Philips’ Q3 performance impacted by operational and supply
challenges; company is taking immediate actions to restore
performance
October 24, 2022 Highlights
- Group sales amounted to EUR 4.3 billion, with a 5% comparable
sales decline, in line with the update provided on October 12,
2022
- Comparable order intake decreased 6% on the back of 47% growth
in Q3 2021
- Income from operations amounted to a loss of EUR 1.5 billion,
mainly due to the previously disclosed EUR 1.5 billion non-cash
goodwill and R&D impairment, compared to an income of EUR 358
million in Q3 2021
- Adjusted EBITA of EUR 209 million, or 4.8% of sales, compared
to EUR 512 million, or 12.3% of sales, in Q3 2021
- Immediate restructuring actions initiated, with approximately
EUR 300 million charges expected in the coming quarters
- Operating cash flow was an outflow of EUR 180 million, compared
to an inflow of EUR 256 million in Q3 2021
- Roy Jakobs appointed as President and CEO of Royal Philips per
October 15, 2022
Roy Jakobs, CEO of Royal Philips:“I am honored
to have been given the responsibility to lead Philips, a great
company with a strong brand, leading product portfolio, strong
customer base and talented employees. However, we face multiple
challenges and our Q3 2022 performance reflects this. Although
Philips’ strategy and solutions resonate with our stakeholders, we
have not lived up to their expectations in recent years.
My immediate priority is therefore to improve execution so that
we can start rebuilding the trust of patients, consumers and
customers, as well as shareholders and our other stakeholders. We
will do this by first further strengthening our patient safety and
quality management and addressing the various facets of the Philips
Respironics recall; second, by urgently improving our supply chain
operations so that we can deliver on our strong order book and
improve performance; and third, by simplifying our way of working
to improve productivity and increase agility. This includes the
difficult, but necessary decision to immediately reduce our
workforce by around 4,000 roles globally, which we do not take
lightly and will implement with respect towards impacted
colleagues. These initial actions are needed to start turning the
company around in order to realize Philips’ profitable growth
potential and create value for all our stakeholders.
While there is a lot to do in a fast-changing environment, our
priorities are clear, and I am fully focused, together with our
leadership team, on improving execution. I am committed to open and
transparent communications with our stakeholders. We will elaborate
further on our plans for Philips at our fourth quarter and annual
results publication in January 2023.”
Group and business segment performancePhilips’
performance in the quarter was impacted by operational and supply
challenges, inflationary pressures, the COVID situation in China
and the Russia-Ukraine war, resulting in Group sales of EUR 4.3
billion, reflecting a 5% comparable sales decline, and an Adjusted
EBITA of EUR 209 million, or 4.8% of sales. Operating cash flow was
an outflow of EUR 180 million, mainly due to lower cash earnings,
increased inventories and higher consumption of provisions.
Comparable order intake declined 6% on the back of strong 47%
growth in Q3 2021. The book-to-bill ratio was 1.18, and the
equipment order book grew further in the quarter.
The Diagnosis & Treatment businesses’ comparable sales
decreased 2% on the back of 10% growth in Q3 2021. Comparable order
intake increased 3% on the back of 15% growth in Q3 2021. The
Adjusted EBITA margin was 9.1%, mainly due to the decline in sales
and cost inflation.
The Connected Care businesses’ comparable sales decreased 15%,
mainly due to operational and supply challenges. Comparable order
intake showed a 24% decrease, on the back of over 260% comparable
order intake growth in Q3 2021. The Adjusted EBITA margin amounted
to -9.5%, mainly due to the decline in sales and cost
inflation.
The Personal Health businesses’ comparable sales increased by
4%, with good growth in North America and Western Europe. The
Adjusted EBITA margin amounted to 14.1%.
Highlights of Philips’ ongoing focus on innovation and customer
partnerships in the quarter:
- Demonstrating the trust hospital leaders have in Philips’
ability to help them enhance health outcomes, lower the cost of
care and improve patient and staff experience, the company signed
multiple new long-term strategic partnerships across the world.
This included a 10-year agreement with a large university hospital
in Japan for the expansion of its eICU program for centralized,
remote surveillance of high-risk ICU patients.
- Philips signed several agreements in China, including with
private hospitals Suzhou Kowloon Hospital and Wuhan Asia Heart
Hospital to provide advanced diagnostic imaging and image-guided
therapy systems to advance patient care.
- Philips expanded its leading ultrasound portfolio with the FDA
market clearance for its new Ultrasound 5000 Compact system to
deliver cart-based premium image quality in compact form for
point-of-care, cardiology, general imaging, and obstetrics and
gynecology applications.
- Philips continues to successfully expand into ambulatory care.
Newly published research validated that Philips Mobile Cardiac
Outpatient Telemetry (MCOT) is crucial in detecting arrhythmias and
providing data that allows care teams to intervene quickly and
decisively to provide the optimal patient treatment.
- Building on its successful OneBlade platform, Philips
introduced in Europe the new OneBlade 360, which leverages a new
blade that adjusts to the curves of the face to enhance shaving
comfort.
