Hi, everyone. Welcome to Philips' Fourth Quarter and Full Year 2023 Results Webcast. I'm here today with our CEO, Roy Jakobs; and our CFO, Abhijit Bhattacharya. The press release, investor decks and the frequently asked questions on the Respironics field action were published on our Investor Relations website this morning. The replay and full transcript of this webcast will be made available on the website after the call. Before we start, I want to draw your attention to our Safe Harbor statement on screen. You will also find the statement in the presentation published on our website. In today's call, we will discuss our results as well as the progress on the actions we're taking across different areas to drive performance improvement. I would like to hand over to Roy.

Good morning. Welcome. Great to be with you today. I want to start with the key highlights of this morning's release. We delivered a year of strong sales growth, improved profitability and very strong cash flow. The improved operational performance is a result of the solid execution of our plan to create value with sustainable impact. We are making progress on all our three priorities; enhancing patient safety and quality; strengthening supply chain reliability; and simplifying our operating model, supporting significant productivity and margins. Patient safety and quality remain our highest priority across the company. We agree with the FDA on the terms of a consent decree focused on Philips Respironics in the US, which provides clarity and a road map for us to demonstrate compliance and restore the business. We are confident in delivering the previously stated plan for 2023 to 2025, which now takes the consent decree into account and remains unchanged, although recognizing uncertainties remain in a volatile geopolitical environment. Based upon our ongoing actions to enhance execution, we expect further performance improvement in 2024. On to the key financial highlights. Comparable sales growth was 7% in the full year, excluding the impact of provisions charged to sales mainly in connection with the Respironics consent decree, which we will explain later in the call. Sales growth was 11% in D&T, 5% in Connected Care and 3% in Personal Health. Group comparable sales growth, including the impact of the provisions mainly in connection with the Respironics consent decree was 6% for the full year. The adjusted EBITA margin was 10.5% in the full year, excluding the impact of the provisions mainly in connection with the Respironics consent decree. This is a strong improvement of 310 basis points versus 2022. Adjusted EBITA margin, including the impact of those provisions…

Thanks Roy. Good morning everyone, and thank you for joining us on the call. Let me start by providing you some clarification on the charges we took in the fourth quarter connected with the consent decree and explaining its accounting consequences as well. In the fourth quarter, we recognized €363 million in charges connected to the consent decree. This includes provisions charged to sales for field action activities, mainly related to the ongoing remediation of ventilators and provisions charged to costs for the remediation activities, inventory write-downs and onerous contract provisions. Technically this had a negative impact of around 100 basis points on the comparable sales growth for the full year and 350 basis points for the fourth quarter. It also resulted in the positive impact of 10 basis points on adjusted EBITA margin for the full year and 40 basis points for the fourth quarter as the same absolute adjusted EBITA was divided by a lower sales figure. I understand there can be some confusion about our operational performance due to these impacts and I've noticed some headlines mentioning a miss compared to our outlook. I want to make clear that we came at the top end of our upgraded comparable sales growth outlook of 6% to 7% and at the midpoint of the upgraded adjusted EBITA margin outlook of 10% to 11% provided in October, and free cash flow was significantly above our outlook. I hope the above aforementioned explanation helps to clarify. For comparison purposes during this call, I will refer to figures excluding the impact of these provisions as it will help to compare operational performance against the outlook provided earlier last year. In this morning's press release as well, as the slide deck, you will find the reconciliation between the metrics including and excluding the…

