Edgar Filing: KONINKLIJKE PHILIPS NV

Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

January 30, 2018

KONINKLIJKE PHILIPS N.V.

(Exact name of registrant as specified in its charter)

Royal Philips

(Translation of registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands

(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 press release:

“Philips’ Fourth Quarter and Annual Results 2017”, dated January 30, 2018.

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 30th day of January, 2018.

KONINKLIJKE PHILIPS N.V.

/s/ M.J. van Ginneken

(Chief Legal Officer)

LOGO

Philips reports Q4 sales of EUR 5.3 billion, with 5% comparable sales growth; net income from continuing operations amounted to EUR 476 million and Adjusted EBITA margin increased 140 basis points to 16.7%

Amsterdam, January 30, 2018

Fourth-quarter highlights

•

Sales amounted to EUR 5.3 billion, with comparable sales growth of 5%

•

Comparable order intake increased 7% compared to Q4 2016

•

Net income from continuing operations, which included a one-time non-cash tax charge of EUR 72 million, increased to EUR 476 million, compared to EUR 465 million in Q4 2016

•

Adjusted EBITA margin improved by 140 basis points to 16.7% of sales, compared to 15.3% of sales in Q4 2016

•

Income from operations (EBIT) increased to EUR 723 million, compared to EUR 693 million in Q4 2016

•

Operating cash flow totaled EUR 1,202 million, compared to EUR 758 million in Q4 2016; free cash flow increased to EUR 948 million, compared to EUR 551 million in Q4 2016

Full-year highlights

•

Sales increased to EUR 17.8 billion, with comparable sales growth of 4%

•

Comparable order intake increased 6% compared to 2016

•

Net income from continuing operations, which included a one-time non-cash tax charge of EUR 72 million, increased to EUR 1,028 million, compared to EUR 831 million in 2016

•

Adjusted EBITA margin improved by 110 basis points to 12.1% of sales, compared to 11.0% of sales in 2016

•

Income from operations (EBIT) amounted to EUR 1,517 million, compared to EUR 1,464 million in 2016

•

Operating cash flow totaled EUR 1.9 billion, compared to EUR 1.2 billion in 2016; free cash flow increased to EUR 1,185 million, compared to EUR 429 million in 2016

•

Proposal to maintain dividend at EUR 0.80 per share

Frans van Houten, CEO:

“2017 was a good year, as we continued the transformation of Philips into a focused leader in health technology and delivered on our improvement targets for the year. I am pleased that we delivered 4% comparable sales growth, an Adjusted EBITA margin increase of 110 basis points, and a strong EUR 1.2 billion free cash flow. We strengthened our strategic platforms through targeted acquisitions, introduced several breakthrough innovations, secured multiple long-term strategic partnerships, and we deconsolidated Philips Lighting as we decreased our shareholding to below 30%.

Philips’ performance in the fourth quarter demonstrates that we are gaining momentum. We finished 2017 on a firm note by delivering comparable order intake growth of 7%, and comparable sales growth of 5%, which was driven by our Personal Health businesses and Diagnosis & Treatment businesses. We achieved a strong Adjusted EBITA margin improvement of 140 basis points, driven by higher volumes, procurement and productivity savings, and increased free cash flow to EUR 948 million.

We further strengthened our portfolio through targeted acquisitions across the health continuum. The integration of these acquisitions is on track. I would like to highlight that the productivity improvements for Spectranetics are ahead of plan, and we successfully launched the Stellarex drug-coated balloon in the US. Furthermore, the integration of Volcano has been completed as planned. This business delivered high-teens comparable sales growth in 2017, driven by the strong performance of our diagnostic catheters, and we further improved gross margins by 10 percentage points in the past two years.

I am pleased that our organic growth initiatives are delivering tangible results, such as the strong order intake growth in our Digital Pathology Solutions business, the double-digit growth of our Sleep & Respiratory Care devices, and the continued success of Philips OneBlade. This revolutionary hybrid styler generated annual sales of more than EUR 100 million within 18 months of its launch.

We expect our markets to grow at 3–5% on a comparable basis in 2018. Combined with our strong order book, we are confident that we will deliver on our mid-term targets of 4-6% comparable sales growth and on average an annual 100 basis points improvement in Adjusted EBITA margin this year. Given the phasing of our order book, we expect improvements to be at the back end of the year.”

Business segments

In the fourth quarter, all business segments continued to deliver operational improvements and increased profitability.

In the Diagnosis & Treatment businesses, comparable order intake increased by a strong 12%, driven by North America and China. Comparable sales increased by 6%, reflecting high-single-digit growth in Ultrasound and mid-single-digit growth in Image-Guided Therapy and Diagnostic Imaging. The Adjusted EBITA margin was 90 basis points higher compared to the same period last year, mainly driven by higher volumes, procurement savings and other cost productivity.

The 6% comparable sales growth of the Personal Health businesses was driven by high-single-digit growth in Health & Wellness and Sleep & Respiratory Care. The Adjusted EBITA margin improved by 70 basis points, driven by higher volume and procurement savings, partly offset by investments in advertising & promotion.

In the Connected Care & Health Informatics businesses, comparable sales increased by 2%, with high-single-digit growth in Healthcare Informatics and low-single-digit growth in Patient Care & Monitoring Solutions. The Adjusted EBITA margin improved by 190 basis points, partly driven by procurement savings and other cost productivity. Comparable order intake showed a low-single-digit decline in the quarter as certain expected large orders were postponed to 2018.

Philips’ ongoing focus on innovation through organic and inorganic growth initiatives resulted in the following highlights in the quarter:

•

As part of Philips’ new introductions to drive growth in Diagnostic Imaging, the company launched its digital MR Prodiva 1.5T system, which provides enhanced clinical performance and increased productivity. Philips also introduced the latest configuration of its IQon Spectral CT, which is optimized to support the needs of emergency and oncology care. Moreover, since the third quarter, Philips has been shipping Vereos, the world’s first and only fully digital PET/CT system, which is achieving market success due to its superb resolution, accuracy and efficiency.

•

Philips strengthened its Radiology Solutions offering with the acquisition of Analytical Informatics. Their suite of workflow improvement applications complements Philips’ PerformanceBridge Practice to enable imaging departments to make data-driven improvement decisions. For example, Philips and Banner Health extended their partnership to include adoption of Philips’ PerformanceBridge Practice across Banner’s 28 radiology departments.

•

Philips signed several multi-year agreements including a 10-year agreement with Children’s Hospital & Medical Center of Omaha in the US to help drive innovation in pediatric care. The company also won a multi-modality tender at the University Hospital of Schleswig-Holstein to provide medical equipment for the hospital’s radiology and neuroradiology departments. In addition, the German Armed Forces will adopt Philips’ Lumify app-based ultrasound solution as standard equipment for doctors and paramedics in emergency and rescue operations.

•

Expanding its health informatics portfolio, Philips acquired interoperability provider Forcare in the Netherlands. Philips also partnered with US-based Nuance to bring Artificial Intelligence into radiology reporting by leveraging functionalities from Philips’ Illumeo and Nuance’s PowerScribe 360. Furthermore, Philips launched its new IntelliSpace Enterprise Edition for Radiology, providing radiology departments with comprehensive tools to increase efficiency and enhance throughput.

•

In China, Philips partnered with Oranger, a service provider specialized in chronic respiratory disease management, and Health 100, the largest health examination organization in China, to provide integrated solutions for chronic respiratory diseases that cover screening, referral, treatment and recovery.

•

To further expand its Population Health Management business, Philips acquired VitalHealth, whose highly complementary portfolio of advanced analytics, care coordination, patient engagement and outcome management solutions will support Philips’ commitment to deliver integrated solutions for care providers.

•

As a driver of new care models, Philips teamed up with leading telehealth provider American Well to jointly deliver virtual care solutions around the world by embedding American Well’s mobile telehealth services into an array of Philips solutions, starting with the Philips Avent uGrow parenting platform, giving parents 24/7 access to professional medical consultations.


		Quarterly report Q4 2017			2

•

Strengthening its leadership in patient monitoring solutions, Philips received FDA 510(k) clearance to market the IntelliVue X3 patient monitor, which provides continuous monitoring for the most critical patients during in-hospital transport. The IntelliVue X3 already had CE marking and was released in Europe in mid-2017.

