Embed Size (px)
Citation preview
CORPORATES
CREDIT OPINION19 September 2019
Update
RATINGS
Royal Philips N.V.Domicile Amsterdam,
Netherlands
Long Term Rating Baa1
Type LT Issuer Rating
Outlook Stable
Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.
Contacts
Stephan Wulf +49.69.70730.856VP-Senior [email protected]
Svitlana Ukrayinets +49.69.70730.920Associate [email protected]
Christian Hendker,CFA
+49.69.70730.735
Associate Managing [email protected]
CLIENT SERVICES
Americas 1-212-553-1653
Asia Pacific 852-3551-3077
Japan 81-3-5408-4100
EMEA 44-20-7772-5454
Royal Philips N.V.Update to credit analysis
SummaryRoyal Philips N.V.'s (Philips) Baa1 rating is comfortably positioned, reflecting its improvedprofitability and reduced gross leverage. However, the rating is somewhat counterbalancedby its large shareholder payout and acquisitive strategy.
Philips' Baa1 long-term and senior unsecured rating is supported by its (1) large scaleand market-leading positions in most of the health spaces in which it operates; (2) high-margin Personal Health business, which provides a degree of diversification and stability; (3)improved credit metrics after continuous deleveraging, with debt/EBITDA at 2.3x as of last12 months ended June 2019; and (4) strong liquidity following the disposal of its majoritystakes in its noncore businesses Bright Bidco B.V. (formerly Lumileds, B3 stable) and Signify(formerly Philips Lighting).
The rating also takes into account (1) the increasing competitive pressure in the medicaldevices industry, which leads to price declines, which are partially offset by the company'sprudent cost focus and working capital management; (2) its low profit margin comparedwith its industry peers; (3) a history of operational and legal issues; and (4) its appetite foracquisitions (bolt-ons and the €1.9 billion Spectranetics deal in 2017) and capital allocationfor dividends and share buybacks constraining credit metrics.
Exhibit 1
Adjusted gross leverage improved to 2.3x as of the 12 months ended June 2019, positioning thecompany comfortably in the Baa1 rating category
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
2013 2014 2015 2016* 2017 2018 LTM June-19 2019p
Adjusted Debt / EBITDA What could change the rating - up What could change the rating - down
Metrics for 2016 have been restated with 2017 audited accounts; 2019p values are Moody's expectation, which does notincorporate significant acquisitions and divestures. The metrics incorporate Moody's standard adjustments. The blue columnsrepresent Philips before the deconsolidation of Signify. The green columns represent Philips.Source: Moody's Investors Service
MOODY'S INVESTORS SERVICE CORPORATES
Credit strengths
» Large scale and market-leading positions in most of the health spaces in which it operates
» High-margin (15.6% company-adjusted EBITA margin in 2018) Personal Health business provides a degree of diversification andstability
» Improved credit metrics after continuous deleveraging, with adjusted debt/EBITDA at around 2.3x as of the 12 months ended June2019, compared with 3.3x in 2014
» Strong liquidity following the sale of its noncore businesses; monetization options with regard to the remaining stake in Signify(about 12% as of July 2019) and 19.9% stake in Lumileds
Credit challenges
» Increasing competitive pressure in the medical devices industry, leading to price declines, which are partially offset by prudent costfocus and working capital management
» Low profit margins compared with its industry peers, along with a history of operational and legal issues
» Appetite for acquisitions (bolt-ons and the €1.9 billion Spectranetics deal in 2017) and capital allocation for dividends and sharebuybacks, which constrain credit metrics
Rating outlookThe stable outlook assumes that despite potential acquisitions, Philips remains committed to a financial discipline that securesadequate leverage, with Moody's-adjusted debt/EBITDA of 2.5x-3.0x. Furthermore, free cash flow (FCF) generation should movetoward the company's target of above €1.5 billion by 2020, which would lead to FCF/debt levels of about 15% (compared with 10.4%in 2018). Additionally, we will monitor the use of proceeds from the disposal of Philips' stake in Signify (about 12% as of July 2019)to assess if these will be spent on more shareholder-friendly actions or if spending will continue to match shareholder and creditorinterests.
