Q1 2025 Koninklijke Philips NV Earnings Call
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Welcome to the Royal Philips first quarter 2025 results conference call on Tuesday May six 2025.
Speaker Change: During the call hosted by Mr. Jacobs, CEO and MS. Charlotte <unk> 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 after probably a philips.
Mr. Sook: I'll now hand, the conference over to Mr. Sook outdoor Ex-army head of Investor Relations. Thank you. Please go ahead ma'am.
Speaker Change: Hello, everyone welcome to Philips results webcast for the first quarter of 2025.
Rodrigo: I'm here with our CEO Rodrigo.
Speaker Change: I was CFO, so a lot a ton of it.
Speaker Change: The press release at the Investor presentation published on our Investor Relations website. This morning.
The replay and full transcript of this webcast will be made available on the website. After this call.
Speaker Change: Before we start I want to draw your attention to our safe Harbor statement on screen.
Speaker Change: You will also find the statement in the presentation published on our Investor Relations website.
Speaker Change: I'll hand, it over to Roy.
Roy: Good morning, everyone.
Speaker Change: Thank you for joining our results call for the first quarter of 'twenty 'twenty five.
Speaker Change: I will walk you through our Q1 performance and the macro trends shaping our 2025 outlook.
Speaker Change: No tariffs are top of mind, and we will address them shortly.
Speaker Change: Our CFO shallow Panama.
Speaker Change: Provide more detail on the quarter and full year guidance.
Speaker Change: Close with Q&A.
Speaker Change: I want to start with the key highlights of this morning's press release.
Speaker Change: Order intake grew despite a double digit decline in China, driven by double digit order intake growth in North America.
Speaker Change: And strength in diagnosis and treatment.
Speaker Change: We exited the quarter with momentum.
Speaker Change: Even against the backdrop of increasing macro uncertainty.
Speaker Change: Sales performance exceeded the outlook, we provided in February driven by personal health growth in royalty phasing.
Speaker Change: Our innovations and productivity measures drove a step up in gross margin.
Speaker Change: Adjusted EBITDA margin delivery was resilient despite lower sales.
Speaker Change: <unk> U S settlement around 1 billion euros for space, which completes the U S personal injury medical monitoring settlement.
Speaker Change: I would now like to discuss our full year outlook for 2025.
Speaker Change: It incorporates our encouraging Q1 performance and the impact of announced tariffs.
Speaker Change: Of the comprehensive and significant mitigation actions we're deploying.
Speaker Change: Our sales outlook for 2025 remains the same.
Speaker Change: Comparable growth between 1% and 3%.
Speaker Change: Adjusted EBITDA margin is now expected to range between 10, 8% and 11, 3%, a 100 bps adjustment, reflecting the impact of tariffs net of substantial mitigation.
Speaker Change: And free cash flow is projected to be slightly positive.
Let's now look at the operational and strategic drivers behind our Q1 performance, let's dive into our first.
Speaker Change: Strong customer demand for our innovations along with improved operational execution sustained the momentum we built last year few Q1 as we enter Q2.
Speaker Change: Excluding a double digit decline in China.
Speaker Change: Variable order intake increased by 4% in Q1 with strong growth in diagnosis and treatment.
Like last year, we saw continued double digit order intake growth in North America.
Speaker Change: This number excludes service order intake.
Speaker Change: It was also positive very positive in the quarter.
Speaker Change: At the group level diagnosis and treatment orders grew mid single digits globally with order intake growth in both image guided therapy and precision diagnosis.
Speaker Change: And image guided therapy, we continue to see strong demand for our comparator for zoom platform.
Speaker Change: Now also has the AI driven neuro solution.
Speaker Change: And precision diagnosis, we saw strong order growth and cumulative thermography driven by <unk> five 200, our productivity workhorse with AI enabled workflow.
Speaker Change: And a clinically practical spectral CD 7500 systems.
Speaker Change: We also saw good momentum in MRI, driven by our energy first helium free system, which is supported by our AI engines, increasing access to MRI technology.
Speaker Change: We expect this positive order intake momentum in diagnosis and treatment to continue into Q2.
Speaker Change: And connected care hospital patient monitoring delivered solid growth, particularly in North America fueled by customer partnerships and a strong <unk> X platform offering.
Speaker Change: Clothing, cyber security and interoperability.
Speaker Change: Enterprise Informatics order funnel remains healthy underpinned by partnerships, including AWS, which we expect to drive strong order intake growth in the second half of the year.
Speaker Change: Or as in order book account for around 40% of our revenue.
Speaker Change: Importantly, our order book has steadily increased but an improved margin profile in recent quarters innovation is a key driver as reflected in a significant gross margin improvement we delivered in Q1 building on the 2024 step up.
Speaker Change: Our customers rely on our innovations as Chris critical enabler of their ability to drive efficiency and productivity.
Speaker Change: Today more than 50% of our sales are fueled by AI driven innovations from new and upgraded products launched in the last three years.
Speaker Change: This progress showcases the power of our innovation strategy and our partnerships.
Speaker Change: A great example is our work with AWS.
We're bringing cutting edge generative AI into our health suite imaging platform.
Speaker Change: Our future AI innovations will automatically summarize prior studies.
Also generate conclusions and even perform real time quality checks.
Speaker Change: By automating these tasks, we enable radiology is to focus on strengthening care quality and improving throughput.
Speaker Change: Which ultimately drives sustainable growth for Philips.
Speaker Change: To further strengthen our leadership in MRI in February we announced the launch of smart speed precise with dual AI engines, which advanced image quality, while accelerating scan time at the same time.
Speaker Change: It also extends AI driven efficiency across the entire Philips MSR portfolio.
Speaker Change: This includes a full portfolio of helium free MRI scanners mode installed base and new systems. So all customers can benefit from the speed and improved image quality.
Speaker Change: Two the access and total cost of ownership advantages that it brings.
Speaker Change: These are just two further examples of our innovation pipeline is working.
Speaker Change: Building, a stronger more competitive future for both our business and our customers.
Speaker Change: In parallel, we're making strong progress on our execution priorities with continued progress in patient safety and quality supply chain resilience and simplification across our operating model and portfolio.
Speaker Change: Here are a few highlights.
Speaker Change: Through simplification, we are on track to reduce the number of quality management systems by 70% this year.
Speaker Change: Supply chain lead times and service levels continue to improve and we are now.
Speaker Change: At par with industry standards, while we are at the same time adjusting in real time to new tariff realities, unfolding, which I will touch upon shortly.
Speaker Change: We are simplifying our platforms, our number of skus across our businesses now focusing on hospital patient monitor NCT. After strong results in image guided therapy ultrasound MMR.
Speaker Change: Finally, we continue to remove complexity and build a lean organization through our simplified operating model to.
Speaker Change: Together with our strengthened performance management this is driving accountability.
Speaker Change: <unk> and enhanced focus on growth and it delivered $42 million of productivity in Q1.
Speaker Change: We are well positioned to adapt decisively as the macro environment evolves, ensuring we stay ahead and deliver would focus.
Speaker Change: I am deeply proud of our teams around the world, who are driving to advance our operational priorities and the results. It delivers by focusing on what we can control amid such a dynamic environment.
Speaker Change: Looking at the front.
Speaker Change: And the mantle of the markets we serve remain strong.
Speaker Change: That makes a different by region.
Speaker Change: Starting with North America.
Speaker Change: Similar to last year, we are still seeing steady fundamental hospital demand.
Speaker Change: We are well positioned as seen in the strong double digit order intake and have not observed major shifts in capex plans.
Speaker Change: We are closely monitoring the environment.
Speaker Change: In China, while stimulus activity is picking up and our funnel is progressing we have not yet seen a trigger.
Speaker Change: It significantly changed the market dynamics.
Speaker Change: In line with our expectations going into the year.
Speaker Change: January hospital Capex remains solid across the rest of the world, but also increasing demand in Europe.
Speaker Change: Personal health delivered strong growth across Europe, and order growth markets, excluding China in Q1.
Speaker Change: Momentum continued in those markets as we exited the quarter.
Speaker Change: In China, the consumer environment remains subdued as we anticipated.
Speaker Change: We are closely monitoring consumer dynamic dynamics and sentiment globally, particularly in the U S.
Speaker Change: <unk> remained stable.
Looking to the rest of 2025, we remain vigilant about the macro environment, we operate in and the progress we have made on our execution priorities puts us in a strong position to navigate change with speed and agility.
Speaker Change: For several years now we have taken proactive steps to build a more resilient supply chain, including diversifying and regionalized key operations, especially in China well ahead of recent developments you have seen this in our improved supply chain metrics and performance in recent periods.
Speaker Change: In the current environment, we are further accelerating those efforts, especially towards the U S. Also we are going beyond shifting geographies.
Speaker Change: Our mitigation actions include supplier network manufacturing optimization, holding the right levels of inventory pursuing exemptions selective pricing and.
Speaker Change: And building greater operational agility and resilience.
Speaker Change: We view these as necessary to maintain our competitiveness protect margins and secure long term growth.
Speaker Change: We have cross functional teams actively working across our supply chain and business to further mitigate impact of tariffs.
Speaker Change: Both in the near term, but also looking ahead to 2026.
Speaker Change: In parallel we are razor focused on what we can control.
Speaker Change: <unk> strong cost discipline, as we tightly manage discretionary and overhead spending while staying committed to our long term innovation priorities.
Speaker Change: Our focus remains on the levers within our control to protect margins and cash flow.
Speaker Change: On a net basis, we expect the impact of tariffs as announced and net of substantial mitigation to range between $250 million to $300 million.
Speaker Change: We're also intensifying our engagements with governments and regulatory bodies worldwide.
Speaker Change: <unk> open markets and free flow of medical goods manufacturing essentials to ensure patient access to critical metex supplies and our innovations.
Speaker Change: Sure lots will now discuss our first quarter performance and outlook for 2025.
Speaker Change: Thanks Roy.
Speaker Change: In diagnosis <unk> treatment comparable sales decreased 4% in the quarter, reflecting a double digit decline in China as expected and on the back of the high two year comparison base.
Speaker Change: <unk> guided therapy continued its strong performance reinforcing its leadership position in minimally invasive therapy.
Speaker Change: Precision diagnosis declined mainly due to China, and a particularly high comparison base in magnetic residence, which had benefited from prior year supply chain improvement.
Speaker Change: Adjusted EBITA margin improved by 30 basis points to nine 5%, despite lower sales driven by productivity measures favorable mix effect and innovation.
Speaker Change: <unk> was partially offset by lower fixed cost absorption given lower sales.
Speaker Change: Moving to connected care comparable sales were broadly spread across businesses hospital patient monitoring sales increased driven by higher installations in both North America and Europe, we continue to see healthy demand in this business driven by the ongoing shift towards as a service model and large standardized monitoring.
Speaker Change: <unk> ships with integrated delivery networks and health systems.
Speaker Change: Adjusted EBITDA margin declined to three 5%, mainly due to the impact of unfavorable mix and cost savings, partially offset by productivity measures and innovation.
Speaker Change: We were very pleased to see personal health sales returned to growth in Q1 with 1% on a comparable basis.
Speaker Change: We saw double digit growth across Europe, and growth markets, excluding China and slight growth in the U S.
Speaker Change: This was slightly offset by a double digit decline in China as expected.
Speaker Change: Consumer sentiment remains strong across Europe, and growth markets, China excluded with robust sell out trends.
Speaker Change: Ana remained subdued as anticipated.
Speaker Change: Adjusted EBITA margin was in line with the prior year at 16, 2%.
Speaker Change: Sales in segment other totaled.
Speaker Change: 140 million euros, which was $17 million lower than the first quarter of 2024.
This was above our Q1 outlook range of 100 to 120 million euros due to royalty phasing effect.
Speaker Change: Turning to our group results and operating highlights in the quarter.
Speaker Change: Sales performance exceeded our expectation of mid single digit decline, mostly driven by the strong performance of personal health and further supported by royalty savings in segment other.
Speaker Change: Group comparable sales decreased 2%, reflecting double digit declines across all our segments in China and on the back of the highest two year comparison base in diagnosis and treatment globally.
<unk> sales increased slightly outside of China, mainly driven by the strength of personal health across the international region.
Speaker Change: Adjusted EBITDA margin decreased 80 basis points to eight 6% remaining resilient despite the decline in sales.
Speaker Change: This was partially offset by higher gross margin from innovation value and productivity measures.
Speaker Change: We have been very disciplined in cost management, and productivity initiatives, which delivered savings of $147 million in the quarter.
Speaker Change: We are on track to deliver an $800 million productivity savings in 2025 with the bulk of savings from the programs underway expected in the latter half of the year.
Speaker Change: Restructuring acquisition related and other items 2000, and $143 million in line with our expectations.
Net income increased by $1 1 billion in the quarter to 72 million euros.
Speaker Change: As mentioned Q1 2024 include at $982 million for the rest of our own ex litigation precision.
Speaker Change: Income tax expense decreased by 78 million compared to Q1 2024, mainly due to the tax effect on the restaurant ex litigation provision in Q1, 2024, partially offset by the tax impact of higher income in this quarter.
Speaker Change: Financial income and expenses decreased by 22 million. This was mainly driven by higher interest income on cash balances and lower losses non current financial assets.
Speaker Change: Our full year outlook is now expected to be $260 million compared to 275 as communicated in February.
Speaker Change: Adjusted diluted EPS from continuing operations was 25 and remained in line with last year, Despite lower sales.
Moving to cash flow and balance sheet free cash flow was an outflow of $1 1 billion, primarily due to a 1 billion payment related to the Respironic recall related settlements in the U S.
Speaker Change: Excluding this payment the free cash flow increased by 270 million year on year, primarily driven by higher earnings and lower working capital outflows.
Speaker Change: The payment was fully funded by cash on hand, and our leverage ratio remained in line with Q1 2024 at two two times on a net debt to adjusted EBITDA basis, reflecting our continued focus on deleveraging.
Speaker Change: Now turning to the outlook.
Speaker Change: Our full year 2025 outlook factors in Q1 performance relative to our expectations and the impact of tariffs as announced and net of substantial mitigation actions.
Speaker Change: Our comparable sales growth outlook remains unchanged at 1% to 3% backend loaded as we previously expected.
Speaker Change: Adjusted EBITA margin percentage with the impact of the announced tariffs net of mitigation is expected to be 10, 8% to 11, 3% 100 basis points adjustments compared to our previous outlook of 11, 8% to 12, 3%.
Speaker Change: Our free cash flow is expected to be slightly positive and includes a 1 billion outflow related to restaurant like settlement, which was paid in Q1.
Speaker Change: Our approach to estimating the impact of tariffs is based on the announcement announced measures, including the bilateral U S. China tariffs rest of world tariffs and the resumption of the past U S tariffs on July nine.
Speaker Change: We estimate an annual net cost impact of $250 million to $300 million after substantial mitigation.
Speaker Change: U S and China tariffs account for most of the impact reflecting the elevated levels applied in those markets.
Speaker Change: We anticipate that tariffs will have a more pronounced effect in the second half of the year, reflecting the natural lag between inventory cost increases and their recognition in the profit and loss statements.
As Roy mentioned, we have significant actions underway, including optimizing network flexibility effective inventory management pursuing exceptions selective pricing and leverage our disciplined cost management and productivity program.
