SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule13a-16 or15d-16
of the Securities Exchange Act of 1934
April 29, 2019
KONINKLIJKE PHILIPS N.V.
(Exact name of registrant as specified in its charter)
Royal Philips
(Translation of registrant’s name into English)
The Netherlands
(Jurisdiction of incorporation or organization)
Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(7): ☐
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule12g3-2(b) under the Securities Exchange Act of 1934.
Yes ☐ No ☒
Name and address of person authorized to receive notices
and communications from the Securities and Exchange Commission:
M.J. van Ginneken
Koninklijke Philips N.V.
Amstelplein 2
1096 BC Amsterdam – The Netherlands
This report comprises a copy of the following report:
“Philips’ First Quarter Results 2019”, dated April 29, 2019.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized at Amsterdam, on the 29th day of April, 2019.
KONINKLIJKE PHILIPS N.V.
/s/ M.J. van Ginneken
(Chief Legal Officer)
Philips delivers Q1 sales of EUR 4.2 billion, with 2% comparable sales growth; income from continuing operations increased to EUR 171 million and Adjusted EBITA margin improved to 8.8%
Amsterdam, April 29, 2019
First-quarter highlights
| • | Sales in the quarter amounted to EUR 4.2 billion, with 2% comparable sales growth |
| • | Comparable order intake increased 2% |
| • | Income from continuing operations increased to EUR 171 million, compared to EUR 94 million in Q1 2018 |
| • | Adjusted EBITA margin was 8.8% of sales, compared to 8.7% of sales in Q1 2018 |
| • | Income from operations increased to EUR 245 million, compared to EUR 201 million in Q1 2018 |
| • | Operating cash flow amounted to EUR 14 million, compared to EUR 92 million in Q1 2018; free cash outflow was EUR 206 million, compared to EUR 47 million in Q1 2018 |
Frans van Houten, CEO
“We had a reasonable start to the year, as we delivered 2% comparable sales and order intake growth, further building on strong growth in 2018. I am encouraged that the measures taken in the Personal Health businesses resulted in regained momentum and astep-up of sales growth, which was led by the high-teens comparable sales growth in the Oral Healthcare business. Moreover, I am pleased with the double-digit comparable sales and order intake growth for the Group in the growth geographies.
We continue to expect our performance momentum to improve over the course of the year, based on the demand for our innovative products and solutions to improve people’s health and enhance care provider productivity, supported by our order book. We reaffirm our overall targets of4-6% comparable sales growth and an Adjusted EBITA margin improvement of 100 basis points on average per year for the 2017–2020 period.”
Reporting segment performance
The Diagnosis & Treatment businesses recorded 2% comparable sales growth, led by double-digit growth in Image-Guided Therapy. Comparable order intake showed amid-single-digit increase, further building on the double-digit growth in Q1 2018. The Adjusted EBITA margin increased to 6.2%.
Comparable sales in the Connected Care businesses decreased 1%, withlow-single-digit growth in Sleep & Respiratory Care and amid-single-digit decline in Monitoring & Analytics. Comparable order intake showed amid-single-digit decline. The Adjusted EBITA margin decreased to 8.3%.
The Personal Health businesses delivered comparable sales growth of 5%, driven by high-single-digit growth in mature geographies and high-teens growth globally in Oral Healthcare. The Adjusted EBITA margin increased to 14.7%.
Philips’ ongoing focus on innovation and strategic partnerships resulted in the following highlights in the quarter:
| • | Philips’ Image-Guided Therapy Devices delivered double-digit growth, driven by all major diagnostic and therapeutic catheter product families. The continued strong performance is supported by the tight integration with Philips’ highly successful Azurion platform and by a growing body of clinical evidence, such as the recent positive results of the DEFINE PCI study to assess the value of iFR, which is Philips’ new physiologic guidance technology. |
| • | Further expanding its offering in mobile image-guided therapy systems for conventional operating rooms (ORs), the company launched Philips Zenition, its new mobileC-arm imaging platform. Zenition is easy to move between ORs and allows hospitals to |
| Quarterly Report 2019 - Q1 1 |
maximize OR performance, enhance clinical capabilities, and improve staff experience. |
| • | Reinforcing its commitment to deliver industry-leading medical imaging and healthcare IT solutions to improve patient care and enhance care provider productivity, Philips signed an agreement to acquire Carestream Health’s Healthcare Information Systems business, adding a cloud-based enterprise imaging informatics platform and complementary geographic footprint to its portfolio. In addition, Philips expanded its radiology solutions portfolio with new teleradiology services, building on the acquisition of Direct Radiology’s teleradiology platform. |
| • | To support the expansion of the Ultrasound business into attractive adjacencies such as General Imaging and Obstetrics & Gynecology, Philips launched its new premium ultrasound system EPIQ Elite, which combines the latest advances in transducer innovation and enhanced performance to improve clinical confidence and the patient experience. |
| • | Building on its success in forging long-term strategic partnerships, Philips signed multiple new agreements in the US, Europe and Asia. The company recently signed its first long-term strategic partnership agreement in Vietnam, to provide a turnkey hospital solution to the newly-built Hong Duc General Hospital II, comprising the latest medical imaging and healthcare IT solutions as well as design, consulting and financing services. |
| • | Expanding its range of successful patient-centric CPAP mask designs, Philips launched DreamWisp, thefirst-of-its-kindover-the- nose nasal mask that allows patients with sleep apnea to sleep in any position they want. With its robust nasal cushion andtop-of-the-head tube design, DreamWisp delivers a new level of comfort and freedom of movement, providing patients with the therapy option that best suits their needs. |
| • | To advance patient care in the hospital, Philips launched IntelliSpace Epidemiology Solution, which combines clinical informatics and genomic sequencing information from pathogenic bacteria to optimize the detection of healthcare-associated infections in the hospital. A recent study shows an 87% reduction in time when identifying infection transmissions using Philips IntelliSpace Epidemiology Solution. |
| • | Philips launched its new smart S7000 Shaver series globally. Designed to address skin irritation and discomfort from shaving, the company’s first connected shaver comes with a personalized solution for sensitive skin and has received highly positive user reviews. |
| • | The strong performance of the Oral Healthcare business was driven by its innovative portfolio, including themid-range Philips Sonicare ProtectiveClean toothbrush, which features pressure sensor technology that alerts users when they are applying too much pressure and automatically reduces brushing intensity, for a brushing experience that delivers healthier gums and cleaner teeth. |
Cost savings
In the first quarter, procurement savings amounted to EUR 38 million. Overhead and other productivity programs delivered savings of EUR 75 million.