Factors that could lead to an upgrade
» Debt/EBITDA below 2.5x on a sustained basis
» FCF/debt approaching 20%
» Ongoing improvements in the operating margin
Factors that could lead to a downgrade
» Debt/EBITDA above 3.0x, and
» FCF/debt below 10% on a sustained basis
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.
2 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
Key indicators
Exhibit 2
Royal Philips N.V. [1]
12/31/2015 12/31/2016 12/31/2017 12/31/2018 LTM 06/30/2019
12-18 months forward
view [3]
Revenue (USD Billion) $26.9 $19.3 $20.1 $21.4 $21.4 $22 - $23
Return on Sales (NPATBUI / Sales) 3.8% 5.7% 5.0% 7.3% 7.9% 7% - 10%
Debt / EBITDA 3.0x 3.4x 2.5x 2.3x 2.3x 2.0x -2.5x
CFO / Debt 23.6% 29.3% 36.7% 28.2% 28.3% 30% - 40%
FCF / Debt 9.6% 18.0% 19.6% 10.4% 9.1% 10% - 15%
EBITA / Interest 5.5x 5.6x 7.8x 9.5x 12.1x 10x - 12x
[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.[2] Metrics for 2016 have been restated with the audited accounts for 2017; cash flow metrics for 2016 and 2017 include operating cash flow from discontinued operations.[3] This represents Moody's forward view, not the view of the issuer, and does not incorporate significant acquisitions and divestitures.Source: Moody's Financial Metrics™
ProfileRoyal Philips N.V. (Philips) is a global market leader in healthtech (such as diagnosis and treatment, patient care and monitoringsolutions), as well as personal health products such as personal care (for example, male grooming), domestic appliances (for example,kitchen appliances, coffee machines), and health and wellness products (for example, mother and child care, oral healthcare).Headquartered in the Netherlands, the group employs around 78,000 people (continuing operations), and its sales and servicesoperations cover more than 100 countries worldwide. The company recorded consolidated revenue of €18.1 billion in 2018.
Exhibit 3
Philips' well-diversified portfolio of productsRevenue split by product category
Diagnostic Imaging19%
Image-Guided Therapy13%
Ultrasound8%
Healthcare Informatics3%
Monitoring & Analytics10%
Therapeutic Care3%
Sleep & Respiratory Care10%
Population Health Management1%
Health & Wellness8%
Personal Care10%
Domestic Appliances12%
Other3%
Following the realignment of reporting segments effective as of 1 January 2019. Diagnosis and Treatment = green; Connected Care = orange/red; Personal Health = blue. Classificationreflects Moody's analysis.Sources: Philips' 2018 Annual Report, Moody's Investors Service
Detailed credit considerationsLarge scale and market-leading positions in most of the therapeutic areas in which it operatesPhilips' activities are well diversified across healthcare and consumer products (Personal Health). In addition, more than 60% of its saleshave leadership (number one and two positions) in their addressable markets: image guided therapy (in systems and smart devices),ultrasound, patient monitoring, non-evasive ventilation and automated external defibrillator, cardiology informatics and radiology (USbusiness).
These positions are underpinned by Philips' strong R&D spending of nearly €1.8 billion per year (10% of sales). In addition, the Philipsbrand is globally well recognized, which is reflected in the company's market-leading positions in the male grooming, oral healthcare,sleep and respiratory care, as well as mother and child care segments.
3 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
Philips employs more than 10,000 people in R&D (almost one in seven) and its total intellectual property portfolio consisted of 65,000patent rights, 39,400 trademarks and 61,300 design rights as of the end of 2018. In 2018, Philips generated about €272 million inintellectual property EBITA, which we view as a strong and recurring source of cash flow.
