Philips delivers Q4 sales of EUR 4.9 billion and income from continuing operations of EUR 139 million; Adjusted EBITA margin amounts to 13.1%, and operating cash flow is EUR 720 million; good demand drives mid-single-digit order intake growth 

Amsterdam, January 24, 2022

Fourth-quarter highlights

• Group sales amounted to EUR 4.9 billion, with a 10% comparable sales decline  
• Comparable order intake increased 4%, driven by double-digit growth in the Diagnosis & Treatment businesses
• Income from continuing operations amounted to EUR 139 million and included an impact of EUR 220 million related to the addition to the Respironics field action provision; income from continuing operations was EUR 508 million in Q4 2020 
• Adjusted EBITA of EUR 647 million, or 13.1% of sales, compared to EUR 995 million, or 19.0% of sales, in Q4 2020 
• Operating cash flow was EUR 720 million, resulting in a free cash flow of EUR 519 million

Full-year highlights

• Group sales amounted to EUR 17.2 billion, with high-single-digit comparable sales growth in the Diagnosis & Treatment and Personal Health businesses, offset by a decline in the Connected Care businesses, resulting in a 1% comparable sales decline 
• Comparable order intake increased 4%, driven by double-digit growth in the Diagnosis & Treatment businesses
• Income from continuing operations was EUR 612 million and included an impact of EUR 719 million related to the Respironics field action provision; income from continuing operations was EUR 999 million in 2020 
• Adjusted EBITA of EUR 2,054 million, or 12.0% of sales, compared to EUR 2,277 million, or 13.2% of sales, in 2020 
• Operating cash flow was EUR 1,629 million, resulting in a free cash flow of EUR 900 million
• Proposed dividend maintained at EUR 0.85 per share, in cash or shares at the option of the shareholder

Frans van Houten, CEO of Royal Philips:

“In the fourth quarter, we recorded EUR 4.9 billion sales, reflecting a 10% comparable sales decline, with an Adjusted EBITA margin of 13.1%. As we announced on January 12, 2022, sales were impacted by several headwinds, namely supply chain challenges, postponement of equipment installations in hospitals related to COVID-19, and the consequences of the Respironics field action.

Our strategy and portfolio continue to resonate very well with customers and consumers, generating good demand for our products and solutions. For the full year, I am pleased with the 8% comparable sales growth in the Diagnosis & Treatment businesses and 9% growth in the Personal Health businesses. Connected Care sales declined, resulting in a 1% comparable sales decrease for the Group. The aforementioned headwinds had a combined impact of 5 percentage-points on the Group’s full year comparable sales.

Group comparable order intake growth also remained robust throughout the year, with 4% growth for the full year, driven by double-digit growth in the Diagnosis & Treatment businesses. This further builds on the high-single-digit Group comparable order intake growth in 2020, resulting in an all-time-high order book. During 2021, we signed 80 long-term strategic partnerships and launched innovations such as the Spectral CT 7500 to support a precision diagnosis, as well as expanding our Azurion image-guided therapy platform with breakthrough applications to innovate minimally invasive treatments. We also continued to help consumers take better care of their health with our personal health offerings.

Patient well-being is at the heart of everything we do at Philips, and we remain extremely focused on repairing and replacing the devices related to the Philips Respironics recall notification. We are conducting a comprehensive test and research program and provided an update in December on the positive VOC test results related to the first-generation DreamStation devices.

Based on good customer demand and our growing order book, we expect to resume our growth and margin expansion trajectory in the course of 2022. In the short term, however, we continue to see significant volatility and headwinds related to COVID-19 and supply chain challenges, despite our ongoing mitigation efforts. Due to this, the Respironics field action and the 9% comparable sales growth in Q1 2021, we expect to start the year with a comparable sales decline, followed by a recovery and strong second half of the year. For the full year, we target to deliver 5-6% comparable sales growth excluding Sleep & Respiratory Care. For the Group, we target 3-5% comparable sales growth and a 40-90 basis-points improvement in Adjusted EBITA margin.”

Business segment performance

Driven by Philips’ attractive portfolio, comparable order intake for the Diagnosis & Treatment businesses increased 10%, with double-digit growth in Image-Guided Therapy and mid-single digit growth in Ultrasound in the fourth quarter. Comparable sales were in line with Q4 2020, with double-digit growth in Image-Guided Therapy, offset by declines in Ultrasound and Diagnostic Imaging. The Adjusted EBITA margin was 13.0% in the quarter, mainly impacted by lower sales due to supply chain headwinds. For the full year, the Diagnosis & Treatment businesses recorded 8% comparable sales growth and an Adjusted EBITA margin of 12.4%.