Cost savings

Philips’ productivity programs delivered annual savings of EUR 483 million, ahead of the targeted savings of EUR 400 million. In the quarter, procurement savings amounted to EUR 81 million, led by the DfX program, while other productivity programs generated savings of EUR 52 million.

Capital allocation

Philips continues to progress with its EUR 1.5 billion share buyback program, which was initiated in the third quarter of 2017 for capital reduction purposes. Details about the transactions to date can be found here.

Regulatory update

Following the US Food and Drug Administration (FDA) inspection of the Cleveland facility (Illinois) in the third quarter of 2017, Philips submitted its response to the inspectional observations for review by the FDA. In December 2017, the company had a constructive meeting with the FDA. Philips will continue to drive its Quality Management System improvement program, and provide monthly status reports to the FDA highlighting the progress in addressing the observations.

On October 31, 2017, a US Federal court formally approved a consent decree that had been agreed to by Philips and the US government, as announced in Philips’ press release on October 11, 2017. Philips is proceeding in line with the terms of the consent decree, which include inspections by independent auditors. As planned, Philips has resumed shipments of its HS1 AEDs globally, as well as consumables, accessories and service parts for all of its defibrillators. Additionally, the company resumed shipments of its FRx and FR3 AEDs to a key market outside of the US in January 2018 and aims to expand these shipments to other markets outside of the US in the remainder of the first quarter of 2018.

Philips Lighting

As of December 31, 2017, Philips’ shareholding in Philips Lighting was 29.01% of Philips Lighting’s issued share capital. As a result, Philips no longer has control over Philips Lighting and has ceased to consolidate Philips Lighting. The remaining interest in Philips Lighting is presented as an investment included in ‘Assets classified as held for sale’ in the financial statements of Royal Philips as from the end of November 2017. Philips’ net income in the fourth quarter included EUR 562 million related to Philips Lighting’s results in the fourth quarter until the date of deconsolidation and a deconsolidation gain, all of which is reported in Discontinued operations.

Philips Lighting will publish results for the fourth quarter and full year 2017 on February 2, 2018.

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 accessed here.

Philips performance


Key data in millions of EUR unless otherwise stated
	Q4 2016			Q4 2017
Sales		5,306			5,303
Nominal sales growth		5	%		0	%
Comparable sales growth*		5	%		5	%
Income from operations (EBIT)		693			723
as a % of sales		13.1	%		13.6	%
Financial expenses, net		(67	)		(9	)
Investments in associates		–			(2	)
Income taxes		(161	)		(237	)
Income from continuing operations		465			476
Discontinued operations		175			423
Net income		640			899
Net income attributable to shareholders per common share (in EUR) - diluted ¹)		0.67			0.91
EBITA*		753			790
as a % of sales		14.2	%		14.9	%
Adjusted EBITA*		811			884
as a % of sales		15.3	%		16.7	%
Adjusted EBITDA*		991			1,072
as a % of sales		18.7	%		20.2	%

¹⁾	The year-on-year increase in net income attributable to Philips shareholders was mainly due to the further sell-down of Philips’ interest in Philips Lighting

•

Comparable sales growth was 5%, driven by mid-single-digit growth in the Personal Health businesses and Diagnosis &Treatment businesses and low-single-digit growth in the Connected Care & Health Informatics businesses.

•

Comparable order intake* showed 7% growth, reflecting double-digit growth in the Diagnosis & Treatment businesses and a low-single-digit decline in the Connected Care & Health Informatics businesses, as certain expected large orders were postponed to 2018.

•

EBITA increased by EUR 37 million and the margin increased by 70 basis points compared to Q4 2016.

•

Adjusted EBITA improved by EUR 73 million and the margin improved by 140 basis points compared to Q4 2016. The improvement was mainly attributable to higher volumes, procurement savings and other cost productivity.

•

Restructuring and acquisition-related charges amounted to EUR 107 million, including the charges related to the acquisition of Spectranetics, compared to EUR 63 million in Q4 2016. EBITA in Q4 2017 also included EUR 4 million of charges related to the separation of the Lighting business, EUR 20 million of charges related to the consent decree focused on the defibrillator manufacturing in the US, and a EUR 36 million release of a provision. Q4 2016 EBITA also included EUR 31 million of charges related to the separation of the Lighting business, a EUR 26 million impairment of real estate assets, a EUR 46 million gain from the settlement of a pension-related claim and a EUR 15 million net release of provisions.

•

Adjusted EBITDA improved by EUR 81 million and the margin increased by 150 basis points compared to Q4 2016.

•

Net financial expenses decreased by EUR 58 million year-on-year, mainly due to lower interest expenses on net debt, as a result of the bond redemptions, and dividend income related to the retained interest in the combined businesses of Lumileds and Automotive received in Q4 2017. Q4 2016 included a release of an interest provision related to the Masimo litigation, offset by financial charges related to the redeemed notes in January 2017.

•

Income tax increased by EUR 76 million, mainly due to a one- time non-cash tax charge of EUR 72 million recorded in Income from continuing operations due to a valuation adjustment of Philips’ US deferred tax assets following the enactment of the US Tax Cuts and Jobs Act (‘US Tax Reform’) in December 2017.

•

Discontinued operations results increased by EUR 248 million, mainly due to a EUR 599 million net gain from the deconsolidation of Lighting, partly offset by a one-time non- cash tax charge of EUR 99 million due to the US Tax Reform, a EUR 104 million charge related to the market value of the retained interest in Philips Lighting, and the exclusion of the operational results of the combined businesses of Lumileds and Automotive from Discontinued operations following the divestment in Q2 2017.

•

Net income increased by EUR 259 million compared to Q4 2016, driven by improvements in operational performance, lower net financial expenses and higher discontinued operations results, partly offset by higher restructuring and acquisition-related charges and total one-time non-cash tax charges of EUR 171 million due to the US Tax Reform.

*	Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information, of this document.


4		Quarterly report Q4 2017


Sales per geographic cluster in millions of EUR unless otherwise stated
					% change
	Q4 2016		Q4 2017		nominal			comparable*
Western Europe		1,171		1,201		3	%		4	%
North America		1,847		1,871		1	%		5	%
Other mature geographies		529		466		(12	)%		(3	)%

Total mature geographies		3,547		3,538		(0	)%		3	%

Growth geographies		1,759		1,765		0	%		7	%

Philips Group		5,306		5,303		0	%		5	%

•

Sales in growth geographies increased by 7% on a comparable basis, mainly driven by Central & Eastern Europe, Middle East & Turkey and China. In mature geographies, sales increased by 3% on a comparable basis, driven by mid-single-digit growth in North America and Western Europe, partly offset by a low- single-digit decline in other mature geographies.

•

Comparable order intake* in growth geographies showed double-digit growth, reflecting double-digit growth in Asia Pacific and high-single-digit growth in China and Latin America. In mature geographies, comparable order intake* showed low-single-digit growth, reflecting low-single-digit growth in North America, Western Europe and other mature geographies.


Cash balance in millions of EUR
	Q4 2016			Q4 2017
Beginning cash balance		1,859			1,604
of which discontinued operations					605
of which continuing operations		1,859			999
Free cash flow*		551			948
Net cash provided by operating activities		758			1,202
Net capital expenditures		(207	)		(254	)
Net cash used for other investing activities		(20	)		(160	)
Treasury shares transactions		(60	)		(341	)
Changes in debt		(453	)		(64	)
Other cash flow items		29			2
Net cash flows from discontinued operations		427			(50	)

Ending cash balance		2,334			1,939

•

Net cash flows from operating activities increased by EUR 444 million. Free cash flow increased by EUR 397 million, mainly due to cash outflows in Q4 2016 of EUR 280 million related to the Masimo agreements and a EUR 91 million premium payment related to the October 2016 bond redemption.

•

Net cash used for other investing activities in Q4 2017 mainly included acquisitions.

•

Treasury share transactions in Q4 2017 mainly included the share buyback program for capital reduction purposes and the share repurchase program for the Long Term Incentive (LTI) and employee stock purchase plans.

•

Changes in debt in Q4 2016 reflected a EUR 431 million outflow related to the October 2016 bond redemption and a further debt repayment in November 2016.