High-margin Personal Health business with good growth prospects provides a degree of diversification and stabilityWithin its Personal Health business, Philips is a global leader (number one or number two market positions) in oral healthcare, motherand child care, grooming and beauty, healthy breathing and nutrition. These markets are growing above GDP rates, and Philips'Personal Health business managed to achieve more than 5% comparable sales growth in the last several years. Such high levels ofgrowth are underpinned by digitalization of products and the currently low, but increasing, penetration of these products, especially inemerging markets. Philips attributes the increased importance to the online channel, where the share of sales has increased to morethan 30% of total Personal Health sales. The company managed to improve its profitability substantially because of a growing topline and focus on the cost base. The 2020 target of 4%-6% annual sales growth and adjusted EBITA margin (Philips' definition) ofaround 16%-18% (new target range, following the realignment of reporting segments, effective from 1 January 2019) can be achievedleveraging Philips' strong brand and pricing power on the market. In the second quarter of 2019, Personal Health business had acomparable sales growth of 5% on an annualized basis, reflecting the high-single-digit growth in the Oral Healthcare segment and themid-single-digit growth in the Personal Care and Domestic Appliances segments.
Exhibit 4
Personal Health business has a significant exposure to high-growthmarkets
Exhibit 5
Personal Health exhibited above-market growth rates and stableimproving profitability
Western Europe25%
North America26%Other mature
9%
Growth40%
Source: Philips' 2018 Annual Report
15.5% 15.6% 15.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2017 2018 LTM June-19
Adjusted EBITA Sales
Target margin range Adj. EBITA margin
2017 and 2018 Personal Health segment figures were restated in Q1 2019 following therealignment of reporting segments, effective from 1 January 2019. Target margin range of17%-19% for Personal Health announced during Capital Market Day 2018 was restated to16%-18% in Q1 2019.Sources: Philips' accounts, Capital Markets Day 2018
Competitive pressure in the medical devices industry is highAlthough barriers to entry into more complex healthcare solutions are high, the degree of competition nevertheless is high, leading tothe need for constant product innovation. More innovative and competitive products exert pricing pressure on existing products andrequire R&D spent to innovate.
4 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
Exhibit 6
Productivity initiatives to contribute to margin improvement until 2020Adjusted EBITA bridge for 2019-20, in terms of percentage of sales
Source: Company's Q4 2018 results presentation
Philips' management targets a 100-basis-point (bp) improvement in adjusted EBITA margin (company definition) each year throughcumulative cost savings of more than €1.8 billion by 2020. Philips was able to improve its adjusted EBITA margin (company definition)by 100 bps to 13.1% in 2018. The main areas of focus are procurement savings and manufacturing productivity improvements, andstandardization of back offices with global business services and IT landscape simplification. In Q2 2019, adjusted EBITA margin(company definition) improved by 60 bps. Diagnosis and Treatment business showed 190 bps margin improvement annually, whileConnected Care margin has declined by 230 bps mainly because of tariffs, adverse currency impact and product mix.
Low profit margins compared with its industry peers and a history of operational and legal issuesPhilips' core medical device products are well positioned, with most of them being among the top two in their markets. However,profitability margins are below industry averages. Management is addressing the weak profitability, which partially results frommanufacturing issues in its Cleveland, Ohio, manufacturing facility, and high overhead and centralized costs. A sustained improvementin operating profitability levels is one of the drivers for positive rating pressure.
Philips competes with a number of specialized medical device companies, for example, Medtronic, Inc. (A3 stable) and StrykerCorporation (Baa1 stable), and the healthcare divisions of General Electric Company (Baa1 stable) and Siemens Aktiengesellschaft (A1stable), and a number of other specialized companies. Philips is now focused on securing a larger proportion of recurring solutionsrevenue. It has signed long-term contracts or partnership agreements (10-15 years) with hospitals and universities, for example, RoyalPapworth, Karolinska and Banner Health. Recurring revenue accounted for 40% of sales in diagnosis and treatment in 2018.
