Q3 2024 Koninklijke Philips NV Earnings Call
Okay.
Speaker Change: Welcome to the Royal Philips third quarter 'twenty 'twenty four results conference call on Monday October 28, 2024.
Speaker Change: During the call hosted by Mr. Raul Jacob C O M. Michel it hadn't them and CFO, all participants will be in a listen only mode.
Speaker Change: After the introduction there will be an opportunity to ask questions. Please note that this call will be recorded and a replay will be available on the investor relations website of Royal Philips.
I'll hand, the conference over to Mr. Leandro Massoni head of Investor Relations. Please go ahead Sir.
Leandro Massoni: Hi, everyone welcome to Philips third quarter 2024 results webcast I'm here with our CEO, Raul Jacobi, and our CFO Charlotte Panama and.
Leandro Massoni: The press release and Investor deck were published on our Investor Relations website. This morning, the replay and a full transcript of this webcast will be made available on the website after the call as well.
Leandro Massoni: Before we start I want to draw your attention to our safe Harbor statement on screen you.
Leandro Massoni: You'll also find the statement in the presentation published on our Investor Relations website.
Speaker Change: I'll hand, it over to Roy.
Roy: Thank you Leandro.
Roy: Good morning, everyone and welcome to the call.
Roy: I want to start with the key highlights of this morning's release.
Roy: We delivered strong improvement in profitability in the quarter.
Roy: While sales were flat and <unk> slightly decreased as demand from hospitals and consumers in China further deteriorated.
Roy: We expect impact from China to continue.
Roy: Therefore, we have lowered our full year sales outlook.
Roy: At the same time, we expect adjusted EBITDA margin to be at around 11, 5%.
Roy: Upper end of the current outlook range.
Roy: With an ongoing challenging macro environment.
Roy: We remain focused on successfully executing our three year plan to fully capture growth and margin expansion opportunities.
Speaker Change: Patient safety is our number one priority we are committed to delivering better care for more people.
Speaker Change: Onto the key financial and performance highlights.
Speaker Change: Group of comparable sales were flat on the back of 11% growth in Q3, 2023, and further deteriorated demand in China.
Speaker Change: On the back of growth last year, we recorded strong sales and order decline in China.
Driven by a further decline in consumer and wholesale demand.
Speaker Change: This was beyond our China scenario from July.
Speaker Change: Where we assumed stabilization of China, while it's timing of improvement was uncertain.
Speaker Change: We continue to deliver solid sales growth outside of China.
Speaker Change: Orders decreased 2% also due to the decline in China.
In the quarter diagnosing treatment orders remained solid outside of China, driven by in particular North America.
Speaker Change: Also year to date, our orders grew 1%, including China.
Speaker Change: And we still expect order growth in the full year, including China, driven by the strength of the rest of the world.
Well there is certain uncertainty.
Speaker Change: In China that remains.
Speaker Change: We delivered a strong adjusted EBITDA margin improvement of 160 basis points, driven by our continued progress on our execution priorities.
Improved gross margins from our industry, leading innovations and higher royalty income.
Our free cash flow was 22 million euros, driven by higher earnings and offset by working capital outflows, mainly due to seasonal phasing.
Speaker Change: We remain confident in our ability to drive further operational improvement.
Speaker Change: While the uncertainty signaled in earlier quarters have intensified in China and these are expected to continue.
Speaker Change: Focusing on China.
Speaker Change: In personal health we.
Speaker Change: We saw a strong double digit decline and set out to consumers in the quarter.
Speaker Change: Based upon low consumer confidence and lack of big shopping festival sales.
Adjusting to the new sellout run rate led to a substantial reduction in our sell in volumes.
Speaker Change: We expect overall consumer sentiment to remain subdued in China.
Speaker Change: <unk> saw it in the U S and international markets.
Speaker Change: In China hospitals, the industry wide anti corruption measures and lack of impact of the national renewal program continued to significantly affect order and lead times.
Speaker Change: This also impacting modalities for shorter lead times like ultrasound and therefore had an immediate impact on sales growth in the quarter.
Speaker Change: Visibility around the continued impact of the anticorruption measures and timing of the government program remains limited.
Speaker Change: While the market conditions are expected to remain uncertain and China is a fundamentally attractive growth market for Philips with strong underlying demand.
Speaker Change: Our order funnel is active in the country.
Speaker Change: And our commitment to local for local approach combined with our industry leading innovations.
Speaker Change: Focus on execution with excellence day.
Understanding consumers and strong brand.
Places as well to.
Speaker Change: To respond to demand as it returns.
Given the uncertain market conditions in China, we updated our outlook for the full year to a range of 0.5 to one 5% comparable sales growth for the group.
Sales growth outside of China remains within the guided range of 3% to 5%.
Speaker Change: We expect that our adjusted EBITDA margin to be at around 11, 5%.
Speaker Change: The upper end of the current range, reflecting stronger margins from our industry, leading innovations our financial discipline and focus on productivity.
Speaker Change: We expect free cash flow to be around <unk> nine.
Speaker Change: <unk> 9 billion euros at the lower end of the current range.
Speaker Change: But in an ongoing challenging macro environment. We are fully focused on successfully executing our three year plan to drive value.
And to date, we remain ahead of that plan.
Speaker Change: I am confident that our innovative portfolio is well positioned to help hospitals worldwide addressing their staffing shortages and highest productivity and improve patient and staff experience.
Speaker Change: As it got recently also confirmed in my customer visits in Asia, Canada, and the U S.
Speaker Change: Our leading innovations are providing superior care for patients and consumers.
Speaker Change: Let me now provide you with some of the customer innovation milestones during the quarter.
Speaker Change: Grilling clinic in the U S will expand chronic care access through 11 specialized Philips interventional suites, allowing physicians to treat patients with complex cardiovascular conditions closer to home.
Speaker Change: We expanded our next generation cardiovascular ultrasound platform with FDA clearance of two important AI algorithms to enhance structural heart disease explanations as part of the global rollout of this technology.
Demonstrating our innovation leadership in minimally invasive treatments, we secured FDA approval for the new Lumi guide navigation wire, which uses fiber optic technology to reduce radiation for both patients and physicians during Maine minimally invasive surgery.
Personal health, we launched our AI powered event premium connected baby monitor which offers cry translation and sounds like your technology to track sleep breathing and movements, giving parents peace of mind.
Speaker Change: And finally last month, we welcomed investors and analyst for show and tell you can hear in Netherlands, followed by focused ESG site visit.
Events provided a comprehensive update on the fundamentals of our businesses.
Speaker Change: And of our exciting innovations and included in depth discussions and engagement with our leadership team.
Speaker Change: Want to thank again investors, who made the effort to spend a day and a half with us youre engagement was incredibly valuable.
I would like to continue with the progress we have made on our execution priorities.
Speaker Change: Patient safety and quality.
As part of strengthening our culture early this month together with all entities, we spend a full day, reflecting on the importance of patient safety and quality the progress made and the journey ahead of us to continuously deliver meaningful results.
Speaker Change: We continue to see a substantial reduction in the total number of capacity and improvements in our complaint management process in the quarter.
Speaker Change: Including myself personally have had multiple engagements with the FDA in the quarter to discuss progress made in what is more to do.
Speaker Change: Philips remains committed to patient safety and quality and we'll continue to engage with FDA and other regulators on the shared mission to assure delivery of safe and effective care for patients.
With respect to our supply chain, our lead times are back to normal across all modalities.
Speaker Change: As mentioned before.
Speaker Change: Service levels continue to increase.
Speaker Change: Going forward, we continue to focus on supply reliability and on improving the flexibility of our network and supply base, including further regionalization and localization.
Yeah.
Speaker Change: Finally, our simplified operating model focused on a leaner organization and that is resulting in faster and more agile decision, making with productivity improvements of over $1 5 billion euros to date also on the back of a reduction of almost 10000 roles.
Speaker Change: At the same time, we continue to journey to drive our culture of impact with care building the right team withheld tech capabilities.
Speaker Change: The last 12 months, our engagement score went up significantly and we see growing confidence from our employees and all our stakeholders.
Speaker Change: Now over to Charlotte to take us through the Q3 financials and outlook in more detail.
Thank you Roy and good morning, everyone and thank you for joining us today.
Charlotte Panama: I am very pleased to be speaking with you for the first time as Philips CFO.
Before we dive into the financial results I'd like to take a moment to introduce myself and share a bit about my background for those of you I didn't meet at a recent show in town.
Charlotte Panama: I took over the reins as CFO earlier this month after over 20 years working in various financial leadership roles across the metric in pharmaceutical industry with a focus on supporting strategic growth initiatives driving operational efficiency and managing large scale transformations.
Charlotte Panama: I joined Philips because I believe in the company's mission of delivering better care for more people and see significant opportunities ahead, I look forward to working closely with Roy and the entire executive committee to successfully execute our plan to create value with sustainable impact and drive financial discipline.
Speaker Change: With our third quarter financial performance.
Speaker Change: Our comparable sales were flat in the quarter and orders decreased 2%.
Speaker Change: Due to a decline in China.
Speaker Change: Year to date order intake was 1% despite a double digit decline in China.
Still expect order growth in the full year driven by strength in the rest of the world uncertainty remains in China.
Speaker Change: As a reminder, orders and order book accounts for around 40% of our revenue.
Speaker Change: Meaning 60% comes from growing that recurring revenue streams, such as services and consumables from book to Bill business and from personal health.
Speaker Change: Now I'll provide some highlights around our quarterly segment performance.
Speaker Change: Diagnosis and treatment of comparable sales decreased 1% on the back of 14% growth in Q3 2023.
Speaker Change: We delivered solid growth outside of China, with both image guided therapy and precision diagnosis businesses contributing.
The adjusted EBITA margin of 12, 6% was in line with last year, despite lower sales driven by improved operational performance pricing and productivity measures.
Connected care comparable sales were flat.
Speaker Change: And enterprise informatics, notably in North America and growth in sleep and respiratory care were offset by a low single digit decline in monitoring on the back of high teens growth in Q3 2020.
Speaker Change: Connected care adjusted EBITDA margin increased by 360 basis points to seven 3% with improvements across all businesses, including an encouraging step up in sleep and respiratory care.
Speaker Change: Personal health comparable sales decreased 5% Q2, a double digit decline in China outweighing robust performance elsewhere.
Speaker Change: Adjusted EBITA margin decreased year on year to 65% as operational performance improvements only partially offset the lower the impact of lower sales year.
Speaker Change: Year to date, the adjusted EBITA margin improved by over 100 basis points.
Speaker Change: Sales in segment other were 41 million euros higher than in the third quarter of 2023, driven by royalty revenues.
Speaker Change: Turning to operating highlights in the quarter.
Speaker Change: Adjusted EBITDA margin for the group improved substantially with 160 basis points in the quarter to 11, 8% driven by stronger gross margins from our industry, leading innovations continued financial discipline higher royalty income and our productivity measures.
Speaker Change: Adjusted EBITA margin improved 80 basis points in the segment with higher royalties in segment other contributing another 80 basis points.
Speaker Change: Our productivity initiatives delivered savings of 188 million in the quarter of which <unk>.
Speaker Change: Operating model savings were $54 million procurement savings of $58 million and other productivity programs delivered $76 million, partially offsetting wage and component price inflation.
Speaker Change: Since the start of the plan in January 2023, we delivered over $1 5 billion euros and are on track to achieve savings of $2 billion earlier than anticipated.
Speaker Change: The effective tax rate was 24% in the quarter net income tax expense increased by 33 million euros year on year, mainly due to lower tax benefits and higher income before tax.
Financial income and expenses were a net expense of $69 million 6 million lower than last year, driven by higher interest income.
Speaker Change: On page 18 of our slide deck, you will also find our full year outlook for these items.
Speaker Change: Moving onto the balance sheet, we ended the quarter with approximately $1 5 billion euros of cash and net debt of about $6 5 billion.
Leverage ratio improved from two five times to two two times compared to Q3 2023 and the net debt.
Speaker Change: Debt to adjusted EBITDA basis.
Speaker Change: Adjusted diluted EPS from continued operations were 32 euro cents in the third quarter and increased 9% year to date, mainly driven by higher earnings.
Speaker Change: Free cash flow in the quarter was 22 million euros, driven by higher earnings offset by working capital outflows due to seasonal phasing.
Speaker Change: Based on our year to date performance and the deterioration of demand we're seeing in China. We now expect full year 2020 for comparable sales growth in the range of 5% to one 5% for the group as mentioned by Robin.
Speaker Change: At a business level, we expect connected care sales growth at the lower end of the range of 3% to 5%.
Speaker Change: Slight growth in diagnosis and treatment of flat to slight decline in personal health.
Speaker Change: We structuring charges and other items are expected to be in line with the outlook provided earlier this year.
Speaker Change: Given our continued execution and financial discipline, we expect full year adjusted EBITDA to be around 11, 5% of sales, which is a 90 basis points year on year expansion.
Speaker Change: We expect full year free cash flow of around 0.9 billion euros at the lower end of the range as a result of lower sales outlook, while continuing to drive working capital improvements.
Speaker Change: As mentioned earlier this year, our free cash flow outlook includes the receipt of 540 million euros from insurers.
Speaker Change: Cover restaurant repo related product liability claims of which the majority is expected to come in the fourth quarter.
