Q4 2024 Koninklijke Philips NV Earnings Call
Okay.
Welcome to the Voya for the fourth quarter and full year 'twenty 'twenty four results conference call on Wednesday February 19th 2025.
Speaker Change: During the call hosted by Mr. Roy Yaacov <unk> C O M. Michel it hadn't been CFO, all participants will be in a listen only mode. After the introduction there will be a poll attunity to ask questions.
Speaker Change: Please note that this call will be recorded a replay will be available in the investor relations the website of Royal Philips.
Speaker Change: Now I'll hand, the conference over to Mr. Leandro My Joni head of Investor Relations. Please go ahead Sir.
Hi, everyone welcome to Philips fourth quarter, and full year 2024 results webcast I'm here with our C O raw Jacobsen, our CFO Charlotte Panama and.
The press release and the Investor deck were published on our Investor Relations website. This morning.
Speaker Change: The replay and transcript of this webcast will be made available on the website after the call as well.
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.
Ray: I'll now hand, it over to Ray.
Speaker Change: Good morning, everyone and welcome to the call.
Speaker Change: I want to start with the key highlights of this morning's release.
Speaker Change: We delivered strong profitability improvement and cash flow in Q4.
Speaker Change: For the full year 2024.
Speaker Change: Comparable order and sales grew low single digits in the quarter and the year.
Speaker Change: <unk> double digit declines in consumer and health systems demand in China, partially offsetting solid growth in the rest of the world.
We continue to make solid progress on our plan.
Speaker Change: Execution and reached significant milestones to resolve the restaurants would be cool.
Speaker Change: With our strong balance sheet, we are pleased to offer shareholders the option to receive a dividend in shares or cash.
Speaker Change: We are confident in our long term plan.
Speaker Change: We expect to continue to improve performance in 2025.
Speaker Change: Gross sales and orders went in a challenging macro economic environment and drive margin expansion and cash flow generation by building further on our fundamental progress and execution, our innovations and by leveraging dose to the best extent.
Speaker Change: Turning to the progress on our execution priorities and all key performance highlights.
Speaker Change: Patient safety and quality remains our highest priority.
Speaker Change: We have strengthened our culture of impact with care and fully embedded in our businesses.
Speaker Change: Our patient centric innovation.
Speaker Change: Took significant steps to address the consequences of the restaurants vehicle.
We know there's more to do and are very focused on driving further improvements.
Speaker Change: More recently finished respite onex obtained final approval for the medical monitoring settlement.
Speaker Change: Injury settlements.
Speaker Change: They became final after required participation threshold was met.
Speaker Change: These very important milestones provide further clarity on the way forward for Philips.
Speaker Change: Our anthrax supply chain now operates at lead times and service levels in line with industry standards, which increases our competitiveness.
Speaker Change: We are topped off and monitoring the volatile geopolitical context to act if and when appropriate.
Speaker Change: And we will continue to work on regionalized supply chains, diversifying suppliers dual sourcing and network flexibility.
Speaker Change: Our leaner operating model drives accountability and agility.
Speaker Change: And contributed to productivity savings of over one 7 billion euros in the last two years.
We are building a renewed team with strong capabilities across the company. We also had recent leadership announcements for the precision diagnosis business and our international region.
Speaker Change: Now onto the financial highlights.
Comparable sales grew 1% in the quarter in line with our expectations at 5% growth in the rest of the world largely offset by double digit decline in China.
Speaker Change: Orders grew 2%.
Speaker Change: Driven by strong growth in the U S and in growth regions again, offset by double digit decline in China.
Speaker Change: Diagnosis and treatment orders grew high single digits in the quarter.
Speaker Change: Connected care faced the inherent unevenness of order growth by quarter, while demand for our hospital patient monitoring solutions remain very healthy.
Speaker Change: And our full year comparable sales and orders grew 1%.
Speaker Change: <unk>, 4% up in the rest of the world.
Speaker Change: Partly offset by lower China.
Speaker Change: We were pleased to see double digit order growth in the U S.
Speaker Change: The adjusted EBITDA margin was 13, 5% in the quarter and 11, 5% in the full year.
Speaker Change: Resulting in a strong improvement of 90 basis points versus 2023.
Speaker Change: We delivered strong free cash flow in 2024 and continued to strengthen our balance sheet.
Speaker Change: Hi, restructuring and other charges were a result of our continued focus on resolving the consequences of the restaurants recall and important changes we have been making across the company as part of our plan.
Speaker Change: In light of the progress made based on the strength of our balance sheet.
Speaker Change: Pleased to say that we propose a dividend.
Speaker Change: Of zero point 85 euro per share payable in shares or cash at the option of the shareholder go to maximum of 50% and a total dividend available in cash.
Speaker Change: Let me turn to the progress we've been making in our businesses.
Speaker Change: We are setting industry standards across segments with our AI driven innovation.
Speaker Change: This is a major factor why more than 50% of our sales stemmed from new and upgraded products launched in the last three years.
Speaker Change: At <unk>, we expanded our computer tomography offering with FDA clearance for the <unk>. Five 300, we also introduced the next generation of industry only worldwide helium free EMR scanner.
Both leverage AI assistance at every step of the workflow.
Speaker Change: As evidence of the continued pull for innovation, we signed several long term partnerships with customers across regions in the quarter.
Speaker Change: These include a strategic partnership for imaging in health Informatics platforms, but the hospital Foundation Roadshow in Paris, the restaurants Medical center in Rotterdam.
Speaker Change: Additionally, we signed an expansion of our strategic collaboration with Amazon Web services to offer an integrated diagnostics portfolio in the cloud, including radiology digital pathology and cardiology.
