PHG

Good morning, everyone. I am 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 EUR 220 million, including a tariff refund benefit. Against this backdrop, we reiterate our full-year comparable sales growth outlook range of 3%-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%-13%.

At the halfway point, we remain solidly on track for the full year. On a rolling 12-month 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. We largely completed the U.S. 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 period 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-Guided 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 a 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. DMT 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 Verida, wide bore CT Rembra, helium-free MRI, and point-of-care ultrasound were key contributors to the order growth in the quarter. Across DMT, 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 U.S. 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 broadened its Philips patient monitoring footprint across more than 50 hospitals. Several orders, including NYU Langone 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 U.S. 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 progresses 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 Avent products continuing to gain market share. In China, we launched the S800 Compact Shaver, powered by our new Turbo mode. 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 Avent 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 SmartIQ for our Azurion 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 bring our best-in-class technology to general imaging, supported by the FDA clearance of Elevate Plus. In MR, we introduced the first multi-contrast 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 Titanion MR, our next-generation ultra-high gradient 3T MRI platform. It is designed to provide more precise clinical insights and advanced 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 a fourth 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 510(k) clearances and pre-market 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, Areta RT, and Verida 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. HealthTrust, one of the largest health group organizations in the U.S., recognized Philips as its 2026 Capital Supplier of the Year. This award reflects our ability to understand and respond to HealthTrust'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 DMT 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 Shalom.

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 Azurion platform, Zenition 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 BlueSeal MR 5300 and the high-performance 3T MR 7700. Ultrasound performance was supported by momentum in our cardiovascular platforms: Affiniti CVx and Premium EPIQ CVx. The new Flash 5100 also contributed, expanding our presence in point-of-care ultrasound.

Our recently approved CT platform innovations, Rembra RT and Areta RT, also began contributing to revenue. Adjusted EBITDA margin increased by 40 basis points year-over-year to 13.9%, including the impact of the 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 IntelliVue 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 double-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.

Demand remained strong for premium shavers, OneBlade 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 EUR 62 million to EUR 182 million, mainly due to higher royalty income and activities related to a divestment. Adjusted EBITDA increased by EUR 11 million to EUR 7 million, driven by higher royalty income. 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 effects, and productivity measures were more than offset by cost inflation and higher tariffs. In Q2, we received virtually all of the tariff amount claimed. This includes an approximately EUR 25 million 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 cost, 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 EUR 132 million in productivity savings, bringing year-to-date delivery to EUR 258 million, despite pressure from higher cost inflation.

We are on track with good visibility to deliver our EUR 1.5 billion 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 right development. Drafting time has been reduced by around one-third, with further productivity benefits expected as adoption scales. Adjusting items were EUR 20 million, significantly below EUR 86 million 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 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 EUR 222 million, broadly in line with last year, as higher working capital outflows were largely offset by the tariff refund. To the balance sheet. We ended Q2 with EUR 1.8 billion in cash. Net debt was EUR 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%-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%-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 mix 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 EUR 1.5 billion and EUR 1.7 billion, including the tariff refund. Our underlying free cash flow outlook remains unchanged at between EUR 1.3 billion and EUR 1.5 billion, excluding the tariff refund. As previously indicated, our outlook excludes ongoing Philips Respironics related proceedings, including the investigation by the U.S. Department of Justice and the State Attorneys General. With that, I would like to hand it back to Roy for his closing remarks.

Thank you, Charlotte. Before we open the line for questions, let me leave you with three key messages. First, we delivered a solid first half in an uncertain environment, demonstrating the resilience of our business and our disciplined execution. Second, our first half performance, together with the momentum we are seeing across our customer relationships, technology collaborations and government engagements, gives us confidence in the full year. We are therefore reiterating our comparable sales growth outlook and raising our adjusted EBITDA margin and free cash flows outlook to reflect the tariff refund. Finally, we remain fully focused on delivering what we said we would do. Through the execution of our focused segment strategies, continued platform innovation and disciplined operational delivery, we remain on track to achieve the ambitions we set out at our 2026 Capital Markets Day. Mid-single digit growth CAGR and mid-teens adjusted EBITDA margin by 2028.

With that, operator, please open the line for questions.

Thank you, sir. If any participant would like to ask a question, please press the star followed by 2 times 1 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, and the first question comes from the line of Hassan Al-Wakeel of Barclays. Please state your question.

Good morning, and thank you for taking my questions. I have two, please. Firstly, if you can expand on the D&T margin performance, please, as 9.3% ex tariff, which is meaningfully below expectations. What's driving this, and how are gross margins in the business trending given your prior comments on innovation and mix here? Do you expect underlying D&T margins ex tariff to expand year-over-year in Q3 and Q4? What about the full year? Secondly, also on D&T, and really your thoughts on centralized procurement in China and the extent to which this is already impacting your margin mix in Q2. Roy, when we met last month, you talked about differentiated offerings such as BlueSeal MR and Spectral CT being insulated from this. Is this still your view, or is it changing, and do you expect further expansion of these initiatives in China?

Thank you.

Thank you, Hassan. Let me take the first question. Thanks for your question. Maybe take you one level back from a margin perspective. I think it's important to note that overall, we delivered on our margin expectations exactly in line as we said at the beginning of the quarter. That is actually 10 basis points of margin expansion in the first half of the year, excluding tariffs, in a very dynamic environment. We're actually pretty pleased with that, and it's exactly in line with our expectations. If you then unpack that a little bit, it is fair to say that Personal Health did really well from a margin expansion perspective. Connected Care expanded margins, and indeed, as you mentioned, D&T had lower margins. There are a few things that are impacting the D&T margin.

