By: Azhar Azam
The sale of – Koninklijke Philips (Royal Philips) – increased by 2.1% to EUR 17.8 billion for 2017 as the Dutch multinational goes through the process to spin off Lighting, Lumileds and Automotive, and other businesses in order to transform into a focused health technology company.
Major businesses – Personal Health (EUR 7.3 billion) and Diagnosis & Treatment (EUR 6.9 billion) were the key performers during the outgone year – reflecting 3% sales growth while Connected Care & Health Informatics (EUR 3.2 billion) business lingered flat.
The gross margins increased to EUR 8.2 billion – 46.0% of sales whereas adjusted EBITA income from operations rose 12.1% – to EUR 2.2 billion. The company also generated a strong free cash flow of EUR 1.2 billion for the fiscal year ended December 31, Annual Report 2017 released in February 20 stated.
Personal Health (EUR 1,221 million), Diagnosis & Treatment (EUR 716 million), and Connected Care & Health Informatics (EUR 372 million) businesses reported operating income growth of 16.7%, 10.4%, and 11.8% respectively – partially offset by losses in HealthTec Other (EUR 109 million) and Legacy Items (EUR 48 million).
Philips fixed contractual cash obligations and commitments stood at EUR 10.2 billion as of December 2017 – including major cash obligations of long term debt (EUR 4.3 billion), trade and other payables (EUR 2.1 billion), and interest on debt (EUR 1.8 billion).
Royal Philips ceased to consolidate Philips Lighting since the end of November 2017 as the company is gradually losing its interest in Philips Lighting business after November 28, 2017 ‘bookbuild offering’.
Following objective to fully sell down the stakes in Philips Lighting, the company made several transactions in 2017 to slice its stakes in Philips Lighting from 71.23% in December 2016 to 29.01% in December 2017.
Philips retained financial interest in in Philips Lighting represented EUR 1,264 million on December 31, 2017 – which the group plans to sell down within one year as well as placing the assets as ‘held for sale’.
The Netherlands technology company also completed the sale of 80.1% stakes in the combined Lumileds and Automotive businesses to certain funds managed by the affiliates of Apollo Global Management on June 30, 2017.
As a result of discontinued operations, employee headcount in Philips fell by 43,764 – to 70,967 in 2016. Employee strength however increased by 2,983 – to 73,951 in 2017 after the addition of image guided therapy, population health management, digital pathology, and other businesses.
Diagnosis and Treatment (25,757); Personal Health (23,170); Healthtech Other (13,965); Connected Care & Health Informatics (10,949); and Legacy Items (109) are the existing Philips employees by segment, from largest to lowest.
Roughly 45,954 of Philips workforce is located in Western Europe (21,055); North America (20,937); and other mature geographies (3,962). Precisely 27,997 people are employed in growth geographies.
The company has completed three two mergers and acquisitions (M&A) in the last few years – Volcano, and Spectranetics – to strengthen its image guided therapy business. It also completed acquisition of Wellcentive to compliment population health management portfolio.
In 2017, Philips also entered into a partnership B. Braun to innovate and accelerate growth in ultrasound-guided regional anesthesia and vascular access.
Diagnosis and Treatment business is the pivot to the Philips health technology strategy on the promise of precision medicine and least-invasive treatment and therapy. Based on sales, it is one of the world’s leading health technology companies along with peers like Medtronic, General Electric, and Siemens.
The competition is expected to intensify as the competitive landscape in the healthcare industry is growing with surfacing of new market players.
Philips Diagnosis and Treatment business segment comprises of Diagnostic Imaging (MRI, CT, Advanced Molecular Imaging, Diagnostic X-ray (digital X-ray, mammography, and integrated clinical solutions), Image-Guided Therapy (interventional X-ray systems including cardiology, radiology, and surgery and interventional imaging and therapy devices), and Ultrasound (diagnosis, treatment planning, and guidance for cardiology, general imaging, obstetrics/gynecology, and point-of-care applications).
Nearly half of the Diagnosis & Treatment business revenue is derived from Diagnostic Imaging (49%) whilst Image-Guided Therapy and Ultrasound businesses make up 30% and 21% of the total business segment sales.
Double-digit growth in in Diagnostic Imaging order intake powered Philips to maintain strong growth in China, partially driven by strong toehold in private hospitals which was aided by strategic partnership with Health 100 – the largest health examination organization in China.
In a bid to drive growth in Diagnostic Imaging – Philips introduced digital MR Provida 1.5T system to provide enhanced clinical performance and increased productivity alongside introducing the latest configuration of its IQon Spectral CT, optimized to support the needs of emergency and oncology care.
Philips has also been shipping the world’s first and only fully digital PET/CT system – Vereos –since third quarter of 2017, enunciating to achieving market share over superb resolution, accuracy, and efficiency.
Supporting the transition to a circular economy, Philips continues to expand its Diamond Select refurbishment program – to actively pursue the trade in program of various medical equipment such as MRI, CT, and cardiovascular systems , to repurpose the materials. The practice will continue until all the professional healthcare equipment is covered.
Philips Personal Health business consisted of Health & Wellness (mother & child care, oral health), Personal Care (male grooming, beauty), Domestic Appliances (kitchen appliances, coffee, air, garment care, floor care), and Sleep & Respiratory Care (sleep, respiratory care, respiratory drug delivery).
In 2017, the four sub-segments contributed to the company sales by 21%, 25%, 32%, and 22% respectively.
Connected Care & Health Informatics business includes Patient Care & Monitoring Solutions (enterprise-wide patient monitoring solutions, diagnostic ECG data management, therapeutic care), Healthcare Informatics (IT solutions for radiology, cardiology, and oncology departments, PACS, EMR, UDM) and Population Health Management (solutions for increased patients engagement, satisfaction and compliance like telehealth, remote patient monitoring, cloud-based solutions for health organizations to manage population health).
Patient Care & Monitoring Solutions outperformed by generating 78% of total sales in Connected Care & Health Informatics business whilst Healthcare Informatics and Population Health Management interjected 15% and 5% respectively.
The annual base compensation of Philips board of management for 2017 was: F.A. van Houten (EUR 1,205,000); A. Bhattacharya (EUR 700,000); and M.J. van Ginneken (EUR 550,000).
In addition to annual base compensation, a variable annual incentive can also be earned by members of Board of Management on the achievement of specific targets. Based on on-target performance metrics, F.A. van Houten (105.4%), A. Bhattacharya (80.5%) and M.J. van Ginneken (75.5%) will realize annual incentive of EUR 1,270,166; EUR 553,392; and EUR 69,168 respectively in 2018.