Philips' Third-Quarter Results 2023

Philips delivers strong sales growth, profitability and cash flow; raises full-year outlook

Oct 23, 2023 | 6 minute read

Third-quarter highlights

Group sales increased 11% on a comparable basis to EUR 4.5 billion
Income from operations at EUR 224 million, compared to a loss of EUR 1,529 million in Q3 2022
Adjusted EBITA increased to EUR 457 million, or 10.2% of sales, compared to EUR 209 million, or 4.8% of sales, in Q3 2022
Comparable order intake was -9% compared to Q3 2022; order book remains strong
Operating cash flow improved to EUR 489 million, compared to an outflow of EUR 180 million in Q3 2022
Restructuring and productivity plans on track with total savings of EUR 258 million in the quarter
Outlook for full-year 2023 raised to 6-7% comparable sales growth and an Adjusted EBITA margin of 10-11%

Roy Jakobs, CEO of Royal Philips:

“Our improved operational performance was driven by our focus on execution to enhance patient safety and quality, strengthen our supply chain reliability and establish a simplified operating model.

The order book remains strong, and we are taking the necessary actions to improve order intake by shortening lead times from order to delivery and building on the positive impact we are making with our innovations, for example in predictive data analytics and artificial intelligence across our portfolio, to help improve the quality and efficiency of care delivery.

Completing the Philips Respironics recall remains our highest priority, with the remediation of the sleep therapy devices almost complete and remediation of the ventilators ongoing.

Based on our improved performance, we are further raising the outlook for both sales and profitability for the full year 2023, although recognizing uncertainties remain in an increasingly volatile geopolitical environment. The progress we are making reinforces our confidence in delivering on the three-year plan to create value with sustainable impact.”

Group and segment performance

Sales for the Group increased 11% on a comparable basis to EUR 4.5 billion, driven by growth in all segments and geographies. Adjusted EBITA increased to EUR 457 million, or 10.2% of sales, mainly driven by increased sales, pricing and productivity measures. Operating cash flow and free cash flow increased to EUR 489 million and EUR 333 million respectively in the quarter, driven by higher earnings and improved working capital management.

Comparable order intake (the order book covers around 40% of Group sales) was 9% lower than in Q3 2022. This was mainly due to a high comparison base related to the exceptionally high levels in 2021, lower orders in China, and longer order lead times. The necessary actions are being implemented to enhance supply chain reliability, reduce order lead times, and leverage our innovations to improve comparable order intake. The order book remains around 20% higher than in the period before the global supply chain challenges and will continue to support growth.

Diagnosis & Treatment comparable sales increased 14% in the quarter, with double-digit growth in all businesses. The Adjusted EBITA margin increased to 12.7% from 10.4% in Q3 2022, mainly driven by increased sales, pricing and productivity measures. Comparable order intake was double-digit lower than in Q3 2022 due to long order lead times, a high comparison base related to the high order intake in Q3 2022, and lower orders in China.

Connected Care comparable sales increased 10% in the quarter, with double-digit growth in Monitoring and mid-single-digit growth in Enterprise Informatics. The Adjusted EBITA margin improved to 3.7% compared to -7.5% in Q3 2022, mainly driven by increased sales and productivity measures. Connected Care comparable order intake was mid-single-digit lower than in Q3 2022 due to a high comparison base in Hospital Patient Monitoring related to the expansion and renewal of the installed base in the last few years.

Personal Health delivered quarter-on-quarter performance improvement, with comparable sales increasing by 7%, driven by high- single-digit growth in Personal Care and Oral Healthcare. The Adjusted EBITA margin increased to 18.7%, compared to 14.1% in Q3 2022, due to increased sales, pricing and productivity measures.

Productivity

Supported by significant change management efforts, to date Philips has reduced the workforce by around 7,500 roles, out of 10,000 roles in total planned by 2025. Operating model productivity savings amounted to EUR 142 million in the quarter. Procurement savings amounted to EUR 59 million, and other productivity programs delivered savings of EUR 57 million, resulting in total savings of EUR 258 million in the quarter.

