Fourth-quarter highlights
• Sales increased to EUR 7.2 billion, with comparable sales growth of 5% in the HealthTech portfolio and Group consolidated comparable sales growth of 3%
• Adjusted EBITA amounted to EUR 1 billion, or 13.8% of sales, compared to 11.9% of sales in Q4 2015
• EBITA totaled EUR 914 million, or 12.6% of sales, compared to 3.7% of sales in the same period of the previous year
• Income from operations (EBIT) amounted to EUR 826 million, compared to EUR 162 million in Q4 2015
• Net income amounted to EUR 640 million, compared to a net loss of EUR 39 million in Q4 2015
• Operating cash flow totaled EUR 1.1 billion, compared to EUR 956 million in Q4 2015; free cash flow of EUR 843 million, compared to EUR 740 million in Q4 2015
• Agreement signed to sell majority interest in the combined Lumileds and Automotive businesses

Full-year highlights
• Sales increased to EUR 24.5 billion, with comparable sales growth of 5% in the HealthTech portfolio and Group consolidated comparable sales growth of 3%
• Adjusted EBITA totaled EUR 2.6 billion, or 10.5% of sales, compared to 9.2% of sales in 2015
• EBITA amounted to EUR 2.2 billion, or 9.1% of sales, compared to 5.7% of sales in the previous year
• Income from operations (EBIT) amounted to EUR 1.9 billion, compared to EUR 992 million in 2015
• Net income amounted to EUR 1.5 billion, compared to EUR 659 million in 2015
• Operating cash flow totaled EUR 1.9 billion, compared to EUR 1.2 billion in 2015; free cash flow of EUR 1.1 billion, compared to EUR 325 million in 2015
• Proposal to maintain dividend at EUR 0.80 per share

Frans van Houten, CEO:

“Our HealthTech portfolio‘s performance in the fourth quarter of 2016 demonstrates our strategic focus is delivering results. I am pleased with the 5% comparable sales growth and 190-basis-point improvement in the Adjusted EBITA margin to 15.3%, with growth and margin improvements in all segments of our HealthTech portfolio. For the full year, comparable sales growth of the HealthTech portfolio was also 5%, while the Adjusted EBITA margin showed continued improvement.

For the Group, comparable sales growth amounted to 3% in the fourth quarter, and operational improvements led to a 190-basis-point increase in the Adjusted EBITA margin.

Overall, 2016 was a defining year in which we successfully executed on our major strategic initiatives in the transformation of Philips into a focused leader in health technology, including the successful listing of Philips Lighting and securing a good future for the combined Lumileds and Automotive businesses. Operationally, we achieved significant improvements as we delivered 3% comparable sales growth for the year, an Adjusted EBITA margin increase of 130 basis points and an operating cash flow of EUR 1.9 billion for the Philips Group.

Our strong solutions capabilities resulted in a significant expansion of our long-term strategic partnerships, as we entered into 15 new multi-year contracts with an aggregate value of approximately EUR 900 million. I see many more opportunities for Philips to grow by leveraging our deep clinical and consumer insights to deliver innovative healthcare solutions to our customers. Philips’ transformation into a global leader in health technology is acknowledged by FTSE Group’s Industry Classification Benchmark’s recent reclassification of our share to the Health Care industry.

Our products and related services are subject to various regulations and standards. We are committed to quality and over the last years we have made investments to enable significant progress in this area. We are currently in discussions on a civil matter with the US Department of Justice representing the US Food and Drug Administration, arising from past inspections in and before 2015, focusing primarily on our external defibrillator business in the US. While discussions have not yet concluded, we anticipate a meaningful impact on the operations of this business.

Despite this matter and elevated uncertainty in the markets in which we operate, we will continue to improve our underlying performance and target to deliver 4-6% comparable sales growth and, on average, a 100-basis-point improvement in Adjusted EBITA per year for the next three to four years.”

HealthTech

“Our Accelerate! transformation program continued to deliver operational improvements across our businesses. We are pleased that our growth initiatives - such as the successful integration of Volcano - continue to pay off, contributing to the 5% comparable sales growth and significant margin expansion across all our segments.”

In the fourth quarter, the Personal Health businesses grew by 7% on a comparable basis, with growth across the portfolio, led by double-digit growth in Health & Wellness and high-single-digit growth in Domestic Appliances; the Adjusted EBITA margin improved by 100 basis points. The Diagnosis & Treatment businesses posted comparable sales growth of 3%, and the Adjusted EBITA margin improved by 280 basis points, driven by Image-Guided Therapy and Diagnostic Imaging. In the Connected Care & Health Informatics businesses, comparable sales increased 4%, driven by mid-single-digit growth in Patient Care & Monitoring Solutions and Population Health Management, and the Adjusted EBITA margin improved by 50 basis points.