Speaker Change: Remaining payments related to the economic loss settlement in the U S made earlier. This year is also included in this outlook.
Speaker Change: With that I would like to hand, it back to Brian for his closing remarks. Thanks.
Brian: Thanks, a lot.
Brian: Let me close out by repeating the key messages of today.
Speaker Change: We delivered strong improvement in profitability in the quarter with flat comparable sales and slightly lower orders as demand from hospitals and consumers in China further deteriorated.
Whilst we see growth in the rest of tools.
Speaker Change: We continue to make strong progress on enhancing execution and improving what's in our control.
Speaker Change: External uncertainty intensified.
Speaker Change: We expect the impact from China to continue.
Speaker Change: Therefore, we have revised our full year sales outlook.
Speaker Change: At the same time, we expect adjusted EBITDA margin to be at the upper end of the current outlook range in cash at the lower end of the range.
Speaker Change: But in an ongoing challenging macro environment.
<unk> remained focused on successfully executing our three year plan to create value and to date, we remain on sales margin and cash.
Speaker Change: We also have achieved significant milestones and resolving the consequences of the restaurants vehicle.
Speaker Change: I am confident that our portfolio innovations and increase operational agility positions us well to continue to capture growth and margin opportunities globally and.
Speaker Change: And to respond when demand returns in China.
Speaker Change: With that I would like to thank you for joining the call. We will now take your questions.
Thank you Sir.
Speaker Change: If any participant would like to ask a question. Please press the star followed by two times one on your telephone.
Speaker Change: Due to the time, please limit yourself to one question Keith.
Speaker Change: Keith.
Speaker Change: <unk> will give more people the opportunity to ask questions.
Speaker Change: There will be a short pulse swallow participants register for questions.
Speaker Change: We will now go to the first question yes.
Speaker Change: Your first question comes from the line of Richard Felton from Goldman Sachs. Please state your question.
Richard Felton: Thanks, Good morning for taking my questions just two for me. Please the first one is on the hospital equipment business in China.
Richard Felton: What extent do you think the softness in your business in Q3 was driven by overall market market weakness or was there any philip specific issues or market share losses that may have exacerbated the weakness this quarter.
Richard Felton: My first one the second question is on gross margin. Obviously, you had nice improvement year on year in Q3, despite less benefit from operating leverage.
Richard Felton: Maybe quantify some of the drivers of that margin improvement year on year, and whether we should think about those as a.
Richard Felton: One off full reasonably durable drivers of margin expansion. Thank you.
Speaker Change: Thank you Richard let me start with China.
Speaker Change: So I think what we see is really a market development.
Speaker Change: And as I said I think the difference was that we expect a stabilization at when we were in July and what we've seen is deterioration, meaning that there is prolonged uncertainty and just the orders are not flowing yet into the market and that also doesn't prohibit sales to kind of strengthen and thats something that we.
Speaker Change: Kind of have noticed in due course.
Speaker Change: Quarter and as we also messaged, we don't see that visibility currently increasing the.
Speaker Change: The same time, our order funnel remains active we are in active dialogue with customers I also go back to China in two weeks so.
Speaker Change: We remain active on the ground, but the visibility is low and we have seen across market mentum that has not yet been picking up.
Speaker Change: On the gross margin.
Speaker Change: I think maybe Charlotte you can you can take the question yes. Thank you.
And indeed, we are very pleased with our operating margin expansion in the quarter, particularly driven by by gross margin and a few things I would highlight that really point to the durability of that gross margin expansion first of all we see an improvement coming from innovation we.
Charlotte Panama: We see improved gross margins from innovation and I point to a few of those innovations that we've done recently like VM 11 in ultrasound and also neuro.
Charlotte Panama: And Julian in the pipeline and then second of all we do see operational improvements as well.
Charlotte Panama: As a result of the normalizing supply chain and the third point I point to is really our continued financial discipline as we focus on what's within our control.
Speaker Change: Alright, thank you.
Speaker Change: Got it.
Speaker Change: You see that all businesses gross margin goes up.
Speaker Change: And we also are on a continuous part of margin improvement since the beginning of the plan you have seen that of course, we have been having a very strong handle on what we can control and for sure that SD innovations in our margins it generates.
Speaker Change: The productivity actions we've been taking.
Speaker Change: And also the.
Speaker Change: And the leaning out of the organization. So that is something that's that you're hoping to.
See Darling and consistently over the period.
Speaker Change: Intuitive in terms of results that also means.
Speaker Change: Of course plan to date and also for the full year Youll see us integrating the strong confidence in our margin delivery. So I think that.
Speaker Change: It's being.
Driven by the underlying factors that also on a business level.
Been materializing alongside.
Speaker Change: The trajectory.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question goes to the line of Hudson <unk> from Barclays. Please state your question.
Speaker Change: Good morning, and thank you for taking my questions I have.
Three please firstly on China can you talk about the quantum of deterioration in Q3 orders versus Q2. Your current base case for Q4.
Speaker Change: How does it differ by modality and when do you expect to see any stimulus benefit based on your customer conversations if at all.
Speaker Change: Lee.
Speaker Change: Against the backdrop of 1% order growth year to date, how are you thinking about the achievement of 2025 targets given the worsening China.
Speaker Change: Thirdly, how is order momentum trending outside of China, particularly in the U S and how confident are you in driving this post RSA and into next year, perhaps providing some offset against.
Speaker Change: China weakness persisting into 2025, thank you.
Speaker Change: Thank you.
Speaker Change: For the question. So let me start with the first one so in China.
Speaker Change: I think what is important to call out when we talk China, It's two drivers that really.
Speaker Change: I'm going to show deterioration.
Speaker Change: The hospital side, but for sure. It has been also the consumer side and that has also been quite rapid decline because actually as you know.
Speaker Change: Bonding to the sellout trends and what we have seen happening is that actually based on already a slower first half.
Speaker Change: Confidence further deteriorated in Q3, including then also the adjustment of the expectations of sales and in particular also for the Big days and 11 11 upcoming so you saw that the consumer kind of decline was significant.
Speaker Change: And also I think worse than we expected.
Speaker Change: Mid year and on the hospital side, we see that kind of visibility on what's happening on the ground still remains low in terms of when it really materializes. We are closer to customers. We have been working on order funnel. We also kind of have been preparing some of the less to go into call. It the request for the renewal program. We just.
Speaker Change: Don't have seats coming into the.
Speaker Change: The customers for decision, making and that's something that is regardless of modality, but there are different impacts per modality because across the modality of course, you have some that have an immediate impact even in the quarter and a half year when the.
Speaker Change: The order does come like the shorter cycle businesses. So you saw some more pressure on dose also from a sales perspective, and then you have also the impact of course from the prolonged kind of delaying orders that we have seen for example in IGT.
Speaker Change: And in the press.
Speaker Change: <unk> diagnosis, so I think that is.
Speaker Change: The trends that we've seen across the markets, which we believe are truly a market phenomenon phenomena, we keep bearing well for China. When it comes back so actually we expect that.
Speaker Change: That's when it returns we are well positioned but our local innovations with the customer proximity that we have.
Speaker Change: But I think until that and that may be is a nice bridge to what you also asked for and what we're doing outside that it's really for us important to drive that momentum outside of China and Dear as we also shared in the updates we have seen strong momentum actually yesterday order intake indeed, including China.
Speaker Change: It's 1%, but there is a distinct different pattern between double digit decline in China, and then within our range.
Speaker Change: Growth outside of China, and we are in outside of China, and particularly piece with more America, because theyre actually we see even a faster order growth than in some other parts of the world on the back of a very strong North American market in health care market. We also actually see the consumer market strengthening so we are dialing up our kind of base in north.
Speaker Change: America across the businesses you saw of course, a D&C order intake.
What's particularly encouraging in North America in this quarter, but also if you look on a year to date, we have had a very strong order growth in America and we also expect full year to close out a.
Speaker Change: Strong performance and that of course sets us up also for further growth in that important market.
Speaker Change: And that also relates to kind of at 2025, whilst we have multi year to guide for 2025, I think it's important that.
Speaker Change: The progress that we have been making on the plan really underpins also our 2025, so it's actually where we will remain very focused on firstly, what we can control, which is driving strong continuing margin expansion delivering on the cash growing outside of China, and then China.
Speaker Change: Kind of look into depending on one clarity comps further on the China momentum.
Speaker Change: So thats something thats kind of where rates are focused on.
Speaker Change: And that also sets us up for continuing to deliver on the plan because also on that note I think it's important that if you look on the delivery on the plant to date, we have been over delivering on growth sales on margin on cash and of course, we also have in really clarifying some of the uncertainties and risk.
Speaker Change: That they were at the beginning in 2023, so we stick to the plan focusing on driving strong innovations improving the margins of those innovations that we see really now coming through in gross margin and then actually too.
Speaker Change: To look at where we can capture the growth and really capitalize on that.
Speaker Change: Talk about North America, but I've also I've been to Indonesia, where we have been dialing up growth and we are going after strengthening the performance in the market and not only there that are at a positive role that also give those opportunities that.
Speaker Change: We are fully gone after.
Yeah.
Speaker Change: Perfect. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of David Adlington from Jpmorgan. Please state your question.
David Adlington: Good morning, guys take the questions Firstly, maybe just on.
David Adlington: Other mature geographies, which were down 10% in sales I think maybe if you could pull out.
David Adlington: The areas of weakness there.
David Adlington: And just following on to that also in North America, and 1% growth just maybe to split it out by.
David Adlington: Personal health and beauty and then secondly, just intends to restructuring charge of 165 million coming in Q4 with $100 million.
David Adlington: Connected care, mostly on the asset impairment I think.
Speaker Change: Firstly, why don't take that in Q3, and secondly, any further color you can give us around that impairment will be useful. Thank you.
Yes.
Speaker Change: Yes. Thank you David let me take those questions. So first your question around the other mature geographies that is really driven by a very strong comparable that we saw in Q3 of 2023.
And also a little bit of softness in Japan as well.
Speaker Change: So moving onto your second question around the adjusted items as I said in my in my prepared remarks, there is no change to the full year outlook, we provided for our incidental. So it's still in line with 330 bps. We are we said earlier, we're having here and of course connected care is a very big part of this as that work.
Speaker Change: Some degree related charges Respironic field actions charges and what have you.
Speaker Change: So really if you look at Q4, our 100 million guidance for connected care doesn't really stand out much we've seen some higher numbers, we've seen some lower numbers and Theres really no further impairment included in those numbers either.
Speaker Change: And we're really laser focused on driving the same financial discipline that we're driving in our adjusted EBITA margin also in our adjusted items as well.
Speaker Change: And then maybe just to break down our North American growth.
Speaker Change: Maybe by personal health.
Speaker Change: PMT.
So we see growth actually in both sites in North America. So actually that is something that we have.
Speaker Change: Actually seed also dialing up in both areas. So kind of personal health started the year a bit slower but actually is.
Speaker Change: It's coming up.
Speaker Change: And then also now we see that.
Speaker Change: The health system side based upon the strong order intake is coming up also to be noted were coming off very strong double digit comparable last year and that of course Q3 last year was a very strong quarter.
Speaker Change: Liquidating the backlog and that's something that you're kind of working against in terms of the comparable but if you look underlying we see the momentum growing both in consumer as well as in the health system side and also our core segments.
Speaker Change: Alright, thank you.
Thank you.
Speaker Change: Our next question comes from the line of Lisa Clive from Bernstein. Please state your question Lisa.
Lisa Clive: Hi, there.
Lisa Clive: Question one.
Lisa Clive: About pricing over the next.
Lisa Clive: One to two years my understanding is like for like slightly negative.
Lisa Clive: Due to trying to offset the costs in place then it's more flat to slightly positive now.
How do you think that will evolve.
Will your sales force in regard to discounting, perhaps Kevin by payer behavior or do you think we're sort of in a somewhat new norm in terms of like for like pricing trends on equipment and then a second question.
Around your imaging business.
You saw a lot of market share losses in several modalities, namely <unk> and <unk> during the pandemic now that your supply chains and stabilized et cetera, how are you doing relative to peers and.
Do you think you can regain.
Lisa Clive: Lost ground in the next year.
Speaker Change: Yes, let me take the first question Lisa Thanks for your question I'll take the pricing our pricing one. So indeed as you said in Q3, we did see a pricing benefit both in diagnostic and treatment as well as in connected care as we still see the higher prices flowing through from our order book into into our P&L, which is.
Lisa Clive: Really helped our margin our margin development.
Lisa Clive: So if you if you look at the outlook, we have to see how it goes in the next in the next quarters and we have to see.
Our difficult from a competitive standpoint, so we remain a little bit fluid. However, what I would say is that we've seen and continue to see very good progress with the material price reductions, which helped improve our gross margin as I noted earlier.
Lisa Clive: And then maybe from a ph perspective, we don't really see further pricing upside given the subdued consumer sentiment, but we are staying on top of any inflation development. So that we might see.
Lisa Clive: So let me maybe take the second one so on the I. Indeed, it was important that based upon our progression of supply chain that we're fully back with that with the lead times now.
Lisa Clive: And also the strong innovation momentum we are seeing both an EMR with Blue shield.