Outlook

Based on Philips’ improved performance year-to-date, the strong order book, and the ongoing actions, the company is further raising the outlook for the full year 2023, although recognizing uncertainties remain in an increasingly volatile geopolitical environment. Philips now expects to deliver 6-7% comparable sales growth and an Adjusted EBITA margin of 10-11% for the full year 2023, with free cash flow at the upper end of the target range of EUR 0.7-0.9 billion. This reinforces Philips’ confidence in delivering on its three-year plan to create value with sustainable impact.

Image-guided therapy innovation supporting care delivery

Customer, innovation and ESG highlights

Philips signed a 10-year, EUR 100 million Enterprise Monitoring as a Service agreement with one of the largest health systems in the US, covering 20 hospitals with over 3,000 beds. The agreement provides the health system with constant access to the latest technology, including software and services, while lowering initial investments.
Philips launched its new Image Guided Therapy Mobile C-arm System 3000. Its workflow-enhancing features and excellent image quality enable surgeons to deliver enhanced care to more patients, helping alleviate the staff shortages faced by many hospitals.
Philips launched its ambulatory monitoring offering in Japan, combining Philips ePatch Holter monitors with ECG analysis through AI and advanced algorithms. This innovative approach aims to reduce clinician workload and improve the patient experience.
Leveraging its leadership in driving sustainable healthcare, Philips completed a hospital-wide joint action plan for Tampere Heart Hospital in Finland to decarbonize its clinical operations. Following similar action plans at Vanderbilt University Medical Center and Champalimaud Foundation, Philips co-developed a roadmap to reduce carbon emissions in patient throughput, technology use, and use of consumables.
Philips successfully launched the Sonicare DiamondClean 7900 Series electric toothbrush in China on major online shopping channels Alibaba and JD.com. Highlighting increasing customer demand, it claimed the number-one position in the high-end toothbrush category on Alibaba’s Tmall.

Philips Respironics field action for specific sleep therapy and ventilator devices

Globally, over 99% of the sleep therapy device registrations that are complete and actionable have been remediated, while the remediation of the ventilator devices remains ongoing.

Based on the test results to date, Philips Respironics and third-party experts concluded that use of the sleep therapy devices is not expected to result in appreciable harm to health in patients. Following ongoing communications with the FDA, Philips Respironics has agreed with the agency to implement additional testing to supplement current test data.

In October 2023, Philips Respironics received preliminary court approval for the settlement agreement to resolve all economic loss claims in the US Multidistrict Litigation (MDL) related to the recall, for which Philips had recorded a provision of EUR 575 million in Q1 2023. The settlement does not include or constitute any admission of liability, wrongdoing, or fault by any of the Philips parties.

The previously disclosed litigation, including the personal injury and medical monitoring claims, and investigation by the US Department of Justice related to the Respironics field action are ongoing, as are the discussions on a proposed consent decree.

Capital allocation

In the third quarter, Philips issued EUR 500 million fixed-rate notes due 2031 under its European Medium Term Note (EMTN) program. The issue of the notes further strengthened the debt maturity profile and had a debt-neutral effect. See here for more information on Philips' current debt structure.

During the quarter, Philips settled a number of forward purchase transactions entered into under its EUR 1.5 billion share buyback program for capital reduction purposes announced on July 26, 2021, thereby acquiring a total of 4.2 million shares for a total amount of approximately EUR 154 million. Following further settlements in Q4 2023, Philips intends to cancel approximately 15.1 million shares acquired and to be acquired under this program, before year-end. See here for more information on the share buyback program.

Philips Q3 2023 results downloads

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Conference call and audio webcast

Roy Jakobs, 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 webcast of the conference call will be available on the Philips Investor Relations website and can be accessed here.

