Koninklijke Philips NV (PHG) Q1 2026 Earnings Call Transcript

Hello everyone and welcome to Philips first quarter 2026 results webcast. I'm here with our CEO Roy Yacob and our CFO Charlotta Hanneman. Our results press release and presentation are available on our investor relations website. The replay and full transcript of this webcast will be available on our website after this call concludes. I want to draw your attention to our safe harbor statement on the screen and in the presentation. I will now hand over to Roy.

Thanks, Droga. Good morning, everyone. Thank you for joining us today. I will start with an overview of our Q1 results and our outlook for the balance of the year. Charlotte will take you through the quarter and our guidance in more detail. We start at 26 with a clear proof that our strategy is delivering. growth, margin expansion, and strong auto momentum, despite the volatile environment. At the same time, we remain closely connected to our customers and employees. This includes those impacted by the situation in the Middle East. We continue to prioritize their safety, support, and continuity of care. Against this current backdrop, we reiterate our full year guidance. looking at q1 order intake grew six percent reflecting continued momentum comparable sales increased four percent with growth across all business segments left by personal health we also expanded margins adjusted ebitda margin improved by 40 basis points to nine percent despite higher tariffs this marks our sixth consecutive quarter of delivering on our commitments, even as we operate in an uncertain and dynamic environment. Disciplined execution and focus on what we can control underpins our progress. We are on track to deliver the full-year outlook we set in February, which includes currently known information within an uncertain macro environment. Our strategy remains anchored in three pillars, focused value creation, innovation-driven growth, and disciplined execution. Let me take you through the first quarter in that context. Starting with our first pillar, focused value creation. We execute specific strategies by segment. And we invest with discipline, focusing on interventional monitoring to drive growth. We also drive growth geographically, with North America as the key engine. You can also see this in our Q1 results. Equipment order intake grew 6%, with solid growth across D&T and connected care. North America led the growth, building on strong prior comparison. Europe also performed strongly across several modalities. Looking at D&T, order intake increased in the mid-single digits. Growth was driven by sustained momentum in image-guided therapy as our market-leading Azure platform continues to drive strong demand. Precision Diagnosis delivered solid order growth outside China. Globally, MR order intake was solid with increasing interest in our helium-free systems. Last year, 75% of our MR systems shipped were helium-free. For our customers, resilience and MRI is being tested more than ever. Helium supply is tightening. Geopolitical developments in the Middle East are adding further pressure to that. Costs continue to rise. As a result, health systems are seeking uninterrupted imaging and reliable service in everyday clinical practice. Philips is leading the shift to helium-free imaging with our high-performance Blue Seal technology. We are setting the new industry standard in MRI resilience, enabling uninterrupted operations and reducing dependence on scarce helium. We have installed more than 2,200 systems globally, saving over 6 million liters of helium. Building on this, we also unveiled the industry's first helium-free 3T MR system. We expect regulatory clearance in 2027, positioning us to transition to a fully helium-free MR portfolio and extend our lead over competitors. In CT, we are seeing a strong funnel for spectral technology. In the quarter, VREDA, the industry's first AI-enabled detector-based spectral CT, gained traction following its launch at RSNA last December, with initial orders secured in Europe. The first system installed in Q1 is already delivering results. At Nuestra Signora del Rosario University Hospital in Madrid, it is demonstrating seamless workflow integration and clinically relevant insights. And importantly, without added operational complexity. Turning to connected care, order intake grew in high single digits, mainly driven by monitoring and supported by enterprise informatics. demand was broad based across all regions with particular strength in north america and europe building on a strong prior year comparison we continue to expand enterprise partnerships with large integrated delivery networks these customers are investing in enterprise patient intelligence medical device integration and cyber security they are increasingly adopting our enterprise monitoring as a service model to improve clinical, operational, and economic outcomes. This reinforces our position as a partner of choice for enterprise-wide data-driven peer delivery. Moving to personal health, this segment delivered another quarter of broad-based growth driven by strong consumer sellout and continued market share gains. We drove this to active expansion and diversification of our channel footprint, adding more than 3,000 distribution points in Europe. At the same time, we strengthened our presence with key global retail partners to increase listings and expanded placement. This included IPL expansion, broader distribution of interdental products, and more than doubling one-bay distribution in the US. Our second pillar, innovation, is another key driver of both momentum and growth. Across modalities and products, we are accelerating innovation towards scalable, AI-enabled hardware and software platforms. And that is already translating into stronger regulatory momentum for approvals of new product introductions. In Q1, we received 20 510K clearances and pre-market approvals, more than doubling year on year. In MRI, we received FDA 510K clearance for SmartHeart, our AI-powered cardiac MR solution. Just like SmartSpeed, it's a clinical application that extends software and AI-led innovation across the install base. smart heart automates complex planning workflows in one click and does that under 30 seconds simplifying operations and boosting productivity it also reduces patient breath holds by up to 75 improving patient experience in a big way in ct we received fda 5k clearance for both spectral ct Verita, and our Rembra wide-bore CTs. Launched at the 2026 European Congress of Radiology, this platform features an industry-leading 85-centimeter bore. It is designed for high-frucure environment with an AI-enabled workflow and improved diagnostic confidence. In image-guided therapy, we received clearance for Device Guide, an AI-driven solution fully integrated with our Azurian platform. It enables real-time automated detection and