Hi, everyone. Welcome to Philips' Third Quarter 2024 Results Webcast. I'm here with our CEO, Roy Jakobs, and our CFO, Charlotte Hanneman. The press release and investor deck were published on our Investor Relations website this morning. The replay and full transcript of this webcast will be made available on the website after the call as well. Before we start, I want to draw your attention to our safe harbor statement on screen. You will also find the statement in the presentation published on our Investor Relations website. I will now hand it over to Roy.

Thank you, Leandro. Good morning, everyone, and welcome to the call. I want to start with the key highlights of this morning's release. We delivered strong improvement in profitability in the quarter, while sales were flat, and orders slightly decreased as demand from hospitals and consumers in China further deteriorated. We expect impact from China to continue. Therefore, we have lowered our full-year sales outlook. At the same time, we expect adjusted EBITDA margin to be at around 11.5%, the upper end of the current outlook range. Within an ongoing challenging macro environment, we remain focused on successfully executing our 3-year plan to fully capture growth and margin expansion opportunities. With patient safety as our number one priority we are committed to delivering better care for more people. Onto the key financial and performance highlights. Group comparable sales were flat on the back of 11% growth in Q3 2023 and further deteriorated demand in China. On the back of growth last year, we recorded a strong sales and order decline in China, driven by a further decline in consumer and hospital demand. This was beyond our China scenario from July where we assumed stabilization of China, whilst timing of improvement was uncertain. We continue to deliver solid sales growth outside of China. Orders decreased 2%, also due to the decline in China. In the quarter, diagnosis and treatment orders remained solid outside of China, driven by, in particular, North America. Also, year-to-date, our orders grew 1%, including China, and we still expect order growth in the full year, including China, driven by the strength of the rest of the world, while there is certain uncertainty in China that remains. We delivered a strong adjusted EBITA margin improvement of 160 basis points, driven by our continued progress on our execution priorities. Improved gross margins from our industry-leading innovations and higher royalty income. Our free cash flow was EUR22 million, driven by higher earnings and offset by working capital outflows, mainly due to seasonal phasing. We remain confident in our ability to drive further operational improvement. While the uncertainty signaled in the earlier quarters have intensified in China and these are expected to continue. Focusing on China. In Personal Health, we saw a strong double-digit decline in sell-out to consumers in the quarter based on low consumer confidence and lack of big shopping festival sales. Going to the new sellout run rate led to a substantial reduction in our sell-in volumes. We expect overall consumer sentiment to remain subdued in China, while solid in the U.S. and international markets. In China hospitals, the industry-wide anticorruption measures and the lack of impact of the national renewal program continued to significantly affect order and lead times. This also impacted modalities for shorter lead times like ultrasound and therefore, had an immediate impact on sales growth in the quarter. Visibility around the continued impact of the anticorruption measures and timing of the government program remains limited. While the market conditions are expected to remain uncertain in China, it is a fundamentally attractive growth market for Philips with strong underlying demand. Our order funnel is active in the country and our commitment to a local-for-local approach combined with our industry-leading innovations, focus on execution with excellence, deep understanding of consumers and strong brand places us well to respond to demand as it returns. Given the uncertain market conditions in China, we updated our outlook for the full year to a range of 0.5% to 1.5% comparable sales growth for the group. Sales growth outside of China remains within the guided range of 3% to 5%. We expect our adjusted EBITA margin to be at around 11.5% at the upper end of the current range, reflecting stronger margins from our industry-leading innovations, our financial discipline, and focus on productivity. We expect free cash flow to be around EUR49 billion, at the lower end of the current range. Within an ongoing challenging macro environment, we are fully focused on successfully executing our 3-year plan to drive value. And to date, we remain ahead of that plan. I'm confident that our innovative portfolio is well positioned to help hospitals worldwide address their staffing shortages, enhance productivity and improve patient and staff experience. As I got recently also confirmed in my customer visits, in Asia, Canada, and the U.S. Our leading innovations are providing superior care for patients and consumers. Let me now provide you with some of the customer innovation milestones during the quarter. Grilling clinic in the U.S. will expand cardiac care access through 11 specialized Philips interventional suites, allowing physicians to treat patients with complex cardiovascular conditions closer to home. We expanded our next-generation cardiovascular ultrasound platform with FDA clearance of two important AR algorithms to enhance structural heart disease examinations as part of the global rollout of this technology. Demonstrating our innovation leadership in minimally invasive treatments, we secured FDA approval for the new LumiGuide navigation wire, which uses fiber optic technology to reduce radiation for both patients and physicians during minimally invasive surgery. In Personal Health, we launched our AI-powered event premium connected baby monitor, which offers cry translation and SenselQ technology to track sleep, breathing and movements, giving parents peace of mind. And finally, last month, we welcomed investors and analysts for a show and tell event here in the Netherlands, followed by Focus ESG site visit. Events provided a comprehensive update on the fundamentals of our businesses and of our exciting innovations and included in-depth discussions and engagement with our leadership team. I want to thank again the investors who made the effort to spend 1.5 days with us. Your engagement was incredibly valuable. I would like to continue with the progress we have made on our execution priorities. On patient safety and quality, as part of strengthening our culture early this month, together with all employees, we spent a full day reflecting on the importance of patient safety and quality. The progress made and the journey ahead of us to continuously deliver meaningful results. We continue to see a substantial reduction in the total number of caps and improvements in our complaint management process in the quarter. We, including myself personally, have had multiple engagements with the FDA in the quarter to discuss progress made and what is more to do. Philips remains committed to patient safety and quality and will continue to engage with FDA and other regulators on the shared mission to ensure delivery of safe and effective care for patients. With respect to our supply chain, our lead times are back to normal across all modalities, as mentioned before, and service levels continue to increase. Going forward, we continue to focus on supply reliability and on improving the flexibility of our network and supply base, including further regionalization and localization. Finally, our simplified operating model focused on a leaner organization and that is resulting in faster and more agile decision-making with productivity improvements of over EUR1.5 billion to date, also on the back of a reduction of almost 10,000 roles. At the same time, we continue the journey to drive our culture of impact with care, building the right team with health care capabilities. The last 12 months, our engagement score went up significantly, and we see growing confidence from our employees and our stakeholders. Now over to Charlotte to take us through the Q3 financials and outlook in more detail.

