Philips delivers Q1 sales of EUR 4.2 billion, with 2% comparable
sales decrease; income from continuing operations amounted to EUR
42 million and Adjusted EBITA margin was 5.9%
April 20, 2020 First-quarter
highlights•
Sales amounted to EUR 4.2 billion, with a 2% comparable sales
decrease• Comparable
order intake increased
23%• Income from
continuing operations was EUR 42 million, compared to EUR 171
million in Q1 2019•
Adjusted EBITA margin was 5.9% of sales, compared to 8.8% of sales
in Q1 2019• Income from
operations amounted to EUR 43 million, compared to EUR 245 million
in Q1 2019• EPS from
continuing operations (diluted) amounted to EUR 0.05; Adjusted EPS
amounted to EUR 0.18, compared to EUR 0.29 in Q1
2019• Operating cash flow
amounted to EUR 143 million, compared to EUR 14 million in Q1
2019• Free cash outflow
was EUR 57 million, compared to an outflow of EUR 206 million in Q1
2019 Frans van Houten, CEO
“The start of 2020 was marked by the COVID-19 outbreak, and we
have mobilized our resources since January to address this
unprecedented challenge. At Philips, we are focused on our triple
duty of care: meeting critical customer needs, safeguarding the
health and safety of our employees, and ensuring business
continuity. I am very proud of the commitment, hard work and
resourcefulness of our employees to keep Philips fully functioning,
and I would like to thank them for that.
COVID-19 significantly affected our results in this quarter.
There was increased demand for our professional healthcare products
and solutions, with comparable sales and order intake growth for
the Connected Care and Diagnosis & Treatment businesses.
Comparable order intake grew 23%, most notably in diagnostic
imaging, hospital ventilators, and patient monitors. We are
investing more than EUR 100 million to steeply ramp up our
production volumes, in close collaboration with our suppliers and
partners. At the same time, there was a significant decline in
demand for our Personal Health portfolio and we saw Image-Guided
Therapy procedures trending down as the quarter progressed. This
resulted in a 2% comparable sales decrease and an Adjusted EBITA
margin of 5.9% for the Group.
The impact of COVID-19 gradually increased in the course of the
first quarter, initially affecting our businesses in China and Asia
Pacific starting late January, and subsequently affecting our
businesses in the rest of the world from March onwards. On that
basis, we expect that all our geographies will be impacted
throughout the second quarter. This is expected to result in a
steep revenue decline for our Personal Health businesses and a
sizable high-single-digit decline for our Diagnosis & Treatment
businesses, partly offset by a significant increase in revenue of
our Connected Care businesses.
Assuming we can convert our existing order book for the
Diagnosis & Treatment and Connected Care businesses as planned,
elective procedures normalize, and consumer demand gradually
improves, we aim to return to growth and improved profitability for
the Group in the second half of the year. Consequently, for the
full year 2020 we aim to achieve a modest comparable sales growth
and Adjusted EBITA margin improvement. Given the current
uncertainty and volatility, we will not provide more specific
guidance for 2020 at this time.”
Business segment performance
The Diagnosis & Treatment businesses recorded 2% comparable
sales growth, led by mid-single-digit growth in Diagnostic Imaging,
partly offset by a low-single-digit decline for Image-Guided
Therapy due to the postponement of elective procedures. Comparable
order intake was in line with Q1 2019, with double-digit growth for
Diagnostic Imaging offset by a double-digit decline for Image-
Guided Therapy. The Adjusted EBITA margin increased to 6.3%, as
growth and productivity were partly offset by an unfavorable
mix.
Comparable sales in the Connected Care businesses increased 7%,
with double-digit growth in Sleep & Respiratory Care.
Comparable order intake showed a very strong double-digit increase,
driven by strong demand for patient monitors and hospital
ventilators. The Adjusted EBITA margin increased to 9.8%, mainly
due to growth and productivity.
The Personal Health businesses recorded a comparable sales
decline of 13%, with all businesses declining due to significantly
decreased consumer demand, resulting in an Adjusted EBITA margin of
7.1%.
Philips’ ongoing focus on innovation and strategic partnerships
resulted in the following key events in the quarter:
• Building on Philips’
initial increase in hospital ventilator production in the first
quarter, which already enabled the supply of additional ventilators
to hospitals in the most affected regions in China, southern Europe
and the US, Philips plans a further fourfold production increase by
the third quarter of 2020. This plan will enable Philips to deliver
43,000 fully featured, critical care ventilators to the US
government in 2020, while simultaneously delivering such
ventilators to the rest of the
world.• To further
address the unprecedented demand for ventilators, Philips
introduced the Philips Respironics E30 ventilator for emergency use
when a fully featured critical care ventilator is not available.
