1Introduction

This document contains information required for the Annual Report on Form 20-F for the year ended December 31, 2020 of Koninklijke Philips N.V. (the 2020 Form 20-F). Reference is made to the Form 20-F cross reference table herein. Only (i) the information in this document that is referenced in the Form 20-F cross reference table, (ii) this introduction and the cautionary statement “forward-looking statements” on the next two pages and (iii) the Exhibits shall be deemed to be filed with the Securities and Exchange Commission for any purpose. Any additional information in this document which is not referenced in the Form 20-F cross reference table, or the Exhibits themselves, shall not be deemed to be so incorporated by reference, shall not be part of the 2020 Form 20-F and is furnished to the Securities and Exchange Commission for information only.

References to Philips

References to the Company or company, to Philips or the (Philips) Group or group, relate to Koninklijke Philips N.V. and its subsidiaries, as the context requires. Royal Philips refers to Koninklijke Philips N.V.

IFRS based information

The audited consolidated financial statements as of December 31, 2020 and 2019, and for each of the years in the three-year period ended December 31, 2020, included in the 2020 Form 20-F have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). All standards and interpretations issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee effective 2020 have been endorsed by the EU; consequently, the accounting policies applied by Philips also comply with IFRS as issued by the IASB. These accounting policies have been applied by group entities.

Use of non-IFRS information

In presenting and discussing the Philips financial position, operating results and cash flows, management uses certain financial measures that are not measures of financial performance or liquidity under IFRS (‘non-IFRS’). These non-IFRS measures should not be viewed in isolation as alternatives to the equivalent IFRS measure and should be used in conjunction with the most directly comparable IFRS measures. Non-IFRS 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-IFRS measures to the most directly comparable IFRS measures is contained in this document. Reference is made in Reconciliation of non-IFRS information.

Third-party market share data

Statements regarding market share, contained in this document, including those regarding Philips’ competitive position, are based on outside sources such as specialized research institutes, industry and dealer panels in combination with management estimates. Where full year information regarding 2020 is not yet available to Philips, market share statements may also be based on estimates and projections prepared by management and/or based on outside sources of information. Management's estimates of rankings are based on order intake or sales, depending on the business.

Documents on display

Philips’ SEC filings are publicly available through the SEC’s website at www.sec.gov. The SEC website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Philips’ internet address is www.philips.com/investor. The contents of any websites referred to herein shall not be considered a part of or incorporated by reference into this document.

For definitions and abbreviations reference is made in Definitions and abbreviations

2Forward-looking statements

Pursuant to provisions of the United States Private Securities Litigation Reform Act of 1995, Philips is providing the following cautionary statement.

This document, including the information referred to in the Form 20-F cross reference table, contains 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, in particular, among other statements, certain statements in Item 4 “Information on the Company” with regard to management objectives, market trends, market standing, product volumes, business risks, the statements in Item 5 “Operating and financial review and prospects” with regards to trends in results of operations, margins overall market trends, risk management, exchange rates, the statements in Item 8 “Financial Information” relating to legal proceedings and goodwill and statements in Item 11 “Quantitative and qualitative disclosure about market risks” relating to risk caused by derivative positions, interest rate fluctuations and other financial exposure are forward-looking in nature. Forward-looking statements can be identified generally as those containing words such as “anticipates”, “assumes”, “believes”, “estimates”, “expects”, “should”, “will”, “will likely result”, “forecast”, “outlook”, “projects”, “may” or similar expressions. 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: changes in industry or market circumstances; economic, political and societal changes; Philips’ increasing focus on health technology and solutions; the successful completion of divestments such as the disentanglement and divestment of our Domestic Appliances businesses; the realization of Philips’ objectives in growth geographies; business plans and integration of acquisitions; securing and maintaining Philips’ intellectual property rights and unauthorized use of third-party intellectual property rights; COVID-19 and other pandemics; breach of cybersecurity; IT system changes or failures; the effectiveness of our supply chain; challenges to drive operational excellence, productivity and speed in bringing innovations to market; attracting and retaining personnel; future trade arrangements following Brexit; compliance with regulations and standards including quality, product safety and data privacy; compliance with business conduct rules and regulations; treasury risks and other financial risks; tax risks; costs of defined-benefit pension plans and other post- retirement plans; reliability of internal controls, financial reporting and management process. 

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, reference is made to the information in Risk factors.

3Form 20-F cross reference table

Only (i) the information in this document that is referenced in the Form 20-F cross reference table, (ii) the Introduction and the cautionary statements concerning forward-looking statements of this report on pages 5-6, and (iii) the Exhibits shall be deemed to be filed with the Securities and Exchange Commission for any purpose. The content of Philips’ websites and other websites referenced herein should not be considered to be a part of or incorporated into the 2020 Form 20-F. Any additional information which is not referenced in the Form 20-F cross reference table or the Exhibits themselves shall not be deemed to be so incorporated by reference, shall not be part of the 2020 Form 20-F and is furnished to the Securities and Exchange Commission for information only.

The table below sets out the location in this document of the information required by SEC Form 20-F. The exact location is included in the column ‘Location in this document’. The column “Page” refers to the starting page of the section for reference only (and is not intended to refer to the starting page of the specific subsection, if applicable).

4Message from the CEO

Dear Stakeholder,

In 2020, Philips again demonstrated its relevance in bringing meaningful innovation to improve people’s health and well-being, as we responded to the COVID-19 pandemic. As a company, we continue to focus on delivering against our triple duty of care – meeting critical customer needs, safeguarding the health and safety of our employees, and ensuring business continuity.

Our employees displayed flexibility and resourcefulness as we more than quadrupled output of acute care equipment and solutions to help frontline healthcare workers diagnose, treat, monitor and manage COVID-19 patients. We significantly increased production of critical care ventilators, provided ICU monitoring & analytics solutions, and rolled out telehealth solutions to relieve the pressure on scarce resources. And our field service engineers worked round the clock to support healthcare providers in their hour of need.

In parallel, we continued to support health systems with the delivery of regular care, entering into multiple long-term strategic partnerships – all featuring result-oriented business models – to transform healthcare by enhancing patient care and improving productivity. We also found new ways to serve consumers seeking to live a healthy life, prevent disease and proactively manage their own health. In total, our products and solutions improved the lives of 1.75 billion people in 2020, including 207 million people in underserved communities.

Overall, our company performance proved resilient. While some of our businesses were affected by lower demand, others were able to significantly increase deliveries. I would like to express my admiration and gratitude for the way in which the extended Philips family – our employees, our suppliers and partners, the Philips Foundation – pulled together with our customers to address the impact of the pandemic.

Affirmation of our strategy

The developments of the past year validate our strategy to innovate the provision of care along the health continuum – putting the patient at the center, improving diagnosis and treatment pathways, enabling the integration of care across care settings, and increasing care provider productivity. At the same time, we help consumers to live healthier lifestyles and to cope with chronic disease. Increasingly, we are able to connect home and hospital care through telehealth platforms. This approach is resonating more strongly than ever.

Customers appreciate the comprehensive and strategic view we take of the future of health and healthcare. They want innovative solutions – smart combinations of systems, devices, informatics, data and services – that can help them deliver on the Quadruple Aim of better health outcomes, improved patient experience, improved staff experience, and lower cost of care. Given the learnings from COVID-19, they are especially keen to discover how we can support care outside the hospital.

In recent years, we have invested significantly in data science, informatics and cloud technology to enable the delivery of integrated solutions across the health continuum, and across care settings. These investments are now paying off, with a rapid increase in adoption of, for example, e-ICU and telehealth solutions that facilitate collaboration between health professionals and patient engagement.

Designed to address customer needs, our health technology innovations – supporting personal health, precision diagnosis, image-guided therapies and connected care, and leveraging the power of data and informatics – continue to generate a growing proportion of solutions-based sales and recurring revenues, which now stand at around 37% of total sales.

Innovating to address global health challenges

In healthcare the world over, we are seeing an increased focus on productivity and outcome-based models, as well as care outside the hospital. COVID-19 has accelerated the digitalization of care and the adoption of telehealth. This shift is being reinforced by global trends such as aging populations, the rise of chronic diseases, and resource constraints.

Innovative health technology can help health systems address these challenges, as well as extend access to care to those in need. The HealthTech market is a very attractive and sizable one, with considerable growth and margin potential, and Philips already holds strong leadership positions in over 65% of our portfolio.

Inspired by our purpose to improve people’s health and well-being, we invest almost 10% of revenue in Research & Development to innovate solutions that make a difference to our customers and society at large. Helping people to stay healthy and prevent disease, for instance through our expanding teledentistry services. Giving clinicians AI-assisted tools like our new Radiology Workflow Suite that help them make precision diagnoses and select the best care pathway. Helping surgeons deliver personalized, minimally invasive treatment with solutions like our constantly evolving Azurion image-guided therapy platform. And outside the hospital – orchestrating and delivering care in lower-cost care settings, helping people to recover, or live with chronic disease, at home.

All of these require a seamless flow of data, which is enabled by our highly secure connected care solutions, such as our IntelliVue MX750/MX850 patient monitors for the ICU. To unlock the full benefits of data-enabled care, we continue to expand our capabilities in informatics and data science, with around half of our R&D professionals working in these areas.

Doing business responsibly and sustainably

In 2020, we underscored our determination to lead by example by renewing our purpose – to improve people’s health and well-being through meaningful innovation, with the aim of improving 2 billion lives per year by 2025, including 300 million in underserved communities, rising to 2.5 billion and 400 million respectively by 2030.

This is part of an enhanced, fully integrated approach to doing business responsibly and sustainably. Building on our strong heritage in environmental and social responsibility, this new framework comprises a comprehensive set of key commitments across the Environmental, Social and Governance (ESG) dimensions that guide our endeavors. I am convinced this is the best way for Philips to create superior, long-term value for our many stakeholders.

I am pleased that we have delivered on all the targets set out in our Healthy people, Sustainable planet 2016-2020 program. As a purpose-driven company, we are conscious of our responsibility towards society and of the need to continue to embed sustainability ever deeper in the way we do business. Having become carbon-neutral in our own operations in 2020, we are now extending our ambitions and working with our partners to ensure that emissions across our entire value chain are in line to limit global warming to the 1.5 °C scenario.

We received further recognition for our efforts in this area in 2020 – achieving a CDP ‘A List’ rating for the eighth consecutive year for our action on climate change, and securing the second-highest place in both the global Dow Jones Sustainability Indices (DJSI) list and The Wall Street Journal’s new ranking, 100 Most Sustainably Managed Companies in the World.

Our performance in 2020

COVID-19 impacted every part of our business in 2020. Nevertheless, despite the challenging circumstances, we were able to execute our plans and return to growth in the second half of the year. For the full year we delivered 3% comparable sales growth^*) and a strong free cash flow^*) of EUR 1.9 billion. Comparable order intake^**) increased 9% and we made market share gains in a number of our health systems businesses. 

Our Diagnosis & Treatment businesses were impacted by the ongoing postponement of capital equipment installations and routine care, including elective procedures, yet continued to deliver a steady flow of innovations designed to help clinicians deliver a precision diagnosis leading to targeted therapies.

Our Connected Care businesses posted exceptional growth, fueled by COVID-19-related demand for our hospital ventilation and monitoring & analytics solutions.

Our Personal Health businesses had to contend with a steep decrease in consumer demand brought about by the onset of COVID-19, yet rebounded strongly by accelerating online growth, increasing digital engagement, entering into partnerships with leading retailers, and scaling direct-to-consumer business models.

We initiated the process to create a separate legal structure for our Domestic Appliances business within the Philips Group, and we expect to complete this process by Q3 2021.

We made several acquisitions in 2020. For instance, we expanded our image-guided therapy devices portfolio, acquiring Intact Vascular to add an industry-first implantable device to treat peripheral artery disease. We also agreed to acquire BioTelemetry (completed on February 9, 2021) and Capsule Technologies to strengthen our Connected Care segment. These acquisitions will further broaden and scale our patient care management solutions for the hospital and the home, enhance patient outcomes, streamline clinical workflows and increase productivity.

Looking ahead, we continue to see uncertainty related to the impact of COVID-19 across the world. For 2021, Philips plans to deliver low-single-digit comparable sales growth^*), driven by solid growth in Diagnosis & Treatment and Personal Health, partly offset by lower Connected Care sales, and an Adjusted EBITA margin^*) improvement of 60-80 basis points.

Reflecting our confidence in the future course of the company and the importance we attach to dividend stability, we propose to maintain the dividend at EUR 0.85 per share.

Transforming to create greater value

As we continue our transformation into a customer-first solutions company, we are guided by our strategic roadmap, with its three key imperatives:

• Further improving the customer experience and operational excellence
• Boosting growth in the core by innovating to extend category leadership, geographic expansion, and deeper customer partnerships
• Winning with solutions to support consumers with their personal health, and to help professional healthcare customers achieve the Quadruple Aim.

We aim to drive customer preference by getting even closer to our customers and consumers, making Philips easier to do business with, and further improving our quality, operational excellence and productivity. To do this, we are driving the digital transformation in every area of our business, leveraging our integrated IT landscape – from the way we connect and engage with our customers and consumers to seamlessly connecting our solutions, e.g. to enable remote servicing and upgrades.

In our core business we aim to drive growth through innovation by capturing geographic growth opportunities and by continuing the pivot to consultative customer partnerships and business models, which offer a deeper relationship, with recurring revenue streams.