Thank you, Roy, and good morning, everyone, and thank you for joining us today. I'm very pleased to be speaking with you for the first time as Philips CFO. Before we dive into the financial results, I'd like to take a moment to introduce myself and share a bit about my background for those of you who I didn't meet at our recent show and tell. I took over the reins as CFO earlier this month after over 20 years working in various financial leadership roles across the med tech and pharmaceutical industry, with a focus on supporting strategic growth initiatives, driving operational efficiency, and managing large-scale transformations. I joined Philips because I believe in the company's mission of delivering better care for more people and see significant opportunities ahead. I look forward to working closely with Roy and the entire executive committee to successfully execute our plan to create value with sustainable impact and drive financial discipline. Continuing with our third quarter financial performance. Our comparable sales were flat in the quarter and orders decreased 2%, both due to a decline in China. Year-to-date, order intake was 1% despite a double-digit decline in China. We still expect order growth in the full year, driven by strength in the rest of the world, while uncertainty remains in China. As a reminder, orders and order book accounts for around 40% of our revenue. The remaining 60% comes from growing recurring revenue streams, such as services and consumables from book-to-bill business and from Personal Health. Now I'll provide some highlights around our quarterly segment performance. Diagnosis & Treatment comparable sales decreased 1% on the back of 14% growth in Q3 2023. We delivered solid growth outside of China with both image-guided therapy and precision diagnosis businesses contributing. The adjusted EBITDA margin of 12.6% was in line with last year despite lower sales, driven by improved operational performance pricing and productivity measures. Connected Care comparable sales were flat. Growth in Enterprise Informatics, notably in North America and growth in Sleep & Respiratory Care were offset by a low single-digit decline in monitoring on the back of high teens growth in Q3 2023. Connected Care adjusted EBITDA margin increased by 360 basis points to 7.3%, with improvements across all businesses including an encouraging step-up in Sleep & Respiratory Care. Personal Health comparable sales decreased 5% due to a double-digit decline in China, outweighing robust performance elsewhere. Adjusted EBITDA margin decreased year-on-year to 16.5% as operational performance improvements only partially offset the lower impact of lower sales. Year-to-date, the adjusted EBITDA margin improved by over 100 basis points. Sales and segment Other were EUR41 million higher than in the third quarter of 2023, driven by royalty revenues. Turning to operating highlights in the quarter. Adjusted EBITDA margin for the group improved substantially with 160 basis points in the quarter to 11.8% and driven by stronger gross margins from our industry-leading innovations, continued financial discipline, higher royalty income and our productivity measures. Adjusted EBITDA margin improved 80 basis points in the segment with higher royalties in segment Other contributing another 80 basis points. Our productivity initiatives delivered savings of EUR188 million in the quarter, of which operating model savings were EUR54 million, procurement savings of EUR58 million and other productivity programs delivered EUR76 million, partially offsetting wage and component price inflation. Since the start of the plan in January 2023, we delivered over EUR1.5 billion and are on track to achieve savings of EUR2 billion earlier than anticipated. The effective tax rate was 24% in the quarter. Net income tax expense increased by EUR33 million year-on-year, mainly due to lower tax benefits and higher income before tax. Financial income and expenses were a net expense of EUR69 million, EUR6 million lower than last year, driven by higher interest income. On Page 18 of our slide deck, you will also find the full-year outlook for these items. Moving on to the balance sheet. We ended the quarter with approximately EUR1.5 billion in cash and net debt of about EUR6.5 billion. Our leverage ratio improved from 2.5 times to 2.2 times compared to Q3 2023 on a net debt to adjusted EBITDA basis. Adjusted diluted EPS from continued operations were EUR0.32 in the third quarter and increased 9% year-to-date, mainly driven by higher earnings. Free cash flow in the quarter was EUR22 million, driven by higher earnings, offset by working capital outflows due to seasonal phasing. Based on our year-to-date performance and the deterioration of demand we are seeing in China, we now expect full-year 2024 comparable sales growth in the range of 0.5% to 1.5% for the group, as mentioned by Roy. At a business level, we expect Connected Care sales growth at the lower end of the range of 3% to 5%, a slight growth in Diagnosis & Treatment and flat to slight decline in Personal Health. Restructuring charges and other items are expected to be in line with the outlook provided earlier this year. Given our continued execution and financial discipline, we expect full-year adjusted EBITDA to be around 11.5% of sales, which is a 90 basis point year-on-year expansion. We expect full-year free cash flow of around EUR-0.9 billion, at the lower end of the range as a result of lower sales outlook, whilst continuing to drive working capital improvements. As mentioned earlier this year, our free cash flow outlook includes the agreed receipt of EUR540 million from insurers to cover Respironics repo-related product liability claims, of which the majority is expected to come in the fourth quarter. The remaining payments related to the economic loss settlement in the U.S. made earlier this year is also included in this outlook. With that, I would like to hand it back to Roy for his closing remarks.

