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Philips delivers Q2 sales of EUR 4.2 billion, with 9% comparable sales growth; net income amounts to EUR 153 million and Adjusted EBITA margin improves 280 basis points to 12.6%; company announces EUR 1.5 billion share buyback program
Second-quarter highlights
Frans van Houten, CEO:
“We have mobilized the necessary resources across the company to address the component quality issue in certain of our sleep and respiratory care products. We fully understand the impact that this is having on patients, as their well-being is at the heart of everything we do at #philips. We are in discussions with the relevant regulatory authorities to obtain authorization to start deploying the repair kits and replacement devices that we are producing.
I am pleased with the good #performance momentum in all our businesses except the Sleep & Respiratory Care #business, as we delivered a strong 9% comparable sales growth and 280 basis points profitability improvement for the Group in the quarter. I am particularly encouraged by the 29% order intake growth in our Diagnosis & Treatment businesses, as well as the strong growth of our Personal #health businesses.
In the quarter, we introduced exciting innovations, such as the new Spectral CT 7500 to help improve disease characterization and reduce rescans and follow-ups. The integration of BioTelemetry and Capsule Technologies is proceeding well, and our customers appreciate the expanded portfolio of end-to-end patient care management solutions from the hospital to the home. We entered 12 new long-term strategic partnerships, building on the strength of our portfolio and demonstrating the trust hospital leaders have in our ability to enhance #health outcomes and lower the cost of care, while improving patient and staff experience.
Confident in our strategy and financial trajectory, we are launching a new share buyback program of EUR 1.5 billion in line with our balanced capital allocation policy.
Looking ahead, while we continue to see uncertainty related to the impact of COVID-19 across the world and electronic component shortages, our financial outlook remains within our guided range, with low-to-mid-single-digit comparable sales growth and an Adjusted EBITA margin improvement of 60 basis points expected for the Group in 2021.”
Business segment performance
The Diagnosis & Treatment businesses recorded 16% comparable sales growth, with double-digit growth in all businesses. Comparable order intake increased 29%, with strong double-digit growth in Image-Guided Therapy, Ultrasound and Diagnostic Imaging. The Adjusted EBITA margin increased to 13.2%, mainly driven by sales growth and productivity measures.
Comparable sales in the Connected Care businesses decreased 16%, as mid-single-digit growth in Hospital Patient Monitoring was more than offset by a double-digit decline in Sleep & Respiratory Care. Comparable order intake decreased significantly following the steep COVID-19-related increase in Q2 2020. The Hospital Patient Monitoring #business continues to perform well above 2019 levels. The newly acquired BioTelemetry and Capsule Technologies businesses continue to deliver strong sales growth with increasing profitability. The Adjusted EBITA margin amounted to 11.3%, mainly due to the impact in the Sleep & Respiratory Care #business.
The Personal #health businesses recorded a strong comparable sales growth of 33%, driven by double-digit growth across all businesses. The Adjusted EBITA margin increased to 17.0%, mainly driven by sales growth and productivity measures, partly offset by investments in advertising & promotion.
Philips’ ongoing focus on innovation and partnerships resulted in the following highlights in the quarter:
Cost savings
In the second quarter, productivity savings amounted to EUR 90 million, of which procurement savings amounting to EUR 44 million, and savings of EUR 46 million delivered by overhead and other programs.
Capital allocation
Today, #philips is announcing a new share buyback program for capital reduction purposes for an amount of up to EUR 1.5 billion. At the current share price, the program represents a total of approximately 36.8 million shares, or 4% of total shares outstanding. #philips expects to start the program in the third quarter of 2021 and to complete it within three years. It is expected that the program will be executed through a number of forward purchase transactions with one or more financial institutions and/or open market purchases by an intermediary to allow for transactions during both open and closed periods in accordance with the EU Market Abuse Regulation. Updates on the progress of the program and further details will be made available here, and through press releases as appropriate.
Under Philips’ ongoing EUR 1.5 billion share buyback program for capital reduction purposes, which was initiated in the first quarter of 2019, #philips repurchased shares in the open market and entered into a number of forward transactions. #philips had 2,500,000 shares delivered in June 2021 as part of the program, and under the currently outstanding forward contracts the company expects to have another 17,976,023 shares delivered in the remainder of 2021. These shares will be cancelled by December 31, 2021, resulting in an estimated total number of issued shares of 897 million by that date, compared to 917 million shares at the end of Q2 2021. Further details can be found here.
Domestic Appliances
On March 25, 2021, #philips announced that it had signed an agreement to sell its Domestic Appliances #business to global investment firm Hillhouse Capital. As planned, on July 1, 2021 the Domestic Appliances #business became a stand-alone entity and the sale is on track for completion in the third quarter of 2021. Since the first quarter of 2021, the Domestic Appliances #business (which was previously part of the Personal #health segment) is reported as a discontinued operation. #philips will continue to consolidate Domestic Appliances under International Financial Reporting Standards (IFRS) until the sale is completed.
Regulatory update
On June 14, 2021 #philips initiated a voluntary recall notification in the US/field safety notice outside the US for certain sleep and respiratory care products to address identified potential #health risks related to the polyester-based polyurethane (PE-PUR) sound abatement foam in these devices.
Philips has established dedicated call centers and a device registration process to support patients. The company is increasing its production, service and repair capacity and has requested the relevant regulatory clearances for the repair and replacement actions. Subject to these regulatory clearances, #philips is ready to start deploying the repair kits and replacement devices that it is producing. Given the estimated scope of the field actions on the installed base, #philips has taken a provision of EUR 250 million in the second quarter of 2021, in addition to the provision that the company recorded in the first quarter of 2021.
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