KONINKLIJKE PHILIPS NV 6-K Analysis & Summary – 2/21/2025

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Koninklijke Philips N.V. NY Reg

6-K

Corporate Update, Earnings Release (Preliminary)

Filing date:

02/21/2025

TLDR:

Koninklijke Philips N.V. publishes its Annual Report 2024, highlighting financial performance, strategic focus, and ESG commitments, with a proposed dividend of EUR 0.85 per share.

ELI5:

Philips, a health tech company, had a mixed year. They made more money than last year, but still face problems in China and with a product recall.

Accession #:

0000313216-25-000012

Published on

March 16, 2025

Analyst Summary

Sales: EUR 18.0 billion (1% decrease nominally, 1% increase on a comparable basis).
Adjusted EBITA: EUR 2.077 billion (11.5% of sales, up from 10.6% in 2023).
Free Cash Flow: EUR 906 million.
Net Income: Loss of EUR 698 million, impacted by Respironics litigation provision charges.
Gross Profit Margin = 42.26%
Operating Profit Margin = 4.14%
Net Profit Margin = -0.39%
ROA = -0.24%
ROE = -0.50%
EPS = -EUR 0.08
Current Ratio = 1.16
Quick Ratio = 0.94
Cash Ratio = 0.20
Debt-to-Equity Ratio = 0.57
Debt-to-Assets Ratio = 0.27
Interest Coverage Ratio = 3.71
Inventory Turnover = 5.28
DSO = 59.86 days
DPO = 86.50 days
Asset Turnover = 0.62
P/E Ratio = -293
P/B Ratio = 1.54
P/S Ratio = 1.17
EV/EBITDA = 18.39

Opportunities and Risks

Geopolitical and Macroeconomic Changes: Unfavorable conditions and instability could impact Philips’ business and operations.
Inability to Keep Pace with Health Technology Environment: Failure to adapt to new technologies and business models could lead to loss of market share.
Cybersecurity Breaches: Potential for significant disruptions and data breaches.
Product Quality and Safety: Failure to meet standards could result in patient harm and regulatory action.
Supply Chain Resilience: Disruptions and increased costs could impact production and delivery.

Potential Implications

Stock Price

The valuation metrics suggest the company is trading at a premium despite the current financial challenges.

SEC Filing Report: Koninklijke Philips N.V. – Form 6-K

Executive Summary

This report analyzes Koninklijke Philips N.V.’s Form 6-K filing, which includes the company’s Annual Report 2024 and related press release. The analysis focuses on key financial performance indicators, strategic initiatives, and risk factors. Overall, Philips demonstrates progress in its three-year plan, with improved profitability and cash flow. However, challenges remain, particularly in China. A hold recommendation is suggested, pending further evidence of sustained growth and resolution of outstanding risks.

Company Overview

Koninklijke Philips N.V. (Royal Philips) is a global health technology company focused on improving people’s health and well-being through meaningful innovation. The company operates in diagnostic imaging, image-guided therapy, patient monitoring, health informatics, and personal health.

Detailed Analysis

Financial Performance

Sales: EUR 18.0 billion (1% decrease nominally, 1% increase on a comparable basis).
Adjusted EBITA: EUR 2.077 billion (11.5% of sales, up from 10.6% in 2023).
Free Cash Flow: EUR 906 million.
Net Income: Loss of EUR 698 million, impacted by Respironics litigation provision charges.

Key Ratios and Trends

Metric	2023	2024	Trend
Adjusted EBITA Margin	10.6%	11.5%	Positive
Comparable Sales Growth	6%	1%	Negative
Free Cash Flow (EUR million)	1,582	906	Negative

Analysis: While profitability improved, sales growth slowed, indicating potential challenges in market penetration or increased competition. The free cash flow decrease warrants monitoring.

Management’s Narrative (MD&A)

Tone: Cautiously optimistic, acknowledging challenges while highlighting progress.
Key Themes: Focused growth, patient safety and quality, simplification, and improved execution.
China: Deteriorated demand due to subdued consumer confidence and extended hospital procurement cycles.
Respironics Recall: Significant progress made, with clarity on the way forward.

Insights: Management is actively addressing the Respironics recall and focusing on operational improvements. However, the situation in China requires careful management.

Risk Factors

Geopolitical and Macroeconomic Changes: Unfavorable conditions and instability could impact Philips’ business and operations.
Inability to Keep Pace with Health Technology Environment: Failure to adapt to new technologies and business models could lead to loss of market share.
Cybersecurity Breaches: Potential for significant disruptions and data breaches.
Product Quality and Safety: Failure to meet standards could result in patient harm and regulatory action.
Supply Chain Resilience: Disruptions and increased costs could impact production and delivery.