Thanks, Charlotte. Let me close out by repeating the key messages of today. We delivered strong improvement in profitability in the quarter with flat comparable sales and slightly lower orders and demand from hospitals and consumers in China further deteriorated whilst we see growth in the rest of the world. We continue to make strong progress on enhancing execution and improving what's in our control, while external uncertainty intensified. We expect the impact from China to continue. Therefore, we have revised our full-year sales outlook. At the same time, we expect adjusted EBITDA margin to be at the upper end of the current outlook range and cash at the lower end of the range. Within an ongoing challenging macro environment, we remain focused on successfully executing our 3-year plan to create value. And to date, we remain ahead on sales, margin and cash. We also have achieved significant milestones in resolving the consequence of the recall. I'm confident that our portfolio innovations and increased operational agility position us well to continue to capture growth and margin opportunities globally and to respond when demand returns in China. With that, I would like to thank you for joining the call. We will now take your questions.

Your first question comes from Richard Felton from Goldman Sachs. Please state your question.

Thank you. Good morning, thanks for taking my questions. Just two for me, please. The first one is on the hospital equipment business in China. To what extent do you think the softness in your business in Q3 was driven by overall market weakness? Or are there any Philips-specific issues or market share losses that may have exacerbated the weakness this quarter? That's my first one. The second question is on gross margin. Obviously, you had nice improvement year-on-year in Q3 despite fewer benefits from operating leverage. Are you able to quantify some of the drivers of that margin improvement year-on-year and whether we should think about those as one-off or reasonably durable drivers of margin expansion? Thank you.