Lisa Clive: With the new launch of the 501, hundreds with AI to really kind of drive productivity in the spectral but also actually DSR renewed portfolio that we launched last year actually is really gaining momentum. So we see actually that we also kind of climbing back and that's also something that you saw for example in the DMT order intake in North America. This quarter, which was strong so we see kind of for you.
Lisa Clive: In roads.
Lisa Clive: So we are fighting back on that on that front based upon the innovations, but also to better execution ability that we have been working on very strongly.
As you know for.
Lisa Clive: DMT, China is important as well so we remain focused on kind of getting ready for when the demand returns and then the IGT side has throughout being very strong.
Lisa Clive: Continue to kind of see the momentum there also now with the newly launched neuro suites and the pipeline.
Lisa Clive: As well as the device business, where we see strong momentum based upon the procedural growth you saw that we got to Lumi Guide now approved by the FDA, that's not a really unique proposition.
Lisa Clive: Proposition that we will add to the portfolio now to support our growth.
Lisa Clive: Growth in the device space. So actually we are building that momentum and that's also how we have been seeing it growing.
Lisa Clive: And the total order book.
Speaker Change: Okay. Thanks, I'll hop back in queue.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Graham door from UBS. Please state your question.
Good morning, Thank you.
Speaker Change: Just a couple of questions.
Speaker Change: Both related to China, just firstly I mean, some of the comments from your peers over the last kind of month or two signage like they were kind of grown in confidence I'm seeing a little bit more certainty in the Chinese market.
Speaker Change: From your perspective do you think there is less certainty now or less visibility than there was maybe a quarter ago.
Speaker Change: Got it kind of sounds like that so we just got to get a sense as to where you think you are in that.
Speaker Change: Frequent or not improvement of the backdrop.
Speaker Change: And then just when you think beyond.
When demand does come back and we're in a kind of a switch.
Speaker Change: Normal environment.
Speaker Change: Are you expecting that environment to be different. So for example, we've seen as part of the seamless theres a little bit more tendering that's going to happen at this time. So do you expect more measures like that to be in place do you expect any shifts in the competitive dynamics just to understand.
Speaker Change: What youre thinking about when you think when you kind of continue to say China remains attractive. Thank you.
Thank you Graham so on the visibility.
Speaker Change: Actually and that's also what we reflect that visibility for US remains at this point in time kind of difficult right. So you kind of it's hard to predict what is happening exactly I think when we have more mid term. We said has gone up we expect at least stabilization that was also kind of back.
Speaker Change: <unk> on the government.
Speaker Change: That was saying we want this program to materialize in 2024.
Speaker Change: Is that 2024 is running out and if it has to kind of materialize that theres not a lot of time left and Thats actually something that we did see in 2024, So that's where we're at for the moment we.
Keep at the point that we say visibility is limited.
Speaker Change: And that means that indeed, we then have to prepare more on the fundamentals have where we have been ensuring that we have the local for local innovation that we are close with customers on a photo and if you talk about the fundamentals that we need to be prepared for and Thats also something that we're hearing back from our customers. These new procedures that are being implemented happily implemented I think we will have a prolonged period.
Speaker Change: Of impact, meaning that duration of approvals, we'll get longer.
Speaker Change: Depending where there's just more oversight will.
Speaker Change: We will take it will take more.
Speaker Change: We have not seen the specification.
Speaker Change: Change so we feel fully entitled to compete with our portfolio, we know that accident year significant demand that we were leading with it for example, the blue shield and even also the spectral interest in China very strongly so an ultrasound traditionally has been a very strong business for us as well. So we don't see that necessarily changing in terms of competitive.
Speaker Change: Dynamics, we have said earlier that the longer term growth prospects of China long term attractive. Although we also said that it's not a China that we know from 10 years ago, because just the macroeconomic environment in China is different right and thats the whole market and the whole kind of economy that is growing at a strong and therefore and that also has some impact on the spend in the <unk>.
Speaker Change: <unk> segments that we see coming in that does not mean that it's not attractive it doesn't mean that it will be.
Speaker Change: Attractive in the near future when it comes back the only visibility we don't have and that means that we continue to focus on the rest of the world to Dialup momentum there.
Speaker Change: As we also have seen happening in due course.
Speaker Change: Of this of this year and then finally, maybe on China. If you look at some of the underlying diseases like cardiac like neuro the significant interest rate and we are working also with IGT suite some of our imaging suite.
Speaker Change: To see kind of how we can build on the practice that we have had outside of China and the staff shortages are very significant. So also some of the AI solutions like smart speed in order to really add value.
Speaker Change: In that market and what you also know from our share development to date in China IGT, we have been growing share we were kind of challenged a bit with our supply chain challenges also Adi now we are fully back there and have ramped up that supply chain also in China.
Speaker Change: Got it.
Speaker Change: Give us full opportunity to play part of the momentum if it comes back.
Okay, Great. That's really helpful. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Hugo <unk> from BNP Paribas Exane. Please state your question.
Speaker Change: Hi, Hello, Thanks for taking my questions I have three please.
Speaker Change: Follow up on China, just ROI on your comments around the vanilla folder.
Speaker Change: Doug just a function of more meetings with customers continued strong interest.
Speaker Change: Actually all dose.
Speaker Change: Slowly, but surely moving into the execution phase and you can explain a bit of what type of modalities youll see.
Speaker Change: For the full dose for <unk>.
Speaker Change: <unk> on 2025 follow up to <unk> question on much of the 2025 targets relies on China picking up now and comfortable.
Speaker Change: Do you think you all with consensus forecasts team at H B.
Speaker Change: Margin improvement given the uncertainties in the country, but also the <unk>.
And if you saw the efficiency plan will deal the rent and Leslie.
Speaker Change: Sleep and respiratory care.
Speaker Change: I think margin was progressing sequentially Q1, and Q2 could you maybe let us know where you are in terms of profitability for that business and what the right sizing of that business that have been in Q3 exactly. Thank you.
Speaker Change: Yes. Thank you.
Speaker Change: Let me go into your different questions. So on China, So on the <unk>.
Speaker Change: Order funnel, so that's kind of based upon our discussions with customers and as a result, what are the opportunities that we have in our books.
Speaker Change: We expect.
Speaker Change: To materialize when China comes back that is not yet of flowing into the China customers and approvals because that's actually where the lack of also shows in the decline of orders and the decline of sales in the market. So I think there is.
Speaker Change: Nearly a difference between the activities the customer needs. The discussions we are having.
Speaker Change: And also then how that materializes and how it materialized.
Speaker Change: Quarter, three and also we have taken that into Q4.
Speaker Change: And I will be back in China, and next week, there will be a big at China Expo, which we are part of and we are also invited for so the momentum in terms of the dialogues keep happening, but we see just the kind of flow through in terms of real orders and then sales that's where the current slowdown is hitting us.
Think hitting the market in full set.
Speaker Change: Secondly, if you look to 2025.
There we are not guiding for any 2025 <unk>. So what I said before we remain fully focused on executing the three year plan that we own which we also have seen is working we are plan to date.
Speaker Change: We are kind of demand.
Speaker Change: Demand in the rest of the World remains solid and that is all set where you saw that we got at forties range. This year, we continue to build on that momentum.
Certainties in the.
Speaker Change: That we signaled earlier in China intensified and we expect to continue so that there is an impact. We also expect into 2025, but again too early to discuss specifically done if you look at what we can control and we're very confident on the.
Further operational improvement.
Speaker Change: Focusing on margin and cash.
I think we will not hold back in any way or form the productivity is coming through we have seen that we realized $1 5 billion to date. We are ahead of that.
Speaker Change: And we will continue to drive that strongly and we believe also that that will show NDA kind of continued progression on that trajectory as well as in the cash progression that result of the combination.
Speaker Change: On the line.
Speaker Change: Operational delivery.
Into into next year. So we are well positioned to capture growth when it comes but in particular in China, we need to be more cautious on that and we are because of the lack of current visibility. So that's kind of how we look at how we go into 2025 state to state of course on the plan.
Speaker Change: Focus on the controllable.
Speaker Change: Confident in that growth outside of outside of China fully dialing up that way, we see the growth to capture it and in China kind of being modest based upon the lack of visibility.
Speaker Change: And then maybe I could take the question on the Src and <unk>.
Speaker Change: As we turn to market and it's going really well and according to plan customers really want us back in the market and they like our innovation, what we see as well as solid sales and cheap and patient interface outside of the U S. And then from a profitability perspective.
Again saw an encouraging margin step up in as an RC and effecting a whole connected care segment, which just speaks to the underlying resilience and strength in our EBITA margins, which keep on improving and which we are laser focused on.
Speaker Change: Now in Q4 and also next year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Julien don't walk from Jefferies. Please state your question.
Speaker Change: Hi, Good morning, Roy Good morning, Thanks for taking my questions I have three if I may and mostly housekeeping I guess, but.
Speaker Change: First one relates to the royalties because obviously thats once a quarter with a nice contribution from that line. So just curious how much of that should be seen as let's say a recurrent and I know this is a lumpy by definition.
Speaker Change: <unk> provided a nice boost to the margin in the quarter. So just curious.
Speaker Change: What you should make of that and how you see royalties evolving into the fourth quarter and maybe into 'twenty five.
Speaker Change: Second question relates to the potential of the risk of U S tariffs, making a comeback.
Depending on the election outcome in a few weeks from now how do you see the situation on your sides.
Speaker Change: In what way the institution would be different from what it was in the <unk>.
Speaker Change: Monday like in 2017 2018.
Speaker Change: To be elected if any kind of studies to be reinstated.
Speaker Change: And the third question is very much housekeeping, but could you just remind us how much of a contribution to sales China represents.
Speaker Change: Group level, but also maybe keeping a bit more insight into ph versus the rest of the group. Please.
Speaker Change: Okay. Thank you Judy Yeah, let me take the first question on royalty. So indeed, as you said in the quarter royalties.
Speaker Change: Supported roughly.
Speaker Change: 80 bps of improvement.
Speaker Change: EBITA improvement and if you then look at the full year. So our guidance is that roughly we've increased our guidance by roughly $20 million. So that means from a full year outlook perspective, only 10% to 15 basis points of that 90 bps improvement comes from royalties. So really underlying we continue to drive.
Speaker Change: <unk> strong appetite margin improvement in line with just focusing on what we can control and I can assure you we will not stop there if we can do more.
Speaker Change: Maybe on the second of all on the tariffs.
Speaker Change: We have been really working on making our supply chain resilience to also be prepared for scenarios that could evolve across the world because actually add that does of course happening in multiple.
Speaker Change: Countries.
Speaker Change: So actually to go for local for local for China, but also to regionalize, our supply chain for North America really helped us to kind of be repaired.
Speaker Change: Barrett for changes potentially in goods flow of the world.
Speaker Change: We are now building three regional strong axes.
Speaker Change: We can supply from.
Speaker Change: And that's also showing in the resilience of the current to supply delivery and lead times and the service that we that we have on that we also have dual sourcing introduce so a lot of focus on progress made on that to be ready for any adjustments that we need to kind of.
Speaker Change: Just two and then maybe last point.
Speaker Change: Organizational agility also increased based upon simplification and I think that also helps us to kind of turn quick.
Actually towards changes if need be.
Speaker Change: And that then brings me to China. If you look at the China kind of size you have.
Speaker Change: And I think it's important to understand that approximately 10%.
Speaker Change: Is China, but you see.
Speaker Change: A difference distinct difference in personal health, which is more sizable and therefore also the impact this quarter was more sizable also for the half year is more sizable given that that is a significant part of that business more than the 10% and then you have Europe east where you see that.
Speaker Change: Total segments DMT is more.
Speaker Change: Dependent on China than for example, monitor oriented as not a monitoring is immune to China. There is some dependency, but just much smaller.
Speaker Change: Two segments that are hit most our DMT NPH.
Speaker Change: <unk> is the one that really kind of showed a significant slides also into Q3 in the second half on the opposite you also noticed one consumer.
Demand and confidence with co op. You also can more quickly catch up but thats again.
Speaker Change: Don't want to kind of dilute that until we have visibility on when that would happen.
Speaker Change: Super helpful. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Robert Davies from Morgan Stanley. Please state your question.
Robert Davies: Yes, Thanks for taking my questions. My first one was just on your order outlook for the full year being up 1%.
Robert Davies: Just had a couple of questions on that obviously personal health, we still have a tough comparable and I think in the fourth quarter of 'twenty. Three so just trying to get a bit more color.
Robert Davies: Just in terms of what was underpinning your conviction in.
Robert Davies: Keeping orders positive and maybe just on the order front.
Just sort of looking back over the last two quarters are quite high volatility between the orders up nine.
Robert Davies: In the last quarter down to.
Robert Davies: What sort of really change on a sequential basis, because thats, obviously, a pretty big move quarter on quarter.
Speaker Change: My second question was just around.
Speaker Change: Trends in personal health, whether you've seen any sort of downgrade and you've mentioned, obviously consumer confidence it softened and join it but does that resulted in anyone downgrading within that segment or is that just sort of operational leverage effect.
Thank you.
Speaker Change: Yes, so on the on the first one so operational full year, so and also even the.
The order flow through the quarters. So I think what you see is that.
Speaker Change: We are.
Speaker Change: Year to date plus 1%.