•

Net cash flows from discontinued operations included EUR 545 million proceeds related to the sale of a further interest in Philips Lighting, mainly offset by the deconsolidation of Philips Lighting’s cash and cash equivalents.

*	Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information, of this document.


		Quarterly report Q4 2017			5

Performance per segment


Personal Health businesses
Key data in millions of EUR unless otherwise stated
	Q4 2016			Q4 2017
Sales		2,165			2,181
Sales growth
Nominal sales growth		6	%		1	%
Comparable sales growth*		7	%		6	%
Income from operations (EBIT)		347			370
as a % of sales		16.0	%		17.0	%
EBITA*		381			404
as a % of sales		17.6	%		18.5	%
Adjusted EBITA*		394			412
as a % of sales		18.2	%		18.9	%
Adjusted EBITDA*		461			476
as a % of sales		21.3	%		21.8	%

Diagnosis & Treatment businesses


Key data in millions of EUR unless otherwise stated
	Q4 2016			Q4 2017
Sales		2,032			2,092
Sales growth
Nominal sales growth		3	%		3	%
Comparable sales growth*		3	%		6	%
Income from operations (EBIT)		260			247
as a % of sales		12.8	%		11.8	%
EBITA*		269			266
as a % of sales		13.2	%		12.7	%
Adjusted EBITA*		284			311
as a % of sales		14.0	%		14.9	%
Adjusted EBITDA*		329			361
as a % of sales		16.2	%		17.3	%

•

Comparable sales growth was 6% and reflected high-single- digit growth in Health & Wellness and Sleep & Respiratory Care and mid-single-digit growth in Domestic Appliances and Personal Care.

•

Comparable sales in growth geographies showed double-digit growth, mainly driven by double-digit growth in Asia Pacific and India and high-single-digit growth in Central & Eastern Europe and China. Mature geographies recorded mid-single- digit growth, reflecting double-digit growth in other mature geographies, mid-single-digit growth in Western Europe and low-single-digit growth in North America.

•

EBITA increased by EUR 23 million and the margin improved by 90 basis points compared to Q4 2016.

•

Adjusted EBITA increased by EUR 18 million and the margin improved by 70 basis points compared to Q4 2016. The increase was attributable to higher volumes and procurement savings, partly offset by investments in advertising & promotion.

•

Restructuring and acquisition-related charges amounted to EUR 8 million, compared to EUR 13 million in Q4 2016. In Q1 2018, restructuring and acquisition-related charges are expected to total approximately EUR 5 million.

•

Adjusted EBITDA improved by EUR 15 million and the margin increased by 50 basis points compared to Q4 2016.

•

Comparable sales growth was 6%, driven by high-single-digit growth in Ultrasound and mid-single-digit growth in Image- Guided Therapy and Diagnostic Imaging.

•

Growth geographies achieved high-single-digit growth, mainly driven by double-digit growth in China and Middle East & Turkey, partly offset by a mid-single-digit decline in Latin America. Mature geographies recorded mid-single-digit growth, driven by high-single-digit growth in North America and low-single-digit growth in Western Europe and other mature geographies.

•

EBITA decreased by EUR 3 million and the margin declined by 50 basis points compared to Q4 2016, mainly due to higher restructuring and acquisition-related charges.

•

Adjusted EBITA increased by EUR 27 million and the margin improved by 90 basis points year-on-year, mainly driven by higher volumes, procurement savings and other cost productivity.

•

Restructuring and acquisition-related charges were EUR 45 million, including the charges related to the acquisition of Spectranetics, compared to EUR 15 million in Q4 2016. In Q1 2018, restructuring and acquisition-related charges are expected to total approximately EUR 60 million.

•

Adjusted EBITDA increased by EUR 32 million and the margin increased by 110 basis points compared to Q4 2016.

*	Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information, of this document.


6		Quarterly report Q4 2017

Connected Care & Health Informatics businesses


Key data in millions of EUR unless otherwise stated
	Q4 2016			Q4 2017
Sales		955			912
Sales growth
Nominal sales growth		4	%		(5	)%
Comparable sales growth*		4	%		2	%
Income from operations (EBIT)		171			159
as a % of sales		17.9	%		17.4	%
EBITA*		184			169
as a % of sales		19.3	%		18.5	%
Adjusted EBITA*		177			186
as a % of sales		18.5	%		20.4	%
Adjusted EBITDA*		211			222
as a % of sales		22.1	%		24.3	%

HealthTech Other


Key data in millions of EUR
	Q4 2016			Q4 2017
Sales		153			119
Income from operations (EBIT)		(87	)		(45	)
EBITA*		(83	)		(41	)
Adjusted EBITA*		(29	)		(19	)
IP Royalties		95			67
Innovation		(61	)		(56	)
Central costs		(61	)		(26	)
Other		(2	)		(5	)
Adjusted EBITDA*		6			18

Legacy Items


Income from operations (EBIT) in millions of EUR
	Q4 2016			Q4 2017
Separation costs		(31	)		(4	)
Other		32			(5	)

Income from operations (EBIT)		1			(8	)

•

Comparable sales growth was 2% and reflected high-single- digit growth in Healthcare Informatics and low-single-digit growth in Patient Care & Monitoring Solutions.

•

Comparable sales in growth geographies showed a mid- single-digit decline, reflecting a double-digit decline in Middle East & Turkey and Africa, partly offset by double-digit growth in India. Mature geographies posted mid-single-digit growth, driven by high-single-digit growth in North America, partly offset by a low-single-digit decline in Western Europe and a double-digit decline in other mature geographies.

•

EBITA decreased by EUR 15 million and the margin declined by 80 basis points compared to Q4 2016, mainly due to higher restructuring and acquisition-related charges.

•

Adjusted EBITA increased by EUR 9 million, driven by procurement savings and other cost productivity, and the margin improved by 190 basis points year-on-year.

•

Restructuring and acquisition-related charges were EUR 33 million, compared to EUR 8 million in Q4 2016. EBITA in Q4 2017 also included EUR 20 million of charges related to the consent decree focused on the defibrillator manufacturing in the US and a EUR 36 million release of a provision. EBITA in Q4 2016 included a EUR 15 million net release of provisions. In Q1 2018, restructuring and acquisition-related charges are expected to total approximately EUR 20 million. Charges related to the consent decree are expected to total approximately EUR 20 million in Q1 2018.

•

Adjusted EBITDA improved by EUR 11 million and the margin increased by 220 basis points compared to Q4 2016.

•

Sales decreased by EUR 34 million, mainly due to lower royalty income.

•

EBITA increased by EUR 42 million, mainly driven by lower Central costs and lower restructuring and acquisition-related charges; and in addition there was a EUR 26 million impairment of real estate assets in Q4 2016.

•

Adjusted EBITA increased by EUR 10 million, mainly driven by lower Central costs, partly offset by lower royalty income.

•

Restructuring and acquisition-related charges amounted to EUR 21 million, compared to EUR 28 million in Q4 2016. EBITA in Q4 2016 also included a EUR 26 million impairment of real estate assets. In Q1 2018, restructuring and acquisition-related charges are expected to total approximately EUR 15 million.

•

Adjusted EBITDA improved by EUR 12 million compared to Q4 2016.

•

Income from operations (EBIT) in Q4 2017 mainly included EUR 4 million of charges related to the separation of the Lighting business and EUR 8 million of charges related to movements in environmental provisions. Q4 2016 included a EUR 46 million gain from the settlement of a pension-related claim.

*	Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information, of this document.


		Quarterly report Q4 2017			7

Discontinued operations


Discontinued operations, net of income taxes in millions of EUR
	Q4 2016		Q4 2017
Lighting		85		562
The combined Lumileds and Automotive businesses		89		(116	)
Other		1		(23	)

Discontinued operations, net of income taxes		175		423

•

Discontinued operations results of Lighting increased by EUR 477 million, mainly due to a EUR 599 million net gain from the deconsolidation as from the end of November 2017, partly offset by a EUR 104 million charge related to the market value of the retained interest in Philips Lighting.

•

Discontinued operations results of the combined businesses of Lumileds and Automotive decreased by EUR 205 million, mainly due to a one-time non-cash tax charge of EUR 107 million recorded due to the US Tax Reform and the exclusion of the operational results of the combined businesses of Lumileds and Automotive from Discontinued operations following the divestment in Q2 2017.


