Q2 2021results

CEO message

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Message from the CEO

“We have mobilized the necessary resources across the company to address the component quality issue in certain of our sleep and respiratory care products. We fully understand the impact that this is having on patients, as their well-being is at the heart of everything we do at Philips. We are in discussions with the relevant regulatory authorities to obtain authorization to start deploying the repair kits and replacement devices that we are producing.

I am pleased with the good performance momentum in all our businesses except the Sleep & Respiratory Care business, as we delivered a strong 9% comparable sales growth and 280 basis points profitability improvement for the Group in the quarter. I am particularly encouraged by the 29% order intake growth in our Diagnosis & Treatment businesses, as well as the strong growth of our Personal Health businesses.

In the quarter, we introduced exciting innovations, such as the new Spectral CT 7500 to help improve disease characterization and reduce rescans and follow-ups. The integration of BioTelemetry and Capsule Technologies is proceeding well, and our customers appreciate the expanded portfolio of end-to-end patient care management solutions from the hospital to the home. We entered 12 new long-term strategic partnerships, building on the strength of our portfolio and demonstrating the trust hospital leaders have in our ability to enhance health outcomes and lower the cost of care, while improving patient and staff experience.

Confident in our strategy and financial trajectory, we are launching a new share buyback program of EUR 1.5 billion in line with our balanced capital allocation policy.

Looking ahead, while we continue to see uncertainty related to the impact of COVID-19 across the world and electronic component shortages, our financial outlook remains within our guided range, with low-to-mid-single-digit comparable sales growth and an Adjusted EBITA margin improvement of 60 basis points expected for the Group in 2021.”

Frans van Houten
Chief Executive Officer

Our strategy

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Our strategic focus

Driven by purpose

At Philips, our purpose to improve people’s health and well-being through meaningful innovation is at the heart of everything we do. Never has this central tenet been more important than it is now, in these challenging times.

As a leading health technology company, we believe that innovation can improve people's health and healthcare outcomes, as well as making care more accessible and affordable. In concrete terms, we aim to improve the lives of 2 billion people a year by 2025, including 300 million in underserved communities, rising to 2.5 billion and 400 million respectively by 2030.

Guided by this purpose, it is our strategy to lead with innovative solutions that combine systems, smart devices, informatics and services, and leverage big data – helping our customers deliver on the Quadruple Aim (better health outcomes, improved patient experience, improved staff experience, lower cost of care) and helping people to take better care of their health at every stage of life.

We strive to deliver superior, long-term value to our customers and shareholders, while acting responsibly towards our planet and society, in partnership with our stakeholders.

We aim to grow Philips responsibly and sustainably. To this end, we have deployed a comprehensive set of commitments across all the Environmental, Social and Governance (ESG) dimensions that guide the execution of our strategy and support our contribution to UN Sustainable Development Goals 3 (Ensure healthy lives and promote well-being for all at all ages), 12 (Ensure sustainable consumption and production patterns) and 13 (Take urgent action to combat climate change and its impacts).

Our view on healthcare

Health technology is a large market, which is expected to grow by around 4% each year^{*^*Philips-defined 2020-2025 addressable markets, excluding the Domestic Appliances business}. Besides the natural drivers of growth – aging populations, the rise of chronic diseases, increased spending on healthcare in emerging markets – we believe that health technology will be a major growth driver in the years to come.

At Philips, we see healthcare as a continuum, since it puts people’s health journeys front and center and builds upon the idea of integrated care pathways. Believing that healthcare should, and can, be seamless, efficient and effective, we strive to ‘connect the dots’ for our customers and consumers, supporting the flow of data needed to care for people in real time, wherever they are.

Going forward, the digitalization of healthcare and – accelerated by COVID-19 – the more widespread adoption of telehealth will play an increasing role in helping people to live healthily and cope with disease, and in enabling care providers to meet people’s health needs, deliver better outcomes and improve productivity.

Helping our customers address their healthcare challenges

In the consumer domain, we develop innovative solutions that support healthier lifestyles, prevent disease, and help people to live well with chronic illness, also in the home and community settings.

In addition to leveraging retail trade partnerships and new business models, we are accelerating growth through online channels, delivering products and services direct to consumers, and supporting longer-term relationships to maximize the benefit consumers can derive from our solutions.

In clinics and hospitals, we are teaming up with healthcare providers to innovate and transform the way care is delivered. We listen closely to our customers’ needs and together we co-create solutions that help our customers improve outcomes, patient and staff experience and productivity, and so deliver on the Quadruple Aim of value-based care.