As I said, also just previously in my remarks, of course, there was cost inflation which had a somewhat greater impact in D&T than in the other segments. Then also we saw, as we also called out in the beginning of the quarter, we saw higher tariffs, of course, as Q2 was the last quarter where we didn't see those full tariffs. Specifically in D&T, we saw a higher currency effect as well. Then, the other driver there is that last year we had a higher contribution, from a one-off effect as well. The other element, and you already alluded to it in your second question, was China, where we did, and we know PD has a somewhat higher exposure to the market, in China, and as a result, that also impacted the margins in Q2 as well.

If I then take you back, overall, we are exactly in line with where we thought we would be for Q2. We are on track with 10 basis points of margin expansion for the first half, and we are reiterating our full year margin outlook for the year between 20 and 70 basis points. To follow up on your last question, which is the gross margin from innovations and how that is developing. We do see that continuing to develop in the right direction. I'll give you a couple of examples. For instance, Rembra in CT in our performance segment and also Verida in our premium segment in CT is really driving up gross margins underlying, excluding tariff, excluding cost inflation. Also in MR, and we spoke about that on the call last quarter, we have a lot of help from our service upgrades.

Last quarter, you might remember us talking about SmartHeart and also about Precise, some of the software upgrades that we have. Those are also driving underlying margins up. Maybe with that, I'm going to hand it over to Roy for the centralized procurement.

Yeah. On the centralized procurement, you might have seen that now the China government expanded the centralized procurement policy across China. What that means is that you will have a further prolonged scope of implementation of a new policy. As we learned earlier, this creates turmoil in the market because people are learning what this new process is. Of course, they're bringing down technology under that process. Still, the point being, as we discussed earlier, Hassan, that unique technology still has a specific way finding a position in that centralized procurement. The other kind of segments, like more value segments and where you have less undifferentiated technology, you will go more into the procurement process as they have defined.

Therefore, as we said at Philips, we have a very selective go-to-market approach in China, where indeed for MR, we are banking heavily on the helium-3 1T, and we are working with the Chinese government also on an accelerated path for a 3T helium-3 in China, and that's actually well on track. Secondly, on Spectral CT, actually, we have seen real good momentum and actually positive orders as well in China. We got the Rembra and the Verida approved in China, and that will help us also competing with really unique innovation going forward. We have kind of the IGT franchise that remains strong in China as well. What we also said, and maybe take you there as well, we have been planning on a China that will remain more cautious in terms of our outlook and inclusion.

What was important in combination with that was that we saw North America and Europe strengthening. We are really pleased with the double-digit order growth in Europe, as I mentioned, because that is actually a good place to compensate next to ongoing momentum in North America. In North America, yes, we had now this slip in CC, but you saw actually that D&T was doing really well. Actually, PD in the second quarter was double-digit growth outside of China, mid-single digit growth, including China. North America, over 12-month period, has double-digit order growth. We really see Q2 as a slip. Also, even the reason for the slip, we are talking about a few orders that fell at the wrong side of the quarter.

We knew it was going to be low single-digit because we were coming off a very strong comparable order growth last year with the Sheeran deal, and before that, the Montmorency Secours deal. Therefore, with a few falling into Q3, that therefore shifted the balance. The reason is that especially monitoring these big platform deals are multi-million, long-term, and they are also breaking into new competition. Kind of concluding those also legally and administratively takes certain time, and therefore it's less predictable than a standard renewal. These are good deals that will come in with good margins, but it's just that the phasing in this point made that falling into Q3, and therefore Q3 will be stronger than we originally planned for because they will have some of these Q2 orders.

Therefore, the combination of North America and China, and even some other markets like India, where we're also doing really well, is compensating also for the full-year outlook on the China pressures, and we have a good visibility of order pipelines for a strong full year 2026.

That's really helpful. Thank you. If I could just follow up, Charlotte, can you quantify the added cost inflation you're seeing or expect this year? If this stays, how are you thinking about the impact for 2027 and beyond? Do you think this is well covered in your macro uncertainty buffer in the bridge that you presented at CMD? Thank you.

Thank you, Hassan. What we said prior quarter is that we see high single-digit cost inflation for the full year 2026. Our view on that hasn't really changed. It has ticked up slightly, but not so much, actually. As a result, we're also upping our cost mitigation actions where we have really good line of sight to. As I said last quarter as well, actually, our view on that remains unchanged. For 2027, of course, there will be an annualization of the cost inflation, although, of course, depending on how the macro environment will unfold, there will be some puts and takes there. We are taking that into account into our 2027 margin outlook. Also, as you rightly say, at CMD, we have been very clear about our EBITDA margin bridge, where we put in roughly 200 basis points for FX and macro uncertainty.

That still very much falls within the bucket. You heard Roy say also earlier today, we are on track to achieve our ambitions we set out at Capital Markets Day in 2026. One proof point that you have already there is if you look at the first half productivity that I just pulled out, this is EUR 258 million, and that actually includes, that absorbs some of the additional inflation we're seeing. I think those are good proof points to be aware of.

Perfect. Thank you.

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

Thank you very much. Good morning. Two from me, please. The first one, I'd like to follow up on your assessment of global hospital demand. On slide six of your presentation, you're characterizing both North America and Europe as strong. I think actually on Europe, you've become a little bit more positive versus Q1. Two questions on that. One, what is driving the improvement that you're seeing in Europe? Secondly, when do you expect to see that strong demand translating into better D&T and connected care growth rates? That's the first one. Second question is on Personal Health. Can you discuss the drivers of the strong performance in Personal Health over the last few quarters outside of the China comps effect?

What have you been doing differently in terms of innovation, your go-to-market strategy, and how should we think about the durability of those drivers of better growth going forward? Thank you.

