Philips sees continued strong demand driving
double-digit order intake growth in Q3
October 18, 2021
Third-quarter highlights
- Group sales totaled EUR 4.2 billion, reflecting a 7.6%
comparable sales decline due to headwinds caused by global supply
chain challenges and Sleep & Respiratory Care recall
consequences
- Comparable order intake increased 47%; order intake increased
17% excluding the impact of a partial ventilator order cancellation
in Q3 2020
- Income from continuing operations increased to EUR 442 million,
compared to EUR 279 million in Q3 2020
- Adjusted EBITA of EUR 512 million, or 12.3% of sales, compared
to EUR 684 million, or 15.5% of sales, in Q3 2020
- Operating cash flow of EUR 256 million, compared to EUR 575
million in Q3 2020
- Domestic Appliances divestment was completed as planned,
resulting in a EUR 2.5 billion gain after tax and
transaction-related costs; reported in Discontinued Operations
Frans van Houten, CEO:
“I am pleased with the strong double-digit comparable order
intake growth in the third quarter, driven by both the Diagnosis
& Treatment businesses and Connected Care businesses. Our
strategy and portfolio are highly relevant to our customers, as we
help them transform the delivery of care along the health
continuum. Building on this strength, we have signed an additional
19 long-term strategic partnerships with hospitals across the
world, including a 10-year partnership with Baptist Health in the
US to provide patient monitoring solutions and standardize care
across the network.
We recorded EUR 4.2 billion sales in the quarter, with a 7.6%
comparable sales decline on the back of 10% comparable sales growth
last year. This quarter’s sales were impacted unfavorably by
intensified global supply chain issues, such as the shortage of
electronic components, and the anticipated revenue consequences of
the sleep recall, as we are prioritizing the remediation of
affected devices in use by patients. The Adjusted EBITA margin was
12.3%.
The repair and replacement program related to the sleep recall
notification is under way in the US and several other markets. I am
conscious of the impact this is having on patients and care givers,
and we are doing everything we can to deliver a solution as fast as
possible.
We successfully completed the sale of the Domestic Appliances
business, resulting in a gain of EUR 2.5 billion. With this, we
concluded our major divestments, allowing us to focus fully on
extending our leadership in health technology and continuing our
transformation into a solutions company.
Looking ahead, we continue to see uncertainty related to
COVID-19. Supply chain volatility has intensified globally, which
already led to longer lead times to convert our strong order book
to revenue in the third quarter, and we expect this headwind to
continue in the fourth quarter. Therefore, we now expect to deliver
low-single-digit comparable sales growth with a modest Adjusted
EBITA margin improvement for the full year 2021. Based on our
strong customer demand and growing order book, we expect to resume
our growth and margin expansion trajectory in 2022 as we work
through the headwinds.”
Business segment performance
The Diagnosis & Treatment businesses recorded 10% comparable
sales growth, with double-digit growth in Image-Guided Therapy and
high-single-digit growth in Diagnostic Imaging and Ultrasound.
Comparable order intake increased 15%, with double-digit growth
across Image-Guided Therapy, Diagnostic Imaging and Ultrasound,
reflecting Philips’ very competitive portfolio and positive market
conditions. The Adjusted EBITA margin increased to 14.2%, mainly
driven by sales growth and productivity measures.
The Connected Care businesses’ comparable sales decreased 39%,
following the high COVID-19-generated demand in Q3 2020 and a
double-digit decline in Sleep & Respiratory Care in Q3 2021 due
to the sleep recall notification. Comparable order intake increased
21%, excluding the impact of a partial ventilator order
cancellation in Q3 2020. Hospital Patient Monitoring orders grew
20% in Q3 2021, building on 22% order intake growth last year,
driven by a structural increase in adoption of patient care
management solutions in both high- and low-acuity care settings in
the hospital. The Adjusted EBITA margin amounted to 6.2%, mainly
due to the decline in sales.
The Personal Health businesses’ comparable sales were in line
with Q3 2020, as sales across the businesses were impacted by
phasing, with 33% comparable sales growth in the previous quarter.
