Koninklijke Philips N.V. NY Registry Shares

Welcome to the Royal Philips First Quarter 2025 Results Conference Call on Tuesday, May 6, 2025. During the call hosted by Mr. Roy Jacobs, CEO, and Ms. Charlotte Hanneman, CFO, all participants will be in a discerning 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 Ms. Doga Doraisamy, Head of Investor Relations. Thank you. Please go ahead, ma'am.

Hello, everyone. Welcome to Philips Results webcast for the first quarter of 2025. I'm here with our CEO, Roy Jacobs, and our CFO, Charlotte Hanneman. The press release and the investor presentation 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 this call. 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. Thank you for joining our results call for the first quarter of 2025. I'll walk you through our Q1 performance and the macro trends shaping our 2025 outlook. I know tariffs are top of mind and we will address them shortly. Our CFO, Charlotte Hahnemann, will then provide more detail on the quarter and full year guidance, and we will close with Q&A. I want to start with the key highlights of this morning's press release. Order intake grew. Despite a double-digit decline in China, driven by double digit order intake growth in North America and strength in diagnosis and treatment. We exited the quarter with momentum, even against the backdrop of increasing macro uncertainty. Sales performance exceeded the outlook we provided in February, driven by personal health growth and royalty phasing. Our innovations and productivity measures drove a step up in gross margin. Adjusted EBITDA margin delivery was resilient despite lower sales. Deskpronix US settlement around 1 billion euros was paid, which completes the US personal injury and medical monitoring settlement. I would now like to discuss our full year outlook for 2025. It incorporates our encouraging Q1 performance and the impact of announced tariffs. net of the comprehensive and significant mitigation actions we're deploying. Our sales outlook for 2025 remains the same. Comparable growth between 1 and 3%. Adjusted EBITDA margin is now expected to range between 10.8% and 11.3%. 100 bps adjustment reflecting the impact of tariffs, net of substantial mitigations. and free cash flow is projected to be slightly positive. Let's now look at the operational and strategic drivers behind our Q1 performance. Let's dive into orders first. Strong customer demand for innovations, along with improved operational execution, sustained the momentum we built last year through Q1 as we enter Q2. Excluding a double-digit decline in China, Comparable order intake increased by 4% in Q1 with strong growth in diagnosis and treatment. Like last year, we saw continued double-digit order intake growth in North America. This number excludes service order intake, which was also positive, very positive in the quarter. At the group level, diagnosis and treatment orders grew mid-single digits globally. with order intake growth in both image-guided therapy and precision diagnosis. In image-guided therapy, we continue to see strong demand for our competitive Azurium platform, which now also has the AI-driven neurosolution. In precision diagnosis, we saw strong order growth in commuted tomography, driven by CT5300, our productivity workhorse with AI-enabled workflow, and our clinically specialized practical spectral CT 7500 systems. We also saw good momentum in MRI, driven by our industry-first healing-free system, which is supported by our AI engines, increasing access to MR technology. We expect this positive order intake momentum in diagnosis and treatment to continue into Q2. In connected care, hospital patient monitoring delivered solid growth, particularly in North America. fueled by customer partnerships and a strong PickIX platform offering including cybersecurity and interoperability. Enterprise Informatics' order funnel remained healthy, underpinned by partnerships including AWS, which we expect to drive strong order intake growth in the second half of the year. Orders and order book account for around 40% of our revenue. Importantly, our order book has steadily increased with an improved margin profile in recent quarters. Innovation is a key driver as reflected in a significant gross margin improvement we delivered in Q1, building on the 2024 step up. Our customers rely on our innovations as critical enabler of their ability to drive efficiency and productivity. Today, More than 50% of our sales are fueled by AI driven innovations from new and upgraded products launched in the last three years. This progress showcases the power of our innovation strategy and our partnerships. A great example is our work with AWS. We are bringing cutting edge generative AI into our health suite imaging platform. Our future AI innovations will automatically summarize prior studies, auto generate conclusions, and even perform real-time quality checks. By automating these tasks, we enable radiologists to focus on strengthening care quality and improving throughput, which ultimately drives sustainable