July 20, 2020
Second-quarter
highlights•
Sales amounted to EUR 4.4 billion, with a 6% comparable sales
decrease• Comparable
order intake increased
27%• Income from
continuing operations was EUR 213 million, compared to EUR 260
million in Q2 2019•
Adjusted EBITA margin was 9.5% of sales, compared to 11.8% of sales
in Q2 2019• Income from
operations amounted to EUR 229 million, compared to EUR 350 million
in Q2 2019• EPS from
continuing operations (diluted) amounted to EUR 0.23; Adjusted EPS
amounted to EUR 0.35, compared to EUR 0.42 in Q2
2019• Operating cash flow
improved to EUR 558 million, compared to EUR 390 million in Q2
2019• Free cash flow
increased to EUR 311 million, compared to EUR 174 million in Q2
2019 Frans van Houten, CEO“As the global societal
and economic impact of the COVID-19 outbreak intensified in the
second quarter of 2020, we continued to focus on our triple duty of
care: meeting critical customer needs, safeguarding the health and
safety of our employees, and ensuring business continuity. In close
collaboration with our suppliers and partners, we have steeply
ramped up the production volumes of acute care products and
solutions to help diagnose, treat, monitor and manage COVID-19
patients. Our field service engineers have been supporting
healthcare providers around the world throughout these testing
times. Under the circumstances, I am pleased at the way we have
performed and I am grateful and proud of how all our employees have
stepped up.
In the quarter, Philips' sales declined 6% on a comparable basis
and we delivered an Adjusted EBITA margin of 9.5%. Comparable order
intake grew a further 27% on the back of double-digit growth in the
previous quarter, driven by CT imaging systems, hospital
ventilators and patient monitors. As anticipated, COVID-19 caused a
steep decrease in consumer demand and postponement of installations
in hospitals, as well as elective procedures, resulting in a 19%
comparable sales decrease for our Personal Health businesses and a
9% decline for our Diagnosis & Treatment businesses. This was
partly offset by a strong 14% comparable sales growth for our
Connected Care businesses.
We expect to return to growth and improved profitability for the
Group in the second half of the year, assuming we can convert our
existing order book for the Diagnosis & Treatment and Connected
Care businesses, elective procedures normalize, and consumer demand
gradually improves. Consequently, for the full year 2020 we
continue to aim for a modest comparable sales growth and Adjusted
EBITA margin improvement.
Looking ahead, our mission is more relevant than ever. Our
strategy to transform the delivery of care along the health
continuum, leveraging informatics and remote care capabilities,
along with our innovative systems and services, has been validated
during this crisis. I am convinced that Philips is well positioned
to serve the current and future needs of hospitals and health
systems.” Business segment performanceThe
Diagnosis & Treatment businesses recorded a 9% comparable sales
decline due to the postponement of installations and elective
procedures. Although Diagnostic Imaging sales were in line with Q2
2019, Ultrasound showed a mid-single-digit decrease, and
Image-Guided Therapy a double-digit decline. Comparable order
intake showed a double-digit decrease. The Adjusted EBITA margin
decreased to 8.6%, mainly due to the sales decline.
Comparable sales in the Connected Care businesses increased 14%,
with double-digit growth in Sleep & Respiratory Care and
mid-single-digit growth in Monitoring & Analytics. Comparable
order intake more than doubled, driven by strong demand for patient
monitors and hospital ventilators. The Adjusted EBITA margin
increased to 17.8%, as additional investments to ramp up production
were more than offset by operating leverage.
The Personal Health businesses recorded a comparable sales
decline of 19%, with all businesses declining due to significantly
decreased consumer demand. The Adjusted EBITA margin declined to
5.6%, due to the sales decline, partly offset by cost savings.
