Philips growth spurred by COVID-19 demand and distant care

AMSTERDAM (Reuters) – Health technology company Philips PHG.AS saw sales and profits jump in the third quarter, as the COVID-19 pandemic spurred demand for hospital equipment needed to help patients battling the disease.

Amsterdam-based Philips on Monday said comparable sales rose 10% to 4.98 billion euros ($5.8 billion) in the July-September period, while core profits improved by almost a third to 769 million euros.

Profits and sales easily beat analysts’ expectations, taking Philips shares up 2.9% at 0800 GMT in Amsterdam.

Growth was mainly driven by a 42% increase in sales at the connected care division, which makes monitoring and respiratory care devices used to treat COVID-19 patients and other appliances which allow carers to work remotely.

Like competitors such as Germany’s Siemens Healthineers SHLG.DE, Philips’ results were hit hard in the first half of 2020, as the pandemic caused hospitals to delay the installation of new equipment and crippled demand for consumer products.

But after the first shock of the coronavirus outbreak, Philips began to see a structural change at hospitals, Chief Executive Frans van Houten said, as they increased demand for devices that allow for remote patient monitoring.

These range from appliances for teleconsults to platforms for radiologists to diagnose patients while working from home and for monitoring patients on intensive care units without having to be by their side.

“There is a structural higher demand for the healthcare informatics that Philips has already invested in for several years and now we see the validation of that strategy”, the CEO said.

NEW TARGETS

This structural shift will be one of the main drivers for future growth, Van Houten said, as Philips updated its targets for the years to come.

Philips said it expected average sales growth of 5% to 6% per year between 2021 and 2025, with the adjusted EBITA margin improving by 60 to 80 basis points each year.

The company’s profit margin jumped to 15.4% in the third quarter, up from 12.4% a year earlier, and is now expected to reach the “high teens” by 2025, it said.

For 2021, however, Philips predicted “low-single-digit growth”, as demand for COVID-19 equipment is expected to cool down.

Philips cut its outlook for 2020 in August, after the U.S. Department of Health cancelled most of an order for 43,000 ventilators.

The company on Monday maintained its outlook for moderate sales growth and a stable EBITA margin for the whole of this year.

Reporting by Bart Meijer; Editing by Muralikumar Anantharaman and Richard Pullin/Emelia Sithole-Matarise

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