Welcome to the Royal Philips First Quarter 2024 Results Conference Call, on Monday, April 29, 2024. During the call, hosted by Mr. Roy Jakobs, CEO; and Mr. Abhijit Bhattacharya, CFO. All participants will be in a listen-only mode. After the introduction there'll be an opportunity to ask questions. Please note that this call will be recorded, and a replay will be available on the Investor Relations website of Royal Philips. I will now hand the conference over to Mr. Leandro Mazzoni, Head of Investor Relations. Please go ahead, sir.

Hi, everyone. Welcome to Philips' first quarter 2024 results webcast. I'm here with our CEO, Roy Jakobs, and our CFO, Abhijit Bhattacharya. The press release, investor deck 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 a statement in the presentation published on the website. Roy, over to you.

Good morning, everyone and warm welcome. Great to be with you today. I want to start with the key highlights of this morning's release. We delivered results in line with our performance improvement plan with 2.4% comparable sales growth and strong margin improvement in the quarter and order intake growth turning positive outside of China, especially in North America. This was a result of continued strong focus and progress on our three execution priorities. Secondly, we have taken several very important steps in resolving the consequences of the Respironics recall. The consent decree was signed and approved in court. We received final court approval for the previously announced economic loss settlement. We reached an agreement to resolve the personal injury and medical monitoring litigation in U.S. And we also concluded an agreement with insurers to cover Respironics recall related product liability claims. Following the remediation of sleep therapy devices, and reassuring test results to-date, these are very important milestones to provide further clarity on the way forward for Philips. Supported by key innovation launches and our ongoing actions to enhance its execution, we are confident in our performance improvement plan for 2024. Onto the key financial highlights. Comparable sales growth was 2.4% in the quarter, driven by 3% growth in the Diagnosis & Treatment and Personal Health segments, partly offset by a 1% decline in Connected Care against very tough comps in monitoring. Group sales grew 2% in mature geographies. Growth geographies sales grew 3% despite a decline in China. The adjusted EBITDA margin improved significantly to 9.4% in the quarter. Free cash flow was an outflow of EUR 336 million, in line with normal quarterly phasing. Order intake in the quarter declined, as anticipated, due to situation in China, this was driven by the impact of the entry-wide anticorruption…

Thanks, Roy. Good morning, everyone. Let me start with our performance by segment. In Diagnosis & Treatment comparable sales increased by 3%, driven by growth in precision diagnosis and image-guided therapy. And this was against strong double-digit growth in Q1 2023. The adjusted EBITDA margin was 9.2%, including an impact of 100 basis points from an accounts receivable provision. The adjusted EBITDA margin was lower than last year, mainly due to the normalization of the product mix as anticipated. To remind you, the increase in profitability in Q1 last year was around 600 basis points due to the easing of supply chain constraints on our most profitable modalities of ultrasound and image-guided therapy systems. Connected Care comparable sales declined by 1% as high-single digit growth in Enterprise Informatics was offset by negative sales growth in monitoring on the back of around mid-teens growth in Q1 2023. We saw strong growth in sleep systems and patient interface driven by performance outside of the U.S., while ventilator sales were lower. Connected Care adjusted EBITDA margin improved significantly to 6.4%, driven by solid performance in monitoring and an improvement in Sleep and Respiratory Care. Personal Health delivered a 3% comparable sales increase driven by strength in the Personal Care business. The adjusted EBITDA margin for the segment improved to 15.2% this quarter, mainly due to operational leverage and productivity. Geographically, sales in Personal Health was driven by mature geographies, while growth geographies were flat mainly due to China. Overall, consumer sentiment remains subdued, but is expected to improve in the course of 2024. Segment other sales increased by EUR 25 million in the first quarter mainly from higher royalty income due to phasing. We have been very disciplined in cost management, and our productivity initiatives delivered savings of EUR 151 million in the…