Thanks Abhijit. I would like to continue with some of the progress we have made on our execution priorities and focus areas for the year ahead. First, we're taking the learnings of the Respironics field action to raise patient safety and quality to the highest standards across Philips. A year ago high elevated patient safety and quality to the Executive Committee by creating a new leadership position to drive this priority across the company. We drove significant simplification of the way how we work by further reducing the number of quality management systems, which is already 50% down since the inception of the program against our target of reducing them by 65%. We added significant capabilities and talent across the businesses and continue to invest in our systems capabilities and in training and education. We also improved our capital closures by strengthening processes, capabilities and governance around it. Looking ahead, we will remain focused on driving the cultural shift to deliver the highest quality innovations and put safety and quality at the center of everything we do with a greater level of accountability within the businesses. With respect to the supply chain in 2023, we reshaped our setup and moved to customer-centric end-to-end teams aligned to our businesses. We significantly reduced materials and component risks resulting in a 20% increase in service levels, reduced lead times and improved sales conversion rates. For example, we redesigned more than 75% of the planned PCBs and derisked all high-risk components identified at the end of 2022. We will continue leveraging and regionalizing our end-to-end supply chain and further reduce lead times in 2024 enhancing reliability and service levels. Finally, our new operating model with prime accountability in the businesses has been live for nine months now and we have fully completed the realignment…

Thank you, sir. [Operator Instructions] Thank you. The first question comes from the line of Hassan Al-Wakeel from Barclays. Please go ahead.

Hi. Good morning. Thank you for taking my questions. I have three please, if we can take them in turn. Firstly, can you talk about the portfolio pruning in Connected Care and why you've chosen to exit some of these businesses in the US? Was this directed by the FDA? And what is the combined revenue from these devices? And how should we think about 2024 revenue growth in Connected Care on a clean basis?

Thank you, Hassan. Let me take that question. So, we have been starting to prune our portfolio on an ongoing basis. And we did that across the portfolio of Philips, which we have seen in various products, but also businesses. We also did that in Sleep & Respiratory Care. What is important to understand is that actually, these prunings actually are aimed to accelerate our performance. And so far, as you have seen also in 2023, that is actually what they do. So also for the Sleep & Respiratory Care business and also what you've seen in terms of the pruning that we take there, it's aiming at the same objective. We see that Sleep & Respiratory Care bottomed in terms of the €1 billion of revenues. And with the clarity that we have now with the consent decree and the road map to get to compliance and to restore the business, actually we are able to build from there. And actually that is also why we were happy to announce that actually we could now confirm that we remain on our plan including any consent decree implication for 2023 to 2025. And I think, as you remember when we started last year with the plan and we said that we have a three-year trajectory there were questions around what consent decree could still mean. Now we can take that unclarity of the table and we remain very committed. And based upon the first year, where we actually overdelivered first, the first year plan because I mean also remember, where we started we said low single-digit growth where we did 7% growth. We said, we would do high single-digit EBITA. We did 10.5% EBITA and we committed to €700 million to €900 million of cash. We did €1.6 billion cash. That actually was excluding inside of the consent decree. Now we continue including the consent decree and we remain fully committed to the plan as we have.

And sorry, just the combined revenue from these devices and the expectation for connected growth – Connected Care in 2024?

So it's really immaterial that's also why we would not disclose. We remain very committed to the 3% to 5% growth for 2024 and that includes any impact of any pruning that we did in 2023. And that was not only in SOC. We also did it in D&T. We also get some pruning in Personal Health. So actually we have been pruning across the portfolios. But actually what we do is to focus our efforts on the innovations that we can scale faster and better, right? So that we have less fragmented portfolio and the portfolio that we have does make a better impact and also that helps us to drive better margins because we said also, if you kind of consolidate your portfolio more you will be able to get more leverage and that will support your margin trajectory as well.

Perfect. And then secondly so another on the consent decree. Could you help us understand the time line of your return to market in the US, given you talk about a multiyear process and the duration of profit disgorgement and whether you see any risks to selling OUS?

