Philips delivers strong sales growth, profitability and cash flow;
raises full-year outlook
October 23, 2023
Third-quarter highlights
- Group sales increased 11% on a comparable basis to EUR 4.5
billion
- Income from operations at EUR 224 million, compared to a loss
of EUR 1,529 million in Q3 2022
- Adjusted EBITA increased to EUR 457 million, or 10.2% of sales,
compared to EUR 209 million, or 4.8% of sales, in Q3 2022
- Comparable order intake was -9% compared to Q3 2022; order book
remains strong
- Operating cash flow improved to EUR 489 million, compared to an
outflow of EUR 180 million in Q3 2022
- Restructuring and productivity plans on track with total
savings of EUR 258 million in the quarter
- Outlook for full-year 2023 raised to 6-7% comparable sales
growth and an Adjusted EBITA margin of 10-11%
Roy Jakobs, CEO of Royal Philips:“Our improved
operational performance was driven by our focus on execution to
enhance patient safety and quality, strengthen our supply chain
reliability and establish a simplified operating model.
The order book remains strong, and we are taking the necessary
actions to improve order intake by shortening lead times from order
to delivery and building on the positive impact we are making with
our innovations, for example in predictive data analytics and
artificial intelligence across our portfolio, to help improve the
quality and efficiency of care delivery.
Completing the Philips Respironics recall remains our highest
priority, with the remediation of the sleep therapy devices almost
complete and remediation of the ventilators ongoing.
Based on our improved performance, we are further raising the
outlook for both sales and profitability for the full year 2023,
although recognizing uncertainties remain in an increasingly
volatile geopolitical environment. The progress we are making
reinforces our confidence in delivering on the three-year plan to
create value with sustainable impact.”
Group and segment performance Sales for the Group
increased 11% on a comparable basis to EUR 4.5 billion, driven by
growth in all segments and geographies. Adjusted EBITA increased to
EUR 457 million, or 10.2% of sales, mainly driven by increased
sales, pricing and productivity measures. Operating cash flow and
free cash flow increased to EUR 489 million and EUR 333 million
respectively in the quarter, driven by higher earnings and improved
working capital management.
Comparable order intake (the order book covers around 40% of
Group sales) was 9% lower than in Q3 2022. This was mainly due to a
high comparison base related to the exceptionally high levels in
2021, lower orders in China, and longer order lead times. The
necessary actions are being implemented to enhance supply chain
reliability, reduce order lead times, and leverage our innovations
to improve comparable order intake. The order book remains around
20% higher than in the period before the global supply chain
challenges and will continue to support growth.
Diagnosis & Treatment comparable sales increased 14%
in the quarter, with double-digit growth in all businesses. The
Adjusted EBITA margin increased to 12.7% from 10.4% in Q3 2022,
mainly driven by increased sales, pricing and productivity
measures. Comparable order intake was double-digit lower than in Q3
2022 due to long order lead times, a high comparison base related
to the high order intake in Q3 2022, and lower orders in China.
Connected Care comparable sales increased 10% in the
quarter, with double-digit growth in Monitoring and
mid-single-digit growth in Enterprise Informatics. The Adjusted
EBITA margin improved to 3.7% compared to -7.5% in Q3 2022, mainly
driven by increased sales and productivity measures. Connected Care
comparable order intake was mid-single-digit lower than in Q3 2022
due to a high comparison base in Hospital Patient Monitoring
related to the expansion and renewal of the installed base in the
last few years.
Personal Health delivered quarter-on-quarter performance
improvement, with comparable sales increasing by 7%, driven by
high- single-digit growth in Personal Care and Oral Healthcare. The
Adjusted EBITA margin increased to 18.7%, compared to 14.1% in Q3
2022, due to increased sales, pricing and productivity measures.
Productivity
Supported by significant change management efforts, to date
Philips has reduced the workforce by around 7,500 roles, out of
10,000 roles in total planned by 2025. Operating model productivity
savings amounted to EUR 142 million in the quarter. Procurement
savings amounted to EUR 59 million, and other productivity programs
delivered savings of EUR 57 million, resulting in total savings of
EUR 258 million in the quarter.
Outlook Based on Philips’ improved performance
year-to-date, the strong order book, and the ongoing actions, the
company is further raising the outlook for the full year 2023,
although recognizing uncertainties remain in an increasingly
volatile geopolitical environment. Philips now expects to deliver
6-7% comparable sales growth and an Adjusted EBITA margin of 10-11%
for the full year 2023, with free cash flow at the upper end of the
target range of EUR 0.7-0.9 billion. This reinforces Philips’
confidence in delivering on its three-year plan to create value
with sustainable impact.
Customer, innovation and ESG highlights
- Philips signed a 10-year, EUR 100 million Enterprise Monitoring
as a Service agreement with one of the largest health systems in
the US, covering 20 hospitals with over 3,000 beds. The agreement
provides the health system with constant access to the latest
technology, including software and services, while lowering initial
investments.