Speaker Change: We continue to monitor the tariff situation closely and we'll update the market as developments unfold.
Speaker Change: In line with the outlook, we provided in February we continue to expect sales and adjusted EBITDA in Q2 modestly improved compared to Q1.
Speaker Change: This is due to a double digit sales decline in China, mainly driven by personal health as the impacts of inventory.
Speaker Change: He's talking previously highlighted conclude in the quarter.
Speaker Change: Our Q2 and full year 2025 outlook excludes potential wider economic impact and the ongoing Philips respironics related proceedings, including the investigation by the department of Justice.
Roy: With that I would like to hand, it back to Roy for his closing remarks.
Roy: In an uncertain macro environment that has intensified due to the potential impact of tariffs.
Speaker Change: We are driving profitable growth and we are focusing on what we can control.
Speaker Change: Our proven ability to navigate change disruption and uncertainty underscores our capacity to leap decisively adapt rapidly and effectively under pressure.
We are taking decisive cost actions and improving our supply chain agility to serve our customers and consumers across the globe.
Speaker Change: We delivered better than expected start to the year driven by strong execution.
Speaker Change: Growing demand for our hospital solutions and personal health returning to growth.
Speaker Change: Our innovation is helping hospitals soft staffing shortages boost productivity and improve outcomes and.
Speaker Change: And sustained order growth shows that we're making will impact.
Speaker Change: As our order as our teams deliver against a robust order book.
Speaker Change: There are also expanding margins to fuel long term sustainable growth and enable better care for more people now and into the future.
Speaker Change: The strength of our business fundamentals, our innovation capability.
Speaker Change: <unk> a customer first mindset gives us confidence in our ability to navigate change and deliver long term value.
Speaker Change: Let me open for Q&A.
Speaker Change: Thank you, Sir if any participants who would like to ask a question. Please press the star followed by one one on your telephone.
Speaker Change: At the time, please limit yourself to one question and one follow up this will give more people the opportunity to ask questions.
Speaker Change: W Post of all participants register for questions.
Speaker Change: Okay.
Speaker Change: The first question comes from Mr. Richard Felton from Goldman Sachs. Please state your question.
Richard Felton: Thanks, very much just two questions from me. Please the first one is on the tariff mitigation efforts can you perhaps elaborate a little more on what you are trying to deal with your supply chain as it relates to network optimization I would be very interesting.
Richard Felton: What you are trying to move on to where and then within your guidance. How quickly do you assume that youre able to execute on those plans. That's the first question. This is the second one is on China and specifically on ultrasound during the quarter. We've heard he reports about GDP being implemented by <unk>.
Richard Felton: Provinces have you see any impact on that on your business during this quarter.
Richard Felton: Or any thoughts to contextualize that as a factor going forward. Thank you.
Richard Felton: Thank you Richard for your question. So let me start with the first one so in terms of the.
Richard Felton: Network mitigation. This actually built on the program that we're running for the last two years, where we have further further regionalize ing our footprint.
Richard Felton: You have heard me speak since 2022 debt and billing.
Richard Felton: Supply chain resilience, we are strengthening our footprint in Asia for Asia, China for China. In particular, we are 90% now localized Europe for Europe, and Americas for America, but the current situation offshore is that we accelerate in particular.
Richard Felton: Localization and Ptos, which builds on an already strong footprint that we have and we have 46 locations in the U S. We have billions of spend into yes every year and we produced as you know.
Richard Felton: Part of our ultrasound monitoring and also our imaging equipment in the U S. But we plan to bring more of that we also already announced.
Richard Felton: Multimillion investment in Minnesota for cardiac devices, and we also leveraged existing footprint to expand so.
Richard Felton: Regarding your time there are already actions that we're implementing as we speak now we also know that if you want to add more structurally shrinking. This will take some time. So this will be faced in.
Richard Felton: An advantage that will come to bear in terms of our current footprint strengthening but it builds on what we have already been <unk> been doing that.
Speaker Change: China, China Pvp, let me Oh, maybe I just had a comment first one Richard maybe in addition, if you think about our mitigation actions and it's worth several hundreds of million euros and if I. Then just gives you a sense of what it really includes roughly half of that is really related to.
Speaker Change: Tori management that we're doing and also de exemptions, we are pursuing including the Nairobi protocol and including duty drawback. So that gives you a sense of how we're thinking about the mitigation actions in 2025.
Speaker Change: Yes, and then maybe go into the Chinese EVP so.
Speaker Change: Once again in China month ago spoke with government customers and also indeed engaged around the what we see happening around the procurement environment.
Speaker Change: And if you talk about the GBP, we actually see more as a centralized procurement initiatives then.
Speaker Change: A pure value based procurement that is heading more towards kind of standardized high volume purchases and a lot of pricing pressure.
Speaker Change: As we have been sharing we have seen China moving towards the central procurement office for some time.
Speaker Change: And the procurement model is evolving towards a more balanced consideration between price and quality.
Speaker Change: Actually if you zoom in on ultrasound, we were actually happy to see that ultrasound in Q1 that actually well in China in orders.
Speaker Change: It also was built on the new innovation that we launched.
Speaker Change: With the new <unk> platform, where the AI solutions really getting traction.
Speaker Change: Built on our global leadership position in the cardiovascular ultrasound space.
Speaker Change: It's much more difficult to standardized compared to general imaging.
If you look at also what happened in the quarter. The Chinese government issued a 2025 action plan to stabilize foreign investment and also when I was speaking to them. They clearly affirm that they want to have.
Foreign investment continued to flow into the company. They want us to continue to operate in China, and they will also support and fighting kind of unfair practices in procurement. So that actually was encouraging from what I heard from Vice President Tom personally.
Speaker Change: Of course, we will continue to work on our innovations to be as relevant as possible in China to support a strong market, which we know fundamentally has huge patient demand and we also expect to strengthen over time and we also found it.
Speaker Change: Reassuring that the first quarter came in line with our expectation and there is not a second quarter that actually it has been predictable and delivering in line with our plan and also in line with expectations. So that's something that also strengthens our.
Speaker Change: Confidence in the rest of your outlook for China, which we expect to unfold in line, what we earlier guided towards.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mr. David Adlington from Jpmorgan. Please state your question.
Speaker Change: So the first one is again just on tariffs.
Speaker Change: $50 million to $300 million impact this year I'm, just wondering how we should be thinking about that as an annualized impact.
Speaker Change: Okay.
Speaker Change: On inventory I was wondering if you saw any pre stocking of inventory ahead of the tariffs coming in in the first quarter.
Speaker Change: Certainly.
Speaker Change: Personal health care, you talked about modest growth.
Speaker Change: Sure.
Speaker Change: I just wondered what the trends look like through the quarter with a deteriorated towards the end of the quarter.
Speaker Change: And then finally, just also kind of personnel.
Epsilon: Sure Epsilon how much pricing.
Speaker Change: Contributing to that thank you.
Epsilon: David It's very hard to hear you you're breaking up.
Epsilon: Question your questions didn't come through so maybe try to repeat the question. So that we fully understand what you were asking.
Speaker Change: Yes, sorry is that better.
Epsilon: Yes, sorry, you better yet.
Speaker Change: Alright.
Speaker Change: I just wanted to clarify comparable again the.
Speaker Change: 250 billion 301.
Speaker Change: Really the impact for this year.
Speaker Change: Just wondering how would you be thinking about the annualized impact.
Speaker Change: The VIX.
Speaker Change: And then secondly, how would you like to.
Speaker Change: Did you see any pre purchasing of inventory in the first quarter ahead of the tariffs coming in thank you.
Speaker Change: Yeah. Thanks, Thanks, David I think we got your questions. We've got your questions now so first of all on on the tariff the tariff impact and the net impact so what I would say is it's actually two.
Speaker Change: Things may be start with our assumptions again, what we what we assumed so we issue.
Speaker Change: And bilateral U S and China.
Speaker Change: Impact of 140, 525, we assume that to remain at current levels.
Speaker Change: The U S and the rest of world at 10% and we reverted to the pre close levels. After 90 days and we have significant mitigation in place several hundreds of millions.
Speaker Change: Continuing to work on those mitigation as we speak and we also expect that going forward. Those mitigation actions will increase in size. So again drilling down on the type of mitigation actions that we're looking at looking at some are related to inventory management.
Speaker Change: As I referred to earlier quite a big chunk is related to duty drawbacks and things like that will be protocol, which is particularly relevant for as in our <unk> business and then we continue also with our very disciplined cost management and productivity actions and are also looking into selective pricing actions obvious.
Taking the competitive environment into a into a gun there.
Speaker Change: Maybe on your inventory question, David So maybe a few comments. So one we did see some orders coming in on the back end of Q1.
Where I do think that people are preempting some of potential pricing impact at.
Speaker Change: At the same time actually if you see our sellout momentum you see actually that we are really strong in personal health and because this was a personal health.
Speaker Change: Very strong double digit momentum in the growth markets that actually supports this outlook for the full year.
We actually feel that the personal health coming back to growth and building up momentum is really strong and as we also mentioned actually in China on the other end of the spectrum.
Speaker Change: Finalize the impact of Destocking of inventory that was of course significantly having an impact into.
Speaker Change: Into our results so.
Speaker Change: <unk> personal how going into the year.
Speaker Change: We are very happy to see them coming back into growth and we believe that's fundamental.
Speaker Change: Because the growth momentum also exiting the quarter into the second is strong.
Speaker Change: Of course, we keep remaining monitoring the wider macroeconomic economic environment as well, but what we see in terms of demand for renovations actually we are very encouraged.
Speaker Change: We are still happening and personal thank you will.
Speaker Change: Yeah, and then maybe David to adding to that a little bit of inventory just in general and.
Speaker Change: In Q1, our inventory versus last year Q1 actually went down. So we continue to go after inventory reductions as part of our very stringent working capital planning that we have of course versus Q4. It went up a little bit but this is just normal our normal course, a course of business. We as I said, we do have some inventory.
Speaker Change: Management, and our planning as part of our mitigation strategies, but it is not overly overly significant as we are still fully focused on underlying reducing our inventory our inventory levels over time.
Speaker Change: Thank you. Your next question comes from Mr. Amit <unk> from Citi. Please state your questions Ma'am.
Amit: Hi, Good morning, Brian Charlotte and thank you for taking my questions. I Hope you can hear me, Okay I'll keep it to two please.
Amit: The first one is on the tariff guidance that you've given today.
Amit: I'd love to understand what the gross versus the net number is that you have in mind, how much more can you guys are putting in to offset that.
Amit: And related to that if you can give us a little bit of color here in terms of the geographies that are driving that 250 to 300, and then ive seen that just in case, we end up in a situation where the world looks a little bit different because we don't have 112 pack with a tariff of China.
Amit: We don't go back to the liberation of the tariffs if you can give us a little bit about road map for how to think about Europe.
Amit: Versus China, and what's driving that impact. So that's my first question. My second question is just on the competitive dynamics that you're seeing in your <unk>.
Amit: Hospital Capex business.
Amit: Looking at the order growth, obviously, you've called out really strong performance in the U S.
Speaker Change: But if I look at the kind of comparison growth for University Prs you are still underperforming overall in order growth. So just curious what are the areas of softness that youre seeing in competitive pressures, obviously, China side, they are leading scale.
Speaker Change: And a gap versus what we might see for example gear Pearce thanks guys.
Speaker Change: Thanks, Thank you for your own account and maybe I'll I'll start with your question on the on the tariff guidance. So.
Speaker Change: A few things so if we think about our 2025 net cost impact it's around 250 to 300 million a million euros and the majority of that impact comes from our U S. China flows so maybe I'll unpack that a little bit more because we over the last few years, we've done a lot too.
Speaker Change: The risk U S and.
Speaker Change: In China flows, but theres still flows theres still component flows theres still other flows now given the very high level of tariffs 120, 545%.
Speaker Change: Increases that impact tremendously and that's what we're seeing and that's what we're seeing that the majority of that net $250 million to $300 million impact is actually coming from the U S and China flows.
Speaker Change: Europe is also a relevant factor in it but it's because the tariffs are so much lower that impact is less relevant for us at this point in time based on our current assumptions.
Speaker Change: And then if you ask us to break it down a little bit more than that on gross versus net I would say that we have hundreds of millions of mitigation, including in this net number of 250 to 300 million euros again, a large part is the inventory management also the duty drawbacks that now.
Speaker Change: <unk> protocol. In addition to that we continue to look at selective pricing actions and also productivity, which we already started and are continuing.
Continuing to do and a lot of these mitigation actions are already in effect and are already ongoing and we're executing on those very successfully.
Speaker Change: And then maybe on the.
The competitive situation.
Speaker Change: Maybe some compare so as you felt kind of we are very encouraged and you've heard.
Speaker Change: Im very encouraged by what we see happening both in the first quarter as order momentum.
Speaker Change: But also what we see as order funnel and order Ghana.
Speaker Change: Trajectory into the year now what does that build upon and I think thats.
Speaker Change: Just to give a few data points, we shared that we have double digit growth in North America that follows the double digit growth that we had in 2024. So North America remains very strong we had mid single digit DMT order intake growth.
Speaker Change: And this excludes speakers at different companies have different ways, how to calculate the orders. We exclude service orders that were also double digit for us in the quarter. So I would say on a comparative direct compare we feel that actually we have good momentum. We also saw that in some preliminary market share numbers.
Speaker Change: For Q1.
Speaker Change: So actually.
Speaker Change: We are driving innovations that we have been launching heart and we see this 50% of our sales now coming from new innovations really also showing.
Speaker Change: <unk> of our latest launches.
Speaker Change: Sure that's kind of shifting is doing really well based upon the latest launch at which also is clearly playing to the current need for productivity because I've been also in the U S talking to customers of course, they are looking for productivity measures to offset what they also expect us inflationary impact that will hit the hospital. So we are with our kind of monitoring.
Speaker Change: That form with our imaging platform in interventional platform really looking at kind of how we can help them do more procedures, but also work at the cost and making it efficient. So that's what kind of schedule has also gone up.
Speaker Change: A real good look into the year that therefore.
Speaker Change: Led to risk reconfirmation of our sales outlook, because that's where it kind of ultimately this will result into.
Speaker Change: Yeah.
Speaker Change: Thank you for the questions.
Speaker Change: Yes.
Speaker Change: The next question comes from Mr. Hassan Al <unk> from Barclays. Please state your question Sir.
Speaker Change: Hi, Good morning. Thank you for taking my questions I have three please following up on the tariff can.
Speaker Change: Can you help us understand how the net impact split by business Division. Please is the bulk in personal health and what are you embedding in for exemptions and what is the percentage of U S personal health sales derived from China.
Speaker Change: Secondly, you talk about modest improvement in Q2 relative to Q1 is flat growth a realistic assumption for the second quarter.
Speaker Change: Have your assumptions changed means.
Speaker Change: A meaningfully around the business performance for Q2 since full year results.
Speaker Change: And then finally on <unk>, specifically are you seeing any pull forward of sales because of tariffs and how you're thinking about price as part of mitigation just really trying to understand your confidence in the ph improvement over the course of the particularly given the intensifying macro uncertainty. Thank you.
Speaker Change: Thanks Hassan.
For your questions, let me start with the.
Speaker Change: The net impact split by business.
