PHG

Geographic Growth Trends

• Growth in North America and Europe is accelerating faster than management originally planned, with Europe delivering double-digit growth that is expected to continue
• China continues to contribute to growth with new product approvals including NCT, but recovery has taken longer than hoped, with the slowdown most impactful to the D&T segment particularly in high-margin ultrasound
• India has emerged as a strong double-digit growth contributor with a sizable existing market footprint, and offers significant long-term opportunity as the fastest growing major global GDP; management is collaborating with the Indian government to expand care access leveraging AI technology
• Global growth from other regions is on track to offset any extended slowdown in China, in line with the company's cautious outlook

Operational Update

• The company has delivered six to seven consecutive quarters of strong order intake, with this momentum continuing from Q3 2026 onward, with strength across CC, IGT, and a strengthening PD (Diagnosis & Treatment) segment
• Order conversion to revenue is delayed due to larger, more complex deals and constrained market installation capacity, leading to slower near-term revenue growth
• Enterprise Informatics is in a transition period from on-premise software to a cloud SaaS model; legacy on-premise business is being wound down, and new cloud orders will recognize revenue 12 to 18 months after booking, leading to temporary sales declines
• Overall company margins expanded 10 basis points in the first half of 2026 compared to the prior year, in line with earlier guidance that full-year margins would see a slight year-over-year decline

• Management reaffirmed its full-year comparable sales growth guidance range of 3% to 4.5%
• Management raised the full-year adjusted EBITDA margin and free cash flow outlook to reflect a tariff refund
• Q3 2026 margin phasing is fully in line with original underlying annual plans, with no unexpected changes to the full-year margin outlook
• Order intake is expected to return to mid-single-digit growth in Q3 2026 and beyond, maintaining the trend of the prior six quarters
• Enterprise Informatics is expected to see slow but steady improvement in sales growth as the SaaS transition progresses, with overall connected care sales remaining on track to meet the existing forecast

Disaggregated segment-level financial results are not included in the provided transcript. The call notes that Connected Care (CC) saw stronger margin expansion than the Diagnosis & Treatment (D&T) segment, and Personal Health (PH) also expanded its margins excluding tariff impacts. D&T saw an overall margin decline in the quarter, while connected care sub-segment Interventional Guided Treatment (IGT) and patient monitoring hit an all-time high performance, and Surgery & Critical Care (SRC) returned to low single-digit growth in Q2. Enterprise Informatics (EI), a connected care sub-segment, has recorded two consecutive quarters of sales decline during its business model transition.

• An extended slower-than-expected recovery in China creates ongoing headwinds, concentrated in the high-margin ultrasound segment of D&T
• Delayed order-to-revenue conversion due to constrained installation capacity and larger, more complex deals creates near-term pressure on revenue growth
• Temporary sales declines in the Enterprise Informatics segment during the SaaS transition are expected to persist until the new revenue model is fully ramped
• Cost inflation has a disproportionately negative impact on the D&T segment compared to the company's other business segments
• Tariff impacts negatively hit D&T margins harder than other segments in Q2 2026
• Negative currency exchange movements create additional headwinds for D&T performance
• D&T faced a particularly strong high-margin comparable base in Q2 2025, making year-over-year comparisons more challenging

Q: The company has had strong order intake for multiple quarters, but DNT and CC still only see low single-digit average growth. When will strong order momentum translate to faster sustainable growth, and what is driving the sales decline in enterprise informatics? / A: Strong order momentum has continued into Q3, with strength across CC, IGT, and the strengthening PD segment. Order conversion to revenue is delayed by larger, more complex deals and constrained installation capacity. The company has already stepped up growth from 1% year-over-year in Q2 2025 to 4% in Q2 2026, with sequential strengthening of health systems business contribution expected through the year. For enterprise informatics, the sales decline is an expected effect of the transition to a SaaS model; legacy on-premise business is being wound down, and new cloud orders recognize revenue 12 to 18 months after booking, so growth will pick up slowly.

Q: What factors drove the headwinds to D&T margins in Q2, and do you see growing competition from Chinese players in India's market? / A: D&T margin decline came from four main sources: higher cost inflation than other segments, larger tariff impacts, negative currency effects, and ongoing China headwinds concentrated in high-margin ultrasound. D&T also faced a very strong high-margin comparable base in Q2 2025, which amplified the year-over-year decline. For India, Philips is growing in premium consumer and health system segments by leveraging high-quality solutions, a platform approach, and innovative product offerings. This strategy delivers strong margins, and the company sees attractive long-term growth prospects in the market regardless of competition.

Q: Was the expected Q3 margin decline in line with original plans, and is it reasonable to expect mid-single-digit order growth to continue? / A: Q3 margin phasing is exactly in line with the company's original underlying full-year plan, and no extra work is required to keep the full-year margin range intact. Management confirmed that order intake is expected to return to the mid-single-digit growth range in Q3 and future quarters, matching the trend of the prior six quarters.