Philips’ ongoing focus on innovation and partnerships resulted
in the following key developments in the quarter:
• Highlighting its
strength in strategic partnerships to enhance patient care and
improve care provider productivity, Philips signed 14 new
agreements in the quarter. For example, Philips and the US
Department of Veterans Affairs entered a 10-year agreement to
expand their tele-critical care program, creating the world’s
largest system to provide veterans with remote access to intensive
care expertise, regardless of their location. In the Netherlands,
Philips and Flevo Hospital signed a 10-year strategic partnership
agreement to support precision diagnosis and optimize workflows and
patient pathways, while driving efficiencies and cost
optimization.• In
collaboration with its partners and suppliers, Philips tripled the
production of its hospital ventilators in the quarter and is on
track to achieve the planned four-fold increase to 4,000 units per
week in July 2020, supporting the treatment of COVID-19 patients in
the most affected regions around the
world.• Philips launched
several new monitoring solutions for the Intensive Care Unit (ICU),
the general ward and the home that feature remote monitoring
capabilities and advanced analytics. These include Philips’
IntelliVue Patient Monitors MX750/MX850 for the ICU, Philips’
Biosensor BX100 for early patient deterioration detection in the
general ward, and in collaboration with BioIntelliSense, the
BioSticker medical device to help monitor at-risk patients from the
hospital to the home.•
University of Kentucky HealthCare teamed up with Philips to
implement the company’s tele-ICU technology to enhance patient care
and improve utilization and patient flows across 160 ICU beds at
the academic medical center’s two hospitals. Leveraging Philips’
acute telehealth platform, eCareManager, UK HealthCare is
implementing the state’s first centralized virtual care model to
help nurses detect risk of patient deterioration, so they can
intervene earlier and help improve care
outcomes.• Philips
received an industry-first 510(k) clearance from the FDA to market
a wide range of its ultrasound solutions – including CX50 and
Lumify – for the management of COVID-19-related lung and cardiac
complications. Portable ultrasound solutions in particular have
become valuable tools for clinicians treating COVID-19 patients,
due to their imaging capabilities, portability and ease of
disinfection.• Supporting
the increased demand for flexible ICU capacity, Philips introduced
its new mobile ICUs in India. The ICUs can be furnished with a
range of medical equipment, including ventilators, defibrillators,
and patient monitoring. In the Philippines, Philips introduced a
modular diagnostic imaging cabin with a CT or diagnostic X-ray
system for rapid
deployment.•
Complementing Philips Sonicare’s existing teledentistry services
for patients, Philips and dental technology company Toothpic
announced a new teledentistry platform for dental professionals.
The multi-service platform provides a tool to build direct patient
engagement, acquisition and retention while improving office
efficiency, in-chair time and remote care.
Cost savingsIn the second quarter, procurement
savings amounted to EUR 57 million. Overhead and other productivity
programs delivered savings of EUR 51 million. As a result, Philips
is on track to deliver over EUR 400 million productivity savings
for 2020 and EUR 1.8 billion productivity savings for the Group for
the 2017-2020 period.
Executive Committee updateOn July 16, Philips
announced the appointment of Deeptha Khanna as the Chief Business
Leader of the Personal Health businesses, effective July 20, 2020,
and the appointment of Edwin Paalvast as Chief of International
Markets, effective August 1, 2020. Ms. Khanna and Mr.
Paalvast will become members of Philips’ Executive Committee,
reporting to Philips CEO Frans van Houten.
Ms. Khanna joins Philips from Johnson & Johnson to lead its
Personal Health businesses, which were temporarily led by Frans van
Houten. Mr. Paalvast joins Philips from Cisco Systems, and will
succeed current Chief of International Markets Henk de Jong, who
has been appointed as CEO of Philips’ EUR 2.3 billion Domestic
Appliances business, effective August 1, 2020. 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. Mr. de Jong will continue to report to Frans
van Houten and remain a member of the Executive Committee.
Capital allocationShare buyback programAt the
end of the first quarter of 2020, Philips had completed 50.3% of
its EUR 1.5 billion share buyback program for capital reduction
purposes that was announced on January 29, 2019. In line with the
company’s announcement on March 23, 2020, Philips has executed the
second half of the program through individual forward transactions
with settlement dates extending into the second half of 2021.
Further details can be found here.
Share cancellationIn June 2020, Philips completed the
cancellation of 3,809,675 shares that were acquired as part of the
share buyback program mentioned above.
DividendIn July 2020, Philips issued a total number of
18,080,198 new common shares for settlement of the 2019 dividend.
After deduction of treasury shares, this results in a total number
of outstanding shares of 909,395,209, compared to 909,194,188
shares in 2019 following the settlement of the 2018 dividend.
Regulatory updatePhilips’ Emergency Care and
Resuscitation (ECR) business resumed manufacturing and shipping of
external defibrillators for the US, following notification from the
FDA that the injunction prohibiting those activities has been
lifted. Philips continues to comply with the terms of the Consent
Decree, which remains in effect, and includes ongoing regulatory
compliance monitoring and facility inspections of the ECR business
and of Philips’ other patient care businesses by the FDA. In
connection with the ECR portfolio, Philips received FDA pre-market
approval (PMA) for the HeartStart FR3 [1] and HeartStart FRx [2]
automated external defibrillators (AEDs), and their supporting
accessories, including batteries and pads.
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 and availability of acute care products and solutions to
combat COVID-19. Philips 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 IntelliVue Patient Monitors
MX750/MX850 and its IntelliVue Active Displays AD75/AD85. Moreover,
Philips has received FDA 510(k) clearances to market its Biosensor
BX100 for early patient deterioration detection in the general
ward, and to market a wide range of its ultrasound solutions for
the management of COVID-19-related lung and cardiac
complications.
[1] Model 861388 and Model 861389[2] Model 861304
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; 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 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 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 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 Regulation This press release contains inside
information within the meaning of Article 7(1) of the EU Market
Abuse Regulation.
- philips-second-quarter-results-2020-report
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