Speaker Change: Double digit decline in China, and then an offsetting growth in the rest of the world in the rest of the World Currently North America is really coming off very strong and order growth. We do see in North America, and that's a bit where you see also some of the lumpiness coming in that you have especially monitoring at with very sizable deals.
Speaker Change: So some of that in Q2.
Speaker Change: Working on more and that Hasnt impact. The Rfps is also that some of the service growth is also kind of playing part because you're converting some of equipment also enter service that makes that kind of the.
Speaker Change: Quarter on quarter and kind of flow.
Speaker Change: It's become a bit less predictable and you need to look at a longer term trend and that's why I'm excited to see that actually we are dialing up that order momentum across the globe.
And in particular in the strongest market of the World, which is just north of the North America and we also expect that to continue with US also at what we set for the full year outlook.
Speaker Change: We also take into into 2025, then on ph we.
Speaker Change: We see also there to Ghana.
Speaker Change: Growth track that we see in the world. So you see China under significant pressure, it's not necessarily a specific down trade. It's just really a lack of sellout.
Speaker Change: Because actually if you look to how we are doing in China, we have been gaining share in grooming, we see that actually in oral care. Some of the new brands actually are stepping out because they were trying to get in and also sometimes with lower value propositions and they see that that momentum is being under pressure.
Speaker Change: Of course, we need to be looking at the overall market momentum globally, as well and we see that it's picking up and auto markets. We at the new launches modern childcare you saw with.
Speaker Change: Kind of.
Speaker Change: Clearance on the AI.
AI.
Speaker Change: Yeah.
Baby monitor actually modern childcare has been on a very strong trajectory.
Speaker Change: With orders also outside of China. So we also see that we can capture the margins in personal health and that's also we see that we are holding EBITA strongly despite significant volume declines. So I think the overall value capture our personal health based upon strong innovations, we see still S. A.
Speaker Change: Our strong and also going into into into next year.
Speaker Change: Thank you could I just ask one quick follow up and just where your order book is now relative to where you were at the start of the year.
Speaker Change: Okay.
Okay.
Speaker Change: What specific sense.
Speaker Change: Instead of absolute magnitude is it bigger or smaller now than the beginning of 2024.
We actually do have as you mentioned your year to date orders are up one you've got sales growth.
Speaker Change: So I was just wondering where you were in terms of order book in terms of the conversion has it gone up or down since the beginning of the year.
Speaker Change: It's more I would say, it's more or less flat kind of in terms of there is no significant change versus the beginning of the year Youll see that theres not a lot of delta between the current sales and orders.
Speaker Change: Of course, Theres, a big Delta in between China, and the rest of the world.
Speaker Change: So we are building up momentum in orders and I think you see therefore that kind of debt will start to show also towards <unk>.
Speaker Change: Next year and then we also still have some depletion of backlog right because thats whats happening in particular in the BDC space.
<unk>, which was having to supply chain challenges as you know so it really depends on the modality kind of where you see the different trends but.
Speaker Change: But overall I would say, it's more or less in line on a healthy level.
Speaker Change: We're growing the momentum outside of China, but China is having a big impact.
Understood. Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Falko Friedrichs from Deutsche Bank. Please go ahead.
Falko Friedrichs: Thank you. Good morning, everyone. My first question is on your sales guidance for 2024, considering your previous answer the China is about 10% of group.
Speaker Change: Seems to be a pretty dramatic.
Falko Friedrichs: A couple here.
Fair to assume that the rest of the world growth rather at the low end of the 3% to 5% range. This year.
Falko Friedrichs: And then my second question and sorry, if I missed it on China stimulus.
Falko Friedrichs: See you later.
Falko Friedrichs: When these measures to kick in or is the topic that we.
Falko Friedrichs: Should put on the back seat for now thank you.
Speaker Change: So so on the outlook our focus so as I said, so in China, you see distinct bigger impact from personal health, So and that has been really kind of material for personal health business. You also sort of growth in the quarter right turning significantly negative. That's also where you see that actually it's not 10% for personal health <unk> signals.
Falko Friedrichs: More.
Falko Friedrichs: So that was the big impact that you see and therefore also for the rest of the world and whilst we don't guide upper or lower is actually solid in the range that we have been guiding for.
Falko Friedrichs: And also we know with lack of visibility and we took some prudence into that outlook for the year.
Falko Friedrichs: Which I think.
It's a reasonable approach to take given that we saw the Q3 developments. That's also now be cautious on Q4, what is happening on the ground and that's something that we took into the <unk>.
Speaker Change: And to your outlook.
Speaker Change: Yeah.
Speaker Change: Thank you and stimulus in China.
Speaker Change: Okay.
The stimulus in China, Yes, I think I think we didn't see that.
Coming into the market yet I think that also has been part of why we on the <unk>.
Speaker Change: First instance in July we're expecting some of that might come in and that would then stabilize the market.
It did not happen and therefore.
Speaker Change: We also remain prudent on that.
We know that there are discussions on it we know that kind of customers put in their lists but we have not seen it materially coming into new order flows.
Speaker Change: Can act upon.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Our next question comes from the line of <unk> <unk> from Redburn Atlantic. Please state your question.
Speaker Change: Hi, Thanks very much.
Speaker Change: We will have follow ups. Please.
Speaker Change: I think historically on personal help you've highlighted that it was.
Speaker Change: It was around.
High teens, or even slightly higher as a percentage of sales coming from China at.
Speaker Change: At least until last year, if you could confirm that was reasonable thinking.
Speaker Change: And in terms of.
Speaker Change: The DMT business, obviously tough comp that you've highlighted.
Speaker Change: We have really talked about the different growth between the three units.
Speaker Change: Commentary from your peers suggest clearly IGT market is it's very strong in the base offer.
Speaker Change: Received your recovery.
Speaker Change: So could you give any color at all on the growth in IGT.
Speaker Change: Imaging and ultrasound within DMT.
Speaker Change: Yes, so on the personal health question. So you are right with high teens right. So thats also what our signaled earlier Reits are significantly higher than the 10%. So it is indeed, a sizable chunk of the personal health business. I think good news was that we are also seeing very solid growth outside in that dialing up what is just kind of.
Speaker Change: The impact and especially done if you have a quarter or two it has.
A sizable impact on your total personal health segment impact and therefore, our total sales.
Speaker Change: I think youre right in that assumption then on DMT Indeed ICT.
Speaker Change: But also in PD and we have been seeing growth.
Speaker Change: Sales growth momentum MLR for example, where we now have lead times back to market, we have been really dialing up.
Speaker Change: The sales momentum also on the ground and you see that dialed into the G&P segment.
Speaker Change: <unk> is more disproportionately dependent on China. So also you see that impact reflected in the ultrasound run rates.
Speaker Change: Because we have seen that slowing.
Speaker Change: Relative higher dependence on the on China in the total mix because they were earlier significantly buildup, we expect that over time to come back when China comes back but for the moment that for example impacted the run rate.
Speaker Change: In PD.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you.
Speaker Change: Due to the time. The last question is a follow up question from Lisa Clive with Bernstein. Please go ahead ma'am.
Lisa Clive: Hi, Thanks for taking my follow up question.
Lisa Clive: Could you comment on trends in North America. It seems like you have strong demand and order book I think some investors have been concerned that a lot of stability in the business that's been dependent on that market.
Lisa Clive: Concerns that it can potentially soften. So you can just comment on what youre seeing there that would be helpful.
Speaker Change: Yes so.
Speaker Change: I look to the two.
Speaker Change: North American market and I think that first of all it comes back on the back of the underlying fundamentals so that.
Speaker Change: Financial strength of the system really has been sequentially strengthening since COVID-19 right, where we came out of a negative market.
Speaker Change: Most of the hospitals for a negative territory. They started to become neutral. This year, we see positive and you see especially the stronger system stood a more positive and actually are consolidating acquiring and that then also leads to opportunities and further standardizing their platforms onto kind of strong offerings, and thats, where kind of we.
Are included and we see it and also the impact in our order book.
Speaker Change: I think that is something that.
Speaker Change: It's one trends the order trends that you're also seeing.
Speaker Change: There is a lot of patient demand and are still wait lines in North America, which was quite unprecedented before cover because the system was being able to deal with quite some volume.
Speaker Change: It's driven by and one has gone up the staff shortage, that's really playing part.
Speaker Change: Also in terms of dialogue with procedural volume and Thats, where you see it kind of fast on the demand in IGT that a strong do you see the procedures growing that a strong and thriving fundamental growth and then also with the radiology challenges in the pathology challenges of course, our workflow solutions for radiology and pathology is we are really in demand when it wasn't <unk>.
Speaker Change: Two weeks ago. This was really at its all of the town with the Big systems.
Speaker Change: Matt.
Speaker Change: <unk>. This is a big big part we expect the same to comment <unk>.
Speaker Change: So we see that the underlying.
And healthy demand that need to be.
Fulfills an catered for and then it's more also about kind of how what is the.
Implementation ability for the market to kind of to dial up because they're also staff shortages in some of the installation capacity.
Speaker Change: But I think we are.
Speaker Change: Quite positive on the order trends that we've seen in North America with sequential strengthening and improvement.
Speaker Change: Okay, Great and just one last follow up question circling back to China.
You were growing about 4%.
Speaker Change: Five years before the pandemic.
Speaker Change: Got it.
Speaker Change: Percent, obviously this year, it's going to fall well short of that given the well over in China and a few other factors.
Speaker Change: If you grow 5% to 6% and China is not a double digit growth market and you know.
Speaker Change: So it continues to limp, along where will that growth come from and how confident can we be in that outlook.
Yes, I think so there are two parts.
Speaker Change: In answering that Liza one is of course, we are looking at the different segments that we have put in Philips, where we also shared in show and tell that we're active in certain part of the market for 70% were part of the market that actually is growing on average higher pace.
Speaker Change: That has been globally seen.
Speaker Change: But we also see that very much outside of China.
Speaker Change: So thats something where we will go after and that is an IGT doesn't personal health outside of China at the moment that has gone up with ultrasound Dennis with monitoring so very strong segments, where we see kind of that there is a long term growth potential and also margin potential.
And then you see that qualified they are some of the markets that are also more dependent on China that will have had more significant impact to it.
Speaker Change: To cater for and last but not least it's not that we don't expect China to come back. It's not that this will be a trend that will be there forever. We just don't know exactly when it's going to come back up and when it comes back up. We also expect there will be demand because there is just a significant patient base to be catered for.
Speaker Change: Significant amount of hospitals in need of solutions. So we also expect that we will start to contribute then if you take a bit of a longer term perspective, but in the plan period that we originally looked at of course now we need to cater a bit more for growth outside of China.
Speaker Change: And that's also something where we see that we are dialing up momentum and you also saw this quarter, where we said we delivered.
Speaker Change: Outside of China growth in line with our 3% to 5% range.
Speaker Change: And we also continue to fully focus on that and then I mentioned earlier North America is important and that we have growth markets like Indonesia like so far what we see happening in Saudi but also what's happening in Latam.
Speaker Change: <unk> kind of it is driven on the back of standard setting and strong innovations that we have where we know the demand is there.
Speaker Change: So we are well positioned to capture growth when it happens.
Speaker Change: We need to make sure that that and we have been working on that with execution of our plan that supply chain works.
Speaker Change: <unk> is fully on par and also that we have an agile organization that can go after it with a cost competitive moat because the margins will remain razor focused in all that we do actually that's gone if we keep that trajectory just ongoing gone up more independent of the sales momentum that we see globally in the market.
Speaker Change: Okay.
Thank you all of that was the last question Mr. Jacobs. Please continue.
Speaker Change: So thank you all for for dialing in as we said I think.
Speaker Change: What we see it in the World currently is strong delivery of margin that we also reiterated for the.
Speaker Change: The full year at the upper end sales that we adjusted.
Speaker Change: Signaling further deterioration in China, and also taking a prudent approach on through that into Q4, whilst we are dialing up momentum in the rest of the world and we stay fully focused on executing on our plan. We're planned to date. We're ahead on sales margin and on cash and we have been making significant progress.
Speaker Change: S and resolving some of the issues with the recall so we focus on what we can control, we keep driving depth with strength and with pace.
Speaker Change: Look forward to talk to you in upcoming opportunities.
This concludes the Royal Philips.
Speaker Change: Quarter to $9 24 results conference call on Monday, 20, <unk> October 'twenty 'twenty four.
Speaker Change: You for participating you may now disconnect.
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Speaker Change: Hi, everyone welcome to Philips third quarter 2024 results webcast I'm here with our CEO, Raul Jacobi and our CFO Charlotte Panama.
Speaker Change: The press release and Investor deck were published on our Investor Relations website. This morning, the replay and full transcript of this webcast will be made available on the website after the call as well before.
Speaker Change: Before we start I want to draw your attention to our Safe Harbor statement on screen. You will also find the statement in the presentation published on our Investor Relations website, I will now hand, it over to Roy.
Roy Good: Thank you Leandro.
Roy Good: Good morning, everyone and welcome to the call.
Roy Good: I want to start with the key highlights of this morning's release.
Roy Good: We delivered strong improvement in profitability in the quarter.
While sales were flat and orders slightly decreased as demand from hospitals and consumers in China further deteriorated.
Roy Good: We expect impact from China to continue.