Speaker Change: In personal health, we rolled out a renewed mid range <unk> series 5007 thousand in Europe, giving users choice of features at different price points.
Speaker Change: Looking ahead.
Speaker Change: The mantle of the markets, we serve remain strong, but the short term dynamics differ per region.
Speaker Change: Outside of China, we expect generate solid consumer sentiment as well as a solid hospital capex environment in 2025.
Speaker Change: In China, we expect consumer demand to remain subdued.
We expect demand from hospitals to continue to be impacted by the consequences of the anti corruption and slower implementation of the national renewal program at least into the first half of the year.
Speaker Change: Stimulus activity is increasing.
Speaker Change: Our funnel is progressing.
Speaker Change: However, despite some increase in hospital tenders, we have not yet seen a trigger that would significantly change the situation for the first half of 2025.
Speaker Change: We are focused on executing our plan to deliver continued performance improvement in 2025.
Speaker Change: We expect 123% comparable sales growth this year with growth in the rest of the World Party upset by mid.
Speaker Change: To high single digit decline in China coming from the consumer and health systems businesses.
Speaker Change: We remain laser focused on capturing margin expansion opportunities and expect adjusted EBITDA margin to increase by 30% to 80 basis points to 11, 8% to $12 three in 2025.
Speaker Change: This will be driven by our focus growth strategy additional productivity savings and continued strong investment in our innovations.
Charlotte: Now over to Charlotte to take us through the financials and outlook in more detail.
Charlotte: Thank you Ryan good morning, everyone and thank you for joining us on the call.
Charlotte: Let me start by expanding on our financial performance.
Charlotte: Diagnosis and treatment comparable sales decreased 1% in the fourth quarter and increased 1% in the full year. This was on the back of strong growth in 2023 solid growth in rest of the world was offset by China.
Charlotte: Adjusted EBITA margin improved by 170 basis points in Q4 to 12, 1% and a full year adjusted EBITDA margin was stable at 11, 6% driven by positive product mix pricing and productivity measures offset by the lower sales in China.
Charlotte: Moving to connected care comparable sales increased 7% in Q4 on the back of a low comparison base due to the impact of a provision against sales taken in 2023 related to the Respironic recall remediation.
Charlotte: Connected care comparable sales increased by 2% in the year.
Charlotte: In Q4, the adjusted EBITDA margin was 15%.
Charlotte: In the full year adjusted EBITDA margin improved 240 basis points to nine 6%, mainly driven by continued operational improvement.
Charlotte: Fortunately, both enterprise informatics, and sleep and respiratory care businesses delivered positive adjusted EBITA margin in 2024.
Charlotte: Personal health comparable sales decreased by 2% in the quarter and by 1% into full year with strong growth in rest of world, including double digit increases in other growth markets offset by a double digit decline in China.
Charlotte: The adjusted EBITDA margin was a strong 18% in the quarter and 16, 7%.
Charlotte: We have been very disciplined in cost management and productivity initiatives delivered savings of $752 million in the year and $1 7 billion planned to date.
Charlotte: Turning to our group results.
Charlotte: In the quarter sales increased 1% orders grew 2% and the adjusted EBITDA margin increased by 60 basis points to 13, 5%.
Charlotte: For the full year sales and orders grew 1% and adjusted EBITDA margin increased by 90 basis points to 11, 5%.
Charlotte: Operational improvements productivity savings and previous pricing actions more than offset volume loss in China reached and component cost inflation.
Charlotte: Net income decreased by $371 million in the quarter, mainly due to higher tax expenses, the write down of an intangible assets and restructuring charges.
Charlotte: <unk> expenses increased by $581 million in the quarter due to higher D recognition of deferred tax assets in the U S and higher taxable income in 2024.
Charlotte: Adjusted diluted EPS from continued operations increased a strong 35% in the fourth quarter and 17% in the full year.
Charlotte: We delivered a free cash flow of $1 3 billion in the quarter and 0.9 billion for the full year in line with guidance.
Charlotte: Full year free cash flow included the remaining payment of roughly $430 million related to the economic loss settlement and receipt of approximately $540 million from insurers for the restaurant space.
Charlotte: Our leverage ratio was down to one eight times on a net debt to adjusted EBITDA basis.
Charlotte: As Roy mentioned following the strong deleveraging and in line with our balanced capital allocation policy, we will submit a proposal to maintain the dividend at <unk> 85 per share in shares or cash at the option of the shareholder.
Charlotte: The decision to pay up to 50% of the total dividend in cash balances our commitment to dividend with the demand on cash given the expected payments related to the restaurant settlements in the U S.
Charlotte: Turning to the outlook, we will continue to drive improved performance in 2025, we.
Charlotte: We were pleased to see the return to order intake growth in 2024 supported by the many recent innovations which are performing well.
Charlotte: However, we expect sales growth and margin expansion in 2025 to be back end loaded due to the continued impact of China into the first half of the year and comparison base effects.
Charlotte: We expect China shields to decline mid to high single digits with double digit decline in the first half of the year, partially offset by growth in the second half mainly due to the easing of the comparable comparison base.
Charlotte: In the first quarter more specifically, we expect mid single digit decline in comparable sales and accordingly, lower adjusted EBITA margin driven by the double digit sales decline in China royalties phasing and the high comparison base in diagnosis and treatment.
Charlotte: We expect margin expansion of 30.
Charlotte: At this point in the year to be driven by a combination of higher growth in attractive leadership segments improvements in businesses with lower margins and additional productivity and innovation.
Charlotte: Focusing on what we can control we are increasing the productivity savings targets for the 2023 to 2025 period from 2% to $2 5 billion euros, driven by higher savings to date.
