Philips is cementing its commitment to becoming a healthcare technology provider, with plans to split off or sell its consumer appliances division—which covers home and kitchen hardware from electric ovens, blenders and air fryers, to vacuum cleaners, garment care and air purifiers.
That business brought in €2.3 billion in 2019 sales, or $2.53 billion U.S., but CEO Frans van Houten said it lacked a strategic fit for the conglomerate’s future plans in the healthcare sector. The full process of separating out the division should take 12 to 18 months, van Houten said as the company delivered its fourth-quarter and full-year earnings reports for 2019.
At the same time, Philips announced that its connected care businesses—including its enterprise patient monitoring services, sleep care, digital charting and records systems—would be seeing new management.
Following an underperforming year with narrowing margins, van Houten said the division’s chief, Carla Kriwet, will be leaving the company and replaced with the head of Philips’ personal health business, Roy Jakobs, effective immediately. Van Houten will lead the personal health division in the interim until a successor is announced.
Jakobs has served as business leader over segments including oral healthcare and grooming products since mid-2017, after first joining the company as chief marketing officer for Philips Lighting in 2010. Before that, he held posts at Royal Dutch Shell and Reed Elsevier, where he helped digitize its scientific publications division.
Philips’ connected care and data management businesses aim to serve as a major pillar of the company’s transformation going forward, while the healthcare market begins to evolve on a broader scale.
“When I talk about the 2020s as a decade, I think it will be the decade where the business model in healthcare is going to tilt towards measurements of value,” van Houten said on a conference call with reporters. “In other words, the real-world evidence of healthcare impacts on populations, individual patients and much better transparency in costs.”
“Now, this may differ country by country, but when I speak to ministers of health, everybody's going in that direction,” he said, describing how these changes will put pressure on providers to not only increase productivity but also reduce the variability seen in patient outcomes between hospitals.
“As a technology company, we can do our part in helping providers optimize their processes, take waste out, and get a better return on capital equipment and staff utilization,” said van Houten. “We can help measure patient-reported outcomes, we can measure real-world health impacts—then the idea is that we start correlating all that so that you can create an integrated picture.”
Overall, Philips saw sales of €6 billion for the fourth quarter, with 3% comparable growth, and sales of €19.5 billion across all of 2019, for 4.5% comparable growth.
The company’s diagnosis, imaging and treatment businesses saw 5% comparable sales growth for the previous quarter, bringing in €2.6 billion driven in part by its ultrasound and image-guided therapy offerings. The segment brought in about €8.5 billion for the full year.
Meanwhile, the connected care division posted 3% comparable growth for 2019, with about €4.8 billion in total sales, with €1.35 billion made last quarter. Margins decreased “mainly due to tariffs, an adverse currency impact, mix and higher material costs,” the company said.
Philips’ personal health offerings showed a 4% increase in comparable sales, with double-digit growth in its oral healthcare division helping to bring in about €1.9 billion last quarter and €5.9 billion for the year.
For 2020, van Houten said the company continues to see geopolitical and economic risks. It’s aiming for 4% to 6% comparable sales growth and an improvement in its adjusted EBITA margin of around 100 basis points, “with a performance momentum that is expected to improve in the course of the year.”