Philips Q4 2017 Results

Q4 2017 results

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Message from the CEO

“2017 was a good year, as we continued the transformation of Philips into a focused leader in health technology and delivered on our improvement targets for the year. I am pleased that we delivered 4% comparable sales growth, an Adjusted EBITA margin increase of 110 basis points, and a strong EUR 1.2 billion free cash flow. We strengthened our strategic platforms through targeted acquisitions, introduced several breakthrough innovations, secured multiple long-term strategic partnerships, and we deconsolidated Philips Lighting as we decreased our shareholding to below 30%.

Philips’ performance in the fourth quarter demonstrates that we are gaining momentum. We finished 2017 on a firm note by delivering comparable order intake growth of 7%, and comparable sales growth of 5%, which was driven by our Personal Health businesses and Diagnosis & Treatment businesses. We achieved a strong Adjusted EBITA margin improvement of 140 basis points, driven by higher volumes, procurement and productivity savings, and increased free cash flow to EUR 948 million.

We further strengthened our portfolio through targeted acquisitions across the health continuum. The integration of these acquisitions is on track. I would like to highlight that the productivity improvements for Spectranetics are ahead of plan, and we successfully launched the Stellarex drug-coated balloon in the US. Furthermore, the integration of Volcano has been completed as planned. This business delivered high-teens comparable sales growth in 2017, driven by the strong performance of our diagnostic catheters, and we further improved gross margins by 10 percentage points in the past two years.

I am pleased that our organic growth initiatives are delivering tangible results, such as the strong order intake growth in our Digital Pathology Solutions business, the double-digit growth of our Sleep & Respiratory Care devices, and the continued success of Philips OneBlade. This revolutionary hybrid styler generated annual sales of more than EUR 100 million within 18 months of its launch.

We expect our markets to grow at 3–5% on a comparable basis in 2018. Combined with our strong order book, we are confident that we will deliver on our mid-term targets of 4-6% comparable sales growth and on average an annual 100 basis points improvement in Adjusted EBITA margin this year. Given the phasing of our order book, we expect improvements to be at the back end of the year.

Frans van Houten, Chief Executive Officer

Our Q4 2017 performance at a glance

Fourth-quarter highlights

  • Sales amounted to EUR 5.3 billion, with comparable sales growth of 5%
  • Comparable order intake increased 7% compared to Q4 2016
  • Net income from continuing operations, which included a one-time non-cash tax charge of EUR 72 million, increased to EUR 476 million, compared to EUR 465 million in Q4 2016
  • Adjusted EBITA margin improved by 140 basis points to 16.7% of sales, compared to 15.3% of sales in Q4 2016
  • Income from operations (EBIT) increased to EUR 723 million, compared to EUR 693 million in Q4 2016
  • Operating cash flow totaled EUR 1,202 million, compared to EUR 758 million in Q4 2016; free cash flow increased to EUR 948 million, compared to EUR 551 million in Q4 2016

Full-year highlights

  • Sales increased to EUR 17.8 billion, with comparable sales growth of 4%
  • Comparable order intake increased 6% compared to 2016
  • Net income from continuing operations, which included a one-time non-cash tax charge of EUR 72 million, increased to EUR 1,028 million, compared to EUR 831 million in 2016
  • Adjusted EBITA margin improved by 110 basis points to 12.1% of sales, compared to 11.0% of sales in 2016
  • Income from operations (EBIT) amounted to EUR 1,517 million, compared to EUR 1,464 million in 2016
  • Operating cash flow totaled EUR 1.9 billion, compared to EUR 1.2 billion in 2016; free cash flow increased to EUR 1,185 million, compared to EUR 429 million in 2016
  • Proposal to maintain dividend at EUR 0.80 per share
Key datain millions of EUR unless otherwise stated

Q4 2016

Q4 2017

Sales

5,306

5,303

Nominal sales growth

5%

0%

Comparable sales growth*

5%

5%

Income from operations (EBIT)

693

723

as a % of sales

13.1%

13.6%

Financial expenses, net

(67)

(9)

Investments in associates

-

(2)

Income taxes

(161)

(237)

