6-K 1 d674810d6k.htm 6-K 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

January 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 Rule 12g3-2(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’ Fourth Quarter Results 2018”, dated January 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 January, 2019.

KONINKLIJKE PHILIPS N.V.

/s/ M.J. van Ginneken

 

(Chief Legal Officer)


LOGO

Philips meets full-year targets, proposes 6% dividend increase and launches new EUR 1.5 billion share buyback program

Philips delivers Q4 sales of EUR 5.6 billion, with 5% comparable sales growth; income from continuing operations increased to EUR 723 million and Adjusted EBITA margin increased to 17.4%

Amsterdam, January 29, 2019

Fourth-quarter highlights

 

   

Sales amounted to EUR 5.6 billion, with 5% comparable sales growth

 

   

Comparable order intake for the quarter increased 10%

 

   

Income from continuing operations increased to EUR 723 million, compared to EUR 476 million in Q4 2017

 

   

Adjusted EBITA margin improved by 70 basis points, despite a 40 basis points adverse currency effect, to 17.4% of sales, compared to 16.7% of sales in Q4 2017

 

   

Income from operations increased to EUR 769 million, compared to EUR 723 million in Q4 2017

 

   

Operating cash flow increased to EUR 1,293 million, compared to EUR 1,202 million in Q4 2017; free cash flow increased to EUR 1,019 million, compared to EUR 948 million in Q4 2017

Full-year highlights

 

   

Sales increased to EUR 18.1 billion, with 5% comparable sales growth

 

   

Comparable order intake increased 10% year-on-year

 

   

Income from continuing operations increased to EUR 1,310 million, compared to EUR 1,028 million in 2017

 

   

Adjusted EBITA margin improved by 100 basis points to 13.1% of sales, compared to 12.1% of sales in 2017

 

   

Income from operations amounted to EUR 1,719 million, compared to EUR 1,517 million in 2017

 

   

Operating cash flow totaled EUR 1.8 billion, compared to EUR 1.9 billion in 2017; free cash flow amounted to EUR 984 million, including a EUR 176 million outflow related to pension liability de-risking and an early bond redemption, compared to EUR 1,185 million in 2017

 

   

Proposal to increase dividend by 6% to EUR 0.85 per share; start of new EUR 1.5 billion share buyback program

Frans van Houten, CEO

“We continued to make progress during the year and delivered 5% comparable sales growth in the fourth quarter, with good mid- single-digit growth in our Diagnosis & Treatment businesses, low-single-digit growth in our Personal Health businesses in line with our expectations for this year, and higher IP royalties. I am encouraged by the comparable order intake growth in the Connected Care & Health Informatics businesses, which drove the 10% comparable order intake growth for the Group. The Adjusted EBITA margin improved by 70 basis points, despite a 40 basis points adverse currency effect.

 

  Quarterly Report 2018 - Q4        1


For the full year, we delivered on our targets, with 5% comparable sales growth, 100 basis points improvement in the Adjusted EBITA margin, and a free cash flow of EUR 1.2 billion, excluding payments related to the US Pension Fund liability de-risking and premium payments related to an early bond redemption. We saw rising demand for our innovative product and solutions portfolio, resulting in 10% comparable order intake growth for the year, with good growth across the world.

Our continued focus on innovation combined with our growing order book provide a solid base to further strengthen our leadership position as a focused health technology company. This confidence enables us to propose a 6% dividend increase to EUR 0.85 per share and to announce a new EUR 1.5 billion share buyback program.

As Philips continues to navigate global geopolitical challenges and market volatility, for which we are taking necessary actions, we expect our performance momentum to improve in the course of the year. We reaffirm our overall targets of 4-6% comparable sales growth and an Adjusted EBITA margin improvement of 100 basis points on average per year for the 2017–2020 period.”

Business segment performance

In the quarter, the Diagnosis & Treatment businesses recorded 5% comparable sales growth, driven by double-digit growth in Image- Guided Therapy. Comparable order intake showed a low-single-digit increase on the back of double-digit growth in Q4 2017. The order intake growth was driven by double-digit growth in Diagnostic Imaging. The Adjusted EBITA margin increased to 15.9%, mainly due to growth and operational improvements. For the full year, the Diagnosis & Treatment businesses delivered 7% comparable sales growth and an increased Adjusted EBITA margin of 11.6%.

The Connected Care & Health Informatics businesses delivered a double-digit increase in comparable order intake in the fourth quarter, driven by Monitoring & Analytics and Healthcare Informatics. Comparable sales remained flat, with low-single-digit growth in Monitoring & Analytics. The Adjusted EBITA margin decreased to 16.1%, mainly due to lower growth. For the full year, the Connected Care & Health Informatics businesses’ sales were in line with 2017 on a comparable basis, while the Adjusted EBITA margin decreased to 11.1%.

The Personal Health businesses delivered comparable sales growth of 3% in Q4 2018, driven by high-single-digit growth in Sleep & Respiratory Care. The Adjusted EBITA margin decreased to 18.6%, reflecting lower growth. For the full year, the Personal Health businesses delivered 3% comparable sales growth and an increase in Adjusted EBITA margin to 16.8%.

Philips’ ongoing focus on innovation and strategic partnerships resulted in the following highlights in the quarter:

 

   

NewYork-Presbyterian Hospital selected Philips’ IntelliSpace Enterprise Edition as its in-hospital clinical decision support platform to help address the Quadruple Aim of improved patient experience, better health outcomes, improved staff experience, and lower cost of care across its sites.

 

   

Continuing the positive momentum of the Diagnostic Imaging business in China, the company received CFDA approval to market its advanced Vereos Digital PET/CT in China. Globally, Philips saw strong demand for its recently launched Ingenia Elition MRI system and Ingenia Ambition MRI system, which enables helium-free operations as well as featuring Compressed SENSE software, a breakthrough acceleration technique speeding up MR exams by up to 50%.

 

   

Philips entered into multiple new agreements in the US and Europe. For example, the company announced an agreement with County Durham and Darlington NHS Foundation Trust in the UK to provide imaging and cardiology solutions across their sites, further building on the large number of long-term strategic partnerships.

 

   

Leveraging Philips’ expertise in remote monitoring solutions, the company partnered with Dartmouth-Hitchcock Health in the US to implement Philips’ eICU technology at their hospital sites. Following the success of similar programs across the globe, Dartmouth-Hitchcock Health is the latest health system to incorporate this telehealth model to improve critical care support across multiple sites.

 

   

Highlighting the success of Philips’ patient-centric product designs in sleep care, Philips has sold more than 10 million DreamWear CPAP masks and cushions in just three years after the Dream Family platform introduction, growing the DreamWear patient interface sales faster than the market.

 

   

Philips launched an extension to the successful Azurion image-guided therapy platform, setting a new standard in the industry. Azurion with FlexArm includes innovations for optimal visualization across the whole patient in 2D and 3D to simplify and enhance a broad range of procedures. Additionally, Philips announced the enrolment of the first patient in the new Stellarex ILLUMENATE Below-the-Knee (BTK) Investigational Device Exemption (IDE) study in the US.

 

   

Philips became the first health technology company to have its new CO2 emission targets accepted by the Science Based Targets initiative, a collaboration between the UN Global Compact, the World Resources Institute and the World Wide Fund for Nature aimed at driving ambitious corporate climate action.

 

  Quarterly Report 2018 - Q4        2


Cost savings

In the fourth quarter, procurement savings amounted to EUR 79 million. Overhead and other productivity programs delivered savings of EUR 56 million, contributing to annual savings of EUR 466 million in 2018.

Capital allocation

A proposal will be submitted to the Annual General Meeting of Shareholders, to be held on May 9, 2019, to declare a distribution of EUR 0.85 per common share, in cash or shares at the option of the shareholder, against the net income for 2018.

