Published - July 24th, 2023 @ 9:55 AM (GMT+2)

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Philips Raises Full-Year Outlook

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Philips, the Dutch health technology giant, has unveiled its Q2 financial report, revealing an increase in its full-year expectations. The company's core earnings have surged by improved supply chain operations, a substantial order book, and implemented efficiency initiatives. Philips, now mainly a medtech player, posted an adjusted EBITA of EUR 453 million, outpacing the predicted EUR 394 million.

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The company anticipates a mid-single-digit rise in comparable sales growth, upgrading from the earlier forecast of a low-single-digit increment. The adjusted EBITA margin is also expected to hit the upper end of the high-single-digit range. Despite legal hurdles over its respiratory devices recall, Philips reported it had produced 99% of the replacement devices and necessary repair kits.

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CEO Roy Jakobs stated that remediation of the affected ventilators is their primary focus. Philips also confirmed the US Department of Justice's ongoing litigation and investigation related to the Respironics field action, with discussions for a potential consent decree in progress.

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Q2 Performance and Future Projections

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In the second quarter, Philips' group sales jumped to EUR 4.5 billion, a 9% growth in comparable sales. Income from operations rose to EUR 221 million from EUR 11 million in Q2 2022. The adjusted EBITA climbed to EUR 453 million, 10.1% of sales, compared to EUR 216 million, or 5.2% of sales in Q2 2022.

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Despite the high order intake in Q2 2022, the order book grew year-on-year. Simultaneously, the comparable order intake declined. Operating cash flow improved to EUR 135 million from an outflow of EUR 306 million in Q2 2022. The company's restructuring plans and simplification of the operating model are on track.

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Operations Enhancement and Growth Stimulation

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Philips focuses on enhancing patient safety, supply chain reliability, and simplifying operations. The company has delivered a 9% comparable sales growth, increased profitability, and improved cash flow, even amid macroeconomic and geopolitical challenges. Their order book's yearly increase is expected to stimulate growth in the coming quarters.

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All segments and geographies have contributed to the group's sales growth, raising the total to EUR 4.5 billion with a 9% comparable sales growth. Adjusted EBITA also increased, primarily driven by increased sales and productivity measures, offset slightly by cost inflation.

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Philips' order book saw a 3% growth compared to Q2 last year. Despite an 8% decline (-4% excluding Russia) in comparable order intake following a high order intake in Q2 2022, each business segment - Diagnosis & Treatment, Connected Care, and Personal Health - reported positive sales growth and an increase in Adjusted EBITA margin due to various factors.

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Workforce Reduction and Productivity Gains

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Philips successfully reduced its workforce by approximately 6,600 roles. Total savings of EUR 237 million were achieved in the quarter due to various productivity measures. Philips anticipates delivering a mid-single-digit comparable sales growth and an Adjusted EBITA margin at the upper end of the high-single-digit range for the full year 2023, unimpeded by the ongoing litigation and investigation by the US Department of Justice related to the Respironics field action.

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Customer, Innovation, and ESG Highlights

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Philips continues to make strides in customer, innovation, and ESG highlights, including signing a 10-year agreement with University of California Irvine Health, launching new imaging systems, releasing cloud-based enterprise imaging solutions, and committing to renewable energy agreements. Regarding the Philips Respironics field action, about 99% of new replacement devices and repair kits required for remediation have been produced.

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