Capital allocation
On January 29, 2019, Philips announced its new share buyback program for an amount of up to EUR 1.5 billion. As of the end of the first quarter of 2019, Philips had completed 8.3% of this share buyback program. In the second quarter of 2019, Philips expects to complete its EUR 1.5 billion share buyback program for capital reduction purposes that was announced on June 28, 2017. Further details can be found here.
Regulatory update
Philips has continued to make progress towards fulfilling its obligations under the Consent Decree1). The US Food and Drug Administration (FDA) recently reverted to Philips withfollow-up requests, which the company is currently acting on.
Conference call and audio webcast
Frans van Houten, CEO, and Abhijit Bhattacharya, CFO, will host a conference call for investors and analysts at 10:00 am CET today to discuss the results. A live audio webcast of the conference call will be available on the Philips Investor Relations website and can be accessed here.
| 1) | Under the Consent Decree, Philips continues to export its complete range of AED devices and manufacture and distribute its H1/OnSite/Home automated external defibrillator (AED) model in the US. The company also continues to service the AEDs and provide consumables and the relevant accessories. |
| Quarterly Report 2019 - Q1 2 |
Philips performance
Key datain millions of EUR unless otherwise stated
| Q1 2018 | Q1 2019 | |||||||
Sales | 3,942 | 4,151 | ||||||
Nominal sales growth | (2 | )% | 5 | % | ||||
Comparable sales growth1) | 5 | % | 2 | % | ||||
Comparable order intake1) | 10 | % | 2 | % | ||||
Income from operations | 201 | 245 | ||||||
as a % of sales | 5.1 | % | 5.9 | % | ||||
Financial expenses, net | (80 | ) | (9 | ) | ||||
Investments in associates, net of income taxes | — | 2 | ||||||
Income tax expense | (28 | ) | (66 | ) | ||||
Income from continuing operations | 94 | 171 | ||||||
Discontinued operations, net of income taxes | 30 | (9 | ) | |||||
Net income | 124 | 162 | ||||||
Income from continuing operations attributable to shareholders2) per common share (in EUR) - diluted | 0.10 | 0.19 | ||||||
Adjusted income from continuing operations attributable to shareholders2) per common share (in EUR) - diluted1) | 0.23 | 0.29 | ||||||
Net income attributable to shareholders2)per common share (in EUR) - diluted | 0.13 | 0.18 | ||||||
EBITA1) | 263 | 314 | ||||||
as a % of sales | 6.7 | % | 7.6 | % | ||||
Adjusted EBITA1) | 344 | 364 | ||||||
as a % of sales | 8.7 | % | 8.8 | % | ||||
Adjusted EBITDA1) | 512 | 576 | ||||||
as a % of sales | 13.0 | % | 13.9 | % | ||||
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| 1) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
| 2) | Shareholders refers to shareholders of Koninklijke Philips N.V. |
Sales per geographic cluster in millions of EUR unless otherwise stated
| % change | ||||||||||||||||
| Q1 2018 | Q1 2019 | nominal | comparable1) | |||||||||||||
Western Europe | 853 | 865 | 1 | % | 0 | % | ||||||||||
North America | 1,384 | 1,463 | 6 | % | (1 | )% | ||||||||||
Other mature geographies | 449 | 458 | 2 | % | (2 | )% | ||||||||||
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Total mature geographies | 2,686 | 2,785 | 4 | % | (1 | )% | ||||||||||
Growth geographies | 1,256 | 1,366 | 9 | % | 10 | % | ||||||||||
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Philips Group | 3,942 | 4,151 | 5 | % | 2 | % | ||||||||||
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| 1) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
| • | Comparable sales growth was 2%, reflectingmid-single-digit growth in the Personal Health businesses,low-single-digit growth in the Diagnosis & Treatment businesses and a low single-digit decline in the Connected Care businesses. |
| • | Comparable order intake showed 2% growth, reflectingmid-single-digit growth in the Diagnosis & Treatment businesses and amid-single-digit decline in the Connected Care businesses. |
| • | Adjusted EBITA increased by EUR 20 million and the margin improved by 10 basis points compared to the first quarter of 2018, mainly due to operational improvements, which were partly offset by lower growth, an adverse currency effect of 30 basis points and the net impact of tariffs of 20 basis points. |
| • | Restructuring, acquisition-related and other charges amounted to EUR 85 million, compared to EUR 82 million in Q1 2018. EBITA in Q1 2019 also includes a charge related to a litigation provision and a gain related to the sale of the Photonics business in Germany. |
| • | Adjusted EBITDA improved to 13.9%, an increase of EUR 64 million or 90 basis points compared to Q1 2018, mainly due to the implementation of IFRS 16 lease accounting as of January 1, 2019. |
| • | Net financial expenses decreased by EUR 71 million year-on-year, mainly due to dividend income received in Q1 2019 related to the retained interest in Lumileds, while Q1 2018 included a EUR 29 million charge related to bonds that were redeemed in 2018. |