On June 28, 2017, Philips announced its current EUR 1.5 billion share buyback program for capital reduction purposes. Under that program, which was initiated in the third quarter of 2017, Philips repurchased shares in the open market and entered into a number of forward transactions, some of which are yet to be settled in Q2 2019. Further details can be found [here].

Today, Philips announces a new share buyback program for an amount of up to EUR 1.5 billion. At the current share price, the program represents a total of approximately 46 million shares. Philips expects to start the program in the first quarter of 2019 and to complete it within two years. Updates on the progress of the program will be provided through press releases and further details will be available [here].

As the program will be initiated for capital reduction purposes, Philips intends to cancel all of the shares acquired under the program. The program will be executed by an intermediary to allow for purchases in the open market during both open and closed periods, in accordance with the EU Market Abuse Regulation.

Reporting segment re-alignment as of Q1 2019

To further align its businesses with customer needs, Philips has re-aligned its three reporting segments Diagnosis & Treatment, Connected Care & Health Informatics, and Personal Health. Effective as of January 1, 2019, the most notable changes are the shift of the Sleep & Respiratory Care business from the Personal Health segment to the renamed Connected Care segment, and the shift of most of the Healthcare Informatics business from the Connected Care segment to the Diagnosis & Treatment segment. The Group targets for the 2017-2020 period remain unchanged.

Regulatory update

Philips has continued to make progress towards fulfilling its obligations under the Consent Decree, which is primarily focused on defibrillator manufacturing in the US. Currently Philips is awaiting feedback from the FDA, which has been postponed due to the recent partial US Government shutdown.

Signify

Philips’ shareholding in Signify is currently 16.5% of Signify’s issued share capital. With Philips CFO Abhijit Bhattacharya stepping down from the Supervisory Board of Signify as of December 31, 2018, the remaining stake is presented as a financial asset at market value, based on Signify’s stock price. Value adjustments of the retained interest from this date will be recognized in Other Comprehensive Income outside of the Income statement. For Q4 2018, value adjustments of the retained interest are shown within Discontinued operations. Philips reiterates its intention to fully sell down its stake over time.

Conference call and audio webcast

Frans van Houten, CEO, and Abhijit Bhattacharya, CFO, will host a conference call for investors and analysts at 10:30 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].

 

  Quarterly Report 2018 - Q4        3


Philips performance

Key data in millions of EUR unless otherwise stated

 

     Q4 2017     Q4 2018  

Sales

     5,303       5,586  

Nominal sales growth

     0     5

Comparable sales growth1)

     5     5

Comparable order intake1)

     7     10

Income from operations

     723       769  

as a % of sales

     13.6     13.8

Financial expenses, net

     (9     (58

Investments in associates, net of income taxes

     (2     —    

Income tax expense

     (237     12  

Income from continuing operations

     476       723  

Discontinued operations, net of income taxes

     423       (44

Net income

     899       678  

Income from continuing operations attributable to shareholders2) per common share (in EUR) - diluted3)

     0.49       0.77  

Adjusted income from continuing operations attributable to shareholders2) per common share (in EUR) - diluted1)

     0.66       0.76  

Net income attributable to shareholders2) per

common share (in EUR) - diluted

     0.91       0.72  

EBITA1)

     790       861  

as a % of sales

     14.9     15.4

Adjusted EBITA1)

     884       971  

as a % of sales

     16.7     17.4

Adjusted EBITDA1)

     1,072       1,170  

as a % of sales

     20.2     20.9
  

 

 

   

 

 

 

 

1)

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

2)

Shareholders refers to shareholders of Koninklijke Philips N.V.

3)

The presentation of 2017 information has been updated compared to the information previously published to adjust for elements of Net income that were attributable to discontinued operations.

    Comparable sales growth was 5%, reflecting mid-single-digit growth in the Diagnosis & Treatment businesses, low-single- digit growth in the Personal Health businesses and higher IP royalty income, while the Connected Care & Health Informatics businesses remained flat year-on-year.

 

    Comparable order intake showed 10% growth, reflecting double-digit growth in the Connected Care & Health Informatics businesses and low-single-digit growth in the Diagnosis & Treatment businesses.

 

    EBITA increased by EUR 71 million and the margin went up to 15.4%, an increase of 50 basis points compared to Q4 2017.

 

    Adjusted EBITA increased by EUR 87 million and the margin improved to 17.4%, an improvement of 70 basis points compared to Q4 2017, mainly due to growth, operational improvements and higher IP royalty income, which were partly offset by an adverse currency effect of 40 basis points.

 

    Restructuring and acquisition-related charges amounted to EUR 99 million, compared to EUR 107 million in Q4 2017. EBITA in Q4 2018 also includes EUR 11 million of charges related to the consent decree primarily focused on defibrillator manufacturing in the US (‘consent decree’). EBITA in Q4 2017 also included EUR 4 million of charges related to the separation of Signify, EUR 20 million of charges related to the consent decree and a EUR 36 million release of a provision.

 

    Adjusted EBITDA improved to 20.9%, an increase of EUR 98 million or 70 basis points compared to Q4 2017.

 

    Net financial expenses increased by EUR 49 million year- on-year, mainly reflecting the Q4 2017 effect of dividend income related to the retained interest in Lumileds.

 

    Income tax expense decreased by EUR 249 million compared to Q4 2017. The decrease is largely driven by one- time non-cash tax benefits from tax settlements and business integrations in Q4 2018. Q4 2017 tax expense included a EUR 72 million one-time tax charge due to a valuation adjustment of Philips’ US deferred tax assets following the enactment of the US Tax Cuts and Jobs Act (‘US Tax Reform’) in December 2017.

 

    Discontinued operations mainly includes a EUR 34 million charge related to the value adjustment of the retained interest in Signify. Q4 2017 included a EUR 599 million net gain from the deconsolidation of Signify and the operating results of EUR 67 million prior to its deconsolidation at the end of November 2017, partly offset by a EUR 104 million charge related to a value adjustment of the retained interest in Signify and a one-time non-cash tax charge of EUR 99 million due to the US Tax Reform.

 

    Net income decreased by EUR 221 million compared to Q4 2017, mainly due to the deconsolidation of Signify.
 

 

  Quarterly Report 2018 - Q4        4


Sales per geographic cluster in millions of EUR unless otherwise stated

 

              % change  
     Q4 2017      Q4 2018      nominal     comparable1)  

Western Europe

     1,201        1,284        7     5

North America

     1,871        1,880        1     (2 )% 

Other mature geographies

     466        614        32     31
  

 

 

    

 

 

    

 

 

   

 

 

 

Total mature geographies

     3,538        3,778        7     5

Growth geographies

     1,765        1,808        2     7
  

 

 

    

 

 

    

 

 

   

 

 

 

Philips Group

     5,303        5,586        5     5
  

 

 

    

 

 

    

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

Cash balance in millions of EUR

 

     Q4 2017     Q4 2018  

Beginning cash balance

     1,604       1,256  

Free cash flow1)

     948       1,019  

Net cash flows from operating activities

     1,202       1,293  

Net capital expenditures

     (254     (273

Other cash flows from investing activities

     (160     (44

Treasury shares transactions

     (341     (587

Changes in debt

     (64     (61

Other cash flow items

     2       13  

Net cash flows from discontinued operations

     (50     91  
  

 

 

   

 

 

 

Ending cash balance

     1,939       1,688  
  

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

Composition of net debt to group equity

in millions of EUR unless otherwise stated

 

    September 30, 2018     December 31, 2018  

Long-term debt

    3,171       3,427  

Short-term debt

    1,731       1,394  
 

 

 

   

 

 

 

Total debt

    4,902       4,821  

Cash and cash equivalents

    1,256       1,688  
 

 

 

   

 

 

 

Net debt

    3,647       3,132  

Shareholders’ equity

    11,780       12,088  

Non-controlling interests

    22       29  
 

 

 

   

 

 

 

Group equity

    11,802       12,117  

Net debt : group
equity ratio1)

    24:76       21:79  
 

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

    Sales in growth geographies increased by 7% on a comparable basis, driven by double-digit growth in Latin America and India. In mature geographies, sales increased by 5% on a comparable basis, reflecting double-digit growth in other mature geographies, driven by higher IP royalty income, mid-single-digit growth in Western Europe and a low-single-digit decline in North America.