So on the first piece so we have – and will not be provided to kind of give a time line on that. I think we are committed to work through the consent decree as soon as possible. We're also taking all measures needed. We have a team lined up to do that. We will comfort with the details of the consent decree once it's core approved, so then you will also have further insight in what it means. But I would say the following. Regardless of when we come back, we will deliver on our plan. So actually we have been taking charge of the rest of Philips the – you know that kind of we have €18 billion of revenue €1 billion is SOC, but actually we will drive all of Philips to deliver on our commitment. And actually that therefore also gives us the opportunity to work through this and comply as we need to do. And there's no dependence on that trajectory for delivery of Philips. Outside of US, as you have seen already in 2023, we started to resume and come back into the market. Actually that will continue because we got the regulatory approvals. We already started to sell new CPAP and Bi-PAP devices. And we were continuing already earlier to service market with the consumers the patient interface. And we saw actually in the patient interface also some good performance. So actually we will continue that track. But what for me is the most important piece is, if you look to the totality of Philips in 2023, we have been growing every single segment D&T, Connected Care Personal Health. We have been pulling growth out of every geography, China, Europe and Americas and we will continue to drive that total performance in 2024 and especially, also based upon the strong cash performance that we showed in Q4 and for the full year. That of course gives also a very strong base to move further in kind of investing in the business, but also be prepared for anything that comes. And the margin improvement of 310bps in 2023, we of course need to continue. We said also we have a target now of 11% to 11.5%. And that's also underpinned by further growth momentum, but also the productivity measures that you saw. We -- took almost €1 billion of productivity that we realized in 2023. Now we take another 1,000 roles out in 2024. And we continue to work also on wider productivity, because we see also some market easing on for example, the procurement side that will help us to also drive further productivity to support the margin step-up.

Very helpful. And then finally on guidance, can you help us understand the breakdown and the rationale for 3% to 5% growth given the provision had an additional one percentage point drag in 2023? Is there anything driving caution here? Or are you trying to retain your more conservative approach to guidance? And then on the margins, how should we think about the 50 to 100 basis point margin levers by business segment?

Hi, Hassan. Good morning. This is Abhijit. No. Yes, while there is a bit of benefit because of the provision that went against sales this year, but we also over delivered. So we came at the top-end of our guidance for 2023. So if you net the two it's a few tens of basis points and given the wide range of 3% to 5%, I think there was no need to further change that range. That's one. I think on the profit improvement you will see that across businesses, like you've seen that this year. So we will continue to drive margins up in Diagnosis & Treatment of course, Connected Care as well but also Personal Health. And yeah, I think we'll leave it at that.

Thank you. The next question comes from the line of David Adlington from JP Morgan. Please go ahead.

Hey guys. Hope you can hear me okay. So first question really is just on the consent decree, I know it's a bit difficult had you still taking the call decision. But maybe beyond this year, just wondered if the ongoing costs particularly related to profit disgorgement will still be recognized below the line. I'm just trying to get an idea of how much the headwind we're going to see below the line in terms of the wages costs beyond this year. And then secondly, you put towards productivity initiative savings of about €960 million so far this year, but your overall EBITA is only up €600 million, so just wondering if you could put towards the underlying headwinds please. Thank you.

Yeah. Hi David a couple of points. So regarding the guidance we said the 100 basis points will be below the line this year for the whole remediation including the profit disgorgement, details of how much is for what we will come with only once we have the signed court order. To your second part of the question, yeah, of course we delivered like we said the €1 billion order of productivity. But of course there was also inflation in cost wages et cetera et cetera. So the net is what you see back in the P&L. So, that's -- you will see that also in our bridge.

Okay. Thanks for the details. Just to follow-up on consent decree, should we expect some below-the-line items in 2025 and beyond?

Sorry see what?

On the consent decree, …

Yeah.

…should we expect some one-off -- some one-off items in 2025 and beyond?

Yes. Yes. But we will come to -- we provide more clarity later, as we get more information. And the other thing may be important to understand is, the 100bps that we talked about and the additional cost that's all included in the cash outlook for 2024 and 2025. So we are not changing the cash outlook for 2024 or 2025, so this is all included in that.

That's helpful. Thank you.

Thank you. The next question comes from the line of Richard Felton from Goldman Sachs. Please go ahead.

Thanks. Good morning. Two questions from me please. First one is on D&T margin in Q4. So can you provide maybe a little bit of color around the mix impact in the quarter? I know strong growth in Ultrasound had been a tailwind through the year which I don't think was the case in Q4. But can you maybe help us quantify that impact please? Then the other driver that you called out in D&T margin for Q4 was the phasing of production and costs. Can you maybe explain what the phasing actually was related to and quantify the impact? Just trying to get a sense of the underlying margin trajectory for that part of the business. Then my second question is a little bit more of a medium-term one on Sleep & Respiratory Care margins. Look now that you have a little bit more visibility on the consent decree and I see more detail on what remediation activities are going to look like what level of profitability do you think is achievable for that part of business in the medium-term? Thank you.

