January 24, 2023
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, 2023, 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 2023, 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 2023. 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 2023, 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 2023, 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 2023, 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 2023, 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 2023 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, 2023, Philips acquired a total of approximately 21.8 million shares in the fourth quarter and in January 2023 through open market purchases. In previous quarters, Philips had already entered into a number of forward transactions with settlement dates in 2023, 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, 2023, 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 2023 Form-483 to the FDA, which are being evaluated. Philips Respironics continues to engage with the FDA and other relevant competent authorities.
In December 2023, 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 2023.
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 2023.
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 2023. 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.
Click here to view the release online
For further information, please contact:
Ben Zwirs
Philips Global Press Office
Tel.: +31 6 1521 3446
E-mail: [email protected]
Derya Guzel
Philips Investor Relations
Tel.: +31 20 59 77055
E-mail: [email protected]
About Royal Philips
Royal Philips (NYSE: PHG, AEX: PHIA) is a leading health technology company focused on improving people’s health and well-being, and enabling better outcomes across the health continuum – from healthy living and prevention, to diagnosis, treatment and home care. Philips leverages advanced technology and deep clinical and consumer insights to deliver integrated solutions. Headquartered in the Netherlands, the company is a leader in diagnostic imaging, image-guided therapy, patient monitoring and health informatics, as well as in consumer health and home care. Philips generated 2023 sales of EUR 17.2 billion and employs approximately 78,000 employees with sales and services in more than 100 countries. News about Philips can be found at www.philips.com/newscenter.
Forward-looking statements and other important information
Forward-looking statements
This document and the related oral presentation, including responses to questions following the presentation, contain certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forward-looking statements include: statements made about our strategy; estimates of sales growth; future Adjusted EBITA; future restructuring and acquisition-related charges and other costs; future developments in Philips’ organic business; and the completion of acquisitions and divestments. 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, political and societal changes; Philips’ increasing focus on health technology and solutions; the successful completion of divestments; the realization of Philips’ objectives in growth geographies; business plans and integration of acquisitions; securing and maintaining Philips’ intellectual property rights, and unauthorized use of third-party intellectual property rights; COVID-19 and other pandemics; breaches of cybersecurity; IT system changes or failures; the effectiveness of our supply chain; challenges to drive operational excellence, productivity and speed in bringing innovations to market; attracting and retaining personnel; future trade arrangements following Brexit; compliance with regulations and standards, including quality, product safety and data privacy; compliance with 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 2020.
Philips has recognized a provision related to the voluntary recall notification in the US/field safety notice outside the US for certain sleep and respiratory care products, based on Philips’ best estimate for the expected field actions. The future developments are subject to significant uncertainties, which require management to make estimates and assumptions about items such as quantities, costs to repair or replace, and duration. Actual outcomes in future periods may differ from these estimates and affect the company’s results of operations, financial position and cash flows.
Third-party market share data
Statements regarding market share, contained in this document, including those regarding Philips’ competitive position, are based on outside sources such as specialized research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, market share statements may also be based on estimates and projections prepared by management and/or based on outside sources of information. Management’s estimates of rankings are based on order intake or sales, depending on the business.
Market Abuse Regulation
This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.
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 2020.
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 2020. 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 accounting policies as stated in the Annual Report 2020 except for the adoption of new standards and amendments to standards which are also expected to be reflected in the company’s consolidated IFRS financial statements as at and for the year ending December 31, 2023.
On September 1, 2023, Philips completed the sale of the Domestic Appliances business. The results of this transaction, which Philips announced on March 25, 2023, are presented under Discontinued Operations in this report. Comparative results have been restated to reflect the treatment of the Domestic Appliances business as a discontinued operation since Q1 2023. Further details of the restatement have been published on the Philips Investor Relations website and can be accessed here.
Prior-period amounts have been reclassified to conform to the current-period presentation; this includes immaterial organizational changes.
