Philips Says Modest Growth Possible, Despite Virus Disruption

Sales and profit margins at Dutch health technology company Philips could still rise this year, provided the coronavirus pandemic eases in the coming months and hospitals are able to restart elective operations, it said on Monday. The optimism contrasts with the gloom engulfing much of the corporate world as lockdowns to contain the pandemic hammer business, and partly reflects strong orders for Philips' medical ventilators used for treating the sickest coronavirus patients.

The electric toothbrush to hospital scanners maker scrapped its previous 2020 forecasts for 4-6 percent comparable sales growth and a 100 basis point improvement in operating profit margin, as the disruption from the health crisis hit first-quarter results and it warned the second quarter could be even worse.

However, Chief Executive Frans van Houten said "modest" growth in sales and margins was still possible this year if the crisis eases in the months ahead, allowing hospitals to restart elective procedures and consumer demand to recover.

As one of the first European companies to report first-quarter results, Philips' comments could raise investors' hopes that others will also see a quick recovery.

The novel coronavirus disease COVID-19 has increased global demand for Philips' ventilators and other hospital equipment, leading to a 23 percent rise in orders in the first three months of the year as the company promised to ramp up production.

But that has been more than offset by a plunge in demand for personal care products, such as toothbrushes and shavers.

Underlying earnings before interest, taxes and amortisation (EBITA) dropped 33 percent from a year earlier in the first quarter to EUR 244 million (roughly Rs. 2,032 crores), while comparable sales declined 2 percent to EUR 4.15 billion (Rs. 34,557 crores) .

"Order intake was very strong", ING analyst Marc Hesselink said. "But Q1 seems significantly below on profitability."

Philips shares traded up 4.7 percent in Amsterdam at 0755 GMT, limiting their loss since the start of the year to around 10 percent.

Growth could return in H2
Van Houten forecast a "steep" revenue drop for personal care products in the second quarter and a "sizable high single-digit" decline for a large part of its hospital equipment business.

But developments in China provided some grounds for optimism about the second half of the year, he added.

"In China, consumer demand was down 80 percent in February, but we saw online sales gradually recover in March. Also hospitals which were very focused on pandemic priorities restarted elective procedures, such as cardiovascular interventions.

"The rest of the world is, let's say, a quarter behind. We expect a gradual come-back in the third and fourth quarter."

Van Houten added delivery of orders had been postponed in the first quarter as hospitals focused on the immediate crisis response.

"These installations are now expected to be done in the third and fourth quarter. Also we have a strong order book. So that gives us the recovery in the second half."

© Thomson Reuters 2020