We will also continue the shift towards integrated solutions with demonstrable clinical evidence and health economic benefits that help our customers achieve the Quadruple Aim. In doing so, we will leverage data science and AI at scale. Where appropriate, we will continue to make acquisitions and enter into partnerships to support our organic growth.

By working in accordance with the Philips Business System and executing on these imperatives with urgency and discipline, we will be able to create more value for our stakeholders – driving customer preference, sustained growth, margin expansion, increased cash flow and improved return on invested capital, while delivering on our ESG commitments.

In conclusion

Once again, I would like to thank our customers, suppliers and partners for working together with Philips in the fight against coronavirus. I also want to express my gratitude to our employees for their commitment, resourcefulness and hard work in difficult circumstances. And I wish to thank our shareholders for the confidence they continue to show in Philips.

Our strategic focus and commitment to improvement remain undiminished. Energized by our purpose and buoyed by the resilience and agility I have seen over the past year, I am confident in Philips’ ability to maintain our transformation momentum, truly impact global health challenges through innovation, and deliver sustained value for our many, diverse stakeholders.

Frans van Houten
Chief Executive Officer

5Board of Management and Executive Committee

Royal Philips has a two-tier board structure consisting of a Board of Management and a Supervisory Board, each of which is accountable to the General Meeting of Shareholders for the fulfillment of its respective duties. The Board of Management is entrusted with the management of the company. The other members of the Executive Committee have been appointed to support the Board of Management in the fulfilment of its managerial duties. Please also refer to Board of Management and Executive Committee within the chapter Corporate governance.

Members of the Board of Management

Other members of the Executive Committee

For a current overview of the Executive Committee members, see also https://www.philips.com/a-w/about/executive-committee.html

6Strategy and Businesses

6.1Driven by purpose

At Philips, our purpose to improve people’s health and well-being through meaningful innovation is at the heart of everything we do. Never has this central tenet been more important than it is now, in these challenging times. 

As a leading health technology company, we believe that innovation can improve people's health and healthcare outcomes, as well as making care more accessible and affordable. In concrete terms, we aim to improve the lives of 2 billion people a year by 2025, including 300 million in underserved communities, rising to 2.5 billion and 400 million respectively by 2030.

Our view on healthcare

Health technology is a large market, which is expected to grow by around 4% each year^*). Besides the natural drivers of growth – aging populations, the rise of chronic diseases, increased spending on healthcare in emerging markets – we believe that health technology will be a major growth driver in the years to come. 

At Philips, we see healthcare as a continuum, since it puts people’s health journeys front and center and builds upon the idea of integrated care pathways. Believing that healthcare should, and can, be seamless, efficient and effective, we strive to ‘connect the dots’ for our customers and consumers, supporting the flow of data needed to care for people in real time, wherever they are. 

Going forward, the digitalization of healthcare and – accelerated by COVID-19 – the more widespread adoption of telehealth will play an increasing role in helping people to live healthily and cope with disease, and in enabling care providers to meet people’s health needs, deliver better outcomes and improve productivity.

With our global reach, market leadership positions, deep clinical and technological insights, and innovation capability, we are strongly placed to create further value in a changing healthcare world through our propositions in:

Personal health

Delivering solutions that enable healthier lifestyles, personal hygiene and living with chronic disease.

Diagnosis & Treatment

• Precision Diagnosis – providing smart, connected systems, optimized workflows, and integrated diagnostic insights, leading to clear care pathways and predictable outcomes
• Image Guided Therapy – innovating minimally invasive procedures in a growing number of therapeutic areas, with significantly better outcomes and productivity

Connected Care

Driving better care management by seamlessly connecting patients and caregivers from the hospital to the home.

Our key strategic imperatives and value creation objectives

Our roadmap – with its three strategic imperatives – is our guide as we continue our transformation journey to attain HealthTech industry leadership and drive value creation.

Underpinned by these strategic imperatives, and assuming the world economy will return to growth in 2021, Philips’ targets for accelerated growth, higher profitability and improved cash flow for the 2021–2025 period are: 

• An acceleration of the average annual Group comparable sales growth^**) to 5-6%, with all business segments within this range. For 2021, Philips aims to deliver low-single-digit Group comparable sales growth^**), driven by solid growth in Diagnosis & Treatment and Personal Health, partly offset by lower Connected Care sales. 
• An Adjusted EBITA^**) margin improvement of 60-80 basis points on average annually from 2021, with a target of the high teens for the Group by 2025; Diagnosis & Treatment is targeted to reach 15-17% Adjusted EBITA^**) margin by 2025, Connected Care 17-19%, and Personal Health 19-20%. 
• Free cash flow^**) above EUR 2 billion by 2025. 
• Organic Return on Invested Capital (ROIC)^**) of mid-to-high teens by 2025.

The new targets exclude the Domestic Appliances business. As announced in January 2020, Philips is reviewing options for future ownership of its Domestic Appliances business. Philips has started the process of creating a separate legal structure for this business within the Philips Group, which is expected to be completed in the third quarter of 2021.

6.3Our businesses

Our reporting structure in 2020

Koninklijke Philips N.V. (Royal Philips) is the parent company of the Philips Group. In 2020, the reportable segments were Diagnosis & Treatment businesses, Connected Care businesses, and Personal Health businesses, each having been responsible for the management of its business worldwide. Additionally, Philips identifies the segment Other.

6.3.1Diagnosis & Treatment businesses

Our Diagnosis & Treatment businesses create value through their unique portfolio of innovative diagnostic and minimally invasive procedural solutions – suites of systems, smart devices, software and services powered by AI-enabled informatics. With these integrated solutions, we enable our customers to realize the full potential of the Quadruple Aim – better health outcomes, improved patient experience, improved staff experience, and lower cost of care.

In Precision Diagnosis, serving diagnostic enterprise imaging markets globally, there is significant opportunity to enable precise diagnoses while at the same time supporting adjacent needs for guidance into care pathways and increasing departmental productivity. We do this through breakthrough innovations in our smart diagnostic systems, through dynamic workflow solutions that transform departmental operations, through integrated diagnostics insights from different departments, and through care pathway solutions that allow doctors to diagnose with precision and select the optimal treatment path for the individual patient. Over the period 2019-2020, 60% of our product portfolio in this area has been renewed through the discontinuance of former products, the roll-out of new-generation versions of our products, and the addition of new products.

In Image Guided Therapy, we have pivoted from a focus on imaging modalities to integrated procedural solutions combining systems and therapeutic devices, which can drive more effective treatment, better outcomes and higher productivity. Building upon our leading-edge Azurion platform, we continue to innovate and expand our applications for image-guided therapies and improve workflow and integration in the interventional suite. We are also expanding into adjacent therapeutic areas and innovating the way we engage with our customers in new business models across different care settings, including out-of-hospital settings such as office-based labs and ambulatory surgical centers, which offer clear clinical, financial and operational benefits.

In 2020, the Diagnosis & Treatment businesses were impacted by the postponement of capital equipment installations and routine care, including elective procedures and exams, caused by the COVID-19 pandemic. Even so, we continued to make advances in innovation and in strengthening our portfolio. For example, we expanded our remote clinical collaboration and virtual training offerings across our portfolio with the acquisition of Innovative Imaging Technologies (IIT) and its Reacts collaborative platform. Leveraging innovative technologies, such as augmented reality for remote virtual guidance, supervision and training, the platform provides unique interactive tools designed to meet the multi-faceted collaborative needs of healthcare professionals and patients. We also launched the vendor-agnostic Radiology Workflow Suite of end-to-end solutions to drive operational and clinical efficiency through the digitalization, integration, and virtualization of radiology. And we further expanded our Interventional Devices portfolio, acquiring Intact Vascular to add an industry-first implantable device, the Tack Endovascular System, to treat peripheral artery disease.

Through our various businesses, Diagnosis & Treatment is focused on growing market share and profitability by leveraging:

• our strong position in Enterprise Diagnostic Informatics with the successful integration of Carestream Health’s Healthcare Information Systems business, acquired in 2019
• intelligent, AI-enabled clinical and operational applications combined with successful innovations in our systems platforms in Diagnostic Imaging and Ultrasound
• our suite of innovative procedural solutions to support delivery of the right therapy in real-time in Image-Guided Therapy
• enhanced offerings in oncology, cardiology, neurology, and radiology service lines, and expanding our solutions offering, which comprises systems, smart devices, informatics, data and services

In 2020, the Diagnosis & Treatment segment consisted of the following areas of business:

• Diagnostic Imaging: Magnetic Resonance Imaging (MRI), Computed Tomography (CT), Advanced Molecular Imaging, Diagnostic X-Ray, Imaging Components, as well as integrated clinical solutions, which include radiation oncology treatment planning, disease-specific oncology solutions and X-Ray dose management
• Ultrasound: imaging products focused on diagnosis, treatment planning and guidance for cardiology, general imaging, obstetrics/gynecology, and point-of-care applications, as well as proprietary software capabilities to enable advanced diagnostics and interventions
• Enterprise Diagnostic Informatics: a suite of integrated products and services that deliver a comprehensive platform designed to connect clinical capabilities and optimize workflows around every step in the patient’s journey across a range of diagnostic (radiology, point-of-care, laboratory) and clinical (oncology, cardiology, neurology) service lines
• Image Guided Therapy: Systems – integrated interventional systems that combine information from imaging systems, interventional devices, navigation tools and patient health records to provide interventional staff with the control and information they need to perform procedures efficiently; Devices – interventional diagnostic and therapeutic devices to treat coronary artery and peripheral vascular disease, including Intravascular Ultrasound (IVUS), fractional flow reserve (FFR) and instantaneous wave-free ratio (iFR), atherectomy catheters, a dissection repair implant and drug-coated balloons

Revenue is predominantly earned through the sale of products, leasing, customer services fees, recurring per-procedure fees for disposable devices, and software license fees. For certain offerings, per-study fees or outcome-based fees are earned over the contract term.

Sales channels are a mix of a direct sales force, especially in all the larger markets, third-party distributors and an online sales portal. This varies by product, market and price segment. Our sales organizations have an intimate knowledge of technologies and clinical applications, as well as the solutions necessary to solve problems for our customers.

Under normal circumstances, sales at Philips’ Diagnosis & Treatment businesses are generally higher in the second half of the year, largely due to the timing of customer spending patterns.

At year-end 2020 Diagnosis & Treatment had around 32,000 employees worldwide.

2020 business highlights

At the Radiological Society of North America event RSNA 2020, Philips introduced an industry-first vendor-neutral Radiology Operations Command Center as part of the Radiology Workflow Suite of solutions. This multimodality virtual imaging command center enables real-time, remote collaboration to broaden expertise between technologists, radiologists and imaging operations teams across multiple sites via private, secure telepresence capabilities. Proprietary digital technology developed by Philips helps maintain business continuity, increase enterprise-wide radiology productivity, minimize issues with image quality, and expand access to advanced MR- and CT-based diagnosis.

We introduced the next generation of our leading-edge Azurion image-guided therapy platform. An industry first, the Philips Azurion image-guided therapy platform now fully integrates IntraSight to control imaging, physiology, hemodynamic and informatics applications with one intuitive user control at the tableside. With this next-generation Azurion platform, Philips is also introducing a new 3D imaging solution, called SmartCT, to dramatically simplify the acquisition and use of 3D imaging. Next-generation Azurion comprises a new range of configurations – covering more price segments – to innovate procedures in a broad range of therapeutic areas.

We continue to see strong traction for our Ingenia Ambition 1.5T MR, which combines fully sealed BlueSeal magnet technology and workflow innovations for more productive, helium-free operations. As well as virtually eliminating dependency on a commodity with an unpredictable supply, the fully sealed system does not require a vent pipe, significantly reducing the typical MR installation challenges and lowering construction costs.

Philips signed a seven-year strategic partnership agreement with Mandaya Royal Hospital Puri in Indonesia. The turnkey solution includes the next-generation Azurion image-guided therapy system, the Ingenia Ambition MR, and the detector-based IQon Spectral CT, as well as the latest innovations in connected care and informatics.

SimonMed Imaging – one of the largest outpatient medical imaging providers in the US – is partnering with Philips to deploy its most advanced 3T MRI technology, including software and services, at their outpatient practices to enhance diagnoses, from brain injuries, liver and cardiac disease, to orthopedic injuries. 

In Germany, Philips signed a 10-year strategic partnership with Marienhospital Stuttgart to deploy our digital healthcare solutions across multiple departments to improve patient care and efficiency. The project will include renewal and ongoing development of the hospital’s diagnostic imaging equipment and associated IT systems, digitization of its pathology department, and enhancement of the hospital’s emergency medicine capabilities.

Philips expanded its dedicated cardiovascular ultrasound offering by launching Affiniti CVx. This system is designed to support cardiology departments in delivering better care to more patients with increased efficiency and throughput.

Philips received an industry-first 510(k) clearance from the FDA to market a wide range of its ultrasound solutions – including our CX50 general imaging system and our Lumify portable ultrasound solution – for the management of COVID-19-related lung and cardiac complications. Portable ultrasound solutions in particular have become valuable tools for clinicians treating COVID-19 patients, due to their imaging capabilities, portability and ease of disinfection.

Philips continued to advance the capabilities of its KODEX-EPD cardiac imaging and mapping system for the treatment of heart rhythm disorders, improving image quality and workflow efficiency for Atrial Fibrillation procedures.

