Koninklijke Philips N.V. NY Registry Shares

Good morning everyone. I'm here with our CEO, Roy Jakobs, and our CFO, Charlotte Hanneman. Before we begin, I would like to acknowledge that due to an administrative error, Philips' second quarter 2026 results were inadvertently published last evening ahead of our scheduled release. As a result, we brought this webcast forward by two hours. We apologize for any inconvenience this may have caused and thank you for joining us on short notice. 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.

Good morning, everyone. Thank you for joining us. I will start with an overview of our Q2 results and outlook for the balance of the year. We delivered in line with our expectations in a dynamic external environment. We grew comparable sales by 4%, driven by growth across all segments. Adjusted EBITDA margin increased to 16.4%, including a tariff refund benefit, which Charlotte will discuss in detail. Excluding that benefit, our underlying margin was 12.2%. This reflects the expected pressure from higher tariffs and cost inflation, with productivity offsetting part of the impact. Free cash flow was €220 million, including a tariff refund benefit. Against this backdrop, we reiterate our fully comparable sales growth outlook range of 3% to 4.5% and our underlying adjusted EBITDA margin outlook also remains unchanged. Excluding the tariff refund benefit, we continue to expect a full year adjusted EBITDA margin of 12.5 to 13%. At the halfway point, we remain solidly on track for the full year. On a rolling 12 months basis, order intake grew 5%. demonstrating the resilience of our commercial momentum. Customer demand for our innovations remains healthy. Europe delivered strong order growth and North America has a healthy pipeline with large orders already secured in Q3. Comparable sales grew 4% in the first half. We also improved underlying profitability year on year through productivity savings, helping to largely offset tariffs and cost inflation. and we lastly completed the US tariff refund process during the quarter, demonstrating the agility of our teams in a changing environment. Together with the continued progress in innovation and execution, this gives us confidence in the balance of the year. Turning to orders in Q2. Order intake declined 1% as certain larger monitoring orders specifically moved to Q3. This followed six consecutive quarters of growth. Importantly, our equipment order book remained at record level, providing good visibility for the periods ahead. In diagnosis and treatment, orders grew low single-digit, following double-digit growth last year. Strong performance in North America and Europe was partly offset by continued weakness in China. Within the segment, Image Gaia Therapy delivered another quarter of strong growth in North America, while in the international region, Q2 last year included a multi-year nationwide agreement with Indonesia's Ministry of Health. Precision diagnosis delivered strong order growth, including double-digit growth outside of China, reflecting broad-based demand and traction from our recently launched innovations. In connected care, Enterprise Informatics delivered solid order growth in Q2, particularly in Europe. Monitoring orders declined, reflecting the timing of certain larger North American orders shifting into Q3. Importantly, this did not reflect the deterioration in underlying demand. Overall trends across our health systems segments support our confidence in the commercial momentum for the balance of the year. With good visibility into our pipeline, we expect solid order growth in Q3. Let me now turn in how we are executing our strategy across our segments. D&T strengthened its leadership position in Q2. In IGT, North America continued to deliver an exceptionally strong win rate, supported by large customer orders. We signed an agreement with a leading U.S. nonprofit healthcare system to equip 14 catheterization laboratories. We also secured a long-term enterprise partnership covering over 300 health technology projects across 200 hospitals in Poland, spanning IGT, imaging, ultrasound, and patient monitoring. This demonstrates the value of a broad portfolio and strong customer relationships. In precision diagnosis, innovations presented at CMD are gaining strong customer traction. Spectral CT Virida, White Boar CT Rembra, Helium Free MRI, and Point of Care Ultrasound were key contributors to the order growth in the quarter. Across D&T, we also expanded strategic collaborations to accelerate innovation. Our alliance with WellSpan Health combines a long-term commercial partnership with the co-development of AI-enabled healthcare technologies. We also announced a joint investment with the Dutch government to accelerate the next generation of AI and robotics-enabled image guided therapy. These collaborations extend our innovation ecosystem and strengthen our long-term competitive position. Earlier this month, a leading US health system deepened its relationship with Philips, extending patient monitoring across its large hospital network. This follows strong commercial activity in H1. Another major health system broadens its Philips patient monitoring footprint across more than 50 hospitals. Several others, including NYU Languane Health, continue to standardize on Philips patient monitoring across their networks. We are seeing strong momentum also beyond the hospital walls. In Europe, Karolinska University Hospital selected a Philips-led consortium to support the whole region of Stockholm first region-wide hospital-at-home program. It will use advanced remote monitoring to extend hospital-level care into patients' homes, supporting up to 15,000 patients annually to start. Together, these examples underscore that customers increasingly recognize the value of patient monitoring as an enterprise