SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 6-K


REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934

July 20, 2020


KONINKLIJKE PHILIPS N.V.

(Exact name of registrant as specified in its charter)


Royal Philips

(Translation of registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(7): ☐

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ☐ No ☒

Name and address of person authorized to receive notices and communications from the Securities and Exchange Commission:

M.J. van Ginneken
Koninklijke Philips N.V.
Amstelplein 2
1096 BC Amsterdam – The Netherlands

This report comprises a copy of the following report:

“Philips’ Second Quarter Results 2020”, dated July 20, 2020.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized at Amsterdam, on the 20th day of July 2020.

KONINKLIJKE PHILIPS N.V.

/s/ M.J. van Ginneken
(Chief Legal Officer)

PHILIPS SHAPE

Philips delivers Q2 sales of EUR 4.4 billion, with 6% comparable sales decrease; income from continuing operations of EUR 213 million, Adjusted EBITA margin of 9.5% and operating cash flow of EUR 558 million

Amsterdam, 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 performance

The 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 savings

In 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 update

On 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 allocation

Share buyback program

At 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 cancellation

In June 2020, Philips completed the cancellation of 3,809,675 shares that were acquired as part of the share buyback program mentioned above.

Dividend

In 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 update

Philips’ 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 FR31) and HeartStart FRx2) 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.

Conference call and audio webcast

Frans van Houten, CEO, and Abhijit Bhattacharya, CFO, will host a conference call for investors and analysts at 10:00 am CET today to discuss the results. A live audio webcast of the conference call will be available on the Philips Investor Relations website and can be accessed here.

1) Model 861388 and Model 861389
2) Model 861304

Philips performance

Key data

in millions of EUR unless otherwise stated

Q2 2019

Q2 2020

Sales

4,671

4,395

Nominal sales growth

9%

(6)%

Comparable sales growth1)

6%

(6)%

Comparable order intake1)2)

11%

27%

Income from operations

350

229

as a % of sales

7.5%

5.2%

Financial income and expenses, net

(19)

20

Investments in associates, net of income taxes

3

-

Income tax

(74)

(36)

Income from continuing operations

260

213

Discontinued operations, net of income taxes

(13)

(3)

Net income

246

210

Income from continuing operations attributable to shareholders3) per common share (in EUR) - diluted

0.27

0.23

Adjusted income from continuing operations attributable to shareholders3) per common share (in EUR) - diluted1)

0.42

0.35

Net income attributable to shareholders3) per common share (in EUR) - diluted

0.26

0.23

EBITA1)

440

388

as a % of sales

9.4%

8.8%

Adjusted EBITA1)

549

418

as a % of sales

11.8%

9.5%

Adjusted EBITDA1)

776

670

as a % of sales

16.6%

15.2%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
2) The comparative figures have been restated for the realigned Order Intake Policy. Refer to the Forward-looking statements and other important information.
3) Shareholders refers to shareholders of Koninklijke Philips N.V. 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.
  • COVID-19 significantly affected our results in Q2 2020. Comparable sales declined by 6%. It is estimated that COVID-19 had a negative impact of around 10 percentage points. Comparable sales for the Connected Care businesses showed double-digit growth, which was more than offset by a high-single-digit decline in the Diagnosis & Treatment businesses and a double-digit decline in the Personal Health businesses.
  • Comparable order intake showed 27% growth, as the Connected Care businesses more than doubled their order intake, partly offset by a double-digit decline in the Diagnosis & Treatment businesses.
  • Adjusted EBITA decreased by EUR 131 million and the margin decreased by 230 basis points compared to Q2 2019. COVID-19 negatively impacted the Adjusted EBITA margin by around 3 percentage points.
  • COVID-19 impacts represent management estimates including incremental direct costs, direct cost savings, lost gross margin, lower factory coverage and various cost mitigation efforts; none of these were treated as adjusting items in determining Adjusted EBITA.
  • Amortization of acquired intangibles includes an impairment of EUR 92 million related to technology assets.
  • Restructuring, acquisition-related and other charges amounted to EUR 30 million, compared to EUR 110 million in Q2 2019. Q2 2020 includes a EUR 101 million gain related to the release of a contingent consideration liability, non-recurring inventory valuation charges of EUR 26 million resulting from a change in methodology enabled by the implementation of the integrated IT landscape, and separation costs of EUR 9 million related to the Domestic Appliances business.
  • Financial income and expenses resulted in an income of EUR 20 million, compared to an expense of EUR 19 million in Q2 2019. Q2 2020 includes higher gains related to value adjustments of financial assets. This mainly represents the increase in value of one of our minority participations following the initial public offering of an underlying investment.
  • Income taxes decreased by EUR 38 million, mainly driven by lower income and higher non-taxable results from participations.
  • Net income decreased by EUR 36 million compared to Q2 2019, resulting from lower earnings, partly offset by lower tax expense and lower net financial expenses.

