Earnings Call Transcript - PHG Q1 2026

Operator, Operator

Welcome to the Philips First Quarter 2026 Results Conference Call on Wednesday, 6 May 2026. During the call, we are joined by Mr. Roy Jakobs, CEO, and Ms. Charlotte Hanneman, CFO. Operator instructions were provided to participants. Please note that this call will be recorded, and a replay will be available on the Investor Relations website of Royal Philips. I will now hand the conference over to Ms. Durga Doraisamy, Head of Investor Relations. Please go ahead.

Durga Doraisamy, Head of Investor Relations

Hello, everyone, and welcome to Philips' First Quarter 2026 Results Webcast. I'm here with our CEO, Roy Jakobs, and our CFO, Charlotte 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.

Roy Jakobs, CEO

Thanks, Durga, and 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 started '26 with a clear proof that our strategy is delivering: growth, margin expansion and strong order 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 6%, reflecting continued momentum. Comparable sales increased 4% with growth across all business segments, led by Personal Health. We also expanded margins. Adjusted EBITDA margin improved by 40 basis points to 9%, 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. 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 Diagnosis & Treatment and Connected Care. North America led the growth, building on a strong prior year comparison. Europe also performed strongly across several modalities. Looking at Diagnosis & Treatment, order intake increased in the mid-single digits. Growth was driven by sustained momentum in Image-Guided Therapy as our market-leading Azurion 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 in MRI is being tested more than ever. Helium supply is tightening and geopolitical developments in the Middle East are adding further pressure. 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 BlueSeal 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 3.0T MR systems. 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 our spectral technology. In the quarter, Verida, 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 Señora de 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 cybersecurity. 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 care delivery. Moving to Personal Health. This segment delivered another quarter of broad-based growth, driven by strong consumer sell-out and continued market share gains. We drove this through 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 through increased listings and expanded placement. This included IPL expansion, broader distribution of interdental products and more than doubling on-bay distribution in the U.S. 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 20 510(k) clearances and premarket approvals, more than doubling year-on-year. In MRI, we received FDA 510(k) clearance for SmartHeart, our AI-powered cardiac MR solution. Like SmartSpeed, it is a clinical application that extends software and AI-led innovation across the installed base. SmartHeart automates complex planning workflows in one click and does that in 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 510(k) clearance for both spectral CT Verida and our Rembra Wide-bore CT. Launched at the 2026 European Congress of Radiology, this platform features an industry-leading 85-centimeter bore. It is designed for high-throughput environments with an AI-enabled workflow to improve diagnostic confidence. In Image-Guided Therapy, we received clearance for DeviceGuide, an AI-driven solution fully integrated with our Azurion 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 cath 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 to our Research Consortium in Q1. Seven clinical studies are now underway to demonstrate the benefits of AI and robotics-assisted workflows and 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 9000 Prestige Ultra uses intelligent 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 TIME's Invention of the Year for its groundbreaking features, it 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 OneBlade handles and 100 million blades. This growing installed base supports profitable recurring revenue from consumables with strong replacement blade performance in the quarter. In Oral Healthcare, we refreshed the Philips Sonicare 5700 to 7300 series models in the U.S., 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 high 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 are 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 maintained 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 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 maintained 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 the previous quarter and we remain vigilant in managing ongoing developments in supply and cost. As we look ahead, we will continue to deepen 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 cybersecure 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 digitalization as reflected with strong wins in India and Brazil. In China, centralized procurement continued to increase in Q1, 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 health care 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.

Charlotte Hanneman, CFO

Thank you, Roy. I will start with segment level performance. In Diagnosis & Treatment, comparable sales increased by 2%. Image-Guided Therapy delivered high single-digit growth, continuing its multiyear 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 Azurion 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 accelerate 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 EPIQ CV, point-of-care ultrasound, BlueSeal MR and CT 5300, continued 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 effect. 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 IntelliVue patient monitors and continued traction in enterprise monitoring-as-a-service. Sleep & 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 lower 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 businesses 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 base. Sell-out 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 to 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 100x 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 EUR 177 million increased by EUR 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 EUR 7 million to EUR 11 million, 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. Product productivity delivery in 2026 is off to a solid start with Q1 delivery of EUR 126 million, on track to deliver our EUR 1.5 billion 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 ITT 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 the 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 EUR 61 million, less than half of last year's EUR 143 million. This significant improvement reflects our continued focus on structurally reducing adjusting items. A one-off gain in Diagnosis & 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 EUR 17 million in the quarter, primarily due to higher income before tax. Financial income and expenses were EUR 47 million, broadly in line with the prior year. Net income rose to EUR 146 million, primarily due to higher earnings. Adjusted diluted earnings per share from continuing operations were EUR 0.23 in the quarter compared with EUR 0.25 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 EUR 28 million. Excluding the impact of the prior year U.S. Respironics settlement payout, free cash flow improved by EUR 94 million 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 EUR 2.6 billion 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 EUR 5.5 billion at the end of Q1. The leverage ratio improved to 1.8x on a net debt to adjusted EBITDA basis from 2.2x in Q1 2025, driven by higher earnings and reflecting our disciplined capital allocation. Now turning to our outlook. Amidst 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 & 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 benefits 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 a 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 EUR 1.3 billion and EUR 1.5 billion. 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.