Thanks, Abhijit. I would like to continue with the progress we have made on our execution priorities. On patient safety and quality, we saw substantial improvement in CAPA closures in the quarter, driven by stronger processes, capabilities and governance around it. We also continue to drive significant simplification of the way we work and we further reduced the number of quality management systems. We are well on track to achieve our target of 65% reduction in 2024. And we continue to invest in quality improvement across the portfolio, acting fast on post-market surveillance signals. With respect to supply chain, we have now redesigned more than 80% of the planned PCBs and further reduced materials and component risks in the quarter. We will continue leveraging and regionalizing our end-to-end supply chain to further reduce lead times and strengthen first-time-right deliveries. Finally, our new operating model with prime accountability in the businesses has been live for a year now, resulting in significant productivity improvements. We have reduced over 8,500 roles to-date. At the same time, we continue the culture journey to drive impact with care and attracted over 300 talents with HealthTech backgrounds this quarter alone. Let me close out by repeating the key messages of today's announcement. First, we delivered results in line with our performance improvement plan as a result of continued strong focus and progress on our three execution priorities. Secondly, we have taken very important steps in resolving the vast majority of the consequences of the Respironics recall. And in this quarter alone, we had major milestones on litigation, consent decree and insurance, providing further clarity on the way forward for Philips. Thirdly, the progress we are making reinforces our confidence to deliver further performance improvements in 2024 and we are on track with the plan for 2025. I would like to thank you for joining the call, and we will now take your questions.

Thank you, sir. [Operator Instructions]. We will now go to our first question. And your first question comes from the line of Richard Felton, Goldman Sachs. Please go ahead.

Hi, good morning. And congratulations on reaching the settlement. I've got two questions both on fundamental margins, if that's okay. My first one is a question on precision diagnostics. So I understand last year that you're still facing some supply chain constraints on certain modalities. I think MRI in particular, have been facing some challenges. So are there any supply chain challenges normalizing for precision diagnostics and what does that mean for your margins or outlook for that subdivision this year? Second question on Sleep and Respiratory. Look, I understand that Sleep and Respiratory was still loss making in 2023. Now that you've got visibility on consent decree and I think better visibility on the outlook of the environment in which that business can operate moving forward. How quickly can you do the right sizing necessary to bring that business back to breakeven and then positive margin territory? Thank you.

Hey Richard, good morning. This is Abhijit. On the PD margins or maybe because we gave diagnosis and treatment margins, last year we had a big increase. As I mentioned just now in the speech as well of 600 basis points that was because we supplied in the first two quarters of last year, a lot of our high more profitable modalities. The supply chain constraints are now mostly gone. The last part that is left is on MR, where we still have slightly longer lead times than we would like. That doesn't mean a lot for the margins. It just hampers order intake a little bit for the time being. And in the second half of the year, we should go past that. As far as the margins for D&T this year are concerned, we have said that we are going to grow margins this year, and that will -- the phasing between the first half and second half is distorted because of last year. So we will grow margins for the year, and you will see improvements coming in the second half over last year for diagnosis and treatment. For Sleep and Respiratory Care, you're right. That's what we've always said that once we get clarity on the CD, we will take cost actions to make this business a profitable business. Even at a EUR 1 billion revenue, I think the good news is that we are already profitable. So we have taken most of those cost actions, further actions to come. But already in Q1, we are profitable in Sleep and Respiratory Care, which is why also you see the turnaround and the increase in connected care margins.

Great. Thanks very much.

Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Hassan Al-Wakeel from Barclays. Please go ahead.

Hi, thanks for taking my questions. And it's great to see today's clarity on litigation. Firstly, can you talk about the remediation needed as part of the consent decree as well as the remediation that you have been doing over the last couple of years? What do you think is a realistic time line for your return to the U.S. market? Secondly, given clarity on litigation, could we see a return to bolt-on M&A in the next year or two? And if so, in which areas do you see the most opportunities? Or are you squarely focused on resolving and remediating quality issues at the company? And then finally, can you break out order growth in China and ex China? How did things end the quarter? And how are you viewing this quarter both in China and outside of China? And I wonder if you expect orders to be positive in Q2 for the group, but also in China? Thank you.

