Philips HealthTech's Q3 Boosted By Growing Order Intake, Stepped-Up R&D
By Jof Enriquez,
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Royal Philips' successful pivot into health technology continues with third quarter sales surging 14 percent to €5.9 billion ($6.4B), primarily driven by 5 percent comparable sales growth and an 8 percent hike in order intake in its HealthTech portfolio.
The strong performance is attributed to increased R&D efforts worth €1.65 billion poured into health informatics, wearable patient monitoring solutions, and digital pathology. Synergies from the integration with Volcano Corporation in image-guided therapies also helped.
"Over the last two years, we have gradually increased our R&D investments as we are building the health continuum portfolio, putting more effort in health informatics, medical wearables, digital pathology. We expect the overall investment level now to be stable, with revenues gradually going to come in," said Philips CEO François van Houten during an earnings call.
"So if you take R&D investments to be stable and the top line growing, then you would get operational leverage or basically a return on those investments over the coming years," he told analysts, according to a Seeking Alpha transcript of the call.
Philips' health unit has continued to perform solidly two years after the Dutch conglomerate announced that it would concentrate on health and spin off its lighting business (which was sold through an initial public offering [IPO] in May). For the third consecutive quarter, the HealthTech business expanded by 5 percent, helping propel the company's sales to €5.9 billion. Overall net income increased 18 percent to €383 million ($416M).
The Personal Health businesses expanded by 7 percent on a comparable basis, with growth across the portfolio, most notably double-digit growth in Health & Wellness, according to a news release. The Diagnosis & Treatment unit grew by 6 percent, led by Image-Guided Therapy. Under the Connected Care & Health Informatics businesses, which rose by double digits, comparable sales growth in Healthcare Informatics, Solutions & Services was counteracted by a drop in Patient Care & Monitoring Solutions. Connected Care & Health Informatics drove up equipment order intake by 8 percent.
Philips maintained its outlook for 2016, and expects further earnings improvements in the fourth quarter of the year. The company foresees some volatility in Europe persisting, but this has been more than offset, so far, by robust growth in China and other emerging markets.
Company executives said during the call that they will "provide strategic updated deeper insights on our path to value of our HealthTech portfolio" during the company's Capital Markets Day, slated for Nov. 4 in London.
In spite of its avowed focus on health technology, and after the lighting unit's IPO in May, Philips still retains more than 71 percent ownership of the business.
"I've always flagged that it will take some time to gradually sell down our interest in lighting and basically pivot to be a medtech company focused entirely on health technology," van Houten said in an interview with CNBC.