Sales per geographic cluster

in millions of EUR unless otherwise stated

% change

Q2 2019

Q2 2020

nominal

comparable1)

Western Europe

964

991

3%

1%

North America

1,742

1,604

(8)%

(10)%

Other mature geographies

456

439

(4)%

(6)%

Total mature geographies

3,162

3,033

(4)%

(6)%

Growth geographies

1,509

1,362

(10)%

(6)%

Philips Group

4,671

4,395

(6)%

(6)%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information

Amounts may not add up due to rounding.

  • Sales in growth geographies decreased by 6% on a comparable basis, with a mid-single-digit decline in China and a double-digit decline in India. Sales in mature geographies decreased by 6%, with low-single-digit growth in Western Europe, which was more than offset by a mid-single-digit decline in other mature geographies and a double-digit decline in North America.
  • Comparable order intake in growth geographies showed double-digit growth, driven by double-digit growth in Russia & Central Asia and Latin America. Mature geographies recorded double-digit growth, with double-digit growth in North America and Western Europe, partly offset by a high-single-digit decline in other mature geographies.

Cash and cash equivalents balance in millions of EUR

Q2 2019

Q2 2020

Beginning cash and cash equivalents balance

1,454

2,143

Free cash flow1)

174

311

Net cash flows from operating activities

390

558

Net capital expenditures

(215)

(247)

Other cash flows from investing activities

(64)

(101)

Treasury shares transactions

(761)

2

Changes in debt

687

(63)

Dividend paid to shareholders

(385)

Other cash flow items

(15)

(1)

Net cash flows from discontinued operations

(14)

3

Ending cash and cash equivalents balance

1,077

2,294

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Net cash flows from operating activities increased by EUR 168 million, mainly due to higher cash inflows from working capital and lower tax paid.
  • Other cash flows from investing activities mainly includes transactions related to acquisitions and minority investments.
  • Treasury shares transactions relates to Long-Term Incentive and employee stock purchase plans.
  • Changes in debt in 2019 included the net proceeds from bonds issued.
  • The 2019 dividend, adopted during the June 26, 2020 Extraordinary General Meeting of Shareholders, was distributed in July 2020 fully in shares.

Composition of net debt to group equity1)

in millions of EUR unless otherwise stated

March 31, 2020

June 30, 2020

Long-term debt

6,358

6,705

Short-term debt

513

591

Total debt

6,871

7,296

Cash and cash equivalents

2,143

2,294

Net debt

4,728

5,002

Shareholders' equity

12,120

10,952

Non-controlling interests

27

29

Group equity

12,148

10,981

Net debt : group equity ratio1)

28:72

31:69

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • The increase in debt is mainly attributable to forward contracts in relation to Philips' share buyback program.
  • The decrease in shareholders' equity mainly relates to the declared stock dividend and forward contracts.

Performance per segment

Diagnosis & Treatment businesses

Key data

in millions of EUR unless otherwise stated

Q2 2019

Q2 2020

Sales

2,063

1,919

Sales growth

Nominal sales growth

10%

(7)%

Comparable sales growth1)

6%

(9)%

Income from operations

168

104

as a % of sales

8.1%

5.4%

EBITA1)

214

224

as a % of sales

10.4%

11.7%

Adjusted EBITA1)

254

165

as a % of sales

12.3%

8.6%

Adjusted EBITDA1)

323

234

as a % of sales

15.7%

12.2%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Comparable sales declined by 9%, due to the postponement of installations and elective procedures resulting from the COVID-19 outbreak. Diagnostic Imaging sales were in line with Q2 2019, while Ultrasound showed a mid-single-digit decrease, and Image-Guided Therapy a double-digit decline.
  • Comparable sales in growth geographies showed mid-single-digit growth, driven by double-digit growth in China. Mature geographies recorded a double-digit decline, with flat sales in other mature geographies and a double-digit decline in both Western Europe and North America.
  • Adjusted EBITA decreased by EUR 89 million, resulting in a margin of 8.6%, due to the decline in sales and an unfavorable mix.
  • Amortization of acquired intangibles includes an impairment of EUR 92 million related to technology assets.
  • Restructuring, acquisition-related and other charges to improve productivity resulted in income of EUR 59 million, compared to charges of EUR 41 million in Q2 2019. Q2 2020 includes a EUR 101 million gain related to the release of a contingent consideration liability.
  • In Q3 2020, restructuring, acquisition-related and other charges are expected to total approximately EUR 45 million.

Connected Care businesses

Key data

in millions of EUR unless otherwise stated

Q2 2019

Q2 2020

Sales

1,161

1,322

Sales growth

Nominal sales growth

11%

14%

Comparable sales growth1)

6%

14%

Income from operations

75

171

as a % of sales

6.5%

12.9%

EBITA1)

110

204

as a % of sales

9.5%

15.4%

Adjusted EBITA1)

141

235

as a % of sales

12.1%

17.8%

Adjusted EBITDA1)

186

288

as a % of sales

16.0%

21.8%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Comparable sales growth was 14%, mainly driven by COVID-19-generated demand, with double-digit growth in Sleep & Respiratory Care and mid-single-digit growth in Monitoring & Analytics.
  • Comparable sales in growth geographies showed double-digit growth, driven by double-digit growth in Latin America and Middle East & Turkey. Mature geographies recorded double-digit growth, with double-digit growth in Western Europe, mid-single-digit growth in other mature geographies and low-single-digit growth in North America.
  • Adjusted EBITA increased by EUR 94 million, resulting in a margin of 17.8%, as additional investments to ramp up production were more than offset by operating leverage.
  • Restructuring, acquisition-related and other charges amounted to EUR 31 million, which is in line with Q2 2019. In Q3 2020, restructuring, acquisition-related and other charges are expected to total approximately EUR 30 million.