Thank you, Hassan. Let me take the first question. So remediation part of the CD. So I think as we said, we are very happy that we now have clarity. In essence, we have a very clear road map in terms of what we need to do to get back into the U.S. market. As you know, we already providing patients in the U.S. with patient interfaces and also some of the respiratory device. So it's not that we are fully out of that market. But to get fully back, of course, we need to comply with the remediation requirements as set in the CD, including the recall plan. Now we haven't put a time line out. We also will not speculate on that. We will, of course, work very hard to get there. We also are not starting now. We have indeed been actioning already on that earlier. As Abhijit said, if you look to the totality of SoC, we are growing outside of U.S. And also we have been bringing it back into profitability. So the Sleep and Respiratory Care business will show an improvement and contribution trajectory into Philips, which we are very positive about. But we will not put any specific time line on any injunction because that also is, of course, collaboration with the FDA that we need to achieve that. Secondly, on your question on the clarity that we get now also on cash and cash profile and bolt-on M&A. As part of the plan that we started last year, I've been very clear how important cash generation is. Now we were very happy with the EUR 1.6 billion cash flow last year. Now we see that also this year, we will have a strong cash flow profile of EUR 1 billion. We opted-based…

Yes. So I think, yes, we had a decline in China in Q1, and that is what we expected. It was in the high-double digits because last year, we had a growth of in the mid-30s last year, right? So you had mid-30s growth last year that was with the incentives coming out of COVID, and then you had really the counterbalancing this year with the anticorruption measures, which of course, slowed things down. The good news, as Roy mentioned, outside of China, we have returned to growth and most positively is that North America grew nicely for us in the quarter. We are not going to, at this stage, give specific numbers there because, let's say that's not something that is even shared by our competitors. But I think we are pleased with the momentum in North America, and that also gives us the confidence for the remaining part of the year. We expect also China, as we said, to contribute in the second half of the year, Roy was in China recently, and with the new incentives that the government is planning to give, that should give, let's say, good impetus. So overall, I think there's no change in our view on China. It fundamentally remains an attractive market. For the short-term, consumer sentiment is subdued. We expect that to improve through the year. Hospitals will continue to work through the industry-wide anticorruption measures. And then we will -- we expect to see more hospitals putting in orders. And yes, so therefore, that the second half, we expect China to contribute. And so far, we've kind of started the year on plan.

Thank you very much.

Thanks, Hassan.

Thank you. Your next question comes from the line of David Adlington from JPMorgan. Please go ahead.

Hey guys. Thanks for taking the questions. So first one, Abhijit in your prepared remarks, you mentioned that there was a 100 basis point hit to the D&T margin, I think from provision. Just wondered if you get some more color around that, please? And then secondly, just in terms of the cost savings, you delivered EUR 151 million, I think in the first quarter year-on-year, but your adjusted EBITDA was only up EUR 30 million. I just wondered where you're reinvesting some of those savings or whether if they are being eaten up by headwinds elsewhere? And then the final one is just now you've got more clarity on the cash. Just wondered if you have a plan to reinstate the cash dividends? Thanks.

Yes. So I think a couple of things. So let's say, the 100 basis points I talked about was that was a provision for receivables where certain -- with a certain customers. So there's no -- it's not an operational performance in a factory or anything to do with the cost structure of the business, but just a part provision on a receivable with a particular customers. I think if you look at the overall productivity, of course, in that productivity is compensating for our cost inflation. So you will see that we have a bridge in the deck on Slide 13, where you see 2% is going towards cost inflation that is a negative. Therefore, you don't see all of it back, but you see a significant portion. And then the part that I mentioned, the 100 bps on D&T, of course, has an overall impact on Philips as well. On cash dividend, I think it's a bit too early to comment now. So let's first get through this year and then at the end of the year, we will decide on how we will deal with our dividend for next year. But as Roy mentioned, the good news is that we can deal with our cash obligations with regard to the litigation from our operating cash flow. And that also gets us let's say, to our -- very close to our targeted leverage next year, which would be actually a very good performance after paying off all the fines.

Thanks guys.

Thank you.

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

Hi guys. Good morning. And thank you for taking my questions. I have two, please, if I can. The first one is just that Abhijit, you sort of alluded to this, but the margin progression that you expect in D&T in particular through the year, if you could outline a little bit sort of how we should be thinking about that? I think you've talked about the sort of maybe 50 basis points or more margin improvement for the full-year. Do you still expect margins to be down in the second quarter? And then I guess if the improvement in the back half of the year, particularly pronounced in Q3 versus Q4, just because last year was such an unusual year, if you could help us understand that. And maybe just a comment on growth, of course, as well for D&T? And then I have a separate question on the settlement announced this morning. And just to maybe give us all reassurance, I guess I would love to understand what extent they're kind of exception? So is this all-encompassing? Does it include situations like death as well as injury? And just if you can talk to sort of what are some of the instances where you could see separate litigation that is outside of the scope of the settlement? And then to finalize the settlement, what are the steps that are remaining both in terms of the courts and discussions with the plaintiffs. And when can we sort of consider this completely done invested that would be -- some color around that would be very helpful? Thank you guys.