Speaker Change:
Speaker Change: Overall, if you look at the net cost impact of $250 million to $300 million in euros, and if you think about how that splits out at the business segment and segment level. What I would tell you is that diagnosis and treatment as well as P. H are most affected given again given this higher U S China trade between them.
Speaker Change: Connected care as a result is a little less X and effective because there's less there's less trade between U S and China and as you remember probably our connected care business is less exposed to China and just just to begin to begin with so that's a little bit the way you should look at it and look at it from that from a business level.
Speaker Change: And so and if you didn't think your second question around around Q2, and the modest the modest improvement I would say nothing has really changed versus when we started the year in and gave guidance in February we're still seeing everything play out as we expected apart from obviously the tariffs.
Speaker Change: Everything else is is on track and on plan.
Speaker Change: So.
Speaker Change: Nothing nothing else to call out there at this point.
Speaker Change: And then your third question around the personal health.
Speaker Change: Any pull forward. So if you if you unpack our personal health business in a little bit more detail.
Speaker Change: See that a lot of the strength comes from our international regions, excluding excluding China and excluding China, we saw a high single digit growth in personal health in Q1, and if you look back at last year and look at those regions. So all the international regions, excluding China, we saw great momentum in those.
Speaker Change: The market's already in Q3 and in Q4 now that is continuing into into Q1 and the only thing that has changed in personal health is that big big impacts from China in personal health has reduced as we're getting towards the end of our destocking in ph as as Roy already.
Speaker Change: I already mentioned as well so at this point in time, we don't see any any big Kat big pull in.
Speaker Change: We're obviously closely monitoring the economic situation as it stands today.
Speaker Change: Maybe on the pricing so.
Speaker Change: Of course, we watch what.
Speaker Change: Is right to do.
Speaker Change: And at the moment, we are actually more inclined to spend more in A&P, because we see the demand increasing and therefore the activation of successful innovation is a priority versus kind of clawing it back through price because we want to remain competitive.
Speaker Change: And also we see kind of margin resilience.
Speaker Change: So in that sense.
Speaker Change: That's how we played out but of course, we also look at pricing as a measure of where it makes sense.
Speaker Change: But asset with <unk>.
Speaker Change: <unk> currently how we drive growth still profitable growth.
Speaker Change: And you have seen that the ph Martin has shown very strong resilience at the same time. So we know how to play that game and especially a growth comes in that will be a big support for the whole group.
Speaker Change: Thank you. Your next question comes from Mr. Graham Doyle from UBS. Please state your question Sir.
Graham Doyle: Hi, Good morning. Thanks, guys. Just one question on tariffs again, what on that personal health just on tariffs.
Speaker Change: The $250 million to $300 million.
For 'twenty five in case I missed it just for 26 do we just annualize that up or do we assume that the mitigation efforts basically mean, we just take the 250 to 300 and assume that for 2026 earnings.
Speaker Change: And then on personal health and would you be able to give us a little bit more color on the China destock. So how soon do you think you are to seeing that basically complete within Q2.
Speaker Change: Therefore, you see a return to growth that.
Speaker Change: That will be super helpful. Thanks, guys.
Graham Doyle: Yeah. Thank you. Thank you Graeme and first on the <unk>.
Speaker Change: 2026.
Six tariff impact.
Speaker Change: I would tell you is that I think you should expect to benefit from mitigation to increase it to increase over time. We just went through the whole list of mitigation that we're working on a comprehensive set of of mitigation, where we're looking at.
Speaker Change: At this point, it's early to provide an outlook for 2026.
Speaker Change: Because we are laser focused on delivering and litigations that we are that we just spoke about.
Speaker Change: And then you are and.
Speaker Change: Your second question around <unk>.
Speaker Change: Destocking in ph. So we expect the impact of the Destocking in ph to be finalized at the at the end of at the end of Q2. So in other words, we we still expect a decline in ph in China in Q2 as well.
Speaker Change: We're finalizing the impact of the Destocking and then in the second half of the year also because the comparable it becomes much easier you will see a mechanical almost mechanical uplift in sales in China and in personal health just to be clear. If you think about the consumer sentiment in China, It hasnt changed versus your expectation.
Speaker Change: <unk> it remains rather rather subdued.
Speaker Change: No real change is playing exactly yeah exactly out as we had.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of MS. Lisa Clive from Bernstein. Please state your question Ma'am.
Lisa Clive: Hi, just a question on China.
Lisa Clive: Profitability My understanding is that it's a fairly high margin market for you for DNT.
Lisa Clive: Is this due to business mix perhaps.
Lisa Clive: Perhaps more ultrasound and IGT I'm just wondering what.
Lisa Clive: What the levers are there and also the fact that profitability, it's held up nicely. Despite China declining and then second question.
Lisa Clive: There's a lot of disruption at the FDA going on right now just wondering if that's had any effect on your interactions with them relating to the respironic consent decree.
Lisa Clive: Yeah. Thanks, Lisa Let me take your first question on the China profitability and Youre, absolutely right, China has been and is a profitable profitable market for us and we've seen that.
Some good margins over time and also some that are very profitable mix. Indeed, as you mentioned in the in the products, we sell both in diagnosis and treatment, but also very much in personal health and personal health as well, where we really see in China is that there's a willingness from Chinese.
Lisa Clive: Consumers and customers and health systems to pay for good innovation and if you think about the innovations we brought to the China market. There are some some really good ones, including ultrasound that <unk> already talked about <unk> 11, and 12 platforms and some other innovations as well, including the MLR Blue shield and the <unk>.
Lisa Clive: The CP platforms, where we've seen a good uptick in China, particularly in Q1 as well.
Lisa Clive: Maybe let me take the FDA want so.
Lisa Clive: FDA is indeed, having already and also we are in constant engagement with them, they're quite some sort of impact as well from what's happening.
Lisa Clive: Actually we don't see that yet impacting our <unk>.
Lisa Clive: Engagement on the consent decree.
Lisa Clive: What we're more concerned about would be longer term approval cycles that could prolong.
Lisa Clive: On new innovations.
Lisa Clive: That's also what we state titling with them to seek on it that we keep them abreast of what we're developing.
Lisa Clive: But on a constant decree mitigation, we have a very active dialogue.
Lisa Clive: You had earlier, we're making good progress we are fully in line with.
Lisa Clive: But what we said we would do until now and.
Lisa Clive: <unk> has continued including.
Lisa Clive: Very frequent engagement with the FDA on this as well as with the third party that is engaged.
Lisa Clive: Okay.
Thank you. Your next question comes from Mr. Julien <unk> from Jefferies. Please state your question Sir.
Speaker Change: Hi, Good morning, Roy Good morning, Charlotte, Thanks for taking my questions. The first one relates is actually a follow up to Tom's question on the <unk> improvement of Q2 versus Q1.
Speaker Change: Just curious whether we should still expect organic sales growth to be in negative territory in the second quarter.
Maybe margin being flat to slightly declining is that a fair assumption just to be sure that we are.
Speaker Change: We are aligned with you in terms of what we expected for the second quarter.
Speaker Change: Second question relates to DNT.
Speaker Change: Obviously, you had a whole person's organic sales decline in the first quarter, but you mentioned that IGT grew the quarter. So is it fair to assume that the rest of the business that may be an aging when went down by high single digit low double digits.
Speaker Change: And how can you understand what are the reasons behind this market mainly.
Speaker Change: Maybe on China.
Speaker Change: Yep. Thank you.
Speaker Change: For your for your questions.
Speaker Change: Let me, let me take them so.
Speaker Change: I think your quantification of Q2 for Q1 is appropriate.
Speaker Change: We see a modest.
Speaker Change: Modest improvement this is exactly the way we saw it play out in the beginning of the year.
Speaker Change: So as you said we are.
Speaker Change: We see our our sales outlook being being backend loaded in Q1, we exceeded our expectations. So we're working on.
Speaker Change: Moving that to that phasing and for what we see in Q2 is a modest sequential improvement.
Speaker Change: Versus Q1, so I think youre in that in the ballpark there with you were at with your assumptions.
Speaker Change: And taking your next question on the minus 4% and DNT and the impact that we then see and in precision diagnosis and again displayed out exactly in line with our expectations, we expected a decline in precision diagnosis.
Speaker Change: Because first of all because of China. We've obviously had some challenges and then the other big driver is this high comparison in MLR, which was double digit up in Q1 2024, as our supply chain started to unlock and we saw significant improvements as a result, there. So there is none.
Speaker Change: I would say to date and what I, what I told you in February it's playing out as intended in fact, what we're seeing is that there. So that's it.
Speaker Change: Further pull from that from innovation and that's what we see play out in our order intake and a mid single digit growth in orders.
Speaker Change: And then that relates to our gross margin and also from a D&A perspective, what we really see is we see an increase in EBITA margin 30 basis points improvement and that really shows that our fundamental progress on execution that we've been talking about a lot is sustainable and really playing out.
Speaker Change: Particularly driven again by the step up in gross margin, we see the innovation value what I spoke about the <unk> five <unk> hundred <unk>.
Spectral Cte edmar Blue seal and also the Algerian pipeline, we see that all play out as well as continued operational improvements as well as productivity.
Speaker Change: Thank you.
Speaker Change: The next question comes from Mr. Robert Davies from Morgan Stanley. Please state your question Sir.
Robert Davies: Yes, thanks for taking my questions.
Robert Davies: Three one was just on the outlook for the U S Hospital, Capex environment, and maybe I know you've sort of cohort ongoing strength, but just be curious in terms of what the customers are saying to you in terms of the current environment are there any indications of anything moving around on consumables, so sort of spending intentions ordering activity that was my first question.
Robert Davies: The second was just on I think one of your slides you called out.
Robert Davies: Order book growth in the quarter.
Robert Davies: Just hard to think about the phasing through the rest of the year, particularly we've obviously started with a minus two.
Robert Davies: Both in the quarter and you're expecting positive over the year. How backend loaded is are you expecting you're expecting a particularly heavy fourth quarter waiting and then my final one was just on increasing sort of level of production.
Robert Davies: Factoring in the U S is that any new sites.
Robert Davies: Going to plan to open or start construction on or is that more kind of boosting production through existing facilities. Thank you.
Speaker Change: Jamie let me start with the wholesale capex so.
Speaker Change: Also in the U S actually a few weeks ago with a round of customer. So what I'm hearing is that actually underlying demand is very strong right sort of patient.
Speaker Change: Volumes are strong procedures are still increasing.
Speaker Change: Still wait lines. So that's also what you see reflected in the order intake in the U S. Right. So people are investing to keep up with the demand.
Speaker Change: As we also mentioned there are of course monitoring the environment as issued to see kind of what could happen.
Speaker Change: They are first and foremost focus on how they can fulfill the current demand and how they can expand with that and Thats, where we are very well positioned because also they are really looking as I mentioned earlier for productivity partner, so our innovations across the platforms.
Actually support them in a standardized way of providing care that is more efficient really is getting momentum.
Speaker Change: And Thats kind of what we are what we see reflected.
And Thats, probably the best I can qualify it as we speak.
Speaker Change: Uh huh.
Speaker Change: North America started strong we expect to be strong.
Speaker Change: And of course, we keep a close pulse.
Speaker Change: On it.
Speaker Change: The order growth.
Speaker Change: In the quarter, Yeah, I'll take that question. Thank you. So if we think about the phasing of our order intake.
Speaker Change: <unk> growth.
Speaker Change: We feel.
Speaker Change: And very good about our order intake and the momentum that we're seeing if you think about Q2, two things I'd call out.
Speaker Change: We expect momentum to continue continue into Q2, we see strong growth in our in our <unk> segment.
Speaker Change: Our connected care business, we feel good about the momentum, but it's impacted by very high comparison base in Q2 2024, because we saw a very big order.
Speaker Change: That we are we included at that point in time, but otherwise, we see strong momentum and we expect that momentum to continue in Q3 and Q4 as well.
Speaker Change: Thank you.
Speaker Change: Our next question comes from July.
Speaker Change: So sorry, maybe just one.
Speaker Change: Also a follow up question on the manufacturing sites in the U S. So maybe I can still answer that one so on the new sites. So NDA Julia kind of we are.
Speaker Change: Leveraging our current footprint.
Speaker Change: To expand and that's also the fastest way how we can mitigate given the approval cycles and regulatory processes. Because you have then the quality management systems in place that you can use.
Speaker Change: So that's kind of what we already did immediately.
Speaker Change: But also as I mentioned, we are investing in some order kind of expansion of facilities from Minnesota is also an example of that so yes, there will be a mix, but we have a strong footprint that we will leverage for the Max to kind of ensure we can do it with speed and also with a lower cost and lower capital.
Speaker Change: Requirement. So that's exactly the way how we go about it.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Mr. Hugo solve it from BNP Paribas Exane. Please.
Speaker Change: Please ask your question.
Speaker Change: Hi, Hello, Thanks for taking my questions I have three please first on tonnage or Sibanda executive of tariffs.
Speaker Change: Can you please discuss the sourcing of.
Speaker Change: There are ups and minerals.
Goes out to China, even though the impact Youre your supply chain. So.
Speaker Change: <unk>, obviously with the <unk> spin for the future and consumer trend Youre, putting forward a lot of the efficiency measures.
Speaker Change: Can you help us understand or we should think about margin expansion going for a while then excluding any opioid.
Speaker Change: Leverage what's left to extract and lessening hospital Capex I think you called out.
Speaker Change: Improvement in Europe can you, maybe just because of the modalities and the countries driving this trend. Thank you.
Speaker Change: Okay. Let me start thank you for the questions here, but let me start with with rare Earth.
Speaker Change: Export restrictions.
Speaker Change: So there has been.
Speaker Change: And our stance taken by the Chinese government.
Speaker Change: But they also kind of have been talking about.
Speaker Change: They want to exclude the impact.
Speaker Change: When we have been looking at the newly implemented export controls.
Speaker Change: We understand and we are working to understand better what exactly means currently we don't have an impact, but we don't see disruptions to our supply chain.
Speaker Change: And also we engage with our suppliers and they're well.
Speaker Change: Kind of sourced for any need that would kind of patel.
Speaker Change: Potentially have an impact on our.
Speaker Change: Production or product so for the moment, we have no impact from.
Speaker Change: Our metal export restrictions.
Speaker Change: Yeah, and then on your second question Hugo on the margin expansion going forward in the context of tariffs.
Speaker Change: What I'd say there is that fundamentally.
Speaker Change: There continues to be a margin improvement opportunity.
Speaker Change: So that has not changed are the fundamentals havent changed and then the way we go after that or in a few different things continue to go after those mitigation that we are that we spoke about earlier today. So some of the short term some of it is more a little bit more long term. If you can also think about supplier footprint and then thirdly the productivity.
Speaker Change: Ponant is going to be is going to be that you'll remember in February we increased our three year productivity plan from two to $2 5 billion.
Speaker Change: As we are confident that there is more to go after more simplification to go after.
Speaker Change: And more and just operational leverage to go after that we will continue to double down on we've done. So in Q1 are a lot of programs in place.
Speaker Change: We'll deliver in the remainder of the remainder of the year and then last of course as I, Yeah. As I said earlier as well innovation will continue to be a big contributor to margin expansion as well as we're seeing that the innovations that we've recently launched are already contributing to our to our gross margin and our gross margin.