Philips announced a partnership with InSightec to expand access to MR-guided focused ultrasound for incisionless neurosurgery. By developing compatibility between Philips’ advanced MR systems and the Exablate Neuro platform from InSightec, the two companies will support expanded access to MR-guided focused ultrasound for the treatment of Essential Tremor and other neurological disorders.

Philips introduced OmniWire, the world’s first solid core pressure guide wire for physiology measurement in coronary artery interventional procedures; it has been extremely well received by our customers.

In January 2021, Philips announced the final, five-year results of two major randomized controlled trials (RCTs) that show no difference in all-cause mortality between patients treated with the Stellarex drug-coated balloon (DCB) and those treated with percutaneous angioplasty (PTA), the current standard of care. Moreover, the studies showed no difference in mortality between the Stellarex DCB and PTA at every 12-month endpoint over the course of the study.

6.3.2Connected Care businesses

Spanning the entire health continuum, the Connected Care businesses help broaden the reach and deepen the impact of healthcare with solutions that leverage and unite devices, informatics, data and people across networks of care, to enable our customers to deliver on the Quadruple Aim – better health outcomes, improved patient experience, improved staff experience, and lower cost of care.

In 2020, Connected Care played a crucial role in fulfilling customer needs created by the COVID-19 global pandemic, from ramping up production and delivery of our core systems such as ventilators and monitors, to supporting the urgent expansion of telehealth for the ICU, and driving safe, remote patient care.

Although no one was fully prepared for this crisis, Philips had the critical portfolio and the informatics investments in place to rapidly scale up, supporting care in the hospital and the home, even as healthcare delivery models were changing fast.

Philips increased ventilator production multifold to meet the high COVID-19-related demand, and shipped ventilators across the world using a fair and ethical approach to allocate supply to acute patient demands based on COVID-19 data and the available critical care capacity.

This past year showed the value of strong leadership positions and close ties with our customers. Building on Philips’ trusted brand, deep clinical insights and large installed base allowed us to drive impact. Philips combined the right monitoring equipment, respiratory devices, consumables and services to innovate solutions to help tackle COVID-19.

Also critical during COVID-19: the expertise and informatics to help scale and manage scarce resources in the health system. The capabilities in Connected Care are built around Philips’ strength in verticals (monitoring & analytics, sleep & respiratory care, and therapeutic care) and horizontals (connected care informatics and population health) to improve clinical and economic outcomes in all care settings, both inside and outside the hospital.

Philips has a deep understanding of clinical care and the patient experience. When coupled with our consultative approach, this allows us to be an effective partner for transformation, both across the enterprise and at the level of the individual clinician. These services are designed to take the burden off hospital staff with optimized patient and data flow, predictive analytics, improved workflow, customized training and improved accessibility across our application landscape.

This requires a secure common digital platform that connects and aligns consumers, patients, payers and healthcare providers. Philips’ platforms aggregate and leverage information from clinical, personal and historical data to support care providers in delivering precision diagnoses and treatment.

In 2020, the Connected Care segment consisted of the following areas of business:

• Monitoring & Analytics: Integrated patient monitoring systems to drive better patient management and improved outcomes, fueled by real-time clinical insights. Assets include wearable biosensors, advanced intelligence platforms for real-time clinical information at the patient’s bedside; patient analytics, including diagnostic ECG data management; maintenance, clinical and IT services, as well as consumables. While Philips solutions already monitor over 300 million people per year, demand is growing, also for new business models such as Monitoring as a Service.
• Sleep & Respiratory Care: Philips’ cloud-based sleep and respiratory patient management solutions enable the care of more than 10.5 million connected patients, driving adherence, reimbursement and remote patient management. From consumer sleep solutions, including those for disease-state sleep such as obstructive sleep apnea, to end-to-end solutions that encompass consumer engagement, diagnostics, people-centric therapy, cloud-based connected propositions and care management services. The COVID-19 crisis has put respiratory care at the top of the list for delivering critical and chronic care to patients. Respiratory offerings include COPD (Chronic Obstructive Pulmonary Disease) care management, with digital and connected solutions; Hospital Respiratory Care provides invasive and non-invasive ventilators for acute and sub-acute hospital environments; Home Respiratory Care supports chronic care management in the home.
• Therapeutic Care: Emergency Care & Resuscitation (ECR) and patient management solutions play a critical role in connected acute care management, both inside and outside the hospital, including cardiac resuscitation and emergency care solutions (devices, services, and digital/data solutions); consumables across the patient monitoring and therapeutic care businesses; customer service, including clinical, IT, technical and remote customer propositions.
• Connected Care Informatics and Population Health Management^*): Connected Care Informatics drives cohesive informatics platforms and innovations across the health continuum. Connecting people, technology and processes, Connected Care Informatics’ capabilities include a fully integrated Electronic Medical Record business, which enables centralized management of clinical, organizational and operational processes across the health enterprise, remote patient management, and real-time monitoring in acute care, including telehealth in the ICU. Philips’ Tele-ICU program played a pivotal role in 2020, enabling clinicians to remotely monitor a scalable amount of ICU beds from a central monitoring facility with predictive analytics and camera-enabled bedside support. Population Health Management provides data, analytics and workflow solutions designed to improve clinical and financial results and increase patient engagement, satisfaction and compliance. This business has been partially merged into Connected Care Informatics effective 2021.

In most of the Connected Care businesses, revenue is earned through the sale of products and solutions, customer services fees and software license fees. Where bundled offerings result in solutions for our customers, or offerings are based on the number of people being monitored, we see more usage-based earnings models. In Sleep & Respiratory Care, revenue is generated both through product sales and through rental models, whereby revenue is generated over time.

Sales channels include a mix of a direct salesforce, partly paired with an online sales portal and distributors (varying by product, market and price segment). Sales are mostly driven by a direct salesforce with an intimate knowledge of the procedures that use our integrated solutions’ smart devices, systems, software and services. Philips works with customers and partners to co-create solutions, drive commercial innovation and adapt to new models such as monitoring-as-a-service.

Sales at Philips’ Connected Care businesses are generally higher in the second half of the year, largely due to customer spending patterns. In 2020 this pattern shifted due to the outbreak of the COVID-19 pandemic.

At year-end 2020, the Connected Care businesses had around 16,000 employees worldwide.

2020 business highlights 

In the face of the global shortage of ventilators and patient monitors upon the outbreak of the COVID-19 pandemic, we worked intensively, together with our supply chain partners around the world, to drive a massive ramp-up in production, increasing ventilator manufacturing eightfold and monitor production fivefold.

Philips introduced Rapid Equipment Deployment Kits for ICU ramp-ups, allowing doctors, nurses, technicians and hospital staff to quickly support critical care patients. The kit combines Philips’ advanced patient monitoring technology with predictive, patient-centric algorithms for scale-up within hours.

Philips launched several new monitoring solutions for the Intensive Care Unit (ICU), the general ward and the home that feature remote monitoring capabilities and advanced analytics. These include Philips’ IntelliVue Patient Monitors MX750/MX850 for the ICU, Philips’ Biosensor BX100 for early patient deterioration detection in the general ward, and in collaboration with BioIntelliSense, the BioSticker medical device to help monitor at-risk patients from the hospital to the home, to help avoid hospital re-admissions and to support chronic care management.

Philips introduced several dedicated telehealth solutions to help relieve the tremendous pressure placed on scarce resources by the growing number of COVID-19 patients. Based on its proven Patient Reported Outcomes Management solution, which is being used by more than 100 healthcare institutions globally, Philips enabled Dutch hospitals and GPs to remotely screen and monitor patients with COVID-19.

In December 2020, Philips announced the intended acquisition of BioTelemetry Inc., a leading remote cardiac diagnostics and monitoring company in the US, with solutions comprised of wearable connected heart monitors, AI-based data analytics and a services platform. The transaction was completed on February 9, 2021. The combination of Philips’ leading patient monitoring position in the hospital with BioTelemetry’s leading cardiac diagnostics and monitoring position outside the hospital is expected to result in a global leader in patient care management solutions for the hospital and the home for cardiac and other patients. 

In January 2021, Philips announced that it has signed an agreement to acquire Capsule Technologies, Inc., a leading provider of medical device integration and data technologies for hospitals and healthcare organizations. The combination of Philips’ industry-leading portfolio with Capsule’s leading Medical Device Information Platform, connected through Philips’ secure vendor-neutral cloud-based HealthSuite digital platform, will enrich and scale Philips’ patient care management solutions for all care settings in the hospital, as well as remote patient care. The transaction is expected to be completed in the first quarter of 2021.

Highlighting its strength in strategic partnerships to enhance patient care and improve care provider productivity, Philips signed multiple new agreements. For example, Philips and the US Department of Veterans Affairs entered a 10-year agreement to expand their tele-critical care program, creating the world’s largest system to provide veterans with remote access to intensive care expertise, regardless of their location.

University of Kentucky HealthCare teamed up with Philips to implement the company’s tele-ICU technology to enhance patient care and improve utilization and patient flows across 160 ICU beds at the academic medical center’s two hospitals. Leveraging Philips’ acute telehealth platform, eCareManager, UK HealthCare is implementing the state’s first centralized virtual care model to help nurses detect risk of patient deterioration, so they can intervene earlier and help improve care outcomes.

Supporting the increased demand for flexible ICU capacity, Philips introduced its new mobile ICUs in India. The ICUs can be furnished with a range of medical equipment, including ventilators, defibrillators, and patient monitoring.

6.3.3Personal Health businesses

Our Personal Health businesses play an important role on the health continuum – in the healthy living, prevention and home care stages – delivering integrated and connected solutions.

Leveraging our deep consumer expertise and extensive healthcare know-how, we enable people to live a healthy life in a healthy home environment, and to proactively manage their own health.

We aim to drive profitable growth through a relentless focus on innovation across three key areas:

• Reaching more people through consumer-driven product and solutions innovation 
• Accelerating online growth and engaging more people through an end-to-end digital approach
• Expanding our ecosystem through partnerships with leading retailers and scaling new business models

In 2020, the Personal Health segment consisted of the following areas of business:

• Oral Healthcare: power toothbrushes for a range of price segments, from entry-level battery-operated toothbrushes for a young audience, to premium intuitive power toothbrushes connected to the Sonicare app with in-app coaching and teledentistry service; brush heads, which are also available as a subscription service; products for interdental cleaning and for teeth whitening
• Mother & Child Care: products to support parents and babies in the first 1,000 days, including infant feeding (breast pumps, baby bottles, sterilizers), digital parental solutions (Pregnancy+ and Baby+ apps)
• Personal Care: products from entry-level to premium for male grooming (shavers, OneBlade, groomers, trimmers, hair clippers), including premium solutions with SkinIQ technology and in-app coaching for a personalized shave, blade subscriptions; beauty solutions (skin care, hair care, hair removal), including solutions with the latest SenseIQ technology that sense and adapt for personalized care, also available through subscription models
• Domestic Appliances^*): kitchen appliances from entry-level to premium (juicers, blenders, Airfryer, including with smart sensing technology, food processors), home care products (vacuum cleaners, air purifiers), garment care products (irons, steam generators, hand steamers), coffee machines (appliances and accessories)

Through our Personal Health businesses, we offer a broad range of solutions in various consumer price segments, always aiming to offer and realize premium value. We continue to rationalize our portfolio of locally relevant innovations and increase its accessibility, particularly in lower-tier cities in growth geographies. A notable aspect of our commercial strategy is driving increased direct-to-consumer relationships and sales through our consumer communities and online store. We believe we are well positioned to capture further growth in online sales and continue to build our digital and e-commerce capabilities.

We are leveraging connectivity to offer new business models, partnering with other players in the health ecosystem, e.g. insurance companies, with the goal of extending opportunities for people to live healthily, prevent or manage disease. We are engaging consumers in their health journey in new and impactful ways through social media and digital innovation. 

For example, the Philips Sonicare app acts as a ‘virtual hub’ for personal oral healthcare, helping users to manage their complete oral care on a daily basis and share brushing data with their dental practitioners, putting personalized guidance and advice at their fingertips. In our drive to innovate oral healthcare, we are partnering with leading insurance companies, which are moving to more preventative models of care. To that end, they need to encourage consumers to brush twice per day, for two minutes at a time, as that leads to better health outcomes and lower cost of care. The first results from the pilot program are extremely promising. Solutions and services like this offer a win-win for consumers and insurers: for consumers, because they get better oral care, and for insurance companies, because they have less cost per patient. 

We also offer mobile solutions to support parents and parents-to-be for a more informed, more connected and healthier journey to parenthood. Powered by personalized AI and deep analytics, the Pregnancy+ app and Baby+ app offer parents supportive content at every stage of their first 1,000-day journey. Pregnancy+ also offers state-of-the-art, photo-realistic and interactive 3D fetal models to make the experience even more exciting. In 2020, to help expectant mothers navigate pregnancy in times of the pandemic, we introduced an in-app COVID-19 guide. As of year-end 2020, the Pregnancy+ app and Baby+ app combined have almost 2 million daily active users in over 50 countries.

The company’s wide portfolio of connected consumer health platforms leverages Philips HealthSuite, a cloud-enabled connected health ecosystem of devices, apps and digital tools that enable personalized health and continuous care.

The revenue model is mainly based on product sale at the point in time the products are delivered to retailers and online platforms. We are increasingly diversifying the revenue model with new business models, including direct-to-consumer, subscriptions and services.

The Personal Health businesses experience seasonality, with higher sales around key national and international events and holidays.

At year-end 2020, Personal Health employed around 17,000 people worldwide.