Charlotte: Further simplification of our operating model and cost efficiencies. This leads to expected savings of 800 million euros in 2025.
Charlotte: We expect to deliver sales growth within the outlook range and adjusted EBITA margin improvement across all our businesses.
Charlotte: Restructuring costs are expected to be 100 basis points in 2025, driven by continued efforts to simplify our operating model.
Charlotte: Verticalizing optimize our supply chain and reduce complexity in our functional cost.
Charlotte: Other charges are expected to be around 200 basis points.
Charlotte: Maybe respironic steels action activity and other quality action related charges.
Charlotte: We acknowledge adjusted items are still high in 2025 and are diligently working to reduce them going forward.
Charlotte: We expect free cash flow at the lower end of the one four to one 6 billion Euro planned range.
Charlotte: This outlook excludes the $1 $1 billion payment of the medical monitoring and personal injury settlements in the U S. In the first half of the year as well as the potential impact of other ongoing Philips respironics related legal proceedings.
Charlotte: The outlook. We provided today includes the impact of the recently announced U S China tariffs.
Charlotte: With many possible scenarios, we will not speculate impacts of potential future tariff policies.
Roy: I would like to hand, it back to Roy for his closing remarks.
Roy: Thanks, Charlotte I would like to repeat the key messages of today.
Roy: 2023, and 2024 have been years of strong fundamental progress.
Roy: Our plan is robust despite the impact from the challenging macro conditions and is delivering underlying performance improvement.
Roy: We delivered margin and cash ahead of plan to date have returned to solid order growth.
Roy: And outside of China in 2024, we made significant progress on our execution priorities addressing challenges strengthening fundamentals deleveraging the balance sheet and providing further clarity on our restaurant entree for it.
Roy: We also renewed our culture and team.
Roy: Our innovation is gaining momentum as shown by success of our many products launched in effect that 50% of sales has.
Roy: It's coming from recent innovation and a return to positive oriented growth.
Durga: Before I wrap up I would like to welcome Durga.
Speaker Change: As head of Investor Relations effective April 1st I also wanted to thank Leandro who's taking a new position within our finance leadership team for his partnership and strong impact in the last five years. The two are already preparing for the handover and will be joining the upcoming roadshows and investor activities together.
Durga: We will now take your questions.
Speaker Change: Thank you Sir.
Speaker Change: Any participants who would like to ask a question. Please press star followed by two times one on your telephone do.
Speaker Change: Due to the time, please limit yourselves to one question and one follow up this will give more people the opportunity to ask questions that.
Speaker Change: That would be short pulse wall participants register for questions.
Speaker Change: We will now take our first question from the line of Richard Felton from Goldman Sachs. Please state your question.
Richard Felton: Hi, good morning, Thank you very much taking the question.
Speaker Change: First one is on your top line guidance.
Speaker Change: I understand very very clear assumptions on China, but could you perhaps comment on what you are embedding in your assumption assumptions for the rest of the world looking at the mid point my math implies that youll.
Speaker Change: You guide points to a modest deceleration facility outside of China in 25 versus <unk> 24 is there any specific market, where you have a more cautious view or is that just general conservatism baked into that guidance. That's the first question second question is on the additional cost savings is there any is there any incremental color.
Speaker Change: You can share on where those cost savings are coming from and how should we think about the balance between reinvestment of those cost savings and how much is going to drop down to the bottom line. Thank you.
Speaker Change: Thank you Richard in terms of the assumptions for the rest of the world.
Speaker Change: I think as we are looking at 2025, we still see quite a level of uncertainty surrounding the world now we have seen strengthening of the capex environments outside of China, and we also expect that actually to continue and that would also drive our orders and growth and as you know it is also a lag time between had that dialed up.
Speaker Change: Order momentum that will pull through so thats something that we will continue to build on also has gone up some of the innovations that we launched in 2024 will be really gaining momentum in 2025 now in China as I said, we have the first half continuing as we have seen in the second half of 2024, we don't want to.
Speaker Change: Get ahead of ourselves in terms of what the second half would look like I do say that we don't count and your outlook on strong rebounds of China to deliver the outlook that you have seen so I think we have gone in with a realistic outlook for China as well as for for the rest of the world.
Speaker Change: Then on the savings.
Speaker Change: Yes, we are expanding the productivity plan and that's an important part of how we count ourselves also what we see around us in the world.
Speaker Change: Including the tariffs.
Speaker Change: In fact that you have seen and we are.
Speaker Change: Adding $500 million to the plan that is a combination of cost activity. So it's partly role reduction, but actually also really stopping activities scaling innovations that we actually I've got a better leverage procurement savings and we do that at the same time to keep our innovation spend at the level that we have been in recent years because you have.
Speaker Change: Seeing that we keep spending behind innovations, especially also now more and more on AI. So the $1 7 billion of spend is also saved got it because we got.
Speaker Change: And all of our areas. So we got to support margin, but for sure also to protect our innovation engine and that's also what you have seen in terms of the innovations that we have been putting into the market and that by now 50% of our sales is coming from the most recent innovations and upgrades that we have so you also see that there.
Speaker Change: Getting the uptick in the market.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Next we'll take a question from David Adlington from Jpmorgan. Please state your question David.
Speaker Change: Good morning, guys. Yeah, just following up on the order growth I think you pulled out in your IP comments to actually imaging.
Speaker Change: High single digit.
Speaker Change: Maybe you could just comment in terms of how you're thinking about market share.
Speaker Change: In D&C.
Speaker Change: Particularly with respect to China, where local competition I think it's probably taking a little bit of share of some players.
Speaker Change: Positioning within DNP in China, and then secondly, just if you have any updates on the DHA topic. Please.
Speaker Change: Yes so.