growth for Philips. To further strengthen AI leadership in MRI, in February, we announced the launch of SmartSpeed Precise with dual AI engines, which advances image quality while accelerating scan time at the same time. It also extends AI-driven efficiency across the entire Philips MR portfolio. This includes our full portfolio of helium-free MRI scanners, both install-based and new systems, so all customers can benefit from the speed and improved image quality next to the access and total cost of ownership advantages that it brings. These are just two further examples of how our innovation pipeline is working and building a stronger more competitive future for both our business and our customers. In parallel, we're making strong progress on our execution priorities with continued progress in patient safety and quality, supply chain resilience, and simplification across our operating model and portfolio. Here are a few highlights. Through simplification, we are on track to reduce the number of quality management systems by 70% this year. Supply chain lead times and service levels continue to improve, and we are now at par with industry standards while we are at the same time adjusting in real time to new tariff realities unfolding, which I will touch upon shortly. We are simplifying our platforms and number of SKUs across our businesses, now focusing on hospital patient monitoring, NCT, after strong results in image-guided therapy, ultrasound, NMR. Finally, we continue to remove complexity and build lean organization through our simplified operating model. Together with our strength and performance management, this is driving accountability, agility, and enhanced focus on growth. And it delivered 42 million of productivity in Q1. We are well positioned to adapt decisively as the macro environment evolves, ensuring we stay ahead and deliver with focus. I'm deeply proud of our teams around the world who are driving to advance our operational priorities and the results it delivers by focusing on what we can control amid such a dynamic environment. Looking ahead, the fundamentals of the markets we serve remain strong, but the dynamics are different by region. Starting with North America, similar to last year, we are still seeing steady fundamental hospital demand. We are well positioned as seen in the strong double-digit order intake and have not observed major shifts in capex plans. That said, we are closely monitoring the environment. In China, while stimulus activity is picking up and our funnel is progressing, we have not yet seen a trigger that would significantly change the market dynamics in line with our expectations going into the year. Generally, hospital capex remains solid across the rest of the world, with also increasing demand in Europe. Personal health delivered strong growth across Europe and other growth markets, excluding China in Q1. And momentum continued in those markets as we exited the quarter. In China, the consumer environment remains subdued as we anticipated. We're closely monitoring consumer dynamics and sentiment globally, particularly in the U.S., where they currently remain stable. Looking to the rest of 2025, we remain vigilant about the macro environment we operate in, and the progress we have made on our execution priorities puts us in a strong position to navigate change with speed and agility. For several years now, we have taken proactive steps to build a more resilient supply chain, including diversifying and regionalizing key operations, especially in China, well ahead of recent developments. You have seen this in our improved supply chain metrics and our performance in recent periods. In the current environment, we are further accelerating those efforts, especially towards the US. Also, we are going beyond shifting geographies. Our mitigation actions include supplier network and manufacturing optimization, holding the right levels of inventory, pursuing exemptions, selective pricing, and building greater operational agility and resilience. We view these as necessary to maintain our competitiveness, protect margins, and secure long-term growth. We have cross-functional teams actively working across our supply chain and business to further mitigate impact of tariffs, both in the near term, but also looking ahead to 2026. In parallel, we are razor focused on what we can control. applying strong cost discipline as we tightly manage discretionary and overhead spending, while staying committed to our long-term innovation priorities. Our focus remains on the levers within our control to protect margins and cash flow. On a net basis, we expect the impact of tariffs, as announced, a net of substantial mitigations to range between 250 to 300 million. We are also intensifying our engagement with governments and regulatory bodies worldwide, advocating for open markets and the free flow of medical goods and manufacturing essentials to ensure patient access to critical medtech supplies and our innovations. Charlotte will now discuss our first quarter performance and outlook for 2025.