Yes. Hi. Richard let me take the first one on the Q4 impact on Diagnostic Imaging. So a couple of things. One is the mix is not just on Ultrasound, but it was a combined mix of a few things. So we had not only the mix of lower Ultrasound, because last year we had, let's say, the backlog that we cleared, but also the geographic mix. So we sold more this year outside the U.S. and China. So that was another impact. And then also the mix between equipment and services was also slightly adverse compared to the year ago, because we sold -- we had good sales in MR, et cetera, so there's equipment sales, which comes at a slightly lower margin. So that was the mix impact. Now regarding the phasing of production that was -- we have also brought down inventory big time. So as you do that you taper off production, so that we start next year with healthy inventory, but not too high and that results in a slightly lower coverage of our factory costs. So that impacted the margin in the fourth quarter. And then there was some phasing of costs between -- through the year and more significantly in 2022 the annual incentive payments were very low because -- or nonexistent because of the poor performance. That of course comes as a cost this year. So that's the difference between the two years. So those are the three big buckets that impacted the margin in the fourth quarter. Your second question on SRC outlook. Look for sure we will get back to profitability, but we are not giving separate guidance on every business. I think you should see a significant step-up in the overall Connected Care profitability that we have given in our guidance and as part of that is also the improvement that we will drive in Sleep & Respiratory Care.

Thank you.

Thank you. The next question comes from the line of Veronika Dubajova from Citi. Please go ahead.

Hi. Good morning. Roy, Abhijit, Leandro. And thank you so much for taking my question. I will keep it to two please. One would just love to get your take on China and your current expectations as far as your installations in China are concerned, and what's embedded in the guidance for D&T both from a sales and a profitability perspective? Obviously, China is a very important and highly margin accretive market. So I'm just curious how you're thinking about the anticorruption activity and how that plays out in terms of the China revenue impact this year. Your commentary in order has been very clear. I'm really just curious about the P&L and what you've kind of factored it in there. And then I'll have a follow-up after that, if that's okay, but let's get this out of the way first.

Sure. Maybe -- thank you, Veronika for the question on China. I think China has been always an important part of our business also will remain an important part of our business. I think it's fair to say that we know that China is going through a difficult phase, macroeconomically from a growth perspective where the growth is lower with around 3% to 5% for the country, as they have normally been kind of customized to that has a consumer impact, but it also has an impact in Health Care. And there in particular on top we have seen of course the anticorruption measures. Now what we know is that on the anticorruption, they're working through a country program to actually go state by state. So what we have seen is that they have partly finished that program or at least they made a lot of progress on that in 2023, but we do expect that to continue into 2024. And therefore, actually, we are seeing that China is back-end loaded for 2024. We see gradual improvement in China. It will continue to contribute to our total plan and also embedded in the guidance of 3% to 5%. I think what is important from an order perspective, it's only 5% of our global sales, mainly in D&T. And also that on the consumer side, we have seen them coming back to growth, but we expect that to surely but slowly come further up. So China will strengthen throughout the year is our expectation. The government actions are not finished and they will still need to complete that program.

Okay. That's helpful. And Roy, would you expect China for D&T to be flat to grow or to be down for the full year?

No, it should grow. So we expect...

It should grow. Okay.

Yeah, yeah. It should grow.

Okay. That's great. And then my second question was -- and I think where you alluded to this in your prepared remarks some of the geopolitical risks, obviously thinking about shipping and freight costs. Obviously, you have some very localized manufacturing in the Middle East for the CT business. Just kind of curious how much of your legal room, I think that very highly technical term have you embedded around those risks when you've given the 2024 guidance? And I guess what is for you the single most significant area of concern that you have? Maybe Abhijit can chime in also on the freight side of things there. Thank you guys.