Speaker Change: On the China and momentum I think what we have seen in China is that actually all players of course are facing challenges with lower procurement.
Speaker Change: We look to the kind of the stronghold that we built on me, so actually EMR and with the re launch of our helium free actually really gaining good momentum.
Speaker Change: We believe that actually will help us to build on share.
Speaker Change: Got it if we have had in the recent years.
Speaker Change: We just launched our new five 300, so that needs to gain momentum and then an ultrasound actually we were very encouraged because you might know that we launched our VM 11th suite with the latest AI from the <unk> acquisition in Q4 for ultrasound is very strong and also in China actually saw.
Speaker Change: A good uptake within a further kind of fat more depressed environment, but actually we saw that engine coming back into play after having been pressured for a bit also by the local players. So I'm encouraged by our how we are responding to.
Speaker Change: Renewed activity there and also what we are being able to take them out of the market on a Doj timing, there's really nothing to say.
We are still as we said before.
Speaker Change: Strong collaborations with them, but they have not indicated any timing.
Speaker Change: And as you can imagine even with the current turmoil in the U S. It has not become clearer.
But I cannot comment on that.
Speaker Change: Got it thanks, so much.
Speaker Change: Yes.
Thank you.
Speaker Change: Next we'll take question from the line of Hudson I'll Walk you from Barclays. Please state your question.
Speaker Change: Thank you and good morning, a couple for me Firstly can we talk about the drivers to the high single digit growth in orders for Q4, any particular modality is driving this and what was order growth excluding China in DMT.
Speaker Change: And then secondly can you walk us through the margin bridge.
Speaker Change: From 11 and a half.
Speaker Change: Over 12 at the midpoint.
Speaker Change: In 2025.
Speaker Change: <unk> and <unk>, obviously, a key components of your expansion more broadly in terms of margin could.
Speaker Change: Could you provide us an update on where the margins for these businesses landed in 2024. Thank you.
Speaker Change: So let me maybe take the first one in terms of the.
Speaker Change: The orders in and DMT, so assets, we saw indeed double digit ex China.
Speaker Change: That is <unk>.
Speaker Change: <unk> offer strong drivers in ITC.
Speaker Change: We're also you know we kind of launched a new a biplane.
Speaker Change: And that actually is generating good traction, but also the overall uptake.
Speaker Change: An increase in.
Speaker Change: Procedures drive more kept up.
Speaker Change: Orders, then we have to MLR as I mentioned, we launched with a new AI driven.
Speaker Change: Helium free is really are gaining good momentum.
Speaker Change: And then ultrasound.
Speaker Change: That's kind of where we had.
Speaker Change: The cardiac engine really firing in Q4, particularly also in North America, but across the world.
Speaker Change: And that actually contributes to that momentum of.
Speaker Change: Of DNP <unk>.
Speaker Change: <unk> already relaunched their portfolio earlier, so actually that has been continuing but we saw some additional really good uptake in the businesses that I just mentioned.
Speaker Change: Yes. Thank you Ryan Hassan I will take your take your second question on margin. So as you can see from our guidance. We're very focused on margin expansion in 2025, and we expect that to come from improvements from all of our businesses driven by a few different things first of all we continue to see higher.
Speaker Change: Growth of our high margin businesses, which as a reminder, 70% of our revenue so that will lift up the whole Philips.
We also continue to see improvement in our businesses with margin upside potential. So that is D. I enterprise informatics and Src are actually very pleased to see both enterprise informatics and as in our sheet come back into profitability in 2024.
Speaker Change: You already mentioned, we are increasing our productivity savings program from 2 billion to $2 5 billion of which 800 million is in 2025, so that'll be significantly helping our margin uplift as well and then Raj spoke about some of the innovations.
Speaker Change: Recent innovations already we continue to see some gross margin step up from that are you already called out the GM 11 ultrasound.
Speaker Change: Innovation and there are many others as well also in ICT that aren't giving us a great uplift now having said that we do expect the margin uplift to be back end loading noted following the sales dynamics that we see particularly also in Q1 related to China and also the comps.
Speaker Change: Royalties.
Speaker Change: If I can just follow up on on China really when we met at RSA, you mentioned some improvement in tender activity and health systems.
Speaker Change: This trended since.
Speaker Change: And maybe to follow up on an earlier question I mean, just on share dynamics in China. Some of your competition I've been talking about your share losses, specifically, so it'd be great to get your thoughts here.
Speaker Change: Yeah. So on the the green shoots that indeed, we saw I think what I mentioned is that we need to see those.
Speaker Change: Actually containment after Chinese new year.
Speaker Change: That theory, just started so actually it's hard to call what our that's now and really renewed consistent strength.
Speaker Change: And that's also where we are still cautious as we call it, especially the first half of the year and then we need to see how that's how that evolves I think there has not been.
Speaker Change: Kind of consistency that's gone up we have been pulling through them that would get at that.
Speaker Change: Confidence that first half already will be materially different than second half that we saw last year now than in the businesses in China and I can talk to the customer meant that we have.
Speaker Change: At where you see especially in IGT and ultrasound in China, we have stepped up significantly the EMR lounge I already spoke to that with the relaunch of the of the helium free.
Speaker Change: Actually we see that the helium free is now leading the world in China in uptake, so actually theyre going after that innovation strongly.
Speaker Change: So we see that we are very competitive and also with localized products.
Speaker Change: And also with the.
New leadership in place in China, with laying and team that are really very much out in the market to ensure that we get our fair share or more.
Speaker Change: When the market's relapses.
Speaker Change: Excellent. Thank you both.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Julien Dumoulin from Jefferies. Please state your question Julien.
