Q3 2020results

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Message from the CEO

“It is clear that the COVID-19 pandemic is far from over, and our teams remain fully focused on delivering against our triple duty of care: meeting critical customer needs, safeguarding the health and safety of our employees, and ensuring business continuity.

I am pleased that, under challenging circumstances, we have been able to execute our plans and return to growth and improved profitability for the Group in the third quarter. Driven by the successful conversion of the Connected Care order book for patient monitors and ventilators, and a robust rebound of demand for our Personal Health portfolio, Philips recorded a strong 10% comparable sales growth and delivered an Adjusted EBITA margin improvement of 300 basis points to 15.4%.

The Connected Care businesses delivered a very strong 42% comparable sales growth, and our Personal Health businesses delivered a healthy 6% comparable sales growth. I am encouraged by the performance improvement of our Diagnosis & Treatment businesses to a low-single-digit comparable sales decline from a high-single-digit decline in the previous quarter.

In August, we provided the update that Philips’ April 2020 hospital ventilator contract with the Department of Health and Human Services (HHS) had been unexpectedly partially terminated. As a result, we recorded a comparable order intake decline for the Group of 18%. Excluding this partial termination, comparable order intake grew 3%, further building on the solid growth in the previous quarters.

The work we are doing to support healthcare providers and medical staff with the provision of both COVID-19 and regular care remains a top priority for all of us at Philips. In close collaboration with our suppliers and partners, we have steeply ramped up the production volumes of products and solutions to help diagnose, treat, monitor and manage COVID-19 patients. We introduced a new Rapid Equipment Deployment Kit for ICU ramp-ups, allowing hospital staff to quickly deploy patient monitoring capabilities when additional critical care capacity is needed. To enhance patient care and improve care provider productivity, Philips entered into 11 long-term strategic partnerships with hospitals in the US, Europe and Asia. We announced a new multi-year partnership with Tampa General Hospital, one of the largest hospitals in the US, to replace all of its patient monitors and upgrade key imaging technologies in the catheterization laboratories and interventional radiology rooms. We will also provide this hospital with unique workflow solutions and operational performance management services.

Looking ahead, we continue to see uncertainty and volatility related to the impact of COVID-19 across the world, but our order book remains solid. For the full year 2020, we continue to expect to deliver modest comparable sales growth, with an Adjusted EBITA margin of around the level of last year.”

Frans van Houten
Chief Executive Officer

Our strategic focus

Innovating with purpose

As a company striving for leadership in health technology, we believe that innovation can improve people's health and healthcare outcomes, as well as making care more accessible and affordable. At Philips, it is our goal to improve the lives of 2.5 billion people a year by 2030, including 400 million in underserved healthcare communities. Guided by our vision of making the world healthier and more sustainable through innovation, it is our strategy to lead with innovative solutions in key markets along the health continuum – helping our customers deliver on the Quadruple Aim (better health outcomes, a better experience for patients and staff, lower cost of care) and helping people take better care of their health at every stage of life.

We seek to act responsibly and sustainably, leveraging our resources to maximize value creation for all stakeholders. Reflecting our commitment 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), we continue to embed sustainability deeper in the way we do business, with specific focus on access to care, circular economy and climate action.

LumifyDreamwear

How we see healthcare

We visualize healthcare as a continuum, since it puts people at the center and builds on the notion of care pathways. Believing that healthcare should be seamless, efficient and effective, we ‘join up the dots’ for our customers and consumers, supporting the flow of data needed to care for people in real time, wherever they are. Data and informatics will play an ever-increasing role in helping people to live healthily and cope with disease, and in enabling care providers to meet people’s needs, deliver better outcomes and improve productivity.

We see significant value in integrated healthcare, applying the power of predictive data analytics and artificial intelligence at the point of care, while at the same time improving the delivery of care across the health continuum – optimizing workflows, enhancing capacity utilization and leveraging primary and secondary prevention and population health management programs.

Roadmap to win

Addressing our customers’ healthcare challenges

For consumers, we develop connected solutions that support healthier lifestyles, prevent or treat disease, and help people to live well with chronic illness, also in the home and community settings. As well as leveraging retail trade models, we will increasingly deliver products and services direct to consumers, supporting longer-term relationships to maximize the benefit consumers can derive from our solutions.