Thank you, Richard. Let me start with China. So, I think what we see is really a market development. And as I said, I think the difference was that we expect stabilization when we were in July and what we've seen is deterioration, meaning that there is prolonged uncertainty and just the orders are not flowing yet into the market, and that also then prohibits sales from strengthening. And that's something that we have noticed in due course of the quarter. And as we also messaged, we don't see that visibility currently increasing. At the same time, our order funnel remains active. We are in active dialogue with customers. I will also go back to China in two weeks. So, we remain active on the ground, but the visibility is low and we have seen a cross-market momentum that has not yet been picking up. On the gross margin, I think maybe Charlotte, you can take the question.

Yes. Thank you. And indeed, we're very pleased with our operating margin expansion in the quarter, particularly driven by gross margin. And a few things I would highlight that really point to the durability of that gross margin expansion. First of all, we see an improvement coming from innovation we see improved gross margins from innovation, and I'd point to a few of those innovations that we've done recently, like V11 in ultrasound and also neuro Azurion in the pipeline. And then second of all, we do see operational improvements as well as a result of the normalizing supply chain. And the third point I'd point to is really our continued financial discipline as we focus on what's within our control.

Maybe to add, you see that all businesses' gross margin goes up. And we also are on a continuous part of margin improvement. Since the beginning of the plan, you have seen that, of course, we have been having a very strong handle on what we can control. And for sure, that is the innovations and the margins it generate, the productivity actions we have been taking and also the leaning out of the organization. So, that is something that you have seen consistently dialed into the results. That also means we are, of course, planning to date ahead. And also, for the full year, you see us reiterating the strong confidence in our margin delivery. So, I think that's being driven by the underlying factors that also on a business level have been materializing alongside the trajectory.

Our next question goes to the line of Hassan Al-Wakeel from Barclays. Please state your question.

Good morning and thank you for taking my questions. I have three, please. Firstly, on China, can you talk about the quantum of deterioration in Q3 orders versus Q2, your current base case for Q4? How does this differ by modality? And when do you expect to see any stimulus benefit based on your customer conversations, if at all? Secondly, against the backdrop of 1% order growth year-to-date, how are you thinking about the achievement of 2025 targets given that worsening in China? And thirdly, how is order momentum trending outside of China, particularly in the U.S.? And how confident are you in driving this post RSNA and into next year perhaps providing some offset against China weakness persisting into 2025? Thank you.

Thank you, Hassan, for your question. I will start with the first part. In China, there are two main factors contributing to the deterioration. First, the hospital sector is facing challenges, but the consumer side is also experiencing a rapid decline, influenced by sellout trends. We observed that after a slower first half, consumer confidence worsened in Q3, accompanied by adjusted sales expectations, especially regarding major sales events like 11/11. This decline in consumer sentiment was more pronounced and unexpected compared to midyear projections. Regarding the hospital sector, we still have limited visibility on the ground regarding when improvements will materialize. We are in close contact with customers, working on our order funnel, and preparing for renewal requests, but decisions are not yet being made. There are varying impacts across different modalities; some see immediate effects, such as short-term sales businesses facing more pressure, while others like IGT and precision diagnosis are experiencing prolonged delays in orders. Overall, these trends reflect a market phenomenon, and we believe we are well-prepared for when China recovers, with our local innovations and customer proximity. In the meantime, it's important for us to maintain momentum outside of China. As mentioned in our update, we are seeing significant growth year-to-date, including a 1% overall order intake with a stark difference between the double-digit decline in China and overall growth outside of China. I am especially pleased with the North American market, which is showing even faster order growth compared to other regions, supported by a robust healthcare and consumer market. We're increasing our activity in North America, with particularly encouraging order intake in D&T this quarter. We've experienced strong order growth year-to-date in North America and anticipate a solid performance for the full year, positioning us for continued growth in this key market. Regarding 2025, while we are not providing guidance for that year yet, the progress we are making on our plans supports our trajectory. We will focus on factors within our control, such as margin expansion, cash delivery, and growth outside of China, and will evaluate when momentum in China may strengthen as we move forward.

