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KONINKLIJKE PHILIPS NV 20-F Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Koninklijke Philips N.V. NY Reg

Filing date:

02/21/2025

TLDR:

KONINKLIJKE PHILIPS NV’s 2024 performance shows a slight decrease in sales but improved profitability. The company faces challenges from the Respironics recall and decreased demand in China but is progressing with its transformation strategy.

ELI5:

Philips, a health tech company, had a mixed year. They made a bit less money in sales, but their profits got better. They’re dealing with some problems from a product recall and less business in China, but they’re working on improving their company.

Accession #:

0000313216-25-000009

Published on

Analyst Summary

  • Total sales decreased by 1% nominally, but increased by 1% on a comparable basis.
  • Income from operations improved significantly, driven by higher gross margins and lower Respironics-related expenses. Adjusted EBITA margin increased to 11.5%.
  • Net cash flows from operating activities decreased, primarily due to payments related to the Respironics economic loss settlement.
  • Gross Profit Margin: 43.13% (up from 40.99% in 2023)
  • Operating Profit Margin: 2.94% (up from -0.63% in 2023)
  • Net Profit Margin: -3.87% (up from -2.55% in 2023)
  • Return on Assets (ROA): -2.41% (up from -1.57% in 2023)
  • Return on Equity (ROE): -5.81%
  • Earnings Per Share (EPS): -€0.90 (up from -0.48 in 2023)
  • Current Ratio: 1.23 (up from 1.20 in 2023)
  • Quick Ratio: 0.84 (up from 0.78 in 2023)
  • Cash Ratio: 0.29 (up from 0.23 in 2023)
  • Debt-to-Equity Ratio: 0.64
  • Debt-to-Assets Ratio: 0.26
  • Interest Coverage Ratio: 2.10
  • Inventory Turnover: 3.10
  • Days Sales Outstanding (DSO): 74.35 days
  • Days Payable Outstanding (DPO): 65.17 days
  • Asset Turnover: 0.62
  • Price-to-Earnings Ratio (P/E): -28.64
  • Price-to-Book Ratio (P/B): 1.98
  • Price-to-Sales Ratio (P/S): 1.32
  • Enterprise Value to EBITDA (EV/EBITDA): 13.44
  • Revenue Growth: -0.81%
  • Net Income Growth: 50.76%
  • EPS Growth: 87.5%
  • Adjusted EBITA: €2,077 million (11.5% of sales)
  • Lives Improved: 1.96 million
  • Comparable Sales Growth: 1%

Opportunities and Risks

  • Litigation and regulatory risks related to the Respironics recall.
  • Geopolitical and macroeconomic uncertainties, particularly in China.
  • Cybersecurity threats and data breaches.
  • Inability to keep pace with technological changes and competition.
  • Growth in Mature Geographies and emerging markets (excluding China).
  • Expansion of AI-enabled innovations and digital health solutions.
  • Improved operational efficiency and cost management.
  • Increasing demand for sustainable healthcare solutions.

Potential Implications

Company Performance

  • Ongoing Respironics recall and macroeconomic uncertainties warrant caution.
  • Commitment to innovation, operational excellence, and ESG goals positions it for future success.

SEC Filing Report: KONINKLIJKE PHILIPS NV (20-F) – FY 2024

Executive Summary

This report analyzes KONINKLIJKE PHILIPS NV’s 20-F filing for the fiscal year 2024. Key findings include a slight decrease in overall sales, improved profitability driven by operational efficiencies, and significant legal provisions related to the Respironics recall. The company faces challenges including deteriorated demand in China and ongoing regulatory scrutiny. Despite these challenges, Philips demonstrates progress in its transformation strategy and commitment to ESG goals. A ‘Hold’ recommendation is appropriate, given the mixed performance and ongoing uncertainties.

Company Overview

KONINKLIJKE PHILIPS NV is a leading health technology company focused on diagnostic imaging, image-guided therapy, patient monitoring, health informatics, and consumer health. The company operates globally, with a significant presence in Europe, North America, and Asia. Recent developments include the resolution of some Respironics litigation, a new operating model, and a focus on AI-enabled innovations.