- Philips launched its new Image Guided Therapy Mobile C-arm
System 3000. Its workflow-enhancing features and excellent image
quality enable surgeons to deliver enhanced care to more patients,
helping alleviate the staff shortages faced by many hospitals.
- Philips launched its ambulatory monitoring offering in Japan,
combining Philips ePatch Holter monitors with ECG analysis through
AI and advanced algorithms. This innovative approach aims to reduce
clinician workload and improve the patient experience.
- Leveraging its leadership in driving sustainable healthcare,
Philips completed a hospital-wide joint action plan for Tampere
Heart Hospital in Finland to decarbonize its clinical operations.
Following similar action plans at Vanderbilt University Medical
Center and Champalimaud Foundation, Philips co-developed a roadmap
to reduce carbon emissions in patient throughput, technology use,
and use of consumables.
- Philips successfully launched the Sonicare DiamondClean 7900
Series electric toothbrush in China on major online shopping
channels Alibaba and JD.com. Highlighting increasing customer
demand, it claimed the number-one position in the high-end
toothbrush category on Alibaba’s Tmall.
Philips Respironics field action for specific sleep therapy
and ventilator devices Globally, over 99% of the sleep therapy
device registrations that are complete and actionable have been
remediated, while the remediation of the ventilator devices remains
ongoing.
Based on the test results to date, Philips Respironics and
third-party experts concluded that use of the sleep therapy devices
is not expected to result in appreciable harm to health in
patients. Following ongoing communications with the FDA, Philips
Respironics has agreed with the agency to implement additional
testing to supplement current test data.
In October 2023, Philips Respironics received preliminary court
approval for the settlement agreement to resolve all economic loss
claims in the US Multidistrict Litigation (MDL) related to the
recall, for which Philips had recorded a provision of EUR 575
million in Q1 2023. The settlement does not include or constitute
any admission of liability, wrongdoing, or fault by any of the
Philips parties.
The previously disclosed litigation, including the personal
injury and medical monitoring claims, and investigation by the US
Department of Justice related to the Respironics field action are
ongoing, as are the discussions on a proposed consent decree.
Capital allocation In the third quarter, Philips issued EUR
500 million fixed-rate notes due 2031 under its European Medium
Term Note (EMTN) program. The issue of the notes further
strengthened the debt maturity profile and had a debt-neutral
effect. See here for more information on Philips' current debt
structure.
During the quarter, Philips settled a number of forward purchase
transactions entered into under its EUR 1.5 billion share buyback
program for capital reduction purposes announced on July 26, 2021,
thereby acquiring a total of 4.2 million shares for a total amount
of approximately EUR 154 million. Following further settlements in
Q4 2023, Philips intends to cancel approximately 15.1 million
shares acquired and to be acquired under this program, before
year-end. See here for more information on the share buyback
program. Click here to view the release online
For further information, please contact: Ben Zwirs
Philips Global Press Office Tel.: +31 6 1521 3446 E-mail:
ben.zwirs@philips.com Derya Guzel Philips Investor Relations
Tel.: +31 20 59 77055 E-mail: derya.guzel@philips.com About
Royal Philips Royal Philips (NYSE: PHG, AEX: PHIA) is a leading
health technology company focused on improving people's health and
well-being through meaningful innovation. Philips’ patient- and
people-centric innovation leverages advanced technology and deep
clinical and consumer insights to deliver personal health solutions
for consumers and professional health solutions for healthcare
providers and their patients in the hospital and the home.
Headquartered in the Netherlands, the company is a leader in
diagnostic imaging, ultrasound, image-guided therapy, monitoring
and enterprise informatics, as well as in personal health. Philips
generated 2022 sales of EUR 17.8 billion and employs approximately
70,700 employees with sales and services in more than 100
countries. News about Philips can be found at
www.philips.com/newscenter.
Forward-looking statements and other important information
Forward-looking statements This document and the related oral
presentation, including responses to questions following the
presentation, contain certain forward-looking statements with
respect to the financial condition, results of operations and
business of Philips and certain of the plans and objectives of
Philips with respect to these items. Examples of forward-looking
statements include statements made about our strategy, estimates of
sales growth, future Adjusted EBITA *), future restructuring and
acquisition related charges and other costs, future developments in
Philips’ organic business and the completion of acquisitions and
divestments. Forward-looking statements can be identified generally
as those containing words such as “anticipates”, “assumes”,
“believes”, “estimates”, “expects”, “should”, “will”, “will likely
result”, “forecast”, “outlook”, “projects”, “may” or similar
expressions. By their nature, these statements involve risk and
uncertainty because they relate to future events and circumstances
and there are many factors that could cause actual results and
developments to differ materially from those expressed or implied
by these statements. These factors include but are not limited to:
Philips’ ability to gain leadership in health informatics in
response to developments in the health technology industry;
Philips’ ability to transform its business model to health
technology solutions and services; macroeconomic and geopolitical
changes; integration of acquisitions and their delivery on business
plans and value creation expectations; securing and maintaining
Philips’ intellectual property rights, and unauthorized use of
third-party intellectual property rights; Philips’ ability to meet
expectations with respect to ESG-related matters; failure of
products and services to meet quality or security standards,
adversely affecting patient safety and customer operations;
breaches of cybersecurity; challenges in connection with Philips’
strategy to improve execution and other business performance
initiatives; the resilience of our supply chain; attracting and
retaining personnel; challenges to drive operational excellence and
speed in bringing innovations to market; compliance with
regulations and standards including quality, product safety and
(cyber) security; compliance with business conduct rules and
regulations including privacy and upcoming ESG disclosure and due
diligence requirements; treasury and financing risks; tax risks;
reliability of internal controls, financial reporting and
management process; global inflation. As a result, Philips’ actual
future results may differ materially from the plans, goals and
expectations set forth in such forward-looking statements. For a
discussion of factors that could cause future results to differ
from such forward- looking statements, see also the Risk management
chapter included in the Annual Report 2022. Reference is also made
to section Risk management in the Philips semi-annual report 2023.