Yeah. I think we alluded to the uncertainty because we just learned that the world around us -- and remains volatile. I think the guidance that we have been giving the 3% to 5%, we are very confident in, based upon the execution improvements that we have been putting into 2023 because that gave us more agility. Also to adapt to situations like we see today, it gave us productivity to absorb some of potential cost increases. And I would also put into perspective kind of yes there is Red Sea for example developments. But if we look to the total freight cost that we have, this is a kind of immaterial impact that we currently foresee, there might be some kind of delivery times challenges, but actually that's -- we're also overcoming because we are kind of preempting that and we're working already full mitigation. So we are vigilant of what could happen to the world so far, kind of, we are on top of the developments both in Middle East. And I think the bigger concern that I think and you alluded to it earlier is that we need a strong global economy and we need all the geographies to contribute. And, therefore, China getting stronger I think is something that of course we all welcome. But also rest of world we see some strengthening in 2024. North America should be a bit stronger than in 2023 and we see also a focus of growth that we go after in Asia, for example, with Indonesia and Japan. And also Saudi we see some good opportunities. So we watch the world carefully I think by adjusting our operating model. We have become more agile to adapt to situations if they would occur. Currently we are dealing with any known issues well and they are taken into the guidance as you have seen.

Thanks guys.

The next question comes on the line of Lisa Clive from Bernstein. Please go ahead.

Hi, thanks very much. Just a question on your order book and the match up of inflation and cost increases, I know fairly early on as inflation picked up, you did manage to put through price increases. And just wondering if you could just remind us roughly what quarter that started and when that started coming through your backlog and after that initial round of price increases have you been able to continue moving prices up as inflation has not yet abated?

Yeah. I think what we did was we saw first small bit coming into Q3 and then Q4 a little bit more, but I think most of the let's say price increases you will see coming in 2024 that is what we had planned. So in [ph], we don't see further strengthening of prices. So we are where we are. Our margins are at a good level. We are driving productivity, et cetera to drive costs down. In selected areas in health systems, we continue with the price increases that we've had but we are also seeing component pricing and other things coming down. So we will manage that as a mix into the pricing strategy for 2024.

Okay. And then just a question on your sleep apnea business. Novo Nordisk will have a readout from an OSA trial for their GLP-1. And clearly ODC [ph] is a major contributor to sleep apnea, although Omni [ph] on the other hand is a very under-diagnosed condition. So just thinking about how the world seemingly has changed in the last few months around GLP-1s and the potential for even better drugs the potential for eventually generics to help lower the price point. Does that change your long-term view on the sleep apnea business particularly in light of the fact that you're actually just even going to be out of the market for a year or two as well at least in the US. Obviously you're able to sell OUS but the US has historically been your biggest market?

Yeah. Thank you, Lisa. I think we don't see changing structurally the market opportunity. We believe that there is a significant patient base out there as you say that's undiagnosed. Yes I think there will be a medication that will help address some of the causes of sleep apnea. We also note that on average a sleep apnea patient has five comorbidities, obesity is one of those. So this will help, but will not take the root causes away. We also know that CPAP BiPAP is by far the most effective therapy that is preferred and also in use and in demand. So we are committed to that segment. We also see the opportunity strong. We're fully focused on working through now the clarified road map for the US. And outside of US, of course, we are already coming back into play. So we believe that there is a strong road ahead that we will work through based on the improved clarity that we now have.

Okay. Thanks for that.

Thank you. [Operator Instructions] One moment please. We will now go to the next question. And the next question comes from the line of Sezgi Oezener from HSBC. Please go ahead. Hello, Sezgi your line's on mute. Due to no response, I will go to the next question. And your next question comes from the line of Graham Doyle from UBS. Please go ahead.

