points year-on-year. The increase was mainly driven by currency impacts and the production ramp-up at the Cleveland facility.
  • Compared to Q4 2013, the number of employees increased by 57, with divestments and overhead reductions in North America offset by increases in Asia Pacific. Compared to Q3 2014, the number of employees decreased by 275, largely driven by North America.

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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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