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Edited Transcript of PHIA.AS earnings conference call or presentation 29-Apr-19 8:00am GMT

Q1 2019 Koninklijke Philips NV Earnings Call

Amsterdam May 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Koninklijke Philips NV earnings conference call or presentation Monday, April 29, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Abhijit Bhattacharya

Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management

* François Adrianus van Houten

Koninklijke Philips N.V. - Chairman of the Board of Management & CEO

* Pim Preesman

Koninklijke Philips N.V. - Head of IR

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Conference Call Participants

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* Daniel Wendorff

Commerzbank AG, Research Division - Analyst

* David James Adlington

JP Morgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research

* Edward Nicholas Ridley-Day

Redburn (Europe) Limited, Research Division - Research Analyst

* Julien Dormois

Exane BNP Paribas, Research Division - Research Analyst

* Max Yates

Crédit Suisse AG, Research Division - Research Analyst

* Michael Klaus Jungling

Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst

* Patrick Andrew Robert Wood

BofA Merrill Lynch, Research Division - Director in Equity Research and Head of the EMEA MedTech & Services Team

* Scott Bardo

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Sebastian Walker

UBS Investment Bank, Research Division - Associate Analyst

* Veronika Dubajova

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Wim Gille

ABN AMRO Bank N.V., Research Division - Head of Research & Equity Research Analyst

* Yi-Dan Wang

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to the Royal Philips First Quarter 2019 Results Conference Call on Monday, the 29th of April 2019.

(Operator Instructions) Please note that this call will be recorded and is available by webcast on the website of Royal Philips.

I will now hand the conference over to Mr. Pim Preesman, Head of Investor Relations. Please go ahead, sir.

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Pim Preesman, Koninklijke Philips N.V. - Head of IR [2]

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Thank you. And good morning, ladies and gentlemen. Welcome to Philips' First Quarter 2019 Results Conference Call.

I'm here with our CEO, Frans van Houten; and our CFO, Abhijit Bhattacharya. On today's call, Frans will take you through our strategic and financial highlights for the period. Abhijit will then provide more detail on financial performance and market dynamics. After that, we will take your questions.

Our press release and the related information slide deck were published at 7 A.M. CET this morning. Both documents are available on our Investor Relations website. A full transcript of this conference call will be made available by end of today on our website.

Finally, as mentioned in the press release, adjusted EBITA is defined as income from operations excluding amortization of acquired intangible assets, impairment of goodwill, other intangible assets, restructuring charges, acquisition-related costs and other significant items. Comparable growth for sales and orders are adjusted for currency and portfolio changes.

With that, I would like to hand over to Frans.

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [3]

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Yes, thanks, Pim. And thank you all for joining us on the phone today.

We had a reasonable start to the year, as we delivered 2% comparable sales and order intake growth, further building on the strong growth in 2018. I'm pleased that we regained momentum in our Personal Health businesses, as comparable sales grew by 5% in the first quarter. It is a good improvement compared to 2018 performance. The Oral Healthcare business delivered high-teens comparable sales growth driven by our innovative solutions like the Sonicare ProtectiveClean power toothbrush and improved brush head supplies. Notably, we saw double-digit growth in both mature and growth geographies. I'm also pleased with the double-digit comparable sales and order intake growth for the group in the growth geographies. As you are aware, we achieved double-digit order intake growth during the first quarter of 2018, which resulted in a tough comparable.

Our Diagnosis & Treatment businesses delivered 2% comparable sales growth and our Connected Care businesses a 1% comparable sales decline mainly as a result of the Monitoring & Analytics business where the large orders for 2018 came only in the fourth quarter. Based on these orders, we do expect growth to improve in the coming quarters.

Let me expand on our strategic journey to leadership in health technology. Our value creation story is built of 3 key levers of driving growth in our core business, innovating to solutions and driving operational excellence. As a way to create value in our core businesses, we continue to drive market share through deeper, more comprehensive customer partnerships; and pursuing growth by increasing geographic coverage and market penetration. During the first quarter, we entered into multiple new agreements in the United States, Europe and Asia. We signed our first long-term strategic partnership agreement in Vietnam to provide a turnkey hospital solution to the newly built Hong Duc General Hospital II comprising the latest medical imaging and healthcare IT solutions, as well as design, consulting and financing services.

As Healthcare continues to transform from a volume- to a value-based approach and the amount of data available for each clinical decision is growing, our customers are seeking seamless integrated solutions to enable more precise diagnosis and treatment as well as optimized patient care pathways inside and outside the hospitals. We continued to bring new solutions to the market in the areas of diagnosis treatment, connected care and personal health. Diagnosis & Treatment unites the businesses focused on precision diagnosis and treatment selection and planning; and the businesses related to image-guided, minimally invasive treatments.