2020 business highlights

Broadening its leading portfolio of power toothbrushes, the company launched the Philips One by Sonicare. An entry-level proposition to expand into new consumer segments, Philips One is a battery-operated power toothbrush developed as a step up from manual brushing. Users of this toothbrush can opt into a subscription service for brush head and battery replacements. 

A new teledentistry platform for dental professionals – announced together with dental technology company Toothpic – provides a tool to build direct patient engagement, acquisition and retention while improving office efficiency, in-chair time and remote care. 

To support parents in their breastfeeding journey, Philips Avent launched a new Electric Breast Pump. This unique expression solution uses Natural Motion Technology to mimic a baby’s suckling, while also adapting to the size and shape of a mother’s nipple for a comfortable and quicker milk flow. 

Philips has introduced a series of shavers featuring SkinIQ technology, which senses, guides and adapts to men’s skin and facial hair for a close and comfortable shave. The shaver’s inbuilt Motion Control sensor checks for effective circular motions and provides real-time feedback through the Philips GroomTribe app, allowing men to achieve a more effective and comfortable technique, with fewer passes. 

The Philips Lumea hair removal device with Intense Pulsed Light technology continued to grow in 2020 thanks to superior product quality and the coaching app – both well-received with high consumer ratings – and through faster access to product via the new Try & Buy business model.

Philips set an environmental milestone with the launch of the Viva Café Eco coffee machine, our first product to have all visible plastic parts and non-food-contact parts made from recycled materials.

6.3.4Other

In our external reporting on Other we report on the items Innovation & Strategy, IP Royalties, Central costs, and other small items. At year-end 2020, around 17,000 people worldwide were working in these areas.

About Other

Innovation & Strategy

The Innovation & Strategy organization includes the Chief Technology Office (CTO), Research, HealthSuite Platforms, the Chief Medical Office, Product Engineering, Experience Design, Strategy, and Sustainability. Our four largest Innovation Hubs are in Eindhoven (Netherlands), Cambridge (USA), Bangalore (India) and Shanghai (China).

Innovation & Strategy, in collaboration with the operating businesses and the markets, is responsible for directing the company strategy, in line with our growth and profitability ambitions.

The Innovation & Strategy function facilitates innovation from ‘idea’ to ‘market’ (I2M) as co-creator and strategic partner for the Philips businesses, markets and partners. It does so through cooperation between research, design, medical affairs, marketing, strategy and businesses in interdisciplinary teams along the innovation chain, from exploration and advanced development to first-of-a-kind proposition development. In addition, it opens up new value spaces beyond the direct scope of current businesses, manages the R&D portfolio, and creates synergies for cross-segment initiatives and integrated solutions.

Innovation & Strategy actively participates in Open Innovation through relationships with academic, clinical, industrial partners and start-ups, as well as via public-private partnerships. It does so in order to improve innovation speed, effectiveness and efficiency, to capture and generate new ideas, and to leverage third-party capabilities. This may include sharing the related financial exposure and benefits.

Finally, Innovation & Strategy sets the agenda and drives continuous improvement in the Philips product and solution portfolio, the efficiency and effectiveness of innovation, the creation and adoption of (digital) platforms, and the uptake of high-impact technologies such as Data Science, Artificial Intelligence (AI) and the Internet of Things (IoT). Centers of Excellence – knowledge hubs built around critical capabilities and technology – play a key role in maximizing the impact of innovations for Philips.

Chief Technology Office (CTO) and Philips Research

The Chief Technology Office orchestrates innovation strategy and portfolio management, drives adoption of digital architecture and platforms, as well as excellence in software, Data Science and AI, across Philips’ businesses and markets. Philips Research initiates game-changing innovations that disrupt and cross boundaries in health technology to address opportunities for better clinical and economic outcomes and support the associated transformation of Philips into a digital solutions company. CTO and Research encompass the following organizations:

• Philips Research, the co-creator and strategic partner of the Philips businesses, markets and complementary Open Innovation ecosystem participants, driving front-end innovation and clinical research at sites across the globe. The role of Research increasingly goes beyond early-stage proof-of-concept, including advanced development on the target product and digital platforms, and market-driven innovation with lead customers.
• Innovation Management, responsible for end-to-end innovation strategy and portfolio management, integrated roadmaps linking products, systems and software to solutions, New Business Creation Excellence, R&D competency management, Clinical Research Board, Innovation Transformation and Performance Management and public funding programs.
• The Chief Architect Office defines and drives the HealthSuite System of Engagement, the Philips HealthSuite Reference Architecture and Modular Systems Architecture, applicable for all systems, products, services, solutions and digital IT in Philips.
• The Software and System Engineering Centers of Excellence, driving adoption of industry best practices in creating and maintaining application-level software, modular and configurable system design and model-based system engineering.
• The Data Science and AI Center of Excellence, defining and deploying strategies and best practices for dealing responsibly and in a compliant way with Data Science and AI, developing common tools to facilitate the development process and co-creation of innovative propositions with clinical and business partners.

Product Engineering

The Product Engineering organization is accountable for building world-class Idea to Market (I2M) capabilities and for driving excellence in product engineering across Philips worldwide.

Philips HealthSuite

Philips HealthSuite is at the core of Philips’ digital transformation. It consists of a highly secured, modular set of capabilities that can liberate and integrate data from disparate systems and accelerate the development and deployment of digital propositions across the health continuum in a secure cloud environment, connecting consumer and medical IoT devices safely and reliably, and providing sophisticated care management applications to support care teams and patients alike.

Innovation Hubs

To drive innovation effectiveness and efficiency, and to enable locally relevant solution creation, we have established four Innovation Hubs for the Philips Group: Eindhoven (Netherlands), Cambridge (USA), Bangalore (India) and Shanghai (China). The four hubs form a global network, together with the other smaller innovation and research sites in their respective regions, to provide access to each other’s capabilities to serve businesses, markets and customers globally.

• Philips Innovation Center Eindhoven is Philips’ largest cross-functional Innovation Hub, hosting the global headquarters of most of our central innovation organizations. Many of the company’s core research programs are also run from here, as well as innovation for solution & services delivery.
• Philips Innovation Center Cambridge, MA is located at the heart of medical innovation within the North America market. It has innovation partnerships with top engineering institutions like MIT, with top clinical sites, and with government funding agencies like NIH (National Institutes of Health) and BARDA (Biomedical Advanced Research and Development Authority). The Research lab in Cambridge focuses on the application of Data Science and AI in radiology, ultrasound, and acute care.
• Philips Innovation Center Bangalore hosts R&D teams from most of our operating businesses, as well as Innovation & Strategy and IT. This is our largest software-focused site, with over 3,400 engineers. The Center also functions as the hub for market-driven innovation in surrounding geographies in Asia Pacific, Africa, and Middle East & Turkey, focusing on scalable solutions.
• Philips Innovation Center Shanghai is at the center of the healthcare and healthy living transformation of China. It combines digital innovation, research and solutions development for the China market, participating in local digital ecosystems, while several of its locally relevant innovations are also finding their way globally. Programs focus on personal health and connected care solutions.

Alongside the hubs, where most of the central Innovation & Strategy organization is concentrated together with selected business R&D and market innovation teams, we continue to have significant, more focused innovation capabilities integrated into key technology centers at our other global business sites.

Chief Medical Office

The Chief Medical Office is responsible for clinical innovation and strategy, healthcare economics, clinical evidence and market access, clinical education, as well as medical thought leadership, with a focus on healthcare governance and organization, the Quadruple Aim and value-based care. This includes engaging with stakeholders across the health continuum to extend Philips’ leadership in health technology and acting on new value-based reimbursement models that benefit the patient, health professional and care provider.

Leveraging the knowledge and expertise of the medical professional community across Philips, the Chief Medical Office includes many healthcare professionals who practice(d) in the world’s leading health systems. Its activities include strategic guidance built on clinical and scientific knowledge, building customer partnerships and growth opportunities, fostering peer-to-peer relationships in relevant medical communities, liaising with medical regulatory bodies, and supporting clinical and marketing evidence development.

Philips Experience Design and Healthcare Transformation Services

Philips Experience Design is the global design function for the company, ensuring that the user experiences of our innovations are meaningful, people-focused and locally relevant. It is also responsible for ensuring that the Philips brand experience is distinctive, consistently expressed across all customer touchpoints, and drives customer preference. A key enabler for this is a consistent and differentiating design language that applies to software, hardware and services across our businesses. Philips Experience Design partners with stakeholders across the organization to develop methodologies and enablers for defining value propositions, as well as to implement data-enabled design tools and processes to create meaning from data. Philips Experience Design received 151 awards for design excellence in 2020.

In partnership with Philips Experience Design, Philips Healthcare Transformation Services (HTS) leverages Co-create methodologies with the aim of creating solutions that are tailored specifically to the challenges facing our customers, as local circumstances and workflows are key ingredients in the successful implementation of solutions. HTS is a team of healthcare transformation practitioners with consulting skills and a portfolio of methods and tools in operational and clinical excellence, environmental and experience design, and technology transformation and analytics.

IP Royalties

Philips Intellectual Property & Standards (IP&S) proactively pursues the creation of new Intellectual Property (IP) in close co-operation with Philips’ operating businesses and Innovation & Strategy. IP&S is a leading industrial IP organization providing world-class IP solutions to Philips’ businesses to support their growth, competitiveness and profitability.

Royal Philips’ total IP portfolio currently consists of 62,000 patent rights, 37,000 trademarks, 104,000 design rights and 3,200 domain names. Philips filed 876 new patents in 2020, with a strong focus on the growth areas in health technology services and solutions.

Philips earns substantial annual income from license fees and royalties. These are mostly earned on the basis of usage or fixed fees, recognized over the term of the contract or at a point in time.

Philips believes its business as a whole is not materially dependent on any particular third-party patent or license, or any particular group of third-party patents and licenses.

Central costs

We recharge the directly attributable part of the central costs to the business segments. The remaining part is accounted for as central costs, and includes costs related to the Executive Committee and Group functions such as Strategy, Legal and Audit fees.

Real estate

Philips is present in more than 75 countries globally and has its group headquarters in Amsterdam, Netherlands. Our real estate sites are spread around the globe, with key manufacturing and R&D sites in Europe, the Americas and Asia.

In 2020, we opened prime locations in Cambridge and Pittsburgh (USA) and substantially invested in our campus in Eindhoven-North (Netherlands), to create an engaging workplace that will help attract and retain the best talent. We have driven productivity by optimizing our footprint globally and reduced the number of sites through post-acquisition integration programs.

In line with our Environmental ESG commitment towards 2025, as well as our commitment to the UN Sustainable Development Goals, we are actively optimizing our real estate portfolio. Since 2018, our site-related CO₂ emissions related to fossil fuel consumption have been reduced by over 10%, and we have met our goal of bringing those CO₂ emissions under 35 kilotonnes per year.

The vast majority of our locations consist of leased property, and we manage these closely to keep the overall vacancy rates of our property below 5% and to ensure the right level of space efficiency and flexibility to follow our business dynamic. Occupancy rates in Philips office locations were reduced during 2020 as a result of COVID-19 and this trend is expected to continue in 2021. The net book value of our land and buildings at December 31, 2020, represented EUR 1,374 million; construction in progress represented EUR 65 million. Our current facilities are adequate to meet the requirements of our present and foreseeable future operations.

6.4Our geographies

6.4.1Our Markets

We operate three market groups – North America, Greater China and International Markets (consisting of seven regions) – which are active in more than 100 countries worldwide.

The Markets’ core objective is to understand local market/customer needs, to develop and manage the relationship with existing and new customers, and to deliver orders. As such, the market organizations are also responsible for the market-oriented profit-and-loss account (P&L) and balance sheet. They translate the voice of the customer into the innovation process, bring relevant products and solutions to market, and ensure local (solution) delivery and service execution, as well as managing the (integral) go-to-market approaches to our key customers and indirect channels – all with the aim of maximizing long-term customer value and gaining market share.

To take quick decisions that are locally relevant and as close to the customer as possible, our Businesses and Markets work closely together in Business-Market Combinations (BMCs) – Image Guided Therapy Systems-DACH (Germany, Austria & Switzerland), for example. The BMC makes agreements where to compete and how to win. Businesses and Markets bear joint accountability for managing the operational end-to-end consumer and customer value chain, Quality & Regulatory compliance and the collaborative P&L, while leveraging the functional excellence and shared infrastructure of the company.

6.4.2Macro-economic landscape in 2020

In 2020, the world economy experienced a sharp recession, owing to the lockdown measures taken to combat the coronavirus outbreaks. According to Oxford Economics, global real GDP is estimated to have contracted by 3.9% in 2020, compared with the 2.5% growth estimated in 2019 for 2020. Across Philips’ markets, only Greater China is estimated to have shown growth in 2020, while the rest of the markets all suffered full-year recessions to various degrees. Looking ahead, Oxford Economics expects global real GDP growth to reach 5.0% in 2021.

6.4.32020 highlights from our Market Groups 

North America

In a year shaped by the pandemic, Philips helped customers roll out more than 8,000 ICU beds for COVID-19 patients. We quickly introduced the Rapid Equipment Deployment Kit, a self-service 20-bed ICU that can be deployed in hours thanks to remote clinical training, installation, and set-up. We also developed ultrasound solutions for COVID-19 detection at the point of care.