platform. integrated with software and clinical informatics. They also support extending care beyond the hospital. A notable Q2 win in enterprise informatics was a full cloud conversion under a new 10-year agreement with a leading US health system. Once fully deployed, the platform will support around 1.7 million image studies a year in this health system alone. The scale and duration of this order demonstrate the trust customers place in Philips as they transform their health systems and technology infrastructure. These enterprise cloud transformations are complex by nature and are implemented in carefully managed phases aligned with customer readiness. Revenue therefore builds over time as implementation progress across sites and clinical teams. Turning to personal health, the segment delivered another strong quarter. Broad-based momentum across categories was driven by strong commercial execution, innovation, and expanded retail distribution. We gained market leadership in power toothbrushes in the United States with our newest launched Sonicare platforms. We also strengthened our position in modern childcare, with Philips Vent products continuing to gain market share. In China, we launched the compact S800 shaver, powered by our new TurboMax motor, It ranked number one in first day sales in its category on JD.com. As part of a technology company, our personal health business is uniquely positioned to apply AI across its portfolio, creating smarter, more personalized consumer experiences. We are scaling cry interpretation in event baby monitors, AI-guided voice assistant in lumea hair removal devices, and SenseIQ technology in premium shavers. This demonstrates how we combine health technology expertise with consumer insights to create winning innovations. Turning to innovation across our health systems. We are differentiating our portfolio by improving clinical outcomes and productivity. In Image Guided Therapy, we introduced Smart IQ for our Azurium platform. It advances coronary image quality and dose management. using over 50% less X-ray dose than our current low-dose settings. In ultrasound, we are accelerating innovation and bringing our best-in-class technology to general imaging, supported by the FDA clearance of Elevate+. In MR, we introduced the first multicontrast 4D MR imaging solution for radiotherapy simulation. It allows patients to breathe normally during imaging while helping clinicians to better visualize moving tumors for treatment planning. We also unveiled Titanium, our next generation ultra-high gradient 3 Tesla MRI platform. It is designed to provide more precise clinical insights and advance quantitative imaging. These innovations strengthen our differentiated portfolio and support our long-term growth. Disciplined execution is how we build a stronger, more resilient business. It starts with patient safety and quality remaining our highest priority. Product non-conformances remain on track for four consecutive year of reduction. Corrective and preventive action performance reaches highest level since 2022. We are also increasing the speed at which we bring innovations to customers. Building on a strong first quarter We secured another nine FDA 510K clearances and premarket approvals across key franchises in Q2, bringing the year-to-date total to 29. These include important clearances across ultrasound, CT, and hospital patient monitoring. In China, regulatory approvals for Rembra, Arita, and RIDA position us to further expand the reach of our next-generation CT portfolio. AI is also helping accelerate our regulatory processes. Improving both speed and quality. It enables us to respond more quickly to local market needs. Health Trust, one of the largest health group organizations in the United States, recognized Philips as its 2026 Capital Supplier of the Year. This award reflects our ability to understand and respond to Health Trust's specific needs and of which large customers it serves, as well as the value we bring to their health systems. Now turning to our regions. Our regional growth profile reflects the priorities we outlined at our Capital Markets Day. North America and Europe continue to drive health systems growth, while consumer sentiment and personal health remains broadly unchanged relative to last quarter's trends. In North America, Healthy patient volumes, procedural growth, and sustained capital investment by large health systems continue to support demand. Customers increasingly want to standardize care through fewer, deeper strategic partnerships. Our platform-based portfolio, differentiated innovation, and strong customer engagement positions us very well to capture that demand in North America. A healthy order pipeline supports our confidence in the outlook for the region. Turning to Europe. Europe delivered another quarter of strong and increasing performance, particularly in the D&T and connected care segments. European health systems are investing in productivity, digitization, and in modernizing care delivery. Our differentiated portfolio and commercial execution continue to resonate with customers. This gives us confidence that Europe will remain an increasingly important contributor to our growth. In China, market conditions developed broadly in line with our expectations in Q2. Personal health remained relatively stable, with health systems continued to face a challenging market environment. The expansion of centralized procurement and subdued hospital investment continued to weigh in on the health systems market overall. For the full year, we now expect China to be broadly stable overall, with strength in personal health offsetting continued weakness in health systems. Demand remains, but purchasing behavior has become more timing-driven as hospitals adapt to evolving procurement and funding frameworks. I will now hand over to Charlotte.