8		Quarterly report Q4 2017

Proposed distribution

A proposal will be submitted to the Annual General Meeting of Shareholders, to be held on May 3, 2018, to declare a distribution of EUR 0.80 per common share, in cash or shares at the option of the shareholder (up to EUR 750 million if all shareholders would elect cash), against the net income for 2017.

If the above dividend proposal is adopted, the shares will be traded ex-dividend as of May 7, 2018 at the New York Stock Exchange and Euronext Amsterdam. In compliance with the listing requirements of the New York Stock Exchange and the stock market of Euronext Amsterdam, the dividend record date will be May 8, 2018.

Shareholders will be given the opportunity to make their choice between cash and shares between May 9, 2018 and June 1, 2018. If no choice is made during this election period the dividend will be paid in cash. On June 1, 2018 after close of trading, the number of share dividend rights entitled to one new common share will be determined based on the volume-weighted average price of all traded common shares Koninklijke Philips N.V. at Euronext Amsterdam on May 30 and 31, and June 1, 2018. The company will calculate the number of share dividend rights entitled to one new common share (the ratio), such that the gross dividend in shares will be approximately equal to the gross dividend in cash. The ratio and the number of shares to be issued will be announced on June 5, 2018. Payment of the dividend and delivery of new common shares, with settlement of fractions in cash, if required, will take place from June 6, 2018.

Further details will be given in the agenda for the 2018 Annual General Meeting of Shareholders. All dates mentioned remain provisional until then.


		Quarterly report Q4 2017			9

Full-year highlights

Philips performance


Key data in millions of EUR unless otherwise stated
	January to December
	2016			2017
Sales		17,422			17,780
Nominal sales growth		4	%		2	%
Comparable sales growth*		5	%		4	%
Income from operations (EBIT)		1,464			1,517
as a % of sales		8.4	%		8.5	%
Financial expenses, net		(442	)		(137	)
Investments in associates		11			(4	)
Income taxes		(203	)		(349	)
Income from continuing operations		831			1,028
Discontinued operations		660			843
Net income		1,491			1,870
Net income attributable to shareholders per common share (in EUR) - diluted ¹⁾		1.56			1.75
EBITA*		1,707			1,787
as a % of sales		9.8	%		10.1	%
Adjusted EBITA*		1,921			2,153
as a % of sales		11.0	%		12.1	%
Adjusted EBITDA*		2,613			2,832
as a % of sales		15.0	%		15.9	%

1)	The year-on-year increase in net income attributable to Philips shareholders was mainly due to the further sell-down of Philips’ interest in Philips Lighting

•

Comparable sales growth was 4%, driven by mid-single-digit growth in the Personal Health businesses and low-single-digit growth in the Diagnosis & Treatment businesses and the Connected Care & Health Informatics businesses. Sales in growth geographies showed high-single-digit growth, driven by double-digit growth in Middle East & Turkey and high- single-digit growth in China, Latin America and Central & Eastern Europe. Mature geographies posted low-single-digit growth, reflecting low-single-digit growth in Western Europe and North America and a low-single-digit decline in other mature geographies.

•

Currency-comparable order intake showed 6% growth, reflecting high-single-digit growth in the Diagnosis & Treatment businesses and low-single-digit growth in the Connected Care & Health Informatics businesses. On a geographic basis, growth geographies achieved high-single- digit growth, mainly driven by double-digit growth in China and Middle East & Turkey. North America and other mature geographies recorded low-single-digit growth and Western Europe was flat year-on-year.

•

EBITA increased by EUR 80 million and the margin increased by 30 basis points compared to 2016.

•

Adjusted EBITA improved by EUR 232 million and the margin improved by 110 basis points compared to 2016. The improvement was mainly attributable to higher volumes, procurement savings and other cost productivity.

•

Restructuring and acquisition-related charges amounted to EUR 316 million, including the charges related to the acquisition of Spectranetics, compared to EUR 94 million in 2016. EBITA in 2017 also included EUR 47 million of charges related to quality and regulatory actions, EUR 31 million of charges related to the separation of the Lighting business, EUR 26 million of charges related to the CRT litigation provision in the US, EUR 22 million of charges related to portfolio rationalization measures, EUR 20 million of charges related to the consent decree focused on the defibrillator manufacturing in the US, a EUR 59 million net gain from the sale of real estate assets, and a EUR 36 million release of a provision. EBITA in 2016 also included EUR 152 million of charges related to the separation of the Lighting business, a EUR 26 million impairment of real estate assets, a EUR 46 million gain from the settlement of a pension-related claim and a EUR 12 million net release of provisions.

•

Adjusted EBITDA increased by EUR 219 million and the margin increased by 90 basis points compared to 2016.

•

Net financial expenses decreased by EUR 305 million year-on- year, mainly due to lower interest expenses on net debt, as a result of the bond redemptions, and dividend income related to the retained interest in the combined businesses of Lumileds and Automotive. The year 2016 included financial charges related to the redeemed notes in October 2016 and January 2017, partly offset by a release of an interest provision related to the Masimo litigation. Interest expenses in 2017 were reduced by more than EUR 100 million in line with our plan.

*	Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information, of this document.


10		Quarterly report Q4 2017

•

Income tax increased by EUR 146 million, mainly due to higher income and a one-time non-cash tax charge of EUR 72 million due to the US Tax Reform.

•

Discontinued operations results increased by EUR 183 million, mainly due to a EUR 599 million net gain from the deconsolidation of Lighting, partly offset by a EUR 104 million charge related to the market value of the retained interest in Philips Lighting, a one-time non-cash tax charge of EUR 99 million due to the US Tax Reform, and the exclusion of the operational results of the combined businesses of Lumileds and Automotive from Discontinued operations following the divestment in Q2 2017. The year 2016 included the Funai arbitration award.

•

Net income increased by EUR 379 million compared to 2016, driven by improvements in operational performance, lower net financial expenses and higher discontinued operations results, partly offset by higher restructuring and acquisition-related charges and higher income taxes, which included a total one-time non-cash tax charge of EUR 171 million due to the US Tax Reform.


		Quarterly report Q4 2017			11

Performance per segment

Personal Health businesses


Key data in millions of EUR unless otherwise stated
	January to December
	2016			2017
Sales		7,099			7,310
Sales growth
Nominal sales growth		5	%		3	%
Comparable sales growth*		7	%		6	%
Income from operations (EBIT)		953			1,075
as a % of sales		13.4	%		14.7	%
EBITA*		1,092			1,211
as a % of sales		15.4	%		16.6	%
Adjusted EBITA*		1,108			1,221
as a % of sales		15.6	%		16.7	%
Adjusted EBITDA*		1,353			1,456
as a % of sales		19.1	%		19.9	%

Diagnosis & Treatment businesses


Key data in millions of EUR unless otherwise stated
	January to December
	2016			2017
Sales		6,686			6,891
Sales growth
Nominal sales growth		3	%		3	%
Comparable sales growth*		4	%		3	%
Income from operations (EBIT)		546			488
as a % of sales		8.2	%		7.1	%
EBITA*		594			543
as a % of sales		8.9	%		7.9	%
Adjusted EBITA*		631			716
as a % of sales		9.4	%		10.4	%
Adjusted EBITDA*		808			884
as a % of sales		12.1	%		12.8	%

•

Comparable sales growth was 6%, driven by high-single-digit growth in Health & Wellness and mid-single-digit growth in Sleep & Respiratory Care, Domestic Appliances and Personal Care.

•

Comparable sales in growth geographies showed double-digit growth, reflecting double-digit growth in Latin America, Middle East & Turkey and India, and high-single-digit growth in China and Central & Eastern Europe. Mature geographies recorded low-single-digit growth, driven by mid-single-digit growth in Western Europe and low-single-digit growth in North America, partly offset by a low-single-digit decline in other mature geographies.

•

EBITA increased by EUR 119 million and the margin increased by 120 basis points compared to 2016.

•

Adjusted EBITA increased by EUR 113 million and the margin improved by 110 basis points compared to 2016. The increase was attributable to higher volumes and procurement savings, partly offset by investments in advertising & promotion.

•

Restructuring and acquisition-related charges were EUR 11 million, compared to EUR 16 million in 2016.

