Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
July 20, 2020
(Exact name of registrant as specified in its charter)
(Translation of registrant’s name into English)
(Jurisdiction of incorporation or organization)
(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’ Second Quarter Results 2020”, dated July 20, 2020.
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 20th day of July 2020.
KONINKLIJKE PHILIPS N.V.
/s/ M.J. van Ginneken
(Chief Legal Officer)
Quarterly report
Amsterdam, July 20, 2020
“As the global societal and economic impact of the COVID-19 outbreak intensified in the second quarter of 2020, we continued to focus on our triple duty of care: meeting critical customer needs, safeguarding the health and safety of our employees, and ensuring business continuity. In close collaboration with our suppliers and partners, we have steeply ramped up the production volumes of acute care products and solutions to help diagnose, treat, monitor and manage COVID-19 patients. Our field service engineers have been supporting healthcare providers around the world throughout these testing times. Under the circumstances, I am pleased at the way we have performed and I am grateful and proud of how all our employees have stepped up.
In the quarter, Philips' sales declined 6% on a comparable basis and we delivered an Adjusted EBITA margin of 9.5%. Comparable order intake grew a further 27% on the back of double-digit growth in the previous quarter, driven by CT imaging systems, hospital ventilators and patient monitors. As anticipated, COVID-19 caused a steep decrease in consumer demand and postponement of installations in hospitals, as well as elective procedures, resulting in a 19% comparable sales decrease for our Personal Health businesses and a 9% decline for our Diagnosis & Treatment businesses. This was partly offset by a strong 14% comparable sales growth for our Connected Care businesses.
We expect to return to growth and improved profitability for the Group in the second half of the year, assuming we can convert our existing order book for the Diagnosis & Treatment and Connected Care businesses, elective procedures normalize, and consumer demand gradually improves. Consequently, for the full year 2020 we continue to aim for a modest comparable sales growth and Adjusted EBITA margin improvement.
Looking ahead, our mission is more relevant than ever. Our strategy to transform the delivery of care along the health continuum, leveraging informatics and remote care capabilities, along with our innovative systems and services, has been validated during this crisis. I am convinced that Philips is well positioned to serve the current and future needs of hospitals and health systems.”
The Diagnosis & Treatment businesses recorded a 9% comparable sales decline due to the postponement of installations and elective procedures. Although Diagnostic Imaging sales were in line with Q2 2019, Ultrasound showed a mid-single-digit decrease, and Image-Guided Therapy a double-digit decline. Comparable order intake showed a double-digit decrease. The Adjusted EBITA margin decreased to 8.6%, mainly due to the sales decline.
Comparable sales in the Connected Care businesses increased 14%, with double-digit growth in Sleep & Respiratory Care and mid-single-digit growth in Monitoring & Analytics. Comparable order intake more than doubled, driven by strong demand for patient monitors and hospital ventilators. The Adjusted EBITA margin increased to 17.8%, as additional investments to ramp up production were more than offset by operating leverage.
The Personal Health businesses recorded a comparable sales decline of 19%, with all businesses declining due to significantly decreased consumer demand. The Adjusted EBITA margin declined to 5.6%, due to the sales decline, partly offset by cost savings.
Philips’ ongoing focus on innovation and partnerships resulted in the following key developments in the quarter:
In the second quarter, procurement savings amounted to EUR 57 million. Overhead and other productivity programs delivered savings of EUR 51 million. As a result, Philips is on track to deliver over EUR 400 million productivity savings for 2020 and EUR 1.8 billion productivity savings for the Group for the 2017-2020 period.
On July 16, Philips announced the appointment of Deeptha Khanna as the Chief Business Leader of the Personal Health businesses, effective July 20, 2020, and the appointment of Edwin Paalvast as Chief of International Markets, effective August 1, 2020. Ms. Khanna and Mr. Paalvast will become members of Philips’ Executive Committee, reporting to Philips CEO Frans van Houten.
Ms. Khanna joins Philips from Johnson & Johnson to lead its Personal Health businesses, which were temporarily led by Frans van Houten. Mr. Paalvast joins Philips from Cisco Systems, and will succeed current Chief of International Markets Henk de Jong, who has been appointed as CEO of Philips’ EUR 2.3 billion Domestic Appliances business, effective August 1, 2020. As announced in January 2020, the Domestic Appliances business is being separated from Philips, a process that is expected to be completed in the third quarter of 2021. Mr. de Jong will continue to report to Frans van Houten and remain a member of the Executive Committee.
At the end of the first quarter of 2020, Philips had completed 50.3% of its EUR 1.5 billion share buyback program for capital reduction purposes that was announced on January 29, 2019. In line with the company’s announcement on March 23, 2020, Philips has executed the second half of the program through individual forward transactions with settlement dates extending into the second half of 2021. Further details can be found here.
In June 2020, Philips completed the cancellation of 3,809,675 shares that were acquired as part of the share buyback program mentioned above.
In July 2020, Philips issued a total number of 18,080,198 new common shares for settlement of the 2019 dividend. After deduction of treasury shares, this results in a total number of outstanding shares of 909,395,209, compared to 909,194,188 shares in 2019 following the settlement of the 2018 dividend.
Regulatory update
Philips’ Emergency Care and Resuscitation (ECR) business resumed manufacturing and shipping of external defibrillators for the US, following notification from the FDA that the injunction prohibiting those activities has been lifted. Philips continues to comply with the terms of the Consent Decree, which remains in effect, and includes ongoing regulatory compliance monitoring and facility inspections of the ECR business and of Philips’ other patient care businesses by the FDA. In connection with the ECR portfolio, Philips received FDA pre-market approval (PMA) for the HeartStart FR31) and HeartStart FRx2) automated external defibrillators (AEDs), and their supporting accessories, including batteries and pads.
In connection with the COVID-19 pandemic, Philips is working with the FDA’s Emergency Response and Product Evaluation teams to provide them with relevant information, such as Philips’ production ramp-up and availability of acute care products and solutions to combat COVID-19. Philips has obtained authorizations through the FDA’s Emergency Use Authorization (EUA) process for the expanded use of several of its devices during the COVID-19 public health emergency, including for the Philips IntelliVue Patient Monitors MX750/MX850 and its IntelliVue Active Displays AD75/AD85. Moreover, Philips has received FDA 510(k) clearances to market its Biosensor BX100 for early patient deterioration detection in the general ward, and to market a wide range of its ultrasound solutions for the management of COVID-19-related lung and cardiac complications.
Frans van Houten, CEO, and Abhijit Bhattacharya, CFO, will host a conference call for investors and analysts at 10:00 am CET today to discuss the results. A live audio webcast of the conference call will be available on the Philips Investor Relations website and can be accessed here.
Key data
in millions of EUR unless otherwise stated
|
Q2 2019 |
Q2 2020 |
Sales |
4,671 |
4,395 |
Nominal sales growth |
9% |
(6)% |
Comparable sales growth1) |
6% |
(6)% |
11% |
27% |
|
Income from operations |
350 |
229 |
as a % of sales |
7.5% |
5.2% |
Financial income and expenses, net |
(19) |
20 |
Investments in associates, net of income taxes |
3 |
- |
Income tax |
(74) |
(36) |
Income from continuing operations |
260 |
213 |
Discontinued operations, net of income taxes |
(13) |
(3) |
Net income |
246 |
210 |
Income from continuing operations attributable to shareholders3) per common share (in EUR) - diluted |
0.27 |
0.23 |
0.42 |
0.35 |
|
Net income attributable to shareholders3) per common share (in EUR) - diluted |
0.26 |
0.23 |
EBITA1) |
440 |
388 |
as a % of sales |
9.4% |
8.8% |
Adjusted EBITA1) |
549 |
418 |
as a % of sales |
11.8% |
9.5% |
Adjusted EBITDA1) |
776 |
670 |
as a % of sales |
16.6% |
15.2% |
Sales per geographic cluster
in millions of EUR unless otherwise stated
|
|
|
% change |
|
|
Q2 2019 |
Q2 2020 |
nominal |
comparable1) |
Western Europe |
964 |
991 |
3% |
1% |
North America |
1,742 |
1,604 |
(8)% |
(10)% |
Other mature geographies |
456 |
439 |
(4)% |
(6)% |
Total mature geographies |
3,162 |
3,033 |
(4)% |
(6)% |
Growth geographies |
1,509 |
1,362 |
(10)% |
(6)% |
Philips Group |
4,671 |
4,395 |
(6)% |
(6)% |
Amounts may not add up due to rounding.
Cash and cash equivalents balance in millions of EUR
|
Q2 2019 |
Q2 2020 |
Beginning cash and cash equivalents balance |
1,454 |
2,143 |
Free cash flow1) |
174 |
311 |
Net cash flows from operating activities |
390 |
558 |
Net capital expenditures |
(215) |
(247) |
Other cash flows from investing activities |
(64) |
(101) |
Treasury shares transactions |
(761) |
2 |
Changes in debt |
687 |
(63) |
Dividend paid to shareholders |
(385) |
|
Other cash flow items |
(15) |
(1) |
Net cash flows from discontinued operations |
(14) |
3 |
Ending cash and cash equivalents balance |
1,077 |
2,294 |
Composition of net debt to group equity1)
in millions of EUR unless otherwise stated
|
March 31, 2020 |
June 30, 2020 |
Long-term debt |
6,358 |
6,705 |
Short-term debt |
513 |
591 |
Total debt |
6,871 |
7,296 |
Cash and cash equivalents |
2,143 |
2,294 |
Net debt |
4,728 |
5,002 |
Shareholders' equity |
12,120 |
10,952 |
Non-controlling interests |
27 |
29 |
Group equity |
12,148 |
10,981 |
Net debt : group equity ratio1) |
28:72 |
31:69 |
Key data
in millions of EUR unless otherwise stated
|
Q2 2019 |
Q2 2020 |
Sales |
2,063 |
1,919 |
Sales growth |
|
|
Nominal sales growth |
10% |
(7)% |
Comparable sales growth1) |
6% |
(9)% |
Income from operations |
168 |
104 |
as a % of sales |
8.1% |
5.4% |
EBITA1) |
214 |
224 |
as a % of sales |
10.4% |
11.7% |
Adjusted EBITA1) |
254 |
165 |
as a % of sales |
12.3% |
8.6% |
Adjusted EBITDA1) |
323 |
234 |
as a % of sales |
15.7% |
12.2% |
Key data
in millions of EUR unless otherwise stated
|
Q2 2019 |
Q2 2020 |
Sales |
1,161 |
1,322 |
Sales growth |
|
|
Nominal sales growth |
11% |
14% |
Comparable sales growth1) |
6% |
14% |
Income from operations |
75 |
171 |
as a % of sales |
6.5% |
12.9% |
EBITA1) |
110 |
204 |
as a % of sales |
9.5% |
15.4% |
Adjusted EBITA1) |
141 |
235 |
as a % of sales |
12.1% |
17.8% |
Adjusted EBITDA1) |
186 |
288 |
as a % of sales |
16.0% |
21.8% |
Key data
in millions of EUR unless otherwise stated
|
Q2 2019 |
Q2 2020 |
Sales |
1,351 |
1,069 |
Sales growth |
|
|
Nominal sales growth |
5% |
(21)% |
Comparable sales growth1) |
5% |
(19)% |
Income from operations |
165 |
17 |
as a % of sales |
12.2% |
1.6% |
EBITA1) |
173 |
22 |
as a % of sales |
12.8% |
2.1% |
Adjusted EBITA1) |
181 |
60 |
as a % of sales |
13.4% |
5.6% |
Adjusted EBITDA1) |
216 |
103 |
as a % of sales |
16.0% |
9.6% |
Key data
in millions of EUR
|
Q2 2019 |
Q2 2020 |
Sales |
96 |
84 |
Income from operations |
(58) |
(63) |
EBITA1) |
(56) |
(62) |
Adjusted EBITA1) of: |
(27) |
(43) |
IP Royalties |
49 |
39 |
Innovation |
(46) |
(43) |
Central costs |
(24) |
(31) |
Other |
(7) |
(8) |
Adjusted EBITDA1) |
50 |
45 |
Certain non-IFRS financial measures are presented when discussing the Philips Group’s performance:
For the definitions of the non-IFRS financial measures listed above, refer to chapter 12, Reconciliation of non-IFRS information, of the Annual Report 2019 and to the Forward-looking statements and other important information.