Personal Health businesses

Key data

in millions of EUR unless otherwise stated

Q2 2019

Q2 2020

Sales

1,351

1,069

Sales growth

Nominal sales growth

5%

(21)%

Comparable sales growth1)

5%

(19)%

Income from operations

165

17

as a % of sales

12.2%

1.6%

EBITA1)

173

22

as a % of sales

12.8%

2.1%

Adjusted EBITA1)

181

60

as a % of sales

13.4%

5.6%

Adjusted EBITDA1)

216

103

as a % of sales

16.0%

9.6%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Comparable sales declined by 19% due to the COVID-19 outbreak, with a double-digit decline in Personal Care, Domestic Appliances and Oral Healthcare.
  • Comparable sales in growth geographies showed a double-digit decline. Mature geographies recorded a double-digit decline, with a low-single-digit decline in Western Europe and a double-digit decline in both North America and other mature geographies.
  • Adjusted EBITA decreased by EUR 121 million compared with Q2 2019, resulting in a margin of 5.6%, due to the decline in sales, partly offset by cost savings.
  • Restructuring, acquisition-related and other charges amounted to EUR 39 million, compared to EUR 7 million in Q2 2019. Q2 2020 includes non-recurring inventory valuation charges of EUR 26 million resulting from a change in methodology enabled by the implementation of the integrated IT landscape. In Q3 2020, restructuring, acquisition-related and other charges are expected to total approximately EUR 5 million.

Other

Key data

in millions of EUR

Q2 2019

Q2 2020

Sales

96

84

Income from operations

(58)

(63)

EBITA1)

(56)

(62)

Adjusted EBITA1) of:

(27)

(43)

IP Royalties

49

39

Innovation

(46)

(43)

Central costs

(24)

(31)

Other

(7)

(8)

Adjusted EBITDA1)

50

45

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Sales decreased by EUR 12 million, mainly due to lower royalty income.
  • Restructuring, acquisition-related and other charges amounted to EUR 19 million, compared to EUR 29 million in Q2 2019. Q2 2020 includes EUR 9 million of separation costs related to the Domestic Appliances business. In Q3 2020, restructuring, acquisition-related and other charges are expected to total approximately EUR 45 million; this includes separation costs of approximately EUR 20 million related to the Domestic Appliances business.

Reconciliation of non-IFRS information

Certain non-IFRS financial measures are presented when discussing the Philips Group’s performance:

  • Comparable sales growth
  • EBITA
  • Adjusted EBITA
  • Adjusted income from continuing operations attributable to shareholders
  • Adjusted income from continuing operations attributable to shareholders per common share (in EUR) - diluted (Adjusted EPS)
  • Adjusted EBITDA
  • Free cash flow
  • Net debt : group equity ratio
  • Comparable order intake

For the definitions of the non-IFRS financial measures listed above, refer to chapter 12, Reconciliation of non-IFRS information, of the Annual Report 2019 and to the Forward-looking statements and other important information.

Sales growth composition

in %

Q2 2020

January to June

nominal growth

consolidation changes

currency effects

comparable growth

nominal growth

consolidation changes

currency effects

comparable growth

2020 versus 2019

Diagnosis & Treatment

(7.0)%

(1.8)%

0.3%

(8.5)%

(1.0)%

(2.1)%

(0.8)%

(3.9)%

Connected Care

13.9%

0.6%

(0.5)%

13.9%

11.6%

0.6%

(1.6)%

10.6%

Personal Health

(20.9)%

0.0%

2.0%

(18.9)%

(16.6)%

0.0%

0.7%

(15.9)%

Philips Group

(5.9)%

(0.8)%

0.6%

(6.1)%

(3.0)%

(0.8)%

(0.4)%

(4.3)%

Adjusted income from continuing operations attributable to shareholders 1)

in millions of EUR unless otherwise stated

Q2

January to June

2019

2020

2019

2020

Net income

246

210

409

249

Discontinued operations, net of income taxes

13

3

22

7

Income from continuing operations

260

213

430

256

Continuing operations non-controlling interests

(3)

(2)

(2)

(3)

Income from continuing operations attributable to shareholders 1)

256

212

429

253

Adjustments for:

Amortization of acquired intangible assets

91

159

160

244

Restructuring and acquisition-related charges

82

(30)

153

32

Other items

28

60

7

114

Net finance expenses

3

2

7

4

Tax impact of adjusted items

(64)

(82)

(90)

(163)

Adjusted income from continuing operations attributable to shareholders 1)

395

321

664

485

Earnings per common share:

Income from continuing operations attributable to shareholders1) per common share (in EUR) - diluted

0.27

0.23

0.46

0.28

Adjusted income from continuing operations attributable to shareholders1) per common share (EUR) - diluted

0.42

0.35

0.71

0.53

1) Shareholders refers to shareholders of Koninklijke Philips N.V. 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.

