Philips : Q1 2022 report

Q1 2022

Quarterly report

Philips delivers Q1 sales of EUR 3.9 billion, with good demand driving 5% comparable order intake growth

Amsterdam, April 25, 2022

First-quarter highlights

• • Group sales amounted to EUR 3.9 billion, with a 4% comparable sales decline on the back of 9% comparable sales growth in Q1 2021

• • Comparable order intake increased 5%, driven by the Diagnosis & Treatment businesses and Hospital Patient Monitoring

• • Income from continuing operations amounted to a loss of EUR 152 million, compared to a loss of EUR 34 million in Q1 2021

• • Adjusted EBITA of EUR 243 million, or 6.2% of sales, compared to 9.5% of sales in Q1 2021

• • Operating cash flow was an outflow of EUR 227 million, compared to an inflow of EUR 321 million in Q1 2021

• • Philips provides update on Philips Respironics field action related to specific CPAP, BiPAP and mechanical ventilators

Frans van Houten, CEO of Royal Philips:

"Our customers confirm the relevance of our strategy and portfolio, as evidenced by the further growth of our all-time-high order book. Comparable order intake growth for the Group amounted to 5%, driven by good growth across the Diagnosis & Treatment businesses, as well as Hospital Patient Monitoring and Connected Care Informatics. In addition, we partnered with 12 more hospitals to help them transform the delivery of care, further building on the 80 new long-term strategic partnerships signed in 2021. In China, we signed an agreement with Shanghai East Hospital to provide its hospitals in the Shandong and Hainan provinces with a broad range of advanced imaging and critical care solutions. I am also pleased with the 8% comparable sales growth for our Personal Health businesses, which demonstrates continued strong consumer demand for our propositions enabling people to take care of their health and well-being.

Thanks to the hard work of our people, we recorded better than expected sales of EUR 3.9 billion in very challenging circumstances, with significant supply chain headwinds as well as the consequences of the Respironics field action. Adjusted EBITA margin for the Group was 6.2% in the quarter.

The strong customer demand and order book, coupled with our first-quarter sales performance, support the growth and margin expansion range for the full year as communicated in January 2022. At the same time, it is important we recognize the increasing risks related to the COVID-19 situation in China, the Russia-Ukraine war, supply chain challenges and inflationary pressures, which may potentially impact our ability to convert our strong order book to sales and achieve our margin target if conditions deteriorate further. Our teams are fully focused on everyday execution, delivering on the customer demand and strong order book, and addressing the supply chain risks. We are implementing additional cost measures, as well as price increases, to mitigate the inflationary headwinds."

Business segment performance

The Diagnosis & Treatment businesses' comparable sales decreased 2%, on the back of 9% comparable sales growth in Q1 2021. High-single-digit growth in Image-Guided Therapy was more than offset by a decline in Ultrasound and in Diagnostic Imaging due to electronic component shortages, and on the back of strong growth in these businesses last year. Comparable order intake increased 7%, with double-digit growth in Image-Guided Therapy and mid-single-digit growth in Ultrasound and Diagnostic Imaging, reflecting robust traction for Philips' very attractive offering. The Adjusted EBITA margin was 5.9%, mainly due to the decline in sales

Quarterly Report 2022 - Q1

1

and the impact of supply chain headwinds.

The Connected Care businesses' comparable sales decreased 21%, mainly due to the consequences of the Respironics field action. Comparable order intake was in line with Q1 2021, with continued strong demand and share gains in Hospital Patient Monitoring and Connected Care Informatics. The Adjusted EBITA margin amounted to 0.4%, mainly due to the decline in sales and the impact of supply chain headwinds, partly offset by cost savings.

The Personal Health businesses' comparable sales increased by a strong 8%, primarily driven by double-digit growth in Oral Healthcare. The Adjusted EBITA margin amounted to 15.3%, mainly due to the increase in sales, partly offset by supply chain headwinds and an adverse currency impact.

Philips' ongoing focus on innovation and partnerships resulted in the following key developments in the quarter:

• • Philips signed 12 new long-term strategic partnerships in the quarter, including a 10-year agreement with Oulu University Hospital in Finland to deliver the latest Philips Azurion image-guided therapy solutions, as well as maintenance, consultancy and financing services.

• • Philips expanded its leading ultrasound portfolio with advanced hemodynamic measurement capabilities on its handheld ultrasound Lumify, enabling clinicians to quantify blood flow in a wide range of point-of-care diagnostic applications, including cardiology and obstetrics & gynecology.

