Business context and reporting period
Koninklijke Philips N.V. filed this Form 20-F on February 22, 2022, covering the fiscal year ended December 31, 2021. It is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS. Comparative results were restated to present Domestic Appliances as a discontinued operation; amounts below are in euros.
Philips is a health technology company reporting Diagnosis & Treatment, Connected Care, Personal Health and Other. It completed the sale of Domestic Appliances on September 1, 2021.
Financial performance and position
| Metric | 2021 | Prior comparable period |
|---|---|---|
| Sales | EUR 17.156 billion | EUR 17.313 billion in 2020; down 0.9% nominally and 1.2% on a comparable basis |
| Gross margin | EUR 7.168 billion; 41.8% of sales | EUR 7.820 billion; 45.2% in 2020 |
| Income from operations | EUR 553 million; 3.2% of sales | EUR 1.264 billion; 7.3% in 2020 |
| Adjusted EBITA | EUR 2.054 billion; 12.0% of sales | EUR 2.277 billion; 13.2% in 2020 |
| Income from continuing operations | EUR 612 million | EUR 999 million in 2020 |
| Net income | EUR 3.323 billion | EUR 1.195 billion in 2020 |
| Operating cash flow | EUR 1.629 billion | EUR 2.511 billion in 2020 |
| Free cash flow | EUR 900 million | EUR 1.635 billion in 2020 |
| Gross debt / cash / net debt | EUR 6.980 billion / EUR 2.303 billion / EUR 4.676 billion | Net debt was EUR 3.708 billion in 2020 |
| Available liquidity | EUR 3.303 billion, including cash and a EUR 1 billion committed revolving credit facility | EUR 4.226 billion in 2020 |
Net income rose chiefly because the Domestic Appliances sale generated an after-tax gain of EUR 2.499 billion. Discontinued operations contributed EUR 2.711 billion to net income. Continuing-operations diluted EPS was EUR 0.67, compared with EUR 1.08 in 2020. The proposed dividend is EUR 0.85 per share, subject to shareholder approval.
Segment sales and comparable growth: Diagnosis & Treatment, EUR 8.635 billion (+8.1%); Connected Care, EUR 4.593 billion (−22.6%); Personal Health, EUR 3.410 billion (+9.0%). The Connected Care decline followed unusually strong pandemic-related demand in 2020 and reflected the Respironics field action.
Material changes, outlook and risks
- Respironics recall: Philips recorded a EUR 719 million field-action provision in 2021; the remaining provision at year-end was EUR 577 million after utilization and other movements. Approximately 750,000 repair kits and replacement devices had shipped by January 2022. Management aimed to complete the program in the fourth quarter of 2022. The company reported that litigation related to the recall could have a material impact, but had not recorded provisions for those lawsuits.
- Other unusual items: The recall provision significantly weighed on gross margin and reported operating income. Domestic Appliances sale proceeds included EUR 4.041 billion consideration, while the after-tax gain was EUR 2.499 billion. BioTelemetry and Capsule Technologies acquisitions involved EUR 2.824 billion of aggregate net cash outflow.
- Cash and costs: Operating cash flow and free cash flow fell year over year, in part due to increased working capital and consumption of provisions. Management cited shortages of components, higher procurement and transportation costs, logistics constraints and delayed customer installations.
- 2022 outlook: Philips targeted comparable sales growth of 3–5% and an improvement of 40–90 basis points in Adjusted EBITA margin. Management expected a comparable sales decline at the start of the year, followed by recovery and a stronger second half, while warning of COVID-19 and supply-chain volatility. These targets are non-IFRS measures.
- Other risks and contingencies: The filing identifies product quality and patient safety, regulatory compliance, cybersecurity, supply-chain resilience, litigation and investigations, foreign exchange, tax, and execution of acquisitions and business transformation as risks. It discloses investigations concerning alleged tender irregularities in China, Bulgaria and Brazil; potential outcomes could be material, and the company said it could not reliably estimate the financial effect.
Key facts for investors to verify
- Progress, costs, testing results and regulatory status of the Respironics repair and replacement program, and developments in related claims and litigation.
- Whether supply constraints ease and the record-high order book converts into sales, installations and cash flow.
- The composition and comparability of Adjusted EBITA, comparable sales and free cash flow, including the exclusions used in these non-IFRS measures.
- Whether the 2022 sales and margin targets are achieved, given the expected weak start and ongoing headwinds.
- Developments in the tender-related investigations and other legal contingencies, for which potential financial outcomes are uncertain.
The independent auditor issued an unqualified opinion on the IFRS consolidated financial statements and on internal control over financial reporting as of December 31, 2021.