Q1 2020results

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Message from the CEO

“The start of 2020 was marked by the COVID-19 outbreak, and we have mobilized our resources since January to address this unprecedented challenge. At Philips, we are focused on our triple duty of care: meeting critical customer needs, safeguarding the health and safety of our employees, and ensuring business continuity. I am very proud of the commitment, hard work and resourcefulness of our employees to keep Philips fully functioning, and I would like to thank them for that.

COVID-19 significantly affected our results in this quarter. There was increased demand for our professional healthcare products and solutions, with comparable sales and order intake growth for the Connected Care and Diagnosis & Treatment businesses. Comparable order intake grew 23%, most notably in diagnostic imaging, hospital ventilators, and patient monitors. We are investing more than EUR 100 million to steeply ramp up our production volumes, in close collaboration with our suppliers and partners. At the same time, there was a significant decline in demand for our Personal Health portfolio and we saw Image-Guided Therapy procedures trending down as the quarter progressed. This resulted in a 2% comparable sales decrease and an Adjusted EBITA margin of 5.9% for the Group.

The impact of COVID-19 gradually increased in the course of the first quarter, initially affecting our businesses in China and Asia Pacific starting late January, and subsequently affecting our businesses in the rest of the world from March onwards. On that basis, we expect that all our geographies will be impacted throughout the second quarter. This is expected to result in a steep revenue decline for our Personal Health businesses and a sizable high-single-digit decline for our Diagnosis & Treatment businesses, partly offset by a significant increase in revenue of our Connected Care businesses.

Assuming we can convert our existing order book for the Diagnosis & Treatment and Connected Care businesses as planned, elective procedures normalize, and consumer demand gradually improves, we aim to return to growth and improved profitability for the Group in the second half of the year. Consequently, for the full year 2020 we aim to achieve a modest comparable sales growth and Adjusted EBITA margin improvement. Given the current uncertainty and volatility, we will not provide more specific guidance for 2020 at this time.”

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 3 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.

For the outlook on 2020, please refer to Message from the CEO.

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

COVID-19 response and other developments

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

Ventilators

Ramping up critical care ventilator production

Building on Philips’ initial increase in hospital ventilator production in the first quarter, which already enabled the supply of additional ventilators to hospitals in the most affected regions in China, southern Europe and the US, Philips plans a further four-fold production increase by the third quarter of 2020. This plan will enable Philips to deliver 43,000 fully featured, critical care ventilators to the US government in 2020, while simultaneously delivering such ventilators to the rest of the world.
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Philips Respironics E30 ventilator

Start of production of new ventilator for emergency use

To further address the unprecedented demand for ventilators, Philips introduced the Philips Respironics E30 ventilator for emergency use when a fully featured critical care ventilator is not available. Philips is targeting a production of the new ventilator – which has been designed for large-scale production – of 15,000 units per week in April.
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Philips Teleheath Solutions

Helping to remotely screen and monitor COVID-19 patients

Philips introduced several dedicated telehealth solutions to help relieve the tremendous pressure placed on scarce resources by the growing number of COVID-19 patients. Based on its proven Patient Reported Outcomes Management solution, which is being used by more than 100 healthcare institutions globally, Philips enabled Dutch hospitals and GPs to remotely screen and monitor patients with COVID-19.
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Philips Digital Pathology

Supporting telepathology

In connection with the COVID-19 emergency, the US FDA has granted a temporary waiver for the use of consumer monitors with the Philips IntelliSite Pathology Solution, providing extra flexibility for US pathologists to work from home. For example, a leading health system in New York has expanded the Philips IntelliSite Pathology solution installed at its hospitals with additional scanners, enabling pathologists to remotely access an increased volume of digital images of patient tissue, thereby supporting real-time pathology interpretations in critical cases and improved patient outcomes.
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Philips Enterprise Monitoring solution

Enterprise patient monitoring solution highly rated

Demonstrating the efficiency of Philips’ Enterprise Monitoring-as-a-Service model, US-based Jackson Memorial Hospital estimates it will save more than 13,000 staff hours from workflow improvement and automation of manual tasks using Philips’ monitoring solutions. Moreover, nursing staff gave the new patient monitoring solution a 90% satisfaction rating, up from 8% prior to the new system and software.
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Philips Intellispace Discovery

New long-term strategic partnership in Germany

Continuing its success in forging long-term strategic partnerships, Philips signed several new agreements. For example, Philips entered into an 8-year strategic partnership with Paracelsus Clinics in Germany, offering solutions that maximize the availability of imaging systems and leverage digitalization and process optimization to realize quality and efficiency improvements.
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Progress towards our goals

1.65billion
1.65
3
Lives improvedBased on Q1 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 3 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

190 million
190
400
Lives improved in underserved healthcare communitiesBased on Q1 2020 data

As part of our goal to improve the lives of 3 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

65%70% Sales from green products and solutions
65%
70%
13%15% Sales from circular products and solutions
13%
15%
95%100% Operations powered by renewable electricity
95%
100%
85%90% Operational waste recycled
85%
90%
58%100% Industrial sites sending zero waste to landfill
58%
100%
9%10% Reduction in water consumption from 2015 level
9%
10%
All data points refer to Q1 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 Q1

2019 Q2

2019 Q3

2019 Q4

2020 Q1

1.593

1.625

1.634

1.644

1.647

Lives improved in underserved healthcare communities

(in millions)