In hospitals, we are teaming up with healthcare providers in long-term strategic partnerships to innovate and transform the way care is delivered. We listen closely to our customers’ needs and together we co-create solutions – packaged combinations of systems, smart devices, software and services, as well as consumables – that help our customers to deliver on the Quadruple Aim of value-based care.

SonicareTelehealth eICUDiagnostic Imaging

More and more, we are partnering with our customers in new business models, no longer selling products in a transactional manner but engaging in long-term strategic partnerships, where we take co-responsibility for our customers’ key performance indicators. The combination of compelling solutions and consultative partnership contracts, including services, drives above-group-average growth rates, as well as a higher proportion of recurring revenues. We are embedding AI and data science in our propositions to unlock the value of data in the operational and clinical aspects of care processes.

With our global reach, deep clinical and technological insights and innovative strength, we are uniquely positioned in ‘the last yard’ to consumers and care providers, delivering:

  • connected products and services supporting the health and well-being of people
  • integrated modalities and clinical informatics to deliver precision diagnosis
  • real-time guidance and smart devices for minimally invasive interventions
  • connected products and services for chronic care.

Underpinning these, and spanning the health continuum, our connected care solutions enable us to:

  • connect patients and providers for more effective, coordinated, personalized care
  • manage population health, leveraging real-time patient data and clinical analytics.
Digital pathologyAzurionDallas Childrens Hospital

Our key strategic imperatives and value creation objectives

Our transformation into a focused leader in health technology – shifting from products to solutions and building long-term relationships with our customers – is absolutely critical for Philips’ future. Our strategic roadmap is our guide on this multi-year journey.

Roadmap to win

Over the last four years, our strategic roadmap has proven itself through the customers we have gained and the significant value we have created.

We will continue to deliver meaningful employment and engagement in the communities where we operate, while doing business in a sustainable manner.

Philips provides new financial targets for the 2021–2025 period

At the company’s Capital Markets Day with investors and financial analysts on November 6, 2020, Philips will provide further details of its strategic plan and performance trajectory for the 2021–2025 period.

“We are excited to continue our journey to create further value by improving growth and profitability, while recognizing that we are in very uncertain times, and with the assumption that the world economy will return to growth next year,” said Frans van Houten. “The new targets are underpinned by our strategic imperatives to further improve customer and operational excellence, boost growth in our core businesses through geographical expansion and more customer partnerships, and win with innovative solutions along the health continuum. Our strategy to transform care along the health continuum – from healthy living and prevention to diagnosis and treatment, telehealth and home care – strongly resonates with customers and has been further validated during the COVID-19 pandemic.”

Philips’ targets for accelerated growth, higher profitability and improved cash flow for the 2021–2025 period are1:

  • An acceleration of the average annual comparable sales growth to 5-6%, with all business segments within this range. For 2021, Philips’ current view is that Group comparable sales will deliver low-single-digit growth, driven by solid growth in Diagnosis & Treatment and Personal Health, partly offset by lower Connected Care sales;
  • An Adjusted EBITA margin improvement of 60-80 basis points on average annually from 2021, reaching the high teens for the Group by 20252;
  • Free cash flow of around EUR 2 billion by 2025.
  • Organic Return on Invested Capital (ROIC) of mid-to-high teens by 2025.
1The new targets exclude the Domestic Appliances business. 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 2021.2The Diagnosis & Treatment business segment is expected to reach 15-17% Adjusted EBITA margin by 2025, the Connected Care segment is expected to reach 17-19%, and the Personal Health business segment is expected to reach 19-20%.

COVID-19 response and other developments

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

Purpose

Doing business responsibly and sustainably

Building on the strong results of its ‘Healthy people, Sustainable planet’ 2016-2020 program, Philips announced a new set of ambitious targets, commitments and detailed action plans across all the Environmental, Social and Governance dimensions, including improving the lives of 2 billion people a year by 2025 and further reduction of its carbon footprint across its entire value chain in line with the 1.5 oC global warming scenario.

