Royal Philips NV reported a 6% decline in year-to-year sales for the second quarter of 2020. While delays in elective procedures suppressed sales in the Amsterdam-based company’s diagnostics and treatment division, the virus boosted demand for connected care and minimized the impact of the coronavirus for the company compared to many competitors.
“As anticipated, COVID-19 caused a steep decrease in consumer demand and postponement of installations in hospitals, as well as elective procedures, resulting in a 19% comparable sales decrease for our Personal Health businesses and a 9% decline for our Diagnosis and Treatment businesses,” said Philips CEO François Adrianus van Houten. “This was partly offset by a strong 14% comparable sales growth for our Connected Care businesses.”
Adjusted EBITA margin was 9.5% in the second quarter vs. 11.8% a year earlier. Income from continuing operations was €213 million (US$243.77 million) and operating cashflow was €558 million, up from €390 million in the second quarter of 2019.
With the pandemic continuing to challenge health care systems worldwide, “we expect these trends in divisional performance differences to remain for the rest of 2020,” said Denise Molina, director of Morningstar Equity Research.
Philips sharply increased production volumes of acute care products and solutions used in the diagnosis, treatment, and management of COVID-19 patients in the second quarter.
Van Houten noted that quarterly order intake grew 27% compared to the comparable quarter in 2019, and followed double-digit growth in the first quarter. Much of the growth in the second quarter derived from sales of computed tomography (CT) imaging system, hospital ventilators, and patient monitors critical to COVID-19 patient care.
Ventilator production tripled over the three months, van Houten explained in an earnings call July 20, and Philips expects to meet its targeted fourfold increase to 4,000 units per week in July.
“We expect to return to growth and improved profitability for the Group in the second half of the year, assuming we can convert our existing order book for the Diagnosis and Treatment and Connected Care businesses, elective procedures normalize, and consumer demand gradually improves,” van Houten said.
The Personal Health division saw some improvement in June, with sales performance improving to an 11% decline, Molina noted.
“Online sales were 46% compared with 30% in 2018, but the shift isn’t expected to have a big impact on profitability,” Molina said.
Separation of the domestic appliances business is expected in the third quarter of 2021 with total separation costs expected to be in the €120 million to €140 million range. Between €50 million and €60 million of those costs are expected to be incurred in 2020, said van Houten.
In response to the global health care crisis, Philips launched several new monitoring solutions to ease care for COVID-19 and other patients. These included the Biosensor BX100 for early patient deterioration on general wards. The five-day, single-use wearable patch can be integrated with a scalable hub to enable monitoring of multiple patients in several rooms. The device has both U.S. FDA 510(k) clearance and CE mark and is in use in a major medical center in the Netherlands.
The company also introduced the Biointellisense Biosticker device that facilitates monitoring of at-risk patients from the hospital while they are at home.
In the U.S., Philips also launched its Intellivue Patient Monitors MX750 and MX 850 and the Intellivue Active Displays AD75 and AD85. These acute patient monitoring systems provide an expanded real-time view of vital signs to provide greater context for a patient’s condition while offering greater protection from hacking.
During the quarter, Philips signed 14 new strategic partnership agreements. Among the most notable, Philips struck a 10-year deal with the U.S. Department of Veterans Affairs to expand the VA’s telehealth program with a goal of creating the world’s largest system for the provision of remote intensive care.
The company also inked a 10-year agreement with Flevo Hospital in the Netherlands to support precision diagnosis and optimize workflows and patient pathways, while increasing efficiency and reducing costs.
University of Kentucky Healthcare joined forces with Philips to implement the company’s tele-ICU technology, eCaremanager, across 160 ICR beds at the academic medical center’s two hospitals. The partnership will create the state’s first centralized virtual care model to help nurses identify patients at risk of deterioration early in the process when outcomes could be improved.
With dental technology company Toothpic, Philips Sonicare released a new teledentistry platform to facilitate patient acquisition, engagement, and retention, while improving office efficiency and remote care.