We continued to roll out adaptive intelligence-enabled applications combined with successful innovations in our systems platforms. On the platform side, we expanded our Diagnostic Imaging portfolio with the new Incisive CT platform, integrating innovations in imaging, workflow and life cycle management. We also received 510(k) clearance from the FDA to market our newest premium digital radiography system, the DigitalDiagnost C90, in the United States. The C90 offers health care organizations a flexible and customizable imaging solution that helps to improve workflow and clinical outcomes

We launched our new premium ultrasound system EPIQ Elite, which combines the latest advances in transducer innovation, enhanced performance; and is tailored to specific clinical segments such as general imaging and obstetrics and gynecology. On the informatics side, we launched the IntelliSpace Portal 11, the latest release of our comprehensive advanced visualization and quantification software. The new version further extends the clinical innovation of the portal, with enhancements to improve workflow efficiencies, bridging superior data sharing between systems within the hospital network to address the security and privacy needs of customers globally. To complement this, we signed an agreement to acquire the Carestream Health's healthcare information systems business, adding a cloud-based enterprise imaging informatics platform and complementary geographic footprint to our portfolio.

In addition, Philips expanded its radiology solutions portfolio with new teleradiology services, building on the acquisition of Direct Radiology's teleradiology platform. We also reinforced our leadership in image-guided therapy with the successful launch of the Azurion with FlexArm in January as a new extension of the proven Azurion Image-Guided Therapy platform. The FlexArm includes innovations for optimal visualization across the whole patient in 2D and 3D dimensions to simplify and enhance a broad range of procedures. We expanded our offering in mobile image-guided therapy systems for conventional operating rooms with the launch of the Zenition, our new mobile C-arm imaging platform. Zenition is easy to move between operating rooms; and allows hospitals to maximize the OR performance, enhance clinical capabilities and improve staff experience.

Image-Guided Therapy Devices delivered double-digit growth driven by all major diagnostic and therapeutic catheter product families. The continued strong performance is supported by the tight integration with our Azurion platform; and by a growing body of clinical evidence such as the recent positive results of the DEFINE PCI study to assess the potential of iFR, which is our next-generation physiologic guidance technology, for the treatment of coronary artery disease.

I also would like to provide an update on our Stellarex drug-coated balloon solution, which along with our other therapy catheters such as the Turbo-Power and Turbo-Elite laser atherectomy catheters and the AngioSculpt scoring balloon is part of the peripheral therapy segment within our Image-Guided Therapy Devices business. On March the 15th, the FDA released an update on the treatment of peripheral arterial disease with the paclitaxel-coated balloons and drug-eluting stents. The FDA conducted a preliminary analysis of long-term follow-up data up to 5 years in a number of studies, which identified signals of increased long-term mortality. There is no 5-year follow-up data yet from the pivotal premarket randomized clinical trial for our Stellarex DCB. The Stellarex trial was not 1 of the 3 trials specifically referenced by the FDA in its update, but very important for you to know, at the 3 years follow-up, data from the Stellarex trials do not show any such signal of increased long-term mortality. Stellarex is unlike any other drug-coated balloon in the industry for the treatment of peripheral artery disease. The Stellarex drug-coated balloon features the EnduraCoat Technology, which is a unique coating consisting of the polyethylene glycol as the base material, which is the so-called excipient, and a combination of amorphous and crystalline paclitaxel particles dispersed in it. The EnduraCoat Technology provides efficient drug transfer, effective drug residency with high coating durability and minimal particulate loss; and therefore enables a low therapeutic drug dose. It's perhaps all a bit technical, but I value explaining this.

Our dedicated clinical studies with 3-year follow-up data demonstrate the efficacy and safety of Stellarex in restoring and maintaining blood flow to the arteries in the legs of patients with peripheral artery disease. Stellarex delivers top-tier outcomes with the lowest therapeutic drug dose in common to complex patients and has a strong safety profile.

Our Connected Care businesses focus on patient care solutions, advanced analytics and patient and workflow optimization inside and outside the hospital. And we aim to unlock synergies from integrating and optimizing patient care pathways; and leveraging provider, payer, patient business models.

To advance patient care in the hospital, we launched the IntelliSpace Epidemiology Solution that optimizes the detection of health care associated infections in the hospital. Philips IntelliSpace epidemiology is the only decision support solution in the United States that combines clinical informatics and genomic sequencing information from pathogenic bacteria aiming to assist infection prevention and control teams in identifying infection transmission. A recent study shows an 87% reduction in time when identifying infection transmissions using the Philips IntelliSpace Epidemiology Solution.