Discover more
Strategic partnerships

Partnerships enhancing care and productivity

Philips signed 11 new long-term strategic partnerships across the world, including multi-year agreements with Buon Ma Thuot University Hospital in Vietnam, Mandaya Royal Hospital Puri in Indonesia and Franciscus Gasthuis & Vlietland in the Netherlands, to provide a comprehensive range of health technology solutions.
Power toothbrush

Introducing Philips One by Sonicare

Broadening its leading portfolio of power toothbrushes, the company launched the Philips One by Sonicare. An entry-level proposition to expand into new consumer segments, Philips One is a battery-operated power toothbrush developed as a step up from manual brushing. Users of this toothbrush can opt into a subscription service for brush head and battery replacements.
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Acquisition

Strengthening image-guided therapy portfolio

Philips expanded its industry-leading image-guided therapy devices portfolio through the acquisition of Intact Vascular, adding an industry-first implantable device to treat peripheral artery disease. Moreover, Philips launched QuickClear, an all-in-one thrombectomy system for the removal of blood clots in peripheral vessels, and OmniWire, a solid-core pressure wire – also an industry-first – to guide coronary artery procedures.
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Azurion

Azurion image-guided therapy platform extended

Philips launched major extensions to its industry-leading Azurion image-guided therapy platform, comprising a new range of configurations – covering more price segments – to innovate procedures in a broad range of therapeutic areas, and further integration between imaging and diagnostic devices.
Acute care and imaging

Supporting a precision diagnosis

SimonMed Imaging, one of the largest outpatient medical imaging providers in the US, is partnering with Philips to deploy its most advanced 3T MRI technology, including software and services, at their outpatient practices to enhance diagnoses, from brain injuries, liver and cardiac disease to orthopedic injuries. Moreover, the partners are collaborating to further enhance the patient experience and flow.
Tempus ALS

Helping first responders deliver care faster

Building on its leadership in therapeutic care, Philips launched its new Tempus ALS remote monitoring and defibrillator solution for emergency medical responders in the US, to help accelerate the delivery of care in emergency settings outside the hospital.
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Progress towards our goals

1.67billion
1.67
3
Lives improvedBased on Q3 2020 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

Read more about our vision

195 million
195
400
Lives improved in underserved healthcare communitiesBased on Q3 2020 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.
Download our methodology

Read more about our vision

67%70% Sales from green products and solutions
67%
70%
14%15% Sales from circular products and solutions
14%
15%
100%100% Operations powered by renewable electricity
100%
100%
85%90% Operational waste recycled
85%
90%
84%100% Industrial sites sending zero waste to landfill
84%
100%
23%10% Reduction in water consumption from 2015 level
23%
10%
All data points refer to Q3 2020

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 2020 – to reduce our environmental impact and help fight climate change. Here you can see how we’re progressing towards our goals.

Our sustainability program

Sustainability highlights

Lives improved trend line

Lives improved

(in millions)

2019 Q3

2019 Q4

2020 Q1

2020 Q2

2020 Q3

1.611

1.640

1.647

1.664

1.669

Lives improved in underserved healthcare communities

(in millions)

2019 Q3

2019 Q4

2020 Q1

2020 Q2

2020 Q3

183

190

190

194

195

Results by region and market

Total population 367million
349million
Lives improved3% compared to Q3 2019
Philips presence
Based on Q3 2020 data
Sales
1,781million EUR
Employees
21,399
Male*
63%
Female*
37%
Manufacturing sites
11
R&D centers
14
*Based on 2019 data
Total population 2,178million
457million
Lives improved4% compared to Q3 2019
Philips presence
Based on Q3 2020 data
Sales
1,580million EUR
Employees
26,632
Male*
65%
Female*
35%
Manufacturing sites
9
R&D centers
15
*Based on 2019 data
Lives improved by market
Compared to Q3 2019
Africa
32million3%
Benelux
26million1%
Central & Eastern Europe
80million2%
Germany, Austria & Switzerland
81million3%
France
45million0%
Iberia
31million4%
Italy, Israel & Greece
37million9%
Middle East & Turkey
70million8%
Nordics
19million5%
United Kingdom & Ireland
35million1%
Total population 4,331million
763million
Lives improved5% compared to Q3 2019
Philips presence
Based on Q3 2020 data
Sales
1,441million EUR
Employees
26,557
Male*
58%
Female*
42%
Manufacturing sites
9
R&D centers
12
*Based on 2019 data
Lives improved by market
Compared to Q3 2019
ASEAN & Pacific
164million9%
Greater China
429million3%
Indian Subcontinent
83million5%
Japan
42million0%
Russia & Central Asia
45million7%
Total population 631million
100million
Lives improved-1% compared to Q3 2019
Philips presence
Based on Q3 2020 data
Sales
178million EUR
Employees
6,079
Male*
55%
Female*
45%
Manufacturing sites
3
R&D centers
2
*Based on 2019 data

Doing business responsibly and sustainably

As a purpose-driven health technology company, we are very conscious of our responsibility towards society and of the need to continue to embed sustainability ever deeper in the way we do business – in our own operations and beyond, together with our partners. 

