Koninklijke Philips N.V.

The more serious than previously expected supply chain issues come on top of already known extraordinary costs related to the group's repair and replacement program for respiratory devices. As a result, we anticipate a steep reduction in profitability and negative free operating cash flow (FOCF) for the full year despite the expected improvement in the fourth quarter, which is typically the strongest in terms of profit and cash flow for Philips. We believe that S&P Global Ratings-adjusted EBITDA margins will fall to about 8% in 2022 from 11% in 2021 and 15% in 2020. We also expect the group will report materially negative FOCF of up to €600 million in 2022 and total cash consumption of up to €2 billion

...Philips' 2022 performance was impaired by operational and supply challenges. According to Philips' Q3 2022 reporting, the group's limited ability to source critical components to finish orders has not dissipated. For third-quarter 2022, group sales amounted to 4.3 billion, with a 5% comparable sales decline, while income from operations stood at negative 1.5 billion, mainly due to a 1.5 billion noncash goodwill and research and development (R&D) impairment, compared to positive 358 million in third-quarter 2021. Group adjusted EBITA totaled 209 million, or 4.8% of sales, versus 512 million, or 12.3%, in third-quarter 2021. Positively the book-to-bill ratio stood at 1.18, and the equipment order book expanded in the quarter to an all-time-high. The more serious than previously expected supply chain issues come on top of already known extraordinary costs related to the group's repair and replacement program for respiratory devices. As a result, we anticipate a steep reduction in profitability...

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