Philips increased ventilator production multifold to meet the high COVID-19-related demand, and shipped ventilators across the world using a fair and ethical approach to allocate supply to acute patient demands based on COVID-19 data and the available critical care capacity. Following Philips’ delivery of 12,300 bundled EV300 ventilator configurations to the US Strategic National Stockpile in line with the contract signed in April 2020, the US Department of Health and Human Services cancelled the delivery of the remaining 30,700 ventilators.

Our commitment to improving lives through meaningful innovation continued in our partnership with the U.S. Department of Defense and Veterans Affairs (VA), where we are working to advance AI technology for early detection of COVID-19 and tele-critical care technologies and services. VA signed a 10-year contract, which enables it to invest up to USD 100 million with Philips to create the world’s largest tele-ICU system and extend access to intensive care expertise for veterans, regardless of their location.

We expanded our strategic relationships with local health systems, including Steward Health Care, which signed a nine-year, multi-vendor services contract with Philips, making us their strategic partner of choice. The University of Kentucky's UK HealthCare worked with Philips to power the state’s only eICU Clinical Command Center, which will help them in care provisioning for COVID-19 patients. In addition, Tampa General signed a seven-year strategic partnership with Philips to provide the hospital with new patient monitoring solutions, imaging equipment, healthcare informatics, workflow solutions and consulting.

Philips Sonicare is the sonic toothbrush brand most recommended by US dental professionals, and our Professional Teledentistry program has made it easier for consumers to maintain wellness from home through the pandemic. Philips maintains a No. 1 market share in male grooming (electric). We are also one of the leading brands in reusable baby bottles and our Pregnancy+ apps are amongst the fastest-growing for new parents.

Greater China

In 2020 we continued our efforts to provide innovative health technology solutions in support of China's national health strategy, Healthy China 2030 – the action program designed to promote the health of China's 1.4 billion people.

We signed a multi-year contract with the First Affiliated Hospital of Zhejiang University, one of China's leading hospitals, to support its expansion and upgrading. Combining clinical, research and education, this deal includes Ultrasound, Image Guided Therapy and Monitoring Analytics & Therapeutic Care solutions.

Philips helped Beijing Ditan Hospital, a top 3A hospital specially designated for COVID-19 care, to upgrade its ICU facility and capability with IntelliSpace Critical Care and Anaesthesia solutions supporting 41 ICU beds.

Philips provided cardiology solutions, including MR, Digital Subtraction Angiography and customer services, to Hong Kong Asia Heart Center, a private medical group dedicated to the treatment, rehabilitation and prevention of heart disease.

For consumers, we introduced our new SkinIQ range shaver, powered by the breakthrough Philips skin technology SkinIQ, recording record-breaking sales of 30,000 units sold on launch day on Tmall (S5000) and increasing total Male Grooming sell-out by 39% on JD (S7000). We also collaborated with Tmall Innovation Center to launch Philips’ first C2B (Consumer to Business) shaver, with 160,000 pieces selling out in a month – a new benchmark in the industry.

International Markets

In our international markets, Philips entered into many new customer partnerships, including the following:

In the United Kingdom, Philips was awarded a 7-year strategic partnership with South Tees Hospitals NHS Foundation Trust, with a workforce of around 9,000 providing a range of specialist regional services to 1.5 million people. This collaboration will utilize Philips’ innovative Vue PACS (Picture Archiving and Communication System) technology and VNA (Vendor-Neutral Archiving) capability to support the Trust in connecting and integrating imaging facilities across multiple regional locations to provide seamless image sharing. Following the outbreak of COVID-19, Philips rapidly arranged for delivery of vital health technology equipment and provided remote simulation-based training sessions that enabled life-saving techniques without putting healthcare professionals at further risk.

In Germany, Philips entered into an 8-year strategic partnership Paracelsus Clinics, offering solutions that maximize the availability of imaging systems and leverage digitalization and process optimization to realize quality and efficiency improvements. And we signed a 10-year strategic partnership with Marienhospital Stuttgart to deploy our digital healthcare solutions across multiple departments to improve patient care and efficiency.

In the Benelux, Philips and Flevo Hospital signed a 10-year strategic partnership agreement to support precision diagnosis and optimize workflows and patient pathways, while driving efficiencies and cost optimization. We also renewed our long-term partnership with Alrijne Hospital in Leiderdorp and agreed a 5-year partnership with the Franciscus Gasthuis and Vlietland hospital in Rotterdam. We worked together with Erasmus University Medical Centre, Jeroen Bosch Hospital and the Ministry of Health, Welfare and Sport to launch the COVID-19 portal – a solution to enable hospitals to digitally exchange patient data and images, when COVID-19 patients are relocated between hospitals. Some 95% of Dutch hospitals are connected to the portal. 

In France, the strategic partnership signed in 2015 with Hospices Civils de Lyon (HCL) has once again proven to be productive and fruitful. During the first wave of the COVID-19 pandemic, we teamed up to develop an AI-based CT lung assessment tool, the full version of which was launched at the Radiological Society of North America event RSNA 2020.

In Spain, Philips and the Hospital San Joan de Déu in Barcelona signed an agreement to renew the pediatric surgical block, incorporating the most advanced technology for minimally invasive procedures. In this way, surgeons at the Hospital will have high-resolution images, and even augmented reality in real time, of the area on which they are operating.

In Italy, Philips successfully participated in public tenders to supply hospitals fighting the COVID-19 emergency with ICU equipment – including over 3.000 monitors in the first half of the year alone – as well as Ultrasound and Therapeutic Care devices.

In Denmark, Philips’ Clinical Collaboration Platform supports telehealth and other connectivity initiatives to increase collaboration across hospitals, empowering medical image access for over 5,000 clinicians in the Region of Southern Denmark. The Region now has a single system for storing, retrieving, and viewing clinical images across all the locations and specialties in its extensive healthcare system, serving approximately 300 radiologists and nuclear medicine specialists performing 1.5 million exams yearly.

Supporting the Swedish National Board of Health and Welfare, we sped up delivery of IntelliVue X3 monitors to meet the increased care capacity needs of Swedish hospitals in the face of COVID-19.

In Indonesia, Philips signed a seven-year strategic partnership agreement with Mandaya Royal Hospital Puri, providing a turnkey solution combining the latest innovations in enterprise diagnostic imaging, connected care and informatics, as well as service, maintenance and financing.

In South Korea, Philips secured a deal with Sejong Chungnam National University Hospital (CNUH) to provide an extensive range of Diagnostic Imaging and Image Guided Therapy solutions.

In Japan, we launched our Philips Lumify with Reacts handheld tele-ultrasound solution – with a novel subscription model – to enable powerful diagnostics at the bedside.

In Colombia, we signed our first deal for the implementation of EMR (Electronic Medical Record) and interoperability solutions with Santa Fe de Bogota Foundation. The agreement covers the replacement of its central information system with a comprehensive healthcare informatics solution with interoperable digital technology that improves its operational and administrative infrastructure, and overall patient experience.

In Turkey, Philips is a solutions partner of Basaksehir City Hospital. To help fight the pandemic, we installed more than 2,200 clinical and imaging devices across all modalities within three weeks, two months earlier than planned. We also signed a partnership agreement with one of the country's largest dental hospital chains, Dent Group. 

In Saudi Arabia, Philips won a strategic deal to supply almost 3,000 patient monitors to help in the fight against COVID-19.

Supporting the increased demand for flexible ICU capacity, Philips introduced its new mobile ICUs in India. The ICUs can be furnished with a range of medical equipment, including ventilators, defibrillators, and patient monitoring.

6.5Supply chain and procurement

6.5.1Supply chain

Philips runs an Integrated Supply Chain, which encompasses supplier selection and management through procurement, manufacturing across all the industrial sites, logistics and warehousing operations, as well as demand/supply orchestration. 

Striving for a balanced ‘regional vs global’ approach, the Integrated Supply Chain supports our business expansion, ensuring adequate capacity and speed while leveraging our global processes, standards and capabilities aligned with our industrial footprint strategy to become more efficient and effective.

In order to improve demand forecasting accuracy and manage inventories more efficiently, we piloted the application of artificial intelligence and machine learning in our North American operations in the Personal Health business. We achieved an improved forecast accuracy of more than 20% and better fill rates, leading to increased customer satisfaction. We are now in the process of rolling this out to the rest of the world. 

When selecting and evaluating partners, we consider not only business metrics such as cost, quality and on-time delivery performance, but also environmental, social and governance factors. We use supplier classification models to identify critical suppliers, including those supplying materials, components and services that could influence the safety and performance of our products and solutions. 

Since 2017, Philips has been consolidating its manufacturing footprint into versatile ‘multi-modality’ manufacturing sites that produce multiple product categories and are located within or near the regions they serve, for enhanced scale, efficiency, and customer proximity. As of the end of 2020, 25 sites have been closed or divested. During the same period, Philips has acquired 10 sites. We have also started to transform our warehousing and distribution operations into a more customer-centric and agile network that is more responsive to market volatility. In the last two years, we have reduced our warehousing footprint by 28% through, among other things, consolidation and servicing of multiple businesses from a single location.

The COVID-19 pandemic has tested the resilience and ingenuity of our people and partners in every part of our integrated supply chain, as we adjusted production capacity to the fluctuations in market demand. We teamed up with partners such as KLM to establish air corridors to enable us to supply essential healthcare equipment and solutions during the lockdown periods. We worked closely with our manufacturing sites as well our suppliers to deal with local (partial) lockdowns and safeguard a reliable supply of components and parts, prioritizing delivery of critical equipment to those in need.

6.5.2Procurement

In 2020, the COVID-19 pandemic resulted in significant disruption to demand and international trade flows. Under these circumstances, the Procurement function was focused on managing uninterrupted supplies to enable Philips to provide critical life-saving healthcare equipment and solutions to our customers all over the world. For example, we had to make a steep ramp-up in the production of ventilators from 1,000 per week to 4,000 per week within a short period of 5 months. This necessitated significant investments in our own plants, as well as close cooperation with our contract manufacturers and parts suppliers, to ensure the availability of the significantly increased capacity. In certain cases, we needed to shift the supplier locations to countries where the impact of the pandemic was low.

For many components, lead times increased significantly, leading to shortages. Market prices for raw materials showed extreme volatility, falling in the first half of the year and recovering from their lows from June onwards, led by a return to manufacturing growth in China. In general, in the second half of the year the economy continued its path to recovery, with manufacturing output and new orders both rising.

6.5.3Supplier sustainability

Philips’ purpose to improve people’s lives applies throughout our value chain. An important area of focus for the Integrated Supply Chain is sustainability, and we are actively working on this together with our partners, be they suppliers or energy or logistics providers. Close cooperation with our suppliers not only helps us deliver health technology innovations, it also supports new approaches that help us minimize our environmental impact and maximize the social and economic value we create. 

Since 2003 we have dedicated supplier sustainability programs as part of our sustainability strategy. We have a direct (tier 1) business relationship with approximately 3,300 product and component suppliers and 16,000 service providers. In many cases, social issues deeper in our supply chain require us to intervene beyond tier 1 of the chain. 

We want to make a difference through sustainable supply management and responsible sourcing. This is more than simply managing compliance – it is about working together with our supply partners to have a positive and lasting impact. Therefore, the sustainability performance of our suppliers is fully embedded in our procurement organization and strategy. 

In 2020, our focus was on further maximizing our positive impact on the supply chain. Through the Supplier Sustainability Performance program, we improved the lives of 302,000 workers in our supply chain. We also explored new ways to leverage the power of data in our sustainability engagements. Through new use-cases, we are utilizing insights from machine learning to strengthen the efficacy and effectiveness of sustainability performance at our suppliers.

Managing our large and complex supply chain in a socially and environmentally responsible way requires a structured and innovative approach, while being transparent and engaging with a wide variety of stakeholders. In 2020, our programs focused specifically on improving suppliers’ sustainability performance, responsible sourcing of minerals, and reducing the environmental footprint of our supply base.

7Financial performance

7.1Performance review

The year 2020

• Sales amounted to EUR 19.5 billion, in line with 2019 on a nominal basis. On a comparable basis^*), overall sales growth was 3%, with 22% growth in the Connected Care businesses, a 2% decline in the Diagnosis & Treatment businesses, and a 4% decline in the Personal Health businesses. 
• Net income amounted to EUR 1.2 billion, an increase of EUR 22 million compared to 2019, mainly due to lower net financial expenses and lower income tax expenses, partly offset by charges of EUR 144 million related to impairment of goodwill. Net income is not allocated to segments, as certain income and expense line items are recorded on a centralized basis.
• Adjusted EBITA^*) amounted to EUR 2.6 billion, or 13.2% of sales, in line with 2019. The productivity programs delivered annual savings of approximately EUR 447 million and included approximately EUR 222 million procurement savings, led by the Design for Excellence (DfX) program, and approximately EUR 225 million savings from other productivity programs. While the Connected Care businesses delivered improved profit expansion, both the Diagnosis & Treatment businesses and Personal Health businesses showed a decline in Adjusted EBITA^*) margin. This was primarily due to lower volumes and resulting lower factory fixed cost coverage, an adverse mix impact due to lower sales in Ultrasound and Image-Guided Therapy in the Diagnosis & Treatment businesses, and the decline in sales, partly offset by cost savings, in the Personal Health businesses.
• Operating cash flow amounted to EUR 2.8 billion, an increase of EUR 746 million, mainly due to working capital improvements, in particular better management of outstanding receivables. The 2019 figure was mainly attributable to higher earnings, partly offset by higher working capital outflows and higher tax paid. Free cash flow^*) amounted to EUR 1.9 billion, compared to EUR 1.1 billion in 2019.
• In 2020, Philips completed three acquisitions, with Intact Vascular, Inc. (Intact Vascular) being the most notable.
• On January 29, 2019, Philips announced a new EUR 1.5 billion share buyback program for capital reduction purposes. As of the end of 2020, Philips had completed 50.3% of this program. Philips has executed the second half of the program through individual forward transactions with settlement dates extending into the second half of 2021.
• In January 2020, Philips announced that it would review options for future ownership of its Domestic Appliances business, part of the Personal Health segment. Philips has started the process of creating a separate legal structure for this business within the Philips Group, which is expected to be completed in the third quarter of 2021. Separation costs of EUR 42 million were incurred in 2020.

