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The New Philips: Sustainable Growth?

Jul. 07, 2017 10:57 AM ETKoninklijke Philips N.V. (PHG)GE, SIEGY, MDT
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Skyward Investments


  • Philips has transformed itself into a healthcare technology company after spinning off Philips Lighting
  • The company has been on an acquisition spree focused on bolstering its three main "HealthTech" businesses
  • With the spike in 2016 EBIT, is now the right time to invest?

The New Philips: Sustainable Growth?

Koninklijke Philips N.V. (NYSE: PHG) is an international health technology company based in Amsterdam, Netherlands that offers both consumer and clinical enterprise products/solutions. Long a bloated company with over 100,000 employees worldwide, Philips shed its Lighting business in 2016 to focus on its HealthTech portfolio which consists of the businesses listed below.

(All images sourced from Philips' 2016 Annual Report)

Philips’ new focus on its HealthTech offerings has proven to be a wise decision; HealthTech sales grew 5% on a comparable* basis and EBIT margins nearly doubled at 7.7% of sales in 2016 versus 4.1% of sales in 2015. Over EUR 600 million of EBIT in 2016 is attributed to lower procurement costs and higher productivity.

Despite pleasing margins post-restructuring, doubts still linger: will Philips be able to achieve sustainable sales growth? Lowering costs to increase EBIT only works for so long. Thus, answering this question requires a closer look at the three main HealthTech businesses.

Personal Health consists of the following segments:

  • Health & Wellness
  • Personal Care
  • Domestic Appliances
  • Sleep & Respiratory Care

Comparable sales for this business grew at a respectable 7% year-on-year. The Health & Wellness segment led the way with double-digit growth, while the other segments experienced mid-single digit annual growth. In terms of geography, sales grew at a high-single digit pace across Europe, the Middle East, and Turkey–while growing at a mid-single digit pace in North America. The entire Personal Health business has thrived as rising incomes in developing markets drive demand for appliances that were once beyond the means of many. The brand awareness of Philips’ Sonicare and Norelco lines has certainly aided market penetration in developing nations, where Philips can rely on robust sales growth for years to come. Overall, higher margins in Personal Health seem sustainable as both sales and EBIT increase at a healthy rate.

This article was written by

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Investor with a focus on technology stocks.

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