Roy Jakobs, CEO

Thanks, Charlotte. To close, we delivered a solid start to the year and order 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 monitoring the evolving macro environment. Against this backdrop, we reiterate our full year outlook, which includes currently known information but an uncertain macro environment. Thank you, and we will now open the line for questions.

Operator, Operator

We will now open the line for questions. Please follow the instructions provided earlier.

Hassan Al-Wakeel, Analyst (Barclays)

Roy, Charlotte, a couple, please. Firstly, if you could please talk to the building blocks of the mid-single-digit order growth in Diagnosis & Treatment 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. Related to this, I wonder if your thinking has evolved for China order and revenue stability this year across Diagnosis & Treatment. 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 quarter's EBITDA performance across productivity, mix and innovation and how sustainable you think each of these are. And also what you're seeing from cost inflation, specifically around freight and memory chips and what's assumed in guidance?

Roy Jakobs, CEO

Let me go to the first one. The mid-single-digit Diagnosis & Treatment growth is a continued very strong order intake in Image-Guided Therapy, which is trending at high single digits and above—very strong and consistent over multiple quarters. Then you see we also had mid-single-digit Precision Diagnosis order intake outside of China, while China is affecting the Precision Diagnosis order book as well. We see a very strong overall mix and increased demand, particularly for MR. We called out the helium-free systems, but we have seen broad-based interest in MR as a modality in itself. That gives us confidence for further conversion later in the year from an order intake perspective into sales. The U.S. is a strong contributor and has remained very strong. From our customer dialogues we see that strength continuing: patient volume is strong and procedures are growing. It's not evenly spread across all health systems—bigger systems are winning more—and we are well positioned with our platform-based solutions. That's where we continue to close long-term partnerships; you saw that in the quarter with AdventHealth and WellSpan. We see the U.S. continuing to be a key contributor. Europe was also strong and is picking up. China, on the other hand, is showing continued cautious development. Q1 was in line with our performance expectations. We see differentiated performance by modality: Image-Guided Therapy and MR are solid. CT and ultrasound are most exposed to centralized procurement and therefore have the biggest impact. On the Personal Health side, you saw growth supported by easier comps and sell-out momentum. For the rest of the year, we expect similar trends. We are not relying on a broad China recovery; we are counting on strong momentum in North America, Europe and the international region. Where we have been focusing our strategy is coming to fruition: North America, Image-Guided Therapy and monitoring are strongholds. I'll hand to Charlotte to talk to margins and the build of Q1 EBITDA performance and the inflation items.

Charlotte Hanneman, CFO

Thank you very much, Roy. Hello, Hassan. We were pleased with how margin developed with a 40 basis point expansion in Q1 despite the impact of tariffs. Breaking that down, we saw a positive impact from volume and mix, and from higher gross margin tied to innovations. Examples include CT 5300, which is helping from a gross margin perspective, point-of-care ultrasound launched at a higher gross margin, and continued momentum from our MR BlueSeal at a higher margin. Productivity continues to contribute: we delivered EUR 126 million in productivity in Q1 and are on track for our EUR 1.5 billion savings commitment. We finalized EUR 2.5 billion of productivity actions last year and that muscle is now delivering further improvements. Offsetting these benefits were tariffs and some input cost inflation. Tariff impact was somewhat lower than initially anticipated after certain legal developments earlier in the year. Looking forward, we see elevated levels of freight, electronic components and plastics for the remainder of the year. We are mitigating through further bill of material reductions, AI-enabled savings and selective pricing. Tariff developments are a modest tailwind versus our February assumptions. Overall, these actions and the strength of Q1 give us confidence in the sustainability of the margin improvements, though some mitigation benefits are back-end loaded.

Operator, Operator

Your next question comes from Richard Felton of Goldman Sachs.

Richard Felton, Analyst (Goldman Sachs)

Two questions for me, please. First, 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 you called out in Precision Diagnosis was due to China? Second, on the sleep business ex-U.S., how has performance been as Philips has returned to the market outside the U.S. in terms of growth and market share? Could you also talk about your innovation strategy in sleep?