Julien Dumoulin: Hi, Good morning, Hello. Good morning, Thanks for taking my questions I have two the first one relates to the guidance you have provided for China. This year. So the mid to high single digit decline in sales, but please elaborate on how you see things.
Julien Dumoulin: Possibly diverging between consumer and equipment, whether there is one area, where you would expect more weakness than the other.
Julien Dumoulin: It would be helpful and the second relates to the longer term plan that you guys had in place for let's say beyond 2025.
It was calling for a margin target in the mid to high teens.
Julien Dumoulin: So wondering whether that would still be valid under which horizon and whether maybe you plan to have the capital markets day or anything like this to update us on what could be the next three to five year view for the business.
Speaker Change: Yes, Thank you Julia.
Speaker Change: I think it's a good question on the first part because indeed, given our portfolio we have some specific dynamics.
Speaker Change: In China that day part.
Speaker Change: Actually the consumer side is having the highest double digit impact in.
Speaker Change: In China, We said and explained already earlier with the declining sellout to see adjustments in sell out but also sell in so stock levels adjustments that has happened in the second half, but still continues to come into the first half as well and that actually is significant.
Speaker Change: <unk> on the <unk>.
Speaker Change: China performance actually the bigger part of it not then we see also I'll say, some still having a negative impact but as we also said we see some improvement there. So actually that is the balance of the two elements.
Speaker Change: See good growth ph outside of China. So actually that engine is really picking up strongly maybe sort of 4% for the for the total group for the full year outside of China, We see even more in her personal help coming in but they have to combat a stronger decline in China. So that's a bit of the dynamics in China in particular, where the consumer subdued.
Speaker Change: Demand is just being big part to us in all of our players in the industry.
Speaker Change: And Julie I'll take your second question. Thank you for that so about our longer term margin expansion plans and we will talk about it later this year at the capital markets day, but I can assure you that the plan is robust and we.
Speaker Change: We're laser focused on successful execution of the plan and to drive operational improvements and also create value and if you think about our portfolio with 70% of our revenue in leadership positions at higher margins, which again will lift overall of Philips and the rest of the 30% business.
Speaker Change: In diagnostic imaging and enterprise Informatics, and then as NRC really providing good margin upside potential and on top of that our productivity improvements we remain confident in the potential to improve our margins also beyond 2025, and we'll talk about that later in the year at the capital markets day.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: We will now take our next question from the line of Lisa Clive from Bernstein. Please state your question Lisa.
Lisa Clive: Hi first question.
Lisa Clive: On patient monitoring could you just give us the latest trends in your business there.
Lisa Clive: Arms of working through the sort of Covid buildup also just generally.
Lisa Clive: Potential increased demand in the monitoring market as it expands.
Lisa Clive: Beyond the acute care settings, and then second on connected care.
Lisa Clive: The respironic performance outside of the U S. <unk> been back for several quarters now can you talk about in particular the competitive dynamics.
Speaker Change: I know, it's mainly duopoly between you and raising that that I think there are some players outside the U S. How is your market share evolving and sort of how much of the lost ground do you think youll be able to regain in the next two to three years. Thank you.
Speaker Change: Yes. Thank you Lisa for the question is let's let's talk monitoring of course very important business and.
Speaker Change: What we have seen yes, there was.
Speaker Change: Some after effect from Covid, but actually demand has.
Speaker Change: <unk> has been there we also have positive order intake growth in monitoring.
Speaker Change: We also have seen that you see so bigger technology deals really coming in that makes that there is more lumpiness going into monitoring and part of this because you go to technology service partnerships.
Speaker Change: Our bigger size of a prolonged period and also a bit more complex nature, but at the same time, they're more attractive because they give good service margin take on if you could protection.
Speaker Change: For renewal.
Speaker Change: And we are gaining share in monitoring so I think we have seen that.
Speaker Change: And many of the place that were active and we also have launched our new <unk> 6000 monitor range that actually is doing nicely and well and as you know we also have the informatics on top that is important for the current data and AI play so actually monitoring.
Speaker Change: A strong business, but you do see that lumpiness in the conversion that also plays a big part in terms of kind of when we see coming to conversion.
Speaker Change: And two sales margin has been holding up.
Speaker Change: Strong as well.
Speaker Change: And if you make the bridge to force total connected care margin has been going up very significantly 240 basis points now that will still with monitoring at a strong margin level, but then in particular, if we got.
Speaker Change: And as our feedback and if you talk about Src. They are indeed, the momentum is coming into that business again.
Speaker Change: One driven by the return to the.
Speaker Change: Markets outside of the U S. We are now also the last market came fully into play which is France. So we cannot sell in all markets out of the U S again.
We got that news yesterday, so that's great.
Speaker Change: We also see that we are competitive there.
Speaker Change: We have been launching new mosques, we got two new FDA approvals.
Speaker Change: I already spoke that the mask range is doing really well we are kind of trending at a level. When we had exited U S device youll still included including the first setup.
Speaker Change: Set up sales of dose and volume wise, we have gone up.
Speaker Change: Now outgrown that in 2024 and that also brought Src in good profitability in 2024 because of course it has been dilutive for now few years, we brought it back we did the right sizing of the portfolio and also the kind of the footprint, but most importantly <unk>.
Speaker Change: Receipt of momentum coming back into that business.
Speaker Change: Okay, great. Thank you well.
I will now take our next question from the line of Robert Davies from Morgan Stanley. Please state your question Robert.
Robert Davies: Good morning, Thanks for taking my question. My first one was just around the margins.
Speaker Change: PMT and.
Speaker Change: In the quarter, just give us a little bit more color on realized they came in a bit lower than consensus expectations just wanted to talk about.