The Connected Care businesses’ comparable order intake declined 10% on the back of high COVID-19-generated demand in Q4 2020. Hospital Patient Monitoring orders showed continued growth in Q4 2021, driven by the ongoing structural increase in adoption of patient care management solutions in both high- and low-acuity care settings in the hospital. Comparable sales decreased 32% in the fourth quarter following the aforementioned high COVID-19-generated demand in Q4 2020, and a double-digit decline in Sleep & Respiratory Care in Q4 2021, because of the Respironics field action. The Adjusted EBITA margin amounted to 11.7% in the quarter, mainly impacted by the decline in sales. For the full year, the Connected Care businesses recorded a 23% comparable sales decrease and an Adjusted EBITA margin of 10.6%.

The Personal Health businesses’ comparable sales decreased 3%, mainly impacted by supply chain shortages. The Adjusted EBITA margin increased to 21.6%, mainly driven by productivity measures. For the full year, the Personal Health businesses delivered 9% comparable sales growth and an increased Adjusted EBITA margin of 17.6%.

Philips’ ongoing focus on innovation and partnerships resulted in the following key developments in the quarter and the year:

• In 2021, Philips’ products and solutions improved the lives of 1.7 billion people, including 167 million people in underserved communities. In addition, Philips was again recognized for its leading sustainability performance in the 2021 Dow Jones Sustainability Indices and CDP's Climate Change A-list.
• Philips signed 35 new long-term strategic partnerships in North America, Europe and Asia, including a 10-year agreement with a large integrated healthcare system in the US for advanced patient monitoring and enterprise imaging solutions, as well as analytics and services to enhance operational outcomes and performance.
• Philips further expanded its leading image-guide therapy portfolio through the acquisition of Vesper Medical, adding a venous stenting solution to address the root cause of chronic deep venous disease and enhance patient care. This will complement Philips’ strong IVUS offering in venous imaging and expand the company’s growth in the vascular therapy market.
• Building on the ambulatory cardiac diagnostics and monitoring solutions resulting from the BioTelemetry acquisition, Philips acquired Cardiologs, adding a vendor-neutral heart disorder screener and ECG analysis applications based on machine learning algorithms. This technology will accelerate diagnostic reporting and streamline clinician workflow and patient care.
• Philips has provided The First Affiliated Hospital of Zhengzhou University – one of the biggest hospitals in the world, with more than 10,000 beds – with a range of advanced diagnostic imaging and image-guided therapy systems, including IQon Spectral CT and the Azurion image-guided therapy platform.
• Expanding Philips’ unique helium-free operating MR imaging portfolio, the company received FDA clearance for its new MR 5300 system. Powered by AI, the MR 5300 simplifies and automates complex clinical and operational tasks for imaging departments to help accelerate workflows and improve access to affordable, quality care.
• Further expanding the company’s comprehensive CT portfolio, Philips introduced the new CT 5100 Incisive with CT Smart Workflow, comprising AI-enabled capabilities designed to accelerate workflows, enhance diagnostic confidence, and maximize system up-time.
• Highlighting the company’s leading position in high-acuity care settings, Philips received FDA clearance for the IntelliVue MX750 and MX850 patient monitors, which are uniquely designed to support scalability, alarm management, cybersecurity, and enhanced infection prevention within the hospital.
• Philips completed the successful roll-out of the Sonicare 9900 Prestige in North America, China, Europe, Middle East and Asia Pacific. The premium electric toothbrush finished #1 in the Stiftung Warentest, Europe’s leading consumer organization. Philips further expanded its oral healthcare portfolio with the launch of innovative interdental cleaning devices in North America, China and Asia Pacific.

Capital allocation

In the fourth quarter, Philips completed the EUR 1.5 billion share repurchase program for capital reduction purposes that was initiated in the first quarter of 2019. Under the share buyback program that was announced on July 26, 2021, Philips acquired a total of approximately 21.8 million shares in the fourth quarter and in January 2022 through open market purchases. In previous quarters, Philips had already entered into a number of forward transactions with settlement dates in 2022, 2023 and 2024.

Philips completed the cancellation of 33.5 million of its shares that were acquired under both repurchase programs. Further details on Philips’ current repurchase program and previous programs can be found here.