More information about Roy Jakobs and Abhijit Bhattacharya

Click here for Mr. Jakobs' CV and images
Click here for Mr. Bhattacharya's CV and images

About Royal Philips

About Royal Philips

Royal Philips (NYSE: PHG, AEX: PHIA) is a leading health technology company focused on improving people's health and well-being through meaningful innovation. Philips’ patient- and people-centric innovation leverages advanced technology and deep clinical and consumer insights to deliver personal health solutions for consumers and professional health solutions for healthcare providers and their patients in the hospital and the home.

Headquartered in the Netherlands, the company is a leader in diagnostic imaging, ultrasound, image-guided therapy, monitoring and enterprise informatics, as well as in personal health. Philips generated 2023 sales of EUR 18.2 billion and employs approximately 68,700 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 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. Forward-looking statements can be identified generally as those containing words such as “anticipates”, “assumes”, “believes”, “estimates”, “expects”, “should”, “will”, “will likely result”, “forecast”, “outlook”, “projects”, “may” or similar expressions. 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: Philips’ ability to gain leadership in health informatics in response to developments in the health technology industry; Philips’ ability to transform its business model to health technology solutions and services; macroeconomic and geopolitical changes; integration of acquisitions and their delivery on business plans and value creation expectations; securing and maintaining Philips’ intellectual property rights, and unauthorized use of third-party intellectual property rights; Philips’ ability to meet expectations with respect to ESG-related matters; failure of products and services to meet quality or security standards, adversely affecting patient safety and customer operations; breaches of cybersecurity; challenges in connection with Philips’ strategy to improve execution and other business performance initiatives; the resilience of our supply chain; attracting and retaining personnel; challenges to drive operational excellence and speed in bringing innovations to market; compliance with regulations and standards including quality, product safety and (cyber) security; compliance with business conduct rules and regulations including privacy and upcoming ESG disclosure and due diligence requirements; treasury and financing risks; tax risks; reliability of internal controls, financial reporting and management process; global inflation. 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 2022. Reference is also made to section Risk management in the Philips semi-annual report 2023.

Israel

The risk factors discussed in Philips’ Annual Report 2022 (section 6.3) include the strategic risk that the company’s global operations are exposed to geopolitical and macroeconomic changes. The current situation in Israel further increases economic and political uncertainty and may affect the company’s results of operations, financial position and cash flows. Philips is present in Israel with several subsidiaries, mainly in Diagnosis & Treatment and Connected Care, that are primarily involved in manufacturing and research and development (R&D) activities. Please refer to our 2022 Country Activity and Tax Report (p. 37) for further information on our activities in Israel.

Respironics

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.
Future developments are subject to significant uncertainties, which require management to make estimates and assumptions, about items such as quantities and the portion to be replaced or repaired. Actual outcomes in future periods may differ from these estimates and affect the company’s results of operations, financial position and cash flows. Furthermore, Philips is a defendant in several class-action lawsuits and individual personal injury claims, and is in ongoing discussions with the FDA regarding a proposed consent decree. Given the uncertain nature of the relevant events, and of their potential financial and operational impact and associated obligations, if any, the company has not made any provisions in the accounts for these matters, except for the following. In the first quarter of 2023, Philips Respironics recorded a provision in connection with an anticipated resolution of the economic loss class action pending in the US. The provision is subject to final court approval of the negotiated settlement agreement and is based on Philips’ best estimate for the expected settlement amounts, which is, in part, based on the expected number of claims ultimately filed pursuant the settlement once it is approved.
Actual outcomes in future periods of the above matters may differ from these estimates and affect the company’s results of operations, financial positions 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. This press release was distributed at 07:00 am CET on October 23, 2023.

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 2022.

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 2022. Prior-period amounts have been reclassified to conform to the current-period presentation.

Philips has realigned the composition of its reporting segments effective from April 1, 2023. The most notable change is the shift of the previous Enterprise Diagnostic Informatics business from the Diagnosis & Treatment segment to the Connected Care segment. This business, together with other informatics solutions in the Connected Care segment, now forms the Enterprise Informatics business. Accordingly, the comparative figures for the affected segments have been restated. The restatement has been published on the Philips Investor Relations website and can be accessed here.

Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for the share dividend in respect of 2022.

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