Reconciliation of Net income to Adjusted EBITA

in millions of EUR

Philips Group

Diagnosis & Treatment

Connected Care

Personal Health

Other

Q2 2020

Net income

210

Discontinued operations, net of income taxes

3

Income tax expense

36

Investments in associates, net of income taxes

-

Financial expenses

57

Financial income

(77)

Income from operations

229

104

171

17

(63)

Amortization of acquired intangible assets

159

120

33

5

1

EBITA

388

224

204

22

(62)

Restructuring and acquisition-related charges

(30)

(62)

14

13

5

Other items

60

3

17

26

14

Adjusted EBITA

418

165

235

60

(43)

January to June 2020

Net income

249

Discontinued operations, net of income taxes

7

Income tax expense

14

Investments in associates, net of income taxes

4

Financial expenses

108

Financial income

(110)

Income from operations

272

112

214

84

(139)

Amortization of acquired intangible assets

244

152

67

10

15

EBITA

516

264

281

94

(124)

Restructuring and acquisition-related charges

32

(19)

25

21

5

Other items

114

36

37

26

15

Adjusted EBITA

662

282

343

141

(104)

Q2 2019

Net income

246

Discontinued operations, net of income taxes

13

Income tax expense

74

Investments in associates, net of income taxes

(3)

Financial expenses

60

Financial income

(41)

Income from operations

350

168

75

165

(58)

Amortization of acquired intangible assets

91

45

35

8

2

EBITA

440

214

110

173

(56)

Restructuring and acquisition-related charges

82

37

15

7

22

Other items

28

4

16

-

7

Adjusted EBITA

549

254

141

181

(27)

January to June 2019

Net income

409

Discontinued operations, net of income taxes

22

Income tax expense

141

Investments in associates, net of income taxes

(5)

Financial expenses

116

Financial income

(88)

Income from operations

594

219

95

333

(53)

Amortization of acquired intangible assets

160

72

70

14

4

EBITA

754

291

165

347

(49)

Restructuring and acquisition-related charges

153

63

34

23

31

Other items

7

7

27

-

(27)

Adjusted EBITA

914

362

226

371

(45)

Reconciliation of Net income to Adjusted EBITDA

in millions of EUR

Philips Group

Diagnosis & Treatment

Connected Care

Personal Health

Other

Q2 2020

Net income

210

Discontinued operations, net of income taxes

3

Income tax expense

36

Investments in associates, net of income taxes

-

Financial expenses

57

Financial income

(77)

Income from operations

229

104

171

17

(63)

Depreciation, amortization and impairments of fixed assets

411

188

85

48

89

Restructuring and acquisition-related charges

(30)

(62)

14

13

5

Other items

60

3

17

26

14

Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items

1

1

-

Adjusted EBITDA

670

234

288

103

45

January to June 2020

Net income

249

Discontinued operations, net of income taxes

7

Income tax expense

14

Investments in associates, net of income taxes

4

Financial expenses

108

Financial income

(110)

Income from operations

272

112

214

84

(139)

Depreciation, amortization and impairments of fixed assets

779

324

165

94

196

Restructuring and acquisition-related charges

32

(19)

25

21

5

Other items

114

36

37

26

15

Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items

(32)

(31)

-

(1)

Adjusted EBITDA

1,166

423

441

224

78

Q2 2019

Net income

246

Discontinued operations, net of income taxes

13

Income tax expense

74

Investments in associates, net of income taxes

(3)

Financial expenses

60

Financial income

(41)

Income from operations

350

168

75

165

(58)

Depreciation, amortization and impairments of fixed assets

319

115

81

44

79

Restructuring and acquisition-related charges

82

37

15

7

22

Other items

28

4

16

-

7

Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items

(2)

(1)

(1)

-

Adjusted EBITDA

776

323

186

216

50

January to June 2019

Net income

409

Discontinued operations, net of income taxes

22

Income tax expense

141

Investments in associates, net of income taxes

(5)

Financial expenses

116

Financial income

(88)

Income from operations

594

219

95

333

(53)

Depreciation, amortization and impairments of fixed assets

601

206

160

84

152

Restructuring and acquisition-related charges

153

63

34

23

31

Other items

7

7

27

-

(27)

Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items

(3)

(2)

(1)

-

Adjusted EBITDA

1,352

493

315

441

103

Composition of free cash flow in millions of EUR

Q2

January to June

2019

2020

2019

2020

Net cash provided by operating activities

390

558

404

701

Net capital expenditures

(215)

(247)

(435)

(446)

Purchase of intangible assets

(36)

(36)

(76)

(58)

Expenditures on development assets

(91)

(82)

(171)

(158)

Capital expenditures on property, plant and equipment

(116)

(130)

(219)

(236)

Proceeds from disposals of property, plant and equipment

28

1

30

6

Free cash flow

174

311

(32)

254

Philips statistics

Philips statistics

in millions of EUR unless otherwise stated

2019

2020

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Sales

4,151

4,671

4,702

5,958

4,159

4,395

Comparable sales growth1)