Hi, Veronika. Good morning. Let me take the first question, and then I pass it on to Roy for the second one. So the first two quarters of last year, we had very strong improvement in the margins of D&T. If I remember right, quarter one was 600 basis points. First half of the year was 500 basis points. And we said at that time itself that that's a bit of an unusual pattern. So for this year, the way you should read it is that we will improve in the first -- in the second half and the first half will be lower, so including Q2 will be lower than last year. But then Q3, Q4 you will see the improvements and then you see the improvement for the full-year. Important to note that the guided range for 2025 is low teens. We are already in that range. So we will make further progress into the range this year, and then progress in the range next year as well. So we are on a good track with D&T. On the litigation, maybe Roy?

Yes, let me take that one. Veronika, thank you. I think important question on indeed this finality, I think we are very firm that we believe that for the U.S., this is as final as it can get. The settlement addresses, all the 60,000 known claimants as part of the Census registry, including the 700 filed cases that were active. We do not believe that there is a meaningful number of plaintiffs out there that will still come forward. That's also the view of the plaintiffs themselves. And if they do, they will be subject to a so-called Lone Pine order, which requires them to bring forward the full case at once or else they will be dismissed, and also they will need to kind of comfort with all the individual evidence as everything that was gathered as part of this process now will cease to exist. There are six months that actually people can still come forward after the six months, actually, the whole class action or the whole MDL ceased to exist. And that's also why it was important that this was court approved and -- or not yet court approved, but there was a mediator from the court that actually was part of this whole process. She has been very, I think affirmative of this deal. You also saw that in our announcement. She will also make sure that this will be going through the court proceedings. Now we don't know exactly when that will be, but we don't expect that will take too long. And so we are actually very confident that this will really put an end to this. And that's very important because then with ending economic loss, economic personal injury and medical monitoring, we really have put the vast majority of these cases behind us with finality and clarity, and therefore, this provides us with a way forward and which we can focus on really running the business and growing Philips and bringing it back to where it belongs.

That's very clear. Thank you. And can I just ask a follow-up on the DOJ? And I guess if you have any updates on where you're there with the process and when we might expect similar finality of discussions with them?

Yes. No, DOJ, I think there's not a lot we can say. This is still ongoing. We are in full collaboration have been providing them documents. So actually, I cannot further comment on that process. We will come forward once we have any further clarity on that. I cannot say more than this is currently still in process.

That's fine. Great, thanks guys so much.

Thank you. Your next question comes from the line of Hugo Solvet from Exane BNP Paribas. Please go ahead.

Hi, hello. Thanks for taking my questions. I hope that's okay. First on D&T. Can you maybe Abhijit elaborate a bit more on the region and the modality from that customer having and the provision paths for D&T that is having a 100 basis point impact on the margin that would be helpful. And on the warning letter in your City China plan, could this impact the rollout of your new instrument? Second, on China, does the stimulus plan in China has already reflected into the guide for 2024 for D&T? And lastly, maybe, Roy, a follow-up on Veronika's question earlier. Can you update us on settlement, possible settlement ex-U.S. litigations outside of the U.S.? Thank you.

Maybe Hugo, could you repeat your question on China, please?

Yes, on China, the possible impact from the stimulus -- is it reflected already in your guidance or in your expectations for D&T and the acceleration throughout the rest of the year?

Okay. So first, on the provision, yes, we cannot give, of course, details in public that's between us and the customers. So even for privacy reasons, we cannot disclose that. I think on China, you can make it reasonably simple, yes, we -- that is part of our guidance. So we had anticipated that there would be a recovery in China, the stimulus only substantiates that expectation. So it is part of that -- of our overall guidance for the year.

