Philips delivers Q4 sales of EUR 6 billion, with 3% comparable sales growth; income from continuing operations amounted to EUR 550 million and Adjusted EBITA margin increased to 17.9%

Fourth-quarter highlights

Sales amounted to EUR 6 billion, with 3% comparable sales growth
Comparable order intake increased 3%
Income from continuing operations was EUR 550 million, compared to EUR 723 million in Q4 2018
Adjusted EBITA margin improved by 50 basis points to 17.9% of sales, compared to 17.4% of sales in Q4 2018
Income from operations amounted to EUR 730 million, compared to EUR 769 million in Q4 2018
EPS from continuing operations (diluted) amounted to EUR 0.61; Adjusted EPS from continuing operations (diluted) increased 9% compared to Q4 2018 to EUR 0.83
Operating cash flow amounted to EUR 1,271 million, compared to EUR 1,293 million in Q4 2018; free cash flow was EUR 959 million, compared to EUR 1,019 million in Q4 2018

Full-year highlights

Sales increased to EUR 19.5 billion, with 4% comparable sales growth
Comparable order intake increased 3%
Income from continuing operations was EUR 1,192 million, compared to EUR 1,310 million in 2018
Adjusted EBITA margin increased 10 basis points to 13.2% of sales, compared to 13.1% of sales in 2018
Income from operations amounted to EUR 1,644 million, compared to EUR 1,719 million in 2018
EPS from continuing operations (diluted) amounted to EUR 1.30; Adjusted EPS from continuing operations (diluted) increased 15% compared to 2018 to EUR 2.02
Operating cash flow totaled EUR 2,032 million, compared to EUR 1,780 million in 2018; free cash flow increased to EUR 1,053 million, compared to EUR 984 million in 2018
Proposed dividend of EUR 0.85 per share

Company update
Philips to review ownership options for the Domestic Appliances business
Roy Jakobs appointed as the new Chief Business Leader of the Connected Care businesses, succeeding Carla Kriwet, who will leave the company

Frans van Houten, CEO:
“I am encouraged that the three business segments together delivered 4% comparable sales growth and an Adjusted EBITA margin improvement of 120 basis points in the fourth quarter, despite a more challenging environment. This performance was partly offset by lower IP royalties compared to Q4 2018, resulting in 3% comparable sales growth and an Adjusted EBITA margin improvement of 50 basis points for the Group. Comparable order intake grew a further 3%, on the back of strong 10% growth in Q4 2018.

For the full year, we are pleased to have grown the company to EUR 19.5 billion sales with 4.5% comparable sales growth, achieving a free cash flow of more than EUR 1 billion, and increasing adjusted earnings per share from continuing operations by 15%. Our profitability improvement of 10 basis points for the year fell short of our plan, partly due to headwinds.

Looking ahead at 2020 we continue to see geopolitical and economic risks. We aim for 4-6% comparable sales growth and an Adjusted EBITA margin improvement of around 100 basis points, with a performance momentum that is expected to improve in the course of the year.”

Business segment performance
In the fourth quarter, all business segments delivered growth and increased profitability.

The Diagnosis & Treatment businesses recorded 5% comparable sales growth in the quarter, driven by high-single-digit growth in Image-Guided Therapy and mid-single-digit growth in Ultrasound. Comparable order intake showed a low-single-digit increase on the back of high-single-digit growth in Q4 2018. The order intake growth was driven by double-digit growth in China and Western Europe. The Adjusted EBITA margin increased to 16.3%, mainly due to sales growth, partly offset by investments and tariffs. For the full year, the Diagnosis & Treatment businesses delivered 5% comparable sales growth and an increased Adjusted EBITA margin of 12.7%.