| • | Income tax expense increased by EUR 38 million, mainly driven by higher income in 2019. |
| • | Net income increased by EUR 38 million compared to Q1 2018, mainly due to improvements in operational performance and lower net financial expenses, which were partly offset by higher income tax expense. |
| • | Sales in growth geographies increased by 10% on a comparable basis, reflecting double-digit growth in China and Central & Eastern Europe. In mature geographies, sales decreased by 1% on a comparable basis, reflecting flat sales in Western Europe and alow-single-digit decline in North America and other mature geographies. |
| • | Comparable order intake in growth geographies showed double-digit growth, reflecting double-digit growth in China and Latin America. In mature geographies, comparable order intake showed amid-single-digit decline, reflecting high-single-digit growth in other mature geographies, flat order intake in Western Europe, and a high-single-digit decline in North America. |
| Quarterly Report 2019 - Q1 3 |
Cash balancein millions of EUR
| Q1 2018 | Q1 2019 | |||||||
Beginning cash balance | 1,939 | 1,688 | ||||||
Free cash flow1) | (47 | ) | (206 | ) | ||||
Net cash flows from operating activities | 92 | 14 | ||||||
Net capital expenditures | (139 | ) | (220 | ) | ||||
Other cash flows from investing activities | (87 | ) | 32 | |||||
Treasury shares transactions | (357 | ) | (122 | ) | ||||
Changes in debt | 39 | 42 | ||||||
Other cash flow items | (26 | ) | 21 | |||||
Net cash flows from discontinued operations | 519 | |||||||
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Ending cash balance | 1,982 | 1,454 | ||||||
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| 1) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
Composition of net debt to group equity
in millions of EUR unless otherwise stated
| December 31, 2018 | March 31, 2019 | |||||||
Long-term debt | 3,427 | 4,046 | ||||||
Short-term debt | 1,394 | 1,632 | ||||||
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Total debt | 4,821 | 5,678 | ||||||
Cash and cash equivalents | 1,688 | 1,454 | ||||||
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Net debt | 3,132 | 4,224 | ||||||
Shareholders’ equity | 12,088 | 12,329 | ||||||
Non-controlling interests | 29 | 24 | ||||||
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Group equity | 12,117 | 12,353 | ||||||
Net debt : group equity ratio1) | 21:79 | 25:75 | ||||||
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| 1) | Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document. |
| • | Net cash flows from operating activities decreased by EUR 78 million in Q1 2019, as higher earnings were offset by higher working capital outflows and higher tax paid. |
| • | Other cash flows from investing activities includes higher cash inflows, mainly related to the sale of the Photonics business. |
| • | Treasury shares transactions includes share repurchases for capital reduction purposes. |
| • | The increase in debt is mainly attributable to the implementation of IFRS 16 lease accounting as of January 1, 2019, which had an impact of EUR 0.8 billion; this did not have a cash impact. |
| Quarterly Report 2019 - Q1 4 |
Performance per segment
Diagnosis & Treatment businesses
Key datain millions of EUR unless otherwise stated
| Q1 20181) | Q1 2019 | |||||||
Sales | 1,635 | 1,722 | ||||||
Sales growth | ||||||||
Nominal sales growth | 3 | % | 5 | % | ||||
Comparable sales growth2) | 9 | % | 2 | % | ||||
Income from operations | 22 | 51 | ||||||
as a % of sales | 1.3 | % | 3.0 | % | ||||
EBITA2) | 39 | 77 | ||||||
as a % of sales | 2.4 | % | 4.5 | % | ||||
Adjusted EBITA2) | 81 | 107 | ||||||
as a % of sales | 5.0 | % | 6.2 | % | ||||
Adjusted EBITDA2) | 138 | 170 | ||||||
as a % of sales | 8.4 | % | 9.9 | % | ||||
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| 1) | The comparative figures have been restated for the realigned composition of the reporting segments. See Presentation on page 7. |
| 2) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
Connected Care businesses
Key datain millions of EUR unless otherwise stated
| Q1 20181) | Q1 2019 | |||||||
Sales | 965 | 1,014 | ||||||
Sales growth | ||||||||
Nominal sales growth | (7 | )% | 5 | % | ||||
Comparable sales growth2) | 2 | % | (1 | )% | ||||
Income from operations | 61 | 20 | ||||||
as a % of sales | 6.3 | % | 2.0 | % | ||||
EBITA2) | 95 | 55 | ||||||
as a % of sales | 9.8 | % | 5.4 | % | ||||
Adjusted EBITA2) | 119 | 84 | ||||||
as a % of sales | 12.3 | % | 8.3 | % | ||||
Adjusted EBITDA2) | 161 | 129 | ||||||
as a % of sales | 16.7 | % | 12.7 | % | ||||
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| 1) | The comparative figures have been restated for the realigned composition of the reporting segments. See Presentation on page 7. |
| 2) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
| • | Comparable sales growth was 2%, reflecting double-digit growth in Image-Guided Therapy and amid-single-digit decline in Diagnostic Imaging. |