Sales growth composition
in %
|
Q2 2020 |
January to June |
||||||
|
nominal growth |
consolidation changes |
currency effects |
comparable growth |
nominal growth |
consolidation changes |
currency effects |
comparable growth |
2020 versus 2019 |
|
|
|
|
|
|
|
|
Diagnosis & Treatment |
(7.0)% |
(1.8)% |
0.3% |
(8.5)% |
(1.0)% |
(2.1)% |
(0.8)% |
(3.9)% |
Connected Care |
13.9% |
0.6% |
(0.5)% |
13.9% |
11.6% |
0.6% |
(1.6)% |
10.6% |
Personal Health |
(20.9)% |
0.0% |
2.0% |
(18.9)% |
(16.6)% |
0.0% |
0.7% |
(15.9)% |
Philips Group |
(5.9)% |
(0.8)% |
0.6% |
(6.1)% |
(3.0)% |
(0.8)% |
(0.4)% |
(4.3)% |
Adjusted income from continuing operations attributable to shareholders 1)
in millions of EUR unless otherwise stated
|
Q2 |
January to June |
||
|
2019 |
2020 |
2019 |
2020 |
Net income |
246 |
210 |
409 |
249 |
Discontinued operations, net of income taxes |
13 |
3 |
22 |
7 |
Income from continuing operations |
260 |
213 |
430 |
256 |
Continuing operations non-controlling interests |
(3) |
(2) |
(2) |
(3) |
Income from continuing operations attributable to shareholders 1) |
256 |
212 |
429 |
253 |
Adjustments for: |
|
|
|
|
Amortization of acquired intangible assets |
91 |
159 |
160 |
244 |
Restructuring and acquisition-related charges |
82 |
(30) |
153 |
32 |
Other items |
28 |
60 |
7 |
114 |
Net finance expenses |
3 |
2 |
7 |
4 |
Tax impact of adjusted items |
(64) |
(82) |
(90) |
(163) |
Adjusted income from continuing operations attributable to shareholders 1) |
395 |
321 |
664 |
485 |
Earnings per common share: |
|
|
|
|
Income from continuing operations attributable to shareholders1) per common share (in EUR) - diluted |
0.27 |
0.23 |
0.46 |
0.28 |
Adjusted income from continuing operations attributable to shareholders1) per common share (EUR) - diluted |
0.42 |
0.35 |
0.71 |
0.53 |
Reconciliation of Net income to Adjusted EBITA
in millions of EUR
|
Philips Group |
Diagnosis & Treatment |
Connected Care |
Personal Health |
Other |
Q2 2020 |
|
|
|
|
|
Net income |
210 |
|
|
|
|
Discontinued operations, net of income taxes |
3 |
|
|
|
|
Income tax expense |
36 |
|
|
|
|
Investments in associates, net of income taxes |
- |
|
|
|
|
Financial expenses |
57 |
|
|
|
|
Financial income |
(77) |
|
|
|
|
Income from operations |
229 |
104 |
171 |
17 |
(63) |
Amortization of acquired intangible assets |
159 |
120 |
33 |
5 |
1 |
EBITA |
388 |
224 |
204 |
22 |
(62) |
Restructuring and acquisition-related charges |
(30) |
(62) |
14 |
13 |
5 |
Other items |
60 |
3 |
17 |
26 |
14 |
Adjusted EBITA |
418 |
165 |
235 |
60 |
(43) |
|
|
|
|
|
|
January to June 2020 |
|
|
|
|
|
Net income |
249 |
|
|
|
|
Discontinued operations, net of income taxes |
7 |
|
|
|
|
Income tax expense |
14 |
|
|
|
|
Investments in associates, net of income taxes |
4 |
|
|
|
|
Financial expenses |
108 |
|
|
|
|
Financial income |
(110) |
|
|
|
|
Income from operations |
272 |
112 |
214 |
84 |
(139) |
Amortization of acquired intangible assets |
244 |
152 |
67 |
10 |
15 |
EBITA |
516 |
264 |
281 |
94 |
(124) |
Restructuring and acquisition-related charges |
32 |
(19) |
25 |
21 |
5 |
Other items |
114 |
36 |
37 |
26 |
15 |
Adjusted EBITA |
662 |
282 |
343 |
141 |
(104) |
|
|
|
|
|
|
Q2 2019 |
|
|
|
|
|
Net income |
246 |
|
|
|
|
Discontinued operations, net of income taxes |
13 |
|
|
|
|
Income tax expense |
74 |
|
|
|
|
Investments in associates, net of income taxes |
(3) |
|
|
|
|
Financial expenses |
60 |
|
|
|
|
Financial income |
(41) |
|
|
|
|
Income from operations |
350 |
168 |
75 |
165 |
(58) |
Amortization of acquired intangible assets |
91 |
45 |
35 |
8 |
2 |
EBITA |
440 |
214 |
110 |
173 |
(56) |
Restructuring and acquisition-related charges |
82 |
37 |
15 |
7 |
22 |
Other items |
28 |
4 |
16 |
- |
7 |
Adjusted EBITA |
549 |
254 |
141 |
181 |
(27) |
|
|
|
|
|
|
January to June 2019 |
|
|
|
|
|
Net income |
409 |
|
|
|
|
Discontinued operations, net of income taxes |
22 |
|
|
|
|
Income tax expense |
141 |
|
|
|
|
Investments in associates, net of income taxes |
(5) |
|
|
|
|
Financial expenses |
116 |
|
|
|
|
Financial income |
(88) |
|
|
|
|
Income from operations |
594 |
219 |
95 |
333 |
(53) |
Amortization of acquired intangible assets |
160 |
72 |
70 |
14 |
4 |
EBITA |
754 |
291 |
165 |
347 |
(49) |
Restructuring and acquisition-related charges |
153 |
63 |
34 |
23 |
31 |
Other items |
7 |
7 |
27 |
- |
(27) |
Adjusted EBITA |
914 |
362 |
226 |
371 |
(45) |
Reconciliation of Net income to Adjusted EBITDA
in millions of EUR
|
Philips Group |
Diagnosis & Treatment |
Connected Care |
Personal Health |
Other |
Q2 2020 |
|
|
|
|
|
Net income |
210 |
|
|
|
|
Discontinued operations, net of income taxes |
3 |
|
|
|
|
Income tax expense |
36 |
|
|
|
|
Investments in associates, net of income taxes |
- |
|
|
|
|
Financial expenses |
57 |
|
|
|
|
Financial income |
(77) |
|
|
|
|
Income from operations |
229 |
104 |
171 |
17 |
(63) |
Depreciation, amortization and impairments of fixed assets |
411 |
188 |
85 |
48 |
89 |
Restructuring and acquisition-related charges |
(30) |
(62) |
14 |
13 |
5 |
Other items |
60 |
3 |
17 |
26 |
14 |
Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items |
1 |
1 |
|
- |
|
Adjusted EBITDA |
670 |
234 |
288 |
103 |
45 |
|
|
|
|
|
|
January to June 2020 |
|
|
|
|
|
Net income |
249 |
|
|
|
|
Discontinued operations, net of income taxes |
7 |
|
|
|
|
Income tax expense |
14 |
|
|
|
|
Investments in associates, net of income taxes |
4 |
|
|
|
|
Financial expenses |
108 |
|
|
|
|
Financial income |
(110) |
|
|
|
|
Income from operations |
272 |
112 |
214 |
84 |
(139) |
Depreciation, amortization and impairments of fixed assets |
779 |
324 |
165 |
94 |
196 |
Restructuring and acquisition-related charges |
32 |
(19) |
25 |
21 |
5 |
Other items |
114 |
36 |
37 |
26 |
15 |
Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items |
(32) |
(31) |
- |
(1) |
|
Adjusted EBITDA |
1,166 |
423 |
441 |
224 |
78 |
|
|
|
|
|
|
Q2 2019 |
|
|
|
|
|
Net income |
246 |
|
|
|
|
Discontinued operations, net of income taxes |
13 |
|
|
|
|
Income tax expense |
74 |
|
|
|
|
Investments in associates, net of income taxes |
(3) |
|
|
|
|
Financial expenses |
60 |
|
|
|
|
Financial income |
(41) |
|
|
|
|
Income from operations |
350 |
168 |
75 |
165 |
(58) |
Depreciation, amortization and impairments of fixed assets |
319 |
115 |
81 |
44 |
79 |
Restructuring and acquisition-related charges |
82 |
37 |
15 |
7 |
22 |
Other items |
28 |
4 |
16 |
- |
7 |
Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items |
(2) |
(1) |
(1) |
- |
|
Adjusted EBITDA |
776 |
323 |
186 |
216 |
50 |
|
|
|
|
|
|
January to June 2019 |
|
|
|
|
|
Net income |
409 |
|
|
|
|
Discontinued operations, net of income taxes |
22 |
|
|
|
|
Income tax expense |
141 |
|
|
|
|
Investments in associates, net of income taxes |
(5) |
|
|
|
|
Financial expenses |
116 |
|
|
|
|
Financial income |
(88) |
|
|
|
|
Income from operations |
594 |
219 |
95 |
333 |
(53) |
Depreciation, amortization and impairments of fixed assets |
601 |
206 |
160 |
84 |
152 |
Restructuring and acquisition-related charges |
153 |
63 |
34 |
23 |
31 |
Other items |
7 |
7 |
27 |
- |
(27) |
Adding back impairment of fixed assets included in Restructuring and acquisition-related charges and Other items |
(3) |
(2) |
(1) |
- |
|
Adjusted EBITDA |
1,352 |
493 |
315 |
441 |
103 |
Composition of free cash flow in millions of EUR
|
Q2 |
January to June |
||
|
2019 |
2020 |
2019 |
2020 |
Net cash provided by operating activities |
390 |
558 |
404 |
701 |
Net capital expenditures |
(215) |
(247) |
(435) |
(446) |
Purchase of intangible assets |
(36) |
(36) |
(76) |
(58) |
Expenditures on development assets |
(91) |
(82) |
(171) |
(158) |
Capital expenditures on property, plant and equipment |
(116) |
(130) |
(219) |
(236) |
Proceeds from disposals of property, plant and equipment |
28 |
1 |
30 |