As a leader in home sleep care, we expanded our range of successful patient-centric CPAP mask designs with the launch of the DreamWisp, a "first of its kind" over-the-nose nasal mask that allows patients with sleep apnea to sleep in any position they want. With its robust nasal cushion and "top of the head" tube design, the DreamWisp delivered a new level of comfort and freedom of movement, providing patients with the therapy option that best suits their needs.

We are also expanding our offering for prehospital settings. The Philips Tempus ALS, a unique modular monitor/defibrillator is pending FDA 510(k) approval. Its flexible deployment enables emergency medical providers to improve their workflow and positively impacts safe patient outcomes with wider clinical operational and financial advantages to meet the evolving needs of modern emergency medical services.

Our Personal Health businesses focus on healthy living and preventative care. Pioneering new business models, we teamed up with the largest U.S. dental health insurance provider Delta Dental aiming at developing clinically validated solutions designed to drive positive behavior change and support people's long-term oral health. We also introduced our new S7000 shaver series globally. The shaver is designed to address skin irritation and discomfort from shaving. This is our first connected shaver, and it comes with a personalized solution for sensitive skin. This far, the S7000 has received highly positive user reviews.

Moving now to the third key driver of strategic -- of our strategic agenda, namely to improve margins through customer and operational excellence.

Our self-help initiatives to drive over EUR 1.8 billion in savings for the period 2017 to 2020 are well on track, as we delivered EUR 113 million savings during the first quarter. The main 3 programs, i.e., procurement savings, manufacturing productivity and overhead cost reduction, all delivered on their milestones.

As progress update on regulatory matters. We continued to make progress towards fulfilling our obligations under the consent decree. The FDA recently reverted back to us with follow-up requests that we are acting on over the coming months. We continue to expect our performance momentum to improve over the course of the year based on the demand of our innovative products and solutions to improve people's health and enhance care provider productivity, supported by our order book.

We reaffirm, therefore, our overall targets of 4% to 6% comparable sales growth and an adjusted EBITA margin improvement of 100 basis points on average per year for the 2017 to '20 period.

And with that, I would like to turn over the call to Abhijit, who will provide more detail on financial performance and market dynamics.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [4]

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Thank you, Frans. And good morning to all of you on the call and the webcast.

Let me start by providing some color on the first quarter comparable sales growth of 2%.

The Diagnosis & Treatment businesses delivered 2% comparable sales growth as well. Sales in the quarter were impacted by supply constraints resulting from a fire at a factory of one of our suppliers which we had mentioned during our Q4 2018 call. Sales in Diagnosis & Treatment was mainly driven by Image-Guided Therapy, which grew double digits despite this impact. Ultrasound grew mid-single digit and Diagnostic Imaging declined mid-single digit. To remind you: In Q1 2018, we started shipping the backlog of the Vereos, which of course made the comparables tough for Diagnostic Imaging, and that was the main cause for the decline. It's also important to mention that for Diagnosis & Treatment in Q1 2018 growth was strong at 9%, which gave the tough comparables for this year.

The pattern of the Connected Care businesses' order intake growth in 2018, which was strong only in Q4 2018, impacted sales for Connected Care businesses in the first quarter, leading to a low single-digit decline mainly driven by the Monitoring & Analytics business. We did have strong double-digit growth in our EMR business. And the sleep and respiratory business has shown low single-digit growth impacted by a decline within our hospital respiratory business.

The successful DreamWear full mask range continued its strong momentum, delivering double-digit growth for masks overall. The launch of our DreamWisp mask in the first quarter will be supporting growth in the coming quarters as well. Based on the order book, we expect sales momentum to increase in the coming quarters.

The Personal Health businesses delivered 5% comparable sales growth during the first quarter. This was led by strong double-digit growth of our Oral Healthcare business. The Personal Care business and domestic appliance business grew low single digit in terms of comparable sales.

Group sales in mature geographies in the first quarter declined by 1% on a comparable basis, reflecting flat sales in Western Europe and low single-digit decline in North America and other mature geographies. Sales increased by 10% on a comparable basis in our growth geographies led by a double-digit growth in China, Russia, Central and Eastern Europe.

For the first quarter, comparable order intake overall grew by 2%, with Diagnosis & Treatment businesses growing mid-single digit. Important to note that comparable order intake for Q1 2018 was mid-teens, resulting in the tough comparables. China continued to perform strongly with a double-digit order intake in the quarter. Following a strong fourth quarter, the Connected Care businesses declined mid-single digit during the first quarter, continuing on the uneven pattern of order intake that we have witnessed last year.