| • | Comparable sales in growth geographies showed double- digit growth, reflecting double-digit growth in China and Latin America. Mature geographies recorded alow-single- digit decline, reflecting flat sales in North America, alow- single-digit decline in other mature geographies and a high- single-digit decline in Western Europe. |
| • | Adjusted EBITA increased by EUR 26 million, resulting in a margin of 6.2%, mainly due to operational improvements. |
| • | Restructuring, acquisition-related and other charges to improve productivity were EUR 30 million, compared to EUR 43 million in Q1 2018. In Q2 2019, restructuring, acquisition- related and other charges are expected to total approximately EUR 45 million. |
| • | Comparable sales showed alow-single-digit decline, reflectinglow-single-digit growth in Sleep & Respiratory Care and amid-single-digit decline in Monitoring & Analytics. |
| • | Comparable sales in growth geographies showed double- digit growth, reflecting double-digit growth in China and Middle East & Turkey. Mature geographies recorded alow- single-digit decline, reflecting alow-single-digit decline in Western Europe, amid-single-digit decline in North America andmid-single-digit growth in other mature geographies. |
| • | Adjusted EBITA decreased by EUR 35 million, resulting in a margin of 8.3%, mainly due to negative growth, adverse currency impacts and tariffs. |
| • | Restructuring, acquisition-related and other charges were EUR 29 million, compared to EUR 24 million in Q1 2018. In Q2 2019, restructuring, acquisition-related and other charges are expected to total approximately EUR 25 million. |
| Quarterly Report 2019 - Q1 5 |
Personal Health businesses
Key datain millions of EUR unless otherwise stated
| Q1 20181) | Q1 2019 | |||||||
Sales | 1,238 | 1,295 | ||||||
Sales growth | ||||||||
Nominal sales growth | (6 | )% | 5 | % | ||||
Comparable sales growth2) | 3 | % | 5 | % | ||||
Income from operations | 171 | 168 | ||||||
as a % of sales | 13.8 | % | 13.0 | % | ||||
EBITA2) | 180 | 174 | ||||||
as a % of sales | 14.5 | % | 13.4 | % | ||||
Adjusted EBITA2) | 181 | 190 | ||||||
as a % of sales | 14.6 | % | 14.7 | % | ||||
Adjusted EBITDA2) | 214 | 224 | ||||||
as a % of sales | 17.3 | % | 17.3 | % | ||||
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| 1) | The comparative figures have been restated for the realigned composition of the reporting segments. See Presentation on page 7. |
| 2) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
Other
Key datain millions of EUR
| Q1 20181) | Q1 2019 | |||||||
Sales | 103 | 120 | ||||||
Income from operations | (52 | ) | 6 | |||||
EBITA2) | (50 | ) | 8 | |||||
Adjusted EBITA2) | (37 | ) | (18 | ) | ||||
IP Royalties | 44 | 58 | ||||||
Innovation | (46 | ) | (44 | ) | ||||
Central costs | (35 | ) | (32 | ) | ||||
Other | 1 | 0 | ||||||
Adjusted EBITDA2) | (1 | ) | 53 | |||||
| 1) | The comparative figures have been restated for the realigned composition of the reporting segments. See Presentation on page 7. |
| 2) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
| • | Personal Health regained momentum as comparable sales grew 5%, reflecting double-digit growth in Oral Healthcare andlow-single-digit growth in Personal Care and Domestic Appliances. |
| • | Comparable sales in growth geographies showedlow- single-digit growth, reflecting double-digit growth in India and amid-single-digit decline in Middle East & Turkey. Mature geographies recorded high-single-digit growth, reflecting high-single-digit growth in Western Europe,low- single-digit growth in North America and double-digit growth in other mature geographies. |
| • | Adjusted EBITA increased by EUR 9 million, resulting in a margin of 14.7%, mainly due to growth, partly offset by investments. |
| • | Restructuring, acquisition-related and other charges amounted to EUR 16 million, compared to EUR 2 million in Q1 2018. In Q2 2019, restructuring, acquisition-related and other charges are expected to total approximately EUR 10 million. |
| • | Sales increased by EUR 17 million, mainly due to higher IP royalty income. |
| • | Restructuring, acquisition-related and other charges amounted to EUR 9 million, compared to EUR 14 million in Q1 2018. EBITA in Q1 2019 also includes a charge related to a litigation provision and a gain related to the sale of the Photonics business in Germany. In Q2 2019, restructuring, acquisition-related and other charges are expected to total approximately EUR 25 million. |
| Quarterly Report 2019 - Q1 6 |
Forward-looking statements and other important information
Forward-looking statements
This document and the related oral presentation, including responses to questions following the presentation, contain certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forward-looking statements include statements made about the strategy, estimates of sales growth, future Adjusted EBITA, future developments in Philips’ organic business and the completion of acquisitions and divestments. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.