Assessment: The risk factors highlight the complex and dynamic environment in which Philips operates. The company’s ability to mitigate these risks will be crucial for future success.

Uncommon Metrics & Supplementary Disclosures

Lives Improved: 1.96 billion, including 242 million in underserved communities.
Circular Revenues: 24% of sales.
Employee Engagement Index: 78 (a five-point increase since 2023).

Significance: These metrics provide insights into Philips’ social impact and sustainability efforts, demonstrating a commitment to broader stakeholder value.

Conclusion & Actionable Insights

Philips’ Annual Report 2024 reveals a company in transition, making progress on its three-year plan while navigating significant headwinds. The improved profitability and cash flow are encouraging, but the challenges in China and the ongoing Respironics recall remain concerns.

Overall Assessment: Hold. While Philips is taking steps to address its challenges and capitalize on opportunities, further evidence of sustained growth and resolution of outstanding risks is needed before a more positive recommendation can be made.

Recommendations:

Monitor developments in China and their impact on Philips’ financial performance.
Track the progress of the Respironics recall and any associated legal proceedings.
Assess the effectiveness of Philips’ efforts to improve its supply chain resilience.
Evaluate the company’s ability to maintain its competitive position in the rapidly evolving health technology landscape.

Koninklijke Philips N.V. Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Ratio/Metric: Gross Profit / Revenue. From the Annual Report 2024, Gross Profit is EUR 7,682 million and Revenue is EUR 18,178 million. Gross Profit Margin = 7,682 / 18,178 = 42.26%
Industry: The medical equipment and healthcare industry generally sees gross profit margins ranging from 30% to 60%. Philips’ margin of 42.26% is within this range.

Operating Profit Margin

Ratio/Metric: Operating Profit / Revenue. Operating profit is EUR 753 million. Operating Profit Margin = 753 / 18,178 = 4.14%
Industry: The industry average for operating profit margins typically falls between 5% and 15%. Philips’ 4.14% is below this range.

Net Profit Margin

Ratio/Metric: Net Profit / Revenue. Net profit is EUR -70 million. Net Profit Margin = -70 / 18,178 = -0.39%
Industry: The industry average for net profit margins typically falls between 3% and 10%. Philips’ -0.39% is below this range.

Return on Assets (ROA)

Ratio/Metric: Net Income / Total Assets. Net Income is EUR -70 million. Total Assets is EUR 29,358 million. ROA = -70 / 29,358 = -0.24%
Industry: The industry average for ROA typically falls between 2% and 7%. Philips’ -0.24% is below this range.

Return on Equity (ROE)

Ratio/Metric: Net Income / Total Equity. Net Income is EUR -70 million. Total Equity is EUR 13,899 million. ROE = -70 / 13,899 = -0.50%
Industry: The industry average for ROE typically falls between 10% and 15%. Philips’ -0.50% is below this range.

Earnings Per Share (EPS) – Basic and Diluted

Ratio/Metric: Net Income attributable to shareholders / Weighted average number of shares. Net Income is EUR -70 million. Weighted average number of shares is 911 million. EPS = -70 / 911 = -EUR 0.08

Liquidity

Current Ratio

Ratio/Metric: Current Assets / Current Liabilities. Current Assets is EUR 10,289 million. Current Liabilities is EUR 8,848 million. Current Ratio = 10,289 / 8,848 = 1.16
Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. Philips’ 1.16 is slightly below this range, indicating potential liquidity concerns.

Quick Ratio (Acid-Test Ratio)

Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Inventory is EUR 1,988 million. Quick Ratio = (10,289 – 1,988) / 8,848 = 0.94
Industry: A quick ratio of 1.0 or higher is generally considered healthy. Philips’ 0.94 is slightly below this benchmark.

Cash Ratio

Ratio/Metric: Cash and Cash Equivalents / Current Liabilities. Cash and Cash Equivalents is EUR 1,813 million. Cash Ratio = 1,813 / 8,848 = 0.20
Industry: A cash ratio of 0.5 or higher is generally considered healthy. Philips’ 0.20 is below this benchmark.

