Koninklijke Philips N.V. Q3 FY2025 earnings call

• Order intake grew 8%, marking the fourth consecutive quarter of improvement, with strong demand for products and disciplined execution.
• Comparable sales grew 3% year-on-year, with all businesses contributing to growth, particularly Personal Health.
• Adjusted EBITDA margin expanded by 50 basis points to 12.3% despite tariff impacts, driven by gross margin delivery from innovation and productivity/cost management.
• Personal Health had strong, broad-based growth across segments, including premium products like high-end shavers and IPL devices.
• Supply chain improvements with higher service levels (87% in the quarter) and multiyear agreements, demonstrating speed and agility.
• Innovation and AI adoption driving productivity, e.g., GenAI in Personal Health and AI in Enterprise Informatics for R&D, customer support, and sales/marketing.
• Regulatory efforts to address FDA warning letter, with ongoing quality remediation and focus on rebuilding trust.

Diagnosis & Treatment (D&T): Comparable sales improved sequentially, up 1% year-over-year. Image-Guided Therapy saw strong demand for Azurion 7 system. Ultrasound orders grew due to robust demand for EPIQ CVx systems. Diagnostic Imaging had strong demand for BlueSeal MR 5300 and CT 5300 but experienced a modest decline in order intake. Year-to-date order growth in D&T was 6%. Connected Care: Comparable sales grew 5%, driven by strong growth in Monitoring. Order growth in Enterprise Informatics was stable. Adjusted EBITDA margin improved, partially due to operational leverage and productivity. Personal Health: Comparable sales increased 11% in the quarter, with broad-based growth across regions. Grooming and Beauty, Oral Healthcare, and Mother and Child Care all performed well. Adjusted EBITA margins improved by 60 basis points to 17.1%. Other: Sales decreased by EUR 41 million primarily due to lower royalty income.

• Reiterate full year comparable sales growth outlook in the range of 1% to 3%.
• Expect 2025 adjusted EBITDA margin to be at the upper end of 11.3% to 11.8% range.
• Full year free cash flow expected between EUR 0.2 billion and EUR 0.4 billion.
• Q4 expected to sustain momentum with disciplined execution to achieve full year plan.

• Impact of tariffs and trade barriers on innovation, access, and affordability of care.
• Uncertainty in regions like China with cautious consumer sentiment and challenges from centralized procurement.
• FDA warning letter and ongoing quality remediation efforts posing potential operational risks if not managed properly.

Q: General question on price hikes going forward. How to think about price increases going forward?

A: Roy Jakobs stated pricing is driven by innovation, productivity, and cost discipline, with some pricing opportunity but growth remaining critical.

Q: Contribution of China in Personal Health quarter. Any restocking effect in China?

A: Charlotte Hanneman mentioned Personal Health sales in China had a low comp base due to inventory destocking last year, but excluding China, there was broad-based growth; no restocking seen.

Q: Maintain productivity momentum into 2026 and offsetting tariff headwind. Can fully offset annualized tariff impact next year?

A: Charlotte Hanneman said focused on 2025 delivery and will provide more details at Capital Markets Day 2026 on 2026 plans.

Q: Order timing in D&T and evolution of Diagnostic Imaging sales. Impact of Section 232 on Imaging and Connected Care?

A: Roy Jakobs discussed order timing lumpiness in D&T, expecting improvement in Q4; on Section 232, actively engaging to mitigate impacts and investing in U.S. manufacturing reshoring.

Q: D&T in China, win rate, market growth; warning letter impact on ultrasound and informatics.

A: Roy Jakobs discussed D&T order momentum in China with tender activity but challenges from centralized procurement; warning letter related to process remediation, no impact on results expected.

Q: GE's decision to sell Chinese business, potential share pickup; FX hedges rolling off impact on margin.

A: Roy Jakobs noted GE's decision doesn't affect Philips' competitive positioning; Charlotte Hanneman said Q4 may see FX headwinds, fully included in guidance.

Q: D&T sales guidance downgrade, China impact; IGT growth deviation; warning letter impact on CPAP market.

A: Roy Jakobs said D&T downgrade partially China-related, IGT growth due to supply chain, no warning letter impact on CPAP; focused on remediation.

Q: Connected Care order performance drivers, Enterprise Informatics AWS partnership impact.

A: Roy Jakobs said Connected Care order growth driven by patient monitoring partnerships and open modular approach; Charlotte Hanneman noted AWS partnership supports cloud migration and EI growth.

Q: Q3 Respironics business performance, earnings adjustments reduction.

A: Roy Jakobs said Respironics business saw margin improvement but ventilation reset affected sales; Charlotte Hanneman said adjusting items expected to reduce over time through process strengthening.

Q: Margin impact from innovation SKU reduction, North America growth confidence.

A: Charlotte Hanneman said SKU reduction is a journey with margin improvement; Roy Jakobs said North America growth expected to continue due to sustained momentum in hospital needs.