The underlying customer demand for the new product introductions in
Personal Care, Oral Healthcare and Mother & Child Care remains
robust. The Adjusted EBITA margin increased to 15.9%, mainly driven
by productivity measures.
In Other, sales increased by EUR 74 million and Adjusted EBITA
increased to EUR 13 million, mainly driven by phasing of IP royalty
settlements.
Philips’ ongoing focus on innovation and partnerships resulted
in the following highlights in the quarter:
- Philips provided the Yili Chuanxin Oncology hospital in
Xinjiang, a newly established top-tier private hospital in China,
with an Oncology solution to address the hospital’s clinical needs
in screening, precision diagnosis, targeted treatment and
rehabilitation of cancer patients. The solution includes
IntelliSpace Digital Pathology and the Ingenia 3.0T MR, IQon
Spectral CT, Incisive CT and CT Big Bore imaging systems, combined
with IntelliSpace Portal for advanced visualization and
analysis.
- As part of Philips’ 10-year partnership with Rutherford Health
to open multiple Community Diagnostic Centers in England, the first
center was opened in Taunton, for which Philips provided innovative
diagnostic imaging systems, including Ingenia Ambition MR combined
with Ambient Experience, which allows patients to control and
personalize the imaging environment.
- As a pioneer in spectral CT diagnostics, Philips has enabled
its customers to benefit from a reduction in follow-up scans,
increased certainty in lesion characterization, and reduced time to
diagnosis. Building on many years of experience with IQon Spectral
CT, Philips’ new Spectral CT 7500 is attracting strong customer
demand. For example, the University Medical Center Utrecht in the
Netherlands installed two Spectral CT systems, with the aim of
providing greater confidence in mainstream clinical diagnosis – for
all patients and in all exams.
- Underlining the company’s leading role in digital pathology,
Philips partnered with Healius Pathology, one of Australia's
leading providers of private medical laboratory and pathology
services, to deploy a multi-site digital pathology solution across
Healius’ National Pathology Network using Philips' industry-leading
IntelliSite Pathology Solution.
- Building on Philips’ leadership in image-guided therapy
solutions in cardiology, the company is further strengthening its
position in fast- growing adjacencies such as neurology and
oncology. For example, US-based Piedmont Health equipped its
neurosurgical operating rooms with a specialized version of Philips
Azurion for the treatment of stroke. Philips also announced
positive results of a clinical study aimed at setting a new
standard of safety and accuracy in the diagnosis of small
peripheral lung lesions using Philips Lung suite.
- Underlining Philips’ strategy to deliver locally relevant
solutions, the company launched several oral healthcare innovations
targeting multiple price points in China, including two new
electric toothbrushes. In addition, Philips launched its
professional teeth whitening offering Zoom in China through a local
partnership with LinkedCare, one of the largest dental solution
providers in the Chinese dental market.
- Philips launched two new HealthSuite informatics solutions
which are scalable across the enterprise, to support its customers
in achieving the Quadruple Aim of healthcare: Patient Flow Capacity
Suite, a solution that helps hospitals manage the complete patient
journey, and Acute Care Telehealth, which builds on Philips’
successful Tele-ICU solutions.
- Philips’ recently acquired Capsule business continued to add
new device drivers to its Medical Device Information Platform,
which will be integrated with HealthSuite. With more than 1,000
unique types of medical devices capable of integrating with the
platform, customers can connect more devices to advance health
systems’ digital transformation with intelligent, vendor-agnostic
tools that turn complex data streams into actionable insights.
Sleep and respiratory care field action
update
On June 14, 2021, Philips initiated a voluntary recall
notification in the US/field safety notice outside the US for
certain sleep and respiratory care products to address identified
potential health risks related to the polyester-based polyurethane
(PE-PUR) sound abatement foam in these devices. Following the
substantial ramp-up of its production, service and repair capacity,
the repair and replacement program in the US and several other
markets is under way. To date, Philips has produced a total of
approximately 750,000 repair kits and replacement devices, of which
more than 250,000 have reached customers.
As disclosed in its Q2 2021 report, Philips is a defendant in a
number of consumer class action lawsuits from users of the affected
devices and a number of individual personal injury claims. Given
the uncertain nature and timing of the relevant events and
potential associated liabilities, if any, the company is unable to
reliably estimate the financial effect of these matters.