Philips Respironics field action

As announced on January 12, 2022, Philips Respironics is increasing the field action provision by EUR 220 million, mainly due to the higher volume of registered devices eligible for remediation, following the comprehensive customer and patient outreach program in the fourth quarter, and increased supply costs.

Philips Respironics has submitted a comprehensive response and action plan in connection with the November 2021 Form-483 to the FDA, which are being evaluated. Philips Respironics continues to engage with the FDA and other relevant competent authorities.

In December 2021, Philips provided an update on the VOC test results to date for the first-generation DreamStation devices. The results indicate that the VOC concentrations are within safe exposure limits specified in the applicable safety standard (ISO 18562). Comprehensive particulate testing and analyses are expected to be completed in the second quarter of 2022.

To date, Philips Respironics has produced a total of approximately 1.5 million repair kits and replacement devices – of which approximately 750,000 have reached customers – and aims to complete the repair and replacement program in the fourth quarter of 2022.

As previously disclosed, in relation to the affected devices, Philips Respironics is a defendant in several class-action lawsuits and individual personal injury claims. Given the uncertain nature and timing of the relevant events and potential associated obligations, if any, the company is unable to reliably estimate the financial effect of these matters.

Cost savings

Gross cost savings amounted to EUR 91 million in the fourth quarter, and EUR 398 million for the full year 2021. After deducting cost increases related to increases in supply costs, net savings amounted to EUR 19 million in the fourth quarter, and EUR 279 million for the full year.

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.

• Comparable sales declined by 10% due to headwinds caused by global supply chain challenges, postponement of equipment installations in hospitals, and consequences of the Respironics field action. Comparable sales in the Diagnosis & Treatment businesses were in line with Q4 2020, while there was a double-digit comparable sales decline in the Connected Care businesses and a low-single-digit comparable sales decline in the Personal Health businesses.
• Comparable order intake increased by 4%, with double-digit growth in the Diagnosis & Treatment businesses, which was partly offset by a double-digit decline in the Connected Care businesses. 
• Adjusted EBITA was EUR 647 million and the margin amounted to 13.1%, due to the decline in sales and the impact of supply chain headwinds, partly offset by productivity measures.
• Restructuring, acquisition-related and other charges amounted to EUR 417 million, compared to EUR 122 million in Q4 2020. Q4 2021 includes an addition to a field action provision of EUR 220 million, restructuring charges of EUR 29 million, acquisition-related charges of EUR 20 million offset by a EUR 23 million gain related to the re-measurement of contingent consideration liabilities, and provisions for quality actions of EUR 74 million and other matters of EUR 40 million in the Connected Care businesses.
• Financial income and expenses resulted in an expense of EUR 21 million, compared to an expense of EUR 19 million in Q4 2020. Q4 2021 includes gains on the value of Philips' minority participations.
• Income tax decreased by EUR 132 million year-on-year, mainly due to lower income and other tax benefits as a result of a business transfer.
• Net income decreased by EUR 456 million, mainly due to lower operational earnings and the addition to the field action provision, which was partly offset by lower income tax.

Amounts may not add up due to rounding

• Comparable sales declined across all geographic clusters, which was mainly due to headwinds caused by global supply chain challenges, postponement of equipment installations in hospitals, and consequences of the Respironics field action. 

• Net cash flows from operating activities amounted to EUR 720 million, mainly due to increased working capital, partly offset by lower income tax paid.
• Treasury shares transactions includes share repurchases for capital reduction purposes and for Long-Term Incentive and employee stock purchase plans.
• Net cash flows from discontinued operations includes the tax payments on the sale of the Domestic Appliances business.

Diagnosis & Treatment businesses

• Comparable sales were in line with Q4 2020, with double-digit growth in Image-Guided Therapy, which was partly offset by a decline in Ultrasound and in Diagnostic Imaging. All businesses were impacted by supply chain shortages.
• Comparable sales in mature geographies showed low-single-digit growth, while growth geographies recorded a low-single-digit decline.
• Adjusted EBITA was EUR 325 million and the margin amounted to 13.0%, mainly due to the impact of supply chain headwinds.
• Restructuring, acquisition-related and other charges amounted to a gain of EUR 15 million, compared to charges of EUR 28 million in Q4 2020. Q4 2021 includes acquisition-related charges of EUR 10 million, offset by a EUR 26 million gain related to the re-measurement of contingent consideration liabilities. In Q1 2022, restructuring, acquisition-related and other charges are expected to total approximately EUR 25 million.

