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Philips expects to generate >€1.5bn FCF by 2020 (GSe €1.9bn). company-compiled consensus of 14.8%.įCF to more than double: As management focus switches from portfolio streamlining to operational performance, we expect FCF to increase by more than 100% by 2020E, as improving profitability is supplemented by a reduction in leverage and modestly declining capex intensity. We see the increase to the savings target as incrementally positive we forecast 2020E EBITA margins of 15.2% vs. €1.2bn by 2019 previously, with procurement savings, manufacturing footprint reduction, and overhead cost reduction the key sources of efficiencies.
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Specifically, the company is now targeting cumulative savings of >€1.8bn by 2020 vs. November CMD confirmed margins on track: Philips continues to target 100bp of adjusted EBITA margin improvement pa until 2020. We also expect a reduction in leverage and higher profitability to support a >100% increase in FCF over the forecast horizon (to 2022E).
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From here, we see scope for significant margin improvement via self-help measures, leading Philips to deliver the highest EPS CAGR in our EU MedTech coverage out to 2022E. Investment thesis: In recent years, Philips has successfully transitioned from a diversified industrial conglomerate to a more focused healthcare and consumer business, with revenues from healthcare increasing from less than 10% of group sales in 2000 to >65% today.