Q3 2021results

CEO message

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Message from the CEO

“I am pleased with the strong double-digit comparable order intake growth in the third quarter, driven by both the Diagnosis & Treatment businesses and Connected Care businesses. Our strategy and portfolio are highly relevant to our customers, as we help them transform the delivery of care along the health continuum. Building on this strength, we have signed an additional 19 long-term strategic partnerships with hospitals across the world, including a 10-year partnership with Baptist Health in the US to provide patient monitoring solutions and standardize care across the network.

We recorded EUR 4.2 billion sales in the quarter, with a 7.6% comparable sales decline on the back of 10% comparable sales growth last year. This quarter’s sales were impacted unfavorably by intensified global supply chain issues, such as the shortage of electronic components, and the anticipated revenue consequences of the sleep recall, as we are prioritizing the remediation of affected devices in use by patients. The Adjusted EBITA margin was 12.3%.

The repair and replacement program related to the sleep recall notification is under way in the US and several other markets. I am conscious of the impact this is having on patients and care givers, and we are doing everything we can to deliver a solution as fast as possible.

We successfully completed the sale of the Domestic Appliances business, resulting in a gain of EUR 2.5 billion. With this, we concluded our major divestments, allowing us to focus fully on extending our leadership in health technology and continuing our transformation into a solutions company.

Looking ahead, we continue to see uncertainty related to COVID-19. Supply chain volatility has intensified globally, which already led to longer lead times to convert our strong order book to revenue in the third quarter, and we expect this headwind to continue in the fourth quarter. Therefore, we now expect to deliver low-single-digit comparable sales growth with a modest Adjusted EBITA margin improvement for the full year 2021. Based on our strong customer demand and growing order book, we expect to resume our growth and margin expansion trajectory in 2022 as we work through the headwinds.”

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 expects to deliver low-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%. For 2021, Philips expects to deliver a modest Adjusted EBITA^{**^**Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to **.} margin improvement.
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 sale of the Domestic Appliances business has been completed and the business is no longer consolidated by Philips as of September 1, 2021. The results of this transaction are presented under Discontinued Operations.

^*) 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.

Oncology solution for top-tier Chinese private hospital

Philips provided the Yili Chuanxin Oncology hospital in Xinjiang, a newly established top-tier private hospital in China, with an Oncology solution to address the hospital’s clinical needs in screening, precision diagnosis, targeted treatment and rehabilitation of cancer patients. The solution includes IntelliSpace Digital Pathology and the Ingenia 3.0T MR, IQon Spectral CT, Incisive CT and CT Big Bore imaging systems, combined with IntelliSpace Portal for advanced visualization and analysis.

Equipping Community Diagnostic Centers in England

As part of Philips’ 10-year partnership with Rutherford Health to open multiple Community Diagnostic Centers in England, the first center was opened in Taunton, for which Philips provided innovative diagnostic imaging systems, including Ingenia Ambition MR combined with Ambient Experience, which allows patients to control and personalize the imaging environment.

Strong traction for new Spectral CT system

As a pioneer in spectral CT diagnostics, Philips has enabled its customers to benefit from a reduction in follow-up scans, increased certainty in lesion characterization, and reduced time to diagnosis. Building on many years of experience with IQon Spectral CT, Philips’ new Spectral CT 7500 is attracting strong customer demand. For example, the University Medical Center Utrecht in the Netherlands installed two Spectral CT systems, with the aim of providing greater confidence in mainstream clinical diagnosis – for all patients and in all exams.

Find out more

Extending the reach of digital pathology

Underlining the company’s leading role in digital pathology, Philips partnered with Healius Pathology, one of Australia's leading providers of private medical laboratory and pathology services, to deploy a multi-site digital pathology solution across Healius’ National Pathology Network using Philips' industry-leading IntelliSite Pathology Solution.

Image-guided therapy solutions for neurology and oncology

Building on Philips’ leadership in image-guided therapy solutions in cardiology, the company is further strengthening its position in fast-growing adjacencies such as neurology and oncology. For example, US-based Piedmont Health equipped its neurosurgical operating rooms with a specialized version of Philips Azurion for the treatment of stroke. Philips also announced positive results of a clinical study aimed at setting a new standard of safety and accuracy in the diagnosis of small peripheral lung lesions using Philips Lung suite.

Dental innovations launched in China

Underlining Philips’ strategy to deliver locally relevant solutions, the company launched several oral healthcare innovations targeting multiple price points in China, including two new electric toothbrushes. In addition, Philips launched its professional teeth whitening offering Zoom in China through a local partnership with LinkedCare, one of the largest dental solution providers in the Chinese dental market.

Introducing new HealthSuite informatics solutions

Philips launched two new HealthSuite informatics solutions which are scalable across the enterprise, to support its customers in achieving the Quadruple Aim of healthcare: Patient Flow Capacity Suite, a solution that helps hospitals manage the complete patient journey, and Acute Care Telehealth, which builds on Philips’ successful Tele-ICU solutions.

Connecting care

Philips’ recently acquired Capsule business continued to add new device drivers to its Medical Device Information Platform, which will be integrated with HealthSuite. With more than 1,000 unique types of medical devices capable of integrating with the platform, customers can connect more devices to advance health systems’ digital transformation with intelligent, vendor-agnostic tools that turn complex data streams into actionable insights.

Environmental, Social and Governance highlights

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Making the world healthier and more sustainable

In Q3 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 1.66 billion people worldwide in Q3 2021, an increase of 151 million lives year-on-year. Reflecting our efforts to expand access to care, this figure includes 168 million lives improved in underserved communities, compared to 125 million in Q3 2020. Find out how Philips measures lives improved.
Circular revenues amounted to 15.2% of sales, up from 14.3% in Q3 2020.
Through our supplier sustainability engagement program, we improved the lives of 388,000 workers in the supply chain in Q3 2021, reducing the risk of injury in the workplace, improving labor conditions, and lowering the environmental impacts made at our supply partners.
Philips and Evercare, an international network of private health facilities, have embarked on the First 1,000 Days of Life Partnership. The aim of this partnership is to re-design maternal and child health services in the Evercare network in order to improve clinical outcomes, improve patient and staff experience, and increase patient volumes at lower cost. In this partnership, Philips will deploy its Mobile Obstetrics Monitoring solution, which is integrated with the Philips Lumify portable ultrasound.

Progress towards our goals

1.66

2.5

Lives improvedBased on Q3 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

168

400

Lives improved in underserved healthcare communitiesBased on Q3 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)

	Q3 2020	Q4 2020	Q1 2021	Q2 2021	Q3 2021
	1,512	1,529	1,641	1,657	1,664

Lives improved in underserved healthcare communities

(in millions)

	Q3 2020	Q4 2020	Q1 2021	Q2 2021	Q3 2021
	125	127	165	169	168

Sales from green products and solutions ¹

65%

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 Q3 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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Q3 2021 results

Amsterdam, October 18, 2021

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Key data

Sales

Philips Group

4,156million EUR

4,411million EUR in Q3 2020

-6%Nominal growth

-8%Comparable growth

Philips reporting segments

Diagnosis & Treatment

2,154million EUR

1,971million EUR in Q3 2020

9%Nominal growth

10%Comparable growth

Connected Care

1,044million EUR

1,556million EUR in Q3 2020

-33%Nominal growth

-39%Comparable growth