5 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
Exhibit 7
Profitability of Royal Philips HealthTech lags significantly behind that of select industry peersAdjusted EBITA margin (based on figures for 2018)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Siemens Healthineers GE Healthcare MedtronicA3 STA
Royal PhilipsHealthTech
Stryker CorporationBaa1 STA
Baxter Int.Baa1 STA
Abbott LaboratoriesA3 STA
The green columns represent Moody's-adjusted EBITA margins, the blue columns represent company-adjusted EBITA margins for Siemens Healthineers — a division of Siemens AG, GEHealthcare — a division of General Electric, and Royal Philips HealthTech, which only includes adjusted margins of diagnosis and treatment, connected care and health informatics (basedreporting segments prior the realignment effective from 1 January 2019).Source: Moody's Investors Service
Philips has had a legacy of manufacturing problems in its CT manufacturing facilities in Cleveland that have resulted in costlyremediation, and have hurt its reputation and resulted in market share losses, predominantly in the US. The cumulative impact onEBITA over 2014-16 was over €0.5 billion. Cleveland manufacturing facility has been closed in 2019, while CT manufacturing has beenmoved to other locations.
In October 2017, Philips reached an agreement with the authorities to suspend the manufacture and distribution of selected externaldefibrillators produced in its facilities in Andover and Bothell until the manufacturing process is compliant with the Quality SystemRegulation. Philips continues to fulfill its obligations under the Consent Decree. The US Food and Drug Administration (FDA) revertedto Philips with follow-up requests, on which the company is currently acting.
Improved credit metrics after continuous deleveragingSince a trough in 2014, Philips' metrics have been improving considerably. In 2017, the company completed the sale of its 80.1%interest in Lumileds for $1.3 billion, which was used for debt repayment. In addition, Philips reduced its stake in Signify to around 12%(as of July 2019) for total cumulative proceeds of around €3.4 billion. Philips' remaining stake in Signify is valued around €390 million(based on Signify's share price as of 17 September 2019), which represents further source of liquidity.
The company's key credit metrics as of the 12 months ended June 2019 position it comfortably in the Baa1 rating category. If Philipsmaintains its current balance sheet structure on a sustained basis, there could be upward pressure on the rating, provided profitabilityimproves in line with the company's guidance. However, we expect the company to continue to use its operating cash flow anddisposal proceeds for sizable shareholder distributions and acquisitions, both bolt-on and larger ones.
Acquisition appetite, as well as capital allocation for dividends and share buybacks, constrain credit metricsAcquisition multiples in the medical device market tend to be higher than those in the manufacturing or capital goods sectors, whichmakes inorganic expansion quite costly for Philips. The company has been making bolt-on acquisitions and we expect this approachto continue as it allows the company to grow these businesses on its own by leveraging its global sales and service coverage. In 2017,the net cash outflow related to acquisitions amounted to €2.3 billion, which included the acquisition of Spectranetics for €1.9 billion(funded by a mix of debt [€1.0 billion] and cash on hand) and a number of smaller bolt-ons (funded by cash from operations). In 2018,Philips spent €0.6 billion (net) on bolt-on acquisitions, including that of EPD Solutions Ltd. for €0.25 billion. More recently, in March2019, the company announced to acquire the healthcare information systems business of Carestream Health Inc. Our projections for2019 takes into consideration €0.3 billion of bolt-on acquisitions.
Philips has a history of significant shareholder distributions, mostly through share repurchases, which are not included in our adjustedFCF definition but limit the company's ability to de-lever. Over 2016-18, the company generated on average €0.9 billion of FCF(company definition, before dividends) annually, which compares with on average €1.0 billion of shareholder returns per annum
6 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
(including cash dividends and share buybacks) over the same period. With the publication of Q4 2018 results, Philips announced tostart a new share buyback program (of up to €1.5 billion) in 2019 for two years, before the previous program was finalized in Q2 2019.Taking into account the dividend payment in June 2019 (proposed dividend of €774 million, of which 42% was a share dividend), weexpect Philips to pay out to shareholders an amount of around €1.7 billion in 2019. This compares with our base-case expectationof cash from operations less capital spending of €1.2 billion-€1.5 billion in the next 12-18 months, which means that future sharebuybacks will limit Philips' ability to make acquisitions or invest in existing businesses without raising additional debt.