Let me now turn to the EBITA development for the group in the first quarter. The adjusted EBITA increased by EUR 20 million and the margin improved by 10 basis points compared to the first quarter of 2018 mainly due to operational improvements, which were partly offset by lower growth, an adverse currency impact of 30 basis points and a net tariff impact of 20 basis points. The adjusted EBITA margin of 120 basis points for the Diagnosis & Treatment businesses in Q1 was mainly driven by operational improvements. Lower adjusted EBITA margin in the Connected Care businesses was mainly a result of negative growth, adverse currency impact and tariffs. Higher adjusted EBITA margin of 10 basis points in Personal Health was mainly due to growth partly offset by some investments.

Our productivity program delivered EUR 113 million net savings in the first quarter. More specifically, net overhead cost reduction amounted to EUR 35 million in nonmanufacturing costs. The productivity program contributed EUR 40 million to the gross margin. And procurement savings, in part driven by our Design for Excellence program, delivered EUR 38 million of bill of materials savings year-on-year.

In the segment Other, the adjusted EBITA amounted to a loss of EUR 18 million, EUR 19 million better compared to the prior year mainly as a result of higher IP royalty income and lower costs in innovation and central cost.

Overall, the adjusted EBITDA in the first quarter improved by 90 basis points to 13.9% of sales compared to Q1 2018 mainly due to the adoption of IFRS 16 lease accounting as of January 1, 2019. The impact on adjusted EBITDA is approximately EUR 150 million increase for the full year 2019, reflecting the depreciation on the leases capitalized under the new standard. So just to repeat, this is EUR 150 million on the adjusted EBITDA.

In Q1, income tax expense increased by EUR 38 million, mainly driven by higher income in 2019.

As per the fourth quarter of 2018, we started to report adjusted diluted EPS from continuing operations per share. For the first quarter of 2019, the adjusted EPS increased by 26%. For the full year 2018, the adjusted EPS increased by 14% to EUR 1.76.

Net income increased by EUR 38 million compared to the first quarter of 2018 mainly due to improvements in operational performance and lower net financial expenses which were partly offset by higher income tax expense.

Net cash flow from operating activities decreased by EUR 78 million in Q1 2019, as higher earnings were offset by higher working capital and higher taxes paid. Higher working capital is mainly due to inventories in Q1, which was primarily the result of an inventory build for ongoing industrial footprint rationalization and the temporary supply disruption in Q1 at an Image-Guided Therapy supplier.

Let me now provide you with an update on the U.S. health care market and our outlook for the Western European and China health care markets.

North American health care customers continue to focus on priorities around quadruple aim. That is lower costs while delivering better outcomes with improved patient and employee experience. We see gradually increasing momentum around value-based care, which confirms our priority of bringing value-based solutions to the market. The continuing consolidation of health care systems underlines the importance of our focus on developing long-term strategic partnership with key customers. Overall, we expect the U.S. health care market to grow in 2019 in the low to mid-single-digit range. For Western Europe, we continue to expect modest low single-digit market growth in 2019.

For China, we expect mid- to high single-digit health care market growth for 2019 mainly driven by government policies to further increase access to care via existing Tier 2 and Tier 1 hospitals and the expansion of private sector investments in health care facilities. Consumer sentiment in China continues to be a bit subdued. However, we did see initial signs of recovery towards the end of the quarter. The imposition of tariffs between the U.S. and China which were announced in several rounds up to September 23 creates headwinds. Based on the announcements so far, we continue to estimate a negative net impact after mitigating actions consisting of supplier-based adjustments reconfiguring the supply chain and selective pricing actions of around EUR 45 million in 2019. This is lower than the guidance of EUR 55 million provided during the fourth quarter call and mainly the results of continued postponements of U.S. [back street] tariffs from 10% to 25%.

We continue to invest in necessary countermeasures to compensate for tariff risk since there will be a time lag for the mitigating actions to take effect. The negative impact is stronger during the first half of the year.

Let me now provide some additional guidance for certain areas of our businesses.

In the segment Other, on an adjusted EBITA level, we expect full year costs at EUR 100 million, which is a decline of EUR 72 million versus last year mainly due to lower expected royalties in 2019 on the back of a strong Q4 2018 finish. We expect a net cost of approximately EUR 70 million in the second quarter and approximately EUR 130 million for the full year 2019 both at EBITA level. Included in these numbers are EUR 25 million of restructuring costs and other incidental items in Q2 and approximately EUR 30 million for the full year.

Acquisition-related costs are now expected to be approximately 50 basis points, 10 basis points higher compared to our earlier guidance mainly due to the acquisition of Carestream's healthcare information systems business.

I would also like to provide an update on our effective tax rate. We lower our ETR mid-term guidance from a range of 26% to 28% now to 24% to 26%, excluding incidentals.

As Frans mentioned, we reiterate our targets for 2017 to 2020 period of 4% to 6% comparable sales growth and average annual 100 basis points improvement in adjusted EBITA margin and free cash flow between EUR 1 billion to EUR 1.5 billion for 2019.

