Philips navigates growth amid China weakness, targets efficiency & AI expansion in 2025

Overview

Philips reported €18.0bn in full-year revenue for 2024, marking a 1% comparable sales growth, despite a double-digit decline in China. The company delivered strong cash flow and improved profitability, with an adjusted EBITA margin of 11.5% for the full year and 13.5% in Q4.

CEO Roy Jakobs emphasized Philips’ resilience in navigating macroeconomic challenges, stating: “We delivered better care for more people by enhancing execution and focusing on driving improvements in profitability and cash flow. Despite the challenges in China, we returned to positive order growth and expanded our margins. Our focus remains on executing our long-term plan, driving innovation, and improving operational efficiency.”

Q4 2024 vs. Q4 2023:

• Revenue increased very slightly to a value of €5.0bn (+1% YoY), despite weak demand in China.
  • Diagnosis & Treatment comparable sales decreased 1% in Q4, due to a double-digit decline in China, offsetting solid growth elsewhere.
  
  
  • Connected Care comparable sales increased 7% in Q4, on the back of a low comparison base.
  
  
  • Personal Health comparable sales decreased 2% in Q4 due to a double-digit decline in China, more than offsetting a strong performance elsewhere.
• Comparable order intake grew 2% YoY, driven by North America and growth geographies.
• Adjusted EBITA margin was 13.5% (+60 bps YoY), supported by cost efficiencies.
• Free cash flow recorded a value of €1.3bn (+14% YoY), boosted by Respironics insurance proceeds.
• Income from operations was €199m (compared to only €24m in Q4 2023), reflecting higher gross margins and cost optimizations.
• However, net (loss) income decreased significantly in Q4 2024, from a positive value of €38m to a recorded loss of (€333m).

Full-Year 2024 highlights:

• Total revenue followed the same trend as in Q4 2024, increasing slightly to €18.0bn (+1% YoY), despite a double-digit sales decline in China.
  • Diagnosis & Treatment comparable sales increased by 1% on the back of double-digit growth in 2023.
  
  
  • Connected Care comparable sales increased by 2%, mainly driven by growth in Enterprise Informatics and Sleep & Respiratory Care, which was partially offset by a decline in Monitoring on the back of strong double-digit growth in 2023.
  
  
  • Personal Health comparable sales decreased by 1%, mainly due to a low-single-digit decline in Growth geographies due to China, which was partially offset by low-single-digit growth in Mature geographies.
• Income from operations was €529m (after a loss of €115m in 2023), an improvement driven by higher gross margins and reduced restructuring costs.
• Net income continued to record an increasing negative value compared to 2023, of (€698m), compared to (€463m).
• Adjusted EBITA margin reached to 11.5% (+90 bps YoY), supported by productivity measures.
• Free cash flow declined to €906m (-43% YoY), but reflecting strong operating cash flow despite settlement payments.

Philips anticipates moderate growth in 2025, navigating macroeconomic challenges while continuing to improve operational efficiency. The company expects comparable sales growth of 1% – 3%, though a mid-to-high single-digit decline in China remains a headwind. Adjusted EBITA margin is projected to increase by 30 – 80 bps, reaching 11.8% – 12.3%, reflecting ongoing cost optimization efforts. Free cash flow is forecasted between €1.4bn – €1.6bn, before accounting for Respironics-related settlement payments of €0.4bn – €0.6bn net. Philips’ strategic priorities for 2025 include €800m in additional cost savings, expanding AI-driven imaging, diagnostics, and informatics, and strengthening its presence in mature markets, while adopting a cautious approach in China.

After the results were published, PHIA shares experienced a price decrease of over -11%, with investors most likely confused about the drastic decrease in the company’s sales in China, but also about some predictions for 2025.

Author: Ionuț-Adrian Lazar