 

    Comparable order intake in growth geographies showed double-digit growth, reflecting double-digit growth in China and India. In mature geographies, comparable order intake showed double-digit growth, reflecting double-digit growth in North America and other mature geographies and high- single-digit growth in Western Europe.

 

    Net cash flows from operating activities increased by EUR 91 million, mainly due to higher earnings and higher working capital inflows.

 

    Other cash flows from investing activities mainly includes outflows related to acquisitions.

 

    Treasury shares transactions includes share repurchases for capital reduction purposes and for Long Term Incentive and employee stock purchase plans.

 

    Net cash flows from discontinued operations reflects net proceeds of EUR 91 million related to a further sale of shares in Signify. Q4 2017 included EUR 545 million proceeds related to the sale of shares of Signify, mainly offset by the deconsolidation of Signify’s cash and cash equivalents.
 

 

  Quarterly Report 2018 - Q4        5


Performance per segment

Diagnosis & Treatment businesses

Key data in millions of EUR unless otherwise stated

 

     Q4 2017     Q4 2018  

Sales

     2,092       2,201  

Sales growth

    

Nominal sales growth

     3     5

Comparable sales growth1)

     6     5

Income from operations

     247       253  

as a % of sales

     11.8     11.5

EBITA1)

     266       294  

as a % of sales

     12.7     13.4

Adjusted EBITA1)

     311       351  

as a % of sales

     14.9     15.9

Adjusted EBITDA1)

     361       403  

as a % of sales

     17.3     18.3
  

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

Connected Care & Health Informatics businesses

Key data in millions of EUR unless otherwise stated

 

     Q4 2017     Q4 2018  

Sales

     912       936  

Sales growth

 

 

Nominal sales growth

     (5 )%      3

Comparable sales growth1)

     2     0

Income from operations

     159       99  

as a % of sales

     17.4     10.6

EBITA1)

     169       114  

as a % of sales

     18.5     12.2

Adjusted EBITA1)

     186       151  

as a % of sales

     20.4     16.1

Adjusted EBITDA1)

     222       183  

as a % of sales

     24.3     19.6

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

    Comparable sales growth was 5%, driven by double-digit growth in Image-Guided Therapy and high-single-digit growth in Ultrasound.

 

    Comparable sales in growth geographies showed high- single-digit growth, reflecting double-digit growth in Latin America and high-single-digit growth in China. Mature geographies recorded low-single-digit growth, led by high- single-digit growth in Western Europe and mid-single-digit growth in other mature geographies, while North America remained flat year-on-year.

 

    EBITA increased by EUR 28 million to EUR 94 million.

 

    Adjusted EBITA increased by EUR 40 million, resulting in a margin of 15.9%, mainly due to growth and operational improvements.

 

    Restructuring and acquisition-related charges to improve productivity were EUR 56 million, compared to EUR 45 million in Q4 2017. In Q1 2019, restructuring and acquisition- related and other charges are expected to total approximately EUR 25 million.

 

    Comparable sales remained flat, reflecting low-single-digit growth in Therapeutic Care and Monitoring & Analytics, offset by a low-single-digit decline in Healthcare Informatics.

 

    Comparable sales in growth geographies showed double- digit growth, reflecting double-digit growth in Latin America and Middle East & Turkey. Mature geographies recorded a low-single-digit decline, reflecting double-digit growth in Western Europe and high-single-digit growth in other mature geographies, which was offset by a high-single-digit decline in North America due to softer market conditions.

 

    EBITA decreased by EUR 55 million to EUR 114 million.

 

    Adjusted EBITA margin decreased to 16.1%, mainly due to lower growth, investments in innovation and adverse currency impacts.

 

    Restructuring and acquisition-related charges were EUR 26 million, compared to EUR 33 million in Q4 2017. EBITA in Q4 2018 also includes EUR 11 million of charges related to the consent decree. EBITA in Q4 2017 also included a EUR 36 million release of a provision and EUR 20 million of charges related to the consent decree. In Q1 2019, restructuring and acquisition-related and other charges are expected to total approximately EUR 20 million.
 

 

  Quarterly Report 2018 - Q4        6


Personal Health businesses

Key data in millions of EUR unless otherwise stated

 

     Q4 2017     Q4 2018  

Sales

     2,181       2,216  

Sales growth

    

Nominal sales growth

     1     2

Comparable sales growth1)

     6     3

Income from operations

     370       374  

as a % of sales

     17.0     16.9

EBITA1)

     404       405  

as a % of sales

     18.5     18.3

Adjusted EBITA1)

     412       413  

as a % of sales

     18.9     18.6

Adjusted EBITDA1)

     476       478  

as a % of sales

     21.8     21.6
  

 

 

   

 

 

 

 

1)

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

Other

Key data in millions of EUR

 

     Q4 2017     Q4 2018  

Sales

     119       233  

Income from operations

     (53     44  

EBITA1)

     (48     47  

Adjusted EBITA1)

     (24     57  

IP Royalties

     67       146  

Innovation

     (56     (59

Central costs

     (26     (39

Other

     (10     9  

Adjusted EBITDA1)

     13       106  
  

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

 

    Comparable sales growth was 3%, driven by high-single- digit growth in Sleep & Respiratory Care and mid-single-digit growth in Domestic Appliances.

 

    Comparable sales in growth geographies showed high- single-digit growth, driven by double-digit growth in India. Growth in mature geographies showed low-single-digit growth, reflecting mid-single-digit growth in other mature geographies and low-single-digit growth in North America and Western Europe.

 

    EBITA increased by EUR 1 million to EUR 405 million.

 

    Adjusted EBITA increased by EUR 1 million, resulting in a margin of 18.6%. The lower margin was mainly due to lower growth.

 

    Restructuring and acquisition-related charges amounted to EUR 7 million, compared to EUR 8 million in Q4 2017. In Q1 2019, restructuring and acquisition-related and other charges are expected to total approximately EUR 15 million.

 

 

    Sales increased by EUR 114 million, mainly due to higher IP royalty income. Following deconsolidation at the end of November 2017, license income from Signify is reported as third-party sales.

 

    Restructuring and acquisition-related charges amounted to EUR 10 million, compared to EUR 21 million in Q4 2017. In Q1 2019, restructuring and acquisition-related and other charges are expected to total approximately EUR 25 million.
 

 

  Quarterly Report 2018 - Q4        7


Proposed distribution

A proposal will be submitted to the Annual General Meeting of Shareholders, to be held on May 9, 2019, to declare a distribution of EUR 0.85 per common share, in cash or shares at the option of the shareholder (up to EUR 777 million if all shareholders would elect cash), against the net income for 2018.

If the above dividend proposal is adopted, the shares will be traded ex-dividend as of May 13, 2019 at the New York Stock Exchange and Euronext Amsterdam. In compliance with the listing requirements of the New York Stock Exchange and the stock market of Euronext Amsterdam, the dividend record date will be May 14, 2019.

Shareholders will be given the opportunity to make their choice between cash and shares between May 15, 2019 and June 7, 2019. If no choice is made during this election period the dividend will be paid in cash. On June 7, 2019 after close of trading, the number of share dividend rights entitled to one new common share will be determined based on the volume- weighted average price of all traded common shares Koninklijke Philips N.V. at Euronext Amsterdam on June 5, 6 and 7, 2019.

The company will calculate the number of share dividend rights entitled to one new common share (the ratio), such that the gross dividend in shares will be approximately equal to the gross dividend in cash. The ratio and the number of shares to be issued will be announced on June 12, 2019. Payment of the dividend and delivery of new common shares, with settlement of fractions in cash, if required, will take place from June 13, 2019.