•

Adjusted EBITDA increased by EUR 103 million and the margin increased by 80 basis points compared to 2016.

•

Comparable sales growth was 3%, driven by mid-single-digit growth in Ultrasound and Image-Guided Therapy and low- single-digit growth in Diagnostic Imaging.

•

Comparable sales in growth geographies showed high-single- digit growth, mainly driven by double-digit growth in China and high-single-digit growth in Latin America. Mature geographies recorded low-single-digit growth, reflecting low-single-digit growth in North America and other mature geographies, while sales in Western Europe were flat year-on-year.

•

EBITA decreased by EUR 51 million and the margin declined by 100 basis points compared to 2016, mainly due to higher restructuring and acquisition-related charges.

•

Adjusted EBITA increased by EUR 85 million and the margin improved by 100 basis points year-on-year. The increase was mainly attributable to higher volumes.

•

Restructuring and acquisition-related charges were EUR 151 million, including the charges related to the acquisition of Spectranetics, compared to EUR 37 million in 2016. EBITA in 2017 included charges of EUR 22 million related to portfolio rationalization measures.

•

Adjusted EBITDA increased by EUR 76 million and the margin increased by 70 basis points compared to 2016.

Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information, of this document.


12		Quarterly report Q4 2017

Connected Care & Health Informatics businesses


Key data in millions of EUR unless otherwise stated
	January to December
	2016			2017
Sales		3,158			3,163
Sales growth
Nominal sales growth		5	%		0	%
Comparable sales growth*		4	%		3	%
Income from operations (EBIT)		275			206
as a % of sales		8.7	%		6.5	%
EBITA*		322			250
as a % of sales		10.2	%		7.9	%
Adjusted EBITA*		324			372
as a % of sales		10.3	%		11.8	%
Adjusted EBITDA*		458			502
as a % of sales		14.5	%		15.9	%

HealthTech Other


Key data in millions of EUR
	January to December
	2016			2017
Sales		478			415
Income from operations (EBIT)		(129	)		(149	)
EBITA*		(120	)		(114	)
Adjusted EBITA*		(66	)		(109	)
IP Royalties		286			225
Innovation		(207	)		(212	)
Central costs		(137	)		(105	)
Other		(8	)		(17	)
Adjusted EBITDA*		68			36

Legacy Items


Income from operations (EBIT) in millions of EUR
	January to December
	2016			2017
Separation costs		(152	)		(31	)
Other		(29	)		(73	)

Income from operations (EBIT)		(181	)		(103	)

•

Comparable sales growth was 3%, driven by mid-single-digit growth in Patient Care & Monitoring Solutions and low-single- digit growth in Healthcare Informatics.

•

Comparable sales in growth geographies showed low-single- digit growth, mainly driven by low-single-digit growth in China. Mature geographies posted low-single-digit growth, driven by mid-single-digit growth in Western Europe and North America, partly offset by a low-single-digit decline in other mature geographies.

•

EBITA decreased by EUR 72 million and the margin decreased by 230 basis points compared to 2016, mainly due to higher restructuring and acquisition-related charges.

•

Adjusted EBITA improved by EUR 48 million and the margin increased by 150 basis points year-on-year, mainly due to higher volumes, procurement savings and other cost productivity.

•

Restructuring and acquisition-related charges amounted to EUR 91 million, compared to EUR 14 million in 2016. EBITA in 2017 also included EUR 47 million of charges related to quality and regulatory actions, EUR 20 million of charges related to the consent decree focused on the defibrillator manufacturing in the US, and a EUR 36 million release of a provision. EBITA in 2016 included a EUR 12 million net release of provisions.

•

Adjusted EBITDA increased by EUR 44 million and the margin increased by 140 basis points compared to 2016.

•

Sales decreased by EUR 63 million, mainly due to lower royalty income.

•

EBITA increased by EUR 6 million, mainly driven by a real estate gain, in addition to a real estate impairment in 2016, and by lower Central costs, partly offset by lower royalty income and higher restructuring and acquisition-related charges.

•

The Adjusted EBITA decline was mainly due to lower royalty income and higher provision-related charges in Other, partly offset by lower Central costs.

•

Restructuring and acquisition-related charges amounted to EUR 64 million, compared to EUR 28 million in 2016. EBITA in 2017 also included a EUR 59 million net gain from the sale of real estate assets. EBITA in 2016 included a EUR 26 million impairment of real estate assets.

•

Adjusted EBITDA decreased by EUR 32 million.

•

Income from operations (EBIT) mainly included EUR 31 million of charges related to the separation of the Lighting business, EUR 26 million of provisions related to the CRT litigation in the US, EUR 15 million of costs related to environmental provisions, and EUR 14 million of stranded costs related to the combined Lumileds and Automotive businesses. The year 2016 included a EUR 46 million gain from the settlement of a pension-related claim and a EUR 13 million charge related to provisions originating from the separation of the Lighting business.

Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information, of this document.


		Quarterly report Q4 2017			13

Discontinued operations


Discontinued operations, net of income taxes in millions of EUR
	January to December
	2016		2017
Lighting		244		896
The combined Lumileds and Automotive businesses		282		(29	)
Other		134		(24	)

Discontinued operations, net of income taxes		660		843

•

Discontinued operations results of Lighting increased by EUR 652 million, mainly due to a EUR 599 million net gain from the deconsolidation as from the end of November 2017, partly offset by a EUR 104 million charge related to the market value of the retained interest in Philips Lighting.

•

Discontinued operations results of the combined businesses of Lumileds and Automotive decreased by EUR 311 million, mainly due to a one-time non-cash tax charge of EUR 107 million recorded due to the US Tax Reform and the exclusion of the operational results of the combined businesses of Lumileds and Automotive from Discontinued operations following the divestment in Q2 2017.

•

Discontinued operations results from Other discontinued operations decreased by EUR 158 million year-on-year, mainly due to the Funai arbitration award in 2016.


14		Quarterly report Q4 2017

Forward-looking statements and other important information

Forward-looking statements

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 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: global economic and business conditions; developments within the euro zone; the successful implementation of Philips’ strategy and the ability to realize the benefits of this strategy; the ability to develop and market new products; changes in legislation; legal claims; changes in currency exchange rates and interest rates; future changes in tax rates and regulations, including tax reform in the US; pension costs and actuarial assumptions; changes in raw materials prices; changes in employee costs; the ability to identify and complete successful acquisitions, and to integrate those acquisitions into the business, including Spectranetics; the ability to successfully exit certain businesses or restructure the operations; the rate of technological changes; cyber-attacks, breaches of cybersecurity, political, economic and other developments in countries where Philips operates; industry consolidation and competition; and the state of international capital markets as they may affect the timing and nature of the disposal by Philips of its remaining interests in Philips Lighting. 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 the Risk management chapter included in the Annual Report 2016.

Third-party market share data

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.

Use of non-GAAP information

In presenting and discussing the Philips Group financial position, operating results and cash flows, management uses certain non- GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. Non-GAAP 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-GAAP measures to the most directly comparable IFRS measures is contained in this document. Further information on non-GAAP measures can be found in the Annual Report 2016. Comparable order intake and Adjusted EBITDA are measures included to enhance comparability with other companies.

Use of fair-value measurements

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 2016 and Semi-Annual Report 2017. Incertain cases independent valuations are obtained to support management’s determination of fair values.

Presentation

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 accounting policies as stated in the Annual Report 2016, unless otherwise stated. The presentation of certain prior-year information has been adjusted to conform to the current-year presentation.

Market Abuse Regulation

This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.


