July 22, 2019 / 5:21 AM / 4 months ago

Philips sales spurred by rising Chinese healthcare spending

AMSTERDAM (Reuters) - Rising healthcare spending by the Chinese government helped Dutch health technology company Philips (PHG.AS) post better-than-expected sales growth for the second quarter, putting its shares among the top performers in Europe on Monday.

FILE PHOTO: Dutch technology company Philips' logo is seen at company headquarters in Amsterdam, Netherlands, January 29, 2019. REUTERS/Eva Plevier/File Photo

Philips, which sells products ranging from toothbrushes to medical imaging systems, said comparable sales had improved 6% in the second quarter. Analysts had on average only penciled in a 4.5% improvement.

Philips shares rose 4% in the first hours of trading in Amsterdam, making them one of the top performers in the Stoxx600.

Growth was helped by a “double digit” sales increase in China, Philips said, as the Chinese government ramps up healthcare spending, expanding hospitals and investing in more advanced technologies.

“Healthcare in China is still not sufficient to meet the demands of an ageing society,” Chief Executive Frans van Houten told Reuters in a phone interview.

“The government has said it would expand capacity, and that is exactly what is happening. This trend for us is more important than fluctuations in GDP (gross domestic product) growth, and we expect it to continue in the coming years.”

Demand and orders for hospital equipment, medical systems and personal care devices also increased in the United States and Europe, keeping Philips optimistic about the months to come.

“We saw growth in all our segments in the second quarter and we expect that to continue”, Van Houten told reporters.

“We had strong traction in emerging markets and that is set to continue. Also, we expect mature markets to come in stronger in the second half of the year.”

TARIFF CLOUDS

Although sales in the U.S. and China remained strong, Philips said the trade disputes between the two countries remained its main worry, as both its end products and components are hit by new tariffs.

“The main cloud hanging over us is the possible fourth batch of tariffs,” Van Houten said. “If that would happen, it would increase the amount by which our earnings are hit by 20 million euros this year, but nobody knows whether it will happen.”

Philips currently expects tariffs to shave 45 million euros ($51 million) off its 2019 core earnings.

Once a sprawling conglomerate, Philips is now purely focused on healthcare after spinning off its lighting and consumer electronics divisions in recent years.

The company reaffirmed its target for total comparable sales growth of 4% to 6% per year until 2020, and said its profit margin would move up from 13.1 to around 14% this year.

Adjusted earnings before interest, taxes and amortization (EBITA) jumped 14% to 549 million euros in the second quarter, while the margin climbed 60 basis points to 11.8%, roughly meeting expectations.

Reporting by Bart Meijer; Editing by Sherry Jacob-Phillips and Edmund Blair

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