Expansion and maybe last point to add as you know we are driving our strategy.
Speaker Change: 70, 30, 70% of our businesses that are already in higher margin territory, there driving both their growth up as well as the margin expansion that it drives for the group and we have specific.
Speaker Change: The average where we are driving also margin expansion and accelerated rate of the group for example, Src we've called out before.
Of course that dip.
Speaker Change: <unk> significantly and margin, we already called back into profitability last year, we continue to expand that margin to actually bring it back to where we have seen it before.
Speaker Change: So actually we see both the underlying improvement happening in the year as we speak but also we see leeway out of US that was earlier tied to what we also put out as a longer term perspective for Philips and we haven't seen that change through some of the dynamics that is currently ongoing in the market because the fundamentals of the demand is.
Speaker Change: How we are going to.
Speaker Change: Supplying our innovations actually showed that we can robustly year performing there.
Speaker Change: Thank you. The next question comes from Mr will go from an auto please state your question Sir.
Speaker Change: Yes.
Susan: Good morning, this is Susan.
Speaker Change: I've got two questions. The first one is for Charles.
<unk> said through one of the questions.
Speaker Change: Big change compared to the February cool.
Speaker Change: I'd like to challenge that so.
Speaker Change: If I look at the impact of tariffs the net impact to 52 million business.
Speaker Change: A range of $1 three to one 5% of sales, where you are lowering the guidance, but 1% only so that means that there is an underlying increase of 40 basis points.
Speaker Change: <unk> today is if I look at your February comments on ph.
Speaker Change: The results in ph and the comments that you make today.
Speaker Change: Cannot help it.
Basically on Cupid.
Speaker Change: PHH doing much better than what you anticipated.
Speaker Change: In February.
Speaker Change: And also your order intake momentum is clearly good.
Speaker Change: Thanks.
Speaker Change: We have good margins.
Speaker Change: So is it fair to say that youre actually getting more bullish.
Speaker Change: As we progress throughout the year, if we exclude any impacts from tariffs.
Speaker Change: The second question is related to ph business can.
Speaker Change: Can you give us a bit of a feeling of where the exit rates for the region.
Speaker Change: At the end of <unk>.
Speaker Change: In Q4 and at the end of Q1.
Speaker Change: And if you can quantify the impact of any forward.
Speaker Change: The module.
Speaker Change: At the end of Q1.
Speaker Change: Thank you, Tim and I'll take your first first question.
Speaker Change: Nothing changed versus the February call. So if you look at our guidance and as I also called out in my in my prepared remarks, there are really two drivers of our change to guidance. One is tariffs, which is the 250 to 300 million net impact that we discussed the other one is our Q1 performance versus our.
Speaker Change: <unk> those are the two drivers that are that drive the change in in our guidance. So that is what I would say about that so if you could talk about ph and saying it's better than anticipated. We are very pleased with our Q1 and personal health that's absolutely true we saw double digit.
Speaker Change: Growth across the international region, we had great rich.
Speaker Change: <unk> in Europe, and Latin America, and India, we saw the momentum really pick up for instance.
Speaker Change: Some parts of the world.
Speaker Change: We have.
Speaker Change: New innovations to market, we did more on A&P and more influencers that we that we hired which has been that has been working well having said all of that it is early days. It's only at the end of Q1, we're only at the end of Q1.
Speaker Change: It is really difficult to at this point in time.
Speaker Change: We look forward and take that as sustainable momentum. So that's what I would say I would say around during your question. So there and then you had a second question on the exit rates for for personal health.
Speaker Change: Q4 versus our versus Q1, so and again and maybe a few things I'd say there in China.
Speaker Change: No real change in consumer demand and consumer demand remains subdued I was also in China, a month or so ago, and we see no no meaningful change to what we were expecting or what we are what we have been had been seeing and we.
Speaker Change: We expect that momentum in China between Q1, and Q2 to remain to remain fairly fairly similar.
Speaker Change: Also the momentum in international regions outside of China as I just discussed this is very very strong.
Speaker Change: And then in the U S.
Speaker Change: <unk> seen some slight growth in the U S. We see so far that consumer sentiment is stable.
Speaker Change: We're obviously monitoring that very very closely but just to be very explicit on that that has not been the major growth driver for us that has really been the international regions.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thank you. Your next question comes from Mr. Julien <unk> from Bank of America. Please state your question Sir.
Speaker Change: Good morning. Thank you very much for squeezing me in so I'm slightly going in the opposite direction of the previous question.
Speaker Change: Too crazy on that point, but it is clear that you need a pretty strong acceleration in sales and profit in two weeks just to make even the lower end of the guidance could you just remind me one of the main drivers what give you confidence in such uncertain macro situation, especially given I think you've talked about being vigilant during the opening remarks.
Speaker Change: I mean, you mentioned slight improvement to date.
Speaker Change: Quite early that's the first question.
Speaker Change: One it seems that you're also cutting the free cash flow guidance by more or less 400 million Euro for this year can you just tell me what public tariff I think you had 100% and defer from the P&L impact of the $250 million to $300 million. Thank you.
Speaker Change: Yes. Thank you.
Speaker Change: Thank you <unk>.
Speaker Change: We are.
Speaker Change: <unk> for your questions and first of all on the acceleration of the year and the backend loaded to the outlook and maybe maybe take you back to what happened in China in Q3 2024.
Speaker Change: What we what we saw was obviously some.
Speaker Change: Some challenges in China, and if you now think about the phasing in this year in the second half of the year comparable becomes much easier.
Speaker Change: Both in personal health in China, as well as in health assistance in China. So thats almost mechanical that we get an uplift in sales growth.
Roy: Roy already said it.
Roy: We are taking a cautious view of the market environment in China, we've taken that in our previous outlook.
Roy: Confirming that today, so we don't see any any change there, but we will just because of the comparable fee and an uplift in our numbers in the second half and half of the year.
Roy: And maybe.
Roy: How do I summarize it so if you look kind of through the year and that's also when you kind of where we.
Roy: The year is actually in the fundamentals really playing out as we predicted.
Roy: In terms of how we came into Q1 actually slightly better than we have a better field order book I think that is fair to say and that momentum. We also feel continues so that actually kind of gifts reassurance also for second half still also building on the comment that it's still early days, but that gives us of course in early.
Roy: Indicators that actually we have the underpinning coming next to ph, where also we of course are happy with the growth coming back into the business, but we also still know that there. It's early days and we know that we have the second half mechanical effect that will kind of kick in and to kind of support that but that's in line with the plan. So I think they are false you've seen us sticking to our.
Roy: Sales guidance.
Roy: That is really we believe we have firm.
Roy: Penny for at what we currently know we have done also taken there's tariffs on what we currently know.
Roy: Also acknowledging that this is still fluid so can change, but we have taken very substantial measures.
Roy: Conifer announced Arizona second of April.
Roy: And kind of people work hard to quantify half dose also kind of kicking in.
Roy: And that will kind of dialogue throughout the year.
Roy: That said also.
Roy: On a totality of how we look into the year unfolding. So it's two stories of the fundamentals are really good.
Roy: Laying out well both in terms of market as well as how we delivering that with great innovations and also of course productivity measures to kind of manage the year what is in our own control, whilst we need to remain vigilant on the things that are beyond our control, where we need to just to take the reality is just known into account, which are tariffs and then we need to monitor the wider economy closely.
Roy: As we keep doing.
Roy: Yeah, and then I'll actually I'll take your free cash flow question.
Roy: Our updated outlook as free cash flow is slightly positive after the 1 billion restaurant settlements that we've just completed in Q1.
Roy: As previously the lower end of the 0.4 to 0.6 billion.
Roy: In fact.
Roy: Versus our previous outlook is entirely driven by tariffs and the way we see the tariffs play out as it's essentially hits, our cash flow before it hits, our P&L and that's the way to think about it really because the duty payments we paid an upfront some of the mitigation is timing in the year and also we recapped.
Roy: <unk> some of these duties and then release them in the P&L over inventory turns. So so there is a little bit of a time delay there as well I think it is important to mention that we're fully focused on continued working capital manager management.
Roy: Inventory reduced year over year significantly we continue.
Roy: To focus on other elements of working capital as well she overused reviews, and we've now with the restaurant settlement removes an important are important overhang.
Roy: And then just maybe as a reminder.
Roy: You know we're offering dividends.
Roy: Either cash or shares up to 50% cap for cash, which which brings us back to at least partially our cash dividend, which we're very pleased by.
Roy: Because it just it signals to return to normality and also our strong fundamentals that underpin this.
Roy: Thank you.
Speaker Change: Question comes from July.
Speaker Change: Steve Hoffman from HSBC. Please state your question Smith.
Speaker Change: Hi, Thanks for taking my questions I will have Chris.
Speaker Change: First of all on the 70, 30% edition how would that.
Speaker Change: Division.
Speaker Change: To date, the health systems segments, So, let's see let's start personnel.
Speaker Change: And second question.
Speaker Change: And you mentioned the growth impact and the net impact of tariff. Thanks, very much 250 to 300 million how would the growth impact look and what should we expect if these tariffs are the Chinese parents for example.
Speaker Change: Sure.
Speaker Change: To be reported to be taken back and then lastly on your presentation. Thanks for giving us guidance on what the restructuring costs and other items for Q2 might be can you.
Speaker Change: Give us some color on what especially like connected care, our restructuring costs, which were higher bordering 90 $500 million.
Speaker Change: <unk>.
Speaker Change: Our.
Speaker Change: Like could be driven from and can we start expecting a decline and these restructuring and other costs in the second half of the year.
Speaker Change: Yeah, maybe let me essentially thank you for your question, let me take the first one.
Speaker Change: First of all it's 20% of our business.
Speaker Change: That's in essence, what you what you have to take out so you get to around 60 40 in terms of the percentage of mix in terms of how it is.
Speaker Change: How that translates.
Speaker Change: Then on the gross impact on the tariffs if they won't reverse yeah.
Speaker Change: You can imagine that this will be beneficial.
Speaker Change: That's gone up it's also where we have been taking current realities into account. We know that negotiations are ongoing but it's just very hard to predict how they will kind of conclude so therefore, we took what we know.
Speaker Change: The majority of impact as you also heard earlier are set by US is from U S. China. So.
Speaker Change: Those are important to continue to watch how to evolve and the impact to have but also rest of world.
Speaker Change: I think we took the prudent approach by actually acting now fast on what we know auto.
Speaker Change: The second of April.
Speaker Change: And then we got it will adapt as we go but in terms of what that could mean up or down.
Speaker Change: We evolve into the year. So we will keep you updated literal.
Speaker Change: Yeah, and then on your last question on the adjusted items for Q2, particularly related to connected care and that.
Speaker Change: The majority of the costs that are related to.
Speaker Change: Some degree and were working through our consent decree and cost related to it related to that that is the main driver that we are that we have there just as a reminder, we signed a consent degree in April of 2024, and we're still working through it. We're pleased with the progress we are working through all the different steps.
Speaker Change: It's too early to conclude.
Speaker Change: Uh huh.
Speaker Change: We'll finalize it.
Speaker Change: And just as a.
Speaker Change: And just as a reminder, Q1 restructuring costs were in line with the guidance and in line with our expectations and last remark I would make is just in the connected care line. We are very focused on making sure. We do the right thing for patient safety and quality perspective, and as a result working diligently.
Speaker Change: Through the steps of the center.
Speaker Change: Degree.
Speaker Change: And I think it's also.
Speaker Change: A year or two I think already and we said it earlier loud and clear that incidentals.
Speaker Change: At elevated levels.
Speaker Change: Big part at a majority of this as you'll see.
Speaker Change: In fact, we are actually improve them over time. That's also what we are going after in the fullest across all businesses and of course, we also had restructuring costs that we're featuring.
Speaker Change: <unk> been working through the majority of that so on the excluding constant.
Speaker Change: Constant re cost that we have raised our focus to kind of make sure that that.
Speaker Change: It goes down over time, whilst at the same time, we keep also going after the cost and productivity measures actually have been gone of informing you about and Theres not $1 9 billion. Today. This is a big contributor and we will continue to expand our productivity lever as well.
Speaker Change: Thank you. The last question comes from the line of Falko Friedrichs. Please open your line for questions. Thank you.
Falko Friedrichs: Thank you I have a few quick ones left firstly, you mentioned that you thought preliminary Q1 market share data can you confirm that you didn't lose any share in medical imaging so excluding GPU.
Speaker Change: Secondly.
Speaker Change: What's your updated thinking on growth in China for the full year.
Speaker Change: Has that thinking changed after Q1.
Speaker Change: And then last but not least can you be a little bit more specific in terms of which products and components are flowing between China and the U S. Thank you.
Thank you <unk> so on the first.
Speaker Change: I can.
Speaker Change: Confirm that what we have seen actually is that.
Speaker Change: Would be up in medical imaging sure.
Speaker Change: And we were referring to the strong momentum.
Speaker Change: In ultrasound, but also in particular <unk>.
Speaker Change: And MMR, so actually I think that that wasn't there and you also sort of in the quarter underpinning I wish that we spoke about the mid single digit.
Speaker Change: Growth, including China, where there is still significant China in there so.
Speaker Change: We're encouraged by the market share momentum we have seen.
Speaker Change: Medical imaging.
Speaker Change: And then your question on growth in China for the full year and nothing has really changed versus versus February. So we continue to expect a mid single digit to high single digit decline.
Speaker Change: Primarily due to the double digit decline in the first half of the year and that is again driven by personal health, where we have both the subdued consumer demand.
Speaker Change: As well as the Destocking that will and the impact of that will allow will finalize at the end of Q2. So just to be clear, we're not betting on a rebound in China in the second half at all we take a cautious view of the market environment in China for the remainder of the year, but just almost mathematically.
Speaker Change: We'll see a pickup in growth rate just because the comparison comparable comparison basis is going down.
Speaker Change: And then your last question on the products and the flows between China and U S and as I mentioned earlier as well the two segments that we see are most impacted by the China by tariffs in general is both a personal health segment as well as our diagnosis and treatment segment, primarily because the U S.
Speaker Change: China flows in those in those segments. So you need to add in your modeling that that's something that you really need to into it takes into account for it.
Speaker Change: For those two businesses and again, just taking you back with Derisked, our China U S flows a lot overtime also since the first a tariff war, but given the tariffs are so elevated 125, and 145% that just becomes a very big number.
Speaker Change: As a result of that.
Speaker Change: Thank you that was the last question Mr. Jacobs. Please continue with any points you would like to raise.
Speaker Change: Yes. Thank you.
Speaker Change: For any questions as you heard us say.
Speaker Change: In an uncertain macroeconomic environment that has intensified due to potential impact of tariffs.
Speaker Change: Continuing to drive profitable growth focusing on what we can control and for that part we really feel strong for the year and we reiterated our sales guidance to 1% to 3% based on strong order book momentum as well as personnel coming back to growth.
Speaker Change: The current realities of tariffs into account driving substantial mitigation and.
Speaker Change: And we will continue to do so for for the rest of the year, but most importantly, we remain razor focused on supporting our patients our customers and consumers because actually the situation in healthcare has not changed and has not improved the pressure is still very high on the health care system itself and we need to support within our renovations and we see also consumers really.
Speaker Change: Kind of appreciating our innovations. So we remain focused on driving impactful innovations to deliver better and more care to people's attitude of people worldwide.