Roy Good: Therefore, we have lowered our full year sales outlook.
Roy Good: At the same time, we expect adjusted EBITDA margin to be at around 11, 5%.
Upper end of the current outlook range.
We then ongoing challenging macro environment.
Roy Good: We remain focused on successfully executing our three year plan to fully capture growth and margin expansion opportunities.
Patient safety is our number one priority we are committed to delivering better care for more people.
Roy Good: Onto the key financial and performance highlights.
Roy Good: Group comparable sales were flat on the back of 11% growth in Q3, 2023, and further deteriorated demand in China.
Roy Good: On the back of growth last year.
Roy Good: Recorded strong sales and order decline in China.
Roy Good: Driven by further declines in consumer and wholesale demand.
Roy Good: This was beyond our China scenario from July.
Roy Good: We assumed stabilization of China, while it's timing of improvement was uncertain.
Roy Good: We continue to deliver solid sales growth outside of China.
Roy Good: Orders decreased 2% also due to the decline in China.
In the quarter diagnosing treatment orders remained solid outside of China, driven by in particular North America.
Roy Good: Also year to date, our orders grew 1%, including China.
Roy Good: And we still expect order growth in the full year, including China, driven by the strength of the rest of the world.
Roy Good: There is certain uncertainty.
Roy Good: In China that remains.
Roy Good: We delivered a strong adjusted EBITDA margin improvement of 160 basis points, driven by our continued progress on our execution priorities.
Roy Good: Improved gross margins from our industry, leading innovations and higher royalty income.
Roy Good: Our free cash flow was 22 million euros, driven by higher earnings and offset by working capital outflows, mainly due to seasonal phasing.
Roy Good: We remain confident in our ability to drive further operational improvement.
Roy Good: While the uncertainty signaled in the earlier quarters have intensified in China and these are expected to continue.
Roy Good: Focusing on China.
Roy Good: In personal health.
Roy Good: Strong double digit decline in sell out to consumers in the quarter.
Roy Good: Based upon low consumer confidence and lack of big shopping festival sales.
Roy Good: Adjusting to the new sell out run rate led to a substantial reduction in our sell in volumes.
Roy Good: We expect overall consumer sentiment to remain subdued in China.
While solid in the U S and international markets.
Roy Good: In China hospital's the industrywide anticorruption measures and lack of impact of the national renewable program continued to significantly affect order and lead times.
Roy Good: This also impacting modalities for shorter lead times like ultrasound and therefore had an immediate impact on sales growth in the quarter.
Roy Good: Visibility around the continued impact of the anticorruption measures and timing of the government program remains limited.
Roy Good: While the market conditions are expected to remain uncertain and China is a fundamentally attractive growth market for Philips with strong underlying demand.
Roy Good: Our order funnel is active in the country.
Roy Good: And our commitment to local for local approach.
Roy Good: So in our industry leading innovations.
Roy Good: Focus on execution with excellence.
Roy Good: Deep understanding of consumers and strong brands.
Roy Good: Places as well.
Roy Good: To respond to demand.
Roy Good: Returns.
Roy Good: Given the uncertain market conditions in China.
Roy Good: Our outlook for the full year to a range of 0.5 to one 5% comparable sales growth for the group.
Roy Good: Sales growth outside of China remains within the guided range of 3% to 5%.
Roy Good: We expect that our adjusted EBITDA margin to be at around 11, 5%.
The upper end of the current range, reflecting stronger margins from our industry, leading innovations our financial discipline and focus on productivity.
Roy Good: We expect free cash flow to be around <unk> nine.
Roy Good: <unk> 9 billion euros at the lower end of the current range.
Roy Good: But in an ongoing challenging macro environment. We are fully focused on successfully executing our three year plan to drive value.
Roy Good: And to date, we remain ahead of that plan.
I am confident that our innovative portfolio is well positioned to help hospitals worldwide addressing their staffing shortages enhanced productivity and improved patient and staff experience.
Roy Good: As it got recently also confirmed in my customer visits in Asia, Canada, and the U S. Our.
Roy Good: A leading innovations are providing superior care for patients and consumers.
Roy Good: Let me now provide you with some of the customer innovation milestones during the quarter.
Roy Good: Grille in clinic in the U S will expand Kotick care access through 11 specialized Philips interventional suites, allowing physicians to treat patients with complex cardiovascular conditions closer to home.
Roy Good: We expanded our next generation cardiovascular ultrasound platform with FDA clearance of two important AI algorithms to enhance structural heart disease explanations as part of the global rollout of this technology.
Roy Good: Demonstrating our innovation leadership in minimally invasive treatments, we secured FDA approval for the new Lumi guide navigation wire, which uses fiber optic technology to reduce radiation for both patients and physicians during Maine minimally invasive surgery.
Roy Good: Personal health, we launched our AI powered event premium connected baby monitor which offers cry translation and sounds like your technology to track sleep breathing and movements, giving parents peace of mind.
And finally last month, we welcome investors and analyst for show and tell the country or in Netherlands, followed by focused ESG site visit.
Roy Good: <unk> provided a comprehensive update on the fundamentals of our businesses.
Of our exciting innovations and include in depth discussions and engagement with our leadership team.
Thank you again investors, who made the effort to spend a day and a half with us youre engagements was incredibly valuable.
Roy Good: I would like to continue with the progress we have made on our execution priorities.
Roy Good: On patient safety and quality.
Roy Good: <unk> strengthening our culture early this month together with all employees, we spend a full day, reflecting on the importance of patient safety and quality the progress made and the journey ahead of us to continuously deliver meaningful results.
Roy Good: We continue to see a substantial reduction in total number of capacity and improvements in our complete management process in the quarter.
Roy Good: Weak, including myself personally have had multiple engagements with the FDA in the quarter to discuss progress made in what is more to do.
Roy Good: Philips remains committed to patient safety and quality and we will continue to engage with FDA and other regulators on the shared mission to assure delivery of safe and effective care for patients.
Roy Good: With respect to our supply chain, our lead times are back to normal across all modalities.
Roy Good: As mentioned before and service levels continue to increase.
Roy Good: Going forward, we continue to focus on supply reliability and on improving the flexibility of our network and supply base, including further visualization and localization.
Roy Good: Finally, our simplified operating model focused on a leaner organization and that is resulting in faster and more agile decision, making with productivity improvements of over $1 5 billion euros to date.
Roy Good: Also on the back of a reduction of almost 10000 roles.
Roy Good: At the same time, we continue to journey to drive a culture of impact with care building the right team withheld debt capabilities.
Roy Good: The last 12 months, our engagement score went up significantly and we see growing confidence from our employees and all of our stakeholders.
Charlotte Panama: Now over to Charlotte to take us through the Q3 financials and outlook in more detail.
Charlotte Panama: Thank you Roy and good morning, everyone and thank you for joining us today.
I am very pleased to be speaking with you for the first time as Philips CFO.
Before we dive into the financial results I'd like to take a moment to introduce myself and share a bit about my background for those of you I didn't meet at a recent show in town.
Charlotte Panama: I took over the reins as CFO earlier this month after over 20 years working in various financial leadership roles across the med Tech and pharmaceutical industry with a focus on supporting strategic growth initiatives driving operational efficiency and managing large scale transformations.
Charlotte Panama: I joined Philips because I believe in the company's mission of delivering better care for more people and see significant opportunities ahead, I look forward to working closely with Roy and the entire executive committee to successfully execute our plan to create value with sustainable impact and drive financial discipline.
Speaker Change: Continuing with our third quarter financial performance.
Speaker Change: Our comparable sales were flat in the quarter and orders decreased 2%.
Speaker Change: Due to a decline in China.
Speaker Change: Year to date order intake was 1% despite a double digit decline in China.
Speaker Change: Still expect order growth in the full year driven by strength in the rest of the world uncertainty remains in China.
Speaker Change: As a reminder, orders and order book accounts for around 40% of our revenue.
Meaning 60% comes from growing recurring revenue streams, such as services and consumables from book to Bill business and from personal health.
Speaker Change: Now I'll provide some highlights around our quarterly segment performance.
I notice in treatment comparable sales decreased 1% on the back of 14% growth in Q3 2023.
Speaker Change: We delivered solid growth outside of China, with both image guided therapy and precision diagnoses businesses contributing.
Speaker Change: The adjusted EBITA margin of 12, 6% was in line with last year, despite lower sales driven by improved operational performance pricing and productivity measures.
Speaker Change: Connected care comparable sales were flat.
Speaker Change: And enterprise informatics, notably in North America and growth in sleep and respiratory care were offset by a low single digit decline in monitoring on the back of high teens growth in Q3 2020.
Speaker Change: Connected care adjusted EBITDA margin increased by 360 basis points to seven 3% with improvements across all businesses, including an encouraging step up in sleep and respiratory care.
Speaker Change: Personal health comparable sales decreased 5% Q2, a double digit decline in China outweighing robust performance elsewhere.
Adjusted EBITA margin decreased year on year to 65% as operational performance improvements only partially offset the lower the impact of lower sales year.
Speaker Change: Year to date, the adjusted EBITA margin improved by over 100 basis points.
Speaker Change: Sales in segment other were 41 million euros higher than in the third quarter of 2023, driven by royalty revenues.
Speaker Change: Turning to operating highlights in the quarter.
Speaker Change: Adjusted EBITA margin for the group improved substantially with 160 basis points in the quarter to 11, 8% driven by stronger gross margins from our industry leading innovations.
Speaker Change: Senior financial discipline higher royalty income and our productivity measures.
Speaker Change: Adjusted EBITA margin improved 80 basis points in the segment with higher royalties in segment other contributing another 80 basis points.
Our productivity initiatives delivered savings of 188 million euros in the quarter.
Speaker Change: Operating model savings were $54 million procurement savings of $58 million and other productivity programs delivered $76 million, partially offsetting wage and component price inflation.
Speaker Change: Since the start of the plan in January 2023, we delivered over $1 5 billion euros and are on track to achieve savings of $2 billion earlier than anticipated.
The effective tax rate was 24% in the quarter net income tax expense increased by 33 million euros year on year, mainly due to lower tax benefits and higher income before tax.
Speaker Change: Financial income and expenses were a net expense of $69 million 6 million lower than last year, driven by higher interest income.
On page 18 of our slide deck, you will also find our full year outlook for these items.
Speaker Change: Moving onto the balance sheet, we ended the quarter with approximately $1 5 billion euros cash and net debt of about $6 5 billion.
Speaker Change: Leverage ratio improved from two five times to two two times compared to Q3 2023 and the net debt.
Speaker Change: Debt to adjusted EBITDA basis.
Speaker Change: Adjusted diluted EPS from continued operations were 32 euro cents in the third quarter and increased 9% year to date, mainly driven by higher earnings.
Speaker Change: Free cash flow in the quarter was 22 million euros, driven by higher earnings offset by working capital outflows due to seasonal phasing.
Speaker Change: Based on our year to date performance and the deterioration of demand we are seeing in China. We now expect full year 2020 for comparable sales growth in the range of 5% to one 5% for the group as mentioned by Ryan.
Speaker Change: At a business level, we expect connected care sales growth at the lower end of the range of 3% to 5%.
Speaker Change: Slight growth in diagnosis and treatment and flat to slight decline in personal health.
Speaker Change: We structuring charges and other items are expected to be in line with the outlook provided earlier this year.
Speaker Change: Given our continued execution and financial discipline, we expect full year adjusted EBITDA to be around 11, 5% of sales, which is a 90 basis points year on year expansion.
Speaker Change: We expect full year free cash flow of around 0.9 billion euros at the lower end of the range as a result of lower sales outlook, while continuing to drive working capital improvements.
Speaker Change: As mentioned earlier this year, our free cash flow outlook includes the receipt of 540 million euros from insurers to cover it with Corona related product liability claims of which the majority is expected to come in the fourth quarter.
Speaker Change: Remaining payments related to the economic loss settlement in the U S made earlier. This year is also included in this outlook.
Speaker Change: With that I would like to hand, it back to Brian for his closing remarks. Thanks.
Brian: Thanks, a lot.
Brian: Let me close by repeating the key messages of today.
Brian: We delivered strong improvement in profitability in the quarter with flat comparable sales and slightly lower orders and demand from hospitals and consumers in China further deteriorated.
Brian: Whilst we see growth in the rest of the world.
Brian: We continue to make strong progress on enhancing execution and improving what's in our control.
Brian: <unk> external uncertainty intensified.
Brian: We expect the impact from China to continue.
Brian: Therefore, we have revised our full year sales outlook at.
Brian: At the same time, we expect adjusted EBITDA margin to be at the upper end of the current outlook range in cash at the lower end of the range.
Brian: But in an ongoing challenging macro environment.
Brian: <unk> remained focused on successfully executing our three year plan to create value and to date. We remain ahead on sales margin and cash.
Brian: It also has achieved significant milestones and resolving the consequences of the restaurants vehicle.
Brian: I am confident that our portfolio innovations and increase operational agility positions us well to continue to capture growth and margin opportunities globally and.
Brian: And to respond when demand returns in China.
Brian: With that I would like to thank you for joining the call. We will now take your questions.
Speaker Change: Thank you Sir.
Speaker Change #100: If any put the spend would like to ask a question. Please press the star followed by two times one on your telephone.