6 |
Free cash flow |
174 |
311 |
(32) |
254 |
Philips statistics
in millions of EUR unless otherwise stated
|
2019 |
2020 |
||||||
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
Sales |
4,151 |
4,671 |
4,702 |
5,958 |
4,159 |
4,395 |
|
|
Comparable sales growth1) |
2% |
6% |
6% |
3% |
(2)% |
(6)% |
|
|
2% |
11% |
3% |
6% |
24% |
27% |
|
|
|
Gross margin |
1,888 |
2,125 |
2,155 |
2,707 |
1,845 |
1,831 |
|
|
as a % of sales |
45.5% |
45.5% |
45.8% |
45.4% |
44.4% |
41.7% |
|
|
Selling expenses |
(1,084) |
(1,173) |
(1,132) |
(1,293) |
(1,144) |
(1,079) |
|
|
as a % of sales |
(26.1)% |
(25.1)% |
(24.1)% |
(21.7)% |
(27.5)% |
(24.6)% |
|
|
G&A expenses |
(152) |
(165) |
(175) |
(139) |
(161) |
(168) |
|
|
as a % of sales |
(3.7)% |
(3.5)% |
(3.7)% |
(2.3)% |
(3.9)% |
(3.8)% |
|
|
R&D expenses |
(439) |
(443) |
(457) |
(545) |
(489) |
(455) |
|
|
as a % of sales |
(10.6)% |
(9.5)% |
(9.7)% |
(9.1)% |
(11.8)% |
(10.4)% |
|
|
Income from operations |
245 |
350 |
320 |
730 |
43 |
229 |
|
|
as a % of sales |
5.9% |
7.5% |
6.8% |
12.3% |
1.0% |
5.2% |
|
|
Net income |
162 |
246 |
208 |
556 |
39 |
210 |
|
|
Income from continuing operations attributable to shareholders3) per common share in EUR - diluted |
0.18 |
0.27 |
0.22 |
0.60 |
0.05 |
0.23 |
|
|
0.29 |
0.42 |
0.46 |
0.82 |
0.18 |
0.35 |
|
|
|
EBITA1) |
314 |
440 |
469 |
868 |
127 |
388 |
|
|
as a % of sales |
7.6% |
9.4% |
10.0% |
14.6% |
3.1% |
8.8% |
|
|
Adjusted EBITA1) |
364 |
549 |
583 |
1,066 |
244 |
418 |
|
|
as a % of sales |
8.8% |
11.8% |
12.4% |
17.9% |
5.9% |
9.5% |
|
|
Adjusted EBITDA1) |
576 |
776 |
816 |
1,335 |
495 |
670 |
|
|
as a % of sales |
13.9% |
16.6% |
17.4% |
22.4% |
11.9% |
15.2% |
|
|
Philips statistics
in millions of EUR unless otherwise stated
|
2019 |
2020 |
||||||
|
January-March |
January-June |
January-September |
January-December |
January-March |
January-June |
January-September |
January-December |
Sales |
4,151 |
8,822 |
13,524 |
19,482 |
4,159 |
8,554 |
|
|
Comparable sales growth1) |
2% |
4% |
5% |
4% |
(2)% |
(4)% |
|
|
2% |
7% |
6% |
6% |
24% |
26% |
|
|
|
Gross margin |
1,888 |
4,013 |
6,168 |
8,875 |
1,845 |
3,676 |
|
|
as a % of sales |
45.5% |
45.5% |
45.6% |
45.6% |
44.4% |
43.0% |
|
|
Selling expenses |
(1,084) |
(2,257) |
(3,389) |
(4,682) |
(1,144) |
(2,224) |
|
|
as a % of sales |
(26.1)% |
(25.6)% |
(25.1)% |
(24.0)% |
(27.5)% |
(26.0)% |
|
|
G&A expenses |
(152) |
(317) |
(492) |
(631) |
(161) |
(328) |
|
|
as a % of sales |
(3.7)% |
(3.6)% |
(3.6)% |
(3.2)% |
(3.9)% |
(3.8)% |
|
|
R&D expenses |
(439) |
(882) |
(1,339) |
(1,884) |
(489) |
(944) |
|
|
as a % of sales |
(10.6)% |
(10.0)% |
(9.9)% |
(9.7)% |
(11.8)% |
(11.0)% |
|
|
Income from operations |
245 |
594 |
915 |
1,644 |
43 |
272 |
|
|
as a % of sales |
5.9% |
6.7% |
6.8% |
8.4% |
1.0% |
3.2% |
|
|
Net income |
162 |
409 |
616 |
1,173 |
39 |
249 |
|
|
Income from continuing operations attributable to shareholders3) per common share in EUR - diluted |
0.18 |
0.46 |
0.68 |
1.27 |
0.05 |
0.28 |
|
|
0.29 |
0.71 |
1.16 |
1.98 |
0.18 |
0.53 |
|
|
|
EBITA1) |
314 |
754 |
1,224 |
2,091 |
127 |
516 |
|
|
as a % of sales |
7.6% |
8.5% |
9.1% |
10.7% |
3.1% |
6.0% |
|
|
Adjusted EBITA1) |
364 |
914 |
1,497 |
2,563 |
244 |
662 |
|
|
as a % of sales |
8.8% |
10.4% |
11.1% |
13.2% |
5.9% |
7.7% |
|
|
Adjusted EBITDA1) |
576 |
1,352 |
2,169 |
3,503 |
495 |
1,166 |
|
|
as a % of sales |
13.9% |
15.3% |
16.0% |
18.0% |
11.9% |
13.6% |
|
|
Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands) |
910,810 |
902,417 |
898,029 |
890,974 |
887,579 |
891,301 |
|
|
Shareholders' equity per common share in EUR |
13.54 |
13.19 |
13.76 |
14.14 |
13.66 |
12.29 |
|
|
Net debt : group equity ratio1) |
25:75 |
28:72 |
27:73 |
24:76 |
28:72 |
31:69 |
|
|
Total employees of continuing operations |
77,340 |
77,748 |
79,613 |
80,495 |
80,718 |
80,520 |
|
|
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 restructuring, acquisition-related and other costs; 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: changes in industry or market circumstances; economic and political developments; market and supply chain disruptions due to the COVID-19 outbreak; Philips’ increasing focus on health technology; the realization of Philips’ growth ambitions and results in growth geographies; successful completion of divestments such as the divestment of our Domestic Appliances businesses; lack of control over certain joint ventures; integration of acquisitions; securing and maintaining Philips’ intellectual property rights and unauthorized use of third-party intellectual property rights; compliance with quality standards, product safety laws and good manufacturing practices; exposure to IT security breaches, IT disruptions, system changes or failures; supply chain management; ability to create new products and solutions; attracting and retaining personnel; financial impacts from Brexit; compliance with regulatory regimes, including data privacy requirements; governmental investigations and legal proceedings with regard to possible anticompetitive market practices and other matters; business conduct rules and regulations; treasury risks and other financial risks; tax risks; costs of defined-benefit pension plans and other post-retirement plans; reliability of internal controls, financial reporting and management process. 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 also the Risk management chapter included in the Annual Report 2019.
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.
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 measure and should be used in conjunction with the most directly comparable IFRS measures. Non-IFRS financial measures do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. A reconciliation of 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 2019.
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 2019. In certain cases independent valuations are obtained to support management’s determination of fair values.
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 significant accounting policies as stated in the Annual Report 2019. Certain comparative-period amounts have been reclassified to conform to the current-year presentation.
Effective Q1 2020, Philips has simplified its order intake policy by aligning horizons for all modalities to 18 months to revenue, compared to previously used delivery horizons of 6 months for Ultrasound, 12 months for Connected Care and 15 months for Diagnosis & Treatment. At the same time, Philips has aligned order intake for software contracts to the same 18 months to revenue horizon, meaning that only the next 18 months conversion to revenue under the contract is recognized, compared to the full contract values recognized previously. This change eliminates major variances in order intake growth and better reflects expected revenue in the short term from order intake booked in the reporting period. Prior-year comparable order intake amounts have been restated accordingly. This realignment has not resulted in any material additional order intake recognition.
Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for the share dividend in respect of 2019.
This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.
This report contains the semi-annual report of Koninklijke Philips N.V. (‘the Company’ or ‘Philips’), a company with limited liability, headquartered in Amsterdam, the Netherlands. The principal activities of the Company and its group companies (‘the Group’) are described in the Annual Report 2019. The semi-annual report for the six months ended June 30, 2020 consists of the semi-annual condensed consolidated financial statements, the semi-annual management report and responsibility statement by the Company’s Board of Management. The information in this semi-annual report is unaudited.