Speaker Change: Thank you so much talk soon.
Speaker Change: This concludes the Royal Philips first quarter 2025 results conference call on Tuesday May six 2025. Thank you for participating you may now disconnect.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Hello, everyone welcome to Philips results webcast for the first quarter of 2025, I'm here with our CEO, Raul Jacobs and always CFO shallow 10 of them.
Speaker Change: The press release or the Investor presentation published on our Investor Relations website. This morning.
Speaker Change: The replay and a full transcript of this webcast will be made available on the website. After this call.
Speaker Change: Before we start I want to draw your attention to our safe Harbor statement on screen.
Speaker Change: You will also find the statement in the presentation published on our Investor Relations website.
Roy: I will now hand, it over to Roy.
Roy: Good morning, everyone.
Speaker Change: Thank you for joining our results call for the first quarter of 'twenty 'twenty five.
Speaker Change: I will walk you through our Q1 performance and the macro trends shaping our 2025 outlook.
Speaker Change: I know tariffs are top of mind, and we will address them shortly.
Speaker Change: Our CFO Shamil, Panama will then provide more detail on the quarter and full year guidance and we'll close with Q&A.
Speaker Change: I want to start with the key highlights of this morning's press release.
Speaker Change: Order intake grew despite a double digit decline in China, driven by double digit order intake growth in North America.
Speaker Change: And strength in diagnosis and treatment.
Speaker Change: We exited the quarter with momentum.
Speaker Change: Even against the backdrop of increasing macro uncertainty.
Speaker Change: Sales performance exceeded the outlook, we provided in February driven by personal health growth in royalty phasing.
Speaker Change: Our innovations and productivity measures drove a step up in gross margin.
Speaker Change: Adjusted EBITDA margin delivery was resilient despite lower sales.
Speaker Change: Desperate <unk> settlement around 1 billion euros for space, which completes the U S personal injury and medical monitoring settlement.
Speaker Change: I would now like to discuss our full year outlook for 2025.
Speaker Change: It incorporates our encouraging Q1 performance and the impact of announced tariffs.
Speaker Change: Of the comprehensive and significant mitigation actions we're deploying.
Speaker Change: Our sales outlook for 2025 remains the same.
Speaker Change: Comparable growth between 1% and 3%.
Speaker Change: Adjusted EBITDA margin is now expected to range between 10, 8% and 11, 3%, a 100 bps adjustment, reflecting the impact of tariffs net of substantial mitigation.
And free cash flow is projected to be slightly positive.
Speaker Change: Let's now look at the operational and strategic drivers behind our Q1 performance, let's dive into our first.
Speaker Change: Strong customer demand for our innovations along with improved operational execution sustained the momentum we built last year few Q1 as we enter Q2.
Speaker Change: Excluding a double digit decline in China.
Speaker Change: Order intake increased by 4% in Q1 with strong growth in diagnosis and treatment.
Speaker Change: Like last year, we saw continued double digit order intake growth in North America.
Speaker Change: This number excludes service order intake, which was also positive very positive in the quarter.
Speaker Change: At the group level diagnose and treatment orders grew mid single digits globally with order intake growth in bulk image guided therapy and precision diagnosis.
Speaker Change: And image guided therapy, we continue to see strong demand for our comparison zoom platform, which now also asked the AI driven neuro solution.
Speaker Change: And precision diagnosis, we saw strong order growth and cumulative thermography driven by <unk> five 200, our productivity workhorse with AI enabled workflow.
Speaker Change: And a clinically practical spectral CD 7500 systems.
Speaker Change: We also saw good momentum in MRI, driven by our energy first helium free system, which is supported by our AI engines, increasing access to MRI technology.
Speaker Change: We expect this positive order intake momentum and diagnose and treatment to continue into Q2.
Speaker Change: And connected care hospital patient monitoring delivered solid growth, particularly in North America fueled by customer partnerships and a strong bank I X platform offering.
Speaker Change: <unk> cyber security and interoperability.
Speaker Change: Enterprise Informatics order funnel remains healthy underpinned by partnerships, including AWS. When do you expect to drive strong order intake growth in the second half of the year.
Speaker Change: Orders and order book account for around 40% of our revenue.
Speaker Change: Importantly, our order book has steadily increased but an improved margin profile in recent quarters innovation is a key driver as reflected in a significant gross margin improvement we delivered in Q1 building on the 2024 step up.
Speaker Change: Our customers rely on our innovations as Chris critical enabler of their ability to drive efficiency and productivity.
Speaker Change: Today more than 50% of our sales are fueled by AI driven innovations from new and upgraded products launched in the last three years.
Speaker Change: This progress showcases the power of our innovation strategy and our partnerships.
Speaker Change: A great example is our work with AWS, we are bringing cutting edge generative AI into our health suite imaging platform.
Our future AI innovations will automatically summarize prior studies.
Speaker Change: Also generate conclusions and even perform real time quality checks.
Speaker Change: By automating these tasks, we enable radiology is to focus on our strength in care quality and improving throughput.
Speaker Change: Which ultimately drives sustainable growth for Philips.
Speaker Change: To further strengthen our leadership in MRI in February we announced the launch of smart speed precise with dual AI engines, which advances image quality, while accelerating scan time at the same time.
Speaker Change: It also expense AI driven efficiency across the entire Philips MSR portfolio.
Speaker Change: This includes a full portfolio of helium free MRI scanners mode installed base and new systems. So all customers can benefit from the speed and improved image quality.
Speaker Change: Next to the access and total cost of ownership advantages that it brings.
Speaker Change: These are just two further examples of our innovation pipeline is working and building a stronger more competitive future for both our business and our customers.
Speaker Change: In parallel, we're making strong progress on our execution priorities with continued progress in patient safety and quality supply chain resilience and simplification across our operating model and portfolio.
Speaker Change: Here are a few highlights.
Speaker Change: Through simplification, we are on track to reduce the number of quality management systems by 70% this year <unk>.
Speaker Change: Supply chain lead times and service levels continue to improve and we are now at par with industry standards. While we are at the same time adjusting in real time to new tariff realities, unfolding, which I will touch upon shortly.
We are simplifying our platforms and number of skus across our businesses now focusing on hospital patient monitoring MCT. After strong results in image guided therapy ultrasound anymore.
Speaker Change: Finally, we continue to remove complexity and build a lean organization through our simplified operating model.
Speaker Change: Get on with our strengthened performance management. This is driving accountability agility and enhanced focus on growth and it delivered $42 million of productivity in Q1.
Speaker Change: We are well positioned to adapt decisively as the macro environment evolves, ensuring we stay ahead and deliver would focus.
Speaker Change: I am deeply proud of our teams around the world, who are driving to advance our operational priorities and the results it delivers by focusing on what we can control.
Speaker Change: Such a dynamic environment.
Looking at the fundamentals of the markets we serve remain strong.
Speaker Change: But the dynamics are different by region.
Speaker Change: Starting with North America similar to last year, we are still seeing steady fundamental hospital demand.
Speaker Change: We are well positioned athene and the strong double digit order intake and have not observed major shifts in capex plans.
Speaker Change: We are closely monitoring the environment.
Speaker Change: In China, while stimulus activity is picking up and our funnel is progressing well.
Speaker Change: We have not yet seen a trigger that would significantly change the market dynamics in line with our expectations going into the year.
Speaker Change: January hospital Capex remains solid across the rest of the world with also increasing demand in Europe.
Speaker Change: Personal health delivered strong growth across Europe, and order growth markets, excluding China in Q1.
Speaker Change: Our momentum continued in those markets as we exited the quarter.
In China, the consumer environment remains subdued as we anticipated.
Speaker Change: We are closely monitoring consumer dynamic dynamics and sentiment globally, particularly in the U S where they currently remains stable.
Speaker Change: Looking to the rest of 2025, we remain vigilant about the macro environment, we operate in and the progress we have made on our execution priorities puts us in a strong position to navigate change with speed and agility.
For several years now we have taken proactive steps to build a more resilient supply chain, including diversifying and regionalized key operations, especially in China well ahead of recent developments you have seen this in our improved supply chain metrics and our performance in recent periods.
Speaker Change: In the current environment, we are further accelerating those efforts, especially towards the U S.
Speaker Change: Also we are going beyond shifting geographies.
Speaker Change: Our mitigation actions include supplier network manufacturing optimization, holding the right levels of inventory pursuing exemptions selective pricing and building greater operational agility and resilience.
Speaker Change: We view these as necessary to maintain our competitiveness protect margins and secure long term growth.
Speaker Change: We have cross functional teams actively working across our supply chain business.
Speaker Change: To mitigate impact of tariffs.
Speaker Change: Both in the near term, but also looking ahead to 2026.
Speaker Change: In parallel we are razor focused on what we can control.
Speaker Change: <unk> strong cost discipline, as we tightly manage discretionary and overhead spending while staying committed to our long term innovation priorities.
Speaker Change: Our focus remains on the levers within our control to protect margins and cash flow.
Speaker Change: On a net basis, we expect the impact of tariffs as announced and net of substantial mitigation to range between $250 million to $300 million.
Speaker Change: We're also intensifying our engagement with governments and regulatory bodies worldwide <unk>.
Speaker Change: Gating for open markets and the free flow of medical goods and manufacturing essentials to ensure patient access to critical metex supplies and our innovations.
Speaker Change: Sure lots will now discuss our first quarter performance and outlook for 2025.
Speaker Change: Thanks Roy.
Speaker Change: In diagnosis <unk> treatment comparable sales decreased 4% during the quarter, reflecting a double digit decline in China as expected and on the back of the high two year comparison basis.
Speaker Change: <unk> guided therapy continued its strong performance reinforcing its leadership position in minimally invasive therapy.
Speaker Change: Precision diagnosis declined mainly due to China, and a particularly high comparison base in magnetic residence, which had benefited from prior year supply chain improvements.
Speaker Change: Adjusted EBITA margin improved by 30 basis points to nine 5%, despite lower sales driven by productivity measures favorable mix effects and innovation.
Speaker Change: Improvement was partially offset by lower fixed cost absorption given lower sales.
Speaker Change: Moving to connected care comparable sales were broadly spread across the businesses hospital patient monitoring sales increase driven by higher installations in both North America and Europe.
Speaker Change: We continue to see healthy demand in this business driven by the ongoing shift towards as a service model and large standardized monitoring partnerships with integrated delivery networks and health systems.
Speaker Change: Adjusted EBITDA margin declined to three 5%, mainly due to the impact of unfavorable mix and cost savings, partially offset by productivity measures and innovation.
Speaker Change: We were very pleased to see personal health sales returned to growth in Q1 with 1% on a comparable basis we.
Speaker Change: We saw double digit growth across Europe, and growth markets, excluding China and slight growth in the U S.
Speaker Change: This was largely offset by a double digit decline in China as expected.
Speaker Change: Consumer sentiment remains strong across Europe, and growth markets, China excluded with robust sell out trends.
Speaker Change: China remained subdued as anticipated.
Speaker Change: Adjusted EBITA margin was in line with the prior year at 16, 2%.
Speaker Change: Sales in segment other two titles you're.
Speaker Change: 140 million euros, which was $17 million lower than the first quarter of 2024.
Speaker Change: This was above our Q1 outlook range of 100 220 million euros due to royalty phasing effect.
Speaker Change: Turning to our group results and operating highlights in the quarter.
Speaker Change: Sales performance exceeded our expectation of mid single digit decline, mostly driven by the strong performance of personal health and further supported by royalties phasings in segment other.
Group comparable sales decreased 2%, reflecting double digit declines across all our segments in China and on the back of a high two year comparison base in diagnosis and treatment globally.
Speaker Change: Terrible sales increased slightly outside of China, mainly driven by the strength of personal health across the international region.
Speaker Change: Adjusted EBITDA margin decreased 80 basis points to eight 6% remaining resilient despite the declining sales.
Speaker Change: This was partially offset by higher gross margin from innovation value and productivity measures.
Speaker Change: We have been very disciplined in cost management, and productivity initiatives, which delivered savings of $147 million in the quarter.
Speaker Change: We are on track to deliver an 800 million productivity savings in 2025 with the bulk of savings from the programs underway expected in the latter half of the year.
Speaker Change: Restructuring acquisition related and other items 2000, and $143 million in line with our expectations.
Speaker Change: Net income increased by $1 1 billion in the quarter to 72 million euros. As mentioned Q1 2024 included $982 million for the restaurant ex litigation precision.
Speaker Change: Income tax expense decreased by 78 million compared to Q1 2024, mainly due to the tax effect on the restaurant ex litigation provision in Q1, 2024, virtually offset by the tax impact of higher income in this quarter.
Speaker Change: Financial income and expenses decreased by $22 million.
Speaker Change: This was mainly driven by higher interest income on cash balances and lower losses on non current financial assets are.
Speaker Change: Our full year outlook is now expected to be 260 million compared to 275 as communicated in February.
Speaker Change: Adjusted diluted EPS from continuing operations was 25 cents and remained in line with last year, Despite lower sales.
Speaker Change: Moving to cash flow and balance sheet free.
Free cash flow was an outflow of $1 1 billion, primarily due to a 1 billion payment related to the Respironic recall related settlements in the U S.
Speaker Change: Excluding this payment the free cash flow increased by 270 million year on year, primarily driven by higher earnings and lower working capital outflows.
Speaker Change: The payment was fully funded by cash on hand, and our leverage ratio remained in line with Q1 2024 at two two times on a net debt to adjusted EBITDA basis, reflecting our continued focus on deleveraging.
Speaker Change: Now turning to the outlook.
Speaker Change: Our full year 2025 outlook factors in Q1 performance relative to our expectations and the impact of tariffs as announced and net of substantial mitigation actions.
Our comparable sales growth outlook remains unchanged at 1% to 3% back end loaded as previously expected.
Speaker Change: Adjusted EBITA margin percentage with the impact of the announced tariffs net of mitigation is expected to be 10, 8% to 11, 3% 100 basis points adjustments compared to our previous outlook of 11, 8% to 12, 3%.
Speaker Change: Our free cash flow is expected to be slightly positive and includes a 1 billion outflow related to restaurant like settlement, which was paid in Q1.
Speaker Change: Our approach to estimating the impact of tariffs is based on the announcement announced measures, including the bilateral U S. China tariffs rest of the world tariffs and the resumption of the past U S tariffs on July nine.
Speaker Change: We estimate an annual net cost impact of $250 million to $300 million after substantial mitigation.
Speaker Change: And China tariffs account for most of the impact reflecting the elevated levels applied in those markets.
Speaker Change: We anticipate that tariffs will have has a more pronounced effect in the second half of the year, reflecting the natural lag between inventory cost increases and their recognition in the profit and loss statements.
Speaker Change: As Roy mentioned, we have significant actions underway, including optimizing network flexibility effective inventory management pursuing exceptions selective pricing and leverage our disciplined cost management and productivity program. We continue to monitor the tariff situation closely and we'll update the market says.
Speaker Change: Elements unfolds.
Speaker Change: In line with the outlook, we provided in February we continue to expect sales and adjusted EBITDA in Q2 modestly improved compared to Q1.
Speaker Change: This is due to a double digit sales decline in China, mainly driven by personal health as the impacts of inventory.
Speaker Change: Stocking previously highlighted conclude in the quarter.