These factors include but are not limited to: global economic and business conditions; political instability, including developments within the European Union such as Brexit, with adverse impact on financial markets; the successful implementation of Philips’ strategy and the ability to realize the benefits of this strategy; the ability to develop and market new products; changes in legislation; legal claims; increased healthcare regulation; changes in currency exchange rates and interest rates; changes in foreign currency import or export controls; future changes in tax rates and regulations, including trade tariffs; pension costs and actuarial assumptions; changes in raw materials prices; changes in employee costs; the ability to identify and complete successful acquisitions, and to integrate those acquisitions into the business, the ability to successfully exit certain businesses or restructure the operations; the rate of technological changes; cyber-attacks, breaches of cybersecurity; political, economic and other developments in countries where Philips operates; industry consolidation and competition; and the state of international capital markets as they may affect the timing and nature of the disposal by Philips of its remaining interests in Signify. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in the Annual Report 2018.
Third-party market share data
Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management.
Rankings are based on sales unless otherwise stated.
Use ofnon-IFRS information
In presenting and discussing the Philips Group’s financial position, operating results and cash flows, management uses certainnon-IFRS financial measures. Thesenon-IFRS financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measure and should be used in conjunction with the most directly comparable IFRS measures.Non-IFRS financial measures do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. A reconciliation of thesenon-IFRS measures to the most directly comparable IFRS measures is contained in this document. Further information onnon-IFRS measures can be found in the Annual Report 2018.
Use of fair value information
In presenting the Philips Group’s financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable.
Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data are not readily available, fair values are estimated using appropriate valuation models and unobservable inputs. Such fair value estimates require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in the Annual Report 2018. In certain cases independent valuations are obtained to support management’s determination of fair values.
Presentation
All amounts are in millions of euros unless otherwise stated. Due to rounding, amounts may not add up precisely to totals provided. All reported data is unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2018. As disclosed, per January 1, 2019 IFRS 16 lease accounting has been implemented.
As announced on January 10, 2019, Philips has realigned the composition of its reporting segments effective as of January 1, 2019. The most notable changes are the shifts of the Sleep & Respiratory Care business from the Personal Health segment to the renamed Connected Care segment and most of the Healthcare Informatics business from the renamed Connected Care segment to the Diagnosis & Treatment segment. Accordingly, the comparative figures of 2017 and 2018 have been restated. The restatement has been published on the Philips Investor Relations website and can be accessed here.
Market Abuse Regulation
This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.
| Quarterly Report 2019 - Q1 7 |
Condensed consolidated statements of income
Condensed consolidated statements of incomein millions of EUR unless otherwise stated
| Q1 | ||||||||
| 2018 | 2019 | |||||||
Sales | 3,942 | 4,151 | ||||||
Cost of sales | (2,156 | ) | (2,263 | ) | ||||
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Gross margin | 1,785 | 1,888 | ||||||
Selling expenses | (1,041 | ) | (1,084 | ) | ||||
General and administrative expenses | (130 | ) | (152 | ) | ||||
Research and development expenses | (433 | ) | (439 | ) | ||||
Other business income | 27 | 77 | ||||||
Other business expenses | (7 | ) | (45 | ) | ||||
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Income from operations | 201 | 245 | ||||||
Financial income | 13 | 47 | ||||||
Financial expenses | (93 | ) | (57 | ) | ||||
Investment in associates, net of income taxes | — | 2 | ||||||
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Income before taxes | 122 | 237 | ||||||
Income tax expense | (28 | ) | (66 | ) | ||||
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Income from continuing operations | 94 | 171 | ||||||
Discontinued operations, net of income taxes | 30 | (9 | ) | |||||
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Net income | 124 | 162 | ||||||
Attribution of net income | ||||||||
Income from continuing operations attributable to shareholders1) | 95 | 172 | ||||||
Net income attributable to shareholders1) | 125 | 164 | ||||||
Net income attributable tonon-controlling interests | (1 | ) | (1 | ) | ||||
Earnings per common share | ||||||||
Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands): | ||||||||
- basic | 921,790 | 913,049 | ||||||
- diluted | 939,822 | 923,914 | ||||||
Income from continuing operations attributable to shareholders1) | ||||||||
- basic | 0.10 | 0.19 | ||||||
- diluted | 0.10 | 0.19 | ||||||
Net income attributable to shareholders1) | ||||||||
- basic | 0.14 | 0.18 | ||||||
- diluted | 0.13 | 0.18 | ||||||
| 1) | Shareholders refers to shareholders of Koninklijke Philips N.V. |
Amounts may not add up due to rounding
| Quarterly Report 2019 - Q1 8 |
Reconciliation ofnon-IFRS information
Certainnon-IFRS financial measures are presented when discussing the Philips Group’s performance:
| • | Comparable sales growth |
| • | EBITA |
| • | Adjusted EBITA |
| • | Adjusted income from continuing operations attributable to shareholders |
| • | Adjusted income from continuing operations attributable to shareholders per common share (in EUR) - diluted |
| • | Adjusted EBITDA |
| • | Free cash flow |
| • | Net debt : group equity ratio |
| • | Comparable order intake |
For the definitions of thenon-IFRS financial measures listed above, refer to chapter 5, Reconciliation ofnon-IFRS information, of the Annual Report 2018 .