The Board of Management of the Company hereby declares that to the best of their knowledge, the semi-annual condensed consolidated financial statements for the six-month period ended June 30, 2020, which have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, and that the semi-annual management report for the six-month period ended June 30, 2020 gives a fair view of the information required pursuant to article 5:25d paragraph 8 and 9 of the Dutch Financial Markets Supervision Act (Wet op het Financieel toezicht).
Amsterdam, July 20, 2020
Board of Management
Frans van Houten
Abhijit Bhattacharya
Marnix van Ginneken
Key data
in millions of EUR unless otherwise stated
|
January to June |
|
|
2019 |
2020 |
Sales |
8,822 |
8,554 |
Nominal sales growth |
7% |
(3)% |
Comparable sales growth1) |
4% |
(4)% |
7% |
26% |
|
income from operations |
594 |
272 |
as a % of sales |
6.7% |
3.2% |
Financial income and expenses, net |
(28) |
2 |
Investments in associates, net of income taxes |
5 |
(4) |
Income tax expenses |
(141) |
(14) |
Net income from continuing operations |
430 |
256 |
Discontinued operations, net of income taxes |
(22) |
(7) |
Net income |
409 |
249 |
Income from continuing operations attributable to shareholders3) per common share (in EUR) - diluted |
0.46 |
0.28 |
0.71 |
0.53 |
|
Net income attributable to shareholders3) per common share (in EUR) - diluted |
0.43 |
0.27 |
EBITA1) |
754 |
516 |
as a % of sales |
8.5% |
6.0% |
Adjusted EBITA1) |
914 |
662 |
as a % of sales |
10.4% |
7.7% |
Adjusted EBITDA1) |
1,352 |
1,166 |
as a % of sales |
15.3% |
13.6% |
Amounts may not add up due to rounding.
Cash and cash equivalents balance
in millions of EUR
|
January to June |
|
|
2019 |
2020 |
Beginning cash and cash equivalents balance |
1,688 |
1,425 |
Free cash flow1) |
(32) |
254 |
Net cash flow from operating activities |
404 |
701 |
Net capital expenditures |
(435) |
(446) |
Other cash flow from investing activities |
(32) |
(122) |
Treasury shares transactions |
(882) |
(141) |
Changes in debt |
728 |
893 |
Dividend paid to shareholders |
(385) |
|
Other cash flow items |
6 |
(14) |
Net cash flow discontinued operations |
(14) |
(1) |
Ending cash and cash equivalents balance |
1,077 |
2,294 |
Composition of net debt to group equity1)
in millions of EUR unless otherwise stated
|
December 31, 2019 |
June 30, 2020 |
Long-term debt |
4,939 |
6,705 |
Short-term debt |
508 |
591 |
Total debt |
5,447 |
7,296 |
Cash and cash equivalents |
1,425 |
2,294 |
Net debt |
4,022 |
5,002 |
Shareholders' equity |
12,597 |
10,952 |
Non-controlling interests |
28 |
29 |
Group equity |
12,625 |
10,981 |
Net Debt : group equity ratio1) |
24:76 |
31:69 |
Key data
in millions of EUR unless otherwise stated
|
January to June |
|
|
2019 |
2020 |
Sales |
3,786 |
3,746 |
Sales growth |
|
|
Nominal sales growth |
8% |
(1)% |
Comparable sales growth1) |
4% |
(4)% |
Income from operations |
219 |
112 |
as a % of sales |
5.8% |
3.0% |
EBITA1) |
291 |
264 |
as a % of sales |
7.7% |
7.0% |
Adjusted EBITA1) |
362 |
282 |
as a % of sales |
9.6% |
7.5% |
Adjusted EBITDA1) |
493 |
423 |
as a % of sales |
13.0% |
11.3% |
Key data
in millions of EUR unless otherwise stated
|
January to June |
|
|
2019 |
2020 |
Sales |
2,175 |
2,427 |
Sales growth |
|
|
Nominal sales growth |
8% |
12% |
Comparable sales growth1) |
2% |
11% |
Income from operations |
95 |
214 |
as a % of sales |
4.4% |
8.8% |
EBITA1) |
165 |
281 |
as a % of sales |
7.6% |
11.6% |
Adjusted EBITA1) |
226 |
343 |
as a % of sales |
10.4% |
14.1% |
Adjusted EBITDA1) |
315 |
441 |
as a % of sales |
14.5% |
18.2% |
Key data
in millions of EUR unless otherwise stated
|
January to June |
|
|
2019 |
2020 |
Sales |
2,646 |
2,207 |
Sales growth |
|
|
Nominal sales growth |
5% |
(17)% |
Comparable sales growth1) |
5% |
(16)% |
Income from operations |
333 |
84 |
as a % of sales |
12.6% |
3.8% |
EBITA1) |
347 |
94 |
as a % of sales |
13.1% |
4.3% |
Adjusted EBITA1) |
371 |
141 |
as a % of sales |
14.0% |
6.4% |
Adjusted EBITDA1) |
441 |
224 |
as a % of sales |
16.7% |
10.1% |
Key data
in millions of EUR unless otherwise stated
|
January to June |
|
|
2019 |
2020 |
Sales |
216 |
174 |
Income from operations |
(53) |
(139) |
EBITA1) |
(49) |
(124) |
Adjusted EBITA1) of: |
(45) |
(104) |
IP Royalties |
111 |
83 |
Innovation |
(90) |
(95) |
Central costs |
(55) |
(75) |
Other |
(10) |
(17) |
Adjusted EBITDA1) |
103 |
78 |
In millions of EUR unless otherwise stated
|
Q2 |
January to June |
||
|
2019 |
2020 |
2019 |
2020 |
Sales |
4,671 |
4,395 |
8,822 |
8,554 |
Cost of sales |
(2,546) |
(2,564) |
(4,810) |
(4,878) |
Gross margin |
2,125 |
1,831 |
4,013 |
3,676 |
Selling expenses |
(1,173) |
(1,079) |
(2,257) |
(2,224) |
General and administrative expenses |
(165) |
(168) |
(317) |
(328) |
Research and development expenses |
(443) |
(455) |
(882) |
(944) |
Other business income |
19 |
107 |
96 |
110 |
Other business expenses |
(14) |
(7) |
(59) |
(18) |
Income from operations |
350 |
229 |
594 |
272 |
Financial income |
41 |
77 |
88 |
110 |
Financial expenses |
(60) |
(57) |
(116) |
(108) |
Investment in associates, net of income taxes |
3 |
- |
5 |
(4) |
Income before taxes |
334 |
249 |
571 |
270 |
Income tax expense |
(74) |
(36) |
(141) |
(14) |
Income from continuing operations |
260 |
213 |
430 |
256 |
Discontinued operations, net of income taxes |
(13) |
(3) |
(22) |
(7) |
Net income |
246 |
210 |
409 |
249 |
Attribution of net income |
|
|
|
|
Income from continuing operations attributable to shareholders of Koninklijke Philips N.V. |
256 |
212 |
429 |
253 |
Net income attributable to shareholders1) |
243 |
208 |
407 |
246 |
Net income attributable to non-controlling interests |
3 |
2 |
2 |
3 |
Earnings per common share |
|
|
|
|
Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands): |
|
|
|
|
- basic |
922,994 |
906,870 |
927,026 |
907,126 |
- diluted |
931,755 |
914,273 |
937,288 |
915,645 |
Income from continuing operations attributable to shareholders1) |
|
|
|
|
- basic |
0.28 |
0.23 |
0.46 |
0.28 |
- diluted |
0.27 |
0.23 |
0.46 |
0.28 |
Net income attributable to shareholders1) |
|
|
|
|
- basic |
0.26 |
0.23 |
0.44 |
0.27 |
- diluted |
0.26 |
0.23 |
0.43 |
0.27 |
Amounts may not add up due to rounding.
In millions of EUR
|
Q2 |
January to June |
||
|
2019 |
2020 |
2019 |
2020 |
Net income for the period |
246 |
210 |
409 |
249 |
|
|
|
|
|
Pensions and other post employment plans: |
|
|
|
|
Remeasurement |
- |
- |
1 |
- |
Income tax effect on remeasurements |
1 |
- |
- |
- |
|
|
|
|
|
Financial assets fair value through OCI: |
|
|
|
|
Net current-period change, before tax |
54 |
4 |
57 |
1 |
Total of items that will not be reclassified to Income statement |
55 |
4 |
57 |
1 |
|
|
|
|
|
Currency translation differences: |
|
|
|
|
Net current-period change, before tax |
(133) |
(169) |
84 |
(167) |
Income tax effect on net current-period change |
5 |
12 |
(1) |
(1) |
Reclassification adjustment for (gain) loss realized |
4 |
|
4 |
|
Reclassification adjustment for (gain) loss realized, in discontinued operations |
16 |
|
16 |
|
|
|
|
|
|
Cash flow hedges: |
|
|
|
|
Net current-period change, before tax |
3 |
(8) |
(22) |
25 |
Income tax effect on net current-period change |
(3) |
- |
3 |
(11) |
Reclassification adjustment for (gain) loss realized |
9 |
7 |
15 |
20 |
Total of items that are or may be reclassified to Income Statement |
(100) |
(159) |
98 |
(134) |
|
|
|
|
|
Other comprehensive income (loss) for the period |
(45) |
(155) |
155 |
(133) |
|
|
|
|
|
Total comprehensive income (loss) for the period |
201 |
55 |
564 |
115 |
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
Shareholders of Koninklijke Philips N.V. |
197 |
53 |
561 |
113 |
Non-controlling interests |
4 |
2 |
3 |
2 |
Amounts may not add up due to rounding.