• • Philips entered into partnerships with healthcare providers in the UK and Germany to deliver its vendor-neutral Radiology Operations Command Center, which enables remote collaboration between technologists, radiologists and imaging operations teams across multiple sites, to help increase productivity and expand access to MR- and CT-based diagnosis.

• • Building on the market share gain in 2021, Philips MR delivered strong double-digit order intake growth in the quarter, driven by all major product families. Further highlighting the success of its unique helium-free operating MR portfolio, since its launch Philips has installed more than 500 of its Ingenia Ambition MRI systems, which deliver superb image quality and perform MRI exams up to 50% faster.

• • Philips is successfully expanding into interventional oncology with the installation of its innovative lung cancer diagnosis and treatment solution Lung Suite in hospitals in Belgium, France, Israel, and the UK. Based on Philips Azurion, this solution enhances the accuracy of biopsy procedures and provides a therapy option to immediately treat early-stage lung cancer patients.

• • Underlining the clinical and economic value of remote cardiac patient monitoring, Philips announced new research demonstrating increased atrial fibrillation detection and significant cost savings using Philips' mobile cardiac outpatient telemetry monitoring. In addition, Philips expanded its remote cardiac monitoring portfolio with a patch-based, clinical-grade ECG to improve patient recruitment, compliance and retention for clinical trials.

• • Philips completed the global introduction of its new Philips Shaver S9000 with SkinIQ with its launch in Japan, resulting in accelerated sales growth for this category, and a 4.9 (out of 5) consumer rating and review score within the first month.

• • Following the successful refresh of its entry-range electric toothbrushes, the launch of the Sonicare 9900 Prestige premium range, and the launch of innovative interdental cleaning devices in 2021, Philips Oral Healthcare recorded strong double-digit comparable sales growth in the quarter, driven by North America and China.

Cost savings

Our cost savings programs delivered EUR 97 million in the first quarter. After deducting supply cost increases, net savings amounted to EUR 8 million in the first quarter. In response to the inflationary headwinds, the company is implementing additional cost-saving measures of EUR 150-200 million for the full year.

Philips Respironics field action related to specific CPAP, BiPAP and mechanical ventilators

"We are committed to supporting the community of patients who rely on our sleep and respiratory care solutions for their health and quality of life, and the physicians and customers who are dedicated to meeting patient needs. We are replacing or repairing the devices related to the Respironics field action as fast as possible and are continuing to update patients and customers about the progress of the program. We have a strong program management in place overseeing every aspect of the remediation, which involves more than 1,000 of our colleagues," said Frans van Houten, CEO of Royal Philips.

Philips has a strong program management in place led by Roy Jakobs, Chief Business Leader of the Connected Care businesses and member of Philips' Executive Committee, to ensure the Respironics field action is executed with speed and accuracy. Management responsibility and oversight have been strengthened with organizational changes implemented in Philips Respironics and the Quality & Regulatory function. Staffing and expertise related to post-market surveillance, medical affairs, toxicology and bio-compatibility have also been increased.

Philips Respironics has more than tripled its weekly production output compared to 2020, despite the ongoing global supply chain challenges. To date, Philips Respironics has produced more than 2.2 million repair kits and replacement devices. Following another wave of Philips Respironics' comprehensive patient and customer communication outreach and based on current insights, the total expected units to be remediated have increased by approximately 300,000, primarily in the US. Philips Respironics recorded a EUR 65 million increase in the field action provision in the quarter to cater for the higher expected volume of devices eligible for remediation and higher communication costs. Additionally, a further EUR 100 million provision was recorded for potential higher cost of execution and to ensure the speed of the program in a volatile environment. Philips Respironics expects to complete over 90% of the production and shipments to customers in 2022.

Philips Respironics continues to make good progress with the comprehensive test and research program to better characterize the possible health risks associated with the sound abatement foam in the affected devices. Comprehensive testing and analyses related to the affected CPAP and BiPAP devices are expected to be completed in the second quarter of 2022.

On April 8, 2022, Philips Respironics and certain of Philips' subsidiaries in the US received a subpoena from the US Department of Justice to provide information related to events leading to the Respironics recall. The relevant subsidiaries are cooperating with the agency.

Conference call and audio webcast

Frans van Houten, CEO, and Abhijit Bhattacharya, CFO, will host a conference call for investors and analysts at 10:00 am CET today to discuss the results. A live audio webcast of the conference call will be available on the Philips Investor Relations website and can be accessedhere.