Richard, thank you for your questions. Let me go first to the global hospital demand. It's indeed good to take a step back. If we look underlying at the trends, we see North America to continue to be strong. It's strong, as I said before, not evenly spread, right? Not every single hospital in North America is in a strong position. Especially the bigger hospitals, academic, but also private, and the ones that are going also in a combination of hospital and ambulatory, they are strengthening. Those are the ones that we really cater for well with our platform-based innovations around monitoring IGT, but also imaging. That's where we have seen a continued strong pipeline. As I mentioned, over 12 months period, we have double-digit order growth in North America.

Yes, we had now a few slips in Q2, but actually they come back and they are large contributors also to second half. We have a strong outlook for order intake for full year 2026 in North America. That also has been translating into strong sales growth, as you know, in North America and a strengthening contribution out of North America for the total group. In Europe, we indeed see a step up versus last year, right? We see Europe investing more. That is actually across various parts of Europe. In Nordics, how we close this great Karolinska deal, which is for me a stellar example of how you see they're investing in healthcare to take it also into the home. This is a unique hospital-to-home program where we are at the preferred partner to help them manage that system in a full province.

That's something that we see more broadly across Nordics. We also see strengthening in momentum in Central Europe. Now, we mentioned some U.K. deals, where we had some big imaging informatic deals. Of course, U.K. is going through a challenging period from healthcare perspective, but they are clearly having a determination to improve it and turn it around into better service delivery, and they're investing, especially digitally. That's something that actually helps this. Also we mentioned that we had the CE Poland deal, where actually this is a nationwide deal. We are supporting 200 hospitals to really upgrade to a full infrastructure.

You see that there are kind of programs, and even in Germany, I was recently kind of last two weeks, multiple systems we are discussing big projects with, both in terms of heart centers they are building, as well as how they are digitizing more. We see indeed that there's more money going into the upgrading of the infrastructure to serve patients better, and we are well catered to that. Therefore, the double-digit growth in orders in Q2 is really encouraging, and we also see a strong pipeline for orders in Europe for the full year. That also then should translate into the CSG. That's also where you are right to say in kind of CSG in North America was already strengthening because we saw earlier stronger order pickup there. Now, of course, if you look into North America, that's very strong monitoring in IGT.

Europe will have a very positive impact also on DMT PD in particular. That's where also there's more sizable uptick of the imaging one, and therefore, also what we said in the sales phasing, where you saw that in PD, we're coming from turning this new innovation pipeline that we launched into orders, which we really have been seeing picking up. I mentioned to you the double-digit ex China and the mid-single-digit including China. We will now see that in the second half coming to positive sales growth, and then it goes into strengthening the full D&T because IGT has been remaining strong. As we mentioned before, this will phase in, and then also on the margin point earlier, this will phase in at better margins.

This is also therefore, and when you see the back-end loading kind of coming in, that is because you then see the new deals coming in with some better margin improvement. That on the global hospital demand. Turning to PH. I think PH is a dual story of structural strengthening. Actually, you have seen now that we have multiple quarters of very strong growth, beating competition, and that is driven by 2 facts. One, we really are launching innovations that resonate very well. Particularly, we see now a very strong contribution in 2026 from our new Sonicare ranges. We kind of have been launching the 5,000 to 7,000 ranges in Sonicare that actually took us back to market leadership in North America. Those had double-digit growth in oral health care in the second quarter.

The kind of the personal care franchise was already doing really well. OneBlade was fueling that, the new shavers. We now have also really the oral care franchise joining that. This is just launched. These new ranges have a lot of runway. Because 1 platform is just in the market 1 year, another platform just launched this year What the positive innovations also give us is more retail coverage. We see that customers really want us either online and on the shelf. We have big wins in North America and big customers like Walmart, Costco. Of course, that gives sustained runway to strengthen your franchise. We are also expanding very aggressively in pharmacies, because in the pharmacies, they see more in childcare, but also oral care as an important part of contribution.

Therefore, you see that the new ranges also drive good margin, right? If you looked at the Q2 margin increase, of course, that's also really driven and supported by strong innovation contribution of the new ranges.

Thank you very much.

Thank you. We will now go to our next question, your next question comes from David Adlington of J.P. Morgan. Please state your question.

Morning, guys. A couple from my side. Just to follow up on the cost inflation question, just wondering, presuming you still have some hedges in place for this year, just wondering, as those roll off the high single-digit cost inflation seeing for this year, just wanted to get early thoughts in terms of where you're seeing cost inflation for next year. The second one is just, we've got some conflicting data points around U.S. procedural volumes so far this quarter. Just love to get your thoughts on what you're seeing in the end markets there. Thank you.

Thank you, David. Let me take the first one. As I said, on cost inflation, how we see high single-digit million EUR, since Q1, maybe slightly higher than that at this point in time. As I would break it down into the different components that we are seeing, they're actually three, right? First of all, they're the e-components that we've seen increase significantly. We don't have hedges in place for that, so that just rolls over into 2027. We have freight costs significantly increasing, as a result of the Middle East tensions. The third component, which is very, very small for us, is energy. Where indeed we have hedges in place. When you think about the hedges we have in energy, actually, we also, when we model that towards 2027, that will not have a significant impact.

Where we stand today, also how we think about it today is, of course, the cost inflation will annualize, assuming that nothing will change in the world, of course. What we will do, as we have always done, we will mitigate that with our cost actions where we have really good line of sight to go after further bill of material improvements, further AI boosting to also help us find savings on the back of AI, and further also tariff mitigations. All of that is, you should think about it as a package. Yes, we see cost inflation potentially annualizing, although the year is still long. Our hedges, the way we are hedging actually won't make a big difference, and we have mitigation efforts in place where we have line of sight that that will offset.