Our next question comes from the line of David Adlington from JPMorgan. Please state your question.

Firstly, maybe just on other mature geographies, which were down 10% in sales. I think maybe if you could pull out any particular areas of weakness there. And just following on to that, also in North America, only 1% growth. Just maybe you can split that out by Personal Health and D&T. And then secondly, just in terms of the restructuring charge, EUR165 million coming in Q4 with EUR100 million on Connected Care, mostly on the asset impairment, I think. Firstly, why not take that in Q3? And secondly, any further color you can give us around that impairment in Connected Care will be useful.

Yes. Thank you, David. Let me take those questions. So first, your question around the other mature geographies. That is really driven by a very strong comparable that we saw in Q3 of 2023 and also a little bit of softness in Japan as well. So, moving on to your second question around the adjusted items. As I said in my prepared remarks, there is no change to the full year outlook we provided for incidental. So, it's still in line with the 330 bps we said earlier this year. And of course, Connected Care is a very big part of this as there were consent degree related charges, response field actions, charges and what have you. So really, if you look at Q4, our EUR100 million guidance for Connected Care doesn't really stand out much. We've seen some higher numbers. We've seen some lower numbers. and there's really no further impairment included in those numbers either. And we're really laser-focused on driving the same financial discipline that we're driving in our adjusted EBITDA margin also in our adjusted items as well.

We are witnessing growth in both areas in North America. Personal Health started the year a bit slower but is picking up now, and the health systems sector is also improving due to strong order intake. It's important to note that we are comparing against very strong double-digit figures from last year, particularly in Q3, which was a strong quarter. We are managing the backlog, which presents a challenge in terms of comparables. However, underlying trends show growing momentum in both the consumer and health systems segments.

Our next question comes from the line of Lisa Clive from Bernstein. Please state your question.

Two questions. One, how should you think about pricing over the next 1 year to 2 years? My understanding is like-for-like used to be slightly negative due to trying to offset the cost inflation; it's more flat to slightly positive now. How do you think this will evolve? Will your sales force revert to discounting perhaps driven by peer behavior? Or do you think we're sort of in a somewhat new norm in terms of like-for-like pricing trends on equipment? And then the second question around your Imaging business. You saw a lot of market share losses in several modalities, namely MR and CT during the pandemic. Now that your supply chain has stabilized, et cetera, how are you doing relative to peers? And do you think you can regain some lost ground in the next year or two?

Yes. Let me take the first question, Lisa. Thanks for your question. I'll take the pricing one. So indeed, as you said, in Q3, we did see a pricing benefit both in diagnostic and treatment as well as in connected care as we still see the higher prices flowing through from our order book into our P&L, which has really helped our margin development. So, if you look at the outlook, we have to see how it goes in the next quarters, and we have to see how it evolves from a competitive standpoint. So, we remain a little bit fluid. However, what I would say is that we've seen and continue to see very good progress with material price reductions, which helps improve our gross margin, as I noted earlier. And then maybe from a PAH perspective, we don't really see further pricing upside given the subdued consumer sentiment, but we are staying on top of any inflation developments that we might see.

Let me address the second point. It was crucial, given our supply chain efforts, that we are fully back with our lead times. We are also experiencing strong innovation and momentum in MR, particularly with the Blue Seal CT and the recent launch of the 5,300 featuring AI to enhance productivity. Additionally, our renewed DXR portfolio, launched last year, is gaining traction. We are making progress, evident in the strong D&T order intake in North America this quarter. Our innovations and improved execution have positioned us well, especially in D&T, where China remains a key focus as we prepare for future demand. On the IGT side, we've maintained strong momentum, particularly with the newly launched neuro suite and device business, driven by procedural growth. Furthermore, we recently received FDA approval for Luigi, which adds a unique offering to our portfolio and supports our growth in the device sector. We are building this momentum, as reflected in our total order book growth.

Our next question comes from the line of Graham Doyle from UBS. Please state your question.