Before opening the line for the Q&A, as you've seen in the press release, I would like to take to -- I'd like to take this opportunity to thank Pim for his outstanding contribution as Head of Investor Relations during the past 3 years. He will now take up a new role as country leader for Philips in Indonesia. I am also pleased to welcome Leandro Mazzoni as the new Head of Investor Relations for Philips, who I'm sure some of you will know from his time in IR from 2013 to 2016. Apart from his time in IR, Leandro has performed many business partnering roles in our Healthcare businesses both within and outside the company. Currently, he is Head of Finance for Brazil. Please join me in welcoming him back to investor relations. I know that he looks forward to engaging with all of you.

With that, we will now open the line for your questions.

Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from David Adlington from JPMorgan.

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David James Adlington, JP Morgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research [2]

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Just obviously with one maybe just to focus on the cash flow which I think was relatively poor this quarter. You cited working capital there. I just wondered if you could give us a bit more further color and your expectations going forward from here.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [3]

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Yes, David. No, I think, cash flow-wise, as I mentioned, our inventories are high. That was part of the plan because we are executing on our footprint transformation as we speak, where as a result of which we need to build inventories in both locations and to protect against any loss of sales or upsetting customers. So this will come down more in Q3, Q4. So our expectations for the cash flow for the year between the 1% to 1.5% still remains.

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Unidentified Company Representative, [4]

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[Billion].

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [5]

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EUR 1 billion to EUR 1.5 billion. Sorry.

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Operator [6]

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Our next question comes from Veronika Dubajova from Goldman Sachs.

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Veronika Dubajova, Goldman Sachs Group Inc., Research Division - Equity Analyst [7]

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I would like to start off with Personal Health. And given that we're 1 quarter in, one, I'd like to sort of understand what your confidence is in that 4% to 6% guidance range for the year. And I think, if I go back, a quarter ago, you had guided to acceleration as we move through the year. Obviously, Q1 has come in quite strongly. Do you still think you can accelerate growth from the first quarter? Or is it more about maintaining the current momentum as we move through the rest of the year?

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [8]

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Veronika, this is Frans. Great to hear you. And we took several measures in the second half of 2018 to turn the growth rate back up in PH. And this ranges from leadership interventions, and you have met Roy Jakobs, a strong leader; to accelerating new product introductions; and reviewing our advertising and promotion effectiveness. On all these levers we see positive traction. And it's great to see that in oral care we now have strong growth again. The new product that were introduced in Q1 start to have really good traction. The brush head supply is fully back on track. And also in some of the other PH areas we have done good product introductions. I referenced one of the shavers in my speech. So we can say that Personal Health is back on track where we all like it to see. And with regards to the question can we accelerate it further, at this time, I'm happy with the 5% growth. We have given -- after the reorganization of the segments, we have given a guidance of the mid-single-digit growth. We are well in that bandwidth. And so let's first sustain and consolidate, make sure that we consistently deliver this kind of a growth before we raise further expectations.

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Veronika Dubajova, Goldman Sachs Group Inc., Research Division - Equity Analyst [9]

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That's great. And can I ask a follow-up on Connected Care? I look at the performance, and it's a third quarter of quite meaningful margin declines in the business. Is there anything you can do from a cost perspective to try to stem this margin momentum and start delivering some improvement? And Abhijit, any guidance from you on how to think about this for the year?

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [10]

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Yes. I think, in Q1, we have had particularly a big dip, so yes, you are absolutely right. There are quite some productivity measures which are in place, so they will start impacting, let's say, from Q3, Q4. So as you see the year progress, you will clearly see us making up the shortfall in Q1. So we also had -- apart from the growth, this is a high-margin business, right? So the growth, when it -- as we start delivering on those orders, we had some currency and tariff headwinds also and the phasing of productivity which will come more in the second half, as I just mentioned.

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [11]

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Maybe I can add a strategic angle to this answer as well. Let's say Monitoring & Analytics originates out of what is called the intensive care environment, all right? And Philips is absolute market leader there. The intensive care market has matured, and there is less growth currently in ICUs. And we are shaping the market towards monitoring and analytics and telehealth and command center technology to optimize care pathways across all care settings, enabling hospitals to move patients from the expensive ICU beds to the general ward, to skilled nursing facilities and into the home environment. That strategy has already been validated by -- with health care providers. And you know that we're on the right path. This also means that we continue to invest in innovation despite the near-term kind of slower growth. And the 14% order growth in Q4 is just testimony to the beliefs that we have in this business. And several large orders are being -- working its way towards sales recognition later in the year, and we expect a step up later this year in revenue. And with the high margin that Abhijit already referred to in terms of gross margin business, then we will see a big step up. So it's a bit of several headwinds coming together in Q1, but structurally it's a great business that we continue to have strong belief in.