As Hassan also asked earlier, when we were at Capital Markets Day, the 200 basis points that we then called out for FX and macro uncertainty, that will cover us also for our midterm guide. That, Ron-

Let me take on the U.S. procedural volume. David, we also saw some of that. Let me give our color. As I said, North America overall for us is really strong, and we see it continuing to be strong. I gave one example of that. Actually, we have been voted the preferred supplier for HealthTrust. HealthTrust is one of the biggest kind of purchasing groups of very large health systems in North America. We have some of the health systems where indeed they reported that procedural growth was less, but actually their revenue growth has been strong. If you look to our, for example, IGT business, that is an excellent proxy for procedural growth. We have now 22 consecutive quarters of growth. That remains very strong and especially in North America, that keeps expanding and growing, both in devices as well in systems.

Secondly, also what we see is that we still have ample penetration opportunities. HealthTrust is a big group with very large kind of especially private hospitals, where we're also dislodging some competition. That's another source of growth for us because by getting access to those, you can grow in a different way because you were just not there. Even on the procedural side, our IGT kind of is for us the best proxy and the pipeline is actually continuing to be strong, kind of going on. That's also where you see the orders in the kind of DMT mix. We talked about strong PD and picking up and generating on the back of the latest kind of launches, strong traction. Don't forget IGT, that has been consistently delivering in that mid-single digit plus kind of order range.

That is predominantly also driven by a very strong North America.

That's clear. Thank you very much.

Thank you. We will now go to the next question. Your next question comes from Veronika Dubajova of Citi. Please state your question.

Hi, guys. Good morning, and thank you for taking my questions. I'm going to keep it to two as well. I want to start on the full year guidance, Charlotte. Where sort of in the range on margins you feel most comfortable. If I take your guidance for third quarter, you are going to have to deliver an absolutely massive Q4, especially to come in anywhere but at the lower end. On my math, we'd be looking at sort of margins in the fourth quarter that be 16%-17%, maybe even a little bit higher. Your fourth quarter would account for 40% of the full year, which my Philips model goes pretty far back, but I can't find a single year where that was the case.

Can you maybe talk through what gives you the confidence in that fourth quarter margin being as strong as is necessary for you to hit the guidance? I guess, for all of us sitting and looking at the business from the outside in, having such a back-end loaded year can become a little bit uncomfortable. Just help us understand how much visibility you have on that and what gives you the confidence and maybe comment in particular on DMT. My second question, just to circle back on China, where I know you've addressed it a little bit, but it does seem like there is a more focus from the government on price. I think you have expressed this expectation of China returning to 3%-5% growth rate in the midterm, and you may be growing slightly less than that.

In the context of the centralized procurement notice, how do you feel about those expectations that you put out at the CMD, and should we see further downside risks to those maybe, now that we have visibility on that? Thank you, guys.

Thank you, Veronika. Let me take the first question. Let me start by saying that we remain, and I remain very confident in our full-year margin outlook. Also to take you through the shape of the year and remind you, we were actually delivering 10 basis points year-over-year improvement in the first half, despite the world we live in, which is very dynamic if we look at higher tariffs, also higher cost inflation, as we just also spoke about. Indeed, Q3, we expect the adjusted margin to be slightly below the prior year level as a result of inflation that is, of course, still coming through as well as unfavorable mix. Then, exactly like you mentioned, in Q4, we do expect a meaningful step-up with the margin reaching the upper end of the mid-teens range. I think your model and our models roughly correlate there.

What is supporting that? I think that's important to understand. First of all, there's higher volumes, as a result, I think you know this, Veronika, that gives us a ton of operating leverage. We spoke about it earlier, we have innovation-led gross margin improvement that is coming through, and we just spoke about some of the drivers there, some of the software, some of the CT. Of course, PH is helping us significantly as well. The stronger contribution from productivity and inflation mitigation actions. We said in May as well, we said this will build up over time. It takes time to find the additional mitigation actions to offset the cost inflation. We have really good line of sight to those, but we need a bit of time before that actually translates into the P&L.

The last thing that I would say that gives me confidence as well is that that sequential margin step-up in Q4 is consistent with the normal seasonality we see. I am fully confident in our Q4 margin acceleration and also the delivery of the full-year outlook. I remind you also, of course, a lot of this is volume related, and we have record order books in some of our high margin businesses as well, like IGT and monitoring. Also, as Roy also mentioned, our PD orders, we see a strengthening margin profile as well.

Thank you. Let me then take the China one. The China centralized procurement expanding, I already mentioned that, right? What does that do? That gives more control and therefore, kind of also timing-related delays towards the procurement process. We also know, and we said that before, that if it comes under the centralized procurement, there is margin pressure as a result, unless you have specific innovation that can warrant a specific value that people want to continue to pay for. That's also something that we expect that kind of will continue to drive contribution out of China, including the new innovations that we have launched, that we just mentioned we got also approval for in CT. MR that is coming. IGT will remain.

As important and probably even as exciting is that actually the North America and Europe trends, also as we had in the plan, are accelerating probably even a bit faster than we expected. We see that the mitigation from China, even if kind of this would go a bit slower than we all hope for, we see that actually the double-digit in Europe and that will continue with a strong growth also the North America market. I haven't talked about much yet India, that actually is really picking up a double-digit contribution for us. We have a very strong footprint, and we are really excited and had engagement with Prime Minister Modi and his health ministry about how we can really both hospitals but also outside of the hospital support in providing care and better care into India also with AI.