Speaker Change: Our Q2 and full year 2025 outlook excludes potential wider economic impacts and the ongoing Philips respironics related proceedings, including the investigation by the department of Justice with.
Roy: With that I would like to hand, it back to Roy for his closing remarks.
In an uncertain macro environment that has intensified due to the potential impact of tariffs.
Roy: We are driving profitable growth and we are focusing on what we can control.
Roy: Our proven ability to navigate change disruption and uncertainty underscores our capacity to lead decisively adapt rapidly and effectively under pressure.
Roy: We are taking decisive cost actions and improving our supply chain agility to serve our customers and consumers across the globe.
Roy: We delivered better than expected start to the year driven by strong execution.
Roy: Growing demand for our hospital solutions and personal health returning to growth.
Roy: Our innovation is helping hospitals soft staffing shortages boost productivity and improve outcomes and.
And sustained order growth shows that we're making will impact.
Roy: As our order our teams deliver against a robust order book.
Roy: They are also expanding margins to fuel long term sustainable growth and enable better care for more people now and into the future.
Roy: The strength of our business fundamentals, our innovation capability.
Roy: So on a customer first mindset gives us confidence in our ability to navigate change and deliver long term value.
Roy: Let me open for Q&A.
Speaker Change: Thank you, Sir if any participants who would like to ask a question. Please press the star followed by one one on your telephone.
Speaker Change: Two the time, please limit yourself to one question and one follow up this will give more people the opportunity to ask questions W. Short pulse of all participants register for questions.
Speaker Change: Yeah.
Speaker Change: The first question comes from Mr. Richard Felton from Goldman Sachs. Please state your question.
Speaker Change: Thanks, very much just two questions from me. Please the first one is on the tariff mitigation efforts can you perhaps elaborate a little more on what you are trying to give you a supply chain as it relates to network optimization I'll be very interested to know in.
Speaker Change: What you are trying to move on to where and then within your guidance. How quickly do you assume that youre able to execute on those plans. That's the first question.
Speaker Change: One is is on China, and specifically on ultrasound during the quarter. We've heard he reports about GDP being implemented by certain provinces have you see any impacts on that on your business during this quarter or any thoughts.
Speaker Change: Texture lies that is a factor going forward. Thank you.
Speaker Change: Thank you Richard for your question. So let me start with the first one so in terms of the.
Speaker Change: Network mitigation. This actually built on the program that we are running for the last two years, where we have further further regionalize ing our footprint.
Speaker Change: You have heard me speak since 2022 debt and billing.
Speaker Change: Supply chain resilience.
Speaker Change: Our strengthening our footprint in Asia for Asia, China for China in particular, we are 90% now localized.
Speaker Change: Europe for Europe, and Americas for America, but the current situation offshore instead, we accelerate in particular day.
Speaker Change: Localization and Ptos, which builds on an already strong footprint that we have and we have 46 locations in the U S. We have billions of spending to use every year and we produced as you know.
Speaker Change: Part of our ultrasound monitoring and also our imaging equipment in the U S. But we plan to bring more of that we also already announced multi.
Speaker Change: Multimillion investment in Minnesota for cardiac devices, and we also leveraged existing footprint to expand so.
Speaker Change: And regarding your time there are already actions that we're implementing as we speak now we also know that if you want to add more structurally shrinking. This will take some time. So this will be in.
Speaker Change: Faced an advantage that will come to bear in terms of our current footprint strengthening but it builds on what we have already been been doing than on China, China Pvp, Let me Oh, maybe I just had a common gift first one Richard maybe in addition, if you think about our mitigation actions and it's.
Speaker Change: Worth several hundreds of million euros, and if I. Then just gives you a sense of what it really includes roughly half of that is really related to inventory management that we're doing and also de exemptions, we are pursuing including the Nairobi protocol and including duty drawback. So that gives you a sense of how we're seeing.
Speaker Change: About the mitigation actions in 2025.
Speaker Change: Yes, and then maybe go into the Chinese EVP. So once again in China month ago spoke with government customers and also <unk>.
Speaker Change: <unk> engaged around what we see happening around the procurement environment.
Speaker Change: And if you talk about the GBP, we actually see more as a centralized procurement initiatives then.
Speaker Change: A pure value based procurement that is heading more towards kind of standardized high volume purchases and a lot of pricing pressure.
Speaker Change: As we have been sharing we have seen China moving towards the central procurement office for some time.
Speaker Change: And the procurement model is evolving towards a more balanced consideration between price and quality.
Speaker Change: Actually if you zoom in on ultrasound, we were actually happy to see that ultrasound in Q1 that actually well in China in orders.
Speaker Change: It also was built on the new innovation that we launched.
Speaker Change: With the new <unk> platform, where the AI solutions really getting traction.
Speaker Change: Built on our global leadership position in the cardiovascular ultrasound space.
Speaker Change: It's much more difficult to standardize compared to general imaging.
Speaker Change: If you then look at also what happened in the quarter. The Chinese government issued a 2025 action plan to stabilize foreign investment and also when I was speaking to them. They clearly affirmed that a they want to have.
Speaker Change: Foreign investment continued to flow into the company. They want us to continue to operate in China and they will also support in fighting kind of.
Speaker Change: Unfair practices and procurement so that actually was encouraging from what I heard from Vice President Tom personally.
Speaker Change: Of course, we will continue to work on our innovations to be as relevant as possible in China to support a strong market, which we know fundamentally has a huge patient demand and we also expect to strengthen over time and we also found it.
Speaker Change: Reassuring that the first quarter came in line with our expectation and Thats not a second quarter that actually it has been predictable and delivering in line with our plan and also in line with expectations. So that's something that also strengthens our.
Speaker Change: Our confidence in the rest of your outlook for China, which we expect to unfold in line, what we earlier guided towards.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mr. David Adlington from.
David Adlington: <unk> from J P. Morgan Please state your question.
Speaker Change: So the first one is again a great just on tariffs.
David Adlington: $253 million impact this year I'm, just wondering how we should be thinking about that as an annualized impact.
Thanks.
David Adlington: On inventory I was wondering if you saw any pre stocking of inventory ahead of the tariffs coming in in the first quarter.
David Adlington: Thirdly.
David Adlington: Because of the health care, you talked about modest growth.
David Adlington: Sure.
David Adlington: But just wondering what the trends were like through the quarter weather deteriorated towards the end of the quarter.
David Adlington: And then finally, just also going to put my own.
David Adlington: Just wonder how much price.
David Adlington: Contributing to that thank you.
David Adlington: David It's very hard to hear you you're breaking up.
Speaker Change: Question, Yes, your questions didn't come through so maybe try to repeat the question. So that we fully understand what you were asking.
Speaker Change: Yes, sorry is that better.
Speaker Change: Yes, sorry, you better yet.
Speaker Change: Alright, Okay first one quite comparable again.
Speaker Change: 250 billion.
Speaker Change: <unk> 1 billion impact for this year I, just wondered how would you be thinking about the annualized impact.
Speaker Change: <unk>.
Speaker Change: And then secondly, how would you like to.
Speaker Change: Did you see any pre purchasing of inventory in the first quarter ahead of the tariffs coming in thank you.
Speaker Change: Okay.
David: Yes, Thanks, David I think.
Speaker Change: We got your questions that we get your questions now so first of all on on the tariff the tariff impact and the net impact. So what I would say is it's actually two things maybe start with our assumptions again, what we are what we assumed so we issue our bilateral.
David: Bilateral U S and China.
David: Impact of 145, 125, we assume that to remain at current levels.
David: The us and the rest of world at 10% and then reverts to the People's levels. After 90 days and we have significant mitigation in place several hundreds of millions.
David: <unk> to work on those mitigation, Sir as we speak and we also expect that going forward. Those mitigation actions will increase in size. So again drilling down on the type of mitigation actions that we're looking at looking at some are related to inventory management as.
David: As I referred to earlier quite a big chunk is related to duty drawbacks and things like that I know will be protocol, which is particularly relevant for as in our <unk> business and then we continue also with our very disciplined cost management and productivity actions and are also looking into selective pricing actions obviously.
David: Taking the competitive environment into a into a gun there.
David: Maybe on your inventory question, David So maybe a few comments. So one we did see some orders coming in on the back end of Q1.
David: Where I do think that the kind of people are preempting some of potential pricing impact at the same time actually if you see our sellout momentum you see actually that we are really strong in personal health and because this wasn't personal health.
David: Very strong double digit momentum in the growth markets that actually supports this outlook for the full year, where we actually feel that the person health coming back to growth and building up momentum is really strong and as we also mentioned actually in China on the other end of the of the spectrum.
David: Finalize the impact of Destocking of inventory.
David: That was of course significantly you're having an impact into.
David: Into our results so.
David: <unk> personal how going into the year.
David: We are very happy to see them coming back into growth and we believe that's fundamental.
Because the growth momentum also exiting the quarter into the second is strong.
David: Keep remaining monitoring the wider macro economic environment.
David: <unk> as well, but what we see in terms of demand for renovations actually we are very encouraged what we see.
David: So happening and personal thank you will.
Speaker Change: Yeah, and then maybe David to adding to that a little bit on inventory just in general and.
In Q1, our inventory versus last year Q1 actually went down. So we continue to go after inventory reductions as part of our very stringent working capital planning that we have of course versus Q4. It went up a little bit but this is just normal our normal course, a course of business.
Speaker Change: As I said, we do have some inventory management in our planning as part of our mitigation strategies, but if there is not overly overly significant actually are still fully focused on underlying reducing our inventory our inventory levels over time.
Speaker Change: Thank you. Your next question comes from Mr. Amit <unk> from Citi. Please state your questions Ma'am.
Speaker Change: Hi, Good morning, Brian Charlotte and thank you for taking my questions. I Hope you can hear me, Okay I'll keep it to two please.
Speaker Change: The first one is on the tariff guidance that you've given today.
Speaker Change: I'd love to understand what the gross versus the net number I think you have in mind, how much work you guys are putting in to offset that.
Speaker Change: And related to that if you could give us a little bit of color here in terms of.
Speaker Change: Geographies that are driving that 250 to 300 and then just in case, we indefinite situation, where the world looks a little bit different and we don't have 112 pack with a tariff of China.
Speaker Change: You can go back to the liberation of the tariffs if you can give us a little bit about world map for housekeeping could app.
Speaker Change: Europe versus China, and what's driving that impact. So that's my first question. My second question is just on the competitive dynamics that you're seeing in your.
Speaker Change: Hospital Capex business looking at the order growth, obviously, you've called out really strong performance in the last slide.
Speaker Change: But if I look at the kind of comparison growth for University peer. If you are still underperforming overall in order growth. So just curious what are the areas of softness that youre seeing in competitive pressure, obviously, China side that are leading scale.
Speaker Change: And a gap versus what we might be from some of your peers. Thanks Scott.
Speaker Change: Thanks, Thank you for your own account and maybe I'll I'll start with your question on the on the tariff guidance. So.
Speaker Change: A few things so if we think about our 2025 net cost impact it's around 250 to 300 million a million euros and the majority of that impact comes from our U S. China flows so maybe I'll unpack that a little bit more because over the last few years, we've done a lot too.
Speaker Change: The risk U S and.
Speaker Change: In China flows, but theyre still flows theres still component flows theres still other flows now given the very high level of tariffs 125, 145%.
Speaker Change: Increases that impact tremendously and that's what we're seeing and that's what we're seeing that the majority of that net $250 million to $300 million impact is actually coming from the U S and <unk>.
Speaker Change: No flows.
Speaker Change: <unk> Europe is also a relevant factor in it but it's because the tariffs are so much lower that impact is less relevant for us at this point in time based on our current assumptions.
Speaker Change: And then if you ask us to break it down a little bit more than that on gross versus net I would say that we have hundreds of millions of mitigation, including in this net number of 250 to 300 million euros again, a large part is the inventory management also the duty drawbacks that now.
Speaker Change: There'll be protocol. In addition to that we continue to look at selective pricing actions and also productivity, which we already started and are continuing.
Speaker Change: Continuing to do and a lot of these mitigation actions are already in effect and are already ongoing and we're executing on those very successfully.
Speaker Change: And then maybe on the.
Speaker Change: The competitive situation.
Speaker Change: And maybe some compare so.
Speaker Change: As you felt kind of we are very encouraged and you've heard.
Speaker Change: Got it very encourage by what we see happening both in the first quarter as order momentum.
Speaker Change: But also what we see as order funnel and order Ghana trajectory into the year now what does that build upon and I think thats.
Speaker Change: Just to give a few data points, we shared that we have double digit growth in North America that follows the double digit growth that we had in 2024. So North America remains very strong we had mid single digit DMT order intake growth and this excludes speakers at different companies have different.
Speaker Change: How to calculate the orders we exclude service orders that were also double digit for us in the quarter. So I would say on a comparative direct compare we feel that actually we have good momentum. We also saw that in some preliminary market share numbers for Q1.
Speaker Change: So actually we are driving the innovations that we have been launching heart and we see this 50%.
Speaker Change: Of our sales now coming from new innovations really also showing the uptake of our latest launches.
Speaker Change: We shared that kind of seating is doing really well based upon the latest launch which also is clearly playing to the current need for productivity because I've been also in the us talking to customers of course, they are looking for productivity measures to offset what they also expect us inflationary impact that will hit the hospital. So we are with our kind of mono.
Speaker Change: During platform with our imaging platform in interventional platform really looking at kind of how we can help them do more procedures, but also work at the cost and making it efficient. So that's what kind of schedule has also gone up.
Speaker Change: A real good look into the year that therefore.
Speaker Change: Led to risk reconfirmation of our sales outlook, because that's where it kind of ultimately this will result into.
Speaker Change: Yes.
Speaker Change: Thank you for the questions.
Speaker Change: Yes.
Speaker Change: The next question comes from Mr. Hassan Al <unk> from Barclays. Please state your question Sir.
Speaker Change: Hi, Good morning. Thank you for taking my questions I have three please following up on tariffs can.
Speaker Change: Can you help us understand how the net impact split by business Division. Please is the bulk in personal health and what are you embedding in for exemptions and what is the percentage of U S personal health sales derived from China.
Speaker Change: Secondly, you talk about modest improvement in Q2 relative to Q1 is flat growth a realistic assumption for the second quarter.
Speaker Change: Have your assumptions changed means.
Speaker Change: It meaningfully around the business performance for Q2 since full year results.
Speaker Change: And then finally on ph specifically are you seeing any pull forward of sales because of tariffs and how you're thinking about price as part of mitigation just really trying to understand your confidence in the ph improvement over the course of the particularly given the intensifying macro uncertainty. Thank you.
Speaker Change: Thanks Hassan.
Speaker Change: For your questions, let me start with the net impact split by business.
Speaker Change: Hum.
Speaker Change: Overall, if you look at the net cost impact of $250 million to $300 million in euros, and if you think about how that splits out at the business segment and segment level. What I would tell you is that diagnosis and treatment as well as ph or most effected given again, given this higher U S China trade between them.
Speaker Change: Connected care as a result of the middle <unk> and effective because there's less there's less trade between U S and China and as you remember probably our connected care business is less exposed to China and just just to begin to begin with so that's a little bit the way you should look at it and look at it from a from a business level.