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Operator [12]

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We will now take our next question from Patrick Wood from Bank of America Merrill Lynch.

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Patrick Andrew Robert Wood, BofA Merrill Lynch, Research Division - Director in Equity Research and Head of the EMEA MedTech & Services Team [13]

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I have two, if I can, please. The first will be in sleep and respiratory. Obviously, it's a slightly different category definition to how it used to be, but my understanding was, perhaps if you make it more like-for-like to how it was in profile, that probably grew something like mid-single digits in the first quarter. And within that, given the masks already growing quite nicely, what is it that's really going to drive the growth in the coming quarters? Is it really Wisp? Is that what's getting us there? And how confident are you in that base market longer term? It would be great to know. And then the second one, thank you for the details, Frans, on the DCB on the Stellarex side, it's a fairly chunky market. And I'm wondering how you guys are thinking about it internally from a competitive standpoint because obviously some of your competitors are in a somewhat tricky situation given the tone that the FDA is taking towards paclitaxel. Is there an opportunity here for you to take a little bit more of that market? And given you're one of the smaller players, that could be reasonably meaningful for you. Is that a fair way to think about this, or is it just too early to say?

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [14]

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Okay. Now let me dissect all those questions because it's quite a chunk. Let's first talk about S&RC. And indeed, for everybody on the call, let's remind ourselves that we included now in S&RC also the hospital respiratory care business that originally was separate. And the hospital respiratory business declined slightly, and that masks the fact that S&RC for the out of hospital continues to grow nicely in the mid-single-digit area. And overall the growth expectations for S&RC remain strong. The drivers for that are as follows: first of all, continued traction with the masks. And you know that historically we lagged behind our competitor in the mask area. And with all those innovations, we think that the proportion of mask sales can go up. And masks have very a nice margin, so that will also be good. Secondly, in North America we increasingly develop ultimate go-to-market strategies and also recognizing what another competitor is doing with -- it is more direct contact with patients. We think that this is a logical direction as we provide additional services around our platforms, for example, cloud-based coaching. And we think that this will enhance stickiness with customers but also boost growth. On international markets, sleep apnea is still very much underdiagnosed, and we would expect in international markets to see a high single-digit growth rate at least. So overall -- and then lastly, in the in-hospital part, which I just said first quarter was -- had a small decline, we do expect in the course of the year to see a step-up in the hospital respiratory care business as well. So overall, we think that this is a great business to be in. It just takes a bit of -- a bit more work to deliver that.

And then let me talk about the drug-coated balloon business. And inevitably, I think, near term, the dust has to settle on this whole FDA discussion and which is bound to have a temporary negative effect on the segment, on the marketplace in the coming quarters. We haven't seen that much yet in Q1. In fact, Q1 for DCB was strong. We think that we have taken market share in Q1, and it contributed also to the overall growth of the -- of our device business. As you could hear from my description about the technical details, we think that DCB -- Stellarex is a different implementation of a drug-coated balloon. And we have not seen any of the mortality indicators that the FDA is worried about. In the second quarter, there will be a dialogue with the FDA and where we are, of course, going to strongly make our point that we are different from the rest. And we will try to market our differences to our customers. And I think we should be realistic that it takes some time to get this all clarified in people's minds, so I would not, let's say, get overexcited now already for the near term, but I do think that it will strengthen over time Stellarex' position versus competitors. I hope that, Patrick, that answers your questions.

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Patrick Andrew Robert Wood, BofA Merrill Lynch, Research Division - Director in Equity Research and Head of the EMEA MedTech & Services Team [15]

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Great detail.

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Operator [16]

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We will now take our next question from Michael Jungling from Morgan Stanley.

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [17]

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I have 2 questions. Firstly, on geographic sales growth. And when I look at your comp-adjusted growth for the first quarter, Western Europe and also North America have been slowing in the first quarter. Why is that? And why would the developed markets improve for you for the remainder of the year? Question number two is on D&T: Prodrive. Can you comment whether you actually lost the entire EUR 50 million that you guided to in the first quarter? And so is it still okay to think that the EUR 50 million that you've lost will return pretty much in the second quarter of this year?