Thank you, Roy. I will start with segment-level performance. In diagnosis and treatment, comparable sales increased by 2.4%. Image guided therapy delivered high single-digit growth. continuing its strong track record for the 22nd consecutive quarter. Performance was strong in Europe and North America, led by the Azurian platform, Genitian motorized mobile C arms, higher service revenues, and intravascular ultrasound. Precision diagnosis comparable sales declined at a low single digit rate, a slight improvement from Q1. Growth in Europe and several international regions Markets, particularly India and Latam, was more than offset by China. MRI performed strongly, reflecting the strength of our differentiated portfolio, particularly the helium-free Blue Seal MR5300 and the high-performance 3T MR7700. Ultrasound performance was supported by momentum in our cardiovascular platforms, Affinity Cardiovascular and Premium Epic Cardiovascular. The New Flash 5100 also contributed, expanding our presence in point-of-care ultrasound. Our recently approved CT platform innovations, Remba RT and Arita RT, also began contributing to revenue. Adjusted EBITDA margin increased by 40 basis points year-over-year to 13.9%, including the impact of a tariff refund, which I will discuss later. Excluding the refund, Margin declined by approximately 460 basis points to 9.3%, as productivity measures were more than offset by cost inflation, higher tariffs, and currency effects. We expect margin progression towards the end of the year, driven by higher growth, innovation-led gross margin improvement, productivity, and inflation mitigation actions, alongside an easier year-on-year tariff comparison. Moving to connected care. Comparable sales increased by 2.2%. Monitoring delivered another quarter of strong mid-single-digit growth, led by North America and supported by Europe. Growth was driven by higher Intelliview hospital monitors and ambulatory cardiac monitoring sales, continued adoption of PIC-IX, and strong performance in monitoring as a service, reflecting customer investment across hardware, software, and services. Sleep and respiratory care delivered low single-digit growth, led by Europe and Japan. Enterprise informatics sales declined mid-single-digit, mainly reflecting the timing of order conversion. Growth in international region was offset by decline in North America. Connected care adjusted EBITDA margin in Q2, expanded by 740 basis points year-on-year to 17.8%, including a tariff refund. Excluding this benefit, Margin expanded by approximately 130 basis points to 11.7%, as productivity measures more than offset the higher tariffs and cost inflation. In personal health, comparable sales grew 8.5% in Q2, with all three business contributing. Growth was broad-based, led by North America, while China benefited from an easier comparison base. Demands remain strong for premium shavers, one-blade replacement blades, and the recently renewed Sonicare 5000 to 7000 series. In Q2, personal health adjusted EBITDA margin expanded by approximately 780 basis points to 23%, including the impact of the tariff refund. Excluding this benefit, margin expanded by 280 basis points. Sales growth, productivity measures, and a particularly favorable innovation-led product and market mix supported higher gross margin. These favorable impacts were partially offset by cost inflation. Finally, sales in segment other increased by €62 million to €182 million, mainly due to higher royalty income and activities related to a divestment. Adjusted EBITDA increased by €11 million to €7 million, driven by higher royalty income. Now, turning to the group results. Comparable sales increased by 4.1% in Q2, with growth across all segments and most regions. Adjusted EBITDA margin for the group increased by 400 basis points year-on-year to 16.4%, including a tariff refund. Excluding this benefit, margin declined, as expected, by approximately 20 basis points to 12.2%. Sales growth, favorable mix effect, and productivity measures were more than offset by cost inflation and higher tariffs. In Q2, we received virtually all of the tariff amount claims. This includes an approximately 25 million euro impact for annual incentive accruals from the increase in our reported full-year guidance, which includes the tariff refund benefit. Consistent with the treatment of the original tariff costs, the majority of the refund was recognized