The Connected Care businesses delivered 2% comparable sales growth in the quarter, driven by mid-single-digit growth in Monitoring & Analytics. Comparable order intake showed a mid-single-digit increase, driven by double-digit growth in North America and China. The Adjusted EBITA margin increased to 19.4%, mainly due to sales growth and productivity, partly offset by the impact of tariffs. For the full year, the Connected Care businesses delivered 3% comparable sales growth and the Adjusted EBITA margin decreased to 13.2%.

The Personal Health businesses delivered comparable sales growth of 4% in the quarter, driven by double-digit growth in Oral Healthcare and mid-single-digit growth in Personal Care. The Adjusted EBITA margin increased to 20.1%, mainly due to sales growth, a positive mix impact and productivity, partly offset by tariffs. For the full year, the Personal Health businesses delivered 5% comparable sales growth and an increase in Adjusted EBITA margin to 16.1%.

Philips’ ongoing focus on innovation and strategic partnerships to make the world healthier and more sustainable resulted in the following highlights in the quarter and the full year:

In 2019, Philips’ products and solutions improved the lives of 1.64 billion people, compared to 1.54 billion in 2018; this includes 194 million people in underserved communities, compared to 175 million in 2018. Additionally, for the seventh consecutive year Philips was ranked on CDP's Climate Change A-list in recognition of its actions to reduce emissions, mitigate climate risks and develop the low-carbon economy. Philips is the first health technology company to have committed to become carbon-neutral in its operations by 2020.
Philips entered into several new long-term strategic partnerships, including a 5-year partnership with the Regional Medical Center in South Carolina to provide diagnostic imaging and image-guided therapy solutions to innovate patient care. Philips also announced a 5-year agreement with US-based Inspira Health to standardize patient monitoring and drive innovation in diagnostic imaging and image-guided therapies in order to enhance patient care and improve clinical workflow performance.
Driven by Philips’ innovative portfolio of diagnostic imaging, image-guided therapy and patient monitoring solutions, the company continues to win large contracts in China. For example, Philips signed an agreement with the Xi’an International Medical Group to deliver solutions to address clinical and research needs in cardiology, radiation oncology and critical care.
Philips continues to set the standard in integrated solutions for image-guided therapy with the expansion of its Azurion platform with FlexArm and the seamless integration of its smart catheters in the platform. The successful launch of Azurion in China and expansion of its smart catheter offering in Europe and Asia contributed to double-digit comparable sales and order intake growth for the Image-Guided Therapy business in 2019.
Demonstrating the success of Philips’ telehealth solutions for critical care, US-based Health First achieved significant results by using Philips’ acute telehealth platform. Powered by Philips’ eCareManager, Health First’s VitalWatch eICU achieved a 23% reduction in overall mortality, a 49% reduction in ICU length of stay, and a 35% reduction in length of stay across its four hospitals.
Philips expanded its General Care solutions portfolio with the launch of the EarlyVue VS30 in the US. This new vital signs monitor uses automated Early Warning Scoring (EWS) to collect critical vital signs and calculate risk-based alerts that allow clinicians to identify subtle signs of patient deterioration and facilitate communication between caregivers for timely intervention and patient care.
Building on the success of Philips’ leading oral care solutions, the company rolled out the BrushSmart program in collaboration with Delta Dental of California, the largest provider of dental benefits in the US. The subscription-based program includes a discounted Sonicare toothbrush, coaching and teledentistry, and connects brushing behaviors at home with professional dental care to better understand, motivate and drive improvements in oral health.
The global roll-out of Philips’ premium Shaver S9000 Prestige with BeardAdapt Sensor, which adapts the shaver automatically to the user’s hair, and mid-range Shaver S7000 with a personalized solution for sensitive skin, continues to result in positive user reviews and supported strong performance of the Male Grooming business in the quarter.

Domestic Appliances review

Philips announced this morning that it will review options for future ownership of the Domestic Appliances business, and start the process of creating a separate legal structure for this business. The Domestic Appliances business is a global leader with EUR 2.3 billion sales in 2019 in kitchen appliances, coffee, garment care and home care appliances.