Maybe the sort of question on the China warning letter. I think you also referred to that. I think we are working fully through the kind of follow-up actions with the FDA on it. We don't expect any current operational impact from that is process remediation. Of course, we take it very serious, like we take any finding that comes out of any site visit. There are both. There were two findings both related to process compliance. There were no reports of patient harm. So I think it's important to also mention that, and we do not see any kind of impact from it. In terms of settlement ex-U.S., I think it's important that, that's also why there's such a breakthrough this quarter that actually this is by far the vast majority of cases. Secondly, what is very important that we do not admit any guilt as part of the settlement, neither towards patients or diseases. Also we refer to, the earlier testing that showed that no harm was done. So also, we look at full confidence to any cases outside of the U.S. that still might happen that we bring that to a good conclusion. But as said, before, the most important is that the vast majority of cases was in the U.S. And also as we all know, the U.S. legal system is in a particular way, and that's why it was so important to end this certainty or -- end the uncertainty and create clarity on the way forward by getting settlement on this specific case in U.S.

Okay, thank you.

Thank you. Your next question comes from the line of -- one moment please, Graham Doyle, UBS. Please go ahead.

Good morning guys. Hopefully, you can hear me. Thanks for taking these questions. Just two for me. First, obviously, congratulations on the settlement. I think that's a lot of clarity that probably clearly soon people were expecting. Just one sort of regulation to that, Roy, when you look at the P&L for the last few years, and I suspect even the next couple of years, there's obviously a lot of adjustments and cash charges and things like that. Is that the next focus once we get through the next year or two to sort of square that, so that you reported and adjusted EBIT won't be so different going forward and kind of lift that, that cash generation obviously going forward. That's just question number one. And then question number two, you actually gave us a really good insight in terms of like explaining how the unlock or the improvement in China was occurring as these investigations progressed, and you had the sort of regional committee set up. And could you give us another update as to how you're seeing that? And is everything still tracking as you'd expect? And what does that mean in terms of order flow, even sequentially, say Q1 versus Q4, just to get a sense of how well things are moving in China? Thank you.

Yes. Thank you, Graham. I think good questions. So on the first, I think we were sure recognize that, of course, we had significant hit into the P&L that went into headlines towards adjusted items. Now also the clarity of today helps to actually further provide guidance around the adjusted items going forward. We had many of the adjusted items in the last years that were unfortunately tied to the recall, as you know. So that has been really significantly impacting it. Now as we have the vast majority of Regal now behind us, we remediated the sleep therapy devices. We have kind of clarity on the settlements as we've now been providing for that really will allow us to kind of really bring that number substantially down. We also, of course, took restructuring to get productivity in. You also have seen that contribution into our margin improvement. But also there, as you have seen, we are well on track with the 8,500 roles that we reduced by now. That does mean that we still have [indiscernible] approximately remaining. So there will be some restructuring that will come with that. And we also as Abhijit said, keep working as ours to get that into the best possible shape. So there's still some of that to come, but it will be of different dimensions than unfortunately big numbers we have seen. So that is for sure a focus. Then secondly, in terms of China, I was actually in China a month ago. I've been talking to the Vice President, myself, of course, talking to a lot of customers and looking at the situation on the ground. So and I saw two parts of the story. One was a continued impact from these anticorruption industry measures that were taken by the government.…

Great, that's very clear. Thanks a lot guys.

Thank you. Your next question comes from the line of Julien Dormois from Jefferies. Please go ahead.

Good morning, Roy. Good morning, Abhijit. Thanks for taking my questions and congrats on the settlement. The first one relates to the midterm outlook. There was no confirmation of the midterm outlook in your material, unless I missed it. So is this an indication that maybe you are currently reviewing it? And especially now that you have more clarity on Respironics, that maybe that could lead to an upgrade on that side? My second question is more of a housekeeping one on the order book, just to better understand what was the split in the order book between D&T and CC in the first quarter? I mean last year, obviously, there was a very diverging trend. So -- just trying to understand whether we're talking about maybe a double-digit decline in D&T and some growth in CC in the first quarter of 2024? And my last question, sorry, last question in London. The growth in the U.S. in the quarter, you basically had a 0% growth in the U.S. So just trying to better understand which division was the most impacted and how we should think about the U.S. into the remaining quarters of 2024? Thank you very much.