Good morning. Thanks for taking my questions. Just two kind of areas. So firstly just in terms of the adjustments and sort of the restructuring charge and secondly around the consent decree. In terms of adjustments kind of quick housekeeping one. Could you maybe elaborate on what the €81 million of D&T remediations related to in Q4 2023? And then just for 2024 it looks like if you do the sums roughly 100 basis points of the expected adjustments to EBIT is going to be related to the recall, again, which it just seems -- it seems a large number given you also say in the statement that more than 99% of the sleep recall was done. So could you give us a sense on when these adjustments will end I suppose. And then separate to that just on the consent decree, is there anything in your 2025 guide for Sleep & Respiratory sales in the US? And I know you don't want to comment on the specific products that were withdrawn on Friday. But given the quantum and the previous breakdown of revenue from these products it seems like a fairly sizable headwind, particularly, in the first couple of quarters next year when maybe you don't have the tailwinds coming through in revenue. So how should we be thinking about that H2 weighting that Abhijit just referred to for 2024? Thank you.

Yes. Let me take the first one. On the €81 million in charge that we took. So as I said when we start to plan patient safety and quality is an important focus area for us and we will put in new efforts to actually improve quality across the portfolio. That actually is where these charges reside from because we are also taking action across all our businesses. And in this case it was in the D&T area that we took the quality action and that is part of the improvement of quality. We also signaled that as part of the plan. We would invest behind that. These are some of these charges that you currently see coming through.

Regarding the adjustment of 100 bps so let me clarify there are two parts. One is related to the consent decree where we have running costs of the remediation. The second that we mentioned is regarding overall remediation in Respiratory Care, but also for the rest of the company. Now part of that is the legal costs will continue. There is some testing costs that will continue. So, yes, we are at 99% on the remediation of sleep. There is a very small potion that is left. We still have to do the ventilators for which we have a provision now. But let's say, the last part of the legal costs and testing and other related costs will continue into next year. Your last question was on, yeah, the sizable headwinds. I also saw it in your note you talked about €400 million of headwinds. I think Roy has clarified the €1 billion is the bottom that we see that was the revenue for 2023 and that is the bottom. So we don't see any further headwinds to that revenue number going forward. And in our outlook, all of this is taken into consideration.

Okay. Super helpful. Maybe just on the -- at that point the last point on the €1 billion of Sleep & Respiratory. You have given us plenty of disclosure in the past, so we can kind of reasonably estimate what masks is. It gets us to a number of €700 million or something in that region for all of the other non-mask non-sleep revenue in this division. And if I just go to the US website pretty much every product has been removed by the BiPAP's which you're now not selling. So, like it just seems like a large number. Even if it's half that number, or half of that number, it's still a big number. That's why I'm asking, it is there something that we're missing in terms of sales that's coming from a different part of Sleep & Respiratory that we either overlook or analysts have overlooked? That will be quite helpful to know and that obviously helps to bridge that 25 gap.

Yeah. Maybe, Graham, so first let me start from what Abhijit said, right? So the €1 billion that's the number that we built back from. When we talk about digital role to compliance, we saw business that's where we start from. What you see of course is there are mix shift underneath. We already stopped selling a lot in US, right? So, actually we are building there from already a base that actually was out there, right? We continue with patient interface which was the biggest part which already was in the forecast including consumables and accessories. Furthermore, as you know, we are building back outside of the US, right? So that's something that comes actually on top of what we're doing because that was not in the earlier guidance. So, I think, yes, we have published a list of pruning products, but that's not part of kind of lowering guidance. No. Actually, we have taken that into the guidance, and we will be building back from here. So, I think that's where we just really want to be clear that, there should be no misunderstanding that, a, we have taken all in the guidance. So, actually, we delivered 3% to 5% including the pruning that we did in SRC but also the pruning that we did in other businesses, b, that we have reached the bottom and we will build back. So we will make sure we comply as well as that we further restore the business, and what we also said Koninklijke as we will Koninklijke have not included this as part of our guidance and the plan 2023, 2025. We will not go into the specific breakdowns per product line of a business, because that's what we don't do in any business. And it should also not be of your concern as actually reiterated that we have a strong outlook right, and that we are committed to deliver that 3% to 5% growth that profit further step up to 11% to 11.5% and the cash which is a really important focus area. You saw that, we are very much focused on that. We had a very strong close on cash and we will continue that cash discipline moving forward. That totality of Philips that actually we see strengthening and we will after a strong first year where we over delivered on our plan significantly versus what we came out with in January, we want to continue that performance trajectory in 2024.