Detailed Analysis

Financial Statement Analysis

Sales: Total sales decreased by 1% nominally, but increased by 1% on a comparable basis. This growth was driven by Mature Geographies, offset by a decline in China.

  • Diagnosis & Treatment: Comparable sales increased by 1%.
  • Connected Care: Comparable sales increased by 2%.
  • Personal Health: Comparable sales decreased by 1%.

Profitability: Income from operations improved significantly, driven by higher gross margins and lower Respironics-related expenses. Adjusted EBITA margin increased to 11.5%.

Key Ratios:

  • Adjusted EBITA Margin: 11.5% (up from 10.6% in 2023)
  • Free Cash Flow: EUR 906 million

Cash Flow: Net cash flows from operating activities decreased, primarily due to payments related to the Respironics economic loss settlement.

Management’s Narrative (MD&A) Insights

Management acknowledges challenges in China and emphasizes a focus on patient safety, quality, and operational excellence. The narrative highlights progress in resolving the Respironics recall and strengthening the company’s balance sheet. Management’s tone is cautiously optimistic, balancing the acknowledgment of challenges with confidence in the company’s strategic direction.

Red Flags & Uncommon Metrics

  • Respironics Recall: Significant legal provisions and ongoing regulatory scrutiny related to the Respironics recall remain a major concern.
  • China Demand: Deteriorated demand in China due to subdued consumer confidence and extended hospital procurement cycles poses a risk to future growth.

Risk & Opportunity Assessment

Risks:

  • Litigation and regulatory risks related to the Respironics recall.
  • Geopolitical and macroeconomic uncertainties, particularly in China.
  • Cybersecurity threats and data breaches.
  • Inability to keep pace with technological changes and competition.

Opportunities:

  • Growth in Mature Geographies and emerging markets (excluding China).
  • Expansion of AI-enabled innovations and digital health solutions.
  • Improved operational efficiency and cost management.
  • Increasing demand for sustainable healthcare solutions.

Comparative & Trend Analysis

Compared to 2023, Philips showed improved profitability and cash flow, but sales growth was slower. The company’s performance is heavily influenced by external factors such as macroeconomic conditions and regulatory developments. Historical data indicates a trend towards increasing reliance on Mature Geographies for revenue generation.

Conclusion & Actionable Insights

Overall, Philips’ 2024 performance reflects a company in transition, navigating significant challenges while pursuing long-term growth opportunities. The ongoing Respironics recall and macroeconomic uncertainties warrant caution. However, the company’s commitment to innovation, operational excellence, and ESG goals positions it for future success.

Recommendation: Hold

Koninklijke Philips N.V. Financial Analysis (2024)

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Calculation: (Sales – Cost of Sales) / Sales = (18,021 – 10,248) / 18,021 = 43.13%
    • Trend: Previous year Gross Profit Margin was (18,169 – 10,721) / 18,169 = 40.99%. Percentage change: (43.13% – 40.99%) / 40.99% = 5.22%
    • Industry: Compared to the medical equipment industry, a gross profit margin of 43.13% is within a reasonable range, but further benchmarking against specific competitors would provide a more precise assessment.
  • Operating Profit Margin:

    • Calculation: Income from Operations / Sales = 529 / 18,021 = 2.94%
    • Trend: Previous year Operating Profit Margin was -115 / 18,169 = -0.63%. Percentage change: (2.94% – (-0.63%)) / (-0.63%) = -566.67%
    • Industry: An operating profit margin of 2.94% is relatively low for the medical equipment industry, suggesting potential inefficiencies in operating expenses or pricing strategies.
  • Net Profit Margin:

    • Calculation: Net Income / Sales = -698 / 18,021 = -3.87%
    • Trend: Previous year Net Profit Margin was -463 / 18,169 = -2.55%. Percentage change: (-3.87% – (-2.55%)) / (-2.55%) = 51.76%
    • Industry: A negative net profit margin indicates that the company is not profitable, which is a significant concern.
  • Return on Assets (ROA):