		Quarterly report Q4 2017			15

Condensed consolidated statements of income


Condensed consolidated statements of income in millions of EUR unless otherwise stated
	Q4						January to December
	2016			2017			2016			2017
Sales		5,306			5,303			17,422			17,780
Cost of sales		(2,824	)		(2,741	)		(9,484	)		(9,600	)

Gross margin		2,482			2,563			7,939			8,181
Selling expenses		(1,166	)		(1,236	)		(4,142	)		(4,398	)
General and administrative expenses		(173	)		(146	)		(658	)		(577	)
Research and development expenses		(449	)		(461	)		(1,669	)		(1,764	)
Impairment of goodwill		—			—			(1	)		(9	)
Other business income		7			27			17			152
Other business expenses		(9	)		(23	)		(22	)		(67	)

Income from operations		693			723			1,464			1,517
Financial income		16			31			65			126
Financial expenses		(83	)		(40	)		(507	)		(263	)
Investments in associates		—			(2	)		11			(4	)

Income before taxes		626			713			1,034			1,377
Income taxes		(161	)		(237	)		(203	)		(349	)

Income from continuing operations		465			476			831			1,028
Discontinued operations - net of income taxes		175			423			660			843

Net income		640			899			1,491			1,870

Attribution of net income for the period
Net income attributable to Koninklijke Philips N.V. shareholders		626			860			1,448			1,657
Net income attributable to Non-controlling interests		14			39			43			214

Earnings per common share attributable to Koninklijke Philips N.V. shareholders
Weighted average number of common shares outstanding
(after deduction of treasury shares) during the period (in thousands):
- basic		923,018			932,754			918,016			928,798
- diluted		933,552			947,857			928,789			945,132
Net income attributable to shareholders in EUR:
- basic		0.68			0.92			1.58			1.78
- diluted		0.67			0.91			1.56			1.75
Net income from continuing operations attributable to shareholders in EUR:
- basic		0.50			0.51			0.90			1.11
- diluted		0.50			0.50			0.89			1.09

Amounts may not add up due to rounding.


16		Quarterly report Q4 2017

Condensed consolidated statements of comprehensive income


Condensed consolidated statements of comprehensive income in millions of EUR unless otherwise stated
	January to December
	2016			2017
Net income for the period		1,491			1,870

Pensions and other post-employment plans:
Remeasurement		(96	)		102
Income tax effect on remeasurements		28			(78	)
Revaluation reserve:
Release revaluation reserve		(4	)
Reclassification directly into retained earnings		4

Total of items that will not be reclassified to profit or loss		(68	)		25
Currency translation differences:
Net current-period change, before tax		219			(1,177	)
Income tax effect on net current-period change		2			39
Reclassification adjustment for (loss) gain realized, in discontinued operations					191
Available-for-sale financial assets:
Net current-period change, before tax		(44	)		(66	)
Income tax effect on net current-period change					(1	)
Reclassification adjustment for (loss) gain realized, in continued operations		24			1
Cash flow hedges:
Net current-period change, before tax		3			33
Income tax effect on net current period change		(9	)		(3	)
Reclassification adjustment for (loss) gain realized, in continued operations		5			(17	)
Total of items that are or may be reclassified to profit or loss		200			(1,000	)

Other comprehensive income (loss) for the period		132			(975	)

Total comprehensive income for the period		1,623			895
Shareholders of Koninklijke Philips N.V.		1,550			805
Non-controlling interests		73			90

Amounts may not add up due to rounding.


		Quarterly report Q4 2017			17

Condensed consolidated balance sheets


Condensed consolidated balance sheets in millions of EUR
	December 31, 2016			December 31, 2017
Non-current assets:
Property, plant and equipment		2,155			1,591
Goodwill		8,898			7,731
Intangible assets excluding goodwill		3,552			3,322
Non-current receivables		155			130
Investments in associates		190			142
Other non-current financial assets		335			587
Non-current derivative financial assets		59			22
Deferred tax assets		2,759	¹⁾		1,598
Other non-current assets		92			75

Total non-current assets		18,195			15,198
Current assets:
Inventories		3,392			2,353
Other current financial assets		101			2
Other current assets		486			392
Current derivative financial assets		101			57
Income tax receivable		154			109
Receivables		5,327			3,909
Assets classified as held for sale		2,180			1,356
Cash and cash equivalents		2,334			1,939

Total current assets		14,075			10,117

Total assets		32,270			25,315

Equity
Shareholders’ equity		12,546	¹⁾		11,999
Common shares		186			188
Reserves		1,280			385
Other		11,080	¹⁾		11,426
Non-controlling interests		907			24

Group equity		13,453			12,023
Non-current liabilities:
Long-term debt		4,021			4,044
Non-current derivative financial liabilities		590			216
Long-term provisions		2,926	¹⁾		1,659
Deferred tax liabilities		66			33
Other non-current liabilities		741			474

Total non-current liabilities		8,344			6,426
Current liabilities:
Short-term debt		1,585			672
Current derivative financial liabilities		283			167
Income tax payable		146			83
Accounts payable		2,848			2,090
Accrued liabilities		3,034			2,319
Short-term provisions		680			400
Liabilities directly associated with assets held for sale		525			8
Other current liabilities		1,372			1,126

Total current liabilities		10,473			6,866

Total liabilities and group equity		32,270			25,315

¹⁾	The presentation of prior-year information has been adjusted to conform to the current-year presentation.

Amounts may not add up due to rounding.


18		Quarterly report Q4 2017

Condensed consolidated statement of cash flows


Condensed consolidated statements of cash flows in millions of EUR
	January to December
	2016			2017
Cash flows from operating activities
Net income		1,491			1,870
Results of discontinued operations - net of income tax		(660	)		(843	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) of operating activities:
Depreciation, amortization and impairments of fixed assets		976			1,025
Impairment of goodwill and other non-current financial assets		24			15
Net loss (gain) on sale of assets		(3	)		(107	)
Interest income		(43	)		(40	)
Interest expense on debt, borrowings and other liabilities		294			186
Income taxes		203			349
Results from investments in associates		(11	)		—
Decrease (increase) in working capital:		131			101
Decrease (increase) in receivables and other current assets		(89	)		64
Decrease (increase) in inventories		(63	)		(144	)
Increase (decrease) in accounts payable, accrued and other current liabilities		283			181
Decrease (increase) in non-current receivables, other assets and other liabilities		(160	)		(358	)
Increase (decrease) in provisions		(647	)		(252	)
Other items		76			377
Interest paid		(296	)		(215	)
Interest received		42			40
Dividends received from investments in associates		48			6
Income taxes paid		(295	)		(284	)
Net cash provided by (used for) operating activities		1,170			1,870
Cash flows from investing activities
Net capital expenditures		(741	)		(685	)
Purchase of intangible assets		(95	)		(106	)
Expenditures on development assets		(301	)		(333	)
Capital expenditures on property, plant and equipment		(360	)		(420	)
Proceeds from sale of property, plant and equipment		15			175
Net proceeds from (cash used for) derivatives and current financial assets		(117	)		(198	)
Purchase of other non-current financial assets		(53	)		(42	)
Proceeds from other non-current financial assets		14			6
Purchase of businesses, net of cash acquired		(197	)		(2,344	)
Net proceeds from sale of interests in businesses, net of cash disposed of		—			64
Net cash used for investing activities		(1,092	)		(3,199	)
Cash flows from financing activities
Proceeds from issuance (payments) of short-term debt		(1,377	)		12
Principal payments on short-term portion of long-term debt		(357	)		(1,332	)
Proceeds from issuance of long-term debt		123			1,115
Re-issuance of treasury shares		80			227
Purchase of treasury shares		(606	)		(642	)
Proceeds from sale of Philips Lighting shares		863			1,065
Transaction costs paid for sale of Philips Lighting shares		(38	)		(5	)
Dividend paid to shareholders of Koninklijke Philips N.V.		(330	)		(384	)
Dividends paid to non-controlling interests		(2	)		(2	)
Net cash provided by (used for) financing activities		(1,643	)		55

Net cash provided by (used for) continuing operations		(1,566	)		(1,274	)

Net cash provided by (used for) discontinued operations		2,151			1,063

Net cash provided by (used for) continuing and discontinued operations		585			(211	)
Effect of change in exchange rates on cash and cash equivalents		(17	)		(184	)
Cash and cash equivalents at the beginning of the period		1,766			2,334

Cash and cash equivalents at the end of the period		2,334			1,939

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.