visualization of mitral valve repair devices during minimally invasive procedures. We also launched Intrasight Plus, integrating intravascular imaging and physiology into a single system to simplify workflows and improve efficiency in the CAT lab. Looking beyond product innovations to our future transformative interventional platform, introduced at our CMD in February. We made progress in advancing clinical validation. Building on our ecosystem of more than 100 clinical partnerships, we added the Sherpa Research Consortium in Q1. Seven clinical studies are now underway to demonstrate the benefits of AI and robotics assisted workflows in minimally invasive treatments for brain aneurysms and liver tumors. In personal health, AI is embedded in our propositions. For example, the Philips high-end shaver i9000 Prestige Ultra, it uses intelligence sensing and AI-driven adaptation to respond to each user's skin and hair type, delivering a more personalized shave every time. This innovative proposition not only won the Times Invention of the Year for its groundbreaking features, but also significantly increased sales and margin, demonstrating our leadership in this domain. since creating the hybrid shaving category we have sold more than 50 million one blade handles and 100 million blades this growing install base supports profitable recurring revenue from consumables with strong replacement blade performance in the quarter in our healthcare we unveiled new phillips sonicare 5700 to 7300 series models in the us featuring next generation Sonicare technology. In China, we launched Sonicare 7000 at the South China Dental Show, reinforcing our position as a professional oral care leader and strengthening momentum with the dental community. Across Philips, innovation continues at scale throughout our portfolio. We remain the largest MedTech applicant at the European Patent Office in 2025 a strong proof point of the depth of our innovation engine and this is not just about today this leadership is fueling the next generation of innovations coming through our pipeline and positioning us well to drive accelerated growth in our third pillar disciplined execution it all starts with patient safety and quality our top priority it ensures we bring innovation to market with the highest standards of patient safety and well-being We're making strong and steady progress, building on the improvements delivered over the past three years. And importantly, we're now benefiting from the work we have done to make Philips simpler, leaner, and more agile, strengthening the foundation of our execution. Field actions were reduced by about 20% year to date. This is on top of a reduction of around 40% in 2025, reflecting increased discipline and process effectiveness. Importantly, these improvements in our quality processes are also enabling the innovation momentum I highlighted earlier. We also maintain close and constructive engagement with global regulatory authorities, including ongoing leadership-level dialogues with FDA and other regulatory bodies worldwide. This underscores our commitment to quality, compliance, and continuous improvement in serving our customers. It carries through to our supply chain. a critical enabler of execution. Over the past three years, we have simplified, regionalized, and localized our operations to be closer to our customers. Our focus is clear, deliver on consistently superior customer experience through a high-performing supply chain, day in, day out. During the quarter, developments in the Middle East increased volatility across logistics and input costs, including materials and components. through active management of our logistics network we maintain stable supply chain operations while stepping up cost mitigation activities which charlotte will further discuss importantly customer service levels remain strong and in line with previous quarter and we remain vigilant and managing ongoing developments in supply and cost and as we look ahead we will continue to deepen their simplicity, agility, and resilience, as these are critical capabilities for navigating the increasingly turbulent environment. Turning to commercial and service excellence, in connected care, we saw further traction in our enterprise monitoring as a service. As health systems adopt enterprise monitoring, demand for enterprise informatics solutions is also increasing. These solutions now represent a growing share of both our order book and sales across various periods. In the quarter, we saw strong demand for capsule device integration and clinical surveillance across care settings, driven by effective cross-selling across our enterprise informatics and monitoring platforms. In diagnostic imaging, we expanded our partnership with AdventHealth through a five-year enterprise service agreement. It enables our full service model across modalities, while supporting a long-term imaging infrastructure focused on quality and performance. Turning to the regions. Fundamentals remain supportive across our markets, particularly in North America, where demand remains strong and the landscape continues to segment. We continue to see stable activity levels across hospital systems, with no signs of disruption among larger systems. Cost pressures and workforce shortages persist, driving further consolidation among larger health systems. Demand for secure, productivity, and cyber-secure enhancing platforms is increasing. This reinforces our expectation that North America will remain a key growth engine in 2026 and over the medium term. In Europe, capital spending remained broadly stable, with an improvement in some markets during the quarter. Demand conditions remain stable, supporting our execution in the region. Select international regions continue to increase investments in healthcare and digitization, as reflected with strong winds in India and Brazil. In China, centralized procurement continued to increase in Q1s, particularly in modalities such as ultrasound and CT, which have shorter lead times. This is driving longer decision cycles and a more price-focused environment. As a result, we are seeing lower order conversion consistent with recent trends. These dynamics continued in the quarter, contributing to ongoing pressure on equipment demand. At the same time, underlying healthcare demand remains intact, particularly in procedure-driven segments. We remain focused on maintaining competitiveness, selectively driving our portfolio, and executing with discipline in this more price-sensitive environment. In personal health, consumer demand remains healthy in North America, and momentum continues across several markets globally, even as geopolitical developments create uncertainty. We are managing these dynamics with agility while maintaining a strong focus on execution. Charlotte will now discuss our first quarter performance in more detail and our outlook for 2026.