    • Calculation: Net Income / Total Assets = -698 / 28,976 = -2.41%
    • Trend: Previous year ROA was -463 / 29,406 = -1.57%. Percentage change: (-2.41% – (-1.57%)) / (-1.57%) = 53.50%
    • Industry: A negative ROA indicates that the company is not effectively using its assets to generate profit.
  • Return on Equity (ROE):

    • Calculation: Net Income / Shareholders’ Equity = -698 / 12,006 = -5.81%
    • Industry: A negative ROE suggests the company is not generating returns for its shareholders.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Calculation: Income from continuing operations attributable to shareholders / Weighted average number of common shares outstanding = -843 / 933,370,814 = -€0.90
    • Trend: Previous year EPS was -0.48. Percentage change: (-0.90 – (-0.48)) / (-0.48) = 87.5%
    • Industry: Negative EPS indicates losses for shareholders.

Liquidity

  • Current Ratio:

    • Calculation: Current Assets / Current Liabilities = 10,022 / 8,146 = 1.23
    • Trend: Previous year Current Ratio was 9,940 / 8,287 = 1.20. Percentage change: (1.23 – 1.20) / 1.20 = 2.5%
    • Industry: A current ratio of 1.23 suggests the company has adequate liquidity to cover its short-term obligations.
  • Quick Ratio (Acid-Test Ratio):

    • Calculation: (Current Assets – Inventory) / Current Liabilities = (10,022 – 3,198) / 8,146 = 0.84
    • Trend: Previous year Quick Ratio was (9,940 – 3,491) / 8,287 = 0.78. Percentage change: (0.84 – 0.78) / 0.78 = 7.69%
    • Industry: A quick ratio of 0.84 indicates that the company may have some difficulty meeting its short-term obligations without relying on inventory sales.
  • Cash Ratio:

    • Calculation: Cash and Cash Equivalents / Current Liabilities = 2,401 / 8,146 = 0.29
    • Trend: Previous year Cash Ratio was 1,869 / 8,287 = 0.23. Percentage change: (0.29 – 0.23) / 0.23 = 26.09%
    • Industry: A cash ratio of 0.29 suggests the company has a limited ability to cover its short-term liabilities with only cash and cash equivalents.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Calculation: Total Debt / Shareholders’ Equity = 7,639 / 12,006 = 0.64
    • Trend: Previous year Debt-to-Equity Ratio was 7,689 / 12,028 = 0.64. Percentage change: (0.64 – 0.64) / 0.64 = 0%
    • Industry: A debt-to-equity ratio of 0.64 indicates a moderate level of leverage.
  • Debt-to-Assets Ratio:

    • Calculation: Total Debt / Total Assets = 7,639 / 28,976 = 0.26
    • Trend: Previous year Debt-to-Assets Ratio was 7,689 / 29,406 = 0.26. Percentage change: (0.26 – 0.26) / 0.26 = 0%
    • Industry: A debt-to-assets ratio of 0.26 suggests that the company’s assets are primarily financed by equity.
  • Interest Coverage Ratio (Times Interest Earned):

    • Calculation: EBIT / Interest Expense = Income from operations + Financial expenses – Financial income / Financial expenses = (529 + 387 – 105) / 387 = 2.10
    • Industry: An interest coverage ratio of 2.10 indicates that the company has some capacity to cover its interest expenses, but it is relatively low.

Activity/Efficiency

  • Inventory Turnover:

    • Calculation: Cost of Sales / Average Inventory = 10,248 / ((3,491 + 3,198) / 2) = 3.10
    • Industry: An inventory turnover of 3.10 suggests that the company is moderately efficient in managing its inventory.
  • Days Sales Outstanding (DSO):

    • Calculation: (Accounts Receivable / Sales) * 365 = (3,672 / 18,021) * 365 = 74.35 days
    • Industry: A DSO of 74.35 days indicates the average number of days it takes the company to collect its receivables.
  • Days Payable Outstanding (DPO):