Coronavirus disease 2020 (COVID-19) outbreak

In 2020, COVID-19 affected the global economy and the company’s results. In the Diagnosis & Treatment businesses, comparable sales^*) declined due to the postponement of installations and elective procedures resulting from the impact of COVID-19. In the Personal Health businesses, COVID-19 led to a decline in comparable sales^*) due to lockdowns in several countries. The Connected Care businesses recorded comparable sales growth^*), as our innovations in both Monitoring & Analytics and Sleep & Respiratory Care were able to help our customers combat the pandemic.

The year 2019

• Sales rose to EUR 19.5 billion, a nominal increase of 8%, with 10% growth in the Diagnosis & Treatment businesses, 8% growth in the Connected Care businesses and 6% growth in the Personal Health businesses. On a comparable basis^*) sales growth was 4.5%, with 5% growth in the Diagnosis & Treatment businesses, 5% growth in the Personal Health businesses, and 3% growth in the Connected Care businesses.
• Net income amounted to EUR 1.2 billion, an increase of EUR 76 million compared to 2018, mainly due to improvements in operational performance, lower net financial expenses and lower charges related to discontinued operations, partly offset by higher income tax expense and charges of EUR 97 million related to impairment of goodwill. Net income is not allocated to segments as certain income and expense line items are recorded on a centralized basis.
• Adjusted EBITA^*) increased to EUR 2.6 billion, or 13.2% of sales, an increase of EUR 197 million, or 10 basis points as a % of sales, compared to 2018. The productivity programs delivered annual savings of approximately EUR 480 million, and included approximately EUR 166 million procurement savings, led by the Design for Excellence (DfX) program, and EUR 314 million savings from other productivity programs. While the Diagnosis & Treatment and Personal Health businesses delivered good profit expansion, the Connected Care business showed a decline of 200 basis points, primarily due to tariffs, an adverse currency impact, mix and higher material costs.
• Net cash provided by operating activities amounted to EUR 2.0 billion, an increase of EUR 251 million, mainly due to higher earnings that were partly offset by higher working capital outflows and higher tax paid, while 2018 included an outflow of EUR 130 million related to pension liability de-risking. Free cash flow^*) amounted to EUR 1.1 billion compared to EUR 984 million in 2018.
• In the second quarter of 2019, Philips completed its EUR 1.5 billion share buyback program that was announced on June 28, 2017. All of the shares acquired under the program were cancelled.
• On January 29, 2019, Philips announced a new EUR 1.5 billion share buyback program for capital reduction purposes. As of the end of 2019, Philips completed 41.5% of this program.
• During 2019 Philips sold all of its remaining shares (16.5%) in Signify (formerly Philips Lighting). 

7.1.1Results of operations

Sales

The composition of sales growth in percentage terms in 2020, compared to 2019 and 2018, is presented in the following table.

Group sales amounted to EUR 19,535 million in 2020, in line with 2019 on a nominal basis. Adjusted for a 2.2% negative currency effect and consolidation impact, comparable sales^*) increased by 3%. The negative currency effect was mainly due to depreciation of currencies against the euro and affected all business segments.

Group sales amounted to EUR 19,482 million in 2019, 8% higher on a nominal basis. Adjusted for a 3.0% positive currency effect and consolidation impact, comparable sales^*) were 4.5% above 2018. The positive currency effect is mainly driven by the appreciation of the US dollar against the euro.

Diagnosis & Treatment businesses

In 2020, sales amounted to EUR 8,175 million, 4% lower than in 2019 on a nominal basis. Excluding a 1.4% negative currency effect and consolidation impact, comparable sales^*) decreased by 2%, as low-single-digit growth in Diagnostic Imaging, was more than offset by a high-single-digit decline in Image-Guided Therapy and Ultrasound due to the postponement of installations and elective procedures resulting from the impact of COVID-19. 

In 2019, sales amounted to EUR 8,485 million, 10% higher than in 2018 on a nominal basis. Excluding a 4.3% positive currency effect and consolidation impact, comparable sales^*) increased by 5%, with double-digit growth in Image-Guided Therapy, high-single-digit growth in Ultrasound and low-single-digit growth in Diagnostic Imaging. The positive currency effect is mainly driven by the appreciation of the US dollar against the euro.

Connected Care businesses

In 2020, sales amounted to EUR 5,564 million, 19% higher than in 2019 on a nominal basis. Excluding a 2.9% negative currency effect and consolidation impact, comparable sales^*) increased by 22%, with double-digit growth in both Monitoring & Analytics and Sleep & Respiratory Care, as our innovations in these therapeutic areas were able to help our customers combat the pandemic.

In 2019, sales amounted to EUR 4,674 million, 8% higher on a nominal basis compared to 2018. Excluding a 4.6% positive currency effect and consolidation impact, comparable sales^*) increased by 3%, with low-single-digit growth in Sleep & Respiratory Care and Monitoring & Analytics. The positive currency effect is mainly driven by the appreciation of the US dollar against the euro.

Personal Health businesses

In 2020, sales amounted to EUR 5,407 million, 8% lower than in 2019 on a nominal basis. Excluding a 3.4% negative currency effect and consolidation impact, comparable sales^*) decreased by 4%, driven by a mid-single-digit decline in Personal Care, and a high-single-digit decline in Oral Healthcare, mainly caused by lockdowns in several countries. 

In 2019, sales amounted to EUR 5,854 million, 6% higher on a nominal basis compared to 2018. Excluding a 0.9% positive currency effect and consolidation impact, comparable sales^*) were 5% higher year-on-year, driven by double-digit growth in Oral Healthcare.

Other

In 2020, sales amounted to EUR 389 million, compared to EUR 469 million in 2019. The decrease was mainly due to lower royalty income. 

In 2019, sales amounted to EUR 469 million, compared to EUR 530 million in 2018. The decrease was mainly due to lower royalty income and the divestment of the Photonics business in Q1 2019.

Performance per geographic cluster

Sales in mature geographies in 2020 were 3% higher than in 2019 on a nominal basis and 4% higher on comparable basis^*). Sales in Western Europe were 12% higher year-on-year on a nominal basis and 11% higher on a comparable basis^*), with double-digit growth in the Connected Care businesses and Personal Health businesses, partly offset by a low-single-digit decline in the Diagnosis & Treatment businesses. Sales in North America were in line with 2019 on a nominal basis, and increased 2% on a comparable basis^*), as double-digit growth in the Connected Care businesses and low-single-digit growth in the Personal Health businesses were largely offset by a high-single-digit decline in the Diagnosis & Treatment businesses. Sales in other mature geographies decreased by 2% on both a nominal and comparable basis^*). Double-digit comparable sales growth^*) in the Connected Care businesses was more than offset by a double-digit decline in the Personal Health businesses and a low-single-digit decline in the Diagnosis & Treatment businesses. 

Sales in mature geographies in 2019 were EUR 769 million higher than in 2018, or 6% higher on a nominal basis and 2% higher on comparable basis^*). Sales in Western Europe were 4% higher year-on-year on a nominal basis and 2% higher on a comparable basis^*), with mid-single-digit growth in the Personal Health businesses and low-single-digit growth in the Connected Care businesses, while the Diagnosis & Treatment businesses were in line with 2018. Sales in North America increased by EUR 613 million, or 10% on a nominal basis, and increased 4% on a comparable basis^*), with mid-single-digit growth in the Diagnosis & Treatment businesses and low-single-digit growth in the Personal Health businesses and Connected Care businesses. Sales in other mature geographies increased by 1% on a nominal basis and declined by 3% on a comparable basis^*), as lower IP royalty income offset high-single-digit growth in the Personal Health businesses, mid-single-digit growth in the Connected Care businesses and low-single-digit growth in the Diagnosis & Treatment businesses.

Sales in growth geographies in 2020 decreased by 6% on a nominal basis, mainly due to depreciation of their currencies against the euro, but were in line with 2019 on a comparable basis^*), with double-digit growth in the Connected Care businesses and mid-single-digit growth in the Diagnosis & Treatment businesses offset by a double-digit decline in the Personal Health businesses. The flat year-on-year comparable sales growth^*) was driven by double-digit growth in Central & Eastern Europe and Russia & Central Asia and high-single-digit growth in Latin America, offset by a high-single-digit decline in China.

Sales in growth geographies in 2019 were EUR 591 million higher than in 2018, increased by 10% on both a nominal and a comparable basis^*) with double-digit growth in the Diagnosis & Treatment businesses, high-single-digit growth in the Connected Care businesses and mid-single-digit growth in the Personal Health businesses. The increase was driven by double-digit growth in China.

Diagnosis & Treatment businesses

From a geographic perspective, nominal sales in growth geographies were in line with 2019, while comparable sales^*) showed mid-single-digit growth, driven by double-digit growth in China, Russia & Central Asia and Central & Eastern Europe, partly offset by India and Middle East & Turkey. Sales in mature geographies showed a mid-single-digit decrease on a nominal and comparable basis^*). Comparable sales^*) declined, with a low-single-digit decline in Western Europe and a high-single-digit decline in North America.

From a geographic perspective, nominal sales in growth geographies increased by 14% in 2019, while comparable sales^*) showed double-digit growth, driven by double-digit growth in China and Latin America. Sales in mature geographies increased by 8% on a nominal basis, while comparable sales^*) showed low-single-digit growth, with mid-single-digit growth in North America and low-single-digit growth in other mature geographies, while Western Europe remained flat year-on-year.

Connected Care businesses

From a geographic perspective, sales on a nominal basis increased by 35% in growth geographies in 2020 and on a comparable basis^*) showed double-digit growth, with double-digit growth across all regions. Sales in mature geographies increased by 17% on a nominal basis and showed double-digit growth on a comparable basis^*), with double-digit growth across all regions. 

From a geographic perspective, sales on a nominal basis increased by 11% in growth geographies in 2019, and on a comparable basis^*) showed high-single-digit growth, with double-digit growth in China and mid-single-digit growth in Latin America. Sales in mature geographies decreased by 7% on a nominal basis and showed low-single-digit growth on a comparable basis^*), with mid-single-digit growth in other mature geographies and low-single-digit growth in Western Europe and North America.

Personal Health businesses

Sales in growth geographies decreased 18% on a nominal basis in 2020, and on a comparable basis^*) showed a double-digit decline, which was attributable to China. Sales in mature geographies increased 3% on a nominal basis, and on a comparable basis^*) showed mid-single-digit growth, driven by double-digit growth in Western Europe, partly offset by other mature geographies.

Sales in growth geographies increased 6% on a nominal basis in 2019 and on a comparable basis^*) showed mid-single-digit growth, with double-digit growth in Central & Eastern Europe and mid-single-digit growth in China. Sales in mature geographies increased 6% on a nominal basis and on a comparable basis^*) showed mid-single-digit growth, with high-single-digit growth in other mature geographies, mid-single-digit growth in Western Europe, and low-single-digit growth in North America.

Cost of sales

Cost of sales includes only expenses directly or indirectly attributable to the production process, such as cost of materials used, salaries and wages, depreciation and amortization of assets used in manufacturing, and other manufacturing costs (such as repair and maintenance costs related to production, expenses incurred for shipping and handling of internal movements of goods, and other expenses related to manufacturing).

Philips’ cost of sales increased by EUR 147 million to EUR 10,754 million in 2020, compared to EUR 10,607 million in 2019. Expressed as a percentage of sales, this represented an increase to 55.0% of sales in 2020 from 54.4% of sales in 2019.

Costs of materials used decreased by EUR 81 million, mainly due to procurement savings of EUR 222 million and a positive foreign currency impact. This was partly offset by higher volume.

Salaries and wages in 2020 increased by EUR 51 million, driven by acquisitions and higher volume, partly offset by productivity measures.

Depreciation and amortization in 2020 increased by EUR 50 million, mainly due to an impairment of a technology asset of EUR 92 million in 2020, compared to EUR 50 million in 2019.

Other manufacturing costs increased by EUR 127 million in 2020, mainly due to a provision of EUR 38 million related to legal matters and charges of EUR 34 million due to changes in ventilator demand.

Gross margin

In 2020, Philips’ gross margin was EUR 8,781 million, or 45.0% of sales, compared to EUR 8,875 million, or 45.6% of sales, in 2019. The year-on-year decrease in gross margin was mainly driven by a EUR 70 million decrease in IP royalty income, as well as lower coverage of fixed costs in our industrial base, mainly due to the impact of COVID-19.

In 2019, Philips’ gross margin increased to EUR 8,875 million compared to EUR 8,554 million in 2018, while the margin decreased to 45.6% of sales from 47.2% of sales in 2018. The year-on-year decrease in the margin was mainly driven by lower IP royalty income and tariffs. Gross margin in 2019 included EUR 191 million of restructuring, acquisition-related and other charges, whereas 2018 included EUR 107 million of restructuring, acquisition-related and other charges. 2019 also includes charges related to the Consent Decree focused on defibrillator manufacturing in the US of EUR 29 million and a provision of EUR 12 million related to legal matters. 2018 also included EUR 28 million of charges related to the Consent Decree.