In millions of EUR
|
December 31, 2019 |
June 30, 2020 |
Non-current assets: |
|
|
Property, plant and equipment |
2,866 |
2,824 |
Goodwill |
8,654 |
8,632 |
Intangible assets excluding goodwill |
3,466 |
3,247 |
Non-current receivables |
178 |
169 |
Investments in associates |
233 |
225 |
Other non-current financial assets |
248 |
395 |
Non-current derivative financial assets |
1 |
2 |
Deferred tax assets |
1,865 |
1,962 |
Other non-current assets |
47 |
50 |
Total non-current assets |
17,557 |
17,507 |
|
|
|
Current assets: |
|
|
Inventories - net |
2,773 |
3,193 |
Other current financial assets |
1 |
- |
Other current assets |
476 |
610 |
Current derivative financial assets |
38 |
50 |
Income tax receivable |
177 |
125 |
Current receivables |
4,554 |
3,693 |
Assets classified as held for sale |
13 |
11 |
Cash and cash equivalents |
1,425 |
2,294 |
Total current assets |
9,459 |
9,976 |
Total assets |
27,016 |
27,483 |
|
|
|
Equity: |
|
|
Equity |
12,597 |
10,952 |
Common shares |
179 |
179 |
Reserves |
652 |
517 |
Other |
11,766 |
10,256 |
Non-controlling interests |
28 |
29 |
Group equity |
12,625 |
10,981 |
|
|
|
Non-current liabilities: |
|
|
Long-term debt |
4,939 |
6,705 |
Non-current derivative financial liabilities |
124 |
120 |
Long-term provisions |
1,603 |
1,476 |
Deferred tax liabilities |
143 |
98 |
Non-current contract liabilities |
348 |
359 |
Non-current tax liabilities |
186 |
190 |
Other non-current liabilities |
71 |
63 |
Total non-current liabilities |
7,413 |
9,011 |
|
|
|
Current liabilities: |
|
|
Short-term debt |
508 |
591 |
Current derivative financial liabilities |
67 |
44 |
Income tax payable |
100 |
132 |
Accounts and notes payable |
2,089 |
1,965 |
Accrued liabilities |
1,632 |
1,440 |
Current contract liabilities |
1,170 |
1,339 |
Short-term provisions |
556 |
493 |
Dividend payable |
|
781 |
Liabilities directly associated with assets held for sale |
- |
- |
Other current liabilities |
856 |
705 |
Total current liabilities |
6,978 |
7,491 |
Total liabilities and group equity |
27,016 |
27,483 |
Amounts may not add up due to rounding.
In millions of EUR
|
January to June |
|
|
2019 |
2020 |
Cash flows from operating activities: |
|
|
Net income (loss) |
409 |
249 |
Results of discontinued operations - net of income tax |
22 |
7 |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
|
|
Depreciation, amortization and impairment of fixed assets |
601 |
779 |
Share-based compensation |
51 |
75 |
Net gain on sale of assets |
(73) |
2 |
Interest income |
(16) |
(8) |
Interest expense on debt, borrowings and other liabilities |
87 |
81 |
Income taxes |
141 |
14 |
Investments in associates, net of income taxes |
- |
2 |
Decrease (increase) in working capital: |
(617) |
(176) |
Decrease (increase) in receivables and other current assets |
351 |
634 |
Decrease (increase) in inventories |
(363) |
(563) |
Increase (decrease) in accounts payable, accrued and other current liabilities |
(605) |
(247) |
Decrease (increase) in non-current receivables, other assets and other liabilities |
40 |
6 |
Increase (decrease) in provisions |
44 |
(164) |
Other items |
(12) |
6 |
Interest paid |
(91) |
(83) |
Interest received |
15 |
9 |
Dividends received from investments in associates |
6 |
4 |
Income taxes paid |
(205) |
(102) |
Net cash provided by (used for) operating activities |
404 |
701 |
Cash flows from investing activities: |
|
|
Net capital expenditures |
(435) |
(446) |
Purchase of intangible assets |
(76) |
(58) |
Expenditures on development assets |
(171) |
(158) |
Capital expenditures on property, plant and equipment |
(219) |
(236) |
Proceeds from sales of property, plant and equipment |
30 |
6 |
Net proceeds from (cash used for) derivatives and current financial assets |
(71) |
(12) |
Purchase of other non-current financial assets |
(33) |
(76) |
Proceeds from other non-current financial assets |
18 |
12 |
Purchase of businesses, net of cash acquired |
(74) |
(46) |
Net proceeds from sale of interests in businesses, net of cash disposed of |
128 |
1 |
Net cash provided by (used for) investing activities |
(467) |
(568) |
Cash flows from financing activities: |
|
|
Proceeds from issuance of (payments on) short-term debt |
53 |
12 |
Principal payments on short-term portion of long-term debt |
(122) |
(150) |
Proceeds from issuance of long-term debt |
797 |
1,031 |
Re-issuance of treasury shares |
29 |
25 |
Purchase of treasury shares |
(911) |
(166) |
Dividend paid to shareholders of Koninklijke Philips N.V. |
(385) |
|
Dividend paid to shareholders of non-controlling interests |
(1) |
(1) |
Net cash provided by (used for) financing activities |
(541) |
751 |
|
|
|
Net cash provided by (used for) continuing operations |
(604) |
884 |
|
|
|
Net cash provided by (used for) discontinued operations |
(14) |
(1) |
|
|
|
Net cash provided by (used for) continuing and discontinued operations |
(618) |
883 |
Effect of change in exchange rates on cash and cash equivalents |
7 |
(13) |
Cash and cash equivalents at the beginning of the period |
1,688 |
1,425 |
Cash and cash equivalents at the end of the period |
1,077 |
2,294 |
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.
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 December 31, 2018 |
185 |
739 |
(181) |
(10) |
3,487 |
8,266 |
(399) |
12,088 |
29 |
12,117 |
IFRS 16 adjustment |
|
|
|
|
|
(33) |
|
(33) |
|
(33) |
Balance as of January 1, 2019 |
185 |
739 |
(181) |
(10) |
3,487 |
8,233 |
(399) |
12,055 |
29 |
12,084 |
Total comprehensive income (loss) |
|
101 |
57 |
(5) |
|
407 |
|
561 |
3 |
564 |
Dividend distributed |
2 |
|
|
|
319 |
(775) |
|
(454) |
(1) |
(455) |
Minority buy-out |
|
|
|
|
|
(3) |
|
(3) |
(3) |
(6) |
Transfer of gain on disposal of equity investments at FVTOCI to retained earnings |
|
|
(14) |
|
|
14 |
|
- |
|
- |
Purchase of treasury shares |
|
|
|
|
|
|
(317) |
(317) |
|
(317) |
Re-issuance of treasury shares |
|
|
|
|
(240) |
18 |
240 |
18 |
|
18 |
Forward contracts |
|
|
|
|
|
576 |
(576) |
- |
|
- |
Share call options |
|
|
|
|
|
13 |
(26) |
(13) |
|
(13) |
Cancellation of treasury shares |
(6) |
|
|
|
|
(974) |
980 |
- |
|
- |
Share-based compensation plans |
|
|
|
|
54 |
|
|
54 |
|
54 |
Income tax share-based compensation plans |
|
|
|
|
2 |
|
|
2 |
|
2 |
Balance as of June 30, 2019 |
181 |
841 |
(138) |
(15) |
3,623 |
7,510 |
(97) |
11,904 |
28 |
11,932 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019 |
179 |
978 |
(303) |
(24) |
3,671 |
8,296 |
(201) |
12,597 |
28 |
12,625 |
Total comprehensive income (loss) |
|
(167) |
1 |
34 |
|
246 |
|
113 |
2 |
115 |
Dividend declared |
|
|
|
|
|
(781) |
|
(781) |
(1) |
(783) |
Minority buy-out |
|
|
|
|
|
|
|
|
|
|
Transfer of gain on disposal of equity investments at FVTOCI to retained earnings |
|
|
(2) |
|
|
2 |
|
|
|
|
Purchase of treasury shares |
|
|
|
|
|
- |
(130) |
(130) |
|
(130) |
Re-issuance of treasury shares |
|
|
|
|
(144) |
10 |
149 |
15 |
|
15 |
Forward contracts |
|
|
|
|
|
(920) |
|
(920) |
|
(920) |
Share call options |
|
|
|
|
|
10 |
(27) |
(17) |
|
(17) |
Cancellation of treasury shares |
(1) |
|
|
|
|
(151) |
152 |
|
|
|
Share-based compensation plans |
|
|
|
|
75 |
|
|
75 |
|
75 |
Income tax share-based compensation plans |
|
|
|
|
- |
|
|
- |
|
- |
Balance as of June 30, 2020 |
179 |
811 |
(304) |
10 |
3,602 |
6,713 |
(58) |
10,952 |
29 |
10,981 |
Amounts may not add up due to rounding.
These semi-annual condensed consolidated financial statements for the six-month period ended June 30, 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed by the EU.
The semi-annual condensed consolidated financial statements do not include all the notes of the type normally included in an annual financial report. Accordingly, these statements are to be read in conjunction with the Annual Report for the year ended December 31, 2019.
The semi-annual condensed financial statements are presented in euros, which is the presentation currency. Due to rounding, amounts may not add up to totals provided. Certain comparative-period amounts have been reclassified to conform to the current-year presentation.
The significant accounting policies applied in these semi-annual condensed consolidated financial statements are consistent with those applied in the Annual Report 2019, except for the adoption of new standards and amendments to standards which are also expected to be reflected in the company's consolidated IFRS financial statements as at and for the year ending December 31, 2020. The new and amended standards did not have a material impact on the company's semi-annual condensed consolidated financial statements. The company has not early-adopted any standard, interpretation or amendment that has been issued but is not yet effective and endorsed.
COVID-19 affected the company’s results, balance sheet and cash flows presented in these semi-annual condensed consolidated financial statements. The impact of the pandemic on significant accounting matters is disclosed below. Other areas have also been impacted, but did not have a significant impact and are therefore not separately disclosed.
In preparing these semi-annual condensed financial statements, IFRS requires management to make judgments, estimates and assumptions. As a result of the uncertainty associated with the nature of the COVID-19 pandemic, and in line with existing policies, the company regularly updates its significant assumptions and estimates to support the reported amounts of assets, liabilities, income and expenses. In relation to those areas of judgment and estimates as disclosed in the Annual Report 2019, those primarily impacted by COVID-19 include impairment tests, measurement of financial instruments and the fair value of acquired identifiable intangible assets, contingent consideration and investments based on an assessment of future cash flows. In addition, valuation of inventories has been identified as an area of significant judgment. A further discussion of these significant judgments and estimates is included below.
Other significant estimates and judgements made by management in applying the company’s accounting policies and the key sources of estimation uncertainty not mentioned in this note were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2019.
Impairment testing of goodwill and intangible assets not ready for use
Goodwill and intangible assets not yet ready for use are not amortized but are tested for impairment annually and whenever impairment indicators require such testing. For the Image-Guided Therapy cash-generating unit (CGU) and a number of other smaller CGUs, such indicators were identified as at June 30, 2020 because of deterioration in the economic environment or market in which these CGUs operate. Factors resulting from the pandemic that the company considered primarily included a decrease in demand and increased costs or business interruptions due to supply chain issues.