That's for me really exciting growth prospect that actually we have only started to untap. As you know, India is the strongest GDP market at this point in the world as well. We see ample opportunity in the globe to capture the kind of opportunities in healthcare, and that could offset if China unfortunately would further prolong. We have seen that it takes longer, right? We should also not be kind of too bullish about it. We have been very cautious, and that's also what we remain. In this year's outlook, we really kind of took that fully into account. Actually, the rest of the geos nicely cover for that.

Thank you, guys.

Thank you. Our next question comes from Julien Dormois of Jefferies. Please state your question.

Hi, good morning, Roy. Good morning, Charlotte. Thanks for taking my two questions. The first one actually relates to the pretty strong order intake that you guys have been delivering in the past six or seven quarters, maybe with the exception of this quarter, but you had a pretty healthy order book so far. Despite that, we still see limited growth in DMT and CC averaging probably in the low single digit region. Still struggling to reconcile how that is

Maybe also wondering when we could see this strong order momentum transforming into sustainable or faster growth. That would be the first question. The second question relates to Enterprise Informatics, which used to be a strong growth driver for the business. We have now two quarters in a row of sales decline. Just wondering whether this is still this transition to more of a SaaS model impacting here, and here again, where we could see better trends in that line of business. Thank you very much.

Yeah. Thank you, Julien. Let me take the bridge from order intake. Indeed, we had the six, seven quarters of strong order intake. Actually, we see that also continuing with Q3 onwards. We believe we are on a good trajectory for strong demand of our products. That actually was in CC, that was also in IGT, and of course, we see now PD strengthening and following in the mix. That's kind of where you see the different phasing kicking in. We also have said earlier that indeed from a conversion perspective, we have seen some longer conversion times across modalities, because on one hand you see larger deals and therefore more complex implementation. You also just see that installation capacity is kind of more constrained in the market. There is a longer range.

What we have been showing, actually, is what you see with the 4% growth in the quarter two. Last year, we had 1% in quarter two of growth, right? This year we had four. Yes, there's PH contribution, but also in health systems businesses, we have been consistently stepping up. That's also what we kind of continue to do, and that's also what we have built in our plan. That's also how we have built the forecast. If you look to kind of how we're going through the full-year range, you will see a continuous strong PH contribution. But quarter by quarter, you see also that kind of the contribution of the health systems businesses strengthens. Then indeed, there you see that kind of the Connected Care mix has been, and will be out of that.

If you look into Enterprise Informatics, that is indeed exactly as you say. We talked about it earlier. As we move into this cloud business, we are winding still down some of the on-prem. That is changing. Those are big implementations, so we are in this in-between period where we see actually order momentum picking up, and we have been sharing that since last year that we are winning in orders. But actually, they come 12 to 18 months later into real revenue. Then also you have your software kind of conversion, right? Your SaaS model that is kicking in. There's seeing the dual impact of that. We also will see strengthening of EI. But it is slow. I just want to point that out because we are still in that kind of conversion perspective, but that doesn't hold back on CC.

On CC, we also guided that it will be in the range that we forecasted on sales with IGT and with monitoring very strong all-time high. That will continue to give. We have Azurion that we said was coming back into low single-digit growth in Q2 as well. That also contributes in CC growth. We will see EI slowly but surely picking up. That mix actually gives us a nice step up in CC in the quarters to come.

Thank you very much.

The full year range, right, for CC was the upper end of the growth range, right? That includes the EI part in it.

Great, thanks.

Thank you. We will now go to the next question. The next question comes from Hugo Solvet of BNP Paribas. Please state your question.

Hi, guys. Thanks for taking my questions. I have two as well, please. First on D&T underlying, so ex tariff. Charlotte, sorry if I missed that earlier, but can you expand a bit on the composition of the headwind in Q3 between mix, FX, and inflation? Thank you. Second, Roy, you alluded to the strength in India. Do you see increasing competition there from Chinese player in the country and how your positioning and pricing plays out in this market? Thank you.

Yeah. Hugo, thanks for your questions. Just to confirm on D&T ex tariff, you mean Q2, not Q3, I guess, right?

Yeah. Q2. Well, if you can give us Q3, that would be great as well.

From a D&T perspective. First of all, let us take us back to what we said last quarter. We said last quarter, we expect overall for Philips a slight decline in margins versus last year, which is exactly where we came in. We feel good about that. We have expanded our margins by 10 basis points overall at the Philips level, in the first half of the year versus last year. Now, as I said previously, there's a little bit of a mix effect there. Connected Care did really well, expanded margins, excluding tariffs. Personal Health expanded the margins excluding tariffs. D&T, indeed, we saw a decline. A few different reasons for that. That is, first of all, we had cost inflation, that was hitting us harder in D&T than it was hitting us in other segments.

We, of course, have tariffs hitting us in Q2 for the full quarter. That was also impacting D&T a little bit harder. We saw some additional negative currency effect there as well. The other component is that China remained a headwind, and we've spoken about it. It is a bigger headwind in D&T, specifically in PD, with specifically ultrasound being a high margin modality. Also good to know, if we look at Q2 of 2025, specifically for D&T, that was the highest margin quarter since 2021. It was also a very high comparable base.

Let me take India just shortly because I think we also need to get to conclusion. India is an exciting opportunity. What we do see, and actually that the growth is coming and that's both consumer as well as health systems from the premium segments for us. Of course, it's a large market and you see kind of they're looking for a mix of solutions. How we are winning is with really our quality solutions, our platform-based approach, both in health systems and then very high, and also the innovations that are driving good growth. Therefore, also the margin that comes in is actually contributing to total margin. We are seeing a prospect in which we can develop and strengthen a further attractive business for us, both in terms of growth, but also with a margin that actually supports us strengthening in the future.

All right. Thank you. Our last question today comes from Graham Doyle of UBS. Please state your question.