Thank you. I have a couple of questions, both related to China. Firstly, some comments from your peers over the past month or two indicate they seem to be gaining confidence. I'm noticing a bit more certainty in the Chinese market. From your perspective, do you believe there is now less certainty or visibility compared to about a quarter ago? It would be helpful to understand where you see the situation improving or not. Additionally, when demand returns and we find ourselves in a normal environment, do you anticipate that this environment will be different? For instance, we've observed more tendering occurring this time. Should we expect similar measures to be implemented? Are you foreseeing any changes in the competitive landscape? I'm interested in your thoughts regarding why you continue to find China attractive.

Thank you, Graham. Regarding visibility, it remains challenging at this time. It’s difficult to predict the exact situation. Midterm, we anticipated stabilization, which was supported by the government’s goal to have this program materialize in 2024. However, time is running out for that to happen, and we've noted this in our outlook for 2024. For now, we maintain that visibility is limited, and we must focus on the fundamentals. We are ensuring local innovation and staying close to our customers. Our customers have indicated that new procedures being adopted will have a long-lasting impact, resulting in longer approval times and increased oversight. However, we have not seen any significant changes in specifications, which allows us to compete with our existing portfolio. There is notable demand, particularly for products like Blue Seal, and we have also seen strong interest in China. Sound has historically been a robust business for us, and we do not expect that to change significantly in terms of competitive dynamics. While the long-term prospects for China remain appealing, the current macroeconomic environment is different from what it was a decade ago, contributing to slower growth. This affects spending across different segments. While the situation is not unattractive, we lack visibility, which leads us to focus on generating momentum in other regions, which we have seen progress in this year. In China, there is substantial interest in underlying diseases such as cardiac and neuro, and we are leveraging our IGT and imaging suites to apply successful practices from outside of China. Staff shortages are a concern, making AI solutions like smart speed valuable in the market. We have been gaining market share in China, and although we've faced supply chain challenges, we are now fully operational and have improved our supply chain there. This positions us well to capitalize on any momentum should it return.

Our next question comes from the line of Hugo Solvet from BNP Paribas Exane. Please state your question.

Thanks for taking my questions. I have three, please. First, a follow-up on China. Just Roy on your comment around the funnel order. Is that just a function of more meetings with customers, continued strong interest or actually orders slowly but all moving into the execution phase? And if you can explain a bit of what type of modalities you're seeing a strong for the store. Second, on 2025, a follow-up to Hassan's question. How much of the 2025 targets relied on China picking up now? And how comfortable do you think you are with consensus forecasting 80 bps margin improvement given the uncertainties in the country, but also the benefits from the efficiency plan on the other end. And lastly, in Sleep & Respiratory Care, I think margin was progressing sequentially in Q1 than Q2. Can you maybe let us know where you are in terms of profitability for that business and what the rightsizing of that business that happened in Q3 exactly in price? Thank you.

Thank you, Hugo. I’ll address your various questions. Regarding China, the order funnel is based on our discussions with customers, which helps us understand the opportunities we anticipate when China's market recovers. Currently, we aren’t seeing orders flowing from our Chinese customers, which has contributed to the decline in orders and sales. There’s a clear gap between customer activity, their needs, the discussions we’re having, and how that translates into actual orders and sales in the third quarter, as well as how we’ve factored this into the fourth quarter. I will be visiting China next week for a major expo, where we have been invited to participate. The conversations with customers continue, but we are experiencing a slowdown in the conversion of these dialogues into real orders, which impacts our performance and the broader market. As for 2025, we’re not providing guidance at this stage. We are focused on executing our three-year plan, which has been effective so far, and we are ahead of schedule. Demand outside of China remains strong, as reflected in our guidance for this year. However, uncertainties in China that we previously noted have intensified and are likely to continue, which we also anticipate will affect 2025. It’s still too early to provide specific insights. Looking at controllable factors, we are confident about further operational enhancements, particularly regarding margins and cash. We are making progress in productivity, having realized EUR 1.5 billion to date, and we plan to maintain this momentum. We expect this will contribute positively to our performance and cash flow next year. We are positioned to seize growth opportunities when they arise, especially outside of China. However, we are being cautious about our outlook for China due to the current lack of visibility. Therefore, we will remain committed to our plan, focus on what we can control, and be proactive in capturing growth where it occurs while being modest in our expectations for China.