For those CGUs for which an impairment trigger was identified, an impairment test was performed at June 30, 2020. In determining the recoverable amounts, consideration was given to the uncertainties embedded in the discounted cash flow projections and the appropriateness of key assumptions used in light of the pandemic, which included increased uncertainties around forecasted revenues, higher volatility in applied discount rates and other factors. Further details on these impairment procedures and the results thereof are disclosed in Goodwill.
Impairment testing of non-financial assets other than goodwill, intangible assets not yet ready for use, inventories and deferred tax assets
Similarly to the above, for certain non-financial assets other than goodwill, intangible assets not yet ready for use, inventories and deferred tax assets, the changes in the economic environment provided an indicator that the carrying amount of the asset may not be recoverable. Uncertainties in the market and volatility in the financial markets resulted in increased sensitivity in both the value-in-use calculations as well as in determining the fair value less costs of disposal of such an asset. Further details on the results of these impairment procedures are disclosed in Intangible assets excluding goodwill.
Impairment testing of financial assets
The company recognizes an allowance for expected credit losses (ECLs) for trade receivables, contract assets, lease receivables and debt investments carried at fair value through Other comprehensive income (FVTOCI) and amortized cost. In line with the accounting policy disclosed in the Annual Report 2019, for all financial assets to which the company applies the simplified approach, an updated assessment was made on the lifetime ECL allowance. In addition, for those assets to which the company does not apply the simplified approach to measuring ECLs, an assessment was made whether a significant increase in credit risk was observed. In those instances, the allowance was updated to also reflect lifetime ECLs.
In making these assessments, all reasonable and supportable information was taken into account. Indicators identified included counterparties breaching their agreed payment terms, counterparties requesting extended payment terms or (partial) waivers and a deterioration of the credit rating of a counterparty. Because of these triggers, relevant financial assets were separately assessed and additional ECL allowances were accounted for in those cases where deemed necessary. The overall impact of the increase in the level of ECLs did not have a material impact on the company’s financial assets. The company further concluded that none of the agreed changes with counterparties resulted in a substantial modification of such instruments under IFRS 9 Financial instruments.
Certain of the company’s financial instruments and other assets and liabilities are carried at fair value. The fair values included in these semi-annual condensed consolidated financial statements reflect market participant views and market data at the measurement date under current market conditions. This implies that due to the increased volatility and uncertainty in the financial markets, these fair values are subject to significant estimates, in particular for assets and liabilities for which the fair value is based on unobservable inputs (sometimes referred to as Level 3 measurements). Expectations around future cash flows, discount rates and other significant valuation inputs related to the asset or liability as at June 30, 2020 have become subject to a greater level of uncertainty. The fair values determined taking into account this increased uncertainty have been reflected in the Condensed consolidated balance sheets as per June 30, 2020.
In addition to what has been described above in terms of impairment testing of non-financial assets, the COVID-19 pandemic triggered a significant increase in demand for our products mainly in the Connected Care businesses. As a result, investments were made during the half-year ended June 30, 2020 to allow the company to meet this demand. These investments include, amongst others, additions to existing production lines, establishing new production lines and investing in company-specific tooling used in the supply chain. Assessing the useful life of these new investments includes a significant amount of judgment, due to the volatility in the demand forecast impacting the expected period over which these assets will be used. In certain cases, this has resulted in new machinery and installations being depreciated over a useful life that is less than three years. In addition, the volatility in markets in general increased the level of judgment involved in determining the residual values of certain of these assets.
COVID-19 affected the company’s long-term employee benefits, including defined-benefit plans. Volatility in the financial markets following the COVID-19 outbreak resulted in an increased volatility in key parameters used in determining these benefits, including discount rates, mortality rates, retention rates and other expectations supporting the actuarial calculations. For our funded defined-benefit plans, increased volatility in the fair values of the plan assets during the half-year ended June 30, 2020 meant further volatility in the net obligation.
We assessed whether the above volatility in assumptions resulted in a material change in the company’s balance sheet position for long-term employee benefits. Based on updated actuarial results, we concluded no material change occurred as at June 30, 2020.
The company’s inventories are stated at the lower of cost or net realizable value. In determining the appropriate level of provision for obsolescence, changes in the aging of inventory items in certain businesses and markets due to COVID-19 were taken into account, primarily within the Personal Health businesses segment. In addition, current and potential excess stock levels were analyzed, incorporating revised expectations of future demand for these items. No material change in the provision for obsolescence was identified as a result of these procedures.
Due to the changes in demand and therefore production levels within several of our businesses, the company evaluated its standard cost prices, in particular in relation to the absorption of overhead costs and additional costs. The company assessed, based on currently available information, that the change in demand and production levels is not expected to be a sustained change and therefore the standard cost prices were not updated relating to those elements.
In response to COVID-19, many governments have changed tax policies aimed at deferring tax filings and payments, providing tax relief, and offering financial assistance. The company assessed the impact of the legislative changes and concluded that apart from applied payment deferrals on corporate income taxes and other taxes/levies, there is no material impact.
Philips is exposed to several types of financial risks. In terms of liquidity risk, the company has taken a number of different measures to manage this risk. Apart from the successful placement of EUR 1,000 million fixed-rate notes in March (of which EUR 500 million Sustainability Innovation notes), the company also completed the remainder of the EUR 1.5 billion share buyback program through individual forward contracts, with settlement dates extending into the second half of 2021. In addition, the 2019 Annual Incentive of the Board of Management was settled in shares instead of cash, and the Extraordinary General Meeting of Shareholders held on June 26, 2020 approved the distribution of the final dividend out of the profit of 2019 to be made in shares only. Overall, the company has a solid liquidity position and the company’s liquidity risk management procedures have not changed significantly because of COVID-19. No significant concentration risks have been identified as a result of COVID-19 and the company continues to have access to its existing lines of credit as disclosed in the Annual Report 2019.
In addition, Philips is exposed to other financial risks as disclosed in the Risk management note.
As reflected in the semi-annual management report, COVID-19 affected the company’s business results significantly during the six-month period ended June 30, 2020. Under normal economic conditions, the company’s sales are impacted by seasonal fluctuations, typically resulting in higher revenues and earnings in the second half-year. At Diagnosis & Treatment businesses and Connected Care businesses, sales are generally higher in the second half-year, largely due to the timing of new product availability and customers attempting to spend their annual budgeted allowances before the end of the year. At Personal Health businesses, sales are generally higher in the second half-year due to the holiday sales and events. The segment Other is generally not materially affected by seasonality; however the timing of intellectual property transactions causes variation over the year. With the continued uncertainty for the remainder of the year, we expect that the normal seasonality patterns will be affected.
The Annual Report 2019 describes certain risk categories and risks (including risk appetite) which could have a material adverse effect on Philips’ financial position and results. Those categories and risks remain valid and should be read in conjunction with this semi-annual report.
Looking ahead to the second half of 2020, Philips continues to expect that disruption due to COVID-19 and its macro-economic effects will have a negative impact on its results of operations and on supply chains. It may also affect planned disposals consistent with Philips’ focus on health technology, including in relation to Philips’ Domestic Appliances business; the timing, terms, execution and proceeds of any such disposals are uncertain.
Also, financial markets are expected to continue to be highly volatile due to political and macroeconomic issues (such as, but not limited to, trade tariffs and sanctions) in most major regions, such as Europe (including continued uncertainty on the impact from Brexit), United States, China, Russia, Middle East & Turkey and Latin America. Geopolitical conflicts and criminal activity continue to drive increases in the number and severity of cyber-attacks in general. Like many other multinational companies, Philips is therefore inherently and increasingly exposed to the risk of cyber-attacks.
Philips operates in a highly regulated product safety and quality environment. Philips products and facilities are subject to regulation (e.g. EU Medical Devices Regulation) by various government and regulatory agencies (e.g. FDA (USA), NMPA (China), MHRA (UK), ASNM (France), BfArM (Germany), IGZ (Netherlands)). Philips is undertaking considerable efforts to improve quality and management systems in all of its operations, and to keep strengthening the quality and continuous improvement culture we have built up. The improvement actions in these areas will continue to affect the company’s results.
Additional risks not known to Philips, or currently believed not to be material, could later turn out to have a material impact on Philips’ business, objectives, revenues, income, assets, liquidity or capital resources.
Sales and Adjusted EBITA1)
in millions of EUR unless otherwise stated
|
January to June |
|||||||
|
2019 |
2020 |
||||||
|
sales |
sales including intercompany |
Adjusted EBITA1) |
sales |
sales including intercompany |
Adjusted EBITA1) |
||
|
|
|
|
as a % of sales |
|
|
|
as a % of sales |
Diagnosis & Treatment |
3,786 |
3,835 |
362 |
9.6% |
3,746 |
3,797 |
282 |
7.5% |
Connected Care |
2,175 |
2,196 |
226 |
10.4% |
2,427 |
2,447 |
343 |
14.1% |
Personal Health |
2,646 |
2,651 |
371 |
14.0% |
2,207 |
2,214 |
141 |
6.4% |
Other |
216 |
255 |
(45) |
|
174 |
215 |
(104) |
|
Inter-segment eliminations |
|
(114) |
|
|
|
(118) |
|
|
Philips Group |
8,822 |
8,822 |
914 |
10.4% |
8,554 |
8,554 |
662 |
7.7% |
Reconciliation of Net income to Adjusted EBITA
in millions of EUR
|
Philips Group |
Diagnosis & Treatment |
Connected Care |
Personal Health |
Other |
January to June 2020 |
|
|
|
|
|
Net income |
249 |
|
|
|
|
Discontinued operations, net of income taxes |
7 |
|
|
|
|
Income tax expense |
14 |
|
|
|
|
Investments in associates, net of income taxes |
4 |
|
|
|
|
Financial expenses |
108 |
|
|
|
|
Financial income |
(110) |
|
|
|
|
Income from operations |
272 |
112 |
214 |
84 |
(139) |
Amortization of acquired intangible assets |
244 |
152 |
67 |
10 |
15 |
EBITA |
516 |
264 |
281 |
94 |
(124) |
Restructuring and acquisition-related charges |
32 |
(19) |
25 |
21 |
5 |
Other items |
114 |
36 |
37 |
26 |
15 |
Adjusted EBITA |
662 |
282 |
343 |
141 |
(104) |
|
|
|
|
|
|
January to June 2019 |
|
|
|
|
|
Net income |
409 |
|
|
|
|
Discontinued operations, net of income taxes |
22 |
|
|
|
|
Income tax expense |
141 |
|
|
|
|
Investments in associates, net of income taxes |
(5) |
|
|
|
|
Financial expenses |
116 |
|
|
|
|
Financial income |
(88) |
|
|
|
|
Income from operations |
594 |
219 |
95 |
333 |
(53) |
Amortization of acquired intangible assets |
160 |
72 |
70 |
14 |
4 |
EBITA |
754 |
291 |
165 |
347 |
(49) |
Restructuring and acquisition-related charges |
153 |
63 |
34 |
23 |
31 |
Other items |
7 |
7 |
27 |
- |
(27) |
Adjusted EBITA |
914 |
362 |
226 |
371 |
(45) |
Sales and tangible and intangible assets
in millions of EUR
|
sales1) |
tangible and intangible assets2) |
||
|
January to June |
December 31, |
June 30, |
|
|
2019 |
2020 |
2019 |
2020 |
Netherlands |
263 |
262 |
2,148 |
2,022 |
United States |
3,070 |
3,063 |
9,864 |
9,856 |
China |
1,260 |
1,107 |
340 |
321 |
Japan |
590 |
567 |
550 |
549 |
Germany |
458 |
500 |
308 |
306 |
United Kingdom |
211 |
231 |
611 |
550 |
France |
217 |
201 |
46 |
48 |
Other countries |
2,754 |
2,624 |
1,119 |
1,050 |
Philips Group |
8,822 |
8,554 |
14,986 |
14,702 |
As required by IFRS 8, Operating Segments are Diagnosis & Treatment businesses, Connected Care businesses and Personal Health businesses, each being responsible for the management of its business worldwide. More segment information can be found in Note 2 Information by segment and main country in the Annual Report 2019.