Sales growth compositionin %
| Q12019 | ||||||||||||||||
| nominal | consolidation | currency | comparable | |||||||||||||
| growth | changes | effects | growth | |||||||||||||
2019 versus 2018 | ||||||||||||||||
Diagnosis & Treatment | 5.3 | % | (0.2 | )% | (3.5 | )% | 1.6 | % | ||||||||
Connected Care | 5.1 | % | (1.1 | )% | (5.1 | )% | (1.1 | )% | ||||||||
Personal Health | 4.6 | % | 0.5 | % | (0.2 | )% | 4.9 | % | ||||||||
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Philips Group | 5.3 | % | (0.2 | )% | (2.8 | )% | 2.3 | % | ||||||||
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Adjusted income from continuing operations attributable to shareholders1)in millions of EUR unless otherwise stated
| Q1 | ||||||||
| 2018 | 2019 | |||||||
Net income | 124 | 162 | ||||||
Discontinued operations, net of income taxes | (30 | ) | 9 | |||||
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Income from continuing operations | 94 | 171 | ||||||
Continuing operationsnon-controlling interests | 1 | 1 | ||||||
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Income from continuing operations attributable to shareholders1) | 95 | 172 | ||||||
Adjustments for: | ||||||||
Amortization of acquired intangible assets | 62 | 70 | ||||||
Impairment of goodwill | ||||||||
Restructuring and acquisition-related charges | 64 | 71 | ||||||
Other items | 18 | (21 | ) | |||||
Net finance expenses | 30 | 4 | ||||||
Tax impact of adjusted items | (52 | ) | (26 | ) | ||||
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Adjusted Income from continuing operations attributable to shareholders1) | 216 | 269 | ||||||
Earnings per common share: | ||||||||
Income from continuing operations attributable to shareholders1)per common share (in EUR) - diluted | 0.10 | 0.19 | ||||||
Adjusted income from continuing operations attributable to shareholders1)per common share (EUR) - diluted | 0.23 | 0.29 | ||||||
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| 1) | Shareholders refers to shareholders of Koninklijke Philips N.V. |
| Quarterly Report 2019 - Q1 9 |
Reconciliation of Net income to Adjusted EBITAin millions of EUR
| Philips Group | Diagnosis & Treatment | Connected Care | Personal Health | Other | ||||||||||||||||
Q1 2019 | ||||||||||||||||||||
Net income | 162 | |||||||||||||||||||
Discontinued operations, net of income taxes | 9 | |||||||||||||||||||
Income tax expense | 66 | |||||||||||||||||||
Investments in associates, net of income taxes | (2 | ) | ||||||||||||||||||
Financial expenses | 57 | |||||||||||||||||||
Financial income | (47 | ) | ||||||||||||||||||
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Income from operations | 245 | 51 | 20 | 168 | 6 | |||||||||||||||
Amortization of acquired intangible assets | 70 | 27 | 35 | 6 | 2 | |||||||||||||||
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EBITA | 314 | 77 | 55 | 174 | 8 | |||||||||||||||
Restructuring and acquisition-related charges | 71 | 27 | 19 | 16 | 9 | |||||||||||||||
Other items | (21 | ) | 3 | 10 | — | (35 | ) | |||||||||||||
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Adjusted EBITA | 364 | 107 | 84 | 190 | (18 | ) | ||||||||||||||
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Q1 2018 | ||||||||||||||||||||
Net income | 124 | |||||||||||||||||||
Discontinued operations, net of income taxes | (30 | ) | ||||||||||||||||||
Income tax expense | 28 | |||||||||||||||||||
Investments in associates, net of income taxes | — | |||||||||||||||||||
Financial expenses | 93 | |||||||||||||||||||
Financial income | (13 | ) | ||||||||||||||||||
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Income from operations | 201 | 22 | 61 | 171 | (52 | ) | ||||||||||||||
Amortization of intangible assets | 62 | 16 | 34 | 9 | 3 | |||||||||||||||
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EBITA | 263 | 39 | 95 | 180 | (50 | ) | ||||||||||||||
Restructuring and acquisition-related charges | 64 | 43 | 7 | 2 | 13 | |||||||||||||||
Other items | 18 | 17 | 1 | |||||||||||||||||
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Adjusted EBITA | 344 | 81 | 119 | 181 | (37 | ) | ||||||||||||||
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Reconciliation of Net income to Adjusted EBITDAin millions of EUR
