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Philips’ 2Q Profit Beats Expectations

Philips’ 2Q Profit Beats Expectations

Frans van Houten, CEO, summarized the company’s second quarter results:

Philips‘ performance in the second quarter of 2016 was solid, with 3% comparable sales growth overall and strong 5% growth from our HealthTech businesses. Our Accelerate! transformation program delivered further operational improvements across most businesses, while we continued to invest in quality and innovation.

“I am pleased with the successful listing of Philips Lighting on Euronext in Amsterdam at the end of May. With that momentous step, Philips will now fully focus on capturing the exciting opportunities in the health technology space, allowing Philips Lighting to do the same in the growing market for energy-efficient lighting. Philips currently retains a majority holding in Philips Lighting with the aim of fully selling down over the next several years.

“Our outlook for 2016 remains unchanged, as we continue to expect earnings improvements in the second half of the year, but we are concerned about increased risk due to volatility in a number of markets.”

On May 27, 2016, Philips Lighting was listed and started trading on Euronext in Amsterdam under the symbol ‘LIGHT’. Following the listing of Philips Lighting, Philips retains a 71.225% stake and continues to consolidate Philips Lighting.

In the second quarter, comparable sales in Philips Lighting declined by 1%, while Adjusted EBITA improved by 180 basis points to 9.3% of sales.

van Houten continued: “Our HealthTech portfolio grew 5%, driven by businesses in Personal Health and Connected Care & Health Informatics. We were able to drive further operational improvements while keeping up our significant investments in quality and innovation, including in health informatics, wearable patient monitoring solutions and digital pathology.

Equipment-order intake remained uneven and fell by 1% on a currency-comparable basis in the quarter. However, we expect good order intake growth in the second half of the year.”

The Personal Health businesses grew by 9% on a comparable basis, with the Adjusted EBITA margin improving by 170 basis points.The Diagnosis & Treatment businesses posted comparable sales growth of 1%, and the Adjusted EBITA margin improved by 20 basis points. In the Connected Care & Health Informatics businesses, comparable sales grew by 6%, while the Adjusted EBITA margin improved by 110 basis points.

Separation costs
Costs related to the separation of Philips Lighting amounted to nearly $50 million in the second quarter of 2016. For the second half of 2016, Philips expects separation costs to be in the range of approximately $71-$93 million. Another $42 million of costs related to the listing of Philips Lighting were booked through equity in the second quarter of 2016.

Cost savings
Overhead cost savings amounted to almost $21 million in the second quarter. The Design for Excellence (DfX) program generated more than $94 million of incremental procurement savings in the quarter. The End2End improvement program achieved nearly $50 million in productivity gains.

As of June 30, 2016, Philips had completed 91% of the 3-year $1.65 billion share buy-back program.


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