Philips Reports Robust Q1 Sales, but Profit Slips on a Component Quality Hit

By Mariliana Fotopoulou Monday, April 26, 2021

Philips, a Dutch company focused on health technology business products, announced very strong Q1 sales as the COVID-19 pandemic continues to drive demand for hospital equipment.

Philips French headquarters.

Strong Business Sales Growth, Guidance Lifted

The Dutch company said that last year’s results were restated to take into account the €3.7 billion ($4.48 billion) sale of the company’s household appliances business to Hillhouse Capital.

Philips announced a total of business sales of €3.8 billion ($4.6 billion) for Q1, on the back of 9% growth in the comparable sales business metric, which is better than the expected 6% growth.

An order intake decreased by 5%, compared to a year-ago period, amid a plunge in the Connected Care business sector. Falling Q1 2021 business sales in this sector are understandable given that the demand for hospital equipment exploded in Q1 2020, amid the COVID-19 outbreak, which set a high bar for the company to achieve this year.

In Q1 last year, the Connected Care business unit recorded a growth of 80%. Therefore, a decrease in sales this year was “anticipated,” says Frans van Houten, CEO of Philips.

“Our growth momentum is driven by our portfolio of innovative solutions, for example in the areas of precision diagnosis, image-guided therapy, and telehealth. Moreover, we continued to add long-term strategic partnerships with hospitals on the back of more than 50 new partnerships we signed in 2020,” said Frans van Houten, CEO of the Dutch company.

On the other hand, the Diagnosis and Treatment business unit posted double-digit growth of 11%. The company also noted a “strengthening” performance of its Personal Health business.

Philips said it made a loss of €34 million ($41.15 million) from continuing operations. On an adjusted basis, the company made an income from continuing operations of €139 million ($168.2 million) year-on-year (YOY) after excluding the impact of a provision related to precautionary actions to address a component quality issue, it said.

“Regretfully, we have identified a quality issue in a component that is used in certain sleep and respiratory care products, and are initiating all precautionary actions to address this issue, for which we have taken a EUR 250 million [$302.6 million] provision,” van Houten stressed.

Adjusted EBITA soared to €362 million ($438.2 million), which represents 9.5% of business sales recorded in Q1. This compares to €208 million ($251.8 million) a year ago and €326 million ($394.3 million) expected from the market analysts.

Philips said that operating cash flow stood at €321 million ($388.5 million), much higher than €181 million ($291.1 million) recorded in the year-ago period. Free cash flow exploded to €169 million ($204.5 million), compared to an outflow of €15 million ($18.1 million) in Q1 2020.

On the back of the strong performance recorded in Q1, the Dutch company said it now projects to record “low-to-mid-single-digit comparable sales growth” for the full year, which is higher compared to earlier guidance for low growth.

“Looking ahead, while we continue to see uncertainty related to the impact of COVID-19 across the world, we see increased demand in the Diagnosis & Treatment and Personal Health businesses,” the CEO noted.

Philips stock fell over 3% on a loss after shares moved to print record highs earlier this month.

Summary

Dutch company Philips reported better-than-expected Q1 EBITA profit and sales but shares still fell after the company was forced to take a €250 million ($302.6 million) provision to address a component quality issue.

About the Author


Headshot of Mariliana Fotopoulou

Mariliana has an MSC in Consumer Analytics and Business Strategy. She has a special interest in fast-moving industries and Big Data.

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