And then maybe I could take the question on S&RC. And as S&RC return to market is going really well and according to plan, customers really want us back in the market, and they like our innovation, what we see as well as solid sales in sleep and patient interface outside of the U.S. And then from a profitability perspective, we again saw an encouraging margin step-up in S&RC. And in fact, in our whole Connected Care segment, which just speaks to the underlying resilience and strength in our EBITDA margins, which keep on improving and which we are laser focused on now in Q4 and also next year.

Our next question comes from the line of Julien Dormois from Jefferies. Please state your question.

Good morning, Roy. Good morning, Charlotte. Thank you for taking my question. I have three, if I may, and mostly housekeeping, I guess. But first one relates to the royalties because obviously, that was a quarter with a nice contribution from that line. So just curious how much of that should be seen as, let's say, recurrent and I know those are lumpy by definition that really provided a nice boost to the margin in the quarter. So just curious what you should make of that? And how you see royalties evolving into the fourth quarter and maybe into '25? Second question relates to the potential or the risk of U.S. tariffs making a comeback depending on the election outcome in a few weeks from now. How do you see the situation on your side? And in what way the situation would be different from what it was in the first Monday back in 2017, 2018, if transport be elected or if any kind of tariffs were to be reinstated? And the third question is very much housekeeping. But could you just remind us how much of a contribution to sales China represents at the group level, but also maybe giving a bit more insight into PH versus the rest of the group, please?

Thank you, Julien. I'll respond to the first question about royalties. In the quarter, royalties contributed approximately 80 basis points to our EBITA improvement. For the full year, we've raised our guidance by about EUR20 million. This means that from a full-year perspective, only 10 to 15 basis points of the 90 basis point improvement is attributed to royalties. We are continuously aiming for strong EBITA margin improvement by focusing on what we can control, and I assure you that we intend to keep pushing for more.

Regarding tariffs, we have focused on strengthening our supply chain to be ready for various global scenarios, as these situations are emerging in multiple countries. Our strategy includes localizing production in China and regionalizing our supply chain in North America, which has prepared us for changes in the global flow of goods. We are now establishing three strong regional hubs for supply, which is reflected in the resilience of our current delivery and lead times. Additionally, we have implemented dual sourcing, enabling us to make necessary adjustments effectively. Our organizational agility has also improved through simplification, allowing us to respond quickly to any changes. Focusing on China, it's essential to note that about 10% of our operations are there, but the personal health segment is notably larger, leading to a more significant impact this quarter and for the first half of the year, as it comprises a substantial part of that business. In Europe, the D&T segment is more reliant on China compared to monitoring, which has some dependencies but to a lesser extent. Therefore, D&T and personal health are the segments most affected. Personal health, in particular, experienced a considerable decline going into Q3 and the latter half of the year. Conversely, if consumer demand and confidence increase, we could recover quickly, but we prefer not to speculate on when that might occur.

Our next question comes from the line of Robert Davis from Morgan Stanley. Please state your question.

Thank you for taking my question. My first one was just on your order outlook for the full year being up 1%. And just had a couple of questions on that. Obviously, Personal Health, you still have a tough comparable in, I think, in the fourth quarter of '23. So just was trying to get a bit more color just in terms of what was underpinning your conviction in keeping orders positive. And maybe just on the order front, just sort of looking back over the last two quarters, you've had quite high volatility between the orders, up 9 in the last quarter, down 2. What sort of really changed on a sequential basis because that's obviously a pretty big move quarter-on-quarter. My second question was just around trends in Personal Health, whether you've seen any sort of down trading. You mentioned obviously, consumer confidence has softened in China, but has that resulted in any one down trading within that segment? Or is that just a sort of operational leverage effect?