Speaker Change: And so and if you didn't think your second question around around Q2, and the modest the modest improvement I would say nothing has really changed versus when we started the year in and gave guidance in February we are still seeing everything play out as we expected apart from obviously the tariffs but.
Speaker Change: Everything else is is on track and on.
Speaker Change: The plan so.
Speaker Change: So.
Nothing nothing else to call out there at this point.
Speaker Change: And then your third question around the personal health.
Speaker Change: Any pull forward. So if you if you unpack, our personal health business and a little bit more detail you see that a lot of the strength comes from our international regions, excluding excluding China and excluding China, we saw a high single digit growth in personal health in Q1, and if you look back at last year.
Speaker Change: And look at those regions. So all the international regions, excluding China, we saw great momentum in those markets already in Q3 and in Q4 now that is continuing into into Q1 and the only thing that has changed in personal health is that big big impacts from China in personal health has reduced as well.
Speaker Change: Getting towards the end of our Destocking in ph as as Roy already I already.
Speaker Change: Already mentioned as well so at this point in time, we don't see any any big big pool, and so we're obviously closely monitoring the economic situation as it stands today.
Speaker Change: On the pricing so.
Speaker Change: Of course, we watch.
Speaker Change: This is right to do.
Speaker Change: At the moment, we are actually more inclined to spend more in A&P, because we see the demand increasing and therefore the activation of successful innovation is a priority versus kind of clawing. It back through price because we want to remain competitive and also we see kind of margin resilience.
Speaker Change: So in that sense, that's how we played out but of course, we also look at pricing as a measure of where it makes sense.
Speaker Change: But as Seth.
Speaker Change: Broad Thats currently how we how we drive growth still profitable growth and you have seen that the ph margin has shown very strong resilience at the same time. So we know how to play that game and especially of growth comes in that will be a big support for the whole group.
Speaker Change: Thank you. Your next question comes from Mr. Graham Doyle from UBS. Please state your question Sir.
Graham Doyle: Hi, Good morning. Thanks, guys. Just one question on tariffs again, what on that personal health.
Speaker Change: The.
Speaker Change: You just take the 250 to 300 million. That's <unk> 25 in case I missed it just for 26 do we just annualized that up or do we assume that the mitigation efforts basically mean, we just take the 250 to 300 and assume that for 2026 earnings and.
Speaker Change: And then on personal health and would you be able to give us a little bit more color on the China destock. So how soon do you think you are just seeing that basically complete within Q2.
Speaker Change: <unk> do you see a return to growth that.
Speaker Change: That will be super helpful. Thanks, guys.
Speaker Change: Yeah. Thank you. Thank you Graeme and first on the <unk>.
Speaker Change: <unk> thousand 20.
Speaker Change: <unk> tariff impact and what I would tell you is that I think you should expect the benefit from mitigation is to increase it to increase over time. We just went through the whole list of mitigation that we're working on a comprehensive set of of mitigation, where we're looking at.
Speaker Change: At this point, it's early to provide an outlook for 2026.
Speaker Change: We are laser focused on delivering the litigations that we are that we just spoke about.
Speaker Change: And then on your end.
Speaker Change: Your second question around <unk>.
Speaker Change: Stocking in ph. So we expect the impact of the Destocking in ph to be finalized at the at the end of at the end of Q2. So in other words, we are.
Speaker Change: We still expect a decline in ph in China in Q2 as well.
Speaker Change: We're finalizing the impact of the Destocking and then in the second half of the year also because the comparable it becomes much easier you will see.
Speaker Change: Chemical almost mechanical uplift in sales in China and in personal health just to be clear. If you think about the consumer sentiment in China, It hasnt changed versus our expectations. It remains rather rather subdued.
Speaker Change: No real change is playing exactly exactly out as we had.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of MS. Lisa Clive from Bernstein. Please state your question Ma'am.
Speaker Change: Hi, just a question on China.
Speaker Change: Profitability My understanding is that it's a fairly high margin market for you for DNT.
Speaker Change: Is this due to business mix.
Speaker Change: Perhaps more ultrasound and IGT I'm just wondering.
Speaker Change: What the levers are there and also the fact that profitability, it's held up nicely. Despite China declining and then second question.
Speaker Change: There's a lot of disruption at the FDA going on right now just wondering if that's had any effect on your interactions with them relating to the respironic consent decree.
Speaker Change: Yeah. Thanks, Lisa Let me take your first question on the China profitability and you're absolutely right, China has been and is a profitable a profitable market for us and we.
Speaker Change: Sin.
Speaker Change: Seen some some good margins over time and also some some very profitable mix. Indeed, as you mentioned in the products, we sell both in the <unk>.
Speaker Change: Diagnosis and treatment, but also very much in the in personal health and personal health as well that what we really see in China is that there is a willingness from Chinese consumers and customers and health systems to pay for good innovation and if you think about the innovations we brought to the China market. There are some really good ones.
Speaker Change: Including ultrasound that <unk> already talked about <unk>, 11, and 12 platforms and some other innovations as well, including the MLR Blue shield and the Cte Cte platforms, where we've seen good uptake in China, particularly in Q1 as well.
Speaker Change: Let me now take the FDA won't show.
Speaker Change: FDA is indeed, having as we all read and also we are in.
Speaker Change: Since engagement with them Theyre quite some impact as well from what's happening.
Speaker Change: Actually we don't see that yet impacting our <unk>.
Engagement on the consent decree.
Speaker Change: What we're more concerned about would be longer term approval cycles that could prolong.
Speaker Change: On new innovations. So that's also what we state titling with them to see content that we keep them abreast of what we're developing.
Speaker Change: But on a constant decree mitigation, we have a very active dialogue as we shared earlier, we're making good progress we are fully in line with.
Speaker Change: But what we said we would do until now.
Speaker Change: <unk> has continued including a very frequent engagement with the FDA on this as well as with a third party that's engaged.
Speaker Change: Okay.
Speaker Change: Thank you. Your next question comes from Mr. Julien <unk> from Jefferies. Please state your question Sir.
Hi, Good morning, Roy Good morning, Charlotte, Thanks for taking my questions. The first one relates to a follow up to <unk> question on the blood is improvement of Q2 versus Q1.
Speaker Change: Just curious whether we should still expect organic sales growth to be in negative territory in the second quarter.
Speaker Change: Maybe margin being flat to slightly declining is that that's a fair assumption just to be sure that we are.
Speaker Change: We are aligned with you in terms of what we expected in the second quarter.
Speaker Change: Second question relates to <unk>.
Speaker Change: Obviously, you had a 4% organic sales decline in the first quarter, but you mentioned that the IGT grew in the quarter. So is it fair to assume that the rest of the business that may be an aging when went down by high single digit low double digits.
Speaker Change: And how could you understand what are the reasons behind this market for me maybe on China.
Speaker Change: Yeah. Thank you issue yeah for your for your questions.
Let me, let me take them so.
Speaker Change: I think your quantification of Q2 for Q1 is appropriate.
Speaker Change: We see a modest.
Speaker Change: Modest improvement this is exactly the way we.
Speaker Change: So lets me out in beginning of the year.
Speaker Change: So as you said we are.
Speaker Change: We see our our sales outlook being being backend loaded in Q1, we exceeded our expectations. So we're working on improving that that phasing and for what we see in Q2 is a modest sequential improvement versus.
Speaker Change: Versus Q1, so I think youre in that in the ballpark there with your with your assumptions.
Speaker Change: And taking your next question on the minus 4% and DMT and the impact that we see in the in precision diagnosis and again displayed out exactly in line with our expectations, we expected a decline in precision diagnosis and.
Speaker Change: Because first of all because of China, but we've obviously had some challenges and then the other big driver is this high comparison in <unk>, which was a double digit up in Q1 2024, as our supply chain started to unlock and we saw a significant improvement as a result, there. So there is nothing.
Speaker Change: Alex I would say today than what I and then what I told you in February it's playing out as intended in fact, what we're seeing is that there. So that's it.
Speaker Change: Further pool from from innovation and that's what we see play out in our order intake and a mid single digit growth in orders.
Speaker Change: And then that relates to our gross margin and also from an <unk> perspective, we really see is we see an increase in EBITA margin 30 basis points improvement and that really shows that our fundamental progress on execution that we've been talking about a lot is <unk>.
Speaker Change: <unk> and really playing out particularly.
Speaker Change: Really driven again by the step up in gross margin, we see the innovation value what I spoke about the <unk> five <unk> hundred <unk>.
Spectrum, Cte EMR Blue seal and also the Algerian pipeline, we see that all play out as well as continued operational improvements as well as productivity.
Speaker Change: Thank you.
Speaker Change: Next question comes from Mr. Robert Davies from Morgan Stanley. Please state your question Sir.
Robert Davies: Yes, thanks for taking my questions.
Robert Davies: Three one was just on the outlook for the U S Hospital, Capex environment, and maybe I know you've sort of callers ongoing strength, but just be curious in terms of what the customers are saying too in terms of the current environment are there any indications of anything moving around on consumables, so sort of spending intentions ordering activity that was my first question.
Robert Davies: The second was just on I think one of your slides you called out.
Robert Davies: The order book growth in the quarter.
Robert Davies: Just hard to think about the phasing through the rest of the year, particularly we've obviously started with a minus two.
Robert Davies: Growth in the quarter and you're expecting positive over the year. How backend loaded is are you expecting you'd expect to hear particularly heavy fourth quarter waiting and then my final one was just on increasing sort of level of production.
Robert Davies: Factoring in the U S is that any new sites.
Robert Davies: <unk> planned to open or start construction or is that more kind of boosting production through existing facilities. Thank you.
Speaker Change: Jamie Let me start with the hospital Capex, So and I was also in the U S. Actually a few weeks ago with a round of customer. So what I'm hearing is that actually underlying demand is very strong right sort of patient.
Speaker Change: Volumes are strong procedures are still increasing.
Speaker Change: Still wait lines. So that's also what you see reflected in the order intake in the U S. Right. So people are investing to keep up with the demand.
Speaker Change: As we also mentioned they are of course monitoring the environment as issued to see kind of what could happen.
Speaker Change: They are first and foremost focus on how they can fulfill the current demand and how they can expand with that and Thats, where we are very well positioned because also they are really looking as I mentioned earlier for productivity partner, so our innovations across the platforms that actually support them in a standardized way of providing care that is more efficient really is.
Speaker Change: Is getting momentum.
Speaker Change: And Thats kind of what we are what we see reflected.
Speaker Change: And Thats, probably the best I can quantify it as we speak.
Speaker Change: In North America started strong we expect to be strong.
Speaker Change: And of course, we keep a close pulse.
Speaker Change: On it.
Speaker Change: The order growth.
In the quarter, Yeah, I'll take that question. Thank you. So if we think about the seasoning of our order intake.
Speaker Change: <unk> growth.
Speaker Change: We feel.
Speaker Change: And very good about our order intake and the momentum that we're seeing if you think about Q2, two things I'd call out.
Speaker Change: We expect momentum to continue into Q2, we see strong growth in our in our <unk> segment.
Speaker Change: Our connected care business, we feel good about the momentum, but it's impacted by very high comparison base in Q2 2024, because we saw a very big order of dogs that are that we are we included at that point in time, but otherwise we see strong momentum and we expect that momentum to continue in Q3 and Q.
Speaker Change: For as well.
Speaker Change: Thank you.
Speaker Change: Our next question comes from July.
Speaker Change: So sorry, maybe just one.
Speaker Change: Also a follow up question on the manufacturing sites in the U S. So maybe I can still answer that one so on the new science. So indeed, Julia kind of we are.
Speaker Change: Leveraging our current footprint.
Speaker Change: Expense and that's also the fastest way how we can mitigate.
Speaker Change: Given the approval cycles and regulatory processes. Because you have then the quality management systems in place that you can use.
So that's kind of what we already did immediately.
Speaker Change: Also as I mentioned, who are investing in some order kind of expansion of facilities from Minnesota is also an example of that so yes, there will be a mix, but we have a strong footprint that we will leverage for the Max to kind of ensure we can do it with speed and also with a lower cost and lower capital.
Speaker Change: <unk> requirement. So that's exactly the way how we go about it.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Mr. Hugo solve it from BNP Paribas Exane. Please ask your question.
Speaker Change: Alright, Hello, Thanks for taking my questions I have three please first on tariffs.
Speaker Change #100: So under executive of Teresa can you. Please discuss this.
Speaker Change: <unk>.
Speaker Change: And minerals and your exposure to China is in the order impacts your are your supply chain.
Speaker Change: Obviously with reduced volatility and puts you above trend youre clean for a while but a lot of efficiency in Israel.
Speaker Change: Can you help us understand or we should think about margin expansion going for a while then excluding any opioid cheap.
Speaker Change: Leverage what's left to extract.
Speaker Change: Leslie on the hospital Capex I think you called out like.
Speaker Change: The improvement in Europe can you, maybe just because of the <unk> in the country is driving this trend. Thank you.
Speaker Change #101: Okay. Let me start thank you for the questions here, but let me start with.
Speaker Change: Export restrictions.
Speaker Change: No.
Speaker Change: There has been.
Speaker Change: And our stance taken by the Chinese government.
Speaker Change: But they also kind of have been talking about.
Speaker Change: Where they want to exclude the impact.
Speaker Change: When we have been looking at the newly implemented export controls.
Speaker Change: Understand and we are working to understand better what that exactly means currently we don't have an impact, but we don't see disruptions to our supply chain.
Speaker Change: And also we engaged with our suppliers and they're well.
Speaker Change: Kind of sourced for any need that would kind of patel.
Speaker Change: Potentially have an impact on our.
Speaker Change: Production ore products. So for the moment, we have no impact from.
Speaker Change: Metal export restrictions.
Speaker Change #102: Yeah, and then on your second question Hugo on the margin expansion going forward in the context of tariffs.
Speaker Change: What I would say there is that.
Speaker Change: Fundamentally.
Speaker Change: There continues to be a margin improvement opportunity.
Speaker Change: So that has not changed are the fundamentals havent changed and then the way we go after that.
Speaker Change: Two different things we continue to go after those mitigation that we that we spoke about earlier today. So some of it is short term some of it is more a little bit more long term. If you also think about supplier footprint and then thirdly, the productivity component, it's going to be is going to be there. If you remember in February we increased our three year.
Speaker Change: Productivity plan from two to two 5 billion as we are confident that there is more to go after more simplification to go after.
Speaker Change: And more just operational leverage to go after that we will continue to to double down on and we've done. So in Q1, there were a lot of programs in place that will.
Speaker Change: We'll deliver in the remainder of the remainder of the year and then last of course as I, Yeah. As I said earlier as well innovation will continue to be a big contributor to margin expansion as well as we're seeing that the innovations that we've recently launched are already contributing to our to our gross margin and our gross margin.
Speaker Change: Expansion and maybe last point to add as you know we are driving our strategy.
Speaker Change: 70, 30, 70% of our businesses that are already in higher margin territory, there driving both their growth up as well as the margin expansion that it drives for the group and we have specific.
Speaker Change: The average where we are driving also margin expansion the accelerated rate of the group for example, as you'll see we've called out before.
Speaker Change: Of course dip significantly and margin, we already called back into profitability last year, we continue to expand that margin to actually bring it back to where we have seen it before.