Further details will be given in the agenda with explanatory notes for the 2019 Annual General Meeting of Shareholders. All dates mentioned remain provisional until then.

 

 

  Quarterly Report 2018 - Q4    8


Full-year highlights

Philips performance

Key data in millions of EUR unless otherwise stated

 

     January to December  
     2017     2018  

Sales

     17,780       18,121  

Nominal sales growth

     2     2

Comparable sales growth1)

     4     5

Comparable order intake1)

     6     10

income from operations

     1,517       1,719  

as a % of sales

     8.5     9.5

Financial expenses, net

     (137     (213

Investments in associates, net of income taxes

     (4     (2

Income tax expense

     (349     (193

Income from continuing operations

     1,028       1,310  

Discontinued operations, net of income taxes

     843       (213

Net income

     1,870       1,097  

Income from continuing operations to shareholders2) per common share (in EUR) - diluted3)

     1.08       1.39  

Adjusted income from continuing operations to shareholders2) per common share (in EUR) - diluted1)

     1.54       1.76  

Net income attributable to shareholders2)

per common share (in EUR) - diluted

     1.75       1.16  

EBITA1)

     1,787       2,066  

as a % of sales

     10.1     11.4

Adjusted EBITA1)

     2,153       2,366  

as a % of sales

     12.1     13.1

Adjusted EBITDA1)

     2,832       3,093  

as a % of sales

     15.9     17.1
  

 

 

   

 

 

 

 

1)

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

2) 

Shareholders refers to shareholders of Koninklijke Philips N.V.

3)

The presentation of 2017 information has been updated compared to the information previously published to adjust for elements of Net income that were attributable to discontinued operations.

 

 

    Comparable sales growth was 5%, reflecting high-single- digit growth in the Diagnosis & Treatment businesses, low- single-digit growth in the Personal Health businesses and higher IP royalty income, while the Connected Care & Health Informatics businesses remained flat year-on-year. Sales in growth geographies showed high-single-digit growth, reflecting double-digit growth in Latin America and mid- single-digit growth in China. Mature geographies recorded low-single-digit growth, reflecting double-digit growth in other mature geographies and low-single-digit growth in Western Europe and North America.

 

    Currency-comparable order intake showed 10% growth, reflecting double-digit growth in the Diagnosis & Treatment businesses and high-single-digit growth in the Connected Care & Health Informatics businesses. On a geographic basis, growth geographies achieved double-digit growth, mainly driven by double-digit growth in China and Latin America. Mature geographies recorded high-single-digit growth, reflecting high-single-digit growth in North America, Western Europe and other mature geographies.

 

    EBITA increased by EUR 279 million and the margin increased to 11.4%, a 130 basis point improvement compared to 2017.

 

    Adjusted EBITA increased by EUR 213 million and the margin improved to 13.1%, representing a 100 basis point improvement compared to 2017, mainly due to growth, operational improvements and higher IP royalty income.

 

    Restructuring and acquisition-related charges amounted to EUR 258 million, compared to EUR 316 million in 2017. EBITA in 2018 also includes EUR 58 million of charges related to the consent decree. EBITA in 2017 also included EUR 47 million of charges related to quality and regulatory actions, EUR 22 million of charges related to portfolio rationalization measures, EUR 20 million of charges related to the consent decree and a EUR 36 million release of a provision.

 

    Net financial expenses increased by EUR 76 million year-on- year, mainly due to financing charges of EUR 46 million related to bonds redeemed in 2018 and lower dividend income, partly offset by lower net interest expenses. 2017 also included dividend income related to the retained interest in Lumileds.

 

    Income tax expense decreased by EUR 156 million compared to 2017, mainly due to one-time non-cash tax benefits from tax settlements and business integrations in 2018.

 

    Discontinued operations mainly reflects dividends received of EUR 32 million and a EUR 186 million loss related to a value adjustment of the remaining interest in Signify. In 2017, Discontinued operations included a gain following the deconsolidation of Signify, a loss from the sale of Lumileds, a charge related to a value adjustment of the remaining interest in Signify, and a one-time non-cash tax charge due to the US Tax Reform.

 

    Net income decreased by EUR 773 million compared to 2017, mainly due to the deconsolidation of Signify.
 

 

  Quarterly Report 2018 - Q4        9


Cash balance in millions of EUR

 

     January to December  
     2017     2018  

Beginning cash balance

     2,334       1,939  

Free cash flow1)

     1,185       984  

Net cash flows from operating activities

     1,870       1,780  

Net capital expenditures

     (685     (796

Other cash flows from investing activities

     (2,514     (690

Treasury shares transactions

     (414     (948

Changes in debt

     (205     160  

Dividend paid to shareholders2)

     (384     (401

Other cash flow items

     (185     (3

Sale of shares of Signify, net

     1,060    

Net cash flows discontinued operations

     1,063       647  
  

 

 

   

 

 

 

Ending cash balance

     1,939       1,688  
  

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

2) 

Shareholders refers to shareholders of Koninklijke Philips N.V.

Composition of net debt to group equity in millions of EUR unless otherwise stated

 

     December 31, 2017      December 31, 2018  

Long-term debt

     4,044        3,427  

Short-term debt

     672        1,394  
  

 

 

    

 

 

 

Total debt

     4,715        4,821  

Cash and cash equivalents

     1,939        1,688  
  

 

 

    

 

 

 

Net debt

     2,776        3,132  

Shareholders’ equity

     11,999        12,088  

Non-controlling interests

     24        29  
  

 

 

    

 

 

 

Group equity

     12,023        12,117  

Net Debt : group equity ratio1)

     19:81        21:79  
  

 

 

    

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

    Net cash flows from operating activities decreased by EUR 90 million, as higher earnings were offset by higher working capital outflows, compared to 2017. Net capital expenditures in 2017 included higher proceeds from the sale of real estate assets.

 

    Other cash flows from investing activities in 2018 mainly includes cash outflows related to acquisitions, partly offset by proceeds from divestments. 2017 included a EUR 1.9 billion outflow related to the acquisition of Spectranetics.

 

    Treasury shares transactions includes share repurchases for capital reduction purposes and for Long Term Incentive and employee stock purchase plans.

 

    Changes in debt mainly includes EUR 990 million proceeds from bonds issued, partly offset by EUR 866 million cash outflows related to early bond redemptions. 2017 mainly reflects a EUR 1,184 million cash outflow related to the bond redemption and notes issued for a total amount of EUR 1.0 billion.

 

    Net cash flows from discontinued operations mainly includes the net cash proceeds of EUR 642 million related to a further sale of shares and a dividend received related to the retained interest in Signify.
 

 

  Quarterly Report 2018 - Q4        10


Performance per segment

Diagnosis & Treatment businesses

Key data in millions of EUR unless otherwise stated

 

     January to December  
     2017     2018  

Sales

     6,891       7,245  

Sales growth

    

Nominal sales growth

     3     5

Comparable sales growth1)

     3     7

Income from operations

     488       600  

as a % of sales

     7.1     8.3

EBITA1)

     543       696  

as a % of sales

     7.9     9.6

Adjusted EBITA1)

     716       838  

as a % of sales

     10.4     11.6

Adjusted EBITDA1)

     884       1,036  

as a % of sales

     12.8     14.3
  

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

Connected Care & Health Informatics businesses

Key data in millions of EUR unless otherwise stated

 

     January to December  
     2017     2018  

Sales

     3,163       3,084  

Sales growth

    

Nominal sales growth

     0     (2 )% 

Comparable sales growth1)

     3     0

Income from operations

     206       179  

as a % of sales

     6.5     5.8

EBITA1)

     250       225  

as a % of sales

     7.9     7.3

Adjusted EBITA1)

     372       341  

as a % of sales

     11.8     11.1

Adjusted EBITDA1)

     502       462  

as a % of sales

     15.9     15.0
  

 

 

   

 

 

 

 

1)

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

    Comparable sales growth was 7%, reflecting double-digit growth in Image Guided-Therapy and Ultrasound and low- single-digit growth in Diagnostic Imaging.

