Image credit: Philips Healthcare RSNA 2019, Philips News Center
On April 26th, Philips Healthcare published its financial results for Q1 2021. These show that nominal Group sales grew moderately during the first quarter, a positive start to the year following a challenging 2020. Group quarterly sales revenue reached €3.82 bn, compared with €3.69 bn in Q1 2020, an increase of approximately +4% year-on-year. When adjusting this sales performance for portfolio changes and currency movements, comparable sales increased by approximately +9% year-on-year. The sales growth during the quarter was driven by higher sales from all business segments, led by Personal Health (+€66m), followed by Connected Care (+€54m) and Diagnosis & Treatment (+€29m).
The Diagnosis and Treatment Segment
The D&T segment encompasses the Group’s portfolio of medical imaging platforms, image-guided therapy solutions (IGT) as well as healthcare informatics. During the first quarter, sales originating from the D&T segment reached €1.87 bn, compared with €1.83 bn in Q1 2020, an increase of +1.6% year-on-year. When adjusting this sales performance for portfolio changes and currency movements, comparable sales were approximately +9% higher year-on-year. From a product segment perspective, the sales growth during the quarter was driven by higher sales across all segments, Diagnostic Imaging, IGT, Ultrasound and Enterprise Diagnostic Informatics. In addition to sales growth, order intake grew strongly during the quarter. CFO, Abhijit Bhattacharya commented: “I’m pleased to share that the Diagnosis & Treatment business comparable order intake grew double digits in Q1 driven by strong double-digit growth in image-guided therapy and solid performance in diagnostic imaging and ultrasound. This is due to improving market conditions as well as the strong competitive momentum of our innovative portfolio. As a result, we saw a further increase of the order book in these businesses in the quarter.”
The Diagnostic Imaging Segment
In Q1, comparable sales revenue growth was a positive double-digit e.g. +12%. This is compared with sales growth of a positive mid-single-digit e.g. +5% in Q1 2020. The quarterly sales growth was driven by strong installations of computed tomography and magnetic resonance systems.
The Image-Guided Therapy (IGT) Segment
In Q1 2021, comparable sales growth was a positive mid-single-digit e.g. +5%. This is compared with sales growth of a negative low-single-digit e.g. -2% in Q1 2020.
CFO, Abhijit Bhattacharya commented: “Image-guided therapy sales saw solid sequential improvement and grew mid-single digit in the quarter mainly driven by a strong traction of our devices business as we saw a good return to growth at the end of the quarter especially in the United States. The volume of elective procedures gradually improved during the first quarter with March tracking above pre-COVID levels. We expect that elective procedures volumes to continue to gradually increase in the course of the year as hospitals normalize their operation and also work through the backlog of patients.” The IGT portfolio encompasses the companies range of interventional x-ray imaging systems, which includes the Zenition series of mobile c-arm systems as well as the Aziron and Allura series of surgical IGT systems. During Q3 2020, Philips launched it’s next-generation Aziron IGT platform which is an iteration of its existing platform which has been used in over 2m procedures globally. The Azurion’s upgrades are reportedly “several years ahead of the competition according to customers” and are allowing Philips to successfully differentiate its solution as gain market share. The IGT portfolio also represents the recent acquisitions of Volcano and EPD solutions. These acquisitions added specialist catheters for intravascular ultrasound (IVUS) and fractional flow reserve (FFR) to the product line-up as well as a proprietary cardiac imaging and navigation system; a diagnostic and treatment tool for cardiac arrhythmias.
The Ultrasound Imaging Segment
In Q1 2021, comparable sales growth was a positive high-single-digit e.g. +8%. This is compared with sales growth of a negative low-single-digit e.g. -2% in Q1 2020.
Future ultrasound growth through acquisition?
During the Q1 earnings call Q&A, Michael Jungling of JP Morgan asked “If there was a sizable ultrasound business up for sale, would you be interested to further expand your market-leading business and does your current market share actually allow this?”. Frans responded “Yes. I love hypothetical questions, Michael. As you know, our strength foremost is in cardiovascular ultrasound and there we are Number 1. In other areas such as general or point-of-care ultrasound, we are much lower. So if opportunities would arise potentially we would look at it, but we do have to worry about anti-trust approval. So, it would not be a slam dunk.”
Diagnosis and Treatment Sales by Geography
From a geographical perspective, the sales growth during the quarter was driven by higher sales from all geographies, apart from North America, as sales were flat year-on-year. Comparable sales in growth geographies showed double-digit growth, with double-digit growth in China. Mature geographies recorded mid-single-digit growth, with high-single-digit growth in Western Europe and double-digit growth in other mature geographies.
|2021 v 2020||Q1||Q2||Q3||Q4|
|North America||Flat (-)|
|Western Europe||high-single (+)|
|Other mature||double (+)|
Forward guidance for 2021
In 2021, the business expects to continue to experience uncertainty related to the Coronavirus pandemic. At a Group level, the company expects to achieve a low-single-digit comparable sales revenue growth e.g. +2.5% as well as an adjusted EBITDA margin improvement of 60-80 basis points. For the Diagnosis & Treatment segment, the company expects to achieve annualised sales growth in the 5% to 6% range. Given the weaker performance during the first half of 2020, the expectation is that the first half of 2021 will result in a stronger performance. In previous investor discussions Frans has reiterated that despite the impact of Coronavirus, the overall growth profile and growth potential of Philips Healthcare remains in-tact post-pandemic.
US-China trade tariffs
The US-China trade tensions continue to have a significant gross impact on the Philips business, although these have somewhat eased thanks to tariff reliefs related to supporting the global battle against Coronavirus as well as mitigating actions taken by Philips. The company has mitigated the gross impact from tariffs to approximately €25m, down from approximately €65m. During the Q4 earnings call, Frans commented: “If tariffs are rolled back, then that should be a net positive for us. However, I don’t see that happening anytime soon. So it’s an area to continue to watch. And we have now made the changes to the supply chain to mitigate some of this.”