Israel The risk factors discussed in Philips’ Annual Report
2022 (section 6.3) include the strategic risk that the company’s
global operations are exposed to geopolitical and macroeconomic
changes. The current situation in Israel further increases economic
and political uncertainty and may affect the company’s results of
operations, financial position and cash flows. Philips is present
in Israel with several subsidiaries, mainly in Diagnosis &
Treatment and Connected Care, that are primarily involved in
manufacturing and research and development (R&D) activities.
Please refer to our 2022 Country Activity and Tax Report (p. 37)
for further information on our activities in Israel.
Respironics Philips has recognized a provision related to
the voluntary recall notification in the US/field safety notice
outside the US for certain sleep and respiratory care products,
based on Philips’ best estimate for the expected field actions.
Future developments are subject to significant uncertainties, which
require management to make estimates and assumptions, about items
such as quantities and the portion to be replaced or repaired.
Actual outcomes in future periods may differ from these estimates
and affect the company’s results of operations, financial position
and cash flows. Furthermore, Philips is a defendant in several
class-action lawsuits and individual personal injury claims, and is
in ongoing discussions with the FDA regarding a proposed consent
decree. Given the uncertain nature of the relevant events, and of
their potential financial and operational impact and associated
obligations, if any, the company has not made any provisions in the
accounts for these matters, except for the following. In the first
quarter of 2023, Philips Respironics recorded a provision in
connection with an anticipated resolution of the economic loss
class action pending in the US. The provision is subject to final
court approval of the negotiated settlement agreement and is based
on Philips’ best estimate for the expected settlement amounts,
which is, in part, based on the expected number of claims
ultimately filed pursuant the settlement once it is approved.
Actual outcomes in future periods of the above matters may differ
from these estimates and affect the company’s results of
operations, financial positions and cash flows. Third-party
market share data Statements regarding market share, contained
in this document, including those regarding Philips’ competitive
position, are based on outside sources such as specialized research
institutes, industry and dealer panels in combination with
management estimates. Where information is not yet available to
Philips, market share statements may also be based on estimates and
projections prepared by management and/or based on outside sources
of information. Management’s estimates of rankings are based on
order intake or sales, depending on the business. Market Abuse
Regulation This press release contains inside information
within the meaning of Article 7(1) of the EU Market Abuse
Regulation. This press release was distributed at 07:00 am CET on
October 23, 2023. Use of non-IFRS information In presenting
and discussing the Philips Group’s financial position, operating
results and cash flows, management uses certain non-IFRS financial
measures. These non-IFRS financial measures should not be viewed in
isolation as alternatives to the equivalent IFRS measure and should
be used in conjunction with the most directly comparable IFRS
measures. Non-IFRS financial measures do not have standardized
meaning under IFRS and therefore may not be comparable to similar
measures presented by other issuers. A reconciliation of these
non-IFRS measures to the most directly comparable IFRS measures is
contained in this document. Further information on non-IFRS
measures can be found in the Annual Report 2022.
Presentation All amounts are in millions of euros unless
otherwise stated. Due to rounding, amounts may not add up precisely
to totals provided. All reported data is unaudited. Financial
reporting is in accordance with the accounting policies as stated
in the Annual Report 2022. Prior-period amounts have been
reclassified to conform to the current-period presentation. Philips
has realigned the composition of its reporting segments effective
from April 1, 2023. The most notable change is the shift of the
previous Enterprise Diagnostic Informatics business from the
Diagnosis & Treatment segment to the Connected Care segment.
This business, together with other informatics solutions in the
Connected Care segment, now forms the Enterprise Informatics
business. Accordingly, the comparative figures for the affected
segments have been restated. The restatement has been published on
the Philips Investor Relations website and can be accessed here.
Per share calculations have been adjusted retrospectively for all
periods presented to reflect the issuance of shares for the share
dividend in respect of 2022. *) Non-IFRS financial measure. Refer
to the Reconciliation of non-IFRS information
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