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [18]

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Okay. The -- with regards to the geographical split, I mean, of course, we are very pleased with the growth markets, the emerging markets that have done very well for us. And notwithstanding that, we love to see the mature markets grow as well. We are sitting on a strong order book for both Europe and North America. That order book will come to revenue recognition in the course of the year. When we spoke about Connected Care having a slight decline in Q1 and very much related to the same situation where several large orders are making its way towards customer acceptance in Q2, Q3 time frames, and similarly on Diagnosis & Treatment the order pipeline will help us get to strong growth, obviously with the confidence that we have expressed to reach our 4% to 6% growth, we need mature markets to contribute. That can never be done only on the back of the emerging markets. And so we see the growth stepping up there. Maybe I'll hand it over to Abhijit to give a bit more color on the IGT business and the Prodrive situation.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [19]

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Yes. On the Prodrive situation. We lost a little bit less than the EUR 50 million, so around EUR 40 million or so. And then as we have said, it will return in Q3 and -- Q2 and Q3. I think the bulk in Q3 and some of it in Q2. So that's how it will come back. And all of the sales will come back. As I mentioned at the beginning of the year, we don't lose a single dollar of revenue on this -- euro of revenue.

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Operator [20]

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We will now take our next question from Scott Bardo from Berenberg.

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Scott Bardo, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [21]

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So first question, please, just relates to the Connected Care business. I understand you're making material investments into R&D in this division. I think it's the highest ratio invested of all of your divisions, so the question really relates to when do you expect some of these material investments in telehealth and digi health and broadening the addressable monitoring and analytic opportunity to start to inflect the growth profile and profitability profile of this business. I think you mentioned in your previous plan towards the end of your previous financial plan, which is sort of coming into effect now, so I just wonder if you could talk through a little bit more about how some of those investments are materializing. Second question, please, just relates to the update from the FDA related to the consent decree. Could you perhaps give a little bit more details as to what some of the responses from the FDA were and how quick they are to be addressed? And perhaps give us a status update on the closure of the Cleveland plant and any other regulatory updates you're having across your plants.

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [22]

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All right, Scott, I'll give it a try. Well, you heard my response to Veronika's question on Connected Care, right? So strategically important, we are developing a much more end-to-end care orchestration environment that hospital and care providers are excited about. As is often the case with breaking new ground in these areas, it takes a little bit longer than originally estimated. So I would admit that as well. And we -- as you recall, we have down adjusted the Connected Care growth, near term-growth, in our Capital Markets Day and also in our January call. That doesn't mean that we are not optimistic about it. I am personally very optimistic about it. This year, we will see Connected Care solidly contributing to our mid-single-digit growth outlook and therefore recover significantly through the year. The FDA and the consent decree: You'll recall that, in January, we said that we didn't have a response yet due to government closure and all these situations. Now of course then, in the course of Q1, we did get the response of the 2018 audit. And there were several, let's say, deepening questions on our response for further information, among which analytics on service orders and how we have handled those. And that data analytics process is currently going on, and we expect to respond to them in the course of the second quarter. There were some other validation questions for which some work is being done. I would say this is all in the normal course of work. And this is how the FDA routinely operates. I don't read anything particularly worrying in it. It does mean that things take a bit longer. Originally, we had hoped that the injunction in Bothell would be lifted already, but I think now we need to be realistic that it can take a couple of months more. And in the meantime, as we also said in the press release, in the footnote, we are shipping the defibrillators. And so there's no real material financial impact to this delay that we feel we need to highlight. And then your final point, the Cleveland closure: It's all moving according to plan. The last unit is making its way out of the -- out of Cleveland, and we are on track for the closure in -- imminently.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [23]

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I think maybe just to add one thing on the FDA question. That came -- also, the audit was completed before the actual end of the year. So there we asked also some third-party auditors to validate the work done from the time their audit end to what we said we have completed to the end of the year. So that's also one of the clarifications which will take time.

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [24]

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Yes. Thanks.

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Scott Bardo, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [25]

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That's very helpful. I don't know if I have enough time to squeeze in a very quick follow-up, but just with respect to Stellarex I also share your optimism about the clinical profiles of your product. I think, at the time of the acquisition, you highlighted an aspiration for about EUR 1 billion or so in revenues, combined with Volcano from Spectranetics deal, by 2020. Given some of your comments about the dust needing to settle in the market, would you say that those targets are now more aspirational or somewhat at risk?

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [26]

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Well, I mean Stellarex is only a small part of our overall device business. And all of last year, we had double-digit growth in devices, and Q1, we again have double-digit growth in devices. So we will get awfully close to the EUR 1 billion aspiration that we formulated. And I mean thanks for reminding everybody in the call. So we said, our IGT business, we aim for 3 billion, 2 billion systems and services and 1 billion devices, so we will get within a hair of that target, I hope. And the double-digit growth in Q1 is certainly a good start to the year.

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Operator [27]

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We will now take our next question from Yi-Dan Wang from Deutsche Bank.