 

    Comparable sales in growth geographies showed double- digit growth, driven by double-digit growth in China and Latin America. Mature geographies recorded mid-single- digit growth, reflecting mid-single-digit growth in North America, Western Europe and other mature geographies.

 

    EBITA increased by EUR 153 million.

 

    Adjusted EBITA increased by EUR 122 million and the margin improved to 11.6%, mainly due to growth and operational improvements.

 

    Restructuring and acquisition-related charges to improve productivity were EUR 142 million, compared to EUR 151 million in 2017. EBITA in 2017 included charges of EUR 22 million related to portfolio rationalization measures.

 

    Comparable sales were flat, reflecting low-single-digit growth in Healthcare Informatics while Monitoring & Analytics and Therapeutic Care remained flat year-on-year. Therapeutic Care includes the impact of the consent decree.

 

    Comparable sales in growth geographies showed high- single-digit growth, reflecting double-digit growth in Latin America and low-single-digit growth in China. Mature geographies recorded a low-single-digit decline, reflecting high-single-digit growth in Western Europe and mid-single- digit growth in other mature geographies, offset by a mid- single-digit decline in North America.

 

    EBITA decreased by EUR 25 million, mainly due to a EUR 36 million release of a provision in 2017.

 

    Adjusted EBITA decreased by EUR 31 million and the margin decreased to 11.1%, mainly due to lower growth and adverse currency impacts.

 

    Restructuring and acquisition-related charges amounted to EUR 59 million in 2018, compared to EUR 91 million in 2017. EBITA in 2018 also includes EUR 56 million of charges related to the consent decree. EBITA in 2017 also included EUR 47 million of charges related to quality and regulatory actions, EUR 20 million of charges related to the consent decree and a release of a provision.
 

 

  Quarterly Report 2018 - Q4        11


Personal Health businesses

Key data in millions of EUR unless otherwise stated

 

     January to December  
     2017     2018  

Sales

     7,310       7,228  

Sales growth

    

Nominal sales growth

     3     (1 )% 

Comparable sales growth1)

     6     3

Income from operations

     1,075       1,045  

as a % of sales

     14.7     14.5

EBITA1)

     1,211       1,171  

as a % of sales

     16.6     16.2

Adjusted EBITA1)

     1,221       1,215  

as a % of sales

     16.7     16.8

Adjusted EBITDA1)

     1,456       1,456  

as a % of sales

     19.9     20.1
  

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

Other

Key data in millions of EUR

 

     January to December  
     2017     2018  

Sales

     416       564  

Income from operations

     (252     (105

EBITA1)

     (217     (27

Adjusted EBITA1)

     (157     (28

IP Royalties

     225       272  

Innovation

     (212     (202

Central costs

     (105     (128

Other

     (65     30  

Adjusted EBITDA1)

     (11     139  
  

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

    Comparable sales growth was 3%, reflecting high-single- digit growth in Sleep & Respiratory Care and low-single-digit growth in Personal Care and Domestic Appliances, while Health & Wellness remained flat year-on-year.

 

    Comparable sales in growth geographies showed high- single-digit growth, reflecting double-digit growth in Central & Eastern Europe, high-single-digit growth in Latin America, and low-single-digit growth in Middle East & Turkey. Mature geographies recorded low-single-digit growth, reflecting high-single-digit growth in other mature geographies, flat sales in North America, and a low-single-digit decline in Western Europe.

 

    EBITA decreased by EUR 40 million.

 

    Adjusted EBITA decreased by EUR 6 million, while the margin improved to 16.8%, mainly due to operational improvements offset by adverse currency impacts.

 

    Restructuring and acquisition-related charges were EUR 26 million, compared to EUR 11 million in 2017.

 

    Sales increased by EUR 148 million, mainly due to higher IP royalty income, revenue activities from innovation and the impact of license income from Signify reported as third- party sales following deconsolidation at the end of November 2017.

 

    Restructuring and acquisition-related charges amounted to EUR 31 million, compared to EUR 64 million in 2017.
 

 

  Quarterly Report 2018 - Q4        12


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, 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; changes in currency exchange rates and interest rates; 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 2017.

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 of non-IFRS information

In presenting and discussing the Philips Group’s financial position, operating results and cash flows, management uses certain non-IFRS financial measures. These non-IFRS financial measures should not be viewed in isolation as

alternatives to the equivalent IFRS measures 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 these non-IFRS measures to the most directly comparable IFRS measures is contained in this document. Further information on non-IFRS measures can be found in the Annual Report 2017.

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 2017 and Semi-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 2017 and Semi-Annual report 2018, unless otherwise stated.

References to ‘Signify’ in this press release relate to Philips’ former Lighting segment (prior to deconsolidation as from the end of November 2017 and when reported as discontinued operations), Philips Lighting N.V. (before or after such deconsolidation) or Signify N.V. (after its renaming in May 2018), as the context requires.

References to Lumileds in this press release relate to the combined Lumileds and Automotive businesses, which were deconsolidated as from the end of June 2017.

Market Abuse Regulation

This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

 

 

  Quarterly Report 2018 - Q4        13


Condensed consolidated statements of income

Condensed consolidated statements of income in millions of EUR unless otherwise stated

 

     Q4     January to December  
     2017     2018     2017     2018  

Sales

     5,303       5,586       17,780       18,121  

Cost of sales

     (2,741     (2,897     (9,600     (9,568
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     2,563       2,689       8,181       8,554  

Selling expenses

     (1,236     (1,251     (4,398     (4,500

General and administrative expenses

     (146     (178     (577     (631

Research and development expenses

     (461     (487     (1,764     (1,759

Other business income

     27       4       152       88  

Other business expenses

     (23     (8     (76     (33
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     723       769       1,517       1,719  

Financial income

     31       9       126       51  

Financial expenses

     (40     (67     (263     (264

Investment in associates, net of income taxes

     (2     —         (4     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

     713       711       1,377       1,503  

Income tax expense

     (237     12       (349     (193
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     476       723       1,028       1,310  

Discontinued operations, net of income taxes

     423       (44     843       (213
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     899       678       1,870       1,097  

Attribution of net income

        

Income from continuing operations attributable to shareholders1)

     467       718       1,017       1,303  

Net income attributable to shareholders1)

     860       673       1,657       1,090  

Net income attributable to non-controlling interests

     39       5       214       7  

Earnings per common share

        

Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands):

        

- basic

     932,754       922,390       928,798       922,987  

- diluted

     947,857       931,398       945,132       935,851  

Income from continuing operations attributable to shareholders1)2)

        

- basic

     0.50       0.78       1.10       1.41  

- diluted

     0.49       0.77       1.08       1.39  

Net income attributable to shareholders1)

        

- basic

     0.92       0.73       1.78       1.18  

- diluted

     0.91       0.72       1.75       1.16  

 

1)

Shareholders refers to shareholders of Koninklijke Philips N.V.

2)

The presentation of 2017 information has been updated compared to the information previously published to adjust for elements of Net income that were attributable to discontinued operations.

Amounts may not add up due to rounding

 

  Quarterly Report 2018 - Q4        14


Condensed statement of comprehensive income

Condensed statement of comprehensive income in millions of EUR

 

     January to December  
     2017     2018  

Net income for the period

     1,870       1,097  

Pensions and other post employment plans:

    

Remeasurement

     102       (8

Income tax effect on remeasurements

     (78     (19

Financial assets fair value through OCI:

    

Net current-period change, before tax

       (147

Reclassification directly into retained earnings

       (5
  

 

 

   

 

 

 

Total of items that will not be reclassified to Income statement

     25       (179

Currency translation differences:

    

Net current-period change, before tax

     (1,177     383  

Income tax effect on net current-period change

     39       (29

Reclassification adjustment for (gain) loss realized, in discontinued operations

     191       (6

Available-for-sale financial assets:

    

Net current-period change, before tax

     (66  

Income tax effect on net current-period change

     (1  

Reclassification adjustment for (gain) loss realized

     1    

Cash flow hedges:

    

Net current-period change, before tax

     33       (13

Income tax effect on net current-period change

     (3     11  

Reclassification adjustment for (gain) loss realized

     (17     (31
  

 

 

   

 

 

 

Total of items that are or may be reclassified to Income Statement

     (1,000     315  
  

 

 

   

 

 

 

Other comprehensive income (loss) for the period

     (975     136  
  

 

 

   

 

 

 

Total comprehensive income (loss) for the period

     895       1,233  

Total comprehensive income attributable to:

    

Shareholders of Koninklijke Philips N.V.