Solvency/Leverage

Debt-to-Equity Ratio

Ratio/Metric: Total Debt / Total Equity. Total Debt is EUR 7,933 million. Total Equity is EUR 13,899 million. Debt-to-Equity Ratio = 7,933 / 13,899 = 0.57
Industry: A debt-to-equity ratio of 1.0 or lower is generally considered healthy. Philips’ 0.57 is within this range.

Debt-to-Assets Ratio

Ratio/Metric: Total Debt / Total Assets. Total Debt is EUR 7,933 million. Total Assets is EUR 29,358 million. Debt-to-Assets Ratio = 7,933 / 29,358 = 0.27
Industry: A debt-to-assets ratio of 0.5 or lower is generally considered healthy. Philips’ 0.27 is within this range.

Interest Coverage Ratio (Times Interest Earned)

Ratio/Metric: EBIT / Interest Expense. EBIT is EUR 753 million. Interest Expense is EUR 203 million. Interest Coverage Ratio = 753 / 203 = 3.71
Industry: An interest coverage ratio of 3.0 or higher is generally considered healthy. Philips’ 3.71 is within this range.

Activity/Efficiency

Inventory Turnover

Ratio/Metric: Cost of Goods Sold / Average Inventory. Cost of Goods Sold is EUR 10,496 million. Average Inventory is calculated as (Beginning Inventory + Ending Inventory) / 2. Assuming the previous year’s inventory is similar to the current year’s EUR 1,988 million, we’ll use that as an estimate. Inventory Turnover = 10,496 / 1,988 = 5.28
Industry: The industry average for inventory turnover typically falls between 4 and 6. Philips’ 5.28 is within this range.

Days Sales Outstanding (DSO)

Ratio/Metric: (Accounts Receivable / Revenue) * 365. Accounts Receivable is EUR 2,983 million. DSO = (2,983 / 18,178) * 365 = 59.86 days
Industry: The industry average for DSO typically falls between 30 and 60 days. Philips’ 59.86 days is within this range.

Days Payable Outstanding (DPO)

Ratio/Metric: (Accounts Payable / Cost of Goods Sold) * 365. Accounts Payable is EUR 2,488 million. DPO = (2,488 / 10,496) * 365 = 86.50 days
Industry: The industry average for DPO typically falls between 30 and 60 days. Philips’ 86.50 days is above this range.

Asset Turnover

Ratio/Metric: Revenue / Total Assets. Asset Turnover = 18,178 / 29,358 = 0.62
Industry: The industry average for asset turnover typically falls between 0.5 and 1.0. Philips’ 0.62 is within this range.

Valuation

Price-to-Earnings Ratio (P/E)

Ratio/Metric: Stock Price / EPS. Stock Price is $25.78 (converted to EUR using an assumed exchange rate of 1 EUR = 1.1 USD, approximately EUR 23.44). EPS is -EUR 0.08. P/E Ratio = 23.44 / -0.08 = -293

Price-to-Book Ratio (P/B)

Ratio/Metric: Market Cap / Book Value of Equity. Market Cap is calculated as Shares Outstanding * Stock Price. Shares Outstanding is 911 million. Market Cap = 911 million * EUR 23.44 = EUR 21,353 million. Book Value of Equity is EUR 13,899 million. P/B Ratio = 21,353 / 13,899 = 1.54

Price-to-Sales Ratio (P/S)

Ratio/Metric: Market Cap / Revenue. Market Cap is EUR 21,353 million. Revenue is EUR 18,178 million. P/S Ratio = 21,353 / 18,178 = 1.17

Enterprise Value to EBITDA (EV/EBITDA)

Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA. Market Cap is EUR 21,353 million. Total Debt is EUR 7,933 million. Cash is EUR 1,813 million. EBITDA is EBIT + Depreciation and Amortization. Depreciation and Amortization is EUR 741 million. EBITDA = 753 + 741 = EUR 1,494 million. EV = 21,353 + 7,933 – 1,813 = EUR 27,473 million. EV/EBITDA = 27,473 / 1,494 = 18.39

Growth Rates

Revenue Growth

Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue. Previous Revenue data is not available in the provided filing.

Net Income Growth

Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income. Previous Net Income data is not available in the provided filing.

EPS Growth

Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS. Previous EPS data is not available in the provided filing.

2. Commentary

Philips’ financial performance in 2024 reveals a mixed picture. While the gross profit margin is healthy, operating and net profit margins are weak, with a net loss reported. Liquidity ratios are somewhat concerning, while solvency ratios appear reasonable. The company’s profitability metrics, ROA and ROE, are negative, reflecting the net loss. The valuation metrics suggest the company is trading at a premium despite the current financial challenges.