Yeah. Morning. Thanks, guys. Just a couple of ones for me. Just firstly on the Q3 guidance, did you always expect margins to be down in Q3? I'm just trying to work out how much extra work has to be done versus the original guidance, in order to keep the full margin range for the full year intact. Roy, just on the second question around order intake. Obviously, you commented around some orders being pushed into Q3. Is it reasonable now to expect orders to be up something like mid-single digits plus as they have been for the last six quarters? Thank you.

Yeah. Thanks, Graham. Let me take your first question. I can be very simple. Yeah, the margin phasing as we see it throughout the year is exactly in line with our underlying plans. It is exactly in line with how we saw the year play out. Nothing else to see there from that perspective.

From the order intake, yes, you should expect that we return to this mid-single-digit range in Q3 and beyond.

That's super clear. Thanks a lot, guys.

Thank you.

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

Yeah. Thank you for listening in. As we said at the beginning of the call, three core messages. One is we delivered first half in line with our plan in an uncertain environment, demonstrating growth, orders, sales, and a step up in margin. We are fully in line with our full-year plan, and therefore we reiterated with confidence our guidance on comparable sales growth range of 3%-4.5%, and we raised our adjusted EBITDA margin and free cash flow outlook to reflect the tariff refund. We are excited about the journey. We remain very disciplined and agile to operate in an uncertain environment, and we look forward to see you later on the road, and to keep engaging on you on how the world trends. Thank you so much.

Welcome to the Philips first quarter 2026 results conference call on Wednesday, 6th of May, 2026. During the call hosted by Mr. Roy Jakobs, CEO, and Ms. Charlotte Hanneman, CFO, all participants will be in the listen-only mode. After the introduction, there will be 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. Durga Doraisamy, Head of Investor Relations. Please go ahead, ma'am.

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.

Thanks, Durga. 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 2026 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 6th 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 year 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 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. 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 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 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, 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 Hospital Universitario Nuestra Señora del Rosario 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 OneBlade 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. That is already translating into stronger regulatory momentum for approvals of new product introductions. In Q1, we received 25 510(k) clearances and pre-market approvals, more than doubling year-over-year. In MRI, we received FDA 510(k) 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.

SmartHeart 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 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 85cm bore.

It is designed for high throughput environment with an AI-enabled workflow and improved 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 the Sharper 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 S9000 Prestige. It 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 the Time's Best Inventions 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 OneBlade handles and 100 million blades. This growing install base supports profitable recurring revenue from consumables with strong replacement blade performance in the quarter. In oral healthcare, we unveiled new 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. 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.

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 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 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 previous quarter. We remain vigilant in managing ongoing developments in supply and cost. As we look ahead, we will continue to deepen the 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. We are seeing lower order conversion consistent with recent trends. These dynamics continued in the quarter, contributing to ongoing pressure on equipment demand.

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 & 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 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 EPIQ CV, point of care ultrasound, BlueSeal MR, and CT 5300 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 IntelliVue 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 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 Shaver S9000 Prestige 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 100 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 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 IGT 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 from 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 Philips 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 1.8 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.

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, based on our Q1 performance, our outlook for the full year remains unchanged. We expect comparable sales growth of 3%-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. Uncertainty remains. 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 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 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.

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 the system-wide approach to imaging and diagnostic technologies. Importantly, this partnership is also strong validation of our innovation 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 full year outlook, which includes currently known information but an uncertain macro environment. Thank you. 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 yourself 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 Al-Wakeel 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, you know, the mid-single-digit order growth in DNT 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 DNT. 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. Thank you.

Thank you, Hassan. Let me go to the first one, the mid-single digit DNT growth. If you look to the buildup of that, actually that is a continued, very strong order intake in IGT, which actually is trending at high single digits and above, so very, very strong. That of course, over multiple quarters. You see that we also had mid-single digit PD order intake outside of China. Of course, China is affecting the PD order book as well. We see a very strong overall mix, and we see increased demand, and particularly also for MR. We called out, of course, the helium-free, but also, we have seen just the broad-based interest in the MR solution really growing also as modality in itself.

That also gives us confidence for the further conversion in due course of the year into the latter part of the year from a sales perspective. U.S. is a strong contributor to that, has remained very strong. 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. As you also said before, it's not evenly spread across all health systems.

The bigger systems are winning more, that's also where we're well-positioned with our platform-based solutions. 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 AdventHealth, with WellSpan Health, we had more.

That's really working out and we see that U.S. actually will continue to be a strong contributor for us. Europe actually was also strong, so I think we want to call that out that Europe was doing well and is picking up. 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.

IGT and MR are solid. CT and ultrasound are the most exposed to centralized procurement, and therefore they have the biggest impact. On the consumer side, you saw that actually PH grew, but it was on easier comms. We do see some sales sell of momentum in PH. That's also what we expect for the rest of the year. In essence, a similar trend of a subdued kind of MedTech portfolio, then PH contributing and therefore the full year China sales are expected to be stable.

That's also as we have planned it. In that sense, kind of this is tracking alongside what we planned for, where the biggest growth has to come from North America, Europe, and international region. China is contributing as the market gives the opportunity. 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.

In that perspective, actually, we see that where we have been focusing our strategy, it's really coming also to fruition. Cause North America, IGT, extreme stronghold. Monitoring is doing really well as well there. We see the ultrasound momentum going up. I think, we're well-positioned, to execute our plan as we have built it for the year on the growth side. Maybe that's a nice bridge to Charlotte to then also talk to the margins, as of course, we have evolving developments there.

Thank you very much, Roy. Hello, Hassan. Indeed, as you said, we were pleased with how the margin has developed with the 40 basis points expansion in Q1, despite the impact of tariffs. 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. CT 5300, 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 helped lift our margin. Then we see the continued momentum also from our MR BlueSeal at a higher margin as well. That is certainly helping us.