Exhibit 8
2019-20 share buyback will reduce Philips' ability to make acquisitions or invest in existing businesses without raising additional debt
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2016* 2017 2018 2019p 2020p
FCF (company definition, before dividends) Shareholder returns (dividends + share repurchases)
Source: Moody's Investors Service
Environmental, social and governance considerationsIn respect of governance considerations, Philips has a distinct track record of substantial capital allocation to shareholders, reflectedby shareholder returns, which exceeded the company's FCF at average in the last three years. This limits the company's ability tomake acquisitions or invest in existing businesses without raising additional debt. Furthermore, the company experienced legal issuesbecause of quality control problems in defibrillator manufacturing in the US weighing on its profitability. Concerning social aspects, thecompany benefits from underlying trends like growing and aging population as well as from increasing healthcare spend in developingmarkets.
Regarding environmental considerations, Philips has committed to becoming carbon neutral by 2020 and reducing its carbon footprintby 40% from 2007-15. During the same period, Philips increased its use of renewable energy from 8% to 55%. Hence, Philips appearsto be well positioned in this respect, and we do not expect environmental challenges to impact the overall credit profile.
Liquidity analysisStrong liquidity, anchored by monetization of stakes in non-core assetsPhilips' liquidity is solid, supported by €1.1 billion of cash and cash equivalents as of 30 June 2019. In February 2019, the companyextended the maturity of its €1.0 billion revolving credit facility (RCF) by one year to April 2024. The RCF was fully undrawn as of Q12019.
Available sources including cash on balance sheet, the undrawn RCF and funds from operations (projected at €2.3 billion in 2019) aresufficient to cover working cash (€0.6 billion, 3% of sales assumption), dividend (€0.4 billion, assuming cash dividend at historicallevels) and capital spending requirements (€0.9 billion) over the next four quarters. Furthermore, with its remaining stake of around12% in Signify as of July 2019, the company could generate an additional financial leeway of around €390 million.
Rating methodology and scorecard factors
The scorecard-indicated outcome from our Medical Product and Device Industry rating methodology (published in June 2017) is Baa1,based on our 12-18-month forward view. This is in line with the assigned rating.
7 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
Exhibit 9
Rating factorsRoyal Philips N.V.
Medical Product & Device Industry Scorecard [1][2]
Factor 1 : Scale and Diversification (20%) Measure Score Measure Score
a) Revenue (USD Billion) $21.4 A $22 - $23 A
Factor 2 : Business Profile (20%)
a) Diversity and Market Presence A A A A
b) Product and Market Characteristics Baa Baa Baa Baa
Factor 3 : Profitability (7.5%)
a) Return on Sales (NPATBUI / Sales) 7.9% Baa 7% - 10% Baa
Factor 4 : Leverage and Coverage (32.5%)
a) Debt / EBITDA 2.3x Baa 2x - 2.5x Baa
b) CFO / Debt 28.3% Baa 30% - 40% A
c) FCF / Debt 9.1% Ba 10% - 15% Ba
d) EBITA / Interest 12.1x A 12x - 15x A
Factor 5 : Financial Policy (20%)
a) Financial Policy Baa Baa Baa Baa
Rating:
a) Indicated Outcome from Scorecard Baa1 Baa1
b) Actual Rating Assigned Baa1
Current
LTM 6/30/2019
Moody's 12-18 Month Forward View
As of 9/13/2019 [3]
[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.[2] As of 6/30/2019(L).[3] This represents Moody's forward view, not the view of the issuer, and unless noted in the text, does not incorporate significant acquisitions and divestitures.Source: Moody's Financial Metrics™
8 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
Appendix
Exhibit 10
Select historical Moody's-adjusted financial dataRoyal Philips N.V.
