Philips Shrugs Off China Slowdown With $1.7 Billion Buyback

(Bloomberg) -- Royal Philips NV Chief Executive Officer Frans van Houten shrugged off an economic slowdown in China, raising the dividend and starting a new share buyback program as orders for the company’s medical equipment surged.

The shares jumped as much as 4.4 percent, the most in nine months, after the Dutch maker of scanning and diagnostics machines unveiled a new 1.5 billion euro ($1.7 billion) share purchase plan and a 6 percent increase in the dividend. Comparable sales rose a better-than-expected 5 percent in the fourth quarter, according to a statement Tuesday.

Going against the grain in China, where retail growth has generally weakened, Van Houten said Philips has found specialized markets for such products as respiratory machines and electric toothbrushes, the latter having “fantastic margins.”

“The health-care market is robust and that can be correlated to an aging population and lack of capacity,” he said in an interview with Bloomberg TV. “It’s a good market for us.”

Philips has pledged to increase sales and improve profit margins after refocusing its business on health-care equipment and services while exiting from the manufacture of products like light bulbs, TVs and CDs. The company competes with General Electric Co and Siemens AG to sell X-ray and scanning machines and with Procter & Gamble Co. in the electric toothbrush market.

Philips on Tuesday reiterated a target for 4 percent to 6 percent sales growth on average per year through 2020. The Dutch company is also narrowing its manufacturing footprint to about 30 sites from 50 due to trade tensions. This led to the closing earlier this month of a factory in the U.K. as Brexit woes intensify.

The manufacturer is not adverse to investing in the U.K. in the future, Van Houten said in the interview.

Fourth-quarter adjusted earnings before interest, taxes and amortization increased to 971 million euros, up from 884 million euros a year earlier. Analysts expected 957 million euros. The comparable order intake showed 10 percent growth.

Going forward, Philips will have to deal with increasing headwinds, according to Degroof Petercam analyst Frank Claassen.

On top of US-China trade tariffs and required investments for European Union rules on medical devices, “there is the increasing uncertainty created by the global trade-war, Brexit, China slowdown and US government shutdown,” he said.

Philips’s results contrasted with rival Siemens Healthineers, which reported profit fell short of expectations amid teething problems at its diagnostics platform.

Read: Siemens Healthineers to Finetune Diagnostics After Profit Miss

--With assistance from John Bowker.

To contact the reporter on this story: Ellen Proper in Amsterdam at eproper@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, John Bowker

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