January 29, 2019
By Bart H. Meijer
AMSTERDAM (Reuters) – The trade war between Washington and Beijing is forcing Dutch health technology company Philips to move “hundreds of millions” of euros worth of production from the United States to China, and vice versa, to avoid punitive tariffs.
“This is not peanuts”, Chief Executive Frans van Houten told reporters on Tuesday.
“These are serious changes to our supply chains,” he said, adding the switches would take place in the first half of 2019.
Philips, whose healthcare products range from high-tech toothbrushes to medical imaging systems, stuck to an earlier prediction that increased trade tariffs would cut around 60 million euros ($69 million) from core profits this year.
But the effects of the trade war go beyond tariffs, the CEO said, as it is hitting consumer confidence in China, slowing demand for consumer healthcare products in the world’s second-largest economy.
Philips’ sales in China will continue to grow in 2019, however, Van Houten said, as strong demand for hospital equipment will outweigh the weakness of the consumer market.
Overall, Philips held on to its target for total comparable sales growth of 4 to 6 percent per year until 2020.
HIGHER SHAREHOLDER RETURNS
Strong demand for hospital equipment in China, Latin America and Europe helped Philips beat analysts’ forecasts in the last quarter of 2018, as comparable sales rose 5 percent and core profit (adjusted earnings before interest, tax, depreciation and amortization) increased 10 percent to 971 million euros.
Together with a 6 percent dividend hike and a new 1.5 billion euros share buyback plan, this lifted Philips shares 1.8 percent to 32.89 euros at 0930 GMT.
“On headline numbers, Philips reported a decent update”, ING analyst Marc Hesselink wrote in a note. “Underlying, the quality of the beat was lower (as) Connected Care & Healthcare Informatics was, like previous quarters, well below expectations.”
Rival Siemens Healthineers said on Tuesday it would take steps to raise profitability at its diagnostics unit after lengthy installation times for its new Atellica blood and urine testing machines hit profit at the division.
Philips reported comparable sales growth of 3 to 5 percent for its two largest businesses, which make hospital equipment and personal healthcare products. Sales of its connected care division, which specializes in remote patient monitoring, were flat.
Philips expects rising life expectancy and associated chronic diseases to lead to growing demand for devices that allow patients to stay at home, while their data is monitored.
But Van Houten in November said demand for such products would remain modest in 2019.
($1 = 0.8738 euros)
(Reporting by Bart Meijer; Editing by Gopakumar Warrier and Mark Potter)