     805       1,225  

Non-controlling interests

     90       8  
  

 

 

   

 

 

 

Amounts may not add up due to rounding

 

  Quarterly Report 2018 - Q4        15


Condensed consolidated balance sheets

Condensed consolidated balance sheets in millions of EUR

 

     December 31, 2017      December 31, 2018  

Non-current assets:

     

Property, plant and equipment

     1,591        1,712  

Goodwill

     7,731        8,503  

Intangible assets excluding goodwill

     3,322        3,589  

Non-current receivables

     130        162  

Investments in associates

     142        244  

Other non-current financial assets

     587        360  

Non-current derivative financial assets

     22        1  

Deferred tax assets

     1,598        1,828  

Other non-current assets

     75        47  
  

 

 

    

 

 

 

Total non-current assets

     15,198        16,447  

Current assets:

     

Inventories-net

     2,353        2,674  

Other current financial assets

     2        436  

Other current assets

     392        469  

Current derivative financial assets

     57        36  

Income tax receivable

     109        147  

Receivables

     3,909        4,035  

Assets classified as held for sale

     1,356        87  

Cash and cash equivalents

     1,939        1,688  
  

 

 

    

 

 

 

Total current assets

     10,117        9,572  
  

 

 

    

 

 

 

Total assets

     25,315        26,019  
  

 

 

    

 

 

 

Equity:

     

Shareholders’ equity

     11,999        12,088  

Common shares

     188        185  

Reserves

     385        548  

Other

     11,426        11,355  

Non-controlling interests

     24        29  
  

 

 

    

 

 

 

Group equity

     12,023        12,117  

Non-current liabilities:

     

Long-term debt

     4,044        3,427  

Non-current derivative financial liabilities

     216        114  

Long-term provisions

     1,659        1,788  

Deferred tax liabilities

     33        152  

Non-current contract liabilities

        226  

Other non-current liabilities

     474        253  
  

 

 

    

 

 

 

Total non-current liabilities

     6,426        5,959  

Current liabilities:

     

Short-term debt

     672        1,394  

Derivative financial liabilities

     167        176  

Income tax payable

     83        118  

Accounts and notes payable

     2,090        2,303  

Accrued liabilities

     2,319        1,537  

Current contract liabilities

        878  

Short-term provisions

     400        363  

Liabilities directly associated with assets held for sale

     8        12  

Other current liabilities

     1,126        1,162  
  

 

 

    

 

 

 

Total current liabilities

     6,866        7,943  
  

 

 

    

 

 

 

Total liabilities and group equity

     25,315        26,019  
  

 

 

    

 

 

 

Amounts may not add up due to rounding

 

  Quarterly Report 2018 - Q4        16


Condensed consolidated statement of cash flows

Condensed consolidated statement of cash flows in millions of EUR

 

     January to December  
     2017     2018  

Cash flows from operating activities:

    

Net income (loss)

     1,870       1,097  

Results of discontinued operations - net of income tax

     (843     213  

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

    

Depreciation, amortization and impairments of fixed assets

     1,025       1,089  

Impairment of goodwill and other non-current financial assets

     15    

Net gain on sale of assets

     (107     (71

Interest income

     (40     (31

Interest expense on debt, borrowings and other liabilities

     186       165  

Income taxes

     349       193  

Investments in associates, net of income taxes

     —         2  

Decrease (increase) in working capital:

     101       (179

Decrease (increase) in receivables and other current assets

     64       (97

Decrease (increase) in inventories

     (144     (394

Increase (decrease) in accounts payable, accrued and other current liabilities

     181       311  

Decrease (increase) in non-current receivables, other assets and other liabilities

     (358     (49

Increase (decrease) in provisions

     (252     (271

Other items

     377       37  

Interest paid

     (215     (170

Interest received

     40       35  

Dividends received from investments in associates

     6       20  

Income taxes paid

     (286     (301
  

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     1,870       1,780  

Cash flows from investing activities:

    

Net capital expenditures

     (685     (796

Purchase of intangible assets

     (106     (123

Expenditures on development assets

     (333     (298

Capital expenditures on property, plant and equipment

     (420     (422

Proceeds from sales of property, plant and equipment

     175       46  

Net proceeds from (cash used for) derivatives and current financial assets

     (198     (175

Purchase of other non-current financial assets

     (42     (34

Proceeds from other non-current financial assets

     6       77  

Purchase of businesses, net of cash acquired

     (2,344     (628

Net proceeds from sale of interests in businesses, net of cash disposed of

     64       70  
  

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     (3,199     (1,486

Cash flows from financing activities:

    

Proceeds from issuance of (payments on) short-term debt

     12       34  

Principal payments on short-term portion of long-term debt

     (1,332     (1,161

Proceeds from issuance of long-term debt

     1,115       1,287  

Re-issuance of treasury shares

     227       94  

Purchase of treasury shares

     (642     (1,042

Proceeds from sale of Signify shares

     1,065    

Transaction costs paid for sale of Signify shares

     (5  

Dividend paid to shareholders1)

     (384     (401

Dividend paid to shareholders of non-controlling interests

     (2     (3
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     55       (1,192
  

 

 

   

 

 

 

Net cash provided by (used for) continuing operations

     (1,274     (898
  

 

 

   

 

 

 

Net cash provided by (used for) discontinued operations

     1,063       647  
  

 

 

   

 

 

 

Net cash provided by (used for) continuing and discontinued operations

     (211     (251

Effect of change in exchange rates on cash and cash equivalents

     (184      

Cash and cash equivalents at the beginning of the period

     2,334       1,939  
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     1,939       1,688  
  

 

 

   

 

 

 

 

1) 

Shareholders refers to shareholders of Koninklijke Philips N.V.

For a number of reasons, principally the effects of translation differences, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items.

Amounts may not add up due to rounding

 

  Quarterly Report 2018 - Q4        17


Condensed consolidated statement of change in equity

Condensed consolidated statements of change in equity in millions of EUR

 

    Common
shares
    Currency
translation
differences
    Fair value
through
OCI
    Cash flow
hedges
    Capital in
excess of
par value
    Retained
earnings
    Treasury
shares at
cost
    Total
shareholders’
equity
    Non-controlling
interests
    Total
equity
 
          Reserves     other                    

Balance as of January 31, 2016

    186       1,234       36       10       3,083       8,178       (181     12,546       907       13,453  

Total comprehensive income (loss)

      (823     (66     12         1,681         805       90       895  

Dividend distributed

    2             356       (742       (384     (94     (478

Sales of shares of Signify

      (19           346         327       712       1,039  

Deconsolidation of Signify

            (66     54         (12     (1,590     (1,602

Purchase of treasury shares

                (318     (318       (318

Re-issuance of treasury shares

            (205     3       334       133         133  

Forward contracts

              (1,018     (61     (1,079       (1,079

Share call options

              95       (255     (160       (160

Share-based compensation plans

            151           151         151  

Income tax share-based compensation plans

            (8         (8       (8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2017

    188       392       (30     23       3,311       8,596       (481     11,999       24       12,023  

IFRS 9 and 15 adjustment

        (4         (25       (29       (29

Balance as of January 1, 2018

    188       392       (34     23       3,311       8,571       (481     11,970       24       11,993  

Total comprehensive income (loss)

      347       (147     (33       1,058         1,225       8       1,233  

Dividend distributed

    2             336       (738       (400     (3     (403

Purchase of treasury shares

                (514     (514       (514

Re-issuance of treasury shares

            (276     (4     341       61         61  

Forward contracts

              124       (443     (319       (319

Share call options

              34       (85     (51       (51

Cancellation of treasury shares

    (5             (779     783        

Share-based compensation plans

            107           107         107  

Income tax share-based compensation plans

            11           11         11  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2018

    185       739       (181     (10     3,487       8,266       (399     12,088       29       12,117  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts may not add up due to rounding

 

  Quarterly Report 2018 - Q4        18


Reconciliation of non-IFRS information

Certain non-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

The term Adjusted income from continuing operations attributable to shareholders represents income from continuing operations less continuing operations non-controlling interests, excluding amortization and impairment of acquired intangible assets, impairment of goodwill, gains or losses from restructuring costs and acquisition-related charges, other items, adjustments to net finance expenses, adjustments to investments in associates and the tax impact of the adjusted items. Shareholders refers to shareholders of Koninklijke Philips N.V.