Thank you, Roy. I will start with segment-level performance. In diagnosis and treatment, comparable sales increased by 2%. Image guided therapy delivered high single-digit growth continuing its multi-year momentum and building on a strong prior year comparison. Performance was broad based across all regions with particular strength in North America led by the premium configurations of our Azurian platform, higher service revenues and coronary intravascular ultrasound. We are reinforcing this momentum by leveraging AI to automate product testing, reduce release cycle times by 25% and accelerating time to market for new innovations. Precision diagnosis sales declined in the low single digits in Q1, as expected, mainly due to order book rebuilding and the segment's higher exposure to China. Innovations, including Epic CV, point-of-care ultrasound, Blue Seal MR, and CT5300, continue to drive growth, with solid uptake in markets such as Western Europe and Latin America, reflecting their scalability. Adjusted EBITDA margin rose 30 basis points year-on-year to 9.8%, driven by sales growth, underlying gross margin from recently launched innovations, productivity measures, and favorable mix effects. These favorable impacts were partially offset by higher tariffs, cost inflation, and currency effects. Now moving to connected care. Comparable sales increased by 3%. Monitoring delivered mid-single digit growth with particular strength in North America and Europe. Growth was driven by higher installations of Intelliview patient monitors and continued traction in enterprise monitoring as a service. Sleep and respiratory care grew in the low single digits with the obstructive sleep apnea portfolio, delivering strong double-digit growth outside the U.S., led by particular strength in Japan, our second largest market. Enterprise informatics sales declined slightly, reflecting inherent quarterly unevenness and longer implementation and deployment cycles. Adjusted EBITDA margin declined by 60 basis points to 2.9%, as sales growth and productivity measures were more than offset by higher tariffs, cost inflation, lower cost absorption, and currency effect. In personal health, comparable sales increased by 9% in Q1, with all three business contributing. Growth was broad-based, led by double-digit growth in North America, and a strong contribution from international regions. China contributed modestly, benefiting from an easier comparison days. Sellout remains strong globally, with channel inventory maintained at appropriate levels. This momentum was supported by strong demand for recently launched innovations, including the high-end i9000 shaver with AI-powered SenseIQ technology and the Sonicare 5000-7000 series. Adjusted EBITDA margin expanded by 60 basis points to 15.8%. As growth and productivity measures more than offset the higher tariffs, cost inflation, and currency effect. Advertising and promotion spend increased year on year, consistent with our commitment to continue investing in the business to drive consumer recruitment and sustain long-term demand for our recently launched innovations. We are also leveraging AI to strengthen consumer engagement, embedding it across 94% of digital assets and generating over 27.8 billion searchable data points, a hundred times increase. This enables more personalized consumer interactions, improves content reuse efficiency, and enhances our ability to drive future sales through more targeted and effective marketing. Finally, sales in segment other of 177 million euros increased by 37 million compared with the first quarter of 2025, mainly reflecting activities related to a divestment. These activities are excluded from comparable sales growth and contribute only an insignificant amount to adjusted EBITDA. Adjusted EBITDA for the segment increased by 7 million to 11 million euros, mainly driven by lower costs. Now, turning to group results. Comparable sales increased by 3.7% in the first quarter, with growth across all segments and regions led by North America and Western Europe. Adjusted EBITDA margin increased by 40 basis points year-on-year to 9%. Margin expansion was driven by sales growth, favorable mix effects, and productivity measures, partially offset by higher tariffs and cost inflation. Productivity delivery in 2026 is off to a solid start, with Q1 delivery of 126 million euros, on track to deliver a 1.5 billion euro three-year savings commitment. execution is progressing at pace underpinned by plans already in place actions in q1 were led by operating model simplification including streamlining central functions and reducing organizational layers as well as procurement initiatives such as sku rationalization and supplier consolidation we are also seeing early contributions from footprint optimization and AI enabled efficiencies. Service productivity was another contributor, including through more remote troubleshooting and fewer on-site visits, with benefits most visible in ICT and across Europe. In parallel, we continue to execute tariff mitigation actions. Overall, we remain on track with good visibility to deliver our 2026 productivity objectives. Against a backdrop of rising input cost inflation, we are accelerating mitigation actions, further sharpening our focus on productivity, cost discipline, and structural efficiencies. Adjusting items came in at 61 million euros, less than half of last year's under the 43 million euros. This significant improvement reflects our continued focus on structurally reducing adjusting items. A one-off gain in diagnosis and treatment from the reversal of an acquisition-related provision and cost-phasing also contributed to the year-over-year reduction. Income tax expense increased by 17 million euros in the quarter, primarily due to higher income before tax. Financial income and expenses were 47 million euros, broadly in line with the prior year. And net income rose to 146 million euros, primarily due to higher earnings. Adjusted diluting earnings per share from continuing operations with 23 euro cents in the quarter, compared with 25 euro cents last year, primarily reflecting the adverse currency effect on nominal earnings and a higher diluted share count. Free cash flow in Q1 was an inflow of 28 million euros. Excluding the impact of the prior year U.S. Respironic settlement payout, free cash flow improved by 94 million euros year on year. This improvement was driven by higher earnings, improved working capital, and lower adjusted items. Moving to the balance sheet, we ended the first quarter with 2.6 billion euros in cash, after a $265 million payment for the SpectraWave acquisition announced late last year. This acquisition reflects the disciplined, value-focused M&A strategy we outlined at our CMD, including a disproportionate resource allocation to our interventional platform to reinforce our coronary leadership. Integration is progressing well, with the core foundations in place and commercial momentum building as planned, positioning the business to scale and capture growth in coronary interventions. Net debt was 5.5 billion euros at the end of Q1. The leverage ratio improved to 1.8 times on a net debt to adjusted EBITDA basis from 2.2 times in Q1 2025, driven by higher earnings and reflecting our disciplined capital allocation. Now, turning to our outlook. Amid continued macro uncertainty, we remain focused on disciplined execution of our plan. Based on the current status, developments in the Middle East are expected to impact sales in the remainder of 2026, though not materially at the group level. At the same time, supply chain and logistic constraints are expected to drive cost inflation. Against this backdrop, and based on our Q1 performance, our outlook for the full year remains unchanged. We expect comparable sales growth of 3 to 4.5%, with growth in each quarter within this range, led by North America and the international region. We continue to expect comparable sales in China to be stable this year, with growth in personal health offsetting a slight decline in health systems against the backdrop of subdued near-term market conditions. Across segments for the full year, we continue to expect growth within this range, with connected care and personal health at the upper end and diagnosis and treatment at the lower end. We are encouraged by the better-than-expected adjusted EBITDA margin performance in Q1. driven by innovation productivity and cost discipline with some benefit from lower than anticipated tariff impact consistent with last year's approach our full year 2026 outlook includes currently known tariffs which are marginally more favorable than assumed in our February outlook however uncertainty remains also while we are pursuing tariff refunds related to the International Emergency Economic Powers Act, our 2026 outlook does not include any potential benefit from these refunds. We are also seeing input cost headwinds, including freight, electronic components, and plastics, as well as other inputs affected by higher energy costs. We are actively mitigating these pressures. Over the course of the year, we expect to offset these pressures through supply chain optimization, productivity, and selective pricing actions. At the same time, we continue to closely monitor cost developments across our supply chain. For the balance of 2026, we expect some near-term pressure on margins, consistent with our plan, reflecting the annualized impact of tariffs, higher inflation, and foreign exchange. As a reminder, last year, the higher tariffs did not impact our adjusted EBITDA meaningfully until Q3, due to the natural lag between inventory and the flow-through to the P&L. Accordingly, we reiterate our full-year adjusted EBITDA margin guidance range of between 12.5% and 13%. Our full-year free cash flow outlook also remains unchanged at between 1.3 and 1.5 billion euros. As previously indicated, our outlook excludes the ongoing Philips Respironics-related proceedings, including the Department of Justice investigation. With that, I would like to hand it back to Roy for his closing remarks.