as a reduction in cost of goods sold, and was therefore included in adjusted EBITDA. In Q2, we delivered 132 million euros in productivity savings, bringing year-to-date delivery to 258 million euros, despite pressure from higher cost inflation. We are on track with good visibility to deliver our 1.5 billion euro three-year saving commitment. Progress in the quarter was supported by further operating model simplification, Procurement and supply chain initiatives and footprint optimization. AI is strengthening these capabilities and helping us scale the benefits. In personal health, our internally developed Illuminate AI platform combines consumer data and signals to generate innovation ideas, making concept development 50% faster. In engineering, we are scaling AI through initiatives such as NOVA, helping teams develop product requirements with greater precision and more quickly, reducing rework and supporting first-time ride development. Drafting time has been reduced by around one-third, with further productivity benefits expected as adoption scales. Adjusting items were 20 million euros, significantly below 86 million euros in the prior year. The reduction was primarily driven by portfolio actions in enterprise informatics, including a one-off gain related to the divestment of the electronic medical records business completed in Q2. Given the year-to-date performance, we now anticipate a full-year impact of approximately 180 basis points, compared with our previous outlook of approximately 200 basis points. Free cash flow in Q2 was an inflow of €222 million, broadly in line with last year, as higher working capital outflows were largely offset by the tariff refund. Moving to the balance sheet, we ended Q2 with €1.8 billion in cash. Net debt was €5.7 billion at the end of Q2. The leverage ratio improved to 1.8 times on a net debt to adjusted EBITDA basis from 2.2 times in Q2 2025, driven by higher earnings and lower debt. Our balance sheet provides resilience in an uncertain environment while giving us the flexibility to invest in long-term value creation. Now, turning to our outlook. Through the first half of the year, we delivered against the priorities and expectations we set out at the beginning of 2026. We delivered against the persistently uncertain macro and geopolitical environment. We remain focused on what we can control and are executing the actions needed to deliver our priorities. Against this backdrop, we reiterate our full year comparable sales growth outlook of 3 to 4.5%. For the full year, we continue to expect connected care and personal health to grow at the upper end of the range and diagnosis and treatment at the lower end. For Q3, we expect comparable sales growth to be at the lower end of our full year range due to China and ultrasound. Our full year outlook for underlying adjusted EBITDA margin also remains unchanged. Excluding the tariff refund, we continue to expect a full year adjusted EBITDA margin of between 12.5 and 13%, driven by sales growth, innovation, and productivity, partially offset by annualized tariffs and input cost inflation. This corresponds to 13.5 to 14%, including the tariff refund recognized in Q2. For Q3, we expect adjusted EBITDA margin to be below the prior year level, primarily reflecting higher cost inflation and an unfavorable mixed impact. In line with our Q1 view, We expect cost inflation to remain elevated, with a greater impact in the second half, as higher costs held in inventory are recognized in the P&L. At the same time, the benefits from our mitigation actions are expected to increase during the second half, together with continued contributions from the productivity program. We remain on track, with good visibility on the actions required to deliver our full-year underlying margin outlook. Consistent with our approach over recent quarters, Our outlook incorporates currently known tariffs, including those announced on July 23rd. We now expect reported free cash flow of between 1.5 and 1.7 billion, including the tariff refund. Our underlying free cash flow outlook remains unchanged at between 1.3 billion and 1.5 billion euros, excluding the tariff refund. As previously indicated, our outlook excludes ongoing Philips Respironics-related proceedings, including the investigation by the US Department of Justice and the State Attorneys General. With that, I would like to hand it back to Roy for his closing remarks.