Philips is targeting a production of the new ventilator - which has
been designed for large-scale production - of 15,000 units per week
in April.• Philips
introduced several dedicated telehealth solutions to help relieve
the tremendous pressure placed on scarce resources by the growing
number of COVID-19 patients. Based on its proven Patient Reported
Outcomes Management solution, which is being used by more than 100
healthcare institutions globally, Philips enabled Dutch hospitals
and GPs to remotely screen and monitor patients with
COVID-19.• In connection
with the COVID-19 emergency, the US FDA has granted a temporary
waiver for the use of consumer monitors with the Philips
IntelliSite Pathology Solution, providing extra flexibility for US
pathologists to work from home. For example, a leading health
system in New York has expanded the Philips IntelliSite Pathology
solution installed at its hospitals with additional scanners,
enabling pathologists to remotely access an increased volume of
digital images of patient tissue, thereby supporting real-time
pathology interpretations in critical cases and improved patient
outcomes.• Continuing its
success in forging long-term strategic partnerships, Philips signed
several new agreements. For example, Philips entered into an 8-year
strategic partnership with Paracelsus Clinics in Germany, offering
solutions that maximize the availability of imaging systems and
leverage digitalization and process optimization to realize quality
and efficiency
improvements.•
Demonstrating the efficiency of Philips’ Enterprise
Monitoring-as-a-Service model, US-based Jackson Memorial Hospital
estimates it will save more than 13,000 staff hours from workflow
improvement and automation of manual tasks using Philips’
monitoring solutions. Moreover, nursing staff gave the new patient
monitoring solution a 90% satisfaction rating, up from 8% prior to
the new system and software.
Cost savings
In the first quarter, procurement savings amounted to EUR 36
million. Overhead and other productivity programs delivered savings
of EUR 59 million.
Executive Committee update
Rob Cascella, currently Chief Business Leader of the Precision
Diagnosis businesses and member of the Executive Committee, jointly
responsible for the Diagnosis & Treatment segment together with
Bert van Meurs, will take on the role of Philips’ strategic
business development per May 1, 2020. He will remain a member of
the Executive Committee. Kees Wesdorp, currently General Manager of
Diagnostic Imaging, will succeed Rob Cascella in his current roles
and become a member of the Executive Committee reporting to Philips
CEO Frans van Houten.
Frans van Houten: “I would like to express my gratitude for
Rob’s considerable contribution to Philips since he joined the
company in 2015. Under his leadership, the Diagnosis &
Treatment businesses have achieved a major step-up on the quality
front and pivoted to outcomes-driven solutions. Most recently, Rob
established and led our Precision Diagnosis businesses and was
jointly responsible for the Diagnosis & Treatment segment. I am
pleased that Rob will lead Philips’ strategic business development,
and that Kees will be his successor. Kees will join the Executive
Committee with a strong accomplishment record, having led the
transformation of the Diagnostic Imaging business by increasing
customer and employee engagement, renewing the product and
solutions portfolio, and improving profitability. I am confident
that he will further build out the Precision Diagnosis businesses
through the transformation to solutions, continuing to drive robust
growth and increased profitability. Kees and Rob will be working
closely to ensure a seamless transition, with formal handover on
May 1 of this year.”
Capital allocation
Philips has a strong balance sheet and robust liquidity
position. In view of the possible continued impact of the COVID-19
pandemic in 2020, Philips has taken the following measures to
further enhance its liquidity position:
Share buyback programAs of the end of the first quarter of 2020,
Philips has completed 50.3% of its EUR 1.5 billion share buyback
program for capital reduction purposes that was announced on
January 29, 2019. On March 23, 2020, Philips announced that the
second half of the program will be executed through individual
forward transactions, to be entered into in the course of 2020,
with the settlement dates extending into the second half of 2021.
Further details can be found here.
Euro Medium-Term NoteIn the first quarter, Philips successfully
placed EUR 500 million fixed-rate Sustainability Innovation notes
due 2025 and EUR 500 million fixed-rate notes due 2030.