Philips completed one acquisition during the six months ended June 30, 2020. The acquisition involved a net cash outflow of EUR 28 million and resulted in an increase in Goodwill and Other intangible assets of EUR 19 million and EUR 15 million respectively. These amounts are subject to final purchase price allocation.
As part of the strategic pivot to a health technology-focused portfolio, Philips announced in January 2020 that it is reviewing options for future ownership of its Domestic Appliances business within Personal Health. Philips is in the process of separating this business into its own legal structure within the Philips Group, which is expected to be completed in 2021. No divestments were completed in the first six months of 2020.
Goodwill decreased by EUR 22 million in the six months ended June 30, 2020, primarily as a result of currency translation differences of EUR 59 million, offset by an increase of EUR 37 million due to new acquisitions and changes made in the provisional opening balance sheet position for certain 2019 acquisitions. For details on the impact of new acquisitions, refer to Acquisitions and divestments of this document.
Goodwill increased by EUR 112 million in the six months ended June 30, 2019 as a result of currency translation differences of EUR 53 million and EUR 59 million due to new acquisitions and changes made in the provisional opening balance sheet position for certain acquisitions.
Goodwill is tested for impairment annually in the fourth quarter and whenever impairment indicators require. For the Image-Guided Therapy (IGT) cash-generating unit (CGU) and a number of smaller other CGUs we identified such indicators as at 30 June 2020. The total amount of goodwill tested for impairment amounts to EUR 3,695 million, of which EUR 2,664 million relates to the IGT CGU. The Q2 2020 IGT goodwill impairment test used compound sales growth rates of 7.9% (initial forecast period) and 6.7% (extrapolation period) and 2.5% (terminal period). A pre-tax discount rate of 9.0% was applied.
The basis of the recoverable amount used in the Q2 2020 impairment tests for the CGUs tested is the value in use. The methodology is in line with annual tests performed in 2019. Careful consideration was given to the uncertainties around the current economic environment. These uncertainties and the current economic environment were reflected through updated initial forecast period assumptions utilized in the tests. In the impairment tests performed in Q2 2020, the estimated recoverable amounts of the CGUs tested equaled or exceeded the carrying value of the units, therefore no impairment loss was recognized.
As disclosed in Annual Report 2019, the Population Health Management (PHM) CGU remains sensitive to fluctuations in the assumptions. The PHM goodwill impairment test of Q2 2020 used compound sales growth rates of 13.3% (initial forecast period) and 10.4% (extrapolation period), which is above past performance and market growth given the start-up nature of this business. A pre-tax discount rate of 10.4% was applied. Any downward trend is likely to cause the recoverable amount to fall below the level of its carrying value. The goodwill allocated
to PHM at June 30, 2020 amounts to EUR 175
million.
The results of the impairment tests of other tested CGUs indicate that a reasonably possible change in key assumptions would not cause the value in use to fall to the level of the carrying value.
Intangible assets excluding goodwill decreased by EUR 219 million in the six months ended June 30, 2020, primarily as a result of amortization and impairments of EUR 423 million (six months ended June 30, 2019: EUR 310 million) and translation differences, offset by additions and acquisitions of EUR 235 million (six months ended June 30, 2019: EUR 268 million). The impairments of 2020 amount to EUR 142 million and mainly relate to technology (EUR 105 million) and product development construction in progress (EUR 27 million). The most notable impairment is within the Diagnosis & Treatment businesses (EUR 92 million) as a result of revisions to the forecast.
For details on the impact of new
acquisitions, refer to Acquisitions and divestments of this
document.
In the first half of 2020, Other non-current financial assets increased by EUR 146 million, from EUR 248 million as of December 31, 2019 to EUR 395 million as of June 30, 2020, mainly reflecting fair value adjustments through profit and loss (FVTPL) and new investments made during that period. The fair value gains related to investments in financial assets amounted to EUR 82 million, and new investments were made for EUR 85 million.
As of June 30, 2020, the issued and fully-paid share capital consists of 892,972,803 common shares, each share having a par value of EUR 0.20, and the total number of treasury shares amounted to 1,672,115, which were purchased at an average price of EUR 34.95 per share.
On June 26, 2020, the Extraordinary General Meeting of Shareholders approved a dividend of EUR 0.85 per common share, in shares only. The dividend was settled in July through the issuance of 18,080,198 new common shares. Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for the share dividend in respect of 2019.
During the first six months of 2020, a total of 4,311,000 treasury shares were delivered as a result of restricted share deliveries, performance share deliveries and stock option exercises.
In the first six months of 2020, a total of 714,648 shares were acquired in connection with Philips' Long-Term Incentive (LTI) Program through the unwinding of call options which were previously acquired to cover LTI commitments. During the first half of 2020 the company unwound 272,886 EUR-denominated and 441,762 USD-denominated call options against the transfer of the same number of shares (714,648 shares) and an additional EUR 17 million cash payment to the buyer of the call options. As of June 30, 2020, the number of outstanding EUR-denominated options was 895,714 and the number of outstanding USD-denominated options was 685,820. In the first six months of 2020, in order to hedge commitments under share-based compensation plans, Philips entered into forward contracts for a total of 5,000,000 shares with settlement dates between October 2021 and November 2022.
In the first six months of 2020, a total of 3,318,211 shares were acquired as part of the share-buy back program for capital reduction purposes. In addition, Philips entered into forward contracts for a total of 20,476,023 shares with settlement dates between June and December 2021.
Furthermore, there was a cancellation of 3,809,675 shares with a cost price of EUR 152 million.
As of June 30, 2020, Philips had total debt of EUR 7,296 million, an increase of EUR 1,849 million compared to December 31, 2019. The majority of the debt consisted of EUR 4,550 million of public EUR and USD bonds with a weighted average interest rate of 2.59%, EUR 1,108 million of forward contracts as further explained below and EUR 1,331 million of lease liabilities.
Long-term debt was EUR 6,705 million, an increase of EUR 1,766 million, and short-term debt was EUR 591 million, a decrease of EUR 83 million compared to December 31, 2019.
In March 2020, Philips issued a EUR 500 million fixed-rate bond due in 2025 with a coupon rate of 1.375%, and a EUR 500 million fixed-rate bond due in 2030 with a coupon rate of 2.000%.
In the first half of 2020, a total amount of EUR 745 million of forward contracts was purchased to complete the remainder of the EUR 1.5 billion share buyback program announced on January 29, 2019. The majority of the share buyback forward contracts will be settled in the second half of 2021.
In the first half of 2020, Philips also purchased a total amount of EUR 174 million of forward contracts related to the Long-Term Incentive and employee stock purchase plans. These forward contracts will be settled in the last quarter of 2021 and 2022.
.
Philips’ policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. Remaining off-balance-sheet business and performance-related guarantees provided on behalf of third parties and associates decreased by EUR 2 million during the first half of 2020 to EUR 19 million.
Royal Philips and certain of its group companies and former group companies are involved as a party in legal proceedings, including regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, intellectual property, commercial transactions, product liability, participations and environmental pollution. While it is not feasible to predict or determine the ultimate outcome of all pending or threatened legal proceedings, regulatory and governmental proceedings, Philips is of the opinion that the cases described below may have, or have had in the recent past, a significant impact on its consolidated financial position, results of operations and cash flows. For information regarding legal proceedings in which Philips is involved, please refer to the Annual Report 2019.
Significant developments regarding legal proceedings that have occurred since the publication of the Annual Report 2019 are described below:
In the CRT-related civil antitrust litigation, the United States District Court for the Northern District of California granted final approval of the revised settlement agreement with the Indirect Purchaser class on July 13, 2020. The decision is subject to appeal. Outside the United States, Philips reached a further settlement in the first half of 2020, leaving one lawsuit pending in the UK, two in Germany, two in the Netherlands and one in Israel. The settlement reached had no material impact on Philips’ results in the first half of 2020. For a number of the remaining CRT-related civil antitrust actions, Philips recorded a provision based on settlement interactions with the plaintiffs in these cases.
The public prosecution service in Rio de Janeiro and representatives from the Brazilian antitrust authority CADE are conducting an investigation into tender irregularities in the medical device industry in Brazil. Philips is one of a number of companies involved in the investigation, and in July 2018 the Brazilian authorities visited the Philips site in São Paulo to obtain documentation in connection with the investigation. The company has been conducting an internal investigation into the matter and is discussing the results with the public prosecution service with a view to come to a resolution. Based on the progress made in these discussions, Philips recorded a provision. The provision has no material impact on Philips’ results in the first half of 2020.
The previously reported discussions with the US Securities and Exchange Commission (SEC) and US Department of Justice (DoJ), focusing on compliance matters in Brazil and China, are ongoing.
Given the uncertain nature of the relevant events and liabilities, it is not practicable to provide information on the estimate of the financial effect, if any, or timing. The outcome of the uncertain events could have a material impact on the company’s consolidated financial position, results of operations and cash flows.