		Quarterly report Q4 2017			19

Condensed consolidated statement of change in equity


Condensed consolidated statements of changes in equity in millions of EUR
	common shares		capital in excess of par value			retained earnings			currency translation differences			available-for-sale financial assets			cash flow hedges		treasury shares at cost			total shareholders’ equity			non-controlling interests			total equity
January to December
Balance as of December 31, 2016		186		3,083			8,178			1,234			36			10		(181	)		12,546			907			13,453
Total comprehensive income (loss)							1,681			(823	)		(66	)		12					805			90			895
Dividend distributed		2		356			(742	)													(384	)		(94	)		(478	)
Sales of shares of Philips Lighting							346			(19	)										327			712			1,039
Deconsolidation Philips Lighting				(66	)		54														(12	)		(1,590	)		(1,602	)
Purchase of treasury shares																		(318	)		(318	)					(318	)
Re-issuance of treasury shares				(205	)		3											334			133						133
Forward contracts - share buy back							(1,018	)										(61	)		(1,079	)					(1,079	)
Share call options							95											(255	)		(160	)					(160	)
Share-based compensation plans				151																	151						151
Income tax share-based compensation plans				(8	)																(8	)					(8	)

Total other equity movements		2		228			(1,263	)		(19	)							(300	)		(1,352	)		(972	)		(2,324	)

Balance as of December 31, 2017		188		3,311			8,596			392			(30	)		23		(481	)		11,999			24			12,023

¹⁾	The presentation of prior-year information has been adjusted to conform to the current-year presentation.

Amounts may not add up due to rounding.


20		Quarterly report Q4 2017

Reconciliation of non-GAAP information

Certain non-GAAP financial measures are presented when discussing the Philips Group’s performance:

•

Comparable sales growth

•

EBIT

•

EBITA

•

Adjusted EBITA

•

Adjusted EBITDA

•

Free cash flow

•

Net debt : group equity ratio

•

Comparable order intake

The term EBIT has the same meaning as Income from operations.

Adjusted EBITA is defined as Income from operations (EBIT) excluding amortization of intangible assets (excluding software and development expenses), impairment of goodwill and other intangible assets, restructuring charges, acquisition-related costs and other significant items.

Adjusted EBITDA is defined as Income from operations (EBIT) excluding amortization and impairment of intangible assets, impairment of goodwill, depreciation and impairment of property, plant and equipment, restructuring charges, acquisition-related costs and other significant items.

Free cash flow is defined as Net cash provided by operating activities minus net capital expenditures. Net capital expenditures are comprised of the purchase of intangible assets, expenditures on development assets, capital expenditures on property, plant and equipment and proceeds from disposal of property, plant and equipment.

Net debt : group equity ratio is presented to express the financial strength of the Company. Net debt is defined as the sum of long- and short-term debt minus cash and cash equivalents. Group equity is defined as the sum of shareholders’ equity and non-controlling interests.

Comparable order intake is reported for equipment and software and is defined as the total contractually committed amount to be delivered within a specified timeframe excluding the effects of currency movements and changes in consolidation. Comparable order intake does not derive from the financial statements and thus a quantitative reconciliation is not provided.

For the definitions of the remaining non-GAAP financial measures listed above, refer to the Annual Report 2016.

In the following tables, reconciliations to the most directly comparable IFRS measures are presented.


Sales growth composition in %
	Q4 2017												January to December 2017
	nominal growth			consolidation changes			currency effects			comparable growth			nominal growth			consolidation changes			currency effects			comparable growth
2017 versus 2016
Personal Health		0.7	%		0.5	%		5.1	%		6.3	%		3.0	%		0.7	%		1.9	%		5.6	%
Diagnosis & Treatment		3.0	%		(3.3	)%		6.1	%		5.8	%		3.1	%		(1.6	)%		2.0	%		3.5	%
Connected Care & Health Informatics		(4.5	)%		0.6	%		6.2	%		2.3	%		0.2	%		1.1	%		1.9	%		3.2	%
HealthTech Other		(22.2	)%		(0.0	)%		0.6	%		(21.6	)%		(13.2	)%		0.1	%		0.2	%		(12.9	)%

Philips Group		(0.1	)%		(0.9	)%		5.6	%		4.6	%		2.1	%		(0.1	)%		1.9	%		3.9	%


		Quarterly report Q4 2017			21


Net income to Adjusted EBITA In millions of EUR unless otherwise stated
	Philips Group			Personal Health		Diagnosis & Treatment		Connected Care & Health Informatics			HealthTech Other			Legacy Items
Q4 2017
Net Income		899
Discontinued operations, net of income taxes		(423	)
Income taxes		237
Investments in associates		2
Financial expenses		40
Financial income		(31	)

Income from operations (EBIT)		723			370		247		159			(45	)		(8	)
Amortization of acquired intangible assets		66			34		19		10			4

EBITA		790			404		266		169			(41	)		(8	)
Restructuring and acquisition-related charges		107			8		45		33			21
Other items		(12	)						(16	)					4

Adjusted EBITA		884			412		311		186			(19	)		(5	)
January to December 2017
Net income		1,870
Discontinued operations, net of income taxes		(843	)
Income taxes		349
Investments in associates		4
Financial expenses		263
Financial income		(126	)

Income from operations (EBIT)		1,517			1,075		488		206			(149	)		(103	)
Amortization of acquired intangible assets		260			135		55		44			26
Impairment of goodwill		9										9

EBITA		1,787			1,211		543		250			(114	)		(103	)
Restructuring and acquisition-related charges		316			11		151		91			64
Other items		50					22		31			(59	)		55

Adjusted EBITA		2,153			1,221		716		372			(109	)		(48	)

Q4 2016
Net income		640
Discontinued operations, net of income taxes		(175	)
Income tax		161
Investments in associates		0
Financial expenses		83
Financial income		(16	)

Income from operations (EBIT)		693			347		260		171			(87	)		1
Amortization of acquired intangible assets		61			34		9		13			4			1

EBITA		753			381		269		184			(83	)		2
Restructuring and acquisition-related charges		63			13		15		8			28			(1	)
Other Items		(5	)						(15	)		26			(16	)

Adjusted EBITA		811			394		284		177			(29	)		(15	)
January to December 2016
Net income		1,491
Discontinued operations, net of income taxes		(660	)
Income tax		203
Investments in associates		(11	)
Financial expenses		507
Financial income		(65	)

Income from operations (EBIT)		1,464			953		546		275			(129	)		(181	)
Amortization of acquired intangible assets		242			139		48		46			9
Impairment of goodwill		1							1

EBITA		1,707			1,092		594		322			(120	)		(181	)
Restructuring and acquisition-related charges		94			16		37		14			28			(1	)
Other items		120							(12	)		26			106

Adjusted EBITA		1,921			1,108		631		324			(66	)		(76	)


22		Quarterly report Q4 2017


Net income to Adjusted EBITDA In millions of EUR unless otherwise stated
	Philips Group			Personal Health			Diagnosis & Treatment			Connected Care & Health Informatics			HealthTech Other			Legacy Items
Q4 2017
Net Income		899
Discontinued operations, net of income taxes		(423	)
Income taxes		237
Investment in associates		2
Financial expenses		40
Financial income		(31	)

Income from operations (EBIT)		723			370			247			159			(45	)		(8	)
Depreciation, amortization and impairments of fixed assets		276			99			71			62			45			—
Restructuring and acquisition-related charges		107			8			45			33			21
Other items		(12	)								(16	)					4
Adding back impairment of fixed assets included in restructuring and acquisition-related charges and other items		(22	)		(1	)		(2	)		(16	)		(3	)

Adjusted EBITDA		1,072			476			361			222			18			(4	)
January to December 2017
Net Income		1,870
Discontinued operations, net of income taxes		(843	)
Income taxes		349
Investment in associates		4
Financial expenses		263
Financial income		(126	)

Income from operations (EBIT)		1,517			1,075			488			206			(149	)		(103	)
Depreciation, amortization and impairments of fixed assets		1,025			371			267			208			177			2
Impairment of goodwill		9												9
Restructuring and acquisition-related charges		316			11			151			91			64
Other items		50						22			31			(59	)		55
Adding back of impairment of fixed assets included in restructuring and acquisition-related charges and other items		(86	)		(1	)		(44	)		(34	)		(7	)

Adjusted EBITDA		2,832			1,456			884			502			36			(46	)


		Quarterly report Q4 2017			23


Net income to Adjusted EBITDA In millions of EUR unless otherwise stated
	Philips Group			Personal Health		Diagnosis & Treatment			Connected Care & Health Informatics			HealthTech Other			Legacy Items
Q4 2016
Net Income		640
Discontinued operations, net of income taxes		(175	)
Income taxes		161
Investment in associates		—
Financial expenses		83
Financial income		(16	)