2019 Q1

2019 Q2

2019 Q3

2019 Q4

2020 Q1

183

184

186

190

190

Results by region and market

Total population 367million
343million
Lives improved5% compared to Q1 2019
Philips presence
Based on Q1 2020 data
Sales
1,593million EUR
Employees
21,299
Male*
63%
Female*
37%
Manufacturing sites
11
R&D centers
16
*Based on 2019 data
Total population 2,178million
450million
Lives improved5% compared to Q1 2019
Philips presence
Based on Q1 2020 data
Sales
1,198million EUR
Employees
26,992
Male*
65%
Female*
35%
Manufacturing sites
10
R&D centers
17
*Based on 2019 data
Lives improved by market
Compared to Q1 2019
Africa
33million9%
Benelux
26million-1%
Central & Eastern Europe
79million1.0%
Germany, Austria & Switzerland
81million3%
France
45million3%
Iberia
30million7%
Italy, Israel & Greece
35million10%
Middle East & Turkey
68million15%
Nordics
18million6%
United Kingdom & Ireland
35million1%
Total population 4,331million
756million
Lives improved10% compared to Q1 2019
Philips presence
Based on Q1 2020 data
Sales
1,226million EUR
Employees
27,027
Male*
58%
Female*
42%
Manufacturing sites
9
R&D centers
12
*Based on 2019 data
Lives improved by market
Compared to Q1 2019
ASEAN & Pacific
160million19%
Greater China
426million7%
Indian Subcontinent
83million13%
Japan
43million7%
Russia & Central Asia
44million13%
Total population 631million
98million
Lives improved-3% compared to Q1 2019
Philips presence
Based on Q1 2020 data
Sales
142million EUR
Employees
5,401
Male*
55%
Female*
45%
Manufacturing sites
3
R&D centers
1
*Based on 2019 data

Making the world healthier and more sustainable

In Q1 2020, we made further advances in the focal areas of our ‘Healthy people, Sustainable planet’ program – access to care, circular economy and climate action – taking us closer to our goal of improving the lives of 3 billion people a year by 2030, including 400 million in underserved healthcare communities.

  • In Q1 2020, our products and solutions improved the lives of 1.65 billion people worldwide, up from 1.61 billion a year earlier; our efforts to improve access to care for underserved healthcare communities resulted in 190 million lives improved (Q1 2019: 183 million).
  • Philips issued its first Sustainable Innovation Bond under the Philips Green & Sustainability Innovation Bond Framework developed together with Rabobank. The EUR 500 million proceeds from this bond will be used to help finance our expenditures on innovative technologies that contribute to the Quadruple Aim of value-based care – better health outcomes, improved patient and staff experience, and lower cost of care.
  • Philips has set an environmental milestone with the launch of the Viva Café Eco coffee machine, our first product to have all the visible plastic parts and non-food-contact parts made from recycled materials.
  • Philips is the only health technology company – and one of only 38 companies worldwide – to have a CDP A List ranking for both Water Security and Climate Change.
  • Revenues from Green Products and Solutions advanced to 65.0% of total revenues (61.8% in Q1 2019).
  • Revenues from Circular Products and Solutions increased to 13.2% (11.8% in Q1 2019).
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Key data

Sales

Philips Group

4,159million EUR
4,151million EUR in Q1 2019
0%Nominal growth
-2%Comparable growth

Philips reporting segments

Diagnosis & Treatment

1,827million EUR
1,722million EUR in Q1 2019
6%Nominal growth
2%Comparable growth

Connected Care

1,105million EUR
1,014million EUR in Q1 2019
9%Nominal growth
7%Comparable growth

Personal Health

1,138million EUR
1,295million EUR in Q1 2019
-12%Nominal growth
-13%Comparable growth

Other

89million EUR
120million EUR in Q1 2019

Sales per geographic cluster

Philips Group

4,159million EUR
4,151million EUR in Q1 2019
0%Nominal growth
-2%Comparable growth

Sales by geographic area

Western Europe

904million EUR
865million EUR in Q1 2019
5%Nominal growth
2%Comparable growth

North America

1,593million EUR
1,463million EUR in Q1 2019
9%Nominal growth
5%Comparable growth

Other mature geographies

445million EUR
458million EUR in Q1 2019
-3%Nominal growth
-6%Comparable growth

Growth geographies

1,217million EUR
1,366million EUR in Q1 2019
-11%Nominal growth
-12%Comparable growth

Green revenues

Philips Group

2,721million EUR
2,669million EUR in Q1 2019
2%Nominal growth

Philips reporting segments

Diagnosis & Treatment

1,375million EUR
1,231million EUR in Q1 2019
12%Nominal growth

Connected Care

654million EUR
638million EUR in Q1 2019
3%Nominal growth

Personal Health

692million EUR
800million EUR in Q1 2019
-13%Nominal growth

Research and development expenses

Philips Group

489million EUR
439million EUR in Q1 2019

Philips reporting segments

Diagnosis & Treatment

247million EUR
198million EUR in Q1 2019

Connected Care

119million EUR
109million EUR in Q1 2019

Personal Health

73million EUR
75million EUR in Q1 2019

Other

50million EUR
57million EUR in Q1 2019

Income from operations and Adjusted EBITA (Philips Group)

Income from operations

43million EUR
245million EUR in Q1 2019
1.0%as a percentage of sales

Adjusted EBITA

244million EUR
364million EUR in Q1 2019
5.9%as a percentage of sales

Other key data

Income from continuing operations

42million EUR
171million EUR in Q1 2019

Net income

39million EUR
162million EUR in Q1 2019

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

0.05EUR
0.19EUR in Q1 2019

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

0.18EUR
0.29EUR in Q1 2019

Lives improved (Philips Group)

Total

1.65billion

by Philips health & well-being products and solutions

1.42billion

by Philips Green Products

1.12billion

Net operational carbon footprint  (Philips Group)

266
kilotonnes CO2-equivalent*
456kilotonnes CO2-equivalent in 2018
*Based on 2019 data