Thanks, Charlotte. Too close. We delivered a solid start to the year, and autumn intake momentum continues. In April, we signed a long-term strategic partnership with WellSpan Health in the U.S. It expands our role as the preferred provider across all imaging modalities and advances a system-wide approach to imaging and diagnostic technologies. Importantly, this partnership is also a strong validation of our innovation and platform strategy, bringing together our capabilities to deliver integrated, long-term value for customers. It underscores strong customer trust in our value proposition and long-term partnerships. These relationships matter even more in the current operating environment. Our strategy is clear, and we remain focused on advancing our strategic priorities, driving innovation and strengthening our differentiation and competitiveness. At the same time, we are executing with discipline, staying focused on what we can control and closely monitor the evolving macro environment. Against this backdrop, we reiterate our fully outlook, which includes currently known information with an uncertain macro environment. Thank you and we will now open the line for questions.

Thank you, sir. We will now open the line for questions. If any participant would like to ask a question, please press the star followed by two times one on your telephone. Due to the time, please limit yourselves to one question and one follow-up. This will give more people the opportunity to ask questions. There will be a short pause while participants register for a question. We will now go to the first question. Your first question comes from Hassan Alwakil of Barclays. Please state your question.

Good morning, Roy, Charlotte. Thank you for taking my questions. A couple, please. Firstly, if you could please talk to the building blocks of the mid-single-digit order growth in D&T for the quarter, the sustainability of U.S. market strength based on your customer conversations. as well as the softness in China precision diagnosis given centralized procurement and how your share is progressing here across the different modalities. And related to this, I wonder if your thinking has evolved for China order and revenue stability this year across D&T. And then secondly, Charlotte, another strong quarter on margins, and you've been consistently talking about gross margin benefits from innovations it'd be great if you could help break up the the quarter's EBIT a performance across productivity mix and innovation and how sustainable you think each of these are and and also what you're seeing from cost inflation specifically around freight and memory chips and Watson assumed in guidance Thank you.

Thank you, Hassan. Let me go to the first one, the mid-single-digit D&T growth. So if you look to the build-up of that, actually, that is a continued, very strong order intake in IGP, which actually is trending at high single digits and above. So very, very strong, and that, of course, over multiple quarters. Then you see that we also had mid-single-digit PD order intake outside of China. But then, of course, China is affecting the PD order book as well. But we see a very strong overall mix, and we see increased demand, and particularly also for MR. We call that, of course, the healing-free, but also we have seen just the broad-based interest in the MR solution really growing also as a modality in itself. And that also gives us confidence for the further conversion in due course of the year into the latter parts of the year from a sales perspective. Then the U.S. is a strong contributor to that, has remained very strong. And actually, we also, from our customer dialogues, see that strength continuing. Actually, we see a very healthy market where patient volume is strong. The procedures are growing. But as you also said before, it's not evenly spread across all health systems. So the bigger systems are winning more. And that's also where we're well positioned with our platform based solutions. So that's actually where we see that we kind of are continuing to close these long term partnerships. You also saw that in the quarter with ADVANCE, with Wealthspan. So we had more. So that's really working out. And we see that the US actually will continue to be a strong contributor for us. Then Europe actually was also strong. So I think we want to call it out that Europe was doing well and is picking up. But then China, at the other hand, is showing continued cautious development. Q1 was in line with our performance expectations. So it's not that it's unexpected that it's not performing that strongly. We do see differentiated performance by modality. So IGT and MR are solid. CT and ultrasound are the most exposed to centralized procurement, and therefore they have the biggest impact. And then on the consumer side, you saw that actually pH grew, but it was on easier comps. But we do see some sales and solid momentum in pH. And that's also what we expect for the rest of the year. In essence, a similar trend of a subdued kind of medtech portfolio than pH contributing. And therefore, actually, the full year China sales are expected to be stable. And that's also as we have planned it. So in that sense, kind of this is tracking alongside what we plan for, where the biggest growth has to come from North America, Europe and international region. China is contributing as the market gives the opportunity. So we are not relying on the China recovery in the rest of the year. We are actually counting on strong momentum in North America and Europe in particular to do that. And in that perspective, actually, we see that where we have been focusing our strategy, it's really coming also to fruition because North America, IGT, extreme stronghold. Monitoring is doing really well as well there. We see the ultrasound momentum going up. So I think we're well positioned to execute our plan as we have built it for the year on the growth side. And maybe there's a nice bridge to Charlotte to then also talk to the margins as, of course, we have evolving developments there.