2%

6%

6%

3%

(2)%

(6)%

Comparable order intake1)2)

2%

11%

3%

6%

24%

27%

Gross margin

1,888

2,125

2,155

2,707

1,845

1,831

as a % of sales

45.5%

45.5%

45.8%

45.4%

44.4%

41.7%

Selling expenses

(1,084)

(1,173)

(1,132)

(1,293)

(1,144)

(1,079)

as a % of sales

(26.1)%

(25.1)%

(24.1)%

(21.7)%

(27.5)%

(24.6)%

G&A expenses

(152)

(165)

(175)

(139)

(161)

(168)

as a % of sales

(3.7)%

(3.5)%

(3.7)%

(2.3)%

(3.9)%

(3.8)%

R&D expenses

(439)

(443)

(457)

(545)

(489)

(455)

as a % of sales

(10.6)%

(9.5)%

(9.7)%

(9.1)%

(11.8)%

(10.4)%

Income from operations

245

350

320

730

43

229

as a % of sales

5.9%

7.5%

6.8%

12.3%

1.0%

5.2%

Net income

162

246

208

556

39

210

Income from continuing operations attributable to shareholders3) per common share in EUR - diluted

0.18

0.27

0.22

0.60

0.05

0.23

Adjusted income from continuing operations attributable to shareholders3) per common share in EUR - diluted1)

0.29

0.42

0.46

0.82

0.18

0.35

EBITA1)

314

440

469

868

127

388

as a % of sales

7.6%

9.4%

10.0%

14.6%

3.1%

8.8%

Adjusted EBITA1)

364

549

583

1,066

244

418

as a % of sales

8.8%

11.8%

12.4%

17.9%

5.9%

9.5%

Adjusted EBITDA1)

576

776

816

1,335

495

670

as a % of sales

13.9%

16.6%

17.4%

22.4%

11.9%

15.2%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
2) The comparative figures have been restated for the realigned Order Intake Policy. Refer to the Forward-looking statements and other important information.
3) Shareholders refers to shareholders of Koninklijke Philips N.V. 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.

Philips statistics

in millions of EUR unless otherwise stated

2019

2020

January-March

January-June

January-September

January-December

January-March

January-June

January-September

January-December

Sales

4,151

8,822

13,524

19,482

4,159

8,554

Comparable sales growth1)

2%

4%

5%

4%

(2)%

(4)%

Comparable order intake1)2)

2%

7%

6%

6%

24%

26%

Gross margin

1,888

4,013

6,168

8,875

1,845

3,676

as a % of sales

45.5%

45.5%

45.6%

45.6%

44.4%

43.0%

Selling expenses

(1,084)

(2,257)

(3,389)

(4,682)

(1,144)

(2,224)

as a % of sales

(26.1)%

(25.6)%

(25.1)%

(24.0)%

(27.5)%

(26.0)%

G&A expenses

(152)

(317)

(492)

(631)

(161)

(328)

as a % of sales

(3.7)%

(3.6)%

(3.6)%

(3.2)%

(3.9)%

(3.8)%

R&D expenses

(439)

(882)

(1,339)

(1,884)

(489)

(944)

as a % of sales

(10.6)%

(10.0)%

(9.9)%

(9.7)%

(11.8)%

(11.0)%

Income from operations

245

594

915

1,644

43

272

as a % of sales

5.9%

6.7%

6.8%

8.4%

1.0%

3.2%

Net income

162

409

616

1,173

39

249

Income from continuing operations attributable to shareholders3) per common share in EUR - diluted

0.18

0.46

0.68

1.27

0.05

0.28

Adjusted income from continuing operations attributable to shareholders3) per common share in EUR - diluted1)

0.29

0.71

1.16

1.98

0.18

0.53

EBITA1)

314

754

1,224

2,091

127

516

as a % of sales

7.6%

8.5%

9.1%

10.7%

3.1%

6.0%

Adjusted EBITA1)

364

914

1,497

2,563

244

662

as a % of sales

8.8%

10.4%

11.1%

13.2%

5.9%

7.7%

Adjusted EBITDA1)

576

1,352

2,169

3,503

495

1,166

as a % of sales

13.9%

15.3%

16.0%

18.0%

11.9%

13.6%

Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands)

910,810

902,417

898,029

890,974

887,579

891,301

Shareholders' equity per common share in EUR

13.54

13.19

13.76

14.14

13.66

12.29

Net debt : group equity ratio1)

25:75

28:72

27:73

24:76

28:72

31:69

Total employees of continuing operations

77,340

77,748

79,613

80,495

80,718

80,520

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
2) The comparative figures have been restated for the realigned Order Intake Policy. Refer to the Forward-looking statements and other important information.
3) Shareholders refers to shareholders of Koninklijke Philips N.V. 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.

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 semi-annual report 2020

SEMI ANNUAL COVER PAGE IMAGE

Introduction

This report contains the semi-annual report of Koninklijke Philips N.V. (‘the Company’ or ‘Philips’), a company with limited liability, headquartered in Amsterdam, the Netherlands. The principal activities of the Company and its group companies (‘the Group’) are described in the Annual Report 2019. The semi-annual report for the six months ended June 30, 2020 consists of the semi-annual condensed consolidated financial statements, the semi-annual management report and responsibility statement by the Company’s Board of Management. The information in this semi-annual report is unaudited.

