Philips announces Q3 2020 results and provides new financial
targets for the 2021–2025 period
October 19, 2020
Philips delivers Q3 sales of EUR 5.0 billion, with 10%
comparable sales growth; income from continuing operations
increases to EUR 341 million, Adjusted EBITA margin improves 300
basis points to 15.4%, and operating cash flow increases to EUR 770
million
Philips provides new financial targets for the 2021–2025
period
Third-quarter
highlights•
Sales amounted to EUR 5.0 billion, with 10% comparable sales
growth• Comparable order
intake increased 3% excluding the partial termination of the
ventilator contract with HHS*); reported comparable order intake
declined 18%• Income from
continuing operations increased to EUR 341 million, compared to EUR
211 million in Q3 2019•
Adjusted EBITA margin increased to 15.4% of sales, compared to
12.4% of sales in Q3
2019• Income from
operations improved to EUR 476 million, compared to EUR 320 million
in Q3 2019• EPS from
continuing operations (diluted) amounted to EUR 0.37; Adjusted EPS
increased to EUR 0.60, compared to EUR 0.46 in Q3
2019• Operating cash flow
improved to EUR 770 million, compared to EUR 356 million in Q3 2019
Frans van Houten, CEO “It is clear that the
COVID-19 pandemic is far from over, and our teams remain fully
focused on delivering against our triple duty of care: meeting
critical customer needs, safeguarding the health and safety of our
employees, and ensuring business continuity.
I am pleased that, under challenging circumstances, we have been
able to execute our plans and return to growth and improved
profitability for the Group in the third quarter. Driven by the
successful conversion of the Connected Care order book for patient
monitors and ventilators, and a robust rebound of demand for our
Personal Health portfolio, Philips recorded a strong 10% comparable
sales growth and delivered an Adjusted EBITA margin improvement of
300 basis points to 15.4%.
The Connected Care businesses delivered a very strong 42%
comparable sales growth, and our Personal Health businesses
delivered a healthy 6% comparable sales growth. I am encouraged by
the performance improvement of our Diagnosis & Treatment
businesses to a low-single-digit comparable sales decline from a
high-single-digit decline in the previous quarter.
In August, we provided the update that Philips’ April 2020
hospital ventilator contract with the Department of Health and
Human Services (HHS) had been unexpectedly partially terminated. As
a result, we recorded a comparable order intake decline for the
Group of 18%. Excluding this partial termination, comparable order
intake grew 3%, further building on the solid growth in the
previous quarters.
The work we are doing to support healthcare providers and
medical staff with the provision of both COVID-19 and regular care
remains a top priority for all of us at Philips. In close
collaboration with our suppliers and partners, we have steeply
ramped up the production volumes of products and solutions to help
diagnose, treat, monitor and manage COVID-19 patients. We
introduced a new Rapid Equipment Deployment Kit for ICU ramp-ups,
allowing hospital staff to quickly deploy patient monitoring
capabilities when additional critical care capacity is needed. To
enhance patient care and improve care provider productivity,
Philips entered into 11 long-term strategic partnerships with
hospitals in the US, Europe and Asia. We announced a new multi-year
partnership with Tampa General Hospital, one of the largest
hospitals in the US, to replace all of its patient monitors and
upgrade key imaging technologies in the catheterization
laboratories and interventional radiology rooms. We will also
provide this hospital with unique workflow solutions and
operational performance management services.
Looking ahead, we continue to see uncertainty and volatility
related to the impact of COVID-19 across the world, but our order
book remains solid. For the full year 2020, we continue to expect
to deliver modest comparable sales growth, with an Adjusted EBITA
margin of around the level of last year.” Business segment
performance The Diagnosis & Treatment businesses
recorded a 3% comparable sales decline, compared to a 9% sales
decline in Q2 2020. The postponement of installations and gradual
recovery of elective procedures resulted in a low-single-digit
comparable sales decline in Diagnostic Imaging and Image-Guided
Therapy and a double-digit decline in Ultrasound. Comparable order
intake showed a 5% decrease, compared to a 20% decrease in Q2 2020.
The Adjusted EBITA margin decreased to 9.7%, mainly due to lower
volumes and factory coverage, as well as mix changes.
Comparable sales in the Connected Care businesses increased 42%,
with double-digit growth in Monitoring & Analytics and Sleep
& Respiratory Care. Excluding the partial termination of the
ventilator contract with HHS, comparable order intake showed a
double-digit increase, with strong growth across all businesses.
The Adjusted EBITA margin increased to 27.1%, driven by higher
volumes and operating leverage.
The Personal Health businesses delivered a comparable sales
increase of 6%, driven by high-single-digit growth in Personal Care
and Domestic Appliances. The Adjusted EBITA margin amounted to
14.5%, which includes an adverse currency impact.
Philips’ ongoing focus on innovation and partnerships resulted
in the following key developments in the quarter:
• Building on the
strong results of its ‘Healthy people, Sustainable planet’
2016-2020 program, Philips announced a new set of ambitious
targets, commitments and detailed action plans across all the
Environmental, Social and Governance dimensions, including
improving the lives of 2 billion people a year by 2025 and further
reduction of its carbon footprint across its entire value chain in
line with the 1.5 oC global warming scenario.