Speaker Change: There are different dynamics between product mix, maybe China, or just give us a little bit more color on that one and then the second one was just on the.
Speaker Change: Slide you put in on restructuring costs through 2025, perhaps you could just set the scene in terms of what's actually left to do in terms of.
Speaker Change: Sort of the different spend where the buckets are going is there any more sort of head count coming out within that restructuring cost element.
Speaker Change: And as we look even beyond 25 is 25 basically clearly most of the Dax Sanders.
Speaker Change: You would expect more to keep going in 2006. Thank you.
Speaker Change: Thank you very much Robert and I'll I'll take your questions and I'll start with the margin DNT one.
And first thing two things I want to say about that first of all we had a strong step up in Q4 of 160 basis points in margin and DNT and this was despite lower China, which as Roy mentioned is as high profitability for us.
Speaker Change: So thats strong step up was driven by a few different things. We saw positive mix. We continued to see strong productivity and also saw some positive pricing as the higher prices in your order book continued to flow through.
Speaker Change: So if you then take a step back and look at our.
Speaker Change: Our outlook our longer term outlook, we already reached our low teens margin outlook already in 2023, where we increased our margin expansion by 200 basis points.
Speaker Change: So for 2025 again, we expect the margin improvements across all business segments, including DMT. So again, we're going to play that mix because in the DLT segment, we have some of our higher margin businesses like ITT, where we have market leading positions and continued innovations like isn't oriented pipeline we have.
Speaker Change: <unk> and Roy already spoke about the very exciting innovations in VM 11, and transcend which continue will continue to drive margins up and we are we have additional productivity. As you also mentioned, which will also help the diagnosis.
Speaker Change: <unk> treatment.
Speaker Change: Margins as well ultimately we are very very pleased with our order intake, which was high single digits in Q4 and that coupled with our innovations and momentum that we're seeing in Q4 will help to deliver it.
Speaker Change: Our margin expectations in 2025.
Speaker Change: Now moving on to your next question.
Speaker Change: Restructuring and incidentals, so as I said in my prepared remarks and we.
Speaker Change: We are diligently working to reduce the incidentals as we absolutely acknowledge they are and they are high and it is a priority for me to to reduce them going forward and if you didn't take a step back I think about a one off.
Speaker Change: Can be divided into different categories on the one hand, we're still working to resolve the restaurant ex recall, so we have consent degree charges and litigation charges.
Speaker Change: And that well will diligently working to reduce that over time and it will reduce overtime.
Speaker Change: And the other component is.
Speaker Change: Related to the execution of our plan and we are making sure we focus on growing our business, making our supply chain leaner and more agile and ultimately reducing complexity overtime and with that we have some some restructuring charges as a result of that so as you think.
Speaker Change: About 2025, the restructuring 100 basis points that we called out is really related to further operating model simplification and manufacturing.
Speaker Change: R&D footprint changes as well as platform optimization as we become to a more focused business.
Speaker Change: Understood.
Speaker Change: Was there any head count reduction in those numbers as well or.
Speaker Change: Ex head count.
Speaker Change: So as we're continuing to become a more a leaner company and a more focused company. We will also look at head count although that will not be the biggest part of it but we will continue to look at becoming a simpler company.
Speaker Change: And to do business with which will ultimately also result in some headcount reductions.
Speaker Change: Understood. Thank you very much.
Speaker Change: Thank you.
Speaker Change: We will now take our next question from Graham Doyle from UBS. Please state your question.
Speaker Change: Good morning, guys. Thanks for taking my questions just two from me one on China.
Speaker Change: That horse again, but when I look at the way you're guiding for it in sort of the language you talked to Randy.
Speaker Change: The pre Chinese new year step up it seems quite cautious so when we look at some of the data. We're seeing elsewhere. We think about high local companies are guiding on the relative strength, even in our consistency in market shares is it an effect that you guys are assuming that the recent tick off basically just stops does not persist.
Speaker Change: Through the year and that's the degree of caution.
Speaker Change: Just be question number one.
Speaker Change: Question two in terms of these consent decree.
Speaker Change: Extra 200 basis points of incidentals.
Speaker Change: When do you see that sort of tailing Dane or reducing and then also could you maybe give us an update in terms of the consent decree and the timings just theoretically in terms of high separate the ability to return to sale in the U S of sleep systems is versus the actual sort of end of the consent decree just to get a sense of.
Speaker Change: That as well thanks a lot.
Speaker Change: Thank you Graeme and on the so on China.
Speaker Change: We are cautious on China, and I think it's also a diligence because we have seen.
Speaker Change: Not an inflection.
Speaker Change: Inflection point that would kind of give us the data to say okay.
Speaker Change: The recent few months.
Speaker Change: Turn into structural trend, we have seen green shoots we are seeing tender activity. We are also very active in the market. So it's not that we're not chasing it then going after it.
Speaker Change: But we just find it too early to call for changed momentum and Thats why we take that kind of caution into the plan and also especially into first half. That's also what we call because we also know what the visibility in China is not very long so it could change, but we just don't want to preempt that.
Speaker Change: I think a fair description of what we've seen at the same time. We also have kept saying it's a one question. So China will come back and we also believe you are very well positioned to come back. Our brand is very strong we have strong customer penetration and connections and also in the consumer market comes back with a strong innovations.
Speaker Change: We'll be ready to kind of play that demand.
Speaker Change: So thats the China story than on a constant degree that's 200 basis points. Yes. It was also ask on a shallow upset that will taper off over time, yes. We are working now at the height of the consent decree. We go to just one year right. So there's a lot of activity going on to fulfill the needs and also we are putting a lot of effort in going.