Increasingly, we are working together with our health systems customers in novel business models, including outcome-oriented payment models, that align their interests and ours in long-term partnerships. The combination of compelling solutions and consultative partnership contracts, including a broad range of professional services, drives growth rates above the group average, as well as a higher proportion of recurring revenues.

We are embedding AI and data science in our propositions – for instance, applying the power of predictive data analytics and artificial intelligence at the point of care – to leverage the value of data in the clinical and operational domains, aiding clinical decision making and improving the quality and efficiency of healthcare services.

With our global reach, market leadership positions, deep clinical and technological insights, and innovation capability, we are strongly placed to create further value in a changing healthcare world through our propositions in:

Personal Health

Delivering solutions that enable healthier lifestyles, personal hygiene and living with chronic disease.

Diagnosis & Treatment

Precision Diagnosis – providing smart, connected systems, optimized workflows, and integrated diagnostic insights, leading to clear care pathways and predictable outcomes
Image Guided Therapy – innovating minimally invasive procedures in a growing number of therapeutic areas, with significantly better outcomes and productivity

Connected Care

Driving better care management by seamlessly connecting patients and caregivers from the hospital to the home.

Our key strategic imperatives and value creation objectives

Our roadmap – with its three strategic imperatives – is our guide as we continue our transformation journey to attain HealthTech industry leadership and drive value creation.

Underpinned by these strategic imperatives, and assuming the world economy will return to growth in 2021, Philips’ targets for accelerated growth, higher profitability and improved cash flow for the 2021–2025 period are:

An acceleration of the average annual Group comparable sales growth^{**^**Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to **.} to 5-6%, with all business segments within this range. For 2021, Philips aims to deliver low-to-mid-single-digit Group comparable sales growth^{**^**Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to **.}, driven by solid growth in Diagnosis & Treatment and Personal Health, partly offset by lower Connected Care sales.
An average Adjusted EBITA^{**^**Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to **.} margin improvement of 60-80 basis-points annually over the 2021-2025 period, reaching high-teens for the Group. Diagnosis & Treatment is targeted to reach 15-17% Adjusted EBITA^{**^**Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to **.} margin by 2025, Connected Care 17-19%, and Personal Health 19-20%.
Free cash flow^{**^**Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to **.} above EUR 2 billion by 2025.
Organic Return on Invested Capital (ROIC)^{**^**Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to **.} of mid-to-high teens by 2025.

The new targets exclude the Domestic Appliances business. Following the agreement to sell the Domestic Appliances business to global investment firm Hillhouse Capital, this business is reported as a discontinued operation as of Q1 2021.

^*) Philips-defined 2020-2025 addressable markets, excluding the Domestic Appliances business
^**) Non-IFRS financial measure.

Business highlights

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Business highlights

Philips’ ongoing focus on innovation and partnerships resulted in the following highlights in the quarter.

Enhancing the delivery of critical care

In China, Philips signed a contract with Gansu Provincial Maternity and Child Care Hospital to streamline and advance the delivery of critical care across multiple departments of the hospital. Philips will provide its advanced critical care information system, patient monitoring solutions and diagnostic cardiology solutions.

Partnering with Elekta to advance cancer care

Building on their successful cooperation in MR-guided adaptive radiation therapy, Philips and Elekta deepened the partnership to advance personalized cancer care through precision oncology solutions to deliver more precise therapy, shorter treatment times, and lower cost of care.

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Further expanding our CT portfolio

Philips introduced the Spectral CT 7500 system, which delivers high-quality spectral images for a broad patient base, including cardiac, pediatric and bariatric patients, further expanding the company’s comprehensive CT portfolio, which comprises spectral and conventional CT systems, as well as radiation oncology CT systems, and advanced informatics and services.

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Innovative mobile interventional system

Philips launched IntraSight Mobile, which offers users in hospitals and office-based labs the integration, flexibility and affordability of a single mobile system for intravascular imaging, physiology measurements and co-registration for seamless workflows and enhanced patient care. Building on the success of IntraSight, the launch will further reinforce Philips’ leading position in image-guided therapy.

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Elevating the standard of care

Philips announced progress on several clinical studies including the positive two-year clinical study results for the Tack Endovascular System for dissection repair, the first patient enrollment in the DEFINE GPS multicenter study to further drive the adoption of iFR for percutaneous coronary interventions based on clinical evidence, and the start of the WE-TRUST multicenter stroke study to shorten treatment times by identifying, planning and treating ischemic stroke patients in the interventional suite. Moreover, Philips announced the first structural heart repair procedure at Mayo Clinic using its new 3D intracardiac echocardiography catheter VeriSight Pro.