We continue to do our productivity work. We are pleased with our EUR 126 million of productivity in Q1. You've seen it last year. We finalized our EUR 2.5 billion program last year. It's a real strong muscle we have built and that we're now expanding spending on, which is really creating self-help in what is a turbulent situation. With this productivity, we're nicely on track there. Offsetting that 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 anticipated initially, also after, of course, the Supreme Court struck some of the tariffs.

If I then look forward, Hassan, based on your question, what does that mean for the outlook? 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. Offsetting that is us really leaning into mitigating that with supercharging AI, further reducing our bill of material cost and also doing selective pricing. 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 Felton of Goldman Sachs. Please state your question.

Thank you very much. Good morning. Two questions from 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? 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 Diagnosis was due to China? That's the first one. Second question is, sort of slightly longer-term question, I suppose, on the sleep business ex-U.S. 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? Thank you.

Yeah. Thank you, Richard. 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. Volumes are actually holding, but you see that the value is decreasing, and that is putting the downward pressure. In our IGT 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.

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, kind of you see that it's very small part of it. Actually there's not a big, a big hit. The biggest hit is indeed in PD with the ultrasound and CT1. That's kind of also therefore hitting the performance in the first quarter. 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. As you know, that's also working.

If you look to the DI China part, as we said earlier, that is around 15% of global. In the mix, you see that MR is 50% of that. That's better protected. The bigger pressure is indeed on the CT and the ultrasound part. Then you have IGT percentage in China is slightly bigger than the 15%. It has of course, a strong contribution also from the other parts, and it's better protected from centralized procurement. That's a bit of what I can say about the mix.

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. Still where we find we can differentiate is the MR BlueSeal for sure. We see also that actually, they kept that out of the CP for biggest part. It's our IGT franchise, which is really differentiating. There's no kind of alternative in the market. We see ultrasound cardiac actually also being better performed. But of course, that's a smaller part of the cardiac of the ultrasound market in China. That's why you see that in the other ultrasound parts, there is a bigger pressure.

On sleep, I think, if you look at sleep outside of U.S., we see strong double-digit growth, that's led by Japan, but also it's coming from the markets where we are coming back. That's offset by the ongoing respiratory pruning effect. That's kind of where you see the mix effect coming in, where the comparison is normalizing towards end of year. That also should improve towards the end of year.

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 dialing in. 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.

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. 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 that's actually forging ahead also as planned.

Thank you, Roy.

Thank you. We will now go to the next question. Your next question comes from David Adlington of JPMorgan. Please state your question.

Hey, guys. Thanks for the question. Apologies, it's a very busy day, so I've been on another call. Maybe for some costs, and I think you may address some of this, but obviously GE pulled out cost inflation, most notably on memory chips. Just wondering if you could sort of help give some further color there and maybe quantify the exposure. Secondly, obviously another great quarter for Personal Healthcare in terms of growth. I'm not sure if I quantified the contribution of price or not, but that would be useful. As we 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. From a cost inflation perspective, and maybe a few things. As I said earlier, we do see cost inflation impacts. We do see that, and we've taken that into account in our guidance. And we, 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. At the same time, we've included mitigation actions that we are taking, including, for instance, reducing our bill of material costs even further, going hard after AI-enabled savings and also selectively increasing our prices.

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. Some of the tariff tailwinds that we're seeing after February are also helping us. There's a little bit on that. Your second question on Personal Health and the effect of pricing. 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 a slightly positive pricing, which is probably mostly attributable to the innovations that we've been seeing, like the Shaver S9000 Prestige, like the new Sonicare range that we've introduced. That has helped pricing a little bit. If I look to the remainder of the year or the full year, I should say, we have reiterated our guidance from 3%-4.5%, we've also said that PH will be at the higher end of the guidance. We are reiterating that today because as you said, the comps 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.

Maybe one addition. What, what is also helping it, David, is that we have been really expanding our retail distribution. Actually, we have been getting listings and placements in the wet shelf and particularly of big retailers. That actually really gives us additional sustainable growth opportunity for the quarters to come. 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.

Great. Thanks, guys.

Thank you. We will now go to the next question. Your next question comes from Veronika Dubajova of Citi. Please state your question.

Hi. Good morning, Roy and Charlotte, 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 competitor/suppliers is changing ownership. I'm just curious, Roy, how you're thinking about what impact that might have on your business and whether this is strategically a positive, a negative, a 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 would be super helpful. 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. If you very briefly could comment on your Q2 margin expectations, that might also be helpful. Thank you so much.

Thank you, Veronika. Let me take the first one. On the patient monitoring, you saw that actually the strong momentum continues, strong order intake. Actually, we are playing a platform play there that actually really resonates well with our customers. As part of that, actually, we have strong partnerships. Masimo 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. There's a real intrinsic interest to actually connect with us to the customer. 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.

That has been benefiting the partnership with Masimo in past years, and we believe that will be also going forward. We see it as at least net neutral, and I think we are excited to work also with any new owner there to kind of grow the franchise and make it work for our customers and to differentiate also towards competition. This is one of the strongholds, the combination that we have very strong cybersecure platform with 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. That has been driving all these long-term partnerships and also the share gains in monitoring along the way.

Yeah. Thank you, Roy. Let me take your second question Veronika, on inflation. 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. 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.

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. We started building them. Those are a little bit back-end loaded, and they will start coming in the second half of the year. To take you through what we're doing, first of all, we're doubling down on bill of material productivity.

We've always said there's more to go after, and we're now doing that with increased speed. 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. We're doing selective pricing as well. 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. You also know that we've been a little bit prudent in the way we've put our full year guidance out as well. That, of course, has given us a little bit of buffer as well.

