Q2 2022results

CEO message

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Message from the CEO

“Across our businesses, we have stepped up our actions on productivity, pricing, and strengthening supply chain resilience to mitigate the ongoing headwinds and associated risks. The positive impact of these actions, together with the strength of our order book and improving component supplies, give me confidence that we will resume growth from the third quarter onwards, resulting in 6-9% comparable sales growth and improved profitability in the second half of the year. For the full-year 2022, we expect to deliver 1-3% comparable sales growth and around 10% Adjusted EBITA margin.

Our products remain in good demand, as evidenced by the further growth of our already strong order book, confirming the relevance of our strategy and portfolio of innovations to our customers. In the second quarter, comparable order intake increased 1% and includes a 5 percentage-points negative impact related to China. We partnered with 19 more hospital groups to help them transform the delivery of care and boost staff productivity. In our Personal Health businesses, we delivered a second consecutive quarter of double-digit comparable sales growth in North America.

Our performance in the second quarter was impacted by global, industry-wide challenges including supply shortages, COVID lockdown measures in China, inflationary pressures and the Russia-Ukraine war, resulting in a comparable sales decline of 7%, with an Adjusted EBITA margin of 5.2%. The impact of the COVID lockdowns significantly affected our business in China, where comparable sales and order intake declined almost 30% in the quarter. Production in several of our factories, as well as those of our suppliers in China, was suspended for two months, which exacerbated the global supply chain and cost challenges. The China lockdowns directly impacted the Adjusted EBITA margin of the Group by 120 basis points due to lower sales and a further 110 basis points because of factory under-utilization. Global inflation and cost headwinds had an additional impact of around 290 basis points on Group profitability in the quarter.

Philips Respironics continues to make solid progress with the repair and replacement program for the CPAP, BiPAP and mechanical ventilator devices affected by the June 2021 field safety notice, and published encouraging results related to the comprehensive test and research program to assess the possible health risks. We know how important the affected devices are to patients and are working very hard to get a resolution to them as fast as we can.

Looking ahead to 2023 and beyond, while we continue to see risks and a challenging macro-environment, we expect our supply chain measures to take full effect, resulting in a significant improvement in the conversion of our order book to revenue. Our pricing and increased productivity measures will expand margins. Based on these actions, the strong fundamentals of our businesses, and taking our 2022 outlook into account, we now expect to deliver comparable sales growth of 4-6% and an Adjusted EBITA margin of 14-15% by 2025, with further improvement thereafter.”

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 center of everything we do. This core principle has never been more important than it is in these challenging times.

As a leading health technology company, we believe that – viewed through the lens of customer needs – innovation can improve people's health and healthcare outcomes, as well as making care more accessible, personal, connected and sustainable. 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 products, systems, software and services and leverage clinical and operational data, to help our customers deliver on the Quadruple Aim (better health outcomes, improved patient experience, improved staff experience, lower cost of care) and help people 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

Besides the healthcare sector's 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 – this puts people’s health journeys front and center and enables integrated care pathways. Believing that healthcare should be safe, seamless, efficient and effective, we strive to ‘connect the dots’ for our customers and consumers, supporting the flow of real-time data needed to provide precision diagnoses, treatment and chronic care for patients.

Going forward, we believe the digital transformation of healthcare and – accelerated by COVID-19 – the increasing adoption of virtual care or ‘telehealth’ will play a major 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 focused on 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 customer-centric innovation capability, we are strongly placed to create further value in a changing healthcare world through our propositions in:

Diagnosis & Treatment

Patient- and staff-centered solutions that simplify workflow and deliver more precise diagnosis and clear pathways with predictable outcomes
Uniquely integrating best-in-class imaging with specialized devices to innovate procedures and improve lives

Connected Care

Patient care solutions, advanced analytics and patient and workflow optimization across all care settings
Therapies to support patients in their chronic care needs

Personal Health

Products and services to support healthier lifestyles and disease prevention

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.

Philips’ revised targets for accelerated growth, higher profitability and improved cash flow for the period 2023–2025 are:

Average annual Group comparable sales growth of 4-6%. For the full year 2022, Philips expects to deliver 1-3% comparable sales growth for the Group.
Adjusted EBITA margin of 14-15% by 2025. For the full year 2022, Philips expects to deliver around 10% Adjusted EBITA margin.
Free cash flow above EUR 2 billion by 2025.
Organic Return on Invested Capital (ROIC) of mid-to-high teens by 2025.