Philips Respironics field action for specific sleep
therapy and ventilator devicesPhilips Respironics
continued to make progress with the repair and replacement program
and the comprehensive test and research program for the CPAP, BiPAP
and mechanical ventilator devices affected by the June 2021 field
safety notice. To date, approximately 4 million replacement devices
and repair kits have been produced. Philips Respironics aims to
complete around 90% of the production and shipments to customers in
2022.
As previously communicated, following the FDA’s inspection of
certain of Philips Respironics’ facilities in the US in 2021 and
the subsequent inspectional observations, the US Department of
Justice, acting on behalf of the FDA, began discussions with
Philips in July 2022 regarding the terms of a proposed consent
decree to resolve the identified issues.
Due to revisions to the financial forecast of Philips
Respironics driven by current assumptions regarding the estimated
impact of the proposed consent decree and changes to the pre-tax
discount rate, Philips is recording a EUR 1.3 billion non-cash
charge in the third quarter for the impairment of goodwill of this
business.
As disclosed, Philips Respironics is subject to an investigation
by the US Department of Justice, is a defendant in several
class-action lawsuits and individual personal injury claims, and is
in ongoing discussions with the FDA regarding the proposed consent
decree. Given the uncertain nature and timing 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.
Productivity initiatives and other actions to improve
performancePhilips has initiated general productivity
actions, including simplifying the organization to streamline the
way of working and reduce operating expenses. This includes an
immediate reduction of around 4,000 positions globally across the
organization, subject to consultation with the relevant workers
councils and social partners, with severance and
termination-related costs expected to be approximately EUR 300
million in the coming quarters. The associated cost savings are
expected to amount to annualized savings of approximately EUR 300
million. Philips will continue to review areas to further improve
its supply operations, invest in quality, simplify the way of
working and remove organizational complexity, which is expected to
result in additional restructuring and associated costs in
2023.
Additionally, Philips is urgently implementing several actions
to enhance performance and productivity in the supply chain (e.g.
dual sourcing, supplier consolidation, warehouse footprint
rationalization), R&D (e.g. shifting the focus to fewer,
high-impact projects in the innovation pipeline) and quality (e.g.
enhancing processes, increasing capabilities and product
management). In connection with the previously announced initiative
to enhance productivity in R&D, Philips recorded a non-cash
charge in the third quarter of EUR 168 million.
OutlookLooking ahead, the company sees
prolonged operational and supply challenges, a worsening
macro-economic environment and continued uncertainty related to
COVID-19 measures in China, which will be partly offset by Philips’
productivity and pricing actions. Consequently, Philips now expects
a mid-single-digit comparable sales decline for the fourth quarter
of 2022, with a high-single-to-double-digit Adjusted EBITA margin
range.
Capital allocationIn light of recent
developments and market volatility, Philips is taking the following
measures – in addition to its measures to manage cash – to further
strengthen its liquidity position:
- Securing a EUR 1 billion credit facility.
- Executing the settlement of the forward contracts – entered
into as part of the share repurchase program announced on July 26,
2021 – at the original settlement dates in 2023 and 2024, instead
of in 2022 as earlier announced.
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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 2021 sales of EUR 17.2 billion and
employs approximately 79,000 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. 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; Philips’
ability to execute and deliver on programs on business
transformation and IT system changes and continuity; the
effectiveness of our supply chain; attracting and retaining
personnel; COVID and other pandemics; 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; treasury and financing risks; tax
risks; reliability of internal controls, financial reporting and
management process. 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
2021. Reference is also made to Risk management in the Philips
semi-annual report 2022. 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. During the quarter, an indicator of impairment was
identified for the Sleep & Respiratory Care cash-generating
unit (CGU) as a consequence of revisions to the expected future
cash flows of the CGU. The goodwill impairment charge recognized
this quarter is due to revisions to the financial forecast of our
Sleep & Respiratory Care business within the Connected Care
segment. The impairment charge was calculated by comparing the
carrying amount of the Sleep & Respiratory Care CGU with its
recoverable amount, the basis of which is value in use. The
forecast used to calculate the value in use required management to
make significant estimates and assumptions about future cash flows.
Actual outcomes in future periods may differ from these estimates.
After this impairment charge, the estimated recoverable amount for
Sleep & Respiratory Care is equal to its carrying value and
consequently any adverse change in key assumptions would
individually cause a material impairment loss to be recognized.
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 24, 2022. 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 2021. 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 2021. 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 the totals provided. All reported data is unaudited.
Financial reporting is in accordance with the accounting policies
as stated in the Annual Report 2021 except for the adoption of new
standards and amendments to standards which are also expected to be
reflected in the company’s consolidated financial statements for
the year ending December 31, 2022. Prior-period amounts have been
reclassified to conform to the current-period presentation; this
includes immaterial organizational changes. *) Non-IFRS financial
measure. Refer to the Reconciliation of non-IFRS information
Grafico Azioni Koninklijke Philips NV (EU:PHIA)
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Da Ott 2023 a Nov 2023
Grafico Azioni Koninklijke Philips NV (EU:PHIA)
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Da Nov 2022 a Nov 2023