Yeah. Thank you very much, Roy. And hello, Hassan. So indeed, as you said, we were pleased with how the margin has developed with a 40 BIPs expansion in Q1 despite the impact of tariffs. So if I break that down for you in a little bit more detail, yes, we saw a positive impact coming from volume, from the business mix. But indeed, as you mentioned, also from higher gross margin from innovations. So CT5300, I called it out before, is helping us from a gross margin perspective. We also see point of care ultrasound, which we recently launched, also at a higher gross margin, also helps lift our margin. And then we see the continued momentum also from our MR Blue Seal at a higher margin as well. So that is certainly helping us. Of course, we continue to do our productivity work. We are pleased with our 126 million euros of productivity in Q1. You've seen it last year. We finalized our 2.5 billion program last year. It's a real strong muscle we have built and that we're now expanding on, spending on which is really creating self-help in what is a turbulent situation so with this productivity we're we're nicely we're nicely on on track there of course offsetting that is is tariff and also a little bit of input cost inflation one thing that's good to mention is that the tariff impact was a little bit lower than than anticipated initially also after of course, the Supreme Court struck some of the tariffs. So if I then look forward, Hassan, based on your question, what does that mean for the outlook? So a few different components here. Of course, we started well in Q1, which is helping us. We are seeing inflation, and to your point, also in freight, in components, and in plastics. But offsetting that is us really leaning into mitigating that with supercharging AI, further reducing our bill of material costs, and also doing selective pricing. And then the other component is also tariffs being a very modest tailwind for us versus our expectations as well for 2026.

Perfect. Very helpful. Thank you.

Thank you. We will now go to the next question. Your next question comes from Richard Salton of Goldman Sachs. Please state your question.

Thank you very much. Good morning. Two questions for me, please. First one is on China. You called out central procurement for ultrasound and CT. How much exposure does Philips have to those modalities in China now, and what level of price adjustments are you seeing? Perhaps linked to that, how much of the low single-digit decline that you called out in precision diagnostics was due to China. That's the first one. The second question is a slightly longer-term question, I suppose, on the sleep business ex-US. In kind of broad terms, how has performance been as Philips has returned to the market, OUS, in terms of growth, market share? Could you also perhaps talk a little bit about your innovation strategy in sleep?

Yeah, thank you, Richard. So on China, we have seen indeed that kind of the centralized procurement is being applied mostly on ultrasound and CT. That is because the specifications are being seen as more generic and therefore they put them under centralized procurement to a bigger extent. We have seen that that also has significant margin implications in terms of the pricing pressure that you see in those segments. So volumes are actually holding, but you see that the value is decreasing, and that is putting the downward pressure. Actually, in our IGP and MR business, we see that they are for biggest majority outside of centralized procurement because they are so specific and also don't have the alternatives that they don't put them into the centralized procurement. So that's something in the centralized procurement approach in China that we see currently as they expand that across the country. In terms of the devices, you see that it's a very small part of it. So actually, there's not a big hit. But the biggest hit is indeed in PD with the ultrasound and CT one. So that's kind of also there for hitting the performance in the first quarter. And we can expect that also to pressure the rest of the year, which means that actually the dialing up in the other parts of the world will be really crucial. And as you know, that's also working. Now, if you look to the DI China part, as we said earlier, kind of that is around 15 percent of global. and in the mix you see that kind of MR is 50 percent of that so that's better protected the bigger pressure is indeed on the CT and the ultrasound part and then you have IGT percentage in China is slightly bigger than the 15 percent but it has of course a strong contribution also from the other parts and it's better protected from centralized procurement so that's a bit of what I can say about the mix. And maybe lastly, it also really calls that we have the right strategy chosen for China, because we said we want to compete in segments that we find we can differentiate. And still, where we find we can differentiate is the MR Blue Seal, for sure. And we see also that actually they're kept that out of the CP for the biggest part. It's our IGT franchise which is really differentiating there's no kind of uh alternative in the market we see ultrasound cardiac actually also being better performed but of course that's the smaller part of the cardiac of the of the ultrasound market in china that's why you see that in the other ultrasound parts there is um there's a bigger pressure then on sleep i think um if you look at sleep outside of us um we see strong double digit growth um that's led by japan but also it's coming uh from the markets where we are coming back um that's offset by the ongoing respiratory pruning effect so that's kind of where you see the mix effect coming in um where the comparison is normalizing towards end of year so that also should improve towards the end of year and from an innovation perspective actually we have seen good resonance also driving that double digit growth by the new masks portfolio that we have been introducing together with the device the software upgrades we are we are dialing in and that actually the ecosystem is still very strong actually people are still waiting also in certain markets really for us to get back and to get back on our platform because they really appreciate the patient interface that we have built and that's giving us also a strong way back into the market maybe the other part on src of course we are working strongly on the mitigation of the regulatory path so that's something that we're also making good progress on we said kind of we cannot comment on what it will exactly mean but we are still hitting every single mark in terms of milestone with the FDA and and that's actually forging at the all stress plan thank you thank you we will now go to the next question your next question comes from David at Linton of JP Morgan please state your question hey guys thanks for the question and apologies it's a very busy day so I've been on another call so maybe there's a cost I think you may address some of this but obviously G pulled out cost inflation most notably on memory