EUR Millions
FYE
Dec-15
FYE
Dec-16
FYE
Dec-17
FYE
Dec-18
LTM
June-19
INCOME STATEMENT
Revenue/Sales 24,244 17,422 17,780 18,121 18,714
EBITDA 2,847 2,450 2,507 2,751 2,909
EBITA 2,058 1,907 1,947 2,179 2,553
EBIT 1,682 1,642 1,729 1,869 2,058
Interest Expense 377 338 250 229 211
BALANCE SHEET
Cash & Cash Equivalents 1,766 2,334 1,939 1,688 1,077
Total Debt 8,574 8,233 6,293 6,252 6,589
CASH FLOW
Funds from Operations (FFO) 1,895 2,435 2,250 1,933 2,405
Cash Flow from Operations (CFO) 2,020 2,413 2,309 1,766 1,865
Capital Expenditures (CAPEX) 900 601 688 712 821
Dividends 298 332 386 404 447
Retained Cash Flow (RCF) 1,597 2,103 1,864 1,529 1,958
RCF / Debt 18.6% 25.5% 29.6% 24.5% 29.7%
Free Cash Flow (FCF) 822 1,480 1,235 650 597
FCF / Debt 9.6% 18.0% 19.6% 10.4% 9.1%
PROFITABILITY
% Change in Sales (YoY) 13.3% -28.1% 2.1% 1.9% 5.8%
EBIT Margin % 6.9% 9.4% 9.7% 10.3% 11.0%
EBITA Margin % 8.5% 10.9% 10.9% 12.0% 13.6%
EBITDA Margin % 11.7% 14.1% 14.1% 15.2% 15.5%
INTEREST COVERAGE
EBIT / Interest Expense 4.5x 4.9x 6.9x 8.2x 9.7x
EBITA / Interest Expense 5.5x 5.6x 7.8x 9.5x 12.1x
EBITDA / Interest Expense 7.5x 7.2x 10.0x 12.0x 13.8x
LEVERAGE
Debt / EBITDA 3.0x 3.4x 2.5x 2.3x 2.3x
Net Debt / EBITDA 2.4x 2.4x 1.7x 1.7x 1.9x
[1] Metrics for 2016 have been restated with 2017 audited accounts; cash flow metrics for 2016 and 2017 include operating cash flow from discontinued operations (Signify).Source: Moody's Financial Metrics™
Exhibit 11
Philips' Moody's-adjusted debt breakdownPension and operating leases are the largest adjustments to Philips' debt
EUR Millions
FYE
Dec-15
FYE
Dec-16
FYE
Dec-17
FYE
Dec-18
LTM
June-19
Total Unadjusted Debt 5,760 5,606 4,716 4,821 5,818
Pension Adjustments 1,910 1,764 874 747 747
Operating Lease Adjustments 867 835 659 644 -
Other Standard Adjustments* 37 28 44 40 24
Total Adjusted Debt 8,574 8,233 6,293 6,252 6,589
*Includes guarantees.Source: Moody's Financial Metrics™
9 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
Exhibit 12
Philips' Moody's-adjusted EBITDA breakdownCapitalized development costs and operating leases are the largest adjustments to Philips' EBITDA
EUR Millions
FYE
Dec-15
FYE
Dec-16
FYE
Dec-17
FYE
Dec-18
LTM
June-19
As Reported EBITDA 2,289 2,308 2,645 2,795 3,006
Pension Adjustments 350 (63) (2) (4) (4)
Operating Lease Adjustments 289 193 189 193 97
Capitalized Development Costs (315) (318) (338) (295) (295)
Interest Expense – Discounting (35) - (22) (15) (15)
Unusual 269 341 31 75 122
Other Standard Adjustments* - (11) 4 2 (2)
Moody's-Adjusted EBITDA 2,847 2,450 2,507 2,751 2,909
*Includes equity-accounted income.Source: Moody's Financial Metrics™
Exhibit 13
Peer comparison
USD MillionsFYE
Dec-17
FYE
Dec-18
LTM
Dec-18
FYE
Apr-18
FYE
Apr-19
LTM
July-19
FYE
Dec-17
FYE
Dec-18
LTM
Jun-19
FYE
Dec-17
FYE
Dec-18
LTM
Jun-19
FYE
Dec-17
FYE
Dec-18
LTM
Jun-19
Revenue $20,089 $21,399 $21,352 $29,953 $30,557 $30,666 $12,444 $13,601 $14,204 $10,561 $11,127 $11,080 $27,390 $30,578 $30,935
EBITDA $2,833 $3,249 $3,318 $9,785 $9,984 $10,067 $3,554 $4,042 $4,191 $2,570 $2,843 $2,839 $7,186 $7,846 $8,123
Total Debt $7,557 $7,147 $7,504 $29,790 $29,468 $30,526 $8,758 $11,412 $10,006 $5,161 $4,998 $6,729 $31,691 $23,208 $22,802
Cash & Cash Equiv. $2,328 $1,930 $1,226 $3,669 $4,393 $5,080 $2,542 $3,616 $1,754 $3,394 $1,832 $2,925 $9,407 $3,844 $3,137
ROS (NPATBUI / Sales) 5.0% 7.3% 7.9% 10.3% 17.5% 17.8% 10.6% 29.3% 29.6% 8.5% 12.4% 12.8% -1.5% 7.6% 9.2%
EBITA / Int. Exp. 7.8x 9.5x 12.1x 7.1x 8.3x 8.7x 11.8x 12.2x 12.8x 11.2x 12.3x 12.3x 6.1x 7.3x 8.5x
Debt / EBITDA 2.5x 2.3x 2.3x 3.0x 3.0x 3.0x 2.5x 2.8x 2.4x 2.0x 1.8x 2.4x 4.4x 3.0x 2.8x
CFO / Debt 36.7% 28.2% 28.3% 17.1% 24.7% 23.2% 25.1% 24.7% 26.9% 40.8% 44.3% 29.1% 19.0% 27.5% 26.1%
FCF / Debt 19.6% 10.4% 9.1% 4.2% 10.8% 9.6% 9.7% 12.5% 12.4% 20.1% 20.9% 10.8% 9.3% 12.6% 8.9%