Adjusted income from continuing operations attributable to shareholders per common share (in EUR) - diluted is calculated by dividing the Adjusted income from continuing operations attributable to shareholders by the diluted weighted average number of shares (after deduction of treasury shares) outstanding during the period, as defined in Note 1, Significant accounting policies, earnings per share section of the Annual Report 2017. For further details on these two new non-IFRS information metrics being presented by Philips, refer to the to be published 2018 Annual Report, Reconciliation of non-IFRS information section.

For the definitions of the remaining non-IFRS financial measures listed above, refer to chapter 5, Reconciliation of non-IFRS information, of the Annual Report 2017.

Sales growth composition in %

 

    Q4 2018     January to December 2018  
    nominal growth     consolidation
changes
    currency effects     comparable
growth
    nominal growth     consolidation
changes
    currency effects     comparable
growth
 

2018 versus 2017

               

Diagnosis & Treatment

    5.2     (0.4 )%      0.3     5.1     5.1     (2.4 )%      4.1     6.8

Connected Care & Health Informatics

    2.6     (1.7 )%      (0.7 )%      0.2     (2.5 )%      (1.3 )%      4.1     0.3

Personal Health

    1.6     0.4     1.4     3.4     (1.1 )%      0.0     4.4     3.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Philips Group

    5.3     (0.4 )%      0.6     5.5     1.9     (1.4 )%      4.2     4.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Adjusted income from continuing operations attributable to shareholders1) in millions of EUR unless otherwise stated

 

     Q4     January to December  
     2017     2018     2017     2018  

Net income

     899       678       1,870       1,097  

Discontinued operations, net of income taxes

     (423     44       (843     213  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     476       723       1,028       1,310  

Continuing operations non-controlling interests

     (8     (5     (11     (7
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations attributable to shareholders1)

     467       718       1,017       1,303  

Adjustments for:

        

Amortization of acquired intangible assets

     66       92       260       347  

Impairment of goodwill

     9         9    

Restructuring and acquisition-related charges

     107       99       316       258  

Other items

     (12     11       50       41  

Net finance expenses

       11         57  

Tax impact of adjusted items

     1       (224     (194     (365
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Income from continuing operations attributable to shareholders1)

     638       708       1,459       1,643  

Earnings per common share:

        

Income from continuing operations attributable to shareholders1) per common share (in EUR) - diluted2)

     0.49       0.77       1.08       1.39  

Adjusted income from continuing operations attributable to shareholders1) per common share (EUR) - diluted

     0.66       0.76       1.54       1.76  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1)

Shareholders refers to shareholders of Koninklijke Philips N.V.

2)

The presentation of 2017 information has been updated compared to the information previously published to adjust for elements of Net income that were attributable to discontinued operations.

 

  Quarterly Report 2018 - Q4         19


Reconciliation of Net income to Adjusted EBITA in millions of EUR

 

     Philips Group     Diagnosis &
Treatment
     Connected Care &
Health Informatics
    Personal Health      Other  

Q4 2018

            

Net Income

     678            

Discontinued operations, net of income taxes

     44            

Income tax expense

     (12          

Investments in associates, net of income taxes

     —              

Financial expenses

     67            

Financial income

     (9          
            

 

 

 

Income from operations

     769       253        99       374        44  

Amortization of acquired intangible assets

     92       41        16       32        3  
            

 

 

 

EBITA

     861       294        114       405        47  

Restructuring and acquisition-related charges

     99       56        26       7        10  

Other items

     11          11          1  
            

 

 

 

Adjusted EBITA

     971       351        151       413        57  

January to December 2018

            

Net Income

     1,097            

Discontinued operations, net of income taxes

     213            

Income tax expense

     193            

Investments in associates, net of income taxes

     2            

Financial expenses

     264            

Financial income

     (51          
            

 

 

 

Income from operations

     1,719       600        179       1,045        (105

Amortization of intangible assets

     347       97        46       126        79  
            

 

 

 

EBITA

     2,066       696        225       1,171        (27

Restructuring and acquisition-related charges

     258       142        59       26        31  

Other items

     41       —          56       18        (33
            

 

 

 

Adjusted EBITA

     2,366       838        341       1,215        (28

Q4 2017

            

Net Income

     899            

Discontinued operations, net of income taxes

     (423          

Income tax expense

     237            

Investments in associates, net of income taxes

     2            

Financial expenses

     40            

Financial income

     (31          
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations

     723       247        159       370        (53

Amortization of intangible assets

     66       19        10       34        4  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

EBITA

     790       266        169       404        (48

Restructuring and acquisition-related charges

     107       45        33       8        21  

Other items

     (12        (16        4  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Adjusted EBITA

     884       311        186       412        (24

January to December 2017

            

Net Income

     1,870            

Discontinued operations, net of income taxes

     (843          

Income tax expense

     349            

Investments in associates, net of income taxes

     4            

Financial expenses

     263            

Financial income

     (126          
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations

     1,517       488        206       1,075        (252

Amortization of intangible assets

     260       55        44       135        26  

Impairment of goodwill

     9               9  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

EBITA

     1,787       543        250       1,211        (217

Restructuring and acquisition-related charges

     316       151        91       11        64  

Other items

     50       22        31          (3
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Adjusted EBITA

     2,153       716        372       1,221        (157
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

  Quarterly Report 2018 - Q4         20


Reconciliation of Net income to Adjusted EBITDA in millions of EUR

 

           Diagnosis &     Connected Care &     Personal        
     Philips Group     Treatment     Health Informatics     Health     Other  

Q4 2018

          

Net Income

     678          

Discontinued operations, net of income taxes

     44          

Income tax expense

     (12        

Investments in associates, net of income taxes

     —            

Financial expenses

     67          

Financial income

     (9        
          

 

 

 

Income from operations

     769       253       99       374       44  

Depreciation, amortization and impairments of fixed assets

     299       95       57       97       50  

Restructuring and acquisition-related charges

     99       56       26       7       10  

Other items

     11         11         1  

Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items

     (9     (2     (9       1  
          

 

 

 

Adjusted EBITDA

     1,170       403       183       478       106  

January to December 2018

          

Net Income

     1,097          

Discontinued operations, net of income taxes

     213          

Income tax expense

     193          

Investments in associates, net of income taxes

     2          

Financial expenses

     264          

Financial income

     (51        
          

 

 

 

Income from operations

     1,719       600       179       1,045       (105

Depreciation, amortization and impairments of fixed assets

     1,089       302       176       367       244  

Restructuring and acquisition-related charges

     258       142       59       26       31  

Other items

     41       —         56       18       (33

Adding back impairment of fixed assets included in

          

Restructuring and acquisition-related charges and Other items

     (15     (7     (9     —         1  
          

 

 

 

Adjusted EBITDA

     3,093       1,036       462       1,456       139  

Q4 2017

          

