Koninklijke Philips N.V. NY Registry Shares

Welcome to the Royal Philips fourth quarter and full year 2024 results conference call on Wednesday, February 19th, 2025. During the call, hosted by Mr. Roy Jacobs, CEO, and Ms. Charlotte Hanneman, CFO, all participants will be in a listen-only mode. After the introduction, there will be an opportunity to ask questions. Please note that this call will be recorded and replay will be available on the Investor Relations website of Royal Philips. I'll now hand the conference over to Mr. Leandro Mazzoni, Head of Investor Relations. Please go ahead, sir.

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

Good morning, everyone, and welcome to the call. I want to start with the key highlights of this morning's release. We delivered strong profitability improvement and cash flow in Q4 and for the full year 2024. Comparable order and sales grew low single digit in the quarter and the year, despite double digit declines in consumer and health systems demand in China, partly offsetting solid growth in the rest of the world. We continue to make solid progress on our plan. enhanced execution, and reached significant milestones to resolve the Respironics recall. With our strong balance sheet, we are pleased to offer shareholders the option to receive a dividend in shares or cash. We are confident in our long-term plan. We expect to continue to improve performance in 2025, grow sales and orders within a challenging macroeconomic environment, and drive margin expansion and cash flow generation by building further on the fundamental progress in execution, our innovations, and by leveraging those to the best extent. Turning to the progress on our execution priorities and our key performance highlights. Patient safety and quality remains our highest priority. We have strengthened our culture of impact with care and fully embedded it in our businesses and in our patient-centric innovation. We took significant steps to address the consequences of the Respironics recall. We know there's more to do and are very focused on driving further improvements. More recently, Philips Respironics obtained final approval for the medical monitoring settlement and the personal injury settlement. They became final after the required participation threshold was met. These very important milestones provide further clarity on the way forward for Philips. Our end-to-end supply chain now operates at lead times and service levels in line with industry standards, which increases our competitiveness. We are on top of and monitoring the volatile geopolitical context to act if and when appropriate. And we will continue to work on regionalizing supply chains, diversifying suppliers, dual sourcing, and network flexibility. Our leaner operating model drives accountability and agility and contributed to productivity savings of over 1.7 billion euros in the last two years. We are building a renewed team with strong health tech capabilities across the company. We also had recent leadership announcements for the precision diagnosis business and our international region. Now onto the financial highlights. Comparable sales grew 1% in a quarter, in line with our expectations. With 5% growth in the rest of the world, largely offset by double-digit decline in China. Orders grew 2%, driven by strong growth in the U.S. and in growth regions, again offset by double-digit decline in China. Diagnosis and treatment orders grew high single digits in the quarter. Connected care faced the inherent unevenness of order growth by quarter, while demand for our hospital patient monitoring solutions remained very healthy. In the full year, comparable sales and orders grew 1%, with both 4% up in the rest of the world, partly offset by lower China. And we were pleased to see double-digit order growth in the US. The adjusted EBITDA margin was 13.5% in the quarter and 11.5% in the full year, resulting in a strong improvement of 90 basis points versus 2023. We delivered strong free cash flow in 2024 and continued to strengthen our balance sheet. High restructuring and other charges were a result of our continued focus on resolving the consequences of the Respironics recall and important changes we have been making across the company as part of our plan. In light of the progress made, based on the strength of our balance sheet, I'm pleased to say that we propose a dividend of 0.85 euro per share payable in shares or cash at the option of the shareholder, with a maximum of 50% in the total dividend available in cash. Let me turn to the progress we have been making in our businesses. We are setting industry standards across segments with our AI-driven innovation. This is a major factor why more than 50% of our sales stem from new and upgraded products launched in the last three years. At RS&A, we expanded our computer tomography offering with FDA clearance for the CT5300. We also introduced the next-generation industry-only worldwide helium-free MR scanner. Both leverage AI assistance at every step of the workflow. As evidence of the continued pool for innovation, we signed several long-term partnerships with customers across regions in the quarter. This included strategic partnerships for imaging and health informatics platforms with the Hospital of Foundation Rothschild in Paris, the Erasmus Medical Center in Rotterdam. Additionally, we signed an expansion of our strategic collaboration with Amazon Web Services to offer an integrated diagnostics portfolio in the cloud, including radiology, digital pathology, and cardiology. In personal health, we rolled out a renewed mid-range Sonicare Series 5000-7000 in Europe, giving users choice of features at different price points. Looking ahead, the fundamentals of the markets we serve remain strong, but the short-term dynamics differ per region. Outside of China, we expect generally solid consumer sentiment, as well as a solid hospital capital environment in 2025. In China, we expect consumer demand to remain subdued, We expect demand from hospitals to continue to be impacted by the consequences of the anti-corruption and the slow implementation of the national renewal program, at least into the first half of the year. Stimulus activity is increasing and our funnel is progressing. However, despite some increases in hospital tenders, we have not yet seen a trigger that would significantly change the situation for the first half of 2025. We are focused on executing our plan to deliver continued performance improvement in 2025. We expect 1-3% comparable sales growth this year, with growth in the rest of the world partly offset by mid- to high single-digit decline in China coming from the consumer and health systems businesses. We remain laser-focused on capturing margin expansion opportunities and expect adjusted EBITDA margin to increase by 30-80 basis points to 11.8 to 12.3 in 2025. This will be driven by a focused growth strategy, additional productivity savings, and continued strong investment in our innovations. Now over to Charlotte to take us through the financials and the outlook in more detail.