Q1 2021results

CEO message

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Message from the CEO

“Despite the ongoing impact of COVID-19, our performance gained momentum with a strong 9% comparable sales growth and profitability improvement in the first quarter, with all business segments and markets contributing. We are encouraged by the strong 11% comparable order intake growth for the Diagnosis & Treatment businesses, and the strengthening performance of the Personal Health businesses. At the same time, the Connected Care businesses continued to successfully convert their strong order book, while comparable order intake decreased 27%, as anticipated following the 80% order intake growth for patient monitors and hospital ventilators in Q1 2020.

Our growth momentum is driven by our portfolio of innovative solutions, for example in the areas of precision diagnosis, image-guided therapy, and telehealth. Moreover, we continued to add long-term strategic partnerships with hospitals on the back of more than 50 new partnerships we signed in 2020. This illustrates our ability to meet the needs of today’s hospital leaders, across the globe, as they plan for the future.

In line with our plans, we signed an agreement to sell the Domestic Appliances business, which concludes our major divestments. We are pleased that we have found a good home for this business and we look forward to a successful partnership with the new owner, Hillhouse Capital. We are also pleased to have completed the acquisition of BioTelemetry and Capsule Technologies, which will further drive our transformation into a solutions company, and in particular further strengthen our position to improve patient care across care settings for multiple diseases and medical conditions.

Regretfully, we have identified a quality issue in a component that is used in certain sleep and respiratory care products, and are initiating all precautionary actions to address this issue, for which we have taken a EUR 250 million provision.

Looking ahead, while we continue to see uncertainty related to the impact of COVID-19 across the world, we see increased demand in the Diagnosis & Treatment and Personal Health businesses. We now plan to deliver low-to-mid-single-digit comparable sales growth for the Group in 2021 (compared to the earlier projection of low-single-digit growth), with an Adjusted EBITA margin improvement of 60-80 basis points."

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 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 on average annually from 2021, with a target of the high teens for the Group by 2025; 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 key developments in the quarter.

New long-term strategic partnerships

Philips signed multiple new long-term strategic partnerships in North America, Europe and Asia, including a 5-year agreement with Spanish healthcare group Vithas. Philips will provide Vithas with diagnostic imaging systems combined with advanced informatics, and image-guided therapy solutions, to enhance patient care.

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Strong growth for Image-Guided Therapy Devices

Strong traction for Philips’ diagnostic and therapeutic catheter portfolio, which includes innovations such as Philips’ coronary and peripheral IVUS catheters, coupled with the resumption of elective procedures, resulted in a return to double-digit growth for the Image-Guided Therapy Devices business in the quarter.

Expanding the Image-Guided Therapy portfolio

Philips received US FDA clearance for its SmartCT (Cone Beam CT) application for the Azurion image-guided therapy system, which provides interventionalists with CT-like 3D images to enhance procedural outcomes and fits seamlessly into existing workflows. An industry-first, Philips also introduced ClarifEye Augmented Reality Surgical Navigation, advancing minimally invasive spine procedures in the hybrid operating room.

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Launch of AI-enabled Precise Suite

Philips expanded its Incisive CT platform with the launch of the AI-enabled Precise Suite, delivering smart workflows from image acquisition to reporting, with image reconstruction, automated patient positioning, and real-time interventional guidance to drive precision in dose, speed, and image quality.

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Strengthening remote patient management

Expanding its remote patient management offering, Philips introduced the Medical Tablet, a portable monitoring kit designed to help clinicians remotely monitor larger patient populations during emergency situations. This new offering, which is available in North America, Europe and Japan, provides remote access to patient data to improve workflows and better manage increased patient volumes.

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Landmark innovations in personal care

Philips produced its 100 millionth OneBlade, just 5 years after its launch in 2016. The Philips OneBlade has disrupted shaving markets worldwide, creating a new category for shaving, trimming, and edging. Philips also introduced the Lumea IPL 9000 series with SenseIQ technology for personalized hair removal, which is available through a Try&Buy subscription model in Germany, the Netherlands and other countries.

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Lives improved and sustainability targets

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Progress towards our goals

1.54

2.5

Lives improvedBased on Q1 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

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.

Our sustainability program

Sustainability highlights

Lives improved trend line

Lives improved

(in millions)

	2020 Q1	2020 Q2	2020 Q3	2020 Q4	2021 Q1
	1,472	1,488	1,512	1,529	1,537

Lives improved in underserved healthcare communities

(in millions)

	2020 Q1	2020 Q2	2020 Q3	2020 Q4	2021 Q1
	119	122	125	127	128

Social and environmental progress

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Making the world healthier and more sustainable

In Q1 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 1.54 billion people worldwide in Q1 2021, an increase of 65 million lives year-on-year. Reflecting our efforts to expand access to care, this figure includes 128 million lives improved in underserved communities, compared to 119 million in Q1 2020.
Circular revenues advanced to 16.3% of sales (16.1% in Q1 2020).
Philips received a score of 90 out of 100 in the Environmental, Social and Governance (ESG) assessment by S&P Global Ratings, the highest score awarded to date.
For the fifth year in a row, not-for-profit environmental impact disclosure organization CDP recognized Philips as one of the highest-ranking companies on its Supplier Engagement Leaderboard. This is an annual assessment of disclosures about how companies proactively work with their suppliers to ensure sustainability throughout their value chain in terms of climate change mitigation.
Philips has been ranked 13th in the 2021 RepTrak list of companies with the best reputation globally (up from 29th position last year). Philips earned the top spot in RepTrak's ranking for the Netherlands for the 14th consecutive year.
Philips and Dutch development bank FMO announced that they have signed a wider partnership agreement aimed at improving access to quality primary care in Africa.
Philips is partnering with UNFPA in Brazil to distribute the Pregnancy+ app to expectant mothers in underserved areas. The goal is to fill the knowledge gaps of future moms and their partners and provide reliable resources that help each woman feel better informed, prepared and confident about her pregnancy.

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Q1 2021 results

Amsterdam, April 26, 2021

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Key data

Sales

Philips Group

3,827million EUR

3,693million EUR in Q1 2020

4%Nominal growth

9%Comparable growth

Philips reporting segments

Diagnosis & Treatment

1,856million EUR

1,827million EUR in Q1 2020

2%Nominal growth

9%Comparable growth

Connected Care

1,161million EUR

1,107million EUR in Q1 2020

5%Nominal growth

7%Comparable growth