just just wanted to be could still help give some further color there and maybe quantify the exposure and then secondly obviously another great quarter for personal health care in terms of growth not if you quantify the contribution of price or not, that would be useful. And as you get into the second half and more difficult comps, how you're thinking about the growth profile in pH. Thanks.

Yep. Hi, David. Good morning. Let me take the first one. So from a cost inflation perspective, and maybe a few things. So as I said earlier, we do see a cost inflation impact. We do see that, and we've taken that into account in our guidance. And the expectation we have is that the elevated levels that we see today in freight, electronic components, plastic, we will see that come through for the remainder of the year. But at the same time, we've included mitigation actions that we are taking, including, for instance, reducing our bill of material cost even further, going hard after AI-enabled savings, and also selectively increasing our prices. And we have a lot of confidence based on the muscle we've been building over the past few years. And also what we're seeing again, transpire in Q1 from a productivity perspective. On top of that, some of the tariff tailwinds that we're seeing after February are also helping us. So there's a little bit on that. And then your second question on personal health and the effect of pricing. So we had another stellar quarter in personal health in Q1, with particularly North America doing very well with double-digit growth in North America. Of course, we were a bit helped by China, but only relatively little. Pricing, from a pricing perspective, it is relatively flat. We saw slightly positive pricing, which is probably mostly attributable to the innovations that we've been seeing, like the i9000 shaver, like the new Sonicare range that we've introduced. So that has helped pricing a little bit. If I look to the remainder of the year or the full year, I should say. So we have reiterated our guidance from three to four and a half percent. And we've also said that pH will be at the higher end of the guidance.

And we are reiterating that today because as you said, the comms are getting a little bit more difficult as we get through the remainder of the year. at the same time we see very good momentum in personal health as well and maybe one addition but what is also helping it David is that we have been really expanding our retail distribution so actually we have been getting listings and placements in the wet shelf and particularly of big retailers and that actually really gives us additional sustainable growth community for the want us to come so it's the combination of really great innovation but also now having a better access even to the consumers that actually gives us

confidence that this is a sustained growth path and that we are on in line with the guidance that Charlotte just provided thanks guys thank you we will now go to the next question your next question comes from Veronica Dubajova of City please state your question hi good morning we're in Charlotte and thank you for taking my questions.

I will keep it to two, please. One is kind of bigger picture question on patient monitoring. Obviously, one of your sort of competitors slash suppliers is changing ownership. I'm just curious, right, how you're thinking about what impact that might have on your business and whether this is strategically a positive, a negative, and that neutral. Is this an asset that would have made sense in the context of Philips? If you can kind of share your thoughts on that. That would be super, super helpful. And then my second question is just circling back to some of the inflation commentary. Maybe Charlotte, can you give us a little bit of flavor for why you think you are in a better position to mitigate some of the headwinds than GE Healthcare? We'd just love to understand what you think you have in your back pocket. That's obviously enabling you to maintain your margin.

And if you very briefly could comment on your Q2 margin expectations, that might also be helpful thank you so much yeah thank you Veronica let me take the first one so on the patient monitoring so you saw that actually the strong momentum continues strong order intake actually we are playing a block a platform play there that actually really resonates well with our customers and as part of that actually we have strong partnerships Massimo is part of that we don't think that actually there will be any change that's also not what kind of has been signaled because we have the biggest access to customers globally in terms of monitoring base so there's a real intrinsic interest to actually connect with us to the customer and there's also mutually an interest from us to actually being providing in a vendor neutral way consumable solutions that are out there in the market and that has been benefiting the partnership with Massimo in past years and we believe that will be also going forward so we see it as at least not neutral and I think we are excited to work also with any new owner there to kind of grow the the franchise and make it work for for our customers and to differentiate also first competition because this is one of the strongholds the combination that we have very strong cyber security platform with the the broadest data reach with the medical device