Baa1 Stable A3 Stable Baa1 Stable Baa1 Stable A3 stable
Royal Philips N.V. Medtronic, Inc. Stryker Corporation Baxter International Inc. Abbott Laboratories
Source: Moody's Financial Metrics™
Ratings
Exhibit 14Category Moody's RatingROYAL PHILIPS N.V.
Outlook StableIssuer Rating Baa1Senior Unsecured Baa1Commercial Paper P-2
Source: Moody's Investors Service
10 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDITRISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THERELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITYMAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEEMOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’SRATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDITRATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAYALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDITRATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONSARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONSCOMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONSWITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDERCONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FORRETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACTYOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW,AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTEDOR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANYPERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSESAND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as wellas other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information ituses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However,MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for anyindirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use anysuch information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses ordamages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of aparticular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatorylosses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for theavoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents,representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDITRATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (includingcorporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating,agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintainpolicies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO andrated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually atwww.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s InvestorsService Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intendedto be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, yourepresent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly orindirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as tothe creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’sOverseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a NationallyRecognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by anentity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registeredwith the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferredstock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it feesranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
REPORT NUMBER 1194709
11 19 September 2019 Royal Philips N.V.: Update to credit analysis
MOODY'S INVESTORS SERVICE CORPORATES
Contacts
Stephan Wulf +49.69.70730.856VP-Senior [email protected]
Christian Hendker, CFA +49.69.70730.735Associate [email protected]
Svitlana Ukrayinets +49.69.70730.920Associate [email protected]
CLIENT SERVICES
Americas 1-212-553-1653
Asia Pacific 852-3551-3077
Japan 81-3-5408-4100
EMEA 44-20-7772-5454
12 19 September 2019 Royal Philips N.V.: Update to credit analysis