Responsibility statement

The Board of Management of the Company hereby declares that to the best of their knowledge, the semi-annual condensed consolidated financial statements for the six-month period ended June 30, 2020, which have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, and that the semi-annual management report for the six-month period ended June 30, 2020 gives a fair view of the information required pursuant to article 5:25d paragraph 8 and 9 of the Dutch Financial Markets Supervision Act (Wet op het Financieel toezicht).

Amsterdam, July 20, 2020

Board of Management

Frans van Houten

Abhijit Bhattacharya

Marnix van Ginneken

Management report Philips performance

Key data

in millions of EUR unless otherwise stated

January to June

2019

2020

Sales

8,822

8,554

Nominal sales growth

7%

(3)%

Comparable sales growth1)

4%

(4)%

Comparable order intake1)2)

7%

26%

income from operations

594

272

as a % of sales

6.7%

3.2%

Financial income and expenses, net

(28)

2

Investments in associates, net of income taxes

5

(4)

Income tax expenses

(141)

(14)

Net income from continuing operations

430

256

Discontinued operations, net of income taxes

(22)

(7)

Net income

409

249

Income from continuing operations attributable to shareholders3) per common share (in EUR) - diluted

0.46

0.28

Adjusted income from continuing operations attributable to shareholders3) per common share (in EUR) - diluted1)

0.71

0.53

Net income attributable to shareholders3) per common share (in EUR) - diluted

0.43

0.27

EBITA1)

754

516

as a % of sales

8.5%

6.0%

Adjusted EBITA1)

914

662

as a % of sales

10.4%

7.7%

Adjusted EBITDA1)

1,352

1,166

as a % of sales

15.3%

13.6%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
2) The comparative figures have been restated for the realigned Order Intake Policy. Refer to the Forward-looking statements and other important information.
3) Shareholders refers to shareholders of Koninklijke Philips N.V. 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.

Amounts may not add up due to rounding.

  • COVID-19 significantly affected Philips' results in the first half of 2020. Comparable sales declined by 4%. It is estimated that COVID-19 had a negative impact of around 8 percentage points. The Connected Care businesses recorded double-digit growth, which was more than offset by a mid-single-digit decline in the Diagnosis & Treatment businesses and a double-digit decline in the Personal Health businesses. Comparable sales in growth geographies showed a high-single-digit decline, with a double-digit decline in China and India. Mature geographies recorded a low-single-digit decline, with low-single-digit growth in Western Europe, which was more than offset by a low-single-digit decline in North America and a mid-single-digit decline in other mature geographies.
  • Comparable order intake showed 26% growth, as the Connected Care businesses more than doubled their order intake, partly offset by a double-digit decline in the Diagnosis & Treatment businesses. On a geographic basis, growth geographies achieved double-digit growth, with double-digit growth in Russia & Central Asia and high-single-digit growth in China. Mature geographies recorded double-digit growth, with double-digit growth in North America, Western Europe and other mature geographies.
  • Adjusted EBITA decreased by EUR 252 million and the margin decreased by 270 basis points compared to the first half of 2019. COVID-19 negatively impacted the Adjusted EBITA margin by around 3 percentage points.
  • COVID-19 impacts represent management estimates including incremental direct costs, direct cost savings, lost gross margin, lower factory coverage and various cost mitigation efforts; none of these were treated as adjusting items in determining Adjusted EBITA.
  • Amortization of acquired intangibles includes an impairment of EUR 92 million related to technology assets.
  • Restructuring, acquisition-related and other charges amounted to EUR 146 million, compared to EUR 160 million in the first half of 2019. The first half of 2020 includes a EUR 101 million gain related to the release of a contingent consideration liability, charges of EUR 31 million related to a value adjustment of capitalized development costs, non-recurring inventory valuation charges of EUR 26 million resulting from a change in methodology enabled by the implementation of the integrated IT landscape, and EUR 9 million of separation costs related to the Domestic Appliances business. The first half of 2019 also included a gain related to the sale of the Photonics business in Germany and a charge related to a litigation provision.
  • Financial income and expenses resulted in an income of EUR 2 million, compared to an expense of EUR 28 million in the first half of 2019. The first half of 2020 includes higher gains related to value adjustments of financial assets. This mainly represents the increase in value of one of our minority participations following the initial public offering of an underlying investment.
  • Income taxes decreased by EUR 127 million year-on-year, mainly due to lower income in 2020, one-off non-cash benefits from a decrease in tax liabilities, and higher non-taxable results from participations.
  • Net income decreased by EUR 160 million compared to the first half of 2019, resulting from lower earnings, partly offset by lower tax expense and lower net financial expenses.