Roy Jakobs, CEO

On China, centralized procurement is being applied mostly to ultrasound and CT because specifications in those modalities are viewed as more generic. That has significant margin implications due to pricing pressure: volumes are holding, but value is declining, putting downward pressure. IGT and MR are largely outside centralized procurement because they are more specific and differentiated, so they are better protected. That said, the biggest impact in PD is indeed CT and ultrasound. We see differentiated performance by device: MR is better protected and comprises a larger share of our business in China, while CT and ultrasound face the biggest price pressure. This is consistent with our strategy of competing where we can differentiate. On sleep outside of the U.S., we see strong double-digit growth led by Japan and other markets where we have re-entered. That growth is being driven by new masks, device and software updates, and the overall ecosystem. There remains some respiratory pruning to work through, but the platform and new innovations are resonating with customers and patients. We are continuing to make progress with regulatory milestones and mitigation where applicable.

Charlotte Hanneman, CFO

Yes. To add on sleep, outside the U.S. we saw double-digit growth in Q1 led by Japan and markets where we are re-establishing presence. That has been supported by new masks and device software updates. The ecosystem remains strong and customers are waiting for our platform return in some markets. On regulatory mitigation, we are making good progress with the FDA against the milestones we've set.

Operator, Operator

Your next question comes from David Adlington of JPMorgan.

David Adlington, Analyst (JPMorgan)

On cost, GE called out cost inflation, most notably on memory chips. Can you give further color on exposure and quantify it? Second, Personal Health: another great quarter. Can you quantify the contribution of pricing and how you're thinking about the growth profile in PH as we move into more difficult comps in the second half?

Charlotte Hanneman, CFO

David, on cost inflation, we see impacts in freight, electronic components and plastics. We have taken these into account in our guidance and expect elevated levels to continue for the remainder of the year. Mitigation actions include further bill of material cost reduction, AI-enabled savings and selective price increases. We are confident in our ability to mitigate based on our productivity muscle and the EUR 126 million delivered in Q1. On Personal Health, Q1 was strong with double-digit growth in North America. Pricing was relatively flat overall with slightly positive contribution, mostly attributable to higher-priced innovations like the 9000 shaver and the new Sonicare range. For the full year, we reiterated our guidance and expect Personal Health at the higher end of the guidance range. Comps get more difficult in the second half, but we see sustained momentum driven by innovation and expanded retail distribution.

Roy Jakobs, CEO

To add: we have been re-expanding retail distribution and getting placements and listings with major retailers and improved web shelf presence. That expands consumer access and supports sustainable growth for quarters to come, combining innovation with broader distribution.

Operator, Operator

Your next question comes from Veronika Dubajova of Citi.

Veronika Dubajova, Analyst (Citi)

Two quick questions. One, on patient monitoring: one of your competitors has had a change of ownership. How are you thinking about the impact on your business—positive, negative or neutral? Would such an asset have made sense within Philips? Second, circling back to inflation, Charlotte, can you give a flavor for why you think you are in a better position to mitigate headwinds than some peers? And could you briefly comment on Q2 margin expectations?

Roy Jakobs, CEO

On patient monitoring, momentum continues and our platform play resonates with customers. We have strong partnerships and the largest access to customers globally in terms of installed monitoring base. We do not expect material change from a supplier ownership change and view the situation as at least net neutral. We remain vendor-neutral and focused on interoperability. Partnerships such as with Masimo have been constructive and we expect to keep working with any new owner to grow the franchise for customers. The combination of a cybersecure platform, broad data reach, medical device integration and consumables makes our offering attractive and supports long-term partnerships and share gains.

Charlotte Hanneman, CFO

On inflation, in Q1 we outperformed expectations with margin expansion, which gives us confidence. We see inflation in freight, electronic components and plastics, but we have started mitigation actions which are somewhat back-end loaded. We are doubling down on bill of material productivity, pursuing AI-enabled efficiencies, and applying selective pricing. Tariff developments have also provided a modest tailwind versus our February assumptions. Regarding Q2 margins, given the timing of tariff flow-through and the back-end loading of mitigation, we expect Q2 margins to be lower year-on-year. We are confident mitigation will deliver more in the second half.

Operator, Operator

Your next question comes from Julien Dormois of Jefferies.

Julien Dormois, Analyst (Jefferies)

First, on mitigation initiatives and selective pricing: what segments have more leeway and at what speed will pricing contribute to margin? Second, Enterprise Informatics: sales were down low single digits in Q1—what happened specifically and what should we expect for the remainder of the year and the midterm?

Charlotte Hanneman, CFO

On pricing, we focus on where we have leading positions. Examples where we have increased prices include Image-Guided Therapy, hospital patient monitoring, some service contracts and certain time-and-materials pricing. Some pricing actions will flow through in 2026, and some will take longer as they move through the order book and will benefit 2027. We have built strong price-discipline capabilities since COVID, enabling faster implementation now. We have a granular plan to increase prices where we can and to offset cost inflation through multiple levers.