Frans van Houten: “The Domestic Appliances business has significantly contributed to Philips, but it is not a strategic fit for our future as a health technology leader, as we choose to further sharpen our focus along the health continuum and invest in our consumer health and professional healthcare-related businesses.”

Executive Committee management changes
Roy Jakobs, currently Chief Business Leader of the Personal Health businesses, has been appointed as the new Chief Business Leader of the Connected Care businesses with immediate effect. He succeeds Carla Kriwet, who will leave the company.

Frans van Houten: “On behalf of Philips’ Executive Committee, I want to thank Carla for her contributions to Philips, and wish her the best in her future endeavors. At the same time, I am pleased to announce Roy as the new leader of the Connected Care businesses and would like to highlight his global leadership experience, with a strong business performance record, and accomplishments in strategy, digital innovation and new business development in the business-to-consumer and business-to-business domains.”

A successor for the Personal Health Chief Business Leader role will be announced in due course. Philips CEO Frans van Houten will lead the Personal Health businesses on an interim basis

Cost savings
In the fourth quarter of 2019, cost savings totaled EUR 125 million, with procurement savings of EUR 39 million and savings from overhead and other productivity programs of EUR 86 million, resulting in annual savings of EUR 480 million in 2019.

Capital allocation
As of the end of the fourth quarter of 2019, Philips has completed 41.5% of its EUR 1.5 billion share buyback program for capital reduction purposes that was announced on January 29, 2019. Further details can be found here.

In the quarter, Philips completed the cancellation of 8.5 million shares that were acquired as part of the share buyback program mentioned above.

At the end of the fourth quarter of 2019, the total number of issued shares outstanding was 890,973,790 shares, compared to 914,184,087 shares at the end of the fourth quarter of 2018.

Regulatory update
Philips continues to address the follow-up requests of the US Food and Drug Administration (FDA) as part of its efforts to fulfill its obligations under the Consent Decree [1] and remains in dialogue with the agency.

[1] Under the Consent Decree, Philips continues to export its range of AED devices and manufacture and distribute its HS1/OnSite/Home automated external defibrillator (AED) model in the US. The company may also continue to service the AEDs provided that certain conditions are met and provide consumables and the relevant accessories.


Philips to review options for its Domestic Appliances business
Amsterdam, the Netherlands – Royal Philips (NYSE: PHG, AEX: PHIA), a global leader in health technology, today announced that it will review options for future ownership of its Domestic Appliances business. Philips will start the process of creating a separate legal structure for this business within the Philips Group, which is expected to be completed in 12 to 18 months. The Domestic Appliances business is a global leader with EUR 2.3 billion sales in 2019 in kitchen appliances, coffee, garment care and home care appliances with successful products such as the Airfryer XXL, Automatic Coffee Machine with LatteGo, Perfect Care Elite steam generator, Air Purifier and SpeedPro Max Aqua vacuum cleaner.

“We have significantly improved the performance of the Domestic Appliances business over the years, which has made a very important contribution to Philips, however this business is not a strategic fit for our future as a health technology leader,” said Frans van Houten, CEO of Royal Philips. “We are committed to finding a good home for this business to continue to thrive and grow over time, as we expand and invest in our consumer health and professional healthcare related businesses.”

“We are also committed to a seamless transition of the Domestic Appliances business with continuity for our employees, partners and customers,” added Frans van Houten. “At the same time, we will continue to innovate and invest in our Personal Health businesses in areas such as oral care, mother & child care and personal care, to empower people to take control of their own health and well-being needs.”

Philips is a leading provider of integrated solutions to improve people's health and optimize care provider productivity across the health continuum from healthy living and prevention, to diagnosis, treatment and home care. Following the disentanglement of the Domestic Appliances business, Philips’ EUR 3.5 billion Personal Health businesses will continue to play an important role in the company’s integrated health continuum approach through connected products and solutions to support the health and well-being of people.