Food at the best possible that we can so that we can come back to the market and the speediest possible time, but on that time again, we said before we cannot speculate because that is up to the approval of the FDA, what we did say before.
Speaker Change: I will repeat is that an average CD.
Speaker Change: Yes.
Speaker Change: Five year window, but an injunction can be lifted earlier and we saw that in our emergency care business that was after three years, but that doesn't mean that in this case. It's the same because it's a very different case. So we are fairly committed committed to the Src business assets. We are seeing momentum coming back. So actually is contributing already to the plan and I think it will come.
Speaker Change: We would of course, even more if we got through.
Speaker Change: <unk>.
Speaker Change: The timing of the of the consent degree so I think and the other thing that we said early in the plan is that we don't count ourselves, reaching when it comes back right. So we can do to step up in margins to step up in growth without that's baked into them.
Speaker Change: Our current plan.
Speaker Change: We're not dependent on it.
Speaker Change: We'll focus of getting through it whilst we grow the rest of the business.
Speaker Change: Where we have a lot of opportunity.
Speaker Change: That's super helpful and understanding that caution thats makes a lot of sense. Thank you.
Speaker Change: Thank you.
Speaker Change: We will now take our next question from the line of Hugo <unk> from BNP Paribas Exane. Please go ahead Hugo.
Speaker Change: Hello, Thank you for taking my questions I have two please first on Paris I.
Speaker Change: I appreciate the color on <unk>.
Speaker Change: U S China and the fact that you cannot really guide yet for it.
Speaker Change: China tariffs, but could you remind us of the manufacturing footprint here.
Speaker Change: We think about.
Speaker Change: Mexico, Canada is there anything that we should have in mind.
Speaker Change: The whole prepared do you feel with regards to potential rollout of tariffs.
Europe.
Speaker Change: So on dividend.
Speaker Change: Moving to <unk>.
So.
Speaker Change: Cash and shares should we see this as a transition to be back to the cash dividends next year, maybe thank you.
Speaker Change: Yes.
Speaker Change: On the tariffs. So what we said is we included what we know right. So and that is for now the China U S. Tariffs, we also overtime actually reduced quite significantly or export from China to the U S. So we're working that in various ways.
Speaker Change: And then I think it's good to note that we have no direct manufacturing in Mexico and Canada.
Speaker Change: We do have some suppliers there, but no one manufacturing sites.
Speaker Change: We do have manufacturing sites in Europe, but also in other parts of Asia. So we are playing and global footprint, we are visualizing before.
Speaker Change: As I said, it's hard to speculate on.
Speaker Change: What will happen next we are in very active dialog for many.
Speaker Change: France with you with you.
Speaker Change: <unk> in China to ultra advocate.
Speaker Change: <unk> of reliable supply chain for patients.
Speaker Change: So that disruption is minimized we've seen with COVID-19 what it means if.
Speaker Change: Our supply chain in health Tech and <unk>.
Speaker Change: Disrupted.
Speaker Change: So we are working our own plan with regionalized supply chain work on a lobbying to see how we can best maneuver through this.
Speaker Change: Current footprint that we have I think is one that we build on and that we further regionalized.
Speaker Change: Yeah, and then you go on your question on the dividend and we are very pleased that we are.
Speaker Change: Proposing to offer shareholders the option to receive dividend in either shares or cash as it just is an important signal signal that we've made significant progress in deleveraging. The company currently at one 8% at one eight times leverage we've really put a lot of focusing focus on strengthening the balance sheet at the same time.
Speaker Change: I'm recognizing that there will be a $1 $1 billion cash out related to the restaurant <unk> settlement in the U S that will be paying out in the first half of the year. So we're balancing dose, but you should really see this as the next big step on our journey.
Speaker Change: Very pleased about that.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: We will now take our next question from the line of Sam Glynn from Citi. Please state your question.
Speaker Change: Hi, Thank you for taking my questions. My question question is on the gross savings that you guys are expecting to see through the rest of the year I. Appreciate that you have provided us with the outlook for Q1 already.
But does it decline and also what's your degree of confidence at this point in time in delivering of both the mid point of the guide for the full year and I guess the follow up to the question is what is the implications for margins as a result, the basin with incremental cost savings could we see margin for every quarter to be within the <unk>.
Speaker Change: Guidance range, even when top line may not be thank you.
Speaker Change: Yeah.
Speaker Change: Yes, so from a from a staging perspective. Thanks for a further question. So so we see this as a realistic realistic outlook for the year and if you don't think about the phasing both from a sales growth as from a margin perspective, we expect this to be back end loaded due to a few different things.
Speaker Change: Mainly the China.
Speaker Change: China impact, where we see China double digit decline in the first half of 2025 as well as phasing of royalties and you know that royalty phasing is another high margin for us. So that really has a significant impact as well and the third component is really the comparable base, particularly in DMT, where in Q1 of 'twenty.
Speaker Change: 24 <unk>.
Speaker Change: Still saw.
Speaker Change: Our supply chain normalizing from.
Speaker Change: MLR perspective, particularly.
Speaker Change: So for China, we don't foresee a rebound in the second half of the year, but what we do see is comparable evenings in the second half of the year, which we can really have an impact on us. So what I'm as a result, what we're seeing is that both sales growth as well as margin growth will be back end loaded.
Speaker Change: Towards the latter half of the year.
Speaker Change: And.
Speaker Change: And maybe as a last follow up we are continuing to focus on what we control that increase our productivity savings from two to two five.
Speaker Change: Billion euros will also be back end loaded thats, what putting the programs in place to drive that productivity.
Speaker Change: Going forward, so we will see a gradual improvement.
Speaker Change: Sales as well as avatar margin.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Julian <unk> from Bank of America. Please state your question Julien.