    • Calculation: (Accounts Payable / Cost of Sales) * 365 = (1,830 / 10,248) * 365 = 65.17 days
    • Industry: A DPO of 65.17 days indicates the average number of days it takes the company to pay its suppliers.
  • Asset Turnover:

    • Calculation: Sales / Total Assets = 18,021 / 28,976 = 0.62
    • Trend: Previous year Asset Turnover was 18,169 / 29,406 = 0.62. Percentage change: (0.62 – 0.62) / 0.62 = 0%
    • Industry: An asset turnover of 0.62 suggests that the company is not generating a high level of sales relative to its asset base.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Calculation: Stock Price / EPS = 25.78 / (-0.90) = -28.64
    • Industry: A negative P/E ratio is not meaningful and indicates negative earnings.
  • Price-to-Book Ratio (P/B):

    • Calculation: Market Cap / Shareholders’ Equity = (925,009,074 * 25.78) / 12,006,000,000 = 1.98
    • Industry: A P/B ratio of 1.98 suggests that the market values the company at almost two times its book value.
  • Price-to-Sales Ratio (P/S):

    • Calculation: Market Cap / Sales = (925,009,074 * 25.78) / 18,021,000,000 = 1.32
    • Industry: A P/S ratio of 1.32 indicates how much investors are willing to pay for each dollar of the company’s sales.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Calculation: (Market Cap + Total Debt – Cash) / EBITDA = ((925,009,074 * 25.78) + 7,639,000,000 – 2,401,000,000) / (529 + 1390) = 13.44
    • Industry: An EV/EBITDA ratio of 13.44 is within a reasonable range for the medical equipment industry.

Growth Rates

  • Revenue Growth:
    • Calculation: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue = (18,021 – 18,169) / 18,169 = -0.81%
    • Industry: A negative revenue growth rate indicates a decline in sales.
  • Net Income Growth:
    • Calculation: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income = (-698 – (-463)) / (-463) = 50.76%
    • Industry: While the net loss increased, the growth rate is positive due to the smaller loss in the previous year.
  • EPS Growth:
    • Calculation: (Current Year EPS – Previous Year EPS) / Previous Year EPS = (-0.90 – (-0.48)) / (-0.48) = 87.5%
    • Industry: Similar to net income growth, the EPS growth rate is positive due to the smaller loss per share in the previous year.

Other Relevant Metrics

  • Adjusted EBITA:

    • Definition: A non-GAAP metric used by Philips to measure operating performance, excluding certain items such as restructuring charges and acquisition-related costs.
    • 2024 Value: €2,077 million (11.5% of sales)
    • Trend: 2023 Adjusted EBITA was €1,921 million (10.6% of sales). The increase suggests improved underlying profitability.
    • Commentary: While Adjusted EBITA provides insights into core operational performance, it’s crucial to understand the nature and magnitude of the excluded items to assess the overall financial health of the company.
  • Lives Improved:

    • Definition: A company-specific KPI measuring the number of lives positively impacted by Philips’ products and solutions.
    • 2024 Value: 1.96 million
    • Trend: The company is improving more lives, indicating a positive impact from its products and services.
    • Commentary: This metric reflects the company’s social impact and aligns with its mission to improve people’s health and well-being.
  • Comparable Sales Growth:

    • Definition: Sales growth excluding the effects of currency fluctuations and acquisitions/divestitures.
    • 2024 Value: 1%
    • Trend: 2023 Comparable Sales Growth was 6%. The decrease indicates a slowdown in organic sales growth.
    • Commentary: This metric provides a clearer picture of the company’s underlying sales performance.

Commentary

Koninklijke Philips N.V.’s financial performance in 2024 presents a mixed picture. While the company saw improvements in gross profit margin and adjusted EBITA, it continued to report a net loss and negative EPS, indicating ongoing challenges with overall profitability. Liquidity remains adequate, but solvency metrics suggest a moderate level of financial risk. Revenue growth is negative, and the company’s return on assets and equity are also negative, reflecting inefficient asset utilization and shareholder returns. The company’s focus on improving lives and achieving circular revenue targets are positive indicators of its commitment to sustainability.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️