DividendPhilips maintains its proposed dividend of EUR 0.85 per
common share against the net income of 2019. The distribution of
this dividend will be in shares only, instead of the currently
proposed distribution in cash or in shares at the option of the
shareholder. To that effect, Philips withdraws the dividend
proposal that was already submitted to the Annual General Meeting
of Shareholders to be held on April 30, 2020. Philips plans to
convene an Extraordinary General Meeting of Shareholders expected
to take place in the second half of June 2020, the agenda of which
will include the revised proposal to declare a distribution of EUR
0.85 per common share, in shares only. The increase in issued share
capital is expected to be offset by the share buyback program
mentioned above.
In line with the measures described above, the Supervisory Board
and the members of the Board of Management have agreed that the
2019 Annual Incentive for the Board of Management will be paid out
in shares instead of cash. More information on the realization of
the 2019 Annual Incentive can be found in the Remuneration Report,
as included in the 2019 Annual Report (p 70-71).
Regulatory update
Philips continues to fulfill its obligations under the Consent
Decree [1] and remains in dialogue with the US FDA. In connection
with the COVID-19 pandemic, Philips is working with the FDA’s
Emergency Response and Product Evaluation teams to provide them
with relevant information, such as Philips’ production ramp-up
plans for critical products and solutions to combat COVID-19.
Philips is actively seeking and has obtained authorizations through
the FDA’s Emergency Use Authorization (EUA) process for the
expanded use of several of its devices during the COVID-19 public
health emergency, including for the Philips Respironics E30
ventilator, which received authorization on April 8, 2020.
[1] Under the Consent Decree, Philips continues to export its
range of AED devices and manufacture and distribute its
HS1/OnSite/Home automated external defibrillator (AED) model in the
US. The company may also continue to service the AEDs and
defibrillator/monitors provided that certain conditions are met and
provide consumables and the relevant accessories. Click here to
view the release online
For further information, please contact:
Ben Zwirs Philips Global Press Office Tel: +31 6
1521 3446 Email: ben.zwirs@philips.com Martijn van der
Starre Philips Global Press Office Tel.: +31 6 2847 4617
E-mail: martijn.van.der.starre@philips.com About Royal
Philips
Royal Philips (NYSE: PHG, AEX: PHIA) is a leading health
technology company focused on improving people's health 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 2019
sales of EUR 19.5 billion and employs approximately 81,000
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 the strategy; estimates of sales growth; future Adjusted
EBITA; future restructuring, acquisition-related 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 and political
developments; market and supply chain disruptions due to the
COVID-19 outbreak; Philips’ increasing focus on health technology;
the realization of Philips’ growth ambitions and results in growth
geographies; lack of control over certain joint ventures;
integration of acquisitions; securing and maintaining Philips’
intellectual property rights and unauthorized use of third-party
intellectual property rights; compliance with quality standards,
product safety laws and good manufacturing practices; exposure to
IT security breaches, IT disruptions, system changes or failures;
supply chain management; ability to create new products and
solutions; attracting and retaining personnel; financial impacts
from Brexit; compliance with regulatory regimes, including data
privacy requirements; governmental investigations and legal
proceedings with regard to possible anticompetitive market
practices and other matters; 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 2019.
Third-party market share data
Statements regarding market share, including those regarding
Philips’ competitive position, contained in this document are based
on outside sources such as research institutes, industry and dealer
panels in combination with management estimates. Where information
is not yet available to Philips, those statements may also be based
on estimates and projections prepared by outside sources or
management. Rankings are based on sales unless otherwise
stated.
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
2019.
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 2019. 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 2019. Certain prior-year amounts have been reclassified to
conform to the current year presentation.
Effective Q1 2020, Philips has simplified its order intake
policy by aligning horizons for all modalities to 18 months to
revenue, compared to previously used delivery horizons of 6 months
for Ultrasound, 12 months for Connected Care and 15 months for
Diagnosis & Treatment. At the same time, Philips has aligned
order intake for software contracts to the same 18 months to
revenue horizon, meaning that only the next 18 months conversion to
revenue under the contract is recognized, compared to the full
contract values recognized previously. This change eliminates major
variances in order intake growth and better reflects expected
revenue in the short term from order intake booked in the reporting
period. Prior-year comparable order intake amounts have been
restated accordingly. This realignment has not resulted in any
material additional order intake recognition in Q1 2020.
Market Abuse Regulation
This press release contains inside information within the
meaning of Article 7(1) of the EU Market Abuse Regulation.
- Philips_First-Quarter Results 2020_Report
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