Cash and cash equivalents balance

in millions of EUR

January to June

2019

2020

Beginning cash and cash equivalents balance

1,688

1,425

Free cash flow1)

(32)

254

Net cash flow from operating activities

404

701

Net capital expenditures

(435)

(446)

Other cash flow from investing activities

(32)

(122)

Treasury shares transactions

(882)

(141)

Changes in debt

728

893

Dividend paid to shareholders

(385)

Other cash flow items

6

(14)

Net cash flow discontinued operations

(14)

(1)

Ending cash and cash equivalents balance

1,077

2,294

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Net cash flows from operating activities increased by EUR 297 million, mainly due to lower cash outflows from working capital and lower tax paid.
  • Other cash flows from investing activities mainly includes transactions related to acquisitions, divestments and minority investments. The first half of 2019 included the proceeds related to the sale of the Photonics business.
  • Treasury shares transactions includes share repurchases for capital reduction purposes and for Long-Term Incentive and employee stock purchase plans.
  • Changes in debt mainly includes the net proceeds related to bonds issued.
  • The 2019 dividend, adopted during the June 26, 2020 Extraordinary General Meeting of Shareholders, was distributed in July 2020 fully in shares.

Composition of net debt to group equity1)

in millions of EUR unless otherwise stated

December 31, 2019

June 30, 2020

Long-term debt

4,939

6,705

Short-term debt

508

591

Total debt

5,447

7,296

Cash and cash equivalents

1,425

2,294

Net debt

4,022

5,002

Shareholders' equity

12,597

10,952

Non-controlling interests

28

29

Group equity

12,625

10,981

Net Debt : group equity ratio1)

24:76

31:69

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • The increase in debt is mainly attributable to the issuance of bonds and forward contracts in relation to Philips' share buyback program..
  • The decrease in shareholders' equity mainly relates to the declared stock dividend and forward contracts.

Performance per segment

Diagnosis & Treatment businesses

Key data

in millions of EUR unless otherwise stated

January to June

2019

2020

Sales

3,786

3,746

Sales growth

Nominal sales growth

8%

(1)%

Comparable sales growth1)

4%

(4)%

Income from operations

219

112

as a % of sales

5.8%

3.0%

EBITA1)

291

264

as a % of sales

7.7%

7.0%

Adjusted EBITA1)

362

282

as a % of sales

9.6%

7.5%

Adjusted EBITDA1)

493

423

as a % of sales

13.0%

11.3%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Comparable sales declined by 4%, due to the postponement of installations and elective procedures resulting from the COVID-19 outbreak. Diagnostic Imaging recorded low-single-digit sales growth, which was more than offset by a mid-single-digit decline in Ultrasound and a double-digit decline in Image-Guided Therapy.
  • Comparable sales in growth geographies showed mid-single-digit growth, driven by double-digit growth in China. Mature geographies recorded a high-single-digit decline, with a low-single-digit decline in other mature geographies, a mid-single-digit decline in Western Europe and a high-single-digit decline in North America.
  • Adjusted EBITA decreased by EUR 80 million, resulting in a margin of 7.5%, due to the decline in sales and an unfavorable mix.
  • Amortization of acquired intangibles includes an impairment of EUR 92 million related to technology assets.
  • Restructuring, acquisition-related and other charges to improve productivity were EUR 17 million, compared to EUR 70 million in the first half of 2019. The first half of 2020 includes a EUR 101 million gain related to the release of a contingent consideration liability and charges of EUR 31 million related to a value adjustment of capitalized development costs.

Connected Care businesses

Key data

in millions of EUR unless otherwise stated

January to June

2019

2020

Sales

2,175

2,427

Sales growth

Nominal sales growth

8%

12%

Comparable sales growth1)

2%

11%

Income from operations

95

214

as a % of sales

4.4%

8.8%

EBITA1)

165

281

as a % of sales

7.6%

11.6%

Adjusted EBITA1)

226

343

as a % of sales

10.4%

14.1%

Adjusted EBITDA1)

315

441

as a % of sales

14.5%

18.2%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Comparable sales growth was 11%, mainly driven by COVID-19-generated demand, with double-digit growth in Sleep & Respiratory Care and mid-single-digit growth in Monitoring & Analytics.
  • Comparable sales in growth geographies showed double-digit growth, driven by double-digit growth in Latin America and China. Mature geographies recorded high-single-digit growth, with double-digit growth in Western Europe, mid-single-digit growth in other mature geographies and low-single-digit growth in North America.
  • Adjusted EBITA increased by EUR 117 million, resulting in a margin of 14.1%, as additional investments to ramp up production were more than offset by operating leverage.
  • Restructuring, acquisition-related and other charges were EUR 62 million, compared to EUR 61 million in the first half of 2019.