Connected Care businesses

• Comparable sales declined by 32%, following the high COVID-19-generated demand in Q4 2020, and the impact of the Respironics field action. Sales were also impacted by supply chain shortages.
• Comparable sales in growth and mature geographies showed a double-digit decline for the reasons mentioned above.
• Adjusted EBITA was EUR 141 million and the margin amounted to 11.7%, mainly due to the decline in sales.
• Restructuring, acquisition-related and other charges were EUR 420 million, compared to EUR 32 million in Q4 2020. Q4 2021 includes an addition to a field action provision of EUR 220 million, EUR 47 million of restructuring and acquisition-related charges, and provisions for quality actions of EUR 74 million and other matters of EUR 40 million. In Q1 2022, restructuring, acquisition-related and other charges are expected to total approximately EUR 65 million.

Personal Health businesses

• Comparable sales declined by 3%, mainly due to supply chain shortages. 
• Comparable sales in growth geographies were in line with Q4 2020, while mature geographies recorded a mid-single-digit decline.
• Adjusted EBITA was EUR 226 million and the margin amounted to 21.6%, mainly due to productivity measures.

Other

• Sales increased by EUR 46 million, mainly driven by supplies to a divested business, partly offset by lower royalty income.
• The decrease in Adjusted EBITA mainly relates to lower royalty income and investments, mainly in IT and Quality & Regulatory.
• Restructuring, acquisition-related and other charges amounted to EUR 14 million, compared to EUR 59 million in Q4 2020. In Q1 2022, restructuring, acquisition-related and other charges are expected to total approximately EUR 25 million.

A proposal will be submitted to the Annual General Meeting of Shareholders, to be held on May 10, 2022, to declare a distribution of EUR 0.85 per common share, in cash or shares at the option of the shareholder, against the net income of 2021.

If the above dividend proposal is adopted, the shares will be traded ex-dividend as of May 12, 2022 at the New York Stock Exchange and Euronext Amsterdam. In compliance with the listing requirements of the New York Stock Exchange and Euronext Amsterdam, the dividend record date will be May 13, 2022.

Shareholders will be given the opportunity to make their choice between cash and shares between May 16 and June 3, 2022. If no choice is made during this election period, the dividend will be paid in cash. The number of share dividend rights entitled to one new common share will be determined based on the volume-weighted average price of all traded common shares Koninklijke Philips N.V. at Euronext Amsterdam on June 1, 2 and 3, 2022. The company will calculate the number of share dividend rights entitled to one new common share (the ratio), such that the gross dividend in shares will be approximately equal to the gross dividend in cash. The ratio and the number of shares to be issued will be announced on June 7, 2022. Payment of the dividend (up to EUR 744 million) and delivery of new common shares, with settlement of fractions in cash, if required, will take place from June 8, 2022.

Further details will be given in the agenda with explanatory notes for the 2022 Annual General Meeting of Shareholders. All dates mentioned remain provisional until then.

• Comparable sales declined by 1%, with high-single-digit growth in the Personal Health businesses and Diagnosis & Treatment businesses, which was more than offset by a decline in the Connected Care businesses, following the high COVID-19-generated demand in 2020 and the consequences of the Respironics field action.
• Comparable order intake increased by 4%, with double-digit growth in the Diagnosis & Treatment businesses, which was partly offset by a double-digit decline in the Connected Care businesses following the high COVID-19-generated demand in 2020.
• Adjusted EBITA was EUR 2,054 million and the margin amounted to 12.0%, due to a decline in sales and the impact of supply chain headwinds, partly offset by productivity measures.
• Amortization of acquired intangible assets includes an impairment of EUR 55 million related to technology assets.
• Restructuring, acquisition-related and other charges amounted to EUR 1,164 million, compared to EUR 494 million in 2020. 2021 includes a field action provision of EUR 719 million, a loss of EUR 76 million related to a divestment, restructuring charges of EUR 80 million, acquisition-related charges of EUR 102 million partly offset by a EUR 87 million gain related to the re-measurement of contingent consideration liabilities, provisions for quality actions of EUR 94 million and other matters of EUR 53 million in the Connected Care businesses, and separation costs of EUR 64 million related to the Domestic Appliances business. 2021 also includes a favorable result in legal matters of EUR 38 million, a gain of EUR 33 million related to a minority participation, and a benefit from the re-measurement of environmental liabilities of EUR 22 million.
• Financial income and expenses resulted in an expense of EUR 39 million, compared to an expense of EUR 44 million in 2020. 2021 includes gains on the value of Philips' minority participations and higher net interest income.
• Income tax decreased by EUR 315 million year-on-year, mainly due to lower income, as well as the impact from the recognition of tax assets and other tax benefits as a result of a business transfer.
• Net income from discontinued operations increased by EUR 2,515 million year-on-year, mainly driven by the result on the sale of the Domestic Appliances business.
• Net income increased by EUR 2,128 million, mainly driven by the result on the sale of the Domestic Appliances business, partly offset by the EUR 719 million field action provision.