Yes. Regarding the operational full year and the order flow through the quarters, we are currently up 1% year-to-date despite experiencing a double-digit decline in China, which is offset by growth in other regions. North America is showing strong order growth, although there is some variability due to large deals, as seen in Q2. We are actively working on more sizeable deals, which influences this variability. Additionally, some growth in services is tied to converting our equipment into service offerings, making quarterly flows less predictable, so it's important to look at long-term trends. I'm encouraged by the increasing order momentum globally, particularly in North America, which we expect to continue into next year and beyond into 2025. In Personal Health, we are facing significant pressure in China, not necessarily due to a downturn but rather a lack of sell-up. We are gaining market share in grooming and seeing new brands in Oral Care attempt entry, but facing challenges with their lower value propositions. It's crucial to consider global market momentum, which is improving in other areas. We recently launched new lounges in modern child care and cleared the AI baby monitor, leading to strong order growth outside of China. We believe we can maintain our margins in Personal Health and are holding our EBITDA strongly despite a notable volume decline. The overall value capture from Personal Health remains strong due to effective innovations, which we believe will continue into next year.

Due to the time, the last question is a follow-up question from Lisa Clive with Bernstein. Please go ahead.

Could you comment on trends in North America? It seems like you have strong demand, good order book. I think some investors have been concerned that a lot of stability in the business that's independent on that market and concerns that it could potentially soften. So, if you could just comment on what you're seeing there, that would be helpful.

Yes. Looking at the North American market, it is primarily driven by the underlying fundamentals. The financial health of the system has been improving since COVID, transitioning from a negative market where most hospitals were struggling to a neutral position, and now we're seeing positive trends. Stronger systems are becoming more positive, engaging in consolidations and acquisitions, which creates opportunities for standardizing their platforms with robust offerings. This has positively influenced our order book. Another noticeable trend is the high patient demand, with continuing wait times in North America, which was unusual before COVID when the system could handle significant volumes. This is partly due to staff shortages and also because of the increasing procedure volumes. The demand in interventional radiology is strong, with procedures growing and driving fundamental growth. Additionally, our workflow solutions for radiology and pathology are highly sought after. At a recent conference in Chicago, it was a hot topic among major systems, and we expect similar discussions at RSNA. Overall, there's a healthy demand that needs to be met, and while there are challenges regarding implementation due to installation capacity and staff shortages, we are optimistic about the positive trends we've observed in North America.

Okay. Great. And just one last follow-up question, circling back to China. You were growing about 4% in the 5 years before the pandemic; you've now guided 5% to 6%. Obviously, this year is going to fall well short of that given the rollover in China and a few other factors. But if you grow 5% to 6% and China is not a double-digit growth market and sort of continues to limp along, where will that growth come from? And how confident can we be in that outlook?

Yes, there are two parts to that response. First, we are examining the various segments within Philips where we have identified that we are active in certain areas of the market, which is growing at a faster pace. This is evident globally, but we also see significant growth opportunities outside of China. Specifically, in Interventional Guided Therapy and personal health outside of China, particularly in ultrasound and monitoring, we have strong segments that show long-term growth and margin potential. However, some markets remain more reliant on China and will face significant impacts as a result. That said, we do not believe China will remain stagnant indefinitely; we just cannot predict when it will rebound. Once it does, we anticipate a rise in demand due to a large patient base and many hospitals requiring solutions. We expect this to contribute positively in the long run. In our original plan, we aimed to focus on growth outside of China more intensively, and we are ramping up our efforts in this area. As we reported this quarter, we delivered growth outside of China within our target range of 3% to 5% and remain committed to this focus. North America plays a vital role in this strategy, alongside growing markets like Indonesia, Saudi Arabia, and Latin America. Our growth is supported by strong innovations and solid standards, which indicate that demand is strong. We are strategically positioned to capture growth when it occurs and are ensuring our supply chain operates smoothly and that our organization remains agile and cost-competitive, as we maintain a sharp focus on margins in everything we do. This will help us continue our growth trajectory, independent of the overall market sales momentum.

That was the last question, Mr. Jakobs, please continue.

So, thank you all for dialing in. As we said, I think what we see in the world currently is strong delivery of margin that we also reiterated for the full year at the upper end. Sales that we adjusted signaling further deterioration in China and also taking a prudent approach on to that into Q4, whilst we're dialing up momentum in the rest of the world, and we stay fully focused on executing on our plan, where planned to date, we're ahead on sales, margin, and cash, and we have been making significant progress in resolving some of the issues with the recall. So, we focus on what we can control. We keep driving that with strength and with pace and look forward to talking to you in upcoming opportunities.