Yes, hi, Julien, regarding the midterm outlook, I think you missed it. So it is in the outlook. If you look at our press release, the first sentence in the outlook says we reiterate our confidence in delivering the 2025 plan. So that is already there. It's already there also in the company deck, et cetera. So we have -- we confirmed our outlook for 2025. And you said whether there's an upgrade post the litigation. If you remember, when we gave the guidance, we had excluded litigation-related charges. So we've not only confirmed the outlook for the midterm plan, but also for this year, right? So both of them have been done, and we have upped our cash flow guidance for the year. Your second question on the order book, I think, yes, it was I guess, split between both of them, so I don't want to go into all regional and other differences, but this was let's say, overall impacted mainly by China. So rather than modalities, I think the big thing to realize is that the impact was really from China. And China, bulk of the business is in D&T. So therefore, the impact on D&T is slightly higher than CC. And for the U.S. In terms of sales, I think the main reason there is the comps compared to last year because we went out of the blocks with a huge growth last year in Q1 and that's what makes it difficult in terms of the comps for this year. And that was largely, as I mentioned earlier, Ultrasound and ITT.

Okay, thanks.

Thank you. We will now get to the next question. And your next question comes from the line of Julien Ouaddour from Bank of America. Please go ahead.

Good morning. Thanks, Philip for taking my questions. So the first one, I just want to, let's say, like come back on the settlement. What's the likelihood of new claims surface after the six-months period for the plaintiffs to sign up for the settlement? And just maybe if you can explain us how difficult it might be for them to get a compensation? And if we need basically to add a sort of margin of safety on top of the €1.1 billion for these cases. Then the second question on orders. So you seem to be pretty pleased with the momentum in the U.S. And I think at the beginning of the year, you said that, I mean orders will be strong in the U.S. because like financing conditions would become a bit more easy for the year with interest rate cuts. Seems we are more going in a situation where like interest rate cuts are not going to happen before the end of the year? Could it impact the demand at some point in the U.S.? And the final question is about China. So like the comment that you made. Do you have any sort of color about the installed base age in China? Because it seems that the sort of like installed base has been upgraded like in the recent years. So the overall hedge is like a bit like lower today? And if you can just give us a bit more color, but the real benefit from the stimulus that you think could happen? Thanks.

Yes. Thank you, Julien. Good questions. Let me start with the first one, settlement. So the likelihood of new claims coming after six months. So I think it's important, as we said that actually, we believe that [Technical Difficulty].

No, no, no. Are you on the call?

You are now live, you are back. Thank you.

Okay. I'm not sure whether you heard me in full. But so let me kind of repeat the essence. So firstly, we said kind of we believe really finality to what is out there. That is also not only our opinion, but also of the plaintiff's leadership. They actually advertise for three years the case. So actually, they believe that the majority of people that know the cases there actually have a step forward are in the Census Registry, the 60,000, as you know, but then also 700 kind of claimants, then they have another six months, they can come forward. Thereafter, the whole case cease to exist. So the MDL will be closed. Also all the preparatory work that was done by all the kind of plaintiff lawyers will cease to exist. Therefore, any individual that comes thereafter will have to come on individual terms, they will be subject to a Lone Pine order, Lone Pine order means that there are certain criteria that you need to fulfill before you even can be taken into the case, you will not have access to any of the expert reports that was made or were made, so you need to do it yourself. And as you know, kind of only for the testing, we spend millions of dollars to get to our outcome, we show that no breachful harm was done, and that's also still standing as we have not admitted any guilt. And they are also subject to time restrictions, because there is a statute of limitations, and that actually is from the starting of the recall, so from 2021 onwards and normally, this is periods of two to three years. And finally, if you look to the trending of the Census registry, it has been stable for months already.…

Thanks, Roy. Any idea about just like the age of the installed base in China at the moment?

No, I would not be able to give a specific number. What I do know is that kind of that it qualifies for equipment of six and eight years of age. So that's kind of the conditions that they have put out the government, and that's kind of where they have the current -- what the customers are currently putting forward.

Perfect, thank you very much. Great, helpful.

Thank you. Your next question comes from the line of Robert Davies from Morgan Stanley. Please go ahead.

Yes, good morning. Thanks for taking my questions. Most of them we covered. I have a few left. One was just on -- you mentioned, obviously, the normalization of the order book overall, but it's still elevated, I think versus pre-COVID levels. Just -- how do you think about that sort of delivery time line? How quickly is that going to catch up? Is that a part of your kind of confidence in the second half numbers is a kind of accelerated delivery of that order book through H2? And should we be a kind of normal run rate on the order book by the end of the year? That was my first question. My second question was on the EBITDA bridge you provided with the cost headwinds against productivity and pricing measures, which were obviously net positive. Just be curious, within those productivity and pricing measures, how much of that came from headcount reductions? I guess my question is really, has the headcount reductions tail off? Or are you still confident to get a net benefit of cost versus productivity going forward? And then finally, just if you could flesh out in a little bit more detail some of the different regional trends you're seeing across the Personal Health business. Just I know you called out consumer weakness in China, but perhaps across some of the other markets, I'd be interested. Thank you.