integration and the consumables actually makes it very appealing in a very complex environment for our customers to do business with us and that has been driving all these long-term partnerships and also the the share gains and monitoring along the way yeah thank you roy uh let me take your second question uh veronica on on inflation and if i think about where we are in the year let's first start with in q1 we had a very solid q1 with margin expansion ahead of our expectations so that gives us confidence that again we are able to not only compensate some of the headwinds we're seeing but even expanding our margins despite that then of course we're seeing cost inflation we're seeing it in freight and we see it in electronic components and in plastics but we have already started taking mitigation and mitigation actions those will we started building them those are a little bit back-end loaded and they they will start coming in the second half of the year and to take you through what we're doing first of all we're doubling down on bill of material productivity we've also we've always said there's more to go to go after and And we're now doing that with increased speeds. We're going after our AI-enabled efficiencies, where we've seen some early progress already in Q1. And we continue to see that as well. And then as well, we're doing selective pricing as well. So the other element is really the tariff tailwind that we're seeing a little bit, that we're seeing also in Q1. And we'll see that versus our expectations being a little bit better going forward. Now, you also know that we've been a little bit prudent in the way we've put our full year guidance out as well. So that, of course, has given us a little bit of buffer as well. So now to your question on Q2 specifically and Q2. So if we think about Q2, a couple of things that I think are important to realize. Of course, Q2 is the last quarter where we still didn't have the full impact of our tariffs in 2025. So, and you know, we've spoken about it a lot of times, the way the tariff impact flows into our P&L, which first goes into inventory and then it flows into our P&L. So we have, again, a tough comparable from a tariff perspective. And then also we see the cost inflation, of course, starting to hit us. We have already taken the mitigation actions, but it will take a little bit of time before that starts positively impacting our P&L. So we therefore expect our mitigation impacts to be a little bit more back-end loaded.

Well, thank you. Thank you. We will now go to the next question. Your next question comes from Julian Dormois of Jefferies. Please state your question.

Good morning, Roy. Good morning, Charlotte. Thanks for taking my two questions. The first one relates to the mitigation initiative that you are taking, and you mentioned selective pricing initiatives. So could you just walk us through what are the segments where you have the more leeway and at what speed we could see those pricing initiatives contribute to margin and the second question is more specific on enterprise informatics you indicated that sales were down low single gt in q1 and you mentioned the usual unevenness in revenue generation but if you could turn more light on why that happened specifically and then what we should expect a reminder of the year and maybe also in the midterm that would be helpful thank you thanks you know yeah let me take your first question on on pricing so yeah we've called out also last year and you might remember a selective pricing as well and we've already put

some of that in place last year we of course focus there where we have leading positions and that's where we increase our prices so I'll give you a few examples we've increasing our prices in image guided therapy we're doing that in hospital patient monitoring we're doing that in some of our service contracts and we're doing that in some of our time and materials so we have a very granular plan in place to increase prices where we can. As you rightfully mentioned, some of that will flow through in 2026 and some of that will take a little bit longer as it needs some time to flow through the order book and will then benefit us in 2027.

But I think it's fair to say that we've learned from COVID and also there we've been able to build up a much stronger muscle when it comes to to price increases and price discipline which is now helping us implementing that with a little bit more speed thank you let me then go to EI so in EI we see a couple of trends as we also alluded to when we have the capital market say one is actually we see continued order uptake we saw that picking up strongly in the second half of last year we also saw it again in the first quarter and we have a very good funnel. So we see that there's healthy demand that's also on the back of the cloud migration and the cloud offering that we have but also the integrated diagnostics trend that we see coming out in the market is really generating increased interest. Now if you then look at the sales trend this is even more patchy sales trails orders quite a bit in the ei furthermore you see that if customers migrate in or out those give quite big hiccups because actually those that the lumpiness that that's kind of inherent to that business the other part is that you also see that the orders that we are taking now more and more also go into a sas model um where you see that kind of the revenue flows in over a longer period of time and that actually gives you more recurring attractive revenue stream for the longer run but of course it gives a bit of a hiccup in these in these quarters so we see positive interest we see the integrated diagnostic story really picking up and with customers and of course fueled by ai and the data play and we are really working how we can we can step into that and we see the funnel growing also supported with what we're doing with with amazon and then lastly you saw also sort of kind of on the monitoring side the capsule and hpm combination is already working so you see also this kind of combination play um really driving and driving impact so we are kind of positive on that notion as well and that that will come through in due course of the year thank you much.

Thank you. We will now go to the next question. Your next question comes from Hugo Silvé of BMP Paribas. Please state your question.

Hi, guys. Thanks for taking my questions. I have two, please, quick ones on margin. First, short term. Charlotte, on the Q2 margin, could you maybe just clarify your earlier comment? Is there a scenario where margin in Q2 be within the full year guidance range and so going a bit more long term when we think about the full year 2028 targets all in you have around the 600 to 700 bips of buffer for wage input cost tariff macro and so on what's the level of confidence that this buffer can accommodate for higher input cost given when where they are at the moment thank you yep thank you very much hugo so let me start with your first question on Q2 margin.

So based on what I just said, first of all, the incremental tariffs weren't in effect in Q2 2025, as well as the cost inflation that we're seeing with the mitigation timing being back-end loaded. I expect the Q2 margins to be lower year year in Q2. I also feel very confident that in the back end of the year, we will be able to get those mitigation factors in because we have very, very strong plans in place, very granular plans in place to start offsetting that. But Q2 in that sense will be a little bit of a lower quarter from a margin perspective. Now, to your second question on the longer term margin outlook, as we said in February. We, of course, as we stood there in February, we knew that the world was a turbulent place. We didn't quite know how turbulent it would get, but we absolutely did take into account that there would be something that we would be seeing. So as a result, and we were also very transparent about the buffer that we took at that point in time, especially given the ability we have to also step up from a mitigation perspective, I feel equally confident, as I was in February, that we'll be able to get to the mid-teens adjusted EBITDA margin by the end of 2028, based on what we know today.

Thank you very much, and congrats on the print.

Thank you. We will now go to the next question. And your next question comes from Aishar Noor of Morgan Stanley. Please state your question.