Speaker Change #100: Due to the time, please limit yourself to one question Keith.
Speaker Change #100: Keith This will give more people the opportunity to ask questions.
There will be a short pause while participants register for questions.
Speaker Change #100: We will now go to the first question.
Your first question comes from the line of Richard Felton from Goldman Sachs. Please state your question.
Richard Felton: Thank you good morning for taking my questions. Just two for me. Please the first one is on the hosted equipment business in China.
Richard Felton: To what extent do you think the softness in your business in Q3 was driven by overall market market weakness or was there any philip specific issues or market share losses that may have exacerbated the weakness this quarter.
Richard Felton: That's my first one the second question is on gross margin. Obviously, you had nice improvement year on year in Q3, despite less benefit from operating leverage.
Richard Felton: Maybe quantify some of the drivers of that margin improvement year on year, and whether we should think about those as a one off or reasonably durable drivers of margin expansion. Thank you.
Speaker Change #102: Thank you Richard let me start with China. So I think what we see is really a market development.
Speaker Change #103: And as I said I think the difference was that we expect a stabilization at when we were in July and what we've seen is deterioration, meaning that there is prolonged uncertainty and just the orders are not flowing yet into the market and that also doesn't prohibit sales to kind of strengthen and thats something that we.
Speaker Change #102: <unk>.
Speaker Change #102: Kind of have noticed in due course.
Speaker Change #102: If water and as we also messaged, we don't see that visibility currently increasing.
Speaker Change #102: At the same time, our order funnel remains active we are in active dialogue with customers I'll also go back to China in two weeks so.
Speaker Change #102: We remain active on the ground what the visibility is low and we have seen across market mentum that has not yet been picking up.
Speaker Change #102: On the gross margin.
Speaker Change #104: I think maybe Charlotte you can you can take the questions. Yes. Thank you.
Charlotte Panama: And indeed, we're very pleased with our operating margin expansion in the quarter, particularly driven by by gross margin and a few things I would highlight that really point to the durability of that gross margin expansion first of all we see an improvement coming from innovation.
Charlotte Panama: See improved gross margins from innovation and I point to a few of those innovations that we've done recently like <unk> 11 in ultrasound and also neuro and jewelry in the pipeline and then second of all we do see operational improvements as well as a result of the normalizing supply chain and the third.
Charlotte Panama: I point to is really our continued financial discipline as we focus on what's within our control.
Charlotte Panama: Okay.
Charlotte Panama: Sure.
Charlotte Panama: You see that all businesses gross margin goes up.
Charlotte Panama: And we also are on a continuous part of margin improvement since the beginning of the plan Youre seeing that of course, we have been having a very strong handle.
Charlotte Panama: On what we can control and for sure that SD innovations in our margins it generates.
Charlotte Panama: The productivity actions, we have been taking.
Charlotte Panama: And also the <unk>.
Charlotte Panama: Leaning out of the organization.
Charlotte Panama: So that is something that that you have been.
Charlotte Panama: <unk> Darling and consistently over the.
Charlotte Panama: For the period.
Charlotte Panama: Into the interim results that also means.
Charlotte Panama: Of course plan to date.
And also for the full year, you've seen us reiterating the strong confidence in our margin delivery. So I think.
Charlotte Panama: That's being.
Charlotte Panama: Driven by the underlying factors that also on a business level have been materializing alongside.
Charlotte Panama: The trajectory.
Speaker Change #105: Thank you.
Speaker Change #105: Thank you.
Speaker Change #106: Next question goes to the line of Hudson <unk> from Barclays. Please state your question.
Speaker Change #105: Okay.
Speaker Change #107: Good morning, and thank you for taking my questions I have three please firstly on China can you talk about the quantum of deterioration in Q3 orders versus Q2. Your current base case for Q4.
Speaker Change #107: How does it differ by modality and when do you expect to see any stimulus benefit based on your customer conversations if at all.
Speaker Change #107: Against the backdrop of 1% order growth year to date, how are you thinking about the achievement of 2025 targets given the worsening China.
Speaker Change #107: And thirdly, how is order momentum trending outside of China, particularly in the U S and how confident are you in driving this post RSA and into next year.
Speaker Change #107: Perhaps providing some offset against China weakness persisting into 2025. Thank you.
Speaker Change #108: Thank you.
Speaker Change #109: For the question. So let me start with the first one so in China.
Speaker Change #110: What is important to call out when we talk China, It's two drivers that really.
Speaker Change #109: So deterioration.
Speaker Change #109: The hospital side, but for sure. It has been also the consumer side and that has also been quite rapid decline because actually as you know.
Speaker Change #109: Coming to the sellout trends and what we have seen happening is that actually based on already a slower first half the consumer confidence further deteriorated in Q3, including then also the adjustment of the expectations of sales in particular also for the Big days in the 11 11 upcoming so you saw that the consumer.
Kind of decline was significant.
Speaker Change #109: And also I think worse than we expected.
Speaker Change #109: Mid year and on the hospital side, we see that kind of visibility.
<unk> on what's happening on the ground still remains low in terms of when it's really materializes. We are closer to customers. We have been working on order funnel. We also kind of have been preparing some of the less to go into kind of the request for the renewal program. We just don't have seed coming into the.
Speaker Change #109: The customers for decision, making and Thats something thats, regardless of modality, but there are different impacts per modality because across the modalities of course, you have some that have an immediate impact even in the quarter at half year, when the kind of the orders have come like the shorter cycle businesses. So you saw some more pressure on those also from a sales perspective and that you have.
Speaker Change #109: So the impact of course from the prolonged kind of delaying orders and that we have seen for example in IGT.
And in <unk>.
Speaker Change #109: <unk> diagnosis.
Speaker Change #109: I think that is.
Speaker Change #109: The trends that we've seen across the market, which we believe are truly a market phenomenon phenomena, we keep bearing well for China. When it comes back so actually we expect that.
Speaker Change #109: That's when it returns we are well positioned but our local innovations with the customer proximity that we have.
Speaker Change #109: But I think until that and that maybe is a nice bridge to what you also asked for and what we're doing outside that it's really for us important to drive that momentum outside of China and Dear as we also shared in the update we have seen strong momentum actually yesterday order intake indeed, including China.
Speaker Change #109: It's 1%, but there is a distinct different pattern between double digit decline in China, and then within our range.
Speaker Change #109: Growth outside of China, and we are in outside of China, and particularly piece with more America, because theyre actually we see even a faster order growth than in some other parts of the world on the back of a very strong North American market in health care market. We also is actually see the consumer market strengthening so we are dialing up our kind of phase in.
America across the businesses so of course, the DNP order intake.
Speaker Change #109: What's particularly encouraging in all market in this quarter, but also if you look on a year to date and we have had a very strong order growth in.
Speaker Change #109: America, and we also expect full year to closeout.
Speaker Change #109: Strong performance and that of course sets us up also for further growth in that important market.
Speaker Change #109: And then also relates to kind of at 2025, whilst we had multi year to guide for 2025, I think it's important that.
Speaker Change #109: The progress that we have been making on the plan really underpins also our 2025, so it's actually where we will remain very focused on firstly, what we can control, which is driving strong margin expansion delivering on the cash growing outside of China, and then China.
Speaker Change #109: We'll kind of.
Speaker Change #109: Look into depending on one clarity comps further on the China momentum.
Speaker Change #109: So that's something that's kind of where rates are focused on.
Speaker Change #109: That also sets us up for continuing to deliver on the plan because also on that note I think it's important that if you look on the delivery on the plant to date, we have been over delivering on growth sales on margin on cash and of course, we also have been really clarifying some of the uncertainties and risks.
Speaker Change #109: They were at the beginning in 2023, so we stick to the plan focusing on driving strong innovations improving the margins of those innovations that we see really now coming through in gross margin and then actually two.
Speaker Change #109: To look at where we can capture the growth and we capitalize on that.
Speaker Change #109: About North America, but I've also I've been to Indonesia, where we have been dialing up growth and we are going after strengthening the performance in the <unk>.
Speaker Change #109: Market and not only dear and auto parts of the world that also give those opportunities.
Speaker Change #109: That we are fully gone off there.
Speaker Change #111: Perfect. Thank you.
Speaker Change #111: Thank you.
Speaker Change #112: Next question comes from the line of David Adlington from Jpmorgan. Please state your question.
David Adlington: Good morning, guys, taking the questions Firstly, maybe just on.
David Adlington: Other mature geographies, which was down 10% in sales I think maybe if you could pull out.
David Adlington: Areas of weakness there and just follow on that also in North America, and 1% growth just maybe can you split it out by.
David Adlington: Personal health and beauty and then secondly, just anticipate restructuring charges of 155 million coming in Q4 with $100 million.
David Adlington: On connected care makes it.
I think.
Firstly, why don't take that in Q3, and secondly, any further color you can give us around that impairment would be useful. Thank you.
David Adlington: Yes.
Speaker Change #113: Yes. Thank you David let me take those questions. So first your question around the other mature geographies that is really driven by a very strong comparable that we saw in Q3 of 2023.
And also a little bit of softness in Japan as well.
Speaker Change #113: So moving onto your second question around the adjusted items as I said in my in my prepared remarks, there is no change to the full year outlook. We provided for incidentals. So it's still in line with 330 bps. We are we said earlier Adam here and of course connected care is a very big part of this as that work.
Speaker Change #113: Some degree related charges Respironic field actions charges and what have you.
Speaker Change #113: So really if you look at Q4, our 100 million guidance for connected care doesn't really stand out much we've seen some higher numbers, we've seen some lower numbers and Theres really no further impairment included in those numbers either.
Speaker Change #113: And we're really laser focused on driving the same financial discipline that we're driving in our adjusted EBITDA margin also in our adjusted items as well.
Speaker Change #114: And then maybe just to break down our North American growth.
Maybe by personal health.
Speaker Change #114: Yes.
Speaker Change #115: So we see growth actually in both sites in North America. So actually that is something that we have.
Speaker Change #115: Actually we seed also dialing up in both areas. So kind of personal health started the year a bit slower but actually is.
Speaker Change #115: It's coming up.
Speaker Change #115: And then also now we see that.
Speaker Change #115: The health system side based upon the strong order intake.
Speaker Change #115: It's coming up also to be noted we coming off very strong double digit comparable last year and that of course Q3 last year was a very strong quarter.
Speaker Change #115: Liquidating the backlog and that's something that you're kind of working against in terms of the comparable but if you look underlying we see the momentum growing both in consumer as well as in the health system side and also our core segments.
Speaker Change #116: Thank you.
Speaker Change #116: Thank you.
Speaker Change #117: Our next question comes from the line of Lisa Clive from Bernstein. Please state your question Lisa.
Lisa Clive: Hi, there two question one.
Lisa Clive: We think about pricing over the next.
Lisa Clive: One to two years my understanding is like for like slightly negative.
Lisa Clive: Due to trying to offset the cost inflation, if more flat to slightly positive now.
Lisa Clive: How do you think that will evolve.
Lisa Clive: Will your sales force for part to discounting, perhaps Kevin by payer behavior or do you think we're sort of in a somewhat new norm in terms of like for like pricing trends on equipment and then a second question.
Lisa Clive: Around your imaging business.
Lisa Clive: You saw a lot of market share losses in several modalities, namely <unk> <unk> during the pandemic now that your supply chains and stabilized et cetera. How are you doing relative to peers and do you think you can regain some lost ground.
Lisa Clive: Yes.
Yes, let me take the first question Lisa Thanks for your question I'll take the pricing our pricing one. So indeed as you said in Q3, we did see a pricing benefit both diagnostic and treatment as well as in connected care.
Lisa Clive: We'll see the higher prices flowing through from our order book into into our P&L, which has really helped.
Lisa Clive: <unk> margin development. So if you if you look at the outlook, we have to see how it goes in the next in the next quarters and we have to see.
Lisa Clive: How it difficult from a competitive standpoint, so we remain a little bit fluid. However, what I would say is that we've seen and continue to see very good progress with material price reductions, which helped improve our gross margin as I noted earlier.
And then maybe from a ph perspective, we don't really see further pricing upside given the subdued consumer sentiment, but we are staying on top of any inflation developments that we might see.
Speaker Change #118: So let me maybe take the second one so on the I. Indeed, it was important that based upon our progression of supply chain that we are fully back with that with the lead times now.
Speaker Change #118: And also the strong innovation momentum we are seeing both an EMR with Blue shield.
Speaker Change #118: With the new launch of the 501, hundreds with AI to really kind of drive productivity and the spectral but also actually DSR renewed portfolio that we launched last year actually is really gaining momentum. So we see actually that we also kind of climbing back and that's also something that you saw for example in the DMT order intake in North America. This quarter, which was strong so we see kind of if you make.
Speaker Change #118: In roads.
Speaker Change #118: So we are fighting back on that on that front baseball and the innovations, but also to better execution ability that we have been working on very strongly.
Speaker Change #118: As you know for.
Speaker Change #118: DMT, China is important as well so we remain focused on kind of getting ready for when the demand returns and then the IGT side has throughout being very strong.
Speaker Change #118: Team to kind of see the momentum there also now with the newly launched neuro suite and the biplane.