Philips performance

Key data in millions of EUR unless otherwise stated

Q1 2021

Q1 2022

Sales

Nominal sales growth

Comparable sales growth1)

Comparable order intake2) Income from operations

as a % of sales Financial expenses, net

Investments in associates, net of income taxes Income tax

Income from continuing operations Discontinued operations, net of income taxes Net income

Earnings per common share (EPS)

Income from continuing operations

attributable to shareholders3) (in EUR) -

diluted

Adjusted income from continuing

operations attributable to shareholders3) (in

EUR) - diluted1)

Net income attributable to shareholders3)

(in EUR) - diluted

EBITA1)

as a % of sales Adjusted EBITA1)

as a % of sales Adjusted EBITDA1)

as a % of sales

(1.4)%

(0.04)

9.5% 579 15.1%

3,827

(5)%

61 1.6% 362

0.04

0.28

(34)

(52)

4%

9%

(6)

40

73

16

8

• 1) Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information.

• 2) Comparable order intake is presented when discussing the Philips Group's performance. For the definition of this measure, refer to chapter 12.4, Other Key Performance Indicators, of theAnnual Report 2021.

3) Shareholders refers to shareholders of Koninklijke Philips N.V.

Sales per geographic cluster in millions of EUR unless otherwise stated

% changeQ1 2021

Q1 2022

nominalcomparable1)

Western Europe North America Other mature geographies Total mature geographies Growth geographies Philips Group

791 1,534

3,827

2,779 1,048

454

1) Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information.

Amounts may not add up due to rounding

• • Comparable sales declined by 4% due to global supply chain challenges and consequences of the Respironics field action. Comparable sales in the Personal Health businesses showed a high-single-digit increase, which was more than offset by a double-digit decline in the Connected Care businesses and a low-single-digit decline in the Diagnosis & Treatment businesses.

• • Comparable order intake increased by 5%, with high-single-digit growth in the Diagnosis & Treatment businesses and flat comparable order intake in the Connected Care businesses.

• • Adjusted EBITA was EUR 243 million and the margin amounted to 6.2%, due to the decline in sales and the impact of supply chain headwinds, partly offset by cost savings.

• • Restructuring, acquisition-related and other charges amounted to EUR 350 million, compared to EUR 301 million in Q1 2021. Q1 2022 includes EUR 65 million for the Respironics field action provision, a EUR 100 million provision related to potential higher execution costs of the field action program, and EUR 50 million of running remediation costs in Respironics. Furthermore, Q1 2022 includes restructuring charges and portfolio realignment charges of EUR 118 million.

• • Financial income and expenses resulted in an expense of EUR 27 million, compared to EUR 6 million in Q1 2021. Q1 2022 includes lower gains from the revaluation of Philips' minority participations.

• • Income tax benefit increased by EUR 51 million year-on-year, mainly due to lower income and prior years' assessment.

• • Net income decreased by EUR 191 million, mainly due to lower operational earnings and lower net income from discontinued operations, partly offset by lower amortization and tax charges.

• • Comparable sales declined across all geographic clusters, mainly due to global supply chain challenges and consequences of the Respironics field action.

Cash and cash equivalents balance in millions of EUR	•	Net cash flows from operating activities decreased, mainly due
Q1 2021	Q1 2022	to increased working capital and higher income tax paid.
•	Other cash flows from investing activities mainly includes the
Beginning cash balance	3,226	2,303
acquisitions of Vesper Medical and Cardiologs, whereas Q1 2021
Free cash flow1)	169	(402)
mainly included the acquisitions of BioTelemetry and Capsule
Net cash flows used in operating activities	321	(227)
Technologies.
Net capital expenditures	(152)	(175)
•	Treasury shares transactions includes share repurchases for
Other cash flows from investing activities	(2,891)	(347)
capital reduction purposes and for Long-Term Incentive and
Treasury shares transactions	3	(39)
employee stock purchase plans.
Changes in debt	457	(40)	Net cash flows from discontinued operations includes a tax
•
Other cash flow items	47	14	payment related to a business divested in 2017, whereas Q1 2021
Net cash flows used in discontinued operations	69	(44)	included cash flows from the Domestic Appliances business.
Ending cash balance	1,040	1,445

1) Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information.

Composition of net debt to group equity1) in millions of EUR unless otherwise stated

December 31, 2021

March 31, 2022

Long-term debt Short-term debt Total debt

Cash and cash equivalents Net debt

Shareholders' equity Non-controlling interests Group equity

Net debt : group equity ratio1)

6,473 506 6,980 2,303 4,676 14,438 36 14,475

24:76

1) Non-IFRS financial measure. Refer to Reconciliation of non-IFRS information.