Net Income

     899          

Discontinued operations, net of income taxes

     (423        

Income tax expense

     237          

Investments in associates, net of income taxes

     2          

Financial expenses

     40          

Financial income

     (31        
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     723       247       159       370       (53

Depreciation, amortization and impairments of fixed assets

     276       71       62       99       45  

Impairment of goodwill

          

Restructuring and acquisition-related charges

     107       45       33       8       21  

Other items

     (12       (16       4  

Adding back impairment of fixed assets included in

          

Restructuring and acquisition-related charges and Other items

     (22     (2     (16     (1     (3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     1,072       361       222       476       13  

January to December 2017

          

Net Income

     1,870          

Discontinued operations, net of income taxes

     (843        

Income tax expense

     349          

Investments in associates, net of income taxes

     4          

Financial expenses

     263          

Financial income

     (126        
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     1,517       488       206       1,075       (252

Depreciation, amortization and impairments of fixed assets

     1,025       267       208       371       179  

Impairment of goodwill

     9             9  

Restructuring and acquisition-related charges

     316       151       91       11       64  

Other items

     50       22       31         (3

Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items

     (86     (44     (34     (1     (7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     2,832       884       502       1,456       (11
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  Quarterly Report 2018 - Q4         21


Composition of free cash flow in millions of EUR

 

     January to December  
                         2017                         2018  

Cash flows from operating activities

     1,870       1,780  

Net capital expenditures

     (685     (796

Purchase of intangible assets

     (106     (123

Expenditures on development assets

     (333     (298

Capital expenditures on property, plant and equipment

     (420     (422

Proceeds from disposals of property, plant and equipment

     175       46  
  

 

 

   

 

 

 

Free cash flow

     1,185       984  
  

 

 

   

 

 

 

 

  Quarterly Report 2018 - Q4         22


Philips statistics

Philips statistics in millions of EUR unless otherwise stated

 

     2017     2018  
     Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4  

Sales

     4,035       4,294       4,148       5,303       3,942       4,288       4,306       5,586  

Comparable sales growth1)

     3     4     4     5     5     4     4     5

Comparable order intake1)

     2     8     5     7     10     9     11     10

Gross margin

     1,777       1,925       1,916       2,563       1,785       2,006       2,074       2,689  

as a % of sales

     44.0     44.8     46.2     48.3     45.3     46.8     48.2     48.1

Selling expenses

     (1,024     (1,091     (1,046     (1,236     (1,041     (1,162     (1,045     (1,251

as a % of sales

     (25.4 )%      (25.4 )%      (25.2 )%      (23.3 )%      (26.4 )%      (27.1 )%      (24.3 )%      (22.4 )% 

G&A expenses

     (151     (146     (134     (146     (130     (157     (165     (178

as a % of sales

     (3.7 )%      (3.4 )%      (3.2 )%      (2.8 )%      (3.3 )%      (3.7 )%      (3.8 )%      (3.2 )% 

R&D expenses

     (431     (421     (451     (461     (433     (425     (415     (487

as a % of sales

     (10.7 )%      (9.8 )%      (10.9 )%      (8.7 )%      (11.0 )%      (9.9 )%      (9.6 )%      (8.7 )% 

Income from operations

     243       252       299       723       201       298       451       769  

as a % of sales

     6.0     5.9     7.2     13.6     5.1     6.9     10.5     13.8

Net income

     259       289       423       899       124       2       292       678  

Income from continuing operations attributable to shareholders2) per common share in EUR - diluted3)

     0.13       0.17       0.28       0.49       0.10       0.20       0.32       0.77  

Adjusted income from continuing operations attributable to shareholders2) per common share in EUR - diluted1)

     0.19       0.31       0.39       0.66       0.23       0.35       0.42       0.76  

EBITA1)

     304       329       364       790       263       430       512       861  

as a % of sales

     7.5     7.7     8.8     14.9     6.7     10.0     11.9     15.4

Adjusted EBITA1)

     298       439       532       884       344       482       568       971  

as a % of sales

     7.4     10.2     12.8     16.7     8.7     11.2     13.2     17.4

Adjusted EBITDA1)

     463       611       686       1,072       512       661       750       1,170  

as a % of sales

     11.5     14.2     16.5     20.2     13.0     15.4     17.4     20.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1) 

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

2) 

Shareholders refers to shareholders of Koninklijke Philips N.V.

3) 

The presentation of 2017 information has been updated compared to the information previously published to adjust for elements of Net income that were attributable to discontinued operations.

 

  Quarterly Report 2018 - Q4         23


Philips statistics in millions of EUR unless otherwise stated

 

     2017     2018  
     January-
March
    January-
June
    January-
September
    January-
December
    January-
March
    January-
June
    January-
September
    January-
December
 

Sales

     4,035       8,329       12,477       17,780       3,942       8,229       12,535       18,121  

Comparable sales growth1)

     3     3     4     4     5     5     4     5

Comparable order intake1)

     2     5     5     6     10     10     10     10

Gross margin

     1,777       3,703       5,618       8,181       1,785       3,791       5,865       8,554  

as a % of sales

     44.0     44.5     45.0     46.0     45.3     46.1     46.8     47.2

Selling expenses

     (1,024     (2,115     (3,162     (4,398     (1,041     (2,203     (3,248     (4,500

as a % of sales

     (25.4 )%      (25.4 )%      (25.3 )%      (24.7 )%      (26.4 )%      (26.8 )%      (25.9 )%      (24.8 )% 

G&A expenses

     (151     (297     (431     (577     (130     (288     (453     (631

as a % of sales

     (3.7 )%      (3.6 )%      (3.5 )%      (3.2 )%      (3.3 )%      (3.5 )%      (3.6 )%      (3.5 )% 

R&D expenses

     (431     (852     (1,303     (1,764     (433     (858     (1,273     (1,759

as a % of sales

     (10.7 )%      (10.2 )%      (10.4 )%      (9.9 )%      (11.0 )%      (10.4 )%      (10.2 )%      (9.7 )% 

Income from operations

     243       495       794       1,517       201       499       950       1,719  

as a % of sales

     6.0     5.9     6.4     8.5     5.1     6.1     7.6     9.5

Net income

     259       548       971       1,870       124       126       419       1,097  

Income from continuing operations attributable to shareholders2) per common share in EUR - diluted3)

     0.13       0.30       0.58       1.08       0.10       0.30       0.63       1.39  

Adjusted income from continuing operations attributable to shareholders2) per common share in EUR - diluted1)

     0.19       0.49       0.88       1.54       0.23       0.58       1.00       1.76  

EBITA1)

     304       634       997       1,787       263       694       1,205       2,066  

as a % of sales

     7.5     7.6     8.0     10.1     6.7     8.4     9.6     11.4

Adjusted EBITA1)

     298       737       1,269       2,153       344       827       1,395       2,366  

as a % of sales

     7.4     8.8     10.2     12.1     8.7     10.0     11.1     13.1

Adjusted EBITDA1)

     463       1,074       1,759       2,832       512       1,173       1,923       3,093  

as a % of sales

     11.5     12.9     14.1     15.9     13.0     14.3     15.3     17.1

Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands)

     920,276       937,045       936,861       926,192       914,826       931,496       931,540       914,184  

Shareholders’ equity per common share in EUR

     13.74       13.01       12.12       12.96       12.66       12.54       12.65       13.22  

Net debt : group equity ratio1)

     16:84       5:95       23:77       19:81       19:81       22:78       24:76       21:79  

Total employees of continuing operations

     70,430       71,477       73,324       73,951       73,845       75,283       76,531       77,400  

 

1)

Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information, of this document.

2)

Shareholders refers to shareholders of Koninklijke Philips N.V.

3)

The presentation of 2017 information has been updated compared to the information previously published to adjust for elements of Net income that were attributable to discontinued operations.

 

  Quarterly Report 2018 - Q4        24


 

 

 

 

 

 

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