Income from operations (EBIT)		693			347		260			171			(87	)		1
Depreciation, amortization and impairments of fixed assets		277			102		55			47			73			—
Restructuring and acquisition-related charges		63			13		15			8			28			(1	)
Other items		(5	)							(15	)		26			(16	)
Adding back of impairment of fixed assets included in restructuring and acquisition-related charges and other items		(35	)		—		(1	)		—			(34	)

Adjusted EBITDA		991			461		329			211			6			(16	)
January to December 2016
Net Income		1,491
Discontinued operations, net of income taxes		(660	)
Income taxes		203
Investment in associates		(11	)
Financial expenses		507
Financial income		(65	)

Income from operations (EBIT)		1,464			953		546			275			(129	)		(181	)
Depreciation, amortization and impairments of fixed assets		976			385		229			184			177			2
Impairment of goodwill		1								1
Restructuring and acquisition-related charges		94			16		37			14			28			(1	)
Other items		120								(12	)		26			106
Adding back of impairment of fixed assets included in restructuring and acquisition-related charges and other items		(42	)		—		(4	)		(4	)		(34	)

Adjusted EBITDA		2,613			1,353		808			458			68			(74	)


24		Quarterly report Q4 2017

Reconciliation of non-GAAP information (continued)


Composition of free cash flow in millions of EUR
	January to December
	2016			2017
Cash flow provided by operating activities		1,170			1,870
Net capital expenditures:		(741	)		(685	)
Purchase of intangible assets		(95	)		(106	)
Expenditures on development assets		(301	)		(333	)
Capital expenditures on property, plant and equipment		(360	)		(420	)
Proceeds from sale of property, plant and equipment		15			175

Free cash flows		429			1,185


Composition of net debt to group equity in millions of EUR unless otherwise stated	December 31, 2016			December 31, 2017
Long-term debt		4,021			4,044
Short-term debt		1,585			672
Total debt		5,606			4,715
Cash and cash equivalents		2,334			1,939
Net debt (total debt less cash and cash equivalents)		3,272			2,776
Shareholders’ equity		12,546	¹⁾		11,999
Non-controlling interests		907			24
Group equity		13,453			12,023
Net debt and Group equity		16,725			14,799
Net debt divided by net debt and Group equity (in %)		20	%¹⁾		19	%
Equity divided by net debt and Group equity (in %)		80	%¹⁾		81	%


		Quarterly report Q4 2017			25

Philips statistics

in millions of EUR unless otherwise stated


	2016												2017
	Q1			Q2			Q3			Q4			Q1			Q2			Q3			Q4
Sales		3,826			4,132			4,157			5,306			4,035			4,294			4,148			5,303
Comparable sales growth*		5	%		5	%		5	%		5	%		3	%		4	%		4	%		5	%
Gross margin		1,644			1,860			1,953			2,482			1,777			1,925			1,916			2,563
as a % of sales		43.0	%		45.0	%		47.0	%		46.8	%		44.0	%		44.8	%		46.2	%		48.3	%
Selling expenses		(989	)		(999	)		(988	)		(1,166	)		(1,024	)		(1,091	)		(1,046	)		(1,236	)
as a % of sales		(25.8	)%		(24.2	)%		(23.8	)%		(22.0	)%		(25.4	)%		(25.4	)%		(25.2	)%		(23.3	)%
G&A expenses		(145	)		(181	)		(158	)		(173	)		(151	)		(146	)		(134	)		(146	)
as a % of sales		(3.8	)%		(4.4	)%		(3.8	)%		(3.3	)%		(3.7	)%		(3.4	)%		(3.2	)%		(2.8	)%
R&D expenses		(380	)		(412	)		(428	)		(449	)		(431	)		(421	)		(451	)		(461	)
as a % of sales		(9.9	)%		(10.0	)%		(10.3	)%		(8.5	)%		(10.7	)%		(9.8	)%		(10.9	)%		(8.7	)%
Income from operations (EBIT)		126			265			381			693			243			252			299			723
as a % of sales		3.3	%		6.4	%		9.2	%		13.1	%		6.0	%		5.9	%		7.2	%		13.6	%
Net income		37			431			383			640			259			289			423			899
Net income - shareholders per common share in EUR - diluted		0.03			0.46			0.40			0.67			0.25			0.27			0.33			0.91
EBITA*		188			326			441			753			304			329			364			790
as a % of sales		4.9	%		7.9	%		10.6	%		14.2	%		7.5	%		7.7	%		8.8	%		14.9	%
Adjusted EBITA*		253			383			474			811			298			439			532			884
as a % of sales		6.6	%		9.3	%		11.4	%		15.3	%		7.4	%		10.2	%		12.8	%		16.7	%
Adjusted EBITDA*		422			555			646			991			463			611			686			1,072
as a % of sales		11.0	%		13.4	%		15.5	%		18.7	%		11.5	%		14.2	%		16.5	%		20.2	%

	2016												2017
	January- March			January- June			January- September			January- December			January- March			January- June			January- September			January- December
Sales		3,826			7,959			12,116			17,422			4,035			8,329			12,477			17,780
Comparable sales growth*		5	%		5	%		5	%		5	%		3	%		3	%		4	%		4	%
Gross margin		1,644			3,504			5,457			7,939			1,777			3,703			5,618			8,181
as a % of sales		43.0	%		44.0	%		45.0	%		45.6	%		44.0	%		44.5	%		45.0	%		46.0	%
Selling expenses		(989	)		(1,988	)		(2,976	)		(4,142	)		(1,024	)		(2,115	)		(3,162	)		(4,398	)
as a % of sales		(25.8	)%		(25.0	)%		(24.6	)%		(23.8	)%		(25.4	)%		(25.4	)%		(25.3	)%		(24.7	)%
G&A expenses		(145	)		(327	)		(485	)		(658	)		(151	)		(297	)		(431	)		(577	)
as a % of sales		(3.8	)%		(4.1	)%		(4.0	)%		(3.8	)%		(3.7	)%		(3.6	)%		(3.5	)%		(3.2	)%
R&D expenses		(380	)		(792	)		(1,220	)		(1,669	)		(431	)		(852	)		(1,303	)		(1,764	)
as a % sales		(9.9	)%		(10.0	)%		(10.1	)%		(9.6	)%		(10.7	)%		(10.2	)%		(10.4	)%		(9.9	)%
Income from operations (EBIT)		126			391			772			1,464			243			495			794			1,517
as a % of sales		3.3	%		4.9	%		6.4	%		8.4	%		6.0	%		5.9	%		6.4	%		8.5	%
Net income		37			468			851			1,491			259			548			971			1,870
Net income - shareholders per common share in EUR - diluted		0.03			0.49			0.89			1.56			0.25			0.51			0.85			1.75
EBITA*		188			514			955			1,707			304			634			997			1,787
as a % of sales		4.9	%		6.5	%		7.9	%		9.8	%		7.5	%		7.6	%		8.0	%		10.1	%
Adjusted EBITA*		253			636			1,110			1,921			298			737			1,269			2,153
as a % of sales		6.6	%		8.0	%		9.2	%		11.0	%		7.4	%		8.8	%		10.2	%		12.1	%
Adjusted EBITDA*		422			976			1,622			2,613			463			1,074			1,759			2,832
as a % of sales		11.0	%		12.3	%		13.4	%		15.0	%		11.5	%		12.9	%		14.1	%		15.9	%
Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands)		913,011			927,316			924,271			922,437			920,276			937,045			936,861			926,192
Shareholders’ equity per common share in EUR¹⁾		12.29			12.33			12.51			13.60			13.74			13.01			12.12			12.96
Net debt : group equity ratio¹⁾		27:73			24:76			24:76			20:80			16:84			5:95			23:77			19:81
Total employees		114,021			113,356			113,627			114,731			114,188			115,474			106,745			73,951
of which discontinued operations		45,263			44,262			43,783			43,763			43,758			43,997			33,422			—
of which third-party workers		8,190			7,885			8,079			8,212			7,795			8,306			7,992			7,876

¹⁾	The presentation of prior year information has been adjusted to conform tocurrent-year presentation.

*	Non-GAAP financial measure. Refer to Reconciliation of non-GAAP information, of this document.


26		Quarterly report Q4 2017

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