• Net cash flows from operating activities amounted to EUR 1,629 million, mainly due to increased working capital and consumption of provisions, partly offset by lower income tax paid.
• Other cash flows from investing activities mainly includes transactions related to the acquisitions of BioTelemetry and Capsule Technologies amounting to EUR 2.8 billion.
• 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 lease repayments, whereas 2020 mainly included the net proceeds related to bonds issued, partly offset by lease repayments.
• Dividend paid to shareholders includes a EUR 409 million cash dividend, whereas in 2020 the dividend was fully distributed in shares.
• Net cash flows from discontinued operations includes the net cash proceeds after tax on the sale of the Domestic Appliances business.

• Comparable sales growth was 8%, with double-digit growth in Image-Guided Therapy and mid-single-digit growth in Diagnostic Imaging and Ultrasound.
• Comparable sales in mature geographies showed high-single-digit growth, driven by double-digit growth in North America and high-single-digit growth in Western Europe. Growth geographies recorded high-single-digit growth, driven by double-digit growth in Latin America and India and mid-single-digit growth in China.
• Adjusted EBITA was EUR 1,071 million and the margin amounted to 12.4%, mainly driven by sales growth and productivity measures.
• Amortization of acquired intangible assets includes an impairment of EUR 55 million related to technology assets.
• Restructuring, acquisition-related and other charges amounted to a gain of EUR 25 million, compared to charges of EUR 112 million in 2020. 2021 includes restructuring charges of EUR 44 million, acquisition-related charges of EUR 48 million offset by a EUR 85 million gain related to the re-measurement of contingent consideration liabilities, and a favorable result in legal matters of EUR 38 million.

• Comparable sales declined by 23%, following the high COVID-19-generated demand in Q4 2020 and the impact of the Respironics field action in 2021.
• Comparable sales in growth and mature geographies showed a double-digit decline, for the reasons mentioned above. 
• Adjusted EBITA was EUR 488 million and the margin amounted to 10.6%, mainly due to the decline in sales and the impact in the Sleep & Respiratory Care business.
• Restructuring, acquisition-related and other charges were EUR 1,058 million, compared to EUR 209 million in 2020. 2021 includes a field action provision of EUR 719 million, EUR 93 million of restructuring and acquisition-related charges, provisions for quality actions of EUR 94 million and other matters of EUR 53 million, and a gain of EUR 33 million related to a minority participation.

• Comparable sales growth was 9%, with double-digit growth in Personal Care and Mother & Child Care and mid-single-digit growth in Oral Healthcare. 
• Comparable sales in mature geographies showed mid-single-digit growth, driven by mid-single-digit growth in North America and Western Europe. Growth geographies recorded double-digit growth, driven by double-digit growth in Central & Eastern Europe, Russia & Central Asia and Latin America and mid-single-digit growth in China.
• Adjusted EBITA was EUR 599 million and the margin amounted to 17.6%, mainly driven by sales growth and productivity measures, partly offset by higher investments in advertising & promotion.
• Restructuring, acquisition-related and other charges were not material, compared to EUR 55 million in 2020.

• Sales increased by EUR 123 million, mainly driven by supplies to a divested business and higher royalty income.
• Adjusted EBITA increased by EUR 60 million, mainly due to higher royalty income and lower charges related to environmental provisions, partly offset by investments, mainly in IT and Quality & Regulatory.
• Restructuring, acquisition-related and other charges amounted to EUR 131 million, compared to EUR 118 million in 2020. 2021 includes a loss of EUR 76 million related to a divestment and EUR 64 million of separation costs related to the Domestic Appliances business, partly offset by a benefit from the re-measurement of environmental liabilities of EUR 22 million.