I’m sorry. Abhijit go ahead.

The cost of repetition, Roy mentioned earlier pruning parts of our portfolio is something that we have been doing for a while also to focus on our high-growth drivers and to get our innovations out there and put scale behind our winning products. So, maybe there is a heightened sense of sensitivity around the pruning in Sleep & Respiratory but just look at it as part of stuff that we do across the portfolio, across the company.

No. That's really helpful. I follow-up for just to make sure I haven't misunderstood. Thanks a lot guys.

Sure. Thank you.

Thank you. The next question comes from the line of Sezgi Ozener from HSBC. Please go ahead.

I'm so sorry about a few seconds ago. I hope you can hear me now. I will have two questions please and thanks for taking them. One of them on the Respiratory Care portfolio. You said you will -- I mean you disclose about this continuation of the sales of these products. You had said in the past that in order to deal with the recall you had quadrupled capacity of CPAP, PPAP production. I know you've been undergoing a lot of changes restructuring how much of that capacity has been built away? Or will you -- how much of that will you be able to utilize in OUS sales or in other products? And if we think about long-term profitability of Connected Care, my impression was that Sleep & Respiratory Care had higher profitability than patient monitoring. How does that impact your long-term margins for these segments? And my second question will be, you're showing much lower inventory levels in all of your segments at the end of year-end. Do you expect further downsize or are these inventory levels sustainable? Will they or should we pencil in some rise going forward?

Yes. I think on the capacity what we have done the additional capacity that we put in was flex capacity with co-makers. So they were kind of not in our own plants but we did it with co-makers. Those have been wound down as we have progressed with the remediation. So that's not something that will remain as an overhang. In terms of SRC profitability, we’ll say, it was never higher than monitoring. Monitoring, of course, is a very highly profitable business. SRC in the past was mid to high-teens profitability business. It will probably not get back there but we will improve profitability over the period, so that we get into the guided range for Connected Care as we have given for 2025. Regarding the inventory, yes, we have done a big reduction last year. There are still a couple of areas that we would want to reduce this year. So yes, we will have a couple of hundred million reduction this year as well on inventory, so that we get our supply chain then working at an optimal level.

Thanks very much.

Thank you. The next question is a follow-up question and comes from the line of Veronika Dubajova from Citi. Please go ahead.

Hi, guys. Thank you so much for squeezing in me for follow-up. I'm going to go back to the topic that I think a bunch of people have asked. Just maybe for clarification we can close the circle. But I think when you gave the guidance back last year, the mid-term guidance, you had assumed a 10% CAGR for S&RC sales. I just want to confirm whether that still stands. Or should our working assumption be different? And maybe just to confirm that S&RC sales went from €1.3 billion to €1 billion to 2023? Just so we have the right starting point that would be great. Thank you.

Yes, I think the €1 billion sales for 2023 is what we have said now multiple times in this call. So, it's confirmed and reconfirmed again Veronika. Regarding the growth rate for Sleep & Respiratory, we are not giving a separate guidance at this point of time. We have the overall guidance for Connected Care. And within that we will manage the Sleep & Respiratory, Monitoring, Enterprise Informatics and all of the businesses to get to the target that we have set for ourselves. And you see there's quite a big step up in profitability from where we are now and we have high confidence of getting there in the next two years.

That’s very clear. Thank you, Abhijit. And the €1 billion, are you able to give us a flavor for US versus OUS in terms of the breakdown of that?

€1 billion is €1 billion and then we build from there.

But let me ask you differently. It's fair to assume it's more OUS than US at this stage, correct?

Yes. Veronika I appreciate you asking differently, but let me answer in the same way the €1 billion retains the €1 billion, right? So, we don't want to give more because it gets into a level of so much detail that it creates more confusion than clarity. So, I think if we take this as a starting base, I think your models will be simpler and easier to get through.