• Philips signed 11
new long-term strategic partnerships across the world, including
multi-year agreements with Buon Ma Thuot University Hospital in
Vietnam, Mandaya Royal Hospital Puri in Indonesia and Franciscus
Gasthuis & Vlietland in the Netherlands, to provide a
comprehensive range of health technology solutions.
• Broadening its
leading portfolio of power toothbrushes, the company launched the
Philips One by Sonicare. An entry-level proposition to expand into
new consumer segments, Philips One is a battery-operated power
toothbrush developed as a step up from manual brushing. Users of
this toothbrush can opt into a subscription service for brush head
and battery replacements.
• Philips expanded its
industry-leading image-guided therapy devices portfolio through the
acquisition of Intact Vascular, adding an industry-first
implantable device to treat peripheral artery disease. Moreover,
Philips launched QuickClear, an all-in-one thrombectomy system for
the removal of blood clots in peripheral vessels, and OmniWire, a
solid-core pressure wire – also an industry-first – to guide
coronary artery procedures.
• Philips launched
major extensions to its industry-leading Azurion image-guided
therapy platform, comprising a new range of configurations –
covering more price segments – to innovate procedures in a broad
range of therapeutic areas, and further integration between imaging
and diagnostic devices.
• SimonMed Imaging,
one of the largest outpatient medical imaging providers in the US,
is partnering with Philips to deploy its most advanced 3T MRI
technology, including software and services, at their outpatient
practices to enhance diagnoses, from brain injuries, liver and
cardiac disease to orthopedic injuries. Moreover, the partners are
collaborating to further enhance the patient experience and
flow.
• Building on its
leadership in therapeutic care, Philips launched its new Tempus ALS
remote monitoring and defibrillator solution for emergency medical
responders in the US, to help accelerate the delivery of care in
emergency settings outside the hospital.
Cost savingsIn the third quarter, procurement
savings amounted to EUR 62 million. Overhead and other productivity
programs delivered savings of EUR 58 million. As a result, Philips
is on track to deliver over EUR 400 million productivity savings
for 2020 and exceed EUR 1.8 billion productivity savings for the
Group for the 2017-2020 period.
Philips provides new financial targets for the 2021–2025
periodAt the company’s Capital Markets Day with investors
and financial analysts on November 6, 2020, Philips will provide
further details of its strategic plan and performance trajectory
for the 2021–2025 period.
“We are excited to continue our journey to create further value
by improving growth and profitability, while recognizing that we
are in very uncertain times, and with the assumption that the world
economy will return to growth next year,” said Frans van Houten.
“The new targets are underpinned by our strategic imperatives to
further improve customer and operational excellence, boost growth
in our core businesses through geographical expansion and more
customer partnerships, and win with innovative solutions along the
health continuum. Our strategy to transform care along the health
continuum – from healthy living and prevention to diagnosis and
treatment, telehealth and home care – strongly resonates with
customers and has been further validated during the COVID-19
pandemic.”
Philips’ targets for accelerated growth, higher profitability
and improved cash flow for the 2021–2025 period are [1]:
• An acceleration of
the average annual comparable sales growth to 5-6%, with all
business segments within this range. For 2021, Philips’ current
view is that Group comparable sales will deliver low-single-digit
growth, driven by solid growth in Diagnosis & Treatment and
Personal Health, partly offset by lower Connected Care sales;
• An Adjusted EBITA
margin improvement of 60-80 basis points on average annually from
2021, reaching the high teens for the Group by 2025 [2];
• A free cash flow
above EUR 2 billion by 2025;
• Organic Return on
Invested Capital (ROIC) of mid-to-high teens by 2025.
*) On August 31, 2020 Philips announced that its April 2020
ventilator supply contract with the US Department of Health and
Human Services (HHS) had been partially terminated.
[1) The new targets exclude the Domestic Appliances business. As
announced in January 2020, the Domestic Appliances business is
being separated from Philips, a process that is expected to be
completed in the third quarter of 2021.[2] The Diagnosis &
Treatment business segment is expected to reach 15-17% Adjusted
EBITA margin by 2025, the Connected Care segment is expected to
reach 17-19%, and the Personal Health business segment is expected
to reach 19-20%.
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
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 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 statementsThis 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; successful completion of divestments such as the
divestment of our Domestic Appliances businesses; 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 dataStatements
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 informationIn 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 informationIn 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.
PresentationAll 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 significant
accounting policies as stated in the Annual Report 2019. Certain
comparative-period 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.
Per share and weighted average share calculations have been
adjusted retrospectively for all periods presented to reflect the
issuance of shares for the share dividend in respect of 2019.
Market Abuse RegulationThis press release
contains inside information within the meaning of Article 7(1) of
the EU Market Abuse Regulation.
- Philips-third-quarter-results-2020-report
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