| Philips Group | Diagnosis & Treatment | Connected Care | Personal Health | Other | ||||||||||||||||
Q1 2019 | ||||||||||||||||||||
Net income | 162 | |||||||||||||||||||
Discontinued operations, net of income taxes | 9 | |||||||||||||||||||
Income tax expense | 66 | |||||||||||||||||||
Investments in associates, net of income taxes | (2 | ) | ||||||||||||||||||
Financial expenses | 57 | |||||||||||||||||||
Financial income | (47 | ) | ||||||||||||||||||
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Income from operations | 245 | 51 | 20 | 168 | 6 | |||||||||||||||
Depreciation, amortization and impairments of fixed assets | 283 | 91 | 79 | 40 | 72 | |||||||||||||||
Restructuring and acquisition-related charges | 71 | 27 | 19 | 16 | 9 | |||||||||||||||
Other items | (21 | ) | 3 | 10 | — | (35 | ) | |||||||||||||
Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items | (1 | ) | (1 | ) | — | |||||||||||||||
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Adjusted EBITDA | 576 | 170 | 129 | 224 | 53 | |||||||||||||||
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Q1 2018 | ||||||||||||||||||||
Net income | 124 | |||||||||||||||||||
Discontinued operations, net of income taxes | (30 | ) | ||||||||||||||||||
Income tax expense | 28 | |||||||||||||||||||
Investments in associates, net of income taxes | — | |||||||||||||||||||
Financial expenses | 93 | |||||||||||||||||||
Financial income | (13 | ) | ||||||||||||||||||
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Income from operations | 201 | 22 | 61 | 171 | (52 | ) | ||||||||||||||
Depreciation, amortization and impairments of fixed assets | 231 | 74 | 77 | 41 | 38 | |||||||||||||||
Impairment of goodwill | ||||||||||||||||||||
Restructuring and acquisition-related charges | 64 | 43 | 7 | 2 | 13 | |||||||||||||||
Other items | 18 | 17 | 1 | |||||||||||||||||
Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items | (2 | ) | (1 | ) | — | |||||||||||||||
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Adjusted EBITDA | 512 | 138 | 161 | 214 | (1 | ) | ||||||||||||||
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| Quarterly Report 2019 - Q1 10 |
Composition of free cash flowin millions of EUR
| January to March | ||||||||
| 2018 | 2019 | |||||||
Cash flows from operating activities | 92 | 14 | ||||||
Net capital expenditures | (139 | ) | (220 | ) | ||||
Purchase of intangible assets | (21 | ) | (40 | ) | ||||
Expenditures on development assets | (67 | ) | (80 | ) | ||||
Capital expenditures on property, plant and equipment | (81 | ) | (103 | ) | ||||
Proceeds from disposals of property, plant and equipment | 31 | 2 | ||||||
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Free cash flow | (47 | ) | (206 | ) | ||||
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| Quarterly Report 2019 - Q1 11 |
Philips statistics
Philips statisticsin millions of EUR unless otherwise stated
| 2018 | 2019 | |||||||||||||||||||||||||||||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |||||||||||||||||||||||||
Sales | 3,942 | 4,288 | 4,306 | 5,586 | 4,151 | |||||||||||||||||||||||||||
Comparable sales growth1) | 5 | % | 4 | % | 4 | % | 5 | % | 2 | % | ||||||||||||||||||||||
Comparable order intake1) | 10 | % | 9 | % | 11 | % | 10 | % | 2 | % | ||||||||||||||||||||||
Gross margin | 1,785 | 2,006 | 2,074 | 2,689 | 1,888 | |||||||||||||||||||||||||||
as a % of sales | 45.3 | % | 46.8 | % | 48.2 | % | 48.1 | % | 45.5 | % | ||||||||||||||||||||||
Selling expenses | (1,041 | ) | (1,162 | ) | (1,045 | ) | (1,251 | ) | (1,084 | ) | ||||||||||||||||||||||
as a % of sales | (26.4 | )% | (27.1 | )% | (24.3 | )% | (22.4 | )% | (26.1 | )% | ||||||||||||||||||||||
G&A expenses | (130 | ) | (157 | ) | (165 | ) | (178 | ) | (152 | ) | ||||||||||||||||||||||
as a % of sales | (3.3 | )% | (3.7 | )% | (3.8 | )% | (3.2 | )% | (3.7 | )% | ||||||||||||||||||||||
R&D expenses | (433 | ) | (425 | ) | (415 | ) | (487 | ) | (439 | ) | ||||||||||||||||||||||
as a % of sales | (11.0 | )% | (9.9 | )% | (9.6 | )% | (8.7 | )% | (10.6 | )% | ||||||||||||||||||||||
Income from operations | 201 | 298 | 451 | 769 | 245 | |||||||||||||||||||||||||||
as a % of sales | 5.1 | % | 6.9 | % | 10.5 | % | 13.8 | % | 5.9 | % | ||||||||||||||||||||||