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Enabling continuous patient monitoring

Philips introduced its integrated Interventional Hemodynamic System with the portable Patient Monitor IntelliVue X3, providing advanced vital signs measurements at the tableside in the interventional suite and continuous monitoring across care settings. Uninterrupted patient monitoring can help to improve clinical decision making and timely detection of potential adverse events at every stage.

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Technology improving oral health

The global launch of Philips’ most advanced electric toothbrush, the Sonicare 9900 Prestige, was well received, with an average 4.7 (out of 5) star rating by consumers. The premium electric toothbrush leverages AI to optimize the user’s brushing technique, ensuring full coverage of their teeth, and instills brushing habits that improve oral health.

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Innovative shaver launched in China

Expanding the company’s leading male grooming portfolio, Philips introduced the Shaver Series 9000 with SkinIQ technology in China. The premium shaver leverages AI and sensors to offer a personalized shave tailored to each unique skin and hair type. It will also be launched in North America and Europe in the second half of the year.

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Environmental, Social and Governance highlights

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Making the world healthier and more sustainable

In Q2 2021, we made further advances in the focal areas of access to care, circular economy and climate action, taking us closer to our goal of improving the lives of 2.5 billion people a year by 2030, including 400 million in underserved communities.

Our products and solutions improved the lives of 1.63 billion people worldwide in Q2 2021, an increase of 140 million lives year-on-year. Reflecting our efforts to expand access to care, this figure includes 157 million lives improved in underserved communities, compared to 122 million in Q2 2020.
Circular revenues amounted to 15.0% of sales, in line with Q2 2020.
Through our supplier sustainability engagement program we improved the lives of 370,000 workers in the supply chain, reducing the risk of injury in the workplace, improving labor conditions, and lowering the environmental impact of our supply partners’ operations.
Some 100 public health facilities in Kenya are live on a remote equipment monitoring solution from our Connected Primary Care solutions venture, as part of a project of Unicef and Philips Foundation to measure the impact of equipment availability and uptime.
The Krammer windfarm, from which the Dutch wind consortium (Nouryon, DSM, Google and Philips) source renewable electricity, has generated 1 Terawatt since it came into operation, thereby avoiding 450,000 tons of CO₂ – equivalent to the annual carbon sequestration of more than 13 million medium-sized oak trees.

Progress towards our goals

1.63

2.5

Lives improvedBased on Q2 2021 data

At Philips, we are striving to make the world healthier and more sustainable through innovation, with the goal of improving the lives of 2.5 billion people a year by 2030.

To ensure we remain on track to achieve this goal, we have developed a model, audited externally, that tells us how many lives have been improved by our products and solutions in a given year.

Download our methodology

157

400

Lives improved in underserved healthcare communitiesBased on Q2 2021 data

As part of our goal to improve the lives of 2.5 billion people a year by 2030, we have committed to improving access to care in underserved healthcare communities for 400 million people a year.

We are expanding access to care by:

working within an ecosystem of strong collaborators
driving digital and technological innovation across the health continuum
developing new business models
partnering to develop effective financing solutions.

Lives improved trend line

Lives improved

(in millions)

	Q2 2020	Q3 2020	Q4 2020	Q1 2021	Q2 2021
	1,488	1,512	1,529	1,620	1,628

Lives improved in underserved healthcare communities

(in millions)

	Q2 2020	Q3 2020	Q4 2020	Q1 2021	Q2 2021
	122	125	127	154	157

Sales from green products and solutions ¹

66%

100%

Sales from circular products and solutions

15%

25%

Operations powered by renewable electricity

100%

Circular materials management ²

86%

90%

Industrial sites sending zero waste to landfill

96%

100%

Reduction in water consumption from 2019 level

All data points refer to Q2 2021 continuing operations
¹We will design 100% of our products and services in line with EcoDesign requirements by 2025²Recycling, reuse and circular materials management of the total used materials

Sustainable use of materials and energy

Reflecting our commitment to SDG 12 (Sustainable consumption and production) and SDG 13 (Climate action), we have set specific targets – to be achieved by 2025 – to reduce our environmental impact and help fight climate change. Here you can see how we’re progressing towards our goals.

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Q2 2021 results

Amsterdam, July 26, 2021

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Key data

Sales

Philips Group

4,230million EUR

3,974million EUR in Q2 2020

6%Nominal growth

9%Comparable growth

Philips reporting segments

Diagnosis & Treatment

2,117million EUR

1,919million EUR in Q2 2020

10%Nominal growth

16%Comparable growth

Connected Care

1,182million EUR

1,324million EUR in Q2 2020

-11%Nominal growth

-16%Comparable growth