Roy Jakobs, CEO

On Enterprise Informatics, we see positive order uptake and a healthy funnel—order interest picked up strongly in the second half of last year and we saw it again in Q1. Sales can be patchy because implementations and migrations create lumpiness in revenue recognition. Increasingly, customers are choosing SaaS models, which provide more recurring revenue but spread recognition over time. The integrated diagnostics trend, cloud migration, AI and our partnerships—such as with Amazon—are driving interest. Capsule device integration and the combination of monitoring and informatics are already showing benefits. We are positive on the midterm trajectory, expecting continued momentum as the funnel converts.

Operator, Operator

Your next question comes from Hugo Solvet of BNP Paribas.

Hugo Solvet, Analyst (BNP Paribas)

Two margin questions. First, short term: Charlotte, could you clarify Q2 margin—could it be within the full year guidance range? Second, longer term: for the full year 2028 targets, you have a buffer for wage input cost, tariff and macro—what level of confidence do you have that this buffer can accommodate higher input costs given current levels?

Charlotte Hanneman, CFO

On Q2 margins, given the timing of tariffs last year and the back-end loaded nature of our mitigation actions, we expect Q2 margins to be lower year-on-year. The tariff effects flow through the P&L with a lag as inventory turns into cost of goods sold, and some mitigation is expected to show more in the second half. Regarding the 2028 margin target, as we set out in February we built in a prudent buffer given the turbulent environment. We remain confident we can deliver the mid-teens adjusted EBITDA margin by the end of 2028 based on the actions and mitigation levers we have in place.

Operator, Operator

Your next question comes from Aisyah Noor of Morgan Stanley.

Aisyah Noor, Analyst (Morgan Stanley)

On Diagnosis & Treatment and the competitive outlook in Europe following the launch of an ultrasound by United Imaging, how should we think about that? Also, how is Verida progressing after its launch—how should we think about sales contribution for 2026?

Roy Jakobs, CEO

Europe picked up and performed well in Q1, particularly in Diagnosis & Treatment and Precision Diagnosis. MR momentum continues and BlueSeal penetration is progressing with a good funnel. For Verida, we see strong interest in spectral CT and improved workflow integration for high-throughput environments. We secured our first order and have an installation ongoing with positive clinical reference, which is an early proof point. Ultrasound in Europe is also doing well; after our recent launches such as EPIQ and Flash, order momentum improved last year and continued into Q1. While competitors are active, our high-productivity, AI-enabled solutions resonate well with customers who are conscious of spend and need performance. Overall, we are excited about the momentum in Europe and expect continued contribution from Verida and our other innovations.

Operator, Operator

The last question comes from Graham Doyle of UBS.

Graham Doyle, Analyst (UBS)

Two quick ones. First, on inflation: is the incremental headwind comfortably within your buffer or are you doing additional mitigation? Second, Roy, on China: at CMD you talked about playing to win in certain segments. Can you point to areas where you understand you can't win and have deprioritized—can you contextualize that for us?

Charlotte Hanneman, CFO

Graham, on inflation: since we guided in February, a lot has happened. We are seeing incremental headwinds in plastics and freight. Energy is hedged for 2026, so direct energy exposure is not a factor this year. We performed better than we expected in Q1, which gives us confidence. In addition, the reduction of certain tariffs earlier this year provided a modest tailwind. We launched additional mitigation activities, including further bill of material reductions and freight optimization, and we are leaning harder on cost discipline. All of this, together with the cautious approach in our full year guidance, enables us to reiterate our guidance of 12.5% to 13% for the full year.

Roy Jakobs, CEO

On China, we have made distinct choices to play where we can differentiate and win. MR is a key example: we have a strong installed base of BlueSeal systems and are working towards 3.0T approvals, which positions us well. Image-Guided Therapy is another differentiated area where we have a strong franchise and momentum. By contrast, commoditized segments such as low-end diagnostic X-ray and the lowest-price value CT segments are not our focus; they are locally favored and price-driven, and we have exited some of those areas. We also chose to step away from highly commoditized value plays. These selective choices derisk our exposure and align with a strategy of competing where differentiation, service and lifecycle value are clear. China is broader for us than demand: it is also an innovation and sourcing hub, so we maintain footprint, but our go-to-market is selective and focused on areas where we can win and sustain margins.

Operator, Operator

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

Roy Jakobs, CEO

Yes. 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 have the confidence to reiterate our full year guidance. There is, of course, a lot of work to be done, but we have the actions, the plan and the team in place. Thank you for your attention. Have a good day.

Operator, Operator

This concludes the Royal Philips First Quarter 2026 Results Conference Call on Wednesday, 6 May 2026. Thank you for participating. You may now disconnect.