Following strong equipment-order intake growth in the third quarter, order intake in the fourth quarter on a currency-comparable basis was in line with 2015’s very strong fourth quarter, as expected by the company. Of the various long-term strategic partnership agreements that were signed in the fourth quarter, Philips only includes near-term business in the calculation of the order intake, as per company policy.

• Building on Philips’ strategy of forging long-term strategic partnerships, the company signed four such partnerships in the fourth quarter. For example, Philips signed a 10-year EUR 74 million agreement with Russia’s Expert Group of Companies to provide solutions combining advanced imaging systems with clinical informatics to improve cardiac care. Philips also signed a 15-year agreement with Banner Health in the US to provide imaging, patient monitoring and telehealth solutions to optimize patient care in the hospital and at home.
• At RSNA 2016, the world’s largest radiology meeting, Philips launched new data-driven, intelligent solutions to improve operational efficiencies and enhance diagnostics and patient care. These include PerformanceBridge, a new suite of operational performance improvement software and services for radiology departments, and IIlumeo Adaptive Intelligence and IntelliSpace Portal 9.0, advanced informatics and visual analysis solutions with machine-learning capabilities to support the physician.
• Expanding its global leadership in patient monitoring solutions beyond acute care settings, Philips launched the latest version of its IntelliVue Guardian solution in Europe. This solution comprises smart devices including wearable biosensors, clinical decision support software and services. It is designed to aid clinicians in the early recognition of patient deterioration in the hospital’s general wards, allowing timely intervention and avoiding adverse events, unplanned transfers back to the ICU and longer lengths of hospitalization.
• Reflecting the focus on locally relevant value propositions and leveraging digital capabilities, the Personal Health businesses posted strong double-digit online sales growth in China. This was driven by significant growth in the Oral Healthcare and Air businesses, where Philips is the number one brand in China.
• Building on the success of Philips’ integrated Dream Family solution in the US, Europe and Japan, the company introduced the Philips DreamStation Go portable CPAP solution. DreamStation Go is a compact and lightweight device designed to provide sleep therapy for travelers with obstructive sleep apnea.
• Demonstrating its continued leadership in ultrasound imaging solutions, Philips received the ‘2016 Best in KLAS’ award in the Ultrasound category. KLAS, a leading global research firm, recognizes companies with the Best in KLAS award for outstanding innovation and contributions to improved patient outcomes based on the past 12 months’ performance ratings.

Philips Lighting

In the fourth quarter, Adjusted EBITA improved by 180 basis points to 9.8% of sales, while comparable sales declined by 3% and free cash flow amounted to EUR 272 million. Full details about the financial performance of Philips Lighting in the fourth quarter were published on January 23, 2017. The related report can be accessed here (http://www.lighting.philips.com/static/quarterlyresults/2016/q4_2016/philips-lighting-fourth-quarter-and-full-year-results-2016-report.pdf). Following the listing of Philips Lighting in Amsterdam, Philips holds a 71.225% stake with the aim of fully selling down over the next several years. As the majority shareholder in Philips Lighting, Philips continues to consolidate the financial results of Philips Lighting.

Philips Group Other

Group cost savings
In the fourth quarter, overhead cost savings amounted to EUR 47 million, the Design for Excellence (DfX) program generated EUR 163 million of incremental procurement savings, and the End2End process improvement program achieved EUR 52 million in productivity gains. In 2016, the three cost savings programs all delivered ahead of plan. The company achieved EUR 269 million of gross savings in overhead costs, EUR 418 million of gross savings in procurement, and EUR 204 million of productivity savings from the End2End program.

Sale of Lumileds & Automotive
Philips has signed an agreement to sell an 80.1% interest in the combined Lumileds and Automotive businesses to certain funds managed by affiliates of Apollo Global Management, LLC. Philips will retain the remaining 19.9% interest. The transaction is expected to be completed in the first half of 2017, subject to customary closing conditions, including the relevant regulatory approvals.

Miscellaneous
On December 20, 2016, Philips announced its intention to redeem the outstanding 5.750% Notes due 2018 with an aggregate principal amount of USD 1.25 billion. The transaction was completed on January 20, 2017 and resulted in a charge in the fourth quarter of 2016 of USD 66 million (EUR 62 million), reflected in the Financial income and expenses line on the income statement. The cash outflow in the first quarter of 2017 will be USD 1,314 million (approximately EUR 1,247 million) excluding accrued interest. The transaction contributes to Philips’ plan to reduce its annual interest expenses by approximately EUR 100 million.

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