Cost savings
In the third quarter, productivity savings amounted to EUR 73
million, of which procurement savings amounting to EUR 34 million,
and savings of EUR 39 million delivered by overhead and other
programs.
Capital allocation Philips is currently
executing two share buyback programs of EUR 1.5 billion each for
capital reduction purposes. The program that was initiated in the
first quarter of 2019 is nearing completion and is expected to
result in the cancellation of approximately 20 million shares in
December 2021. Under the share buyback program that was announced
on July 26, 2021, Philips entered into a number of forward
transactions in the third quarter, covering approximately half of
the program, with settlement dates in 2022, 2023 and 2024. The
remainder of the program will be executed through open market
purchases by an intermediary, with a significant part taking place
in Q4 2021. Further details on both programs can be found here.
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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, and enabling better outcomes across the health
continuum – from healthy living and prevention, to diagnosis,
treatment and home care. Philips leverages advanced technology and
deep clinical and consumer insights to deliver integrated
solutions. Headquartered in the Netherlands, the company is a
leader in diagnostic imaging, image-guided therapy, patient
monitoring and health informatics, as well as in consumer health
and home care. Philips generated 2020 sales of EUR 19.5 billion and
employs approximately 78,000 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. 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: changes in
industry or market circumstances; economic, political and societal
changes; Philips’ increasing focus on health technology and
solutions; the successful completion of divestments; the
realization of Philips' objectives in growth geographies; business
plans and integration of acquisitions; securing and maintaining
Philips’ intellectual property rights, and unauthorized use of
third-party intellectual property rights; COVID-19 and other
pandemics; breaches of cybersecurity; IT system changes or
failures; the effectiveness of our supply chain; challenges to
drive operational excellence, productivity and speed in bringing
innovations to market; attracting and retaining personnel; future
trade arrangements following Brexit; compliance with regulations
and standards, including quality, product safety and data privacy;
compliance with business conduct rules and regulations; treasury
risks and other financial risks; tax risks; costs of
defined-benefit pension plans and other post-retirement plans;
reliability of internal controls, financial reporting and
management process. 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 2020.
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. The future
developments are subject to significant uncertainties, which
require management to make estimates and assumptions about items
such as quantities, costs to repair or replace, and duration.
Actual outcomes in future periods may differ from these estimates
and affect the company's results of operations, financial position
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, 18,
2021.
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
2020.
Use of fair value information
In presenting the Philips Group’s financial position, fair
values are used for the measurement of various items in accordance
with the applicable accounting standards. These fair values are
based on market prices, where available, and are obtained from
sources that are deemed to be reliable. Readers are cautioned that
these values are subject to changes over time and are only valid at
the balance sheet date. When quoted prices or observable market
data are not readily available, fair values are estimated using
appropriate valuation models and unobservable inputs. Such fair
value estimates require management to make significant assumptions
with respect to future developments, which are inherently uncertain
and may therefore deviate from actual developments. Critical
assumptions used are disclosed in the Annual Report 2020. In
certain cases independent valuations are obtained to support
management’s determination of fair values.
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 2020 except for the adoption of new standards and amendments
to standards which are also expected to be reflected in the
company's consolidated IFRS financial statements as at and for the
year ending December 31, 2021.
In 2020, Philips revised the definition of net finance expenses
used in the calculation of Adjusted income from continuing
operations attributable to shareholders, to exclude fair value
movements of limited life fund investments recognized at fair value
through profit and loss. This change leads to more relevant
information as the fair value movements are not indicative of
Philips’ performance. The fair value movements do not represent
cash items. Philips believes making this change is helpful for
investors to evaluate Philips’ performance.
On September 1, 2021, Philips completed the sale of the Domestic
Appliances business. The results of this transaction, which Philips
announced on March 25, 2021, are presented under Discontinued
Operations in this report. Comparative results have been restated
to reflect the treatment of the Domestic Appliances business as a
discontinued operation since Q1. Further details of the restatement
have been published on the Philips Investor Relations website and
can be accessed here.
Prior-period amounts have been reclassified to conform to the
current-period presentation; this includes immaterial
organizational changes.
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