Philips Finishes a Turbulent 2021; Uncertainty Still High During 2022; Maintaining FVE

As expected, Philips’ fourth-quarter results were weak, after a profit warning was released last week due to supply chain issues. Fourth-quarter sales came in at EUR 4.9 billion, a 10% organic decline, whereas adjusted EBITA margin was 13.1%, a 590-basis-point decline compared with the same quarter last year. For 2022 management expects 5% to 6% growth excluding the sleep and respiratory business and 3% to 5% overall, which implies a high-single-digit decline for the sleep and respiratory business in 2022, as the firm continues to address the product recall situation. Quarterly revenue growth trends will differ during the year, with revenue declines in the first part of the year being offset by an acceleration in the second half. Management provided a wide range for margin expansion in 2022, from 40 to 90 basis points, explained by the uncertainty in supply chains and product recall situation. We forecast margin expansion to be in the low part of the guided range for 2022, in line with management’s comments that they remain “cautious as they manage through the headwinds." We are maintaining our EUR 39 fair value estimate, but we will continue to closely monitor Philips during 2022. Our narrow moat rating remains intact.