Yes. Robert, regarding the normalization of order book, I think you're right, the confidence in the second half comes from the fact that we expect deliveries to take place in the second half. And therefore, that normalization should happen by the end of the year. Maybe we will still be a tad higher at the end of the year, but not as high as we are now. So that should kind of be through the second half. From the headcount reduction, I mentioned in the speech that operating model savings were, I think €55 million in the quarter. So it's still significant, because we had just started, let's say, last year in Q1 with the reduction. So there is still quite some more to come throughout the year. And then…

I can take on the age. So if you look to the globe, I think what we've seen is that China indeed subdued. We see actually quite strong rebounds in Europe. So actually, we saw some strengthening in Europe. We also think that's on the back of some of the wage increases that have been put out there. So you see consumer have more to spend, and we have been benefiting from that also in the growth markets. I think the other market that is not yet as strong as we would like is North America. We do see the sellout strengthening, but not yet fully kind of the sell-in. We also know that actually customers have been reducing their inventory levels. So they are pretty tight on their cash management as well. So therefore, actually, it makes shorter lines. So in sum, I would say globally, we expect that consumer will strengthen throughout the year. And also in terms of that towards the guidance, we expect they will be also towards that guidance of 3% to 5% and now starting with 3%, that should actually through the year increase. But that will also be on the back of China, which second half will have the most, I think contribution into that.

That's great. Thank you.

Thank you. We will now take your next question. And your next question comes from the line of Sezgi Ozener from HSBC. Please go ahead.

Thanks for the presentation and taking my questions. And congrats on the settlements. One thing -- one question on the insurance claims. Can you give us a color on how these insurances work and whether your premiums for insurance are likely to go up after the payout? And do you have the same kind of insurance on product liability in all of your products? And my second question relates to Connective Care going forward, you mentioned you're growing quite a bit in Japan, which is normally a lower margin market. But in this case, you mentioned that the leasing model makes it more attractive. Do you have any other factors that will create a different margin outlook for Connected Care going forward? Thanks.

So regarding insurance claims, yes, it's a bit of speculation now whether it will go up or not. So that's something we will see in the next round because it's the first time we are claiming such large amounts. It's not that we have a long history of claims. So we will have to see how those discussions go, but also the actions that we are taking to improve quality, et cetera, should have -- will be part of those discussions. Regarding Connected Care, in Japan, it is not a low-margin market, so I just want to correct that. And we have a very strong Sleep and Respiratory Care business that operates on a recurring revenue basis, so that also drives margin. So as far as Japan is concerned, let's say, the core of the underlying business still remains very strong.

Thanks very much. As a follow-up, may I ask like usually what's the term of insurances like do you conclude insurance agreement on a yearly premium? Or are we looking more on a multiyear basis?

Yes. It depends on -- each policy differs. So I think that would be too much of detail to put, but there are policies which have three-year terms, one-year terms, et cetera. So each one of them differs.

But I think it's important we have these insurances for all our products. So it's actually ongoing and common business. So I think that's also how this will be seen. This is part of a long-term kind of insurance trajectory that we have out there.

Perfect, thanks very much.

Thank you. Your next question comes from the line of Falko Friedrichs, Deutsche Bank. Please go ahead.

Thank you. Good morning. And I have two clarification questions on the finality of the settlement agreement here. Firstly, can you confirm that there is no chance of a court trial now? So essentially can anyone in the Census registry -- can anyone still bring their case to court or is that essentially impossible now under the agreement? And then secondly, on these additional testing programs you're running according to the FDA requests. First of all, are they going as planned? And then in case those additional tests go against you right and let's just say they show a potential harm to patients, could that put anything with this framework you put in place at risk? Or could that open up a new avenue for plaintiff lawyers, a little bit more clarification there would also be helpful. Thank you.