Understood. Had to try. Thanks guys.

10 months for trying Veronika. Well done.

Thank you. We will now go to our last question for today. And the question comes from the line of Julien Dormois from Jefferies. Please go ahead.

HI, good morning Roy, good morning Abhijit. Thanks for squeezing me in. I'm left with three questions if that's okay, but they should be fairly short. The first one and sorry if you've provided it, but I was just wondering whether you could provide us with the split on the order book between D&T and CC? Second question relates to the Imaging or to the D&T business, sorry and given the normalization in the backlog in that division, do you see anything that could prevent you from returning to the same sort of margins that you exhibited in full year 2019 which was a margin of let's say between 12% and 13%? And more specifically into this if you could give us a sense of where you're Imaging business currently sits, are we now in the double-digit range for that segment? And the last question is for the consent decree. I was wondering whether you could give us any sense of when you expect the terms of the consent decree to be formally signed off? Are we talking about a few days weeks? Or could these be months? Thank you very much.

Yes. Thank you. So, on the -- maybe on split, in terms of the--

Yes, on the split, between D&T and Connected Care, it's pretty much similar, right? We start Connected Care also in Monitoring with actually a very strong order book that gives us confidence for the growth in 2025. D&T, look we were -- I think we ended at 11.6%, so we are very close to the 12% to 13%. So, with the profit improvement of this year, we will get to the peak ranges of 2019 as you pointed out. And then on the consent decree, when you expect it to be signed, Roy, maybe you take that, but we don't have really a date there because that is a court process.

Depending on the FDA and the court. So that is a due process, so we cannot give you a date on that. So that's something that is running. Of course, people will try to expedite to make sure that this gets clarified and closed. But I think there's no data that we could give you here.

Okay. Thank you very much. Just for the sake of clarity on the order intake that was down 3% in the first quarter that number would be pretty similar between D&T and CC. Did I get it right?

Yes. Perfect.

Yes. Okay. Thank you. Thank you very much, guys.

And important to know right, Julien and you probably know that in terms of the order book it supports 40% of the sales that we have, right? And we have 60%, which is in services and consumables, recurring revenue and Personal Health. And actually we also saw good growth there. You saw it in the Personal Health growth but also in the services and software growth. So of course, we all want to improve the number. That's our target. We have the actions in place but I think it's also important to kind of put it into perspective of total €18 billion and what this supports. Furthermore, as said, 15% higher order book. So actually if you look to the ratio of conversion going into 2024, we are still actually higher and above the supply chain and COVID crisis numbers in terms of our underpinning of the sales by the ratio of the order book. So that also gives us the confidence going into the year for the 3% to 5%.

Crystal clear. Thanks.

Thank you.

Thank you, gentlemen, that was the last question. Please continue.

Okay. Thank you all for your questions. Think reiterating, I think the key messages of today. We came out with our full year results, where if you compare to where we started the year and the guidance of the plan, we had a strong beat on sales where we did 7% versus a guidance of low single-digit, where we had a profit improvement of 310 bps, which actually was high single-digit target and we delivered 10.5 and we had a cash flow target of €700 million to €900 million, where we did €1.6 billion. That was on the back of strong execution of our plan, where we focus on patient safety and quality, supply chain and the operating model. Now we continue to execute that plan. That also gives us the confidence into 2024, where we said that actually we give you a range of 3% to 5% of sales growth as our target then 11% to 11.5% profit improvement. So we continue our trajectory as well on profit and then a strong cash generation of €800 million to €1 billion. We also provide you with clarity on the consent decree, which I think is a very important milestone that we have all been longing for. And also what the important message there is on one hand we have now a road map to comply tools to restore the business. But most importantly that actually we stay fully committed to the plan that we have and the financial guidance that we put out there that now includes the full consequences of the consent decree. And actually therefore, we are kind of now building from that in terms of further delivery of the plan. So we're looking forward to further dialogue around how we progress. We will remain focused on executing our plan and delivering continuous improvement. Thank you so much for dialing in and looking forward to talk to you soon.