Now to your question on Q2 specifically and Q2. 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. You know, we've spoken about it a lot of times, the way the tariff impact flows into our P&L. It first goes into inventory, and then it flows into our P&L. We have, again, a tough comparable from a tariff perspective. 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. We therefore expect our mitigation impact to be a little bit more back-end loaded.

Well, thank you, guys.

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

Yes. 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. 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 initiative contribute to margin?

The second question is more specific on enterprise informatics. You indicated that sales were down a low single-digit in Q1, and you mentioned the usual unevenness in revenue generation. If you could shed more light on why that happened specifically and what we should expect for the remainder of the year and maybe also in the midterm, that would be helpful. Thank you.

Thanks, Julien. Julien, let me take your first question on pricing. Yeah, we've called out also last year, you might remember, 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. I'll give you a few examples. We've increasing our prices in Image-Guided Therapy. We're doing that in also to patient monitoring. We're doing that in some of our service contracts, and we're doing that in some of our time and materials. 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. 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 price increases and price discipline, which is now helping us implementing that with a little bit more speed.

Thank you, Julien. Let me then go to EI. In EI, we see a couple of trends as we also alluded to when we had the capital markets day. 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. 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. If you then look at the sales trend, this is indeed 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, that's the lumpiness 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 SaaS model, where you see that kind of the revenue flows in over a longer period of time. That actually gives you more recurring attractive revenue stream for the longer run, but of course, gives a bit of a hiccup in these quarters. We see positive interest.

We see the integrated diagnostics story really picking up with customers, and of course, fueled by AI and the data play, and we are really working how we can tap into that. We see the funnel growing also supportive with what we're doing with Amazon. Lastly, you saw also sort of kind of on the monitoring side, the Capsule and HPM combination is already working. You see also this kind of combination play really driving driving impact. we are kind of positive on that notion as well that that will come through in due course of the year.

Thank you very much.

Thank you. We will now go to the next question. Your next question comes from Hugo Solvet of BNP 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? Second, a bit more long term, when we think about the full year 2028 targets, all in, you have around the 600-700 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 where they are at the moment? Thank you.

Thank you very much, Hugo. Let me start with your first question on Q2 margin. 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-on-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 strong plans in place and very granular plans in place to start offsetting that. 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, 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. 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 beat.

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

Hi. Thanks so much for fitting me in at the end. My question is just on DNT, 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 Verida for you, just how that's progressing and how we should be thinking about the sales contribution for 2026. Thank you.

Thank you, Aisyah. I already called out Europe actually picking up and performing well in Q1. That's also, and particularly for DNT, where we see actually that and then within DNT also PD actually is doing really well in Europe. We see a few trends. One, MR already was picking up strong. We see that continued. If you look to the BlueSeal penetration now, actually that's really kind of going well, and we see a good funnel on the MR side.

With the new Verida launch, actually, we see very strong interest in spectral and how that now with a better workflow is really helping to support high volume throughput at high quality imaging. We've secured the first order already. We have an installation ongoing. Very good reference as well, very strong clinical support. We have a kind of good expectation that Verida will be doing really well in Europe, and we see the first proof points of that coming through. Lastly, ultrasound. Ultrasound actually is also doing well.

Indeed, we had some competitors as well in this space, actually ultrasound in Europe has been already starting last year, picking up very strongly. After we kind of came out with our latest Epiq launch and also the Flash. We have good order momentum of ultrasound in Europe, strong positioning. Actually we are quite excited about the momentum in Europe, how that is increasing and especially also how our AI-based, but also, I would say high productivity and performance solutions really hit the mark in a market that needs to be also kind of conscious of the spend in the environment that we are in. 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, there's been obviously volatility. How meaningful is the incremental headwind? Is it something that was completely within your buffer, or are you doing other things to sort of mitigate?

Roy, just on China, you've mentioned a few times at the CMD and today about kind of playing to win in certain segments. Is there any way within reason that you kind of identify to us the areas where you understand that perhaps you can't win, and therefore you've built it into your guidance that you kind of know that there's areas where you're probably deprioritizing? Is that possible to maybe contextualize that for us? Thank you.

Hi, Graham. Thanks. Let me take your first question on the inflation. Indeed, we guided in February, only three months ago, although a lot has happened. As I said before, we are seeing an incremental headwind in plastics, in also freight. It is 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. There are a few components here, right? 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 we are taking into account as well, and which is offsetting some of the inflation. 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.

Also leaning in even harder in what we know and do very, very well, which is driving further cost discipline. We've always said there's more to go after, so we're doing that now with double speed as well. 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 12.5%-13% for the full year.

Thank you, Graham. Then on China, indeed, I think the differentiated play is becoming more important. To give you some examples where we see that actually we have really a right to play and to win, 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, NMPA, 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. 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.

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 in totality. You see quite brutal competition on GI. The same with CT. CT spectral, actually, we have again, one of the stronger installed bases of CT spectral is in China. If you look to the more generic CT, that's really very strong competition. That's kind of where we said that's not our gameplay.

Then we exited DXR because we said that's so commoditized, that's not our game 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 also at price points that are not attractive to us. We made distinct choices.

Actually within those segments, we also see that we are really trending with market or even kind of doing well within the market momentum. There is just a subdued overall market environment that we have to operate in. 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 expectations. In that sense, I think we de-risked China in our plan. We're playing there to tap the opportunity that we have. 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. Then of course, there's also still components and sourcing that we get from China. China for us is a wider market than demand only, and that's why we kind of keep a strong footprint there. 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. Jakobs, 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 to operate in. We have with confidence reiterated our 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. Thank you for your attention again. Have a further great day.

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