Yes. Falko, thank you to clarify further. So in terms of the court trial, so the MDL will not be pursued. So the Census registry and the MDL will be terminated. So they cannot kind of pursue further trials out of the current MDL or Census registry. What could happen is that people individually would like to come forward and still go on an individual case. But as we said, even for those, there will be very high barriers to do so, because it will be standalone that will need to adhere to the Lone Pine order, they will need to come up with their own expert reports, gone to show whatever focality, they want to show and we have our own testing, as you know, that shows no appreciable harm and there is time limitations towards the time that they can do this. That's why we are very confident on the finality as we said before. I think also what is important on the testing, there is no coordination at all between the testing and finality of this case. So any further outcome in testing will not have any impact on the current settlement. Settlement is as is, the amount is kept and final, and there will be no testing related to this.

Okay, thank you.

Thank you. Your next question comes from the line of Wim Gille from ABN AMRO - ODDO BHF. Please go ahead.

Yes, very good morning. This is [indiscernible] from ABN AMRO. Two questions from my end. First, on the €540 million to be received from the insurers for the Respironics claims to which part of the recall is this exactly related? Is this the physical recall costs? Is it the economic loss part? Is it the personal injury part? Or is it the total issue? And are any other insurance-related discussions ongoing? And then the second question will be on the legal saver battling that you have with SoClean. Can you give us a bit indication what the expected time lines are? And what the range of outcomes is if any? Thanks.

Yes. So the insurance is not for the recall cost, but everything outside of that. So the whole list you gave. So it does not cover the recall cost, but of course, the product liabilities, the personal injury monitoring and all of that. The second question you had was on SoClean?

Yes, SoClean, maybe I can take it. So I think -- so there's no time line that we can give to that. Of course, that is still in process. Therefore, also it's kind of too preliminary to give a range of outcome for the SoClean case. So I think this is something that is ongoing and we will keep you posted on any contribution that might flow from there. And that's, I think as much as we can say now.

And you've asked whether there are other insurance things that we are pursuing. The answer is no. This is the only one. We had indicated that last year we've been exactly in line with the estimates and now that has ended up in a signed deal and now the cash will flow this year.

Perfect. And maybe as a follow-up on the SoClean thing because if memory serves me well, SoClean was also included in the -- it was not a class action, but let's say, the MDL that you have today. So did anything come out of that? Or is there nothing that really touch them at this point in time?

No, it's a separate MDL. So there's currently no impact from that.

All right, thank you very much.

Thank you. Due to the time, the last question comes from the line of Ed Ridley-Day of Redburn Atlantic. Your line is open. Please go ahead.

Thank you very much. My congratulations to the execution of the settlement. Just a few follow-ups. On the patient monitoring. Clearly, you had strong comps for a number of quarters from last year. Should we see patient monitoring growing in fiscal '24? Is that possible? And if you could provide some color on that, that would be helpful. And if you could also provide any color on the ultrasound business growth within the quarter and how that relates to market growth. That would also be helpful. Thank you.

Yes, so to be -- on monitoring, we do see growth this year. So there is no -- let's say, we have no doubts, like I said, Q1, we had tough comps last year. So therefore, and in terms of ultrasound, also, we had -- I think if I remember from the top of my head, in the 30s growth in the 30% plus growth in Q1. So therefore Q1, this year is of course, a slight decline, but very slight. And the good news is that we have quite some innovation coming in Ultrasound, which is launching as we speak. So we really expect to gain good momentum on top of a very strong last year to continue that momentum this year as well. So we will continue to gain share there.

Thank you for that.

Thank you. Gentlemen, that was the last question. I will now hand back to Mr. Jakobs for any points you may still like to raise.

Yes. Thank you all for your questions. Much appreciated. And let me close out by just repeating once more the key messages of today's announcement. First of all, we delivered results in line with our performance improvement plan for the first quarter as a result of strong continued focus on our execution. Secondly, very important steps taken in resolving the consequences of the Respironics recall in the quarter with major milestones on litigation, on consent decree and on insurance, which provides clarity on the way forward for Philips. And thirdly, the progress we are making reinforces our confidence to deliver further performance improvement in 2024 and we are on track with the plan for 2025. Thank you all for listening. Have a great day.

Thank you. This concludes the Royal Philips' first quarter 2024 results conference call on Monday, the 29th of April 2024. Thank you for participating. You may now disconnect.