Indicative cumulative adjusted EBITA improvement drivers 2023-2025

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 19 new long-term strategic partnerships with hospitals in Europe, Asia, and North America, including a 10-year patient monitoring agreement with a large hospital in Germany. Through Philips’ advanced enterprise monitoring offering, the hospital will transition from stand-alone devices towards a scalable enterprise-wide patient monitoring solution that keeps care teams connected and informed for enhanced patient care management.

FDA clearance for diagnostic imaging innovations

Philips received FDA clearance to market its new 7700 3.0T MR system, featuring an enhanced gradient system for Philips’ highest image quality to support a precision diagnosis. Philips also received FDA clearance for its SmartSpeed MR acceleration software, adding AI data collection algorithms to Philips’ existing Compressed SENSE MR engine for higher image resolution with three times faster scan times and virtually no loss in image quality.

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Continued progress for local strategy in China

Philips received clearance from the Chinese National Medical Products Association (NMPA) to launch its helium-free operations MR Ingenia Ambition, which is produced in China for the Chinese market. Philips is joining forces with B-Soft, a Chinese healthcare informatics company, to develop a healthcare informatics solution tailored to the needs of Chinese hospitals. This highlights the continued progress of Philips’ strategy in China to drive market-relevant offerings through its local footprint as well as partnerships with the local innovation ecosystem.

Positive clinical trial results for treatment of critical limb ischemia

Demonstrating the clinical benefits of Philips' minimally invasive therapy options, the company announced positive results from its Tack Optimized Balloon Angioplasty below-the-knee clinical trial. The results show that the Tack endovascular system provides a sustained treatment effect for patients with critical limb ischemia, a severe stage of peripheral arterial disease.

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Image guidance innovation for interventional cardiology

Building on Philips’ leadership in interventional cardiology solutions, the company launched the latest version of its EchoNavigator image- guidance tool, which seamlessly integrates live ultrasound, interventional X-ray imaging and advanced 3D heart models to help interventional teams treat structural heart disease with greater ease and efficiency.

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Long-term ultrasound deal with Dutch hospital

Philips signed a long-term agreement with the Rijnstate hospital in the Netherlands to deliver a wide range of advanced ultrasound devices for 17 different departments at multiple locations of the hospital. The agreement involves ultrasound devices and services for cardiological, vascular or radiological examinations, OB/GYN, as well as mobile devices for the emergency department.

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Strong momentum for oral healthcare innovations in North America

Building on the successful strengthening of the company’s innovative power toothbrushes portfolio, ranging from entry-level to premium propositions, as well as targeted advertising and promotion campaigns, Philips Oral Healthcare recorded continued strong double-digit comparable sales growth and market share gains in North America in the quarter.

Environmental, Social and Governance highlights

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Making the world healthier and more sustainable

In Q2 2022, 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 1.75 billion people worldwide in Q2 2022, an increase of 100 million lives year-on-year. Reflecting our efforts to expand access to care, this figure includes 185 million lives improved in underserved communities, compared to 164 million in Q2 2021.Find out how Philips measures lives improved.
Circular revenues amounted to 17.9% of sales, up from 16.4% in Q2 2021.
Philips achieved a top score of 91 out of 100 in S&P Global Ratings’ assessment of its Environmental, Social and Governance (ESG) strategies, targets and performance – the highest score awarded by S&P in these areas to date, building on 2021’s record 90/100 score.
Philips successfully launched Green and Sustainability Innovation Bonds, the proceeds of which will be used for Eligible Projects in accordance with the Philips Green and Sustainability Innovation Bond Framework.
At the COP26 UN Climate Change Conference in Glasgow in 2021, Philips announced an ambitious climate action to drive significant reduction of greenhouse gas emissions in our supply chain, aiming to have at least 50% of our suppliers (based on spend) committed to science-based targets for CO₂ reduction by 2025. By the end of Q2 2022, 36% of our suppliers (based on spend) had committed to such targets.

Progress towards our goals

1.75

2.5

Lives improvedBased on Q2 2022 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

185

400

Lives improved in underserved healthcare communitiesBased on Q2 2022 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 2021	Q3 2021	Q4 2021	Q1 2022	Q2 2022
	1,652	1,661	1,670	1,688	1,748

Lives improved in underserved healthcare communities

(in millions)

	Q2 2021	Q3 2021	Q4 2021	Q1 2022	Q2 2022
	164	164	167	170	185

100% sales from green products and solutions ¹

67%

25% sales from circular products and solutions

18%

100% operations powered by renewable electricity

100%

95% circular materials management ²

90%

100% industrial sites sending zero waste to landfill

100%

5% reduction in water consumption from 2019 level

11%

All data points refer to Q2 2022 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 2022 results

Amsterdam, July 25, 2022

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