Income from continuing operations

465

476

Discontinued operations

175

423

Net income

640

899

Net income attributable to shareholders per common share (in EUR) - diluted 1

0.67

0.91

EBITA*

753

790

as a % of sales

14.2%

14.9%

Adjusted EBITA*

811

884

as a % of sales

15.3%

16.7%

Adjusted EBITDA*

991

1,072

as a % of sales

18.7%

20.2%

1)The year-on-year increase in net income attributable to Philips shareholders was mainly due to the further sell-down of Philips’ interest in Philips Lighting
2)Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information.
MR Prodiva 1.5T system

Highlights of Q4

Diagnostic imaging innovations

As part of Philips’ new introductions to drive growth in Diagnostic Imaging, the company launched its digital MR Prodiva 1.5T system, which provides enhanced clinical performance and increased productivity. Philips also introduced the latest configuration of its IQon Spectral CT, which is optimized to support the needs of emergency and oncology care. Moreover, since the third quarter, Philips has been shipping Vereos, the world’s first and only fully digital PET/CT system, which is achieving market success due to its superb resolution, accuracy and efficiency.

More information

Analytical Informatics logo

Highlights of Q4

Analytical Informatics acquisition

Philips strengthened its Radiology Solutions offering with the acquisition of Analytical Informatics. Their suite of workflow improvement applications complements Philips’ PerformanceBridge Practice to enable imaging departments to make data-driven improvement decisions. For example, Philips and Banner Health extended their partnership to include adoption of Philips’ PerformanceBridge Practice across Banner’s 28 radiology departments.

More information

Philips Lumify app-based ultrasound solution

Highlights of Q4

Market wins

Philips signed several multi-year agreements including a 10-year agreement with Children’s Hospital & Medical Center of Omaha in the US to help drive innovation in pediatric care. The company also won a multi-modality tender at the University Hospital of Schleswig-Holstein to provide medical equipment for the hospital’s radiology and neuroradiology departments. In addition, the German Armed Forces will adopt Philips’ Lumify app-based ultrasound solution as standard equipment for doctors and paramedics in emergency and rescue operations.

More information (Children’s Hospital & Medical Center of Omaha) More information (German Armed Forces to use Philips Lumify ultrasound)

Forcare logo

Highlights of Q4

Acquisition of interoperability provider Forcare

Expanding its health informatics portfolio, Philips acquired interoperability provider Forcare in the Netherlands. Philips also partnered with US-based Nuance to bring Artificial Intelligence into radiology reporting by leveraging functionalities from Philips’ Illumeo and Nuance’s PowerScribe 360. Furthermore, Philips launched its new IntelliSpace Enterprise Edition for Radiology, providing radiology departments with comprehensive tools to increase efficiency and enhance throughput.

More information

chronic respiratory diseases logo

Highlights of Q4

Partnering on respiratory disease management in China

In China, Philips partnered with Oranger, a service provider specialized in chronic respiratory disease management, and Health 100, the largest health examination organization in China, to provide integrated solutions for chronic respiratory diseases that cover screening, referral, treatment and recovery.

Philips VitalHealth application in action

Highlights of Q4

VitalHealth acquisition

To further expand its Population Health Management business, Philips acquired VitalHealth, whose highly complementary portfolio of advanced analytics, care coordination, patient engagement and outcome management solutions will support Philips’ commitment to deliver integrated solutions for care providers.

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Philips Avent uGrow parenting application on a mobile phone

Highlights of Q4

Teaming up with American Well on telehealth

As a driver of new care models, Philips teamed up with leading telehealth provider American Well to jointly deliver virtual care solutions around the world by embedding American Well’s mobile telehealth services into an array of Philips solutions, starting with the Philips Avent uGrow parenting platform, giving parents 24/7 access to professional medical consultations.

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Philips IntelliVue X3 patient monitor

Highlights of Q4

FDA 510(k) clearance for IntelliVue X3

Strengthening its leadership in patient monitoring solutions, Philips received FDA 510(k) clearance to market the IntelliVue X3 patient monitor, which provides continuous monitoring for the most critical patients during in-hospital transport. The IntelliVue X3 already had CE marking and was released in Europe in mid-2017.

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