Speaker Change: So actually we see both the underlying improvements happening in the year as we speak but also we see leeway out of US that was earlier tied to what we also put out as a longer term perspective for Philips and we haven't seen that change through some of the dynamics that is currently ongoing in the market because the fundamentals of the demand.
Speaker Change: How we are going to supplying.
Speaker Change: Supplying our innovations actually showed that we can robustly performing there.
Speaker Change #103: Thank you. The next question comes from Mr will go from <unk> and <unk>.
Speaker Change #103: Please state your question Sir.
Tim: Yes, Tim.
Speaker Change #103: Wondering if you're assuming maybe a NOLA.
I've got two questions. The first one is for Charles you basically said to one of your questions.
Speaker Change #103: <unk> changed compared to February cool.
Speaker Change #103: I would like to change that so.
If I look at the impact of tariffs.
Speaker Change #103: <unk> 252 million disease.
Speaker Change #103: Our range was one 3% to one 5%.
Speaker Change #103: Sales were you are lowering the guidance by 1% only because it means that there is an underlying increase of 40 basis points.
Speaker Change #103: In addition to that if I look at your February comments on ph.
Speaker Change #103: Look at the results in ph and the comments that you make today I cannot help it basically all Cupid.
Speaker Change #103: PHH doing much better than what you anticipated.
Speaker Change #103: In February.
Speaker Change #103: And also your order intake momentum is good.
Speaker Change #103: <unk>.
Speaker Change #103: You have good margins.
Speaker Change #103: So is it fair to say that youre actually getting more bullish.
Speaker Change #103: As we progress throughout the year, if we exclude any effects from the tariffs.
Speaker Change #103: The second question is related to ph business can.
Speaker Change #103: Can you give us a bit of a feeling of where the exit rates for their region.
Speaker Change #103: At the end of <unk>.
Speaker Change #103: Q4, and at the end of Q1.
Speaker Change #103: And if you can quantify the impact of any forward buying.
Speaker Change #103: The module.
Speaker Change #103: At the end of Q1 thanks.
Speaker Change #106: Thank you Lynn and I'll take your first first question on nothing changed versus the February call. So if you look at our guidance and as I also called out in my in my prepared remarks. There are really two drivers of our changed guidance. One is tariffs, which is the 250 to 300 million net impact that we discussed the other.
Speaker Change #106: One is our Q1 performance versus our expectations. Those are the two drivers that are that drive the change in in our guidance. So.
Speaker Change #106: That is what I would tell you about that so if you could talk about ph and saying it's better than anticipated. We are very pleased with our Q1 and personal health that is absolutely true we saw double digit growth across the international region, we had great.
Speaker Change #106: Results in Europe, and Latin America, and India, we saw the momentum really pick up for instance.
Speaker Change #106: In some parts of the World, where we are we have put out new innovations to market. We did more on A&P and more influencers that we that we hired which has been that has been working well having said all of that it is early days. It's only at the end of Q1, we're only at the end of Q1. So it is really difficult to at this point.
Speaker Change #106: Fine.
Speaker Change #106: Forward and take that as a sustainable momentum. So that's what I would say I would tell you on during your question. So there and then you had a second question on the exit rates for personal health.
Speaker Change #106: Q4 versus versus Q1, so again and maybe a few things I'd say there.
Speaker Change #107: In China.
Speaker Change #107: No real change in consumer demand consumer demand remains subdued I was also in China, a month or so ago, and we see no no meaningful change to what we were expecting or what we are what we have been had been seeing.
Speaker Change #107: We expect that momentum in China between Q1, and Q2 to remain to remain fairly fairly similar.
Speaker Change #107: Also the momentum in international regions outside of China as I've, just discussed is very very strong.
Speaker Change #107: And then in the U S.
Speaker Change #107: <unk> seen some slight growth in the U S. We see so far that consumer sentiment is stable.
Speaker Change #107: We're obviously monitoring that very very closely but just to be very explicit on that that has not been the major growth driver for us that has really been the international regions.
Speaker Change #107: Yes.
Speaker Change #107: Yes.
Speaker Change #108: Thank you. Your next question comes from Mr. Julien <unk> from Bank of America. Please state your question Sir.
Julien: Good morning. Thank you very much for squeezing me in so I'm slightly going in the opposite direction of the previous question and sorry to.
Speaker Change #110: On that point, but it is clear that you need a pretty strong fruition sales and profit in two weeks just to make even the lower end of the guidance could you just remind me what are the main drivers what gives you confidence in such very uncertain macro situation, especially given I think you had talked about being vigilant during the opening remarks, and then I mean you.
Julien: Slight improvement to date on quite early but thats. The first question.
Julien: One it seems that you're also cutting the free cash flow guidance, but more or less 400 million euro for this year can you just tell me what public tariff I think you did 100% and defer from the P&L impact of the $250 million to $300 million. Thank you.
Julien: Yes. Thank you.
Julien: Thank you <unk> for your.
Speaker Change #111: For your questions and first of all on the acceleration of the year and the backend loaded outlook and maybe maybe take you back to what happened in China in Q3 2024.
Julien: And what we what we saw was obviously some.
Julien: Some challenges in China, and you can now think about the phasing in this year in the second half of the year the comparable becomes much easier.
Julien: Both in personal health in China, as well as in health systems in China, So thats almost mechanical that we get an uplift in sales growth.
Roy: Roy already said it.
Roy: We are taking a cautious view of the market environment in China, we've taken that in our previous outlook.
Roy: Confirming that today, so we don't see any any change there, but we will just because of the comparable see an uplift in our numbers in the second half and half of the year.
Roy: And maybe.
Roy: How do I summarize it. So if you look kind of through the year and is also at when you're kind of where are we.
The year is actually in the fundamentals really playing out as we predicted.
Roy: In terms of how we came into Q1 actually slightly better than we have a better field order book I think that is fair to say and that momentum. We also feel continues so that actually kind of gifts reassurance also for second half still also building on the comment that it's still early days, but that gives us of course early.
Roy: Indicators that actually we have the underpinning coming next to ph, where also we of course are happy with the growth coming back into the business, but we also still know that there. It's early days and we know that we have the second half mechanical effect that will kind of kick.
Kick in to kind of support that but that's in line with the plan. So I think they are false you've seen us sticking to our sales guidance because that is really we believe we have firm on a penny for at what we currently know we have done also taken just tariffs on what we currently know.
Roy: Also acknowledging that this is still fluid so can change, but we have taken very substantial measures on the kind of announced Arizona second of April.
Roy: And kind of people work hard to kind of half dose also kind of kicking in as soon as possible.
Roy: And that will kind of dialogue throughout the year.
Roy: And that's in also.
Roy: Ed.
Roy: <unk> of how we look into the year.
Roy: Holding so it's two stories of the fundamentals are really playing.
Roy: Playing out well both in terms of market as well as how we delivering that with great innovations and also of course productivity measures to kind of manage the year what is in our own control, whilst we need to remain vigilant on the things that are beyond our control we need to just to take the reality is just known into account, which are tariffs and then we need to monitor the wider economy closely.
Roy: As we keep doing.
Yeah, and then I'll actually I'll take your free cash flow question. So.
Roy: Our updated outlook as free cash flow slightly positive after the 1 billion restaurant settlements that we've just completed in Q1.
Roy: Versus previously the lower end of the 0.4 to 0.6 billion.
Roy: In fact.
Roy: Versus our previous outlook is entirely driven by tariffs and the way we see the tariffs play out as it's essentially hits, our cash flow before it hits, our P&L and that's the way to think about it really because the duty payments, we pay them upfront some of the mitigation is timing in the year and also we recap.
Roy: <unk> some of these duties and then release them in the P&L over inventory turns so so there's a there's a little bit of a time delay there as well I think it's important to mention that we're fully focused on continued working capital manager management.
Roy: Seen inventory reduce year over year significantly we continue.
Roy: To focus on other elements of working capital as well she overused reviews, and we've now with the Respironic settlement removes an important important overhang.
Roy: And then just maybe as a reminder.
Roy: You know we're offering dividend.
Roy: Either cash or shares up to 50% cap for cash, which which brings us back to at least partially our cash dividend, which we're very pleased by.
Roy: Because it just signals do return to normality and also our strong fundamentals that underpin this.
Roy: Thank you.
Speaker Change #112: Next question comes from July.
Roy: Steve <unk> from HSBC. Please state your questions Matt.
July: Hi, Thanks for taking my questions I have three please Chris.
July: First of all on the 70, 30% edition how would that.
July: Division.
July: To date, the health systems segments, So, let's see let's start personnel.
Speaker Change #114: And second question.
Speaker Change #114: You mentioned the growth impact the net impact of tariff. Thanks, very much 250 to 300 million how would the growth impact Luke and what should we expect if these terrorists at China for example.
Speaker Change #114: For.
Speaker Change #115: To be reverted to be taken back and then lastly on your presentation. Thanks for given us guidance on what the restructuring costs and other items for Q2 might be.
Speaker Change #114: You.
Speaker Change #114: Give us some color on what especially like connected care, our restructuring costs, which were higher bordering 90 $500 million.
Speaker Change #114: Our.
Speaker Change #114: Like Kuwait, the driven from and can we start expecting a decline and these restructuring and other costs in the second half of the year.
Speaker Change #116: Yeah, maybe let me essentially thank you for your question, let me take the first one.
Speaker Change #116: No first of all it's 20% of our business.
Speaker Change #116: And it's gone up.
Speaker Change #116: What you'll have to take out so you get to around 60 40 in terms of the percentage of mix in terms of how it is.
Speaker Change #116: That translates.
Speaker Change #116: Then on the gross impact on the tariffs if they won't reverse yeah.
Speaker Change #116: You can imagine that this will be beneficial.
Speaker Change #116: <unk>.
Speaker Change #116: It's also where we have been taking current realities into account we know that negotiations are ongoing but it's just very hard to predict how they will kind of conclude so therefore, we took what we know.
Speaker Change #116: The majority of impact as you also heard earlier are set by US is from U S. China. So.
Speaker Change #116: Those are important areas to continue to watch how to evolve and the impact they have but also rest of world.
Speaker Change #118: I think we took the prudent approach by actually acting now fast on what we know are.
Speaker Change #116: The second of April.
Speaker Change #116: And then we carnival adapt as we go but in terms of what that could mean up or down.
Speaker Change #116: Evolve into the year. So we will keep you updated later on.
Speaker Change #116: Yeah, and then on your last question on the adjusted items for Q2, particularly related to two connected care and that.
Speaker Change #116: The majority of the costs there are related to.
Speaker Change #116: Some degree and were working through our consent decree and costs related to it related to that that is the main driver that we are that we have there just as a reminder, we signed a consent degree in April of 2024, and we're still working through it. We're pleased with the progress we are working through all the different steps.
Speaker Change #116: It's too early to conclude.
Speaker Change #116: It will allow.
We'll finalize.
Speaker Change #116: And just as a.
Speaker Change #116: And just as a reminder, Q1.
Speaker Change #116: Restructuring costs were in line with the guidance and in line with our expectations and last remark I'd make is just in the connected care line. We are very focused on making sure. We do the right things from a patient safety and quality perspective, and as a result, working diligently through the steps of the consent decree.
Speaker Change #116: And I think it's also.
Speaker Change #116: A year or two I think already and we said it earlier loud and clear that incidentals.
Speaker Change #116: Are at elevated levels.
Speaker Change #116: Big part at a majority of the Src.
Speaker Change #116: In fact, we are actually improve them over time. That's also what we're going after in the fullest across all businesses and of course, we also had restructuring costs that we're featuring we have been working through the majority of that so on the excluding.
Speaker Change #116: Constant re cost that we have raised our focus to kind of make sure it at that.
Speaker Change #116: <unk> goes down overtime, whilst at the same time, we keep also going after the cost and productivity measures. After you have been kind of informing you about them.
Speaker Change #116: $1 9 billion today. This is a big contributor and we will continue to expand their productivity lever as well.
Speaker Change #119: Thank you. The last question comes from the line haul Falko Friedrichs. Please open your line for questions. Thank you.
Falko Friedrichs: Thank you I have a few quick ones left firstly, you mentioned that you thought preliminary Q1 market share data can you confirm that you didn't lose any share in medical imaging so excluding <unk>.
Speaker Change #119: Secondly.
Speaker Change #119: What's your updated thinking on growth in China for the full year and has that thinking changed after Q1.
Speaker Change #119: And then last but not least can you be a little bit more specific in terms of which products and components are flowing between China and the U S. Thank you.
Speaker Change #120: Thank you <unk> so on the first.
Speaker Change #119: I can.
Speaker Change #120: Confirm that what we have seen actually is that.
Speaker Change #120: Would be up in medical imaging sure.
Speaker Change #120: And that we were referring to the strong momentum.
Speaker Change #120: In ultrasound, but also in particular <unk>.
Speaker Change #120: MMR, so actually I think that.
Speaker Change #120: It wasn't that you also sort of in the quarter underpinning we said we spoke about.
Speaker Change #120: Single digit.
Speaker Change #120: Growth, including China, where theres still significant China in there so.
Speaker Change #120: We are encouraged by the market share momentum we have seen.
Speaker Change #120: Medical imaging.
Speaker Change #120: And then your question on growth in China for the full year and nothing has really changed versus versus February. So we continue to expect a mid single digit to high single digit decline.
Speaker Change #120: Primarily due to the double digit decline in the first half of the year and that is again driven by personal health, where we have both subdued consumer demand.
Speaker Change #120: As well as the Destocking that will and the impact of that will finalize at the end of Q2.
Speaker Change #120: Just to be clear, we're not betting on a rebound in China in the second half at all we take a cautious view of.
Speaker Change #120: The market environment in China for the remainder of the year, but just almost mathematically we will see a pickup in growth rate just because the comparison comparable comparison basis is going down.
Speaker Change #120: And then your last question on the products and the flows between China and U S and.
Speaker Change #120: I mentioned earlier as well the two segments that we see are most impacted by the China by tariffs in general is both a personal health segment as well as our diagnosis and treatment segment, primarily because the U S. China flows in those in those segments.
Speaker Change #120: Need to and your modeling that is that something that you need to take into account for.
Speaker Change #120: And for those two businesses and again, just taking you back we've derisked, our China U S flows a lot overtime also since the first a tariff war, but given the tariffs are so elevated 125, and 145% that just becomes very big number.
Speaker Change #120: As a result of that.
Speaker Change #121: Thank you that was the last question Mr. Jacobs. Please continue with any points you would like to raise.
Speaker Change #120: Yes. Thank you.
Speaker Change #122: Or any questions as you heard us say.
Speaker Change #122: In an uncertain macroeconomic environment that has intensified due to potential impact of tariffs, we continue to drive profitable growth focusing on what we can control and for that part we really feel strong for the year.
Our sales guidance to 1% to 3% based on strong order book momentum as well as personnel coming back to growth. We are taking the current realities of tariffs into account driving substantial mitigation.
We will continue to do so for for the rest of the year, but most importantly, we remain razor focused on supporting our patients our customers and consumers because actually the situation in healthcare has not changed and has not improved the pressure is still very high on the health care system itself and we need to support within our renovations and we see also consumers really.
Speaker Change #122: Kind of appreciating our innovations. So we remain focused on driving impactful innovations to deliver better and more care to the peoples and to the people worldwide.
Speaker Change #122: So much talk soon.