Personal Health businesses

Key data

in millions of EUR unless otherwise stated

January to June

2019

2020

Sales

2,646

2,207

Sales growth

Nominal sales growth

5%

(17)%

Comparable sales growth1)

5%

(16)%

Income from operations

333

84

as a % of sales

12.6%

3.8%

EBITA1)

347

94

as a % of sales

13.1%

4.3%

Adjusted EBITA1)

371

141

as a % of sales

14.0%

6.4%

Adjusted EBITDA1)

441

224

as a % of sales

16.7%

10.1%

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Comparable sales declined by 16%, due to the COVID-19 outbreak, with a double-digit decline in Domestic Appliances, Personal Care and Oral Healthcare.
  • Comparable sales in growth geographies showed a double-digit decline, with a double-digit decline in China. Mature geographies recorded a high-single-digit decline, with a mid-single-digit decline in Western Europe, a high-single-digit decline in North America and a double-digit decline in other mature geographies.
  • Adjusted EBITA decreased by EUR 230 million, resulting in a margin of 6.4%, due to the decline in sales, partly offset by cost savings.
  • Restructuring, acquisition-related and other charges were EUR 47 million, compared to EUR 23 million in the first half of 2019. The first half of 2020 includes non-recurring inventory valuation charges of EUR 26 million resulting from a change in methodology enabled by the implementation of the integrated IT landscape.

Other

Key data

in millions of EUR unless otherwise stated

January to June

2019

2020

Sales

216

174

Income from operations

(53)

(139)

EBITA1)

(49)

(124)

Adjusted EBITA1) of:

(45)

(104)

IP Royalties

111

83

Innovation

(90)

(95)

Central costs

(55)

(75)

Other

(10)

(17)

Adjusted EBITDA1)

103

78

1) Non-IFRS financial measure. Refer to the Reconciliation of non-IFRS information
  • Sales decreased by EUR 42 million, mainly due to lower royalty income and the loss of revenue from the Photonics business following its divestment at the end of Q1 2019.
  • Restructuring, acquisition-related and other charges were EUR 20 million, compared to EUR 4 million in the first half of 2019. The first half of 2020 also includes EUR 9 million of separation costs related to the Domestic Appliances business. The first half of 2019 also included a gain related to the sale of the Photonics business in Germany and a charge related to a litigation provision.

Condensed consolidated statements of income

In millions of EUR unless otherwise stated

Q2

January to June

2019

2020

2019

2020

Sales

4,671

4,395

8,822

8,554

Cost of sales

(2,546)

(2,564)

(4,810)

(4,878)

Gross margin

2,125

1,831

4,013

3,676

Selling expenses

(1,173)

(1,079)

(2,257)

(2,224)

General and administrative expenses

(165)

(168)

(317)

(328)

Research and development expenses

(443)

(455)

(882)

(944)

Other business income

19

107

96

110

Other business expenses

(14)

(7)

(59)

(18)

Income from operations

350

229

594

272

Financial income

41

77

88

110

Financial expenses

(60)

(57)

(116)

(108)

Investment in associates, net of income taxes

3

-

5

(4)

Income before taxes

334

249

571

270

Income tax expense

(74)

(36)

(141)

(14)

Income from continuing operations

260

213

430

256

Discontinued operations, net of income taxes

(13)

(3)

(22)

(7)

Net income

246

210

409

249

Attribution of net income

Income from continuing operations attributable to shareholders of Koninklijke Philips N.V.

256

212

429

253

Net income attributable to shareholders1)

243

208

407

246

Net income attributable to non-controlling interests

3

2

2

3

Earnings per common share

Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands):

- basic

922,994

906,870

927,026

907,126

- diluted

931,755

914,273

937,288

915,645

Income from continuing operations attributable to shareholders1)

- basic

0.28

0.23

0.46

0.28

- diluted

0.27

0.23

0.46

0.28

Net income attributable to shareholders1)

- basic

0.26

0.23

0.44

0.27

- diluted

0.26

0.23

0.43

0.27

1) Shareholders refers to shareholders of Koninklijke Philips N.V. 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.

Amounts may not add up due to rounding.

Condensed statement of comprehensive income

In millions of EUR

Q2

January to June

2019

2020

2019

2020

Net income for the period

246

210

409

249

Pensions and other post employment plans:

Remeasurement

-

-

1

-

Income tax effect on remeasurements

1

-

-

-

Financial assets fair value through OCI:

Net current-period change, before tax

54

4

57

1

Total of items that will not be reclassified to Income statement

55

4

57

1

Currency translation differences:

Net current-period change, before tax

(133)

(169)

84

(167)

Income tax effect on net current-period change

5

12

(1)

(1)

Reclassification adjustment for (gain) loss realized

4

4

Reclassification adjustment for (gain) loss realized, in discontinued operations

16

16

Cash flow hedges:

Net current-period change, before tax

3

(8)

(22)

25

Income tax effect on net current-period change

(3)

-

3

(11)

Reclassification adjustment for (gain) loss realized

9

7

15

20

Total of items that are or may be reclassified to Income Statement

(100)

(159)

98

(134)

Other comprehensive income (loss) for the period

(45)

(155)

155

(133)

Total comprehensive income (loss) for the period

201

55

564

115

Total comprehensive income attributable to:

Shareholders of Koninklijke Philips N.V.

197

53

561

113

Non-controlling interests

4

2

3

2

Amounts may not add up due to rounding.

Condensed consolidated balance sheets

In millions of EUR

December 31, 2019

June 30, 2020

Non-current assets:

Property, plant and equipment

2,866

2,824

Goodwill

8,654

8,632

Intangible assets excluding goodwill

3,466

3,247

Non-current receivables

178

169

Investments in associates

233

225

Other non-current financial assets

248

395

Non-current derivative financial assets

1