Speaker Change: Thank you very much good morning, everyone. So I have a couple as well.
Speaker Change: The first one and just sorry to come back again on China.
Speaker Change: I think it's more follow up on all the comments you made today, but is it fair to explain the main difference from your mid to high single digit decline versus the low single low single digit decline from peers.
Speaker Change: Mainly from the ph business and.
Speaker Change: Like you know the terms do you see the DMT business being roughly down low single digits, and maybe ph like even more than that to get to the overall mid to high single digit decline. So thanks, thanks for that.
Speaker Change: Second question, but there are some concerns in the U S about cut too.
Speaker Change: Just kept budgets.
Speaker Change: Do you see it as a risk for hospital budgets.
Speaker Change: Today, we see a pretty strong.
Speaker Change: Capex on the bromine, but maybe for like 2026 or beyond thanks.
Speaker Change: Yes, Thank you Giulia on China. So indeed ph is the one that actually.
Speaker Change: Causes.
Speaker Change: The mid to high single digits, it hasnt double digit impact still.
In the first half of the year, so that actually is weighing into.
Speaker Change: The phasing.
Speaker Change: Into the year and also kind of the impact from China and debt that goes with it and DNT, we seek on us.
Speaker Change: Continuation of trends that we have taken into account and that's also what we mentioned right. So we have seen some green shoots, but not a true inflection that actually with.
Speaker Change: Cause us to kind of significantly up that expectation.
Speaker Change: So we are kind of.
Speaker Change: Look at that as time.
Speaker Change: Time progresses in the year to see how the tender momentum on the order momentum in the market growth and that's what we also see.
Speaker Change: Across the industry. So that's not for US I think just the market in itself.
Speaker Change: So it is I think on the.
Speaker Change: On the China assumption.
Speaker Change: The second question.
Speaker Change: Yes.
Speaker Change: Ultra low capex in the U S. We actually expect that the U S will continue and its strong form.
Speaker Change: And remember I called out we had double digit order intake growth in North America. In 2024. So we have strong momentum actually be expect that to continue because the demand underlying is really strong we see procedure growth still increasing we still see.
Speaker Change: Wait lines for imaging and monitoring as we SaaS kind of if we see continued solid demand.
Speaker Change: And with the share we have we benefit from that so you see kind of.
Speaker Change: The good momentum we saw the ultrasound also really picking up as I mentioned that was a bit weaker than that in the recent periods and thats actually picking up which shows that's gone up that market. My view is in a good position and we will continue to be.
Speaker Change: Thanks, Thanks, all right. So I mean like for the second question I was mentioning in case, we have some some cutting budgets.
Speaker Change: Good luck for Medicare Medicaid et cetera, if something which can have an impact on procedural live at all just like coastal budget, maybe but at the moment, but more.
Speaker Change: More like in the future.
Speaker Change: Again hard to speculate on what could happen if if if if policies change I think we are of course more policy change in recent times, we look at the underlying demand that is strong and also the engagements with the customers. Now then there is always things that can change that we have to address them when they happen.
Speaker Change: Perfect. Thank you.
Speaker Change: Thank you.
Speaker Change: Due to the time the last question comes from wind Gila of ABN Amro Auto. Please state your question.
Good morning.
Gila: I want to zoom in a little bit will be incidentals in DNP. It was 136 million.
Speaker Change: Hi, I didn't expect it sounded maybe relate to restructuring and fortune doing the quality actions.
Speaker Change: Can you give us a bit more feeling of what kind of restructuring you're doing.
Speaker Change: Print optimization, what are you doing there.
And on the quality issues.
Speaker Change: With the energy specifically.
Speaker Change: But we should look at.
Speaker Change: Yes.
Speaker Change: Thank you for your questions and indeed, the incidentals in DNT were a bit higher than expected, we acknowledge that and we're working diligently to reduce dose dose overtime. If you then look into the details a little bit more there are two things that are that were in those numbers on the one hand, we're actively and.
Speaker Change: Going after quality and resolving all the quality issues that we see that was part of the plan and let me see it we address it and that leads to some quality charges as part of our incidentals and the other side of it is that as we continue to become a simpler and less complex company. We're also working through footprint changes.
Speaker Change: And that has particularly played out in our in diagnosis and treatment as we're becoming a leaner our supply chain organization and a more focused organization in general. So those are the two key items driving that.
Speaker Change: Which <unk> do we look for quality actions.
Speaker Change: Yeah, we won't go into.
Speaker Change: That level of detail than that at this point there is nothing specific to call out there.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: That was the last question Mr. Yakov. Please continue.
Speaker Change: Yes. Thank you.
Speaker Change: For the call and your questions, let me summarize it.
Speaker Change: I think what you've seen in our Q4 and full year 2024 brand is that we closed.
Speaker Change: In line with our expectations and really building strongly on the fundamentals of the last two years, we came back into positive order intake growth with strong momentum outside of China helped.
Speaker Change: <unk> backed by China, we are realistic and our plan for 2025, we have taken a cautious view on China.
Speaker Change: We expect similar.
Speaker Change: Better than off the second half to continue at least in the first half where.
Speaker Change: Where we have the consumer.
Speaker Change: A slowdown to be cater for but we continue at the same time strong margin expansion strong balance sheet strengthening as.
Speaker Change: As a result, we also returned to dividend and cash and we will continue to be razor focused on that also supported by productivity enhancements in 2025. So thank you for your attention looking forward to further engagement.
Speaker Change: And seeing some of you very soon thank you so much.
Speaker Change: This concludes the Royal Philips fourth quarter and full year 2024 results conference call on Wednesday, 19th of February 2025. Thank you for participating you may now disconnect.
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