Speaker Change #118: As well as the device business, where we see strong momentum based upon the procedural growth you saw that we got to Lumi Guide now approved by the FDA that is not a really unique kind of proposition.
Speaker Change #118: Proposition that we will add to the portfolio now to support our growth.
Speaker Change #118: Growth in the device space. So actually we are building that momentum. That's also how we have been seeing it growing.
Speaker Change #118: The total order book.
Speaker Change #119: Okay. Thanks, I'll hop back.
Speaker Change #120: Thank you.
Speaker Change #121: Our next question comes from the line of Greg <unk> from UBS. Please state your question.
Speaker Change #122: Good morning, Thank you.
Speaker Change #123: Just a couple of questions.
Speaker Change #124: Both related to China, just firstly I mean, some of the comments from your peers over the last kind of month or two signage like they were kind of grown in confidence I'm seeing a little bit more certainty in the Chinese market.
Speaker Change #125: From your perspective do you think there is less certainty now or less visibility than there was maybe a quarter ago.
Speaker Change #126: Got it kind of sounds like that so we just need to get a sense as to where you think you are not.
Speaker Change #126: Improvements are not improvement of the backdrop.
Speaker Change #126: Just when we think beyond.
When demand does come back and we're in a kind of a more normal environment.
Speaker Change #127: Are you expecting that environment to be different. So for example, we've seen as part of the seamless theres a little bit more tendering that's going to happen at this time. So do you expect more measures like that to be in place do you expect any shifts in the competitive dynamics just to understand.
Speaker Change #127: What youre thinking about when you think when you kind of continue to say China remains attractive. Thank you.
Speaker Change #128: Yes, Thank you Graham so on the visibility.
Speaker Change #129: Actually and that's also what we reflect that visibility for US remains at this point in time kind of difficult right. So you've kind of its hard to predict what is happening exactly.
Speaker Change #129: I think when we add more mid term. We said has gone up we expect at least stabilization that was also kind of.
Speaker Change #129: Back on the government.
Speaker Change #129: That was saying we want this program to materialize in 2024.
Speaker Change #129: Is it 2024 is running out and if it has to kind of materialize that theres not a lot of time left and Thats actually something that we did see in 2024, So that's where we're at for the moment we.
Speaker Change #129: At the point that we say visibility is limited.
Speaker Change #129: And that means that indeed, we then have to prepare more on the fundamentals have where we have been ensuring that we have the local for local innovation that we are close with customers on a photo and if you talk about the fundamentals that we need to be prepared for and Thats also something that we're hearing back from our customers. These new procedures that are being implemented to have Liam implemented I think we will have a prolonged period.
Speaker Change #129: Of impact, meaning that duration of approvals, we'll get longer.
Speaker Change #129: Depending where it is just more oversight will.
Speaker Change #129: We will take it will take more.
Speaker Change #129: We have not seen the specification.
Change so we feel fully entitled to compete with our portfolio. We noted actually they are significant demand that we were leading with for example, the blue shield and even also the spectrum interest in China up very strongly so an ultrasound traditionally has been a very strong business for us as well. So we don't see that necessarily changing in terms of competitive.
Speaker Change #129: Dynamics, we have said earlier that the longer term growth prospects of China long term attractive. Although we also said that it's not the China that we know from 10 years ago, because just the macroeconomic environment in China is different right and thats the whole market and the whole kind of economy that is growing less strong and therefore and that also has some impact on the spend into <unk>.
<unk> segments that we see coming in that does not mean that it's not attractive it doesn't mean that it will be.
Speaker Change #129: Attractive in the near future when it comes back the only visibility we don't have and that means that we continue to focus on the rest of the world to dialog momentum there.
Speaker Change #129: As we also have seen happening in due course of.
Speaker Change #129: Of this of this year and then finally, maybe on China. If you look at some of the underlying diseases like cardiac like neuro the significant interest rate and we are working also with IGT suite some of our imaging suite.
Speaker Change #129: To see kind of how we can build on the practice that we have had outside of China and the staff shortages are very significant. So also some of the AI solutions like small speed in order to really add value.
Speaker Change #129: In that market and what you also know from our share development to date in China IGT, we have been growing share we were kind of challenged a bit with our supply chain challenges also MDI now we are fully back there and have ramped up that supply chain and also in China.
Speaker Change #129: One of <unk>.
Speaker Change #129: Give us a full opportunity to play a part of the momentum if it comes back.
Speaker Change #130: Okay, Great. That's really helpful. Thank you very much.
Speaker Change #131: Thank you.
Next question comes from the line of Hugo Solvay from BNP Paribas Exane. Please state your question.
Speaker Change #132: Hi, Hello, Thanks for taking my questions I have three please.
Speaker Change #133: Follow up on China.
Speaker Change #133: On your comments around the final filter.
Speaker Change #134: Doug just a function of more meetings with customers continued strong interest.
Speaker Change #134: Actually all dose slowly, but surely moving into the execution phase and she can explain a bit of what type of modalities.
Speaker Change #134: C store.
Speaker Change #134: For the full dose for.
Speaker Change #134: So ground on 2025 follow up to <unk> question on much of the 2020 targets rely on China picking up now and comfortable.
Speaker Change #134: Do you think you all with consensus for pets.
Speaker Change #134: Great.
Speaker Change #134: Margin improvement.
Speaker Change #134: Subtleties in the country, but also the benefits from the efficiency plan will deal the rent and less knee in sleep and respiratory care.
Speaker Change #134: I think margin was progressing sequentially Q1, and Q2 could you maybe let us know where you are in terms of profitability for that business and what the right sizing of that business benefit in Q3 exactly thank you.
Speaker Change #135: Yes. Thank you.
Speaker Change #136: Let me go into your different questions. So on China, So on the <unk>.
Speaker Change #136: So that's kind of based upon our discussions with customers and as a result, what are the opportunities that we have in our books.
Speaker Change #136: We expect.
Speaker Change #136: To materialize when China comes back that is not yet or is flowing into the China customers and approvals because that's actually where the lack of also shows in the decline of orders and the decline of sales in the market. So I think there is clearly a difference between the activities the customer needs the discussions we're having.
Speaker Change #136: And also then how that materializes and how it materialize.
Quarter, three and also we have taken that into Q4.
Speaker Change #136: And I will be back in China, and next week, there will be a big at China.
Speaker Change #136: Expo, which we are part of and we are also invited for so the momentum in terms of the dialogues keep happening, but we see just the.
Speaker Change #136: The kind of flow through in terms of real orders and then sales that's where the current slowdown is hitting us.
Speaker Change #136: Hitting the market in food.
Speaker Change #136: And secondly, if you look to kind of 2025.
Speaker Change #136: There were not guiding for any 2025 <unk>. So what I said before we remain fully focused on executing the three year plan that we own which we also have seen is working we're planned to date.
Speaker Change #136: We are kind of hat.
Speaker Change #136: And the rest of the World remains solid and that is all set where you saw that we got at forties range. This year, we continued to build on that momentum.
Speaker Change #136: The uncertainties in the.
Speaker Change #136: That we signaled earlier in China intensified and we expect to continue so that there is an impact. We also expect into 2025, but again too early to discuss specifically then if you look at what we can control and we're very confident on the further operational improvement.
Speaker Change #136: Focusing on margin and cash.
Speaker Change #136: I think we will not hold back in any way or form.
Speaker Change #136: Activity is coming through we have seen that we realized $1 5 billion to date. We are ahead of that.
Speaker Change #136: And we will continue to drive that strongly and we believe also that that will show India on a continued progression on that trajectory as well as in the cash progression that result of the combination.
Speaker Change #136: Better underlying.
Speaker Change #136: Operational delivery.
Speaker Change #136: Into into next year. So we are well positioned to capture growth when it comes but in particular in China, we need to be more cautious on that than we are.
Speaker Change #136: The lack of current visibility so that's kind of how we look at how we go into 2025 state to state of course on the plan focused on the controllable.
Speaker Change #136: Confident in that growth outside of outside of China fully dialing up that way, we see the growth to capture it and in China kind of being modest based upon the lack of visibility.
Speaker Change #137: And then maybe I could take the question on the ethanol and.
Speaker Change #137: As we turn to market and it's going really well and according to plan customers really want us back in the market and they like our innovation, what we see as well as solid sales and cheap and patient interface that outside of the U S. And then from a profitability perspective.
Speaker Change #137: And again saw an encouraging margin step up in ethanol and effecting a whole connected care segment, which just speaks to the underlying resilience and strength in our EBITA margins, which keep on improving and which we are laser focused on.
Speaker Change #137: Now in Q4 and also next year.
Speaker Change #137: Thank you.
Speaker Change #137: Thank you.
Speaker Change #138: Our next question comes from the line of Julien Dumoulin from Jefferies. Please state your question.
Julien Dumoulin: Hi, Good morning, Roy Good morning solid thanks for taking my questions I have three if I may and mostly housekeeping I guess.
First one relates to the royalties because obviously that was a quarter with a nice contribution from that line. So just curious how much of that should be seen us, let's say a recurrent and I know those are lumpy by definition that we provided a nice boost to the margin in the quarter. So just curious.
Julien Dumoulin: What you should make of that and how you see royalties evolving into the fourth quarter and maybe into 'twenty five.
Second question relates to the.
The potential of the risk of U S tariffs, making a comeback.
Julien Dumoulin: Depending on the election outcome in a few weeks from now.
Julien Dumoulin: Do you see the situation on your sides and then in.
In what way the institution would be different from what it was.
Julien Dumoulin: The first Monday like in 2017 2018 to.
<unk>.
Any kind of service.
Stated.
Speaker Change #140: And the third question is very much housekeeping, but could you just remind us how much of a contribution to sales China represents.
Speaker Change #140: The group has all but also maybe keeping a bit more insight into ph versus the rest of the group. Please.
Speaker Change #141: Okay. Thank you Judy Yeah, let me take the first question on royalty. So indeed, as you said in the quarter royalties.
Speaker Change #140: Supported roughly.
80 bps of improvement.
EBITA improvement and if you then look at the full year. So our guidance is that roughly we've increased our guidance by roughly $20 million. So that means from a full year outlook perspective, only 10 to 15 basis points of that 90 bps improvement comes from royalties. So really underlying we continue to drive.
Speaker Change #140: <unk> strong EBITA margin improvement in line with just focusing on what we can control and I can assure you we will not stop there if we can do more.
Speaker Change #142: Maybe on the second of all on the tariffs.
We have been really working on making our supply chain resilience to also be prepared for scenarios that could evolve across the world because actually on that does of course happening in multiple.
Speaker Change #142: Countries.
So actually to go for local for local for China, but also to regionalize, our supply chain for North America really helped us to kind of be prepared.
Speaker Change #142: <unk> four changes potentially in goods flow of the world.
Speaker Change #142: We are now building three regional strong access where we can supply from.
Speaker Change #142: And that's also showing in the resilience of the current to supply delivery and lead times and the service that we that we have on that we also have dual sourcing introduce so a lot of focus on progress made on that to be ready for any adjustments that we need to kind of.
Speaker Change #142: Just do it and then maybe last point.
Speaker Change #142: Organizational agility also increase based upon simplification and I think that also helps us to kind of tune Craig.
Speaker Change #142: Really towards changes if need be.
Speaker Change #142: And that brings me to China, if you look at the China kind of size you have.
Speaker Change #142: And I think it's important to understand that approximately 10%.
Speaker Change #142: Ex China, what you see.
Speaker Change #142: A difference distinct difference in personal health at which is more sizable and therefore also the impact this quarter was more sizable also for the half year is more sizable given that that is a significant part of that business more than the 10% and then you have the Europe piece, where you see that total segments DMT is.
Speaker Change #142: More.
Speaker Change #142: Dependent on China than for example, monitor oriented as not a monitoring is immune to China. There is some dependency, but just much smaller.
Speaker Change #142: Two segments that are hit most our DMT NPH.
Speaker Change #142: And <unk> is the one that really kind of showed a significant slides also into Q3 in the second half on the opposite you also noticed one consumer.
Speaker Change #142: Demand and confidence would go up you also can more quickly catch up but thats again, we.
We don't want to kind of dilute that until we have visibility on when that would happen.
Speaker Change #143: Super helpful. Thank you so much.
Thank you.
Speaker Change #144: Our next question comes from the line of Robert Davis from Morgan Stanley. Please state your question.
Robert Davis: Yes, Thanks for taking my questions. My first one was just on your order outlook for the full year being up 1%.
Robert Davis: Just had a couple of questions on that obviously personal health, we still have a tough comparable then I think in the fourth quarter of 'twenty three so just trying to get a bit more color.
Robert Davis: Just in terms of what was underpinning your conviction in keeping or it is positive and maybe just on the order front.
Robert Davis: Just sort of looking back over the last two quarters, you got quite high volatility between the orders up nine.
Robert Davis: In the last quarter down to.
Robert Davis: What sort of really change on a sequential basis, because thats, obviously, a pretty big move quarter on quarter.
Speaker Change #146: My second question was just around.
Speaker Change #146: Trends in personal health, whether you've seen any sort of downgrade and you've mentioned, obviously consumer confidence it softened and join it but does that resulted in anyone downgrading within that segment or is that just sort of operational leverage effect.
Thank you.
Yes, so on the on the first one so operational full year, so and also even the.