The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
Philips Group
Fair value of financial assets and liabilities
in millions of EUR
|
|
|
|
|
|
|
carrying amount |
estimated fair value1) |
Level 1 |
Level 2 |
Level 3 |
Balance at June 30, 2020 |
|
|
|
|
|
Financial assets |
|
|
|
|
|
Carried at fair value: |
|
|
|
|
|
Debt instruments |
190 |
190 |
|
|
190 |
Equity instruments |
5 |
5 |
5 |
|
|
Other financial assets |
36 |
36 |
|
31 |
5 |
Financial assets carried at FVTPL |
231 |
231 |
5 |
31 |
195 |
Debt instruments |
27 |
27 |
|
26 |
- |
Equity instruments |
99 |
99 |
11 |
- |
88 |
Current financial assets |
- |
- |
- |
|
- |
Receivables - current |
56 |
56 |
|
|
56 |
Financial assets carried at FVTOCI |
181 |
181 |
11 |
26 |
144 |
Derivative financial instruments |
52 |
52 |
|
52 |
|
Financial assets carried at fair value |
464 |
464 |
17 |
109 |
339 |
|
|
|
|
|
|
Carried at (amortized) cost: |
|
|
|
|
|
Cash and cash equivalents |
2,294 |
|
|
|
|
Loans and receivables |
|
|
|
|
|
Current loans receivables |
- |
|
|
|
|
Other non-current financial assets |
39 |
|
|
|
|
Receivables - current |
3,637 |
|
|
|
|
Receivables - non-current |
169 |
|
|
|
|
Financial assets carried at (amortized) cost |
6,138 |
|
|
|
|
Total financial assets |
6,602 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
Carried at fair value: |
|
|
|
|
|
Contingent consideration |
(255) |
(255) |
|
|
(255) |
Financial liabilities carried at FVTPL |
(255) |
(255) |
|
|
(255) |
Derivative financial instruments |
(164) |
(164) |
|
(164) |
|
Financial liabilities carried at fair value |
(419) |
(419) |
|
(164) |
(255) |
|
|
|
|
|
|
Carried at (amortized) cost: |
|
|
|
|
|
Accounts payable |
(1,965) |
|
|
|
|
Interest accrual |
(37) |
|
|
|
|
Debt (corporate bonds and leases) |
(5,880) |
(6,596) |
(5,265) |
(1,331) |
|
Debt (excluding corporate bonds and leases ) |
(1,416) |
|
|
|
|
Financial liabilities carried at (amortized) cost |
(9,298) |
|
|
|
|
Total financial liabilities |
(9,717) |
|
|
|
|
Philips Group
Fair value of financial assets and liabilities
in millions of EUR
|
carrying amount |
estimated fair value1) |
Level 1 |
Level 2 |
Level 3 |
Balance as of December 31, 2019 |
|
|
|
|
|
Financial assets |
|
|
|
|
|
Carried at fair value: |
|
|
|
|
|
Debt instruments |
92 |
92 |
|
|
92 |
Equity instruments |
7 |
7 |
7 |
|
|
Other financial assets |
37 |
37 |
|
31 |
6 |
Financial assets carried at FVTPL |
136 |
136 |
7 |
31 |
98 |
Debt instruments |
28 |
28 |
|
27 |
- |
Equity instruments |
45 |
45 |
8 |
|
37 |
Current financial assets |
- |
- |
|
|
|
Receivables - current |
77 |
77 |
|
|
77 |
Financial assets carried at FVTOCI |
150 |
150 |
8 |
27 |
114 |
Derivative financial instruments |
39 |
39 |
|
39 |
|
Financial assets carried at fair value |
324 |
324 |
15 |
97 |
212 |
|
|
|
|
|
|
Carried at (amortized) cost: |
|
|
|
|
|
Cash and cash equivalents |
1,425 |
|
|
|
|
Loans and receivables |
|
|
|
|
|
Current loans receivables |
1 |
|
|
|
|
Other non-current financial assets |
40 |
|
|
|
|
Receivables - current |
4,476 |
|
|
|
|
Receivables - non-current |
178 |
|
|
|
|
Financial assets carried at (amortized) cost |
6,121 |
|
|
|
|
Total financial assets |
6,445 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
Carried at fair value: |
|
|
|
|
|
Contingent consideration |
(354) |
(354) |
|
|
(354) |
Financial liabilities carried at FVTPL |
(354) |
(354) |
|
|
(354) |
Derivative financial instruments |
(191) |
(191) |
|
(191) |
|
Financial liabilities carried at fair value |
(544) |
(544) |
|
(191) |
(354) |
|
|
|
|
|
|
Carried at (amortized) cost: |
|
|
|
|
|
Accounts payable |
(2,089) |
|
|
|
|
Interest accrual |
(38) |
|
|
|
|
Debt (corporate bonds and leases) |
(4,943) |
(5,500) |
(4,119) |
(1,381) |
|
Debt (excluding corporate bonds and leases) |
(504) |
|
|
|
|
Financial liabilities carried at (amortized) cost |
(7,574) |
|
|
|
|
Total financial liabilities |
(8,118) |
|
|
|
|
As part of the EPD acquisition, Philips may be required to pay additional consideration to former shareholders if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The fair value of this contingent consideration liability is updated each period using a probability-weighted approach to estimate the achievement of future regulatory and commercial milestones and discount rates ranging from 1 to 3%. In Q2 2020, revisions to EPD’s forecast due to delays in commercialization caused by the need to do more work on the maturity of the technology, resulted in a EUR 101 million decrease in the fair value of the respective contingent consideration liability and is reflected in Other business income in the condensed consolidated statements of income. The fair value measurement is based on management’s estimates and assumptions and hence classified as Level 3 in the fair value hierarchy. A sensitivity analysis of the EPD contingent consideration liability at June 30, 2020 shows that if the probability of success for every milestone increased by 10 percentage points, with all other variables (including foreign exchange rates) held constant, the fair value of the liability would increase by approximately 4%. Similarly, a decrease in the probability of success for every milestone by 10 percentage points would reduce the fair value by approximately 5%. If the discount rates were to increase instantaneously by 100 basis points from the assumption at June 30, 2020, with all other variables (including foreign exchange rates) held constant, the fair value of the liability would decrease by approximately 3%, while a decrease in the discount rates of 100 basis points would increase the fair value by approximately 3%.
The table below shows the reconciliation from the opening balance to the closing balance for Level 3 fair value measurements.
Reconciliation of the Level 3 fair value hierarchy
in millions of EUR
|
Financial assets |
Financial liabilities |
|
|
|
Balance as of December 31, 2019 |
212 |
354 |
Acquisitions |
|
0 |
Purchase |
82 |
|
Sales/redemptions |
(8) |
|
Utilizations |
|
(12) |
Recognized in profit and loss: |
|
|
Other business income and expenses |
|
(91) |
Financial income and expenses |
81 |
4 |
Recognized in other comprehensive income1) |
(4) |
(1) |
Receivables held to collect and sell |
(24) |
|
Balance as of June 30, 2020 |
339 |
255 |
All rights reserved.
*X198A1_R[JH\)]_V
M> !Z7Y0.0'*LQJN8W13%4Y7B*M(T
(I
ML:;&/&9T\(6WHE=IJMJ[>?"(T<9_UFO *8OH #7=,]^$^7YKX]E]C3/?
MA/E^:^/9!
0 @ ' <@!O &8 :0!L " 4@!' $($'@0Q!$D$. 0Y " $/P1 !#X$ M1 0X!#L$3 @ %( 1P!"!D4&1 9! " &*@8Y!C$&2@9! " 4@!' $( ( 8G M!D0&.08G!D4 1P!E &X 90!R &D 8P @ %( 1P!" " 4 !R &\ 9@!I &P M90!' &4 ;@!E '( 90!L " 4@!' $( +0!B &4
+CY.7FY^CIZO'R\_3U]O?X^?K_Q ? 0 #
M 0$! 0$! 0$! 0(#! 4&!P@)"@O_Q "U$0 " 0($! ,$!P4$! !
M G< 0(#$00%(3$&$D%1!V%Q$R(R@0@40I&AL<$)(S-2\!5B ,@]*>2$)
MW+NXY ]:C&YB3QM[ TP&9)!?'M36R!C@YYJ216V!A*N0?N &H<*,\_,>:!,1
M3@[<\^E..=V:%'!R.3QFD154$!LF@@<2>@&>YH8%6R>A%(O7GBEWDC@9YXH
M5"%^\,K3P689Q\M,Y7!(_"G?,WS8P/2@!1GD-P#WI-QSP.@Q]:4$X)S@4$L/
MXQS0(0$@G@9/%(,#G/?&*%/S'CFCA9!G\:!"C&[CIWIOK^E+DG=QWS2 CL>:
M"6*S<* 3D>E.C SQDGOFD7;DC/(ZTX,O/X4"'9'KP>/I2YQCVXI@!+!L<]
M,4[&=Q!]A]:=Q!U(YIQX84#!*X/)'ZT @C)]<4[@29.<]J<-K'&[ Q^M,R>G
M:G!2K!>W7-,0K?+%@_>-!R0%XR1CDXI"Q+X SQ35 9@>" H\ @@XR1V]:-N4W#D,?RJ.)7$"[\LXYW'C%3$;QEL''0]*I:DB
M# ^\,?44F .",CUI2%9< #CW-*O(VXZ PIJ_>R>I'2GGY1GN>U5<0+R1CDGK3PNT$#DTR, DG![4_@8
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MH$BNW'S7&S_<'--EM(RT?F2.YW<[CQ0VVM$%C;T*]MH-6B9W!7W[NQY
MVJ,#%58K6PLM?"NN4QSD;JUOL/R;[N[D9.<#.U:SI#;0>(5:))_ -SI<\G6XLRLA
M4^HSBN&U_0O#TMO-J?@[65U2Q49,;C9<0CW0]1[C/:M%33VT(<['F-R+
*H]2*X76O#UGX;U-M+COH[^YAXEG@YCSW /4UU0Y;6CL<\[K(FCMW&UHX81%N'N17FY:]C :"><$XJ@$BR(P#N[^E.>-67+@'V"C-,BP4!SQS3_ )<<
M-FD!6FM(67(CQ@Y)!Q37L(F&-S8],#BK,I_
!WV19T2"]03.TQ5.G3K3HK"^N
M/-F@6)E!P06VG/XUJPJ%TN1BW)&,8YK%,$4\C%@$VD';N/-.,;(J