Net income | 124 | 2 | 292 | 678 | 162 | |||||||||||||||||||||||||||
Income from continuing operations attributable to shareholders2)per common share in EUR - diluted | 0.10 | 0.20 | 0.32 | 0.77 | 0.19 | |||||||||||||||||||||||||||
Adjusted income from continuing operations attributable to shareholders2)per common share in EUR - diluted1) | 0.23 | 0.35 | 0.42 | 0.76 | 0.29 | |||||||||||||||||||||||||||
EBITA1) | 263 | 430 | 512 | 861 | 314 | |||||||||||||||||||||||||||
as a % of sales | 6.7 | % | 10.0 | % | 11.9 | % | 15.4 | % | 7.6 | % | ||||||||||||||||||||||
Adjusted EBITA1) | 344 | 482 | 568 | 971 | 364 | |||||||||||||||||||||||||||
as a % of sales | 8.7 | % | 11.2 | % | 13.2 | % | 17.4 | % | 8.8 | % | ||||||||||||||||||||||
Adjusted EBITDA1) | 512 | 661 | 750 | 1,170 | 576 | |||||||||||||||||||||||||||
as a % of sales | 13.0 | % | 15.4 | % | 17.4 | % | 20.9 | % | 13.9 | % | ||||||||||||||||||||||
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| 1) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
| 2) | Shareholders refers to shareholders of Koninklijke Philips N.V. |
| Quarterly Report 2019 - Q1 12 |
Philips statisticsin millions of EUR unless otherwise stated
| 2018 | 2019 | |||||||||||||||||||||||||||||||
| January- March | January- June | January- September | January- December | January- March | January- June | January- September | January- December | |||||||||||||||||||||||||
Sales | 3,942 | 8,229 | 12,535 | 18,121 | 4,151 | |||||||||||||||||||||||||||
Comparable sales growth1) | 5 | % | 5 | % | 4 | % | 5 | % | 2 | % | ||||||||||||||||||||||
Comparable order intake1) | 10 | % | 10 | % | 10 | % | 10 | % | 2 | % | ||||||||||||||||||||||
Gross margin | 1,785 | 3,791 | 5,865 | 8,554 | 1,888 | |||||||||||||||||||||||||||
as a % of sales | 45.3 | % | 46.1 | % | 46.8 | % | 47.2 | % | 45.5 | % | ||||||||||||||||||||||
Selling expenses | (1,041 | ) | (2,203 | ) | (3,248 | ) | (4,500 | ) | (1,084 | ) | ||||||||||||||||||||||
as a % of sales | (26.4 | )% | (26.8 | )% | (25.9 | )% | (24.8 | )% | (26.1 | )% | ||||||||||||||||||||||
G&A expenses | (130 | ) | (288 | ) | (453 | ) | (631 | ) | (152 | ) | ||||||||||||||||||||||
as a % of sales | (3.3 | )% | (3.5 | )% | (3.6 | )% | (3.5 | )% | (3.7 | )% | ||||||||||||||||||||||
R&D expenses | (433 | ) | (858 | ) | (1,273 | ) | (1,759 | ) | (439 | ) | ||||||||||||||||||||||
as a % of sales | (11.0 | )% | (10.4 | )% | (10.2 | )% | (9.7 | )% | (10.6 | )% | ||||||||||||||||||||||
Income from operations | 201 | 499 | 950 | 1,719 | 245 | |||||||||||||||||||||||||||
as a % of sales | 5.1 | % | 6.1 | % | 7.6 | % | 9.5 | % | 5.9 | % | ||||||||||||||||||||||
Net income | 124 | 126 | 419 | 1,097 | 162 | |||||||||||||||||||||||||||
Income from continuing operations attributable to shareholders 2)per common share in EUR - diluted | 0.10 | 0.30 | 0.63 | 1.39 | 0.19 | |||||||||||||||||||||||||||
Adjusted income from continuing operations attributable to shareholders 2)per common share in EUR - diluted1) | 0.23 | 0.58 | 1.00 | 1.76 | 0.29 | |||||||||||||||||||||||||||
EBITA1) | 263 | 694 | 1,205 | 2,066 | 314 | |||||||||||||||||||||||||||
as a % of sales | 6.7 | % | 8.4 | % | 9.6 | % | 11.4 | % | 7.6 | % | ||||||||||||||||||||||
Adjusted EBITA1) | 344 | 827 | 1,395 | 2,366 | 364 | |||||||||||||||||||||||||||
as a % of sales | 8.7 | % | 10.0 | % | 11.1 | % | 13.1 | % | 8.8 | % | ||||||||||||||||||||||
Adjusted EBITDA1) | 512 | 1,173 | 1,923 | 3,093 | 576 | |||||||||||||||||||||||||||
as a % of sales | 13.0 | % | 14.3 | % | 15.3 | % | 17.1 | % | 13.9 | % | ||||||||||||||||||||||
Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands) | 914,826 | 931,496 | 931,540 | 914,184 | 910,810 | |||||||||||||||||||||||||||
Shareholders’ equity per common share in EUR | 12.66 | 12.54 | 12.65 | 13.22 | 13.54 | |||||||||||||||||||||||||||
Net debt : group equity ratio1) | 19:81 | 22:78 | 24:76 | 21:79 | 25:75 | |||||||||||||||||||||||||||
Total employees of continuing operations | 73,845 | 75,283 | 76,531 | 77,400 | 77,340 | |||||||||||||||||||||||||||
| 1) | Non-IFRS financial measure. Refer to Reconciliation ofnon-IFRS information, of this document. |
| 2) | Shareholders refers to shareholders of Koninklijke Philips N.V. |
| Quarterly Report 2019 - Q1 13 |
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