Hi, thanks so much for fitting me at the end. My question is just on D&T and your competitive outlook in Europe following the launch of an ultrasound by United Imaging in the space and as well on the recent launch of Verita for you, just how that's progressing and how we should be thinking about the sales contribution for 2026. Thank you.

Yeah, thank you Aisha and I already called out Europe actually picking up and performing well in Q1 and that's also in particularly for D&T where we see actually that and then within D&T also PD actually is doing really well in Europe so we see a few trends. One, MR already was picking up strong um so we see that continued and also if you look to the blue seal penetration now actually that's really kind of going well and we see a good funnel um on on the mr side then also with the new vrida lounge um actually we see very strong interest in spectral and um how that now with a better workflow is really helping um uh to support high volume throughput at high quality imaging we've secured the first order already we have an installation ongoing so actually very good reference as well very strong clinical support so actually we have a kind of good expectation that Rita will be doing really well in Europe and we see the first proof points of that coming through then lastly ultrasound ultrasound actually is also doing well indeed we had some competitors as well in this space but actually ultrasound in Europe has been already starting last year picking up very strongly after we kind of came out with our latest epic lounge and also the flash we have good order momentum of ultrasound in in europe strong positioning so actually we are quite excited about the momentum in europe how that is increasing and especially also how our ai base but also i would say high productivity and performance solutions really hit the mark in a in a market that needs to be also kind of conscious of the spend in the environment that we are in. But that seems to work well.

Thank you very much. Thank you. Due to the time, the last question today comes from Graham Doyle of UBS. Please state your question.

Morning, guys. Thanks for taking questions. Just two, please. Charlotte, just the first one, just on inflation again, just to get some context on this, obviously you guided in feb and there's been uh obviously volatility but is there any how meaningful is the incremental headwind and so is it something that was comfy within your buffer or are you doing other things to sort of mitigate and then roy just on china you've mentioned a few times at the cmd and then today about kind of playing to to win in certain segments is there any way within reason that you kind of identified to us the areas where you understand that perhaps you can't win and therefore you built it into your guidance that you you kind of know that there's

areas where you're probably deprioritizing is that possible to maybe contextualize that for us thank you yeah hi uh graham thanks let me take your first question uh on the on the inflation so indeed yeah we guided in february uh only only three months ago although a lot has happened So, as I said before, we are seeing an incremental headwind in plastics, in also freight. It's good to know as well that energy we have hedged for 2026, so we will not see any impact from higher energy, direct higher energy prices. And there are a few components here, right? It's first of all, we did already better in Q1 than we thought. So, we are a little bit ahead of where we thought we would be, which is giving us confidence. The second component is we are, after the Supreme Court struck some of the tariffs in February, we're seeing some tailwinds as a result of that, that we are taking into account as well, which is offsetting some of the inflation. And then the third component is we have launched already additional mitigation activities, including bill of material, price reductions, including also optimize the way we look at freight and where we use air freight versus boat in order to also optimize the spend there and also leaning in even harder in what we know and do very, very well, which is driving further cross-discipline. We've always said there's more to go after, so we're doing that now with double speed as well. And putting that also in the context of what I said earlier that we have put a prudent guide out, all of that actually comes to a place where we can reiterate our guidance of twelve and a half to thirteen percent for the full year.

Thank you Graeme and then on China and indeed I think the differentiated play is becoming more important and to give you some examples where we see that actually we have really a right to play and to win is I call out MR actually we have one of the biggest installed base of the helium-free already in China. And we just got also the notion that we have a green path support from the regulatory body, NPMA, to kind of get an accelerated approval for the 3T, because they're so excited about the new innovation that this will bring to China. So that's a good example on MR. IGT is also really doing well, and we have a kind of good momentum, and we see that also well in demand in the market. And ultrasound, I called out, there's different dynamics you see that the cardiovascular we are still unique but it's of course a smaller segment totality and you see quite brutal competition on on gi um the same with ct ct spectral actually we have again one of the stronger installed bases of ct spectral is in china but if you look to the more generic ct that's really very strong competition so that's where we said that's not our game play and then we exited dxr because we said that's so commoditized that's not our game in in china we also exited the value play in china which is the lowest price segment because that will be very strongly locally favored and and also at price points that are not attractive to us so so we made distinct choices um actually within those segments we also see that we are really trending with market or even kind of doing well within the market momentum But yeah, there is just a subdued overall market environment that we have to operate in. But I think we have been making the right choices. We stick to that. It's also in line with the plan. And also, as we showed in the results, it's also in line with the results that we have in Q1 and also for the full year expectation. So in that sense, I think we de-risked China in our plan. We're playing there to tap the opportunity that we have. And last but not least, China is not only a demand market. Of course, there's also innovation happening in China that we want to stay close to, including AI innovation that's going very rapid. Robotics is developing very rapidly in China. And then, of course, there's also still components and sourcing that we get from China. So China for us is a wider market than demand only. And that's why we kind of keep a strong footprint there. But in line with demand, we have kind of opted for a more selective go to market.

Okay. Awesome. Thanks a lot, guys. I really appreciate those answers.

Thank you all. That was the last question. Mr. Jacobs, please continue.

Yeah. Thank you all for attending the call. As you saw, we have a strong start to the year with growth, orders and sales and margin expansion, despite a very turbulent environment we operate in. We have the confidence reiterated of full year guidance. Of course, a lot of work to be done, but we have the actions in place, the plan in place and the team that is working it. So thank you for your attention again. Have a further great day.