Philips Medical reports huge growth on heels of corporate acquisitions

Synergies outweigh charges due to integration

Acquisitions boosted overall sales by Philips Medical Systems in 2002, but their integration came at a price, according to financial results released Feb. 11 by parent Royal Philips Electronics.

Philips' medical sales soared 42% last year, totaling about Euro 6.8 billion, compared with about Euro 4.8 billion the previous year. Sales volume increased 8%, even though average prices declined 3%. Improved sales and performance were noted particularly in x-ray, customer service, and CT/MR.

All but 1% of the increase, however, was attributed to the effect of acquisitions, which themselves imposed Euro 84 million in charges. Another Euro 42 million were also recorded in special charges, not including an impairment charge of Euro 47 million related to Health Care Products (HCP), which was sold late last year to Platinum Equity and has since been merged with U.S. imaging distributor Diagnostic Imaging.

Other signs of indigestion from Philips' feast on past competitors appeared in its 2002 books. Most of Euro 73 million in nonrecurring charges was attributed to gobbling Marconi Medical Systems and the healthcare unit of Agilent. Information technology costs were Euro 58 million higher than in 2001, as Philips struggled to bring its latest acquisitions under a common IT configuration.

These costs were outweighed in 2002, however, by positive synergies that yielded Euro 173 million, according to the company, which predicted savings of Euro 350 million in fiscal year 2003.

In Q4, end Dec. 31, medical sales managed Euro 1.89 billion. This was down slightly from the year earlier period, during which segment revenues were Euro 1.92 billion. The drop was attributed to revenues lost in the sale of HCP, which, until it was sold in November, had contributed Euro 550 million. Comparable sales rose 3% in Q4, with the strongest growth occurring in North America. The unit turned a profit for the quarter of Euro 239 million, excluding a special net gain of Euro 21 million.