Speaker Change #146: The order flow through the quarters. So I think what you see is that.
Speaker Change #146: We are.
Speaker Change #146: Year to date plus 1%.
Speaker Change #146: With.
Double digit decline in China, and then an offsetting growth in the rest of the world in the rest of the World Currently North America is really coming off very strong and order growth. We do see in North America, and Thats a bit where you see also some of the lumpiness coming in that you have especially monitoring at wood fairly sizable deals.
Speaker Change #146: So some of that in Q2.
Speaker Change #146: Working on more and that Hasnt impact. The Rfps is also that some of the service growth is also kind of playing part because you're converting some of equipment also entered service that makes that kind of the.
Quarter on quarter and kind of flow.
Speaker Change #146: It's become a bit less predictable and you need to look at a longer term trend and that's why I'm excited to see that actually we are dialing up that order momentum across the globe.
Speaker Change #146: And in particular in the strongest market of the World, which is just north of the North America and we also expect that to continue with US also at what we set for the full year outlook.
Speaker Change #146: We also will take into into 2025, then on ph we.
We see also dared to garner growth track that we see in the world. So you see China under significant pressure, it's not necessarily a specific down trade. It's just really a lack of sellout.
Speaker Change #146: Because actually if you look to how we are doing in China, we have been gaining share in grooming, we see that actually in oral care. Some of the new brands actually are stepping out because they were trying to get in.
Speaker Change #146: And also sometimes with lower value propositions and they see that that momentum is being under pressure.
Speaker Change #146: Of course, we need to be looking at the overall market momentum globally, as well and we see that it's picking up and auto markets. We have the new launches more in child care you saw with the.
Kind of clearance on the AI.
Speaker Change #146: AI.
Speaker Change #146: Yeah.
Speaker Change #146: Baby monitor actually modern childcare has been on a very strong trajectory.
Speaker Change #146: With orders also outside of China. So we also see that we can capture the margins in personal health and that's also we see that we are holding EBITA strongly despite significant volume declines. So I think the overall value capture out of personal health based upon strong innovations, we see still S. A.
Speaker Change #146: Our strong and also going into into into next year.
Speaker Change #147: Thank you can I just ask one quick follow up and just where your order book is now relative to where you were at the start of the year.
Speaker Change #146: Okay.
Speaker Change #146: Okay.
Speaker Change #148: What specific sense.
Speaker Change #149: Instead of absolute magnitude is it bigger or smaller now than the beginning of 2024.
Speaker Change #149: We actually do have as you mentioned your year to date orders are up one you've got sales.
Speaker Change #149: Sales growth.
Speaker Change #150: So I just wondered where you were in terms of order book in terms of the conversion has it gone up or down since the beginning of the year.
Speaker Change #151: It's more I would say, it's more or less flat kind of in terms of there is no significant change versus the beginning of the year Youll see that theres not a lot of delta between the current sales and orders.
Of course, Theres, a big Delta in between China, and the rest of the world.
So we are building up top momentum in orders and I think youll see therefore that kind of debt, we will kind of start to show also towards.
Speaker Change #151: Next year and then we also still have some depletion of backlog right because that's what's happening in particular in the BDC space.
Speaker Change #151: <unk>, which was having to supply chain challenges as you know so it really depends on the modality kind of above where you see the different trends but.
Speaker Change #151: But overall I would say, it's more or less in line on a healthy level.
Speaker Change #151: We are growing the momentum outside of China, but China is having a big impact.
Speaker Change #152: Understood. Thank you.
Speaker Change #153: Thank you.
Speaker Change #154: Our next question comes from the line of Falko Friedrichs from Deutsche Bank.
Speaker Change #155: Please go ahead.
Falko Friedrichs: Thank you good morning, everyone. My first question.
Falko Friedrichs: For 2024, considering your previous answer that China is about 10% of group sales.
Falko Friedrichs: It seems to be a pretty dramatic.
Falko Friedrichs: So is it fair to assume that the rest of the world growth rather at the low end of the 3% to 5% range. This year.
Falko Friedrichs: And then my second question and sorry, if I missed it on China stimulus.
See you later.
Falko Friedrichs: When these measures to kick in.
Falko Friedrichs: The topic that we.
Falko Friedrichs: Should put on the back seat for now thank you.
Speaker Change #156: So so on the outlook our focus so as I said, so in China, you see distinct bigger impact from personal health, So and that has been really kind of material for personal health business. You also sort of growth in the quarter right turning significantly negative. That's also where you see that actually it's not 10% for personal health axes.
Falko Friedrichs: More.
So that was the big impact that you see and therefore also for the rest of the world and whilst we don't guide upper or lower is actually solid in the range that we have been guiding for.
Falko Friedrichs: And also we know with lack of visibility that we took some prudence into that outlook for the year.
Falko Friedrichs: Which I think.
Falko Friedrichs: It's a reasonable approach to take given that we saw the Q3 developments. That's also now be cautious on Q4.
Falko Friedrichs: Depending on the ground and that's something that we took into the <unk>.
Falko Friedrichs: And to the outlook.
Speaker Change #157: Thank you and then stimulus in China.
Speaker Change #158: The stimulus in China, Yes, I think I think we didn't see that.
Speaker Change #158: Coming into the market yet I think that also has been part of why we.
Speaker Change #158: On first instance in July we're expecting some of that might come in and that would then stabilize the market that did not happen and therefore.
<unk>.
Also remain prudent on that.
Speaker Change #158: There's discussions on it that's kind of our customers put in their lists but we have not seen it materially coming into new order flows that we can act upon.
Speaker Change #159: Okay. Thank you.
Speaker Change #159: Thank you.
Speaker Change #160: Our next question comes from the line of <unk> <unk> from Redburn Atlantic. Please state your question.
Speaker Change #161: Hi, Thanks, very much just a couple of follow ups.
Speaker Change #162: I think historically on personal health you've highlighted that.
Speaker Change #161: Around.
Speaker Change #161: High teens, or even slightly higher as a percent of sales coming from China.
Speaker Change #161: At least until last year.
Speaker Change #161: To confirm that was reasonable thinking.
Speaker Change #161: And in terms of.
Speaker Change #161: The DMT business, obviously tough comp that you've highlighted.
Speaker Change #161: We have really talked about the different growth between the three units.
Speaker Change #163: Commentary from your peers suggest clearly IGT market is it's very strong in the base.
Speaker Change #163: Procedure recovery.
Speaker Change #164: So could you any color at all on the growth in IGT.
Speaker Change #164: Imaging and ultrasound within DNT.
Speaker Change #165: Yes, so on the personal health question. So you are right with high teens right. So thats also what our signaled earlier Reits are significantly higher than the 10%. So it is indeed.
Speaker Change #165: Sizable chunk of the personal health business I think good news was that we are also seeing very solid growth outside in that dialing up but it's just kind of the impact and especially then if you have it one quarter or two it has a sizable impact on your total personal health segment impact and therefore, our total sales so I think youre right in that.
Speaker Change #166: Assumption then on DMT, Indeed, ICT strong, but also NPD that we have been seeing growth.
Speaker Change #166: Sales growth momentum MLR for example, where we now have lead times back to market, we have been really dialing up.
Speaker Change #166: The sales momentum also on the ground and you see that dialed into the G&P segment.
Speaker Change #166: <unk> is more disproportionately dependent on China. So also you see that impact reflected in the ultrasound to run rates, because we have seen that slowing relative higher dependence on the on China in the total mix because they were earlier significantly buildup, we expect that over time to come back when China comes back but.
Speaker Change #166: For the moment Thats for example impacted the run rate.
Speaker Change #167: And Peter.
Speaker Change #168: Great. Thanks very much.
Peter: Thank you.
Speaker Change #170: Due to the time. The last question is a follow up question from Lisa Clive with Bernstein. Please go ahead ma'am.
Lisa Clive: Hi, Thanks for taking my follow up question.
Lisa Clive: Could you comment on trends in North America. It seems like you have strong demand and order book I think some investors have been concerned that a lot of stability in the business that's been dependent on that market.
Lisa Clive: Concerns that it can potentially soften so you can just comment on what you're seeing there that would be helpful.
Speaker Change #171: Yes so.
Speaker Change #171: I look to the to the North American market and I think that first of all it comes back on the back of the underlying fundamental so.
Speaker Change #172: Financial strength of the system really has been sequentially strengthening since COVID-19 right, where we came out of a negative market, where most of the hospitals for a negative territory. They started to become neutral. This year, we see positive and you see especially the stronger system stood a more positive and actually are consolidating acquiring and that then also.
Speaker Change #172: Leads to opportunities and further standardizing their platforms onto kind of strong offerings and thats, where kind of we are included and we see it and also the impact in our order book.
Speaker Change #172: I think that is something that.
Speaker Change #173: It's one trends the order trends that you're also seeing there is.
A lot of patient demand and are still wait lines in North America, which was quite unprecedented before cover because the system was being able to deal with quite some volume.
Speaker Change #173: And that's driven by in one hand gone up the staff shortage, that's really playing part.
Speaker Change #173: But it's also in terms of a dilemma procedural volume and Thats, where you see kind of fast on the demand in IGT that a strong do you see the procedures growing that is strong in driving fundamental growth and then also with the radiology challenges in the pathology challenges of course, our workflow solutions for radiology and pathology is we are really in demand when it wasn't.
Speaker Change #173: Chicago two weeks ago. This was really at its all of the town with the Big systems.
Matt.
Speaker Change #173: Confluence is.
Speaker Change #173: As a big Big part, we expect the same to comment <unk>.
Speaker Change #173: So we see that the underlying.
Speaker Change #173: And healthy demand that need to be.
Speaker Change #173: Fulfills an catered for and then it's more also about quantify what is the.
Speaker Change #173: Implementation ability for the market to kind of to dial up because they're also staff shortages in some of the installation capacity.
Speaker Change #174: Thank you.
Speaker Change #175: We are quite positive on the on the trends that we've seen in North America.
Speaker Change #175: Sequential strengthening and improvement.
Speaker Change #176: Great and just one last follow up question circling back to China.
Speaker Change #177: You were growing about 4% and.
Speaker Change #177: Five years before the pandemic.
Speaker Change #178: Got it.
Speaker Change #178: And obviously this year, it's going to fall well short of that given the roll over in China and a few other factors.
Speaker Change #178: If you grow 5% to 6% and China is not a double digit growth market and.
Speaker Change #178: It continues to limp, along where will that growth come from and how confident can we be in that outlook.
Speaker Change #179: Yes, I think so there are two parts.
Speaker Change #180: In answering that Liza one is of course, we are looking at the different segments that we have put in Philips, where we also shared in show and tell that we're active in certain part of the market for 70% were part of the market that actually is growing on average higher pace.
Speaker Change #180: That has been globally seen.
Speaker Change #180: But we also see that base very much outside of China.
Speaker Change #180: So thats something where we will go after and that is an IGT doesn't personal health outside of China at the moment that has gone up with ultrasound Dennis with monitoring so very strong segments, where we see that there is a long term growth potential and also margin potential.
Speaker Change #180: And then you see that quantified there are some of the markets that are also more dependent on China that will have had more significant impact to it.
Speaker Change #180: To cater for and last but not least it's not that we don't expect China to come back. It's not that this will be a trend that will be there forever. We just don't know exactly when it's going to come back up and when it comes back up. We also expect there will be demand because there is just a significant patient base to be catered for.
Speaker Change #180: Significant amount of hospitals in need of solutions. So we also expect that we will start to contribute then if you take a bit of a longer term perspective, but in the plan period that we originally looked at of course now we need to cater a bit more for growth outside of China.
Speaker Change #180: And that's also something where we see that we are dialing up momentum and you also saw this quarter, where we said we delivered.
Speaker Change #180: Outside of China growth in line with our 3% to 5% range.
Speaker Change #180: We also continue to fully focus on that and then I mentioned earlier North America is important and that we have growth markets like Indonesia like so far what we see happening in Saudi but also what's happening in Latam.
Speaker Change #180: <unk> kind of it is driven on the back of standard setting and strong innovations that we have where we know the demand is there.
Speaker Change #180: So we are well positioned to capture growth when it happens.
Speaker Change #180: We need to make sure that that and we have been working on that with execution of our plan the supply chain works.
Speaker Change #180: Which go in he is fully on par and also that we have an agile organization that can go after it with a cost competitive moat because the margins will remain razor focused on OLED, we do actually that's gone if we keep that trajectory just ongoing gone up more independent of the sales momentum that we see globally in the market.
Speaker Change #180: Okay.
Speaker Change #181: Thank you all of that was the last question Mr. Jacobs. Please continue.
Speaker Change #182: So thank you all for for dialing in as we said I think.
What we see it in the World currently is strong delivery of margin that we also reiterated for the.
Speaker Change #182: Full year at the upper end.
Speaker Change #182: Sales that we adjusted.
Speaker Change #182: Signaling further deterioration in China, and also taking a prudent approach on through that into Q4, whilst we are dialing up momentum in the rest of the world and we stay fully focused on executing on our plan. We're planned to date. We're ahead on sales margin and on cash and we have been making significant progress.
Speaker Change #182: And resolving some of the issues with the recall so we focus on what we can control, we keep driving depth with strength and with pace.
Speaker Change #182: Look forward to talk to you in upcoming opportunities.