Driving global change, with specific focus on 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 healthcare communities.

  • Our products and solutions improved the lives of 1.67 billion people worldwide in Q3 2020, an increase of 60 million lives year-on-year; our efforts to improve access to care for underserved healthcare communities resulted in 195 million lives improved (183 million in Q3 2019)*.
  • Reinforcing its leadership as a purpose-driven company, Philips has announced an enhanced and fully integrated approach to doing business responsibly and sustainably, including ambitious 2025 ESG targets, commitments and action plans.
  • At the 75th anniversary of the United Nations General Assembly, Philips underlined its commitment to actively engage and partner with stakeholders and other companies to help achieve UN Sustainable Development Goals 3, 12 and 13.
  • The Wall Street Journal (WSJ) has announced Philips as the world’s second most sustainably managed company. Its listing of ‘The 100 Most Sustainably Managed Companies in the World‘ was compiled from a survey of more than 5,500 publicly traded businesses, based on various sustainability metrics and an analysis of media coverage.
*Includes Domestic Appliances
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Key data

Sales

Philips Group

4,980million EUR
4,702million EUR in Q3 2019
6%Nominal growth
10%Comparable growth

Philips reporting segments

Diagnosis & Treatment

1,971million EUR
2,117million EUR in Q3 2019
-7%Nominal growth
-3%Comparable growth

Connected Care

1,556million EUR
1,145million EUR in Q3 2019
36%Nominal growth
42%Comparable growth

Personal Health

1,376million EUR
1,358million EUR in Q3 2019
1%Nominal growth
6%Comparable growth

Other

77million EUR
82million EUR in Q3 2019

Sales per geographic cluster

Philips Group

4,980million EUR
4,702million EUR in Q3 2019
6%Nominal growth
10%Comparable growth

Sales by geographic area

Western Europe

1,207million EUR
973million EUR in Q3 2019
24%Nominal growth
23%Comparable growth

North America

1,781million EUR
1,659million EUR in Q3 2019
7%Nominal growth
12%Comparable growth

Other mature geographies

454million EUR
498million EUR in Q3 2019
-9%Nominal growth
-7%Comparable growth

Growth geographies

1,538million EUR
1,571million EUR in Q3 2019
-2%Nominal growth
6%Comparable growth

Green revenues

Philips Group

3,250million EUR
3,114million EUR in Q3 2019
4%Nominal growth

Philips reporting segments

Diagnosis & Treatment

1,513million EUR
1,597million EUR in Q3 2019
-5%Nominal growth

Connected Care

849million EUR
660million EUR in Q3 2019
29%Nominal growth

Personal Health

888million EUR
857million EUR in Q3 2019
4%Nominal growth

Research and development expenses

Philips Group

477million EUR
457million EUR in Q3 2019

Philips reporting segments

Diagnosis & Treatment

208million EUR
224million EUR in Q3 2019

Connected Care

154million EUR
116million EUR in Q3 2019

Personal Health

72million EUR
69million EUR in Q3 2019

Other

43million EUR
48million EUR in Q3 2019

Income from operations and Adjusted EBITA (Philips Group)

Income from operations

476million EUR
320million EUR in Q3 2019
9.6% as a percentage of sales

Adjusted EBITA

769million EUR
583million EUR in Q3 2019
15.4% as a percentage of sales

Other key data

Income from continuing operations

341million EUR
211million EUR in Q3 2019

Net income

340million EUR
208million EUR in Q3 2019

Income from continuing operations attributable to shareholders per common share - diluted

0.37EUR
0.22EUR in Q3 2019

Adjusted income from continuing operations attributable to shareholders per common share - diluted

0.60EUR
0.46EUR in Q3 2019

Lives improved (Philips Group)

Total

1.67billion

by Philips health & well-being products and solutions

1.43billion

by Philips Green Products

1.11billion

Net operational carbon footprint  (Philips Group)

0
kilotonnes CO2-equivalent
266kilotonnes CO2-equivalent in 2019