Selling expenses

Selling expenses amounted to EUR 4,606 million, or 23.6% of sales, in 2020, compared to EUR 4,682 million, or 24.0% of sales, in 2019. The year-on-year decrease in selling expenses of EUR 76 million was driven by savings from productivity improvements, a positive foreign currency impact and lower restructuring costs, partly offset by costs from new acquisitions. Selling expenses in 2020 include EUR 141 million of restructuring, acquisition-related and other charges, compared to EUR 158 million in 2019.

Selling expenses amounted to EUR 4,682 million in 2019, or 24.0% of sales, compared to EUR 4,500 million, or 24.8% of sales, in 2018. Selling expenses in 2019 included EUR 158 million of restructuring, acquisition-related and other charges, compared to EUR 121 million in 2018. 2019 includes charges related to the Consent Decree of EUR 10 million and a provision of EUR 10 million related to legal matters. 2018 also included a EUR 18 million charge related to the conclusion of the European Commission investigation into retail price maintenance, and EUR 16 million related to the Consent Decree.

General and administrative expenses

General and administrative expenses amounted to EUR 668 million, or 3.4% of sales, in 2020, compared to EUR 631 million, or 3.2% of sales, in 2019. The year-on-year increase of EUR 37 million in general and administrative expenses was mainly driven by charges related to the separation of the Domestic Appliances business of EUR 37 million. Higher restructuring, acquisition-related and other charges were largely offset by savings from productivity programs.

General and administrative expenses amounted to EUR 631 million, or 3.2% of sales, in 2019, compared to EUR 631 million, or 3.5% of sales, in 2018. 2019 included EUR 24 million of restructuring, acquisition-related and other charges, compared to EUR 30 million in 2018.

Research and development expenses

Research and development costs were EUR 1,915 million, or 9,8% of sales, in 2020, compared to EUR 1,884 million, or 9.7% of sales, in 2019. The year-on-year increase of EUR 31 million was mainly driven by impairments of technology assets in the Connected Care businesses and Diagnosis & Treatment businesses totaling EUR 54 million, offset by lower restructuring and acquisition-related costs and other charges. 2020 includes EUR 132 million of restructuring, acquisition-related and other charges, compared to EUR 151 million in 2019.

Research and development costs were EUR 1,884 million, or 9,7% of sales, in 2019, compared to EUR 1,759 million, or 9.7% of sales, in 2018. Research and development costs in 2019 included EUR 151 million of restructuring, acquisition-related and other charges, compared to EUR 76 million in 2018. 2019 includes EUR 92 million related to an impairment of development costs. 2018 also included EUR 12 million of charges related to the Consent Decree.

Net income, Income from operations (EBIT) and Adjusted EBITA^*)

Net income is not allocated to segments, as certain income and expense line items are monitored on a centralized basis, resulting in them being shown on a Philips Group level only.

The overview below shows Income from operations and Adjusted EBITA^*) according to the 2020 segment classifications.

Net income increased by EUR 22 million compared to 2019, mainly due to lower net financial expenses and lower income tax expenses, partly offset by charges of EUR 144 million related to impairment of goodwill.

Income from operations in 2020 amounted to EUR 1,542 million, or 7.9% of sales, compared to EUR 1,644 million, or 8.4% of sales, in 2019.

Amortization and goodwill impairment charges in 2020 were EUR 525 million and include a charge of EUR 144 million related to an impairment of goodwill in the Connected Care segment and amortization charges of EUR 92 million related to an impairment of a technology asset. 2019 amortization and goodwill impairment charges were EUR 447 million and included a EUR 147 million impairment of acquired intangible assets.

Restructuring, acquisition-related and other charges in 2020 were EUR 504 million and include EUR 209 million of restructuring charges, EUR 95 million of acquisition-related charges offset by a EUR 101 million gain related to the release of a contingent consideration liability, EUR 31 million related to impairments of capitalized development costs, EUR 43 million charges due to changes in ventilator demand, EUR 42 million of separation costs related to the Domestic Appliances business, a EUR 38 million provision related to legal matters, and EUR 21 million related to pension liability de-risking in the US. 2019 charges were EUR 471 million and included EUR 249 million of restructuring charges (of which EUR 39 million related to impairments of capitalized development costs), EUR 69 million of acquisition-related charges, EUR 22 million charges related to legal matters, EUR 60 million related to an impairment of capitalized development costs, and EUR 44 million of charges related to the Consent Decree, partly offset by a gain of EUR 64 million related to a divestment.

Adjusted EBITA^*) in 2020 increased by EUR 7 million to EUR 2,570 million, or 13.2% of sales.

The 2020 performance resulted in an increase in Income from continuing operations attributable to shareholders per common share (in EUR) - diluted of 3%, from EUR 1.27 in 2019 to EUR 1.31 in 2020. Adjusted income from continuing operations attributable to shareholders per common share (in EUR) - diluted^*) amounted to EUR 1.98 and was in line with 2019.

Net income increased by EUR 76 million compared to 2018, mainly due to improvements in operational performance, lower net financial expenses and lower charges related to discontinued operations, partly offset by higher income tax expense and charges of EUR 97 million related to impairment of goodwill.

In 2019, Income from operations amounted to EUR 1,644 million, or 8.4% of sales, a decrease of EUR 75 million year-on-year. Restructuring, acquisition-related and other charges amounted to EUR 471 million, compared to EUR 299 million in 2018. 2019 includes a gain of EUR 64 million related to a divestment, charges of EUR 99 million related to an impairment of capitalized development costs, a charge related to a litigation provision, charges related to the Consent Decree of EUR 44 million and a provision of EUR 22 million related to legal matters. 2018 included a gain of EUR 43 million related to a divestment. 2018 also included: EUR 56 million of charges related to the Consent Decree; EUR 18 million of the total EUR 30 million provision related to the conclusion of the European Commission investigation into retail pricing, of which the other EUR 12 million was recognized in Discontinued operations.

Adjusted EBITA^*) in 2019 amounted to EUR 2,563 million, or 13.2% of sales, and improved by EUR 197 million, or 10 basis points as a percentage of sales, compared to 2018, mainly due to sales growth and productivity, partly offset by lower IP royalty income, tariffs and investments.

The 2019 performance resulted in a decrease in Income from continuing operations attributable to shareholders per common share (in EUR) - diluted of 7% from EUR 1.39 in 2018 to EUR 1.30 in 2019. Adjusted income from continuing operations attributable to shareholders per common share (in EUR) - diluted^*) increased by 15% from EUR 1.76 in 2018 to EUR 2.02 in 2019.

Diagnosis & Treatment businesses

Income from operations in 2020 decreased to EUR 495 million, compared to EUR 660 million in 2019. This was primarily due to lower volumes resulting in lower factory fixed cost coverage, and an adverse mix impact as a result of lower sales in the higher-margin businesses of Ultrasound and Image-Guided Therapy due to the impact of COVID-19. These factors also impacted Adjusted EBITA^*), which was 10.0% of sales in 2020.

Amortization and goodwill impairment charges in 2020 were EUR 209 million and include EUR 92 million of charges related to an impairment of a technology asset in Image-Guided Therapy. 2019 charges were EUR 196 million and included a EUR 69 million impairment of acquired intangible assets.

Restructuring, acquisition-related and other charges in 2020 were EUR 112 million and include EUR 57 million restructuring charges, EUR 73 million of acquisition-related charges offset by a EUR 101 million gain related to the release of a contingent consideration liability, EUR 38 million related to legal matters, a EUR 31 million impairment of capitalized development costs. 2019 charges were EUR 222 million and included EUR 107 million of restructuring charges (of which EUR 39 million related to impairments of capitalized development costs), EUR 42 million of acquisition-related charges and EUR 60 million related to an impairment of capitalized development costs.

Income from operations in 2019 increased to EUR 660 million compared to EUR 629 million in 2018. The year 2019 included EUR 196 million of charges related to amortization and a goodwill impairment, compared to EUR 98 million of amortization charges in 2018. 2019 includes a charge of EUR 19 million related to an impairment of goodwill; the amortization charges mainly relate to intangible assets in Image-Guided Therapy. Restructuring, acquisition-related and other charges to improve productivity were EUR 222 million, compared to EUR 146 million in 2018. 2019 includes charges of EUR 99 million related to impairments of capitalized development costs.

Adjusted EBITA^*) in 2019 amounted to EUR 816 million, or 12.7% of sales, and improved mainly due to sales growth and productivity, partly offset by investments and tariffs.

Connected Care businesses

Income from operations in 2020 increased to EUR 708 million, compared to EUR 267 million in 2019. This was mainly due to operating leverage and productivity programs, which more than offset investments to ramp up production. These factors also impacted Adjusted EBITA^*), which was 21.5% of sales in 2020.

Amortization and goodwill impairment charges in 2020 were EUR 278 million and include EUR 144 million impairment of goodwill related to the Population Health Management business. 2019 charges were EUR 219 million and included a charge of EUR 78 million impairment of goodwill related to the Population Health Management business.

Restructuring, acquisition-related and other charges in 2020 were EUR 209 million and include restructuring charges of EUR 76 million, acquisition-related charges of EUR 22 million, and charges of EUR 43 million due to changes in ventilator demand. 2019 charges were EUR 131 million and included restructuring charges of EUR 38 million, acquisition-related charges of EUR 26 million, and EUR 44 million of charges related to the Consent Decree.

Income from operations in 2019 amounted to EUR 267 million compared to EUR 399 million in 2018. The year 2019 includes EUR 219 million of charges related to amortization and a goodwill impairment, compared to EUR 140 million of amortization charges in 2018. 2019 includes a charge of EUR 78 million related to an impairment of goodwill; the amortization charges mainly relate to acquired intangible assets in Sleep & Respiratory Care and Population Health Management. Restructuring, acquisition-related and other charges amounted to EUR 131 million in 2019, compared to EUR 122 million in 2018. 2019 included EUR 44 million of charges related to the Consent Decree.

Adjusted EBITA^*) in 2019 amounted to EUR 618 million, or 13.2% of sales, and decreased mainly due to tariffs, an adverse currency impact, mix and higher material costs..

Personal Health businesses

Income from operations in 2020 decreased to EUR 619 million, compared to EUR 844 million in 2019. This was mainly due to a decline in sales, partly offset by cost savings. These factors also impacted Adjusted EBITA^*), which was 13.0% of sales.

Amortization and goodwill impairment charges in 2020 were EUR 20 million and include amortization charges related to intangible assets in Mother & Child Care and Domestic Appliances. 2019 charges were EUR 25 million and included amortization charges related to intangible assets in Mother & Child Care and Domestic Appliances.

Restructuring, acquisition-related and other charges in 2020 were EUR 65 million and include restructuring charges of EUR 40 million. 2019 charges were EUR 73 million and included restructuring charges of EUR 50 million and a provision of EUR 22 million related to legal matters.

Income from operations in 2019 increased to EUR 844 million compared to EUR 796 million in 2018. The year 2019 included EUR 25 million of amortization charges, compared to EUR 31 million in 2018. These charges mainly relate to intangible assets in Mother & Child Care and Domestic Appliances . Restructuring, acquisition-related and other charges were EUR 73 million, compared to EUR 33 million in 2018. 2019 includes a provision of EUR 22 million related to legal matters.

Adjusted EBITA^*) in 2019 amounted to EUR 943 million, or 16.1% of sales, and improved mainly due to sales growth, a positive mix impact and productivity, partly offset by tariffs.

Other

In Other we report on the items Innovation, IP Royalties, Central costs and Other.

Income from operations in 2020 was EUR (280) million, compared to EUR (127) million in 2019. The Adjusted EBITA^*) in 2020 was EUR (145) million, compared to EUR (76) million in 2019. The income from operations and the Adjusted EBITA^*) were impacted mainly by lower royalty income and charges related to movements in environmental provisions.

Restructuring, acquisition-related and other charges in 2020 were EUR 118 million and include restructuring charges of EUR 37 million, EUR 42 million of separation costs related to the Domestic Appliances business, and EUR 21 million related to pension liability de-risking in the US. 2019 charges were EUR 43 million and included restructuring charges of EUR 54 million and a gain of EUR 64 million related to a divestment.

In 2019, Income from operations totaled EUR (127) million, compared to EUR (105) million in 2018. Restructuring, acquisition-related and other charges amounted to EUR 43 million, compared to EUR 2 million in 2018. 2019 includes a gain of EUR 64 million related to a divestment and a charge related to a litigation provision, while 2018 included a gain of EUR 43 million related to a divestment.

Adjusted EBITA^*) in 2019 decreased by EUR 48 million, mainly due to charges related to movements in environmental provisions and other non-recurring items.

Financial income and expenses

A breakdown of Financial income and expenses is presented in the following table.

Net financial expenses decreased by EUR 73 million year-on-year, mainly due to a gain from the increase in value of our investments in limited life funds, while 2019 included dividend income and fair value gains of EUR 67 million. For further information, refer to Financial income and expenses.

