Philips(PHG) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Comparable sales growth was 2% in Q2 2024, following high single-digit growth last year, driven by 4% growth in Diagnosis & Treatment and 2% growth in both Connected Care and Personal Health segments [48][60] - The adjusted EBITDA margin improved by 100 basis points to 11.1% compared to Q2 2023, with productivity and pricing actions contributing significantly [48][63] - Free cash flow outflow was €64 million, impacted by a payment related to the Respironics economic loss settlement, but underlying operational cash flow showed improvement [49][64] Business Line Data and Key Metrics Changes - Diagnosis & Treatment saw a 4% increase in comparable sales, with growth across Image-Guided Therapy and Precision Diagnosis, although this was against a backdrop of strong double-digit growth in Q2 2023 [60] - Connected Care's comparable sales increased by 2%, with double-digit growth in Enterprise Informatics, while Monitoring saw flat growth [61] - Personal Health delivered a 2% increase in comparable sales, driven by 5% growth outside of China, with a significant improvement in the adjusted EBITDA margin to 16.9% [62] Market Data and Key Metrics Changes - Order intake grew by 9% in Q2 2024, driven by improvements outside China, particularly in North America, resulting in 3% order intake growth for the first half of the year [67] - In China, orders declined due to government anticorruption measures affecting hospital order lead times, but the underlying demand remains strong [53][59] - North America is identified as the strongest market, with hospitals benefiting from increased patient volumes and consolidation trends [81] Company Strategy and Development Direction - The company is focused on enhancing patient safety, strengthening supply chain reliability, and establishing a simplified operating model, which has led to significant productivity improvements [47][72] - Key innovation launches are expected to support growth, with a target of 3% to 5% comparable sales growth for the full year 2024 [57][70] - The company is committed to maintaining a strong position in the Personal Health business, with ongoing innovation and market leadership in various segments [112] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving positive order intake growth in the second half of 2024, despite challenges in the macroeconomic environment [52][67] - The anticipated government stimulus in China is viewed as a potential bonus that could accelerate order growth, but the underlying demand is expected to drive improvements [106][107] - Management remains cautious about raising guidance mid-year, preferring to maintain confidence in the full-year outlook [89][90] Other Important Information - The company has seen a significant improvement in its leverage ratio, which improved from 2.8x to 2.2x compared to Q2 2023 [65] - The effective tax rate for 2024 is expected to be high due to the derecognition of deferred tax assets, but normalizing for these effects, it is projected to be between 17% and 19% [66] - The company is undergoing a leadership transition, with a new CFO set to take over in October 2024 [75][76] Q&A Session Summary Question: Strength in North America orders - Management noted improvements across different businesses in North America, benefiting from stronger market conditions and consolidation trends [81][82] Question: Personal Health business in China - The company expects continued challenges in China but anticipates stronger growth in other regions, particularly North America and Europe [88] Question: Margin delivery and guidance - Management expressed satisfaction with margin improvements but chose not to raise guidance mid-year, preferring to maintain a conservative approach [89][90] Question: Market share trends and innovations - The company has seen strengthening market positioning due to recent innovations, with expectations for improved market share in the coming months [94][95] Question: Pricing environment - Management indicated a mixed pricing environment, with some positive trends in health systems but subdued consumer sentiment affecting Personal Health pricing [98][99]