Net financial expenses decreased by EUR 96 million year-on-year, mainly due to dividend income from investments, while 2018 included financial charges of EUR 46 million related to bond redemptions. For further information, refer to Financial income and expenses.Financial income and expenses

Income taxes

Income taxes amounted to EUR 284 million. The effective income tax rate in 2020 was 19.0% compared to 22.1% in 2019, mainly due to one-off non-cash benefits from a decrease in tax rate, and higher non-taxable results from participations, partly offset by lower non-cash benefits from business integration, compared to 2019. For 2021, we expect our effective tax rate to be within the 24%-26% range, depending on the geographical mix of taxable income.

Income taxes amounted to EUR 337 million. The effective income tax rate in 2019 was 22.1%, compared to 12.8% in 2018, mainly due to lower non-cash benefits from tax audit resolutions and business integration compared to 2018, partly offset by lower provisions for tax risks. For 2020, we expect our effective tax rate to be within the 24%-26% range, depending on the geographical mix of taxable income.

Investment in associates

Results related to investments in associates decreased from a gain of EUR 1 million in 2019 to a loss of EUR 9 million in 2020, as the majority of associates recorded a loss in 2020.

Results related to investments in associates improved from a loss of EUR 2 million in 2018 to EUR 1 million in 2019.

Discontinued operations

In 2020 and 2019, Discontinued operations consists primarily of certain other divestments that were reported as discontinued operations. 

Discontinued operations in 2018 mainly included dividends received of EUR 32 million and a EUR 218 million loss related to a value adjustment of the remaining interest in Signify.

For further information, refer to Discontinued operations and assets classified as held for sale.

Non-controlling interests

Net income attributable to non-controlling interests increased from EUR 5 million in 2019 to EUR 8 million in 2020.

Net income attributable to non-controlling interests decreased from EUR 7 million in 2018 to EUR 5 million in 2019.

7.1.2Restructuring and acquisition-related charges and goodwill impairment charges

In 2020, the most significant restructuring projects impacted the Connected Care and Diagnosis & Treatment segments and mainly took place in the Netherlands, US and Germany. The restructuring mainly comprised product portfolio rationalization and the reorganization of global support functions.

In 2019, the most significant restructuring projects impacted Other and Diagnosis & Treatment and mainly took place in the Netherlands, US and Germany. The restructuring mainly comprised product portfolio rationalization and the reorganization of global support functions.

In 2018, the most significant restructuring projects impacted Diagnosis & Treatment, Connected Care and Other businesses and mainly took place in the Netherlands, Germany and the US. The restructuring mainly comprised product portfolio rationalization and the reorganization of global support functions.

For further information on restructuring, refer to Provisions.

In 2020, acquisition-related charges amounted to a gain of EUR 6 million. The Diagnosis & Treatment businesses recorded a gain of EUR 28 million, mainly related to a gain of EUR 101 million on the release of a contingent consideration liability, partly offset by charges related to the acquisitions of the Healthcare Information Systems business of Carestream Health and Spectranetics.

In 2019, acquisition-related charges amounted to EUR 69 million. The Diagnosis & Treatment businesses recorded EUR 42 million of acquisition-related charges, mainly related to the acquisition of Spectranetics, a US-based global leader in vascular intervention and lead management solutions

In 2018, acquisition-related charges amounted to EUR 99 million. The Diagnosis & Treatment businesses recorded EUR 72 million of acquisition-related charges, mainly related to the acquisition of Spectranetics.

In addition to the annual goodwill-impairment tests for Philips, trigger-based impairment tests were performed during the years 2020, 2019 and 2018, resulting in EUR 144 million goodwill impairment in 2020, EUR 97 million goodwill impairment in 2019 and no impairment for 2018. The goodwill impairment recorded in 2020 relates to an impairment of goodwill, mainly due to revisions to the financial forecast of our Personal Emergency Response System business as a result of lower demand in the Connected Care businesses.

Goodwill impairment charges

Annual goodwill-impairment tests were performed, which resulted in a EUR 144 million goodwill impairment charge, mainly due to revisions to the financial forecast of our Personal Emergency Response System business as a result of lower demand.

For further information on the goodwill sensitivity analysis, please refer to Goodwill.

7.1.3Acquisitions and divestments

Acquisitions

In 2020, Philips completed three acquisitions, with Intact Vascular, Inc. (Intact Vascular) being the most notable. It also announced the planned acquisitions of BioTelemetry, which was completed on February 9, 2021, and Capsule Technologies. Acquisitions in 2020 and prior years led to acquisition and post-merger integration charges of a gain of EUR 28 million in the Diagnosis & Treatment businesses and charges of EUR 22 million in the Connected Care businesses.

In 2019, Philips completed three acquisitions, with the Healthcare Information Systems business of Carestream Health being the most notable. Acquisitions in 2019 and prior years led to acquisition and post-merger integration charges of EUR 42 million in the Diagnosis & Treatment businesses and EUR 26 million in the Connected Care businesses.

In 2018, Philips completed nine acquisitions, with EPD Solutions Ltd. (EPD) being the most notable. Acquisitions in 2018 and prior years led to acquisition and post-merger integration charges of EUR 72 million in the Diagnosis & Treatment businesses and EUR 26 million in the Connected Care businesses.

Divestments

Philips did not complete any divestments in 2020.

Philips completed two divestments in 2019, which resulted in an aggregated cash consideration of EUR 122 million and a gain of EUR 62 million. The most notable divestment was the Photonics business in Germany. 

Philips completed one divestment in 2018. The divestment involved an aggregated consideration of EUR 58 million and resulted in a gain of EUR 44 million. In 2014, Philips announced its plan to sharpen its strategic focus by establishing two standalone companies focused on the HealthTech and Lighting opportunities respectively. After establishing a standalone structure for the lighting activities within the Philips Group, Philips Lighting (renamed Signify in 2018) was listed and started trading on Euronext in Amsterdam under the symbol ‘LIGHT’ on May 27, 2016. Through a series of Accelerated bookbuild offerings (in total five) and open market sales in the course of 2017, 2018 and 2019, Philips’ shareholding was reduced to nil in September 2019.

For details, please refer to Acquisitions and divestments.

7.1.4Changes in cash and cash equivalents, including cash flows

The movements in cash and cash equivalents for the years ended December 31, 2018, 2019 and 2020 are presented and explained below:

Net cash flows from operating activities

Net cash flows from operating activities amounted to EUR 2,777 million in 2020, compared to EUR 2,031 million in 2019. This increase is mainly due to working capital improvements, in particular better management of receivables. Free cash flow^*) amounted to EUR 1,852 million in 2020, compared to EUR 1,053 million in 2019.

Net cash flows from operating activities amounted to EUR 2,031 million in 2019, compared to EUR 1,780 million in 2018. Free cash flow^*) amounted to EUR 1,053 million in 2019, compared to EUR 984 million in 2018.

Net cash flows from investing activities

In 2020, other cash flows from investing activities amounted to a cash outflow of EUR 391 million, mainly due to the acquisition of Intact Vascular for EUR 241 million and investments in other non-current financial assets. 

In 2019, other cash flows from investing activities amounted to a cash inflow of EUR 376 million, mainly due to proceeds from the sale of the remaining Signify shares of EUR 549 million and net cash proceeds from divestment of businesses amounting to EUR 146 million, received mainly from divested businesses held for sale. Other investing activities mainly included acquisition of businesses (including acquisition of investments in associates) of EUR 255 million and EUR 166 million net cash used for foreign exchange derivative contracts related to activities for Group liquidity management.

In 2018, other cash flows from investing activities amounted to a cash outflow of EUR 690 million, mainly due to acquisition of businesses (including acquisition of investments in associates) amounting to EUR 628 million. EPD was the biggest acquisition in 2018, resulting in a cash outflow of EUR 273 million, including the subsequent payments. Net cash proceeds from divestment of businesses amounted to EUR 70 million and were received mainly from divested businesses held for sale. Other investing activities mainly included EUR 177 million net cash used for foreign exchange derivative contracts related to activities for Group liquidity management.

Net cash flows from financing activities

In 2020, treasury shares transactions mainly included the share buyback activities, which resulted in EUR 298 million net cash outflow. The 2019 dividend was distributed in July 2020 fully in shares. Changes in debt included EUR 991 million cash inflow from the issuance of two new bonds under the EMTN program, partly offset by outflows related to lease payments. 

In 2019, treasury shares transactions mainly included the share buyback activities, which resulted in EUR 1,318 million net cash outflow. Philips' shareholders were given EUR 775 million including costs in the form of a dividend; the cash portion of the dividend amounted to EUR 453 million. Changes in debt mainly included the net proceeds from the Green Innovation Bond issued of EUR 744 million, partly offset by outflows related to bond maturity of EUR 500 million and lease payments.

In 2018, treasury shares transactions mainly included the share buy-back activities, which resulted in EUR 948 million net cash outflow. Philips’ shareholders were given EUR 738 million in the form of a dividend, of which the cash portion of the dividend amounted to EUR 401 million. Changes in debt mainly included EUR 866 million cash outflow related to the bond redemption and EUR 990 million cash inflow from bonds issued.

Net cash provided by (used for) discontinued operations

In 2020, net cash used for discontinued operations mainly related to advance income tax payments amounting to EUR 78 million for which Philips expects to get a refund.

In 2019, net cash used for discontinued operations consisted primarily of a divestment formerly reported as discontinued operations.

In 2018, net cash provided by (used for) discontinued operations amounted to EUR 647 million and mainly included a total of EUR 642 million in relation to the sale of Signify shares and the dividend received from Signify reported in investing activities.

7.1.5Financing

Condensed consolidated balance sheets for the years 2018, 2019 and 2020 are presented below:

7.1.6Debt position

Total debt outstanding at the end of 2020 was EUR 6,934 million, compared with EUR 5,447 million at the end of 2019.

In 2020, total debt increased by EUR 1,487 million compared to 2019. New borrowings of long-term debt include the net proceeds of EUR 991 million from the issuance of two new bonds under the EMTN program in 2020. Repayments of long-term debt amounted to EUR 298 million, mainly due to the repayment of leases. Changes in payment obligations from forward contracts are mainly related to the forward contracts entered into of EUR 745 million to complete the remainder of the EUR 1.5 billion share buyback program announced on January 29, 2019. In addition, Philips entered into forward contracts of a total amount of EUR 174 million in 2020 related to the long-term incentive and employee stock purchase plans announced on January 29, 2020, and a total amount of EUR 126 million of forward contracts matured relating to the company's long-term incentive and employee stock purchase plans announced on October 22, 2018. These payment obligations are recorded as financial liabilities under long-term debt. Other changes, mainly resulting from currency effects, led to a decrease of EUR 221 million.

In 2019, total debt increased by EUR 626 million compared to 2018. Total debt at December 31, 2019 included additional lease liabilities of EUR 1,059 million which were recorded following the adoption of IFRS 16 lease accounting in 2019; this did not have a cash impact. New borrowings of long-term debt included the net proceeds from the issuance of the Green Innovation Bond of EUR 744 million. Repayments of long-term debt amounted to EUR 761 million, mainly due to the repayment of a EUR 500 million bond at its scheduled maturity. Changes in payment obligations from forward contracts were mainly related to maturing forward contracts for the completed 2017 share buyback program and the share repurchase program announced in November 2018. These payment obligations were recorded as financial liabilities under long-term and short-term debt. Other changes, mainly resulting from currency effects, led to an increase of EUR 170 million.

In 2018, total debt increased by EUR 105 million compared to 2017. New borrowings of long-term debt of EUR 1,287 million were mainly due to the issuance of fixed-rate bonds, EUR 500 million due 2024 and EUR 500 million due 2028, and a new long-term loan of EUR 200 million. Repayments of long-term debt amounted to EUR 1,161 million, mainly due to the early redemption of all the 3.750% USD bonds due 2022 with an aggregate principal amount of USD 1.0 billion, the redemption of 6.875% USD bonds due 2038 with an aggregate principal amount of USD 72 million, and the repayment of a loan of EUR 178 million. Changes in payment obligations from forward contracts are mainly related to maturing forward contracts for the 2017 share buyback program and new forward contracts entered into for the extended share repurchase program for LTI and stock purchase plans announced in November 2018. Other changes, mainly resulting from new leases recognized and currency effects, led to an increase of EUR 70 million.

At the end of 2020, long-term debt as a proportion of the total debt stood at 82.3% with an average remaining term (including current portion) of 6.3 years, compared to 91% and 8.0 years respectively at the end of 2019.

At the end of 2019, long-term debt as a proportion of the total debt stood at 91% with an average remaining term (including current portion) of 8.0 years, compared to 71% and 7.9 years respectively at the end of 2018.

At the end of 2018, long-term debt as a proportion of the total debt stood at 71% with an average remaining term (including current portion) of 7.9 years, compared to 86% and 7.6 years respectively at the end of 2017.

For further information, please refer to Debt.

7.1.7Liquidity position

As of December 31, 2020, including the cash position (cash and cash equivalents), as well as its EUR 1 billion committed revolving credit facility, the Philips Group had access to available liquidity of EUR 4,226 million, versus gross debt (including short and long-term) of EUR 6,934 million.

As of December 31, 2019, including the cash position (cash and cash equivalents), as well as its EUR 1 billion committed revolving credit facility, the Philips Group had access to available liquidity of EUR 2,425 million, versus gross debt (including short and long-term) of EUR 5,447 million.

As of December 31, 2018, including the cash position (cash and cash equivalents), as well as its EUR 1 billion committed revolving credit facility, the Philips Group had access to available liquidity of EUR 2,688 million, versus gross debt (including short and long-term) of EUR 4,821 million.