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Yi-Dan Wang, Deutsche Bank AG, Research Division - Research Analyst [28]

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On the effective tax rate, I think [you] heard that it's coming down to 23% to 24%, so can you just talk about what the key drivers for that and how sustainable that is? And then the second question is on the Health & Wellness business. Can you comment on what the growth is for that business as a whole, including oral care? And then for oral care it seems that a lot of the growth came late in the quarter, so how much of that is driven by distributor inventory buildup? And how will that impact your growth in the second quarter?

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [29]

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So on the tax rate, yes, we are guiding to that in the medium term because we believe it's sustainable, right? So the main benefit comes from the change in the tax rate in the U.S. I think, given the clarifications that came out post the change in the corporate tax rate in the U.S., we were able to find certain benefits also for our exports, which helps, let's say, to structurally bring it down to the 24% to 26%. So that is structural mainly driven by the U.S. The Health & Wellness growth rate was double digit as well. So I think there the momentum is good. I don't know, Yi-Dan, where you got the, well, perception that it came late in the quarter, but it has been building over the quarter. And it's -- there is not really any inventory buildup associated with this at all. So there is -- yes, I don't have any concern on that front.

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Yi-Dan Wang, Deutsche Bank AG, Research Division - Research Analyst [30]

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Okay. Okay. On the tax rate, did you say 24% to 26%? I thought I heard 23%, 24%, but...

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [31]

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No, 24% to 26%.

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Yi-Dan Wang, Deutsche Bank AG, Research Division - Research Analyst [32]

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To 26%, okay, all right.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [33]

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Yes.

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Operator [34]

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We will now take our next question from Sebastian Walker from UBS.

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Sebastian Walker, UBS Investment Bank, Research Division - Associate Analyst [35]

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Just one on Personal Health. So just the margin. So there was limited improvement in the quarter despite the strong top line development, so could you maybe comment on how you expect R&D investments and other investments here to continue throughout the year?

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [36]

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So if you look at Q1, first of all, as we said, the growth was good. There's a couple of things. So our phasing of IT investments this year not only for the -- let's say, the ERP side but also on the digital side has a different phasing. We started those investments last year. So the first couple of quarters had low investments. This year, it's higher. And also, we had higher A&P to back our new product investments. So let's say, I think, if you look, if you take a step back and look at Personal Health, right, last 12 months, we are around a 15.5% adjusted EBITDA, just shy of our targeted range for next year of 16% to 18%. So we are actually very -- we are very confident of getting into the range. And I think, the bigger improvements in the margin, you will see towards the second half of the year. That's how I would look at it.

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Operator [37]

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We will take our next question from Ed Ridley-Day from Redburn.

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Edward Nicholas Ridley-Day, Redburn (Europe) Limited, Research Division - Research Analyst [38]

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A couple of follow-up questions. Firstly, just on the North American market, would you say in imaging you have grown broadly in line with the market or slightly below market? Because we have seen some softness in North America from other capital equipment companies this quarter. That will be my first question. And secondly, return to Prodrive. I'm still quite surprised that it's had such a large effect. What have you done perhaps to look at alternative supply going forward in that area of your business?

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [39]

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Okay. Ed, let me give it a try. North American market, let's first talk about the general market in imaging. Last year was fairly strong, around 4% growth. Philips had order growth in that market of high single digit, so it's our belief that we have grown market share. Abhijit already mentioned that Q1 last year was boosted by accelerated revenue growth of the advanced molecular imaging business, and that gave us a difficult compare for this year. And if I would look at the North American market this year, I would maybe guesstimate that it would grow a little bit less than 2018, but at this time I would not use that as an excuse. It's also a bit lumpy. And so a slower start of the year is not necessarily giving us a final, let's say, conviction. And what gives me a lot of confidence is that we are sitting on a large order book and that will definitely underpin good growth this year. Then the Prodrive: Look, we were definitely irritated by this incident with our supplier. And we worked the organization hard to find compensation for the impact. And to some extent, the Prodrive impact became, therefore, lower. That was what Abhijit explained, but the compensation by accelerating other business deals and also looking at work in progress that was already making its way into the field of prior manufactured systems, trying to get them to customer acceptance, all of that helped, all right? So -- and we are pleased with how the team has responded to that. And now the delayed Prodrive revenues can make it into Q2, so we also don't expect a disruptive pattern through the year.

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Edward Nicholas Ridley-Day, Redburn (Europe) Limited, Research Division - Research Analyst [40]

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That's very clear. And just one very quick follow-up on Stellarex. One of your competitors has highlighted they're expecting about a 50% reduction going forward for the rest of the year, that's Boston for their drug-eluting stent. I know that's a slightly different product, but like Stellarex that had a significantly lower dose than Medtronic and the other companies named by the FDA. Can you just remind us, what sort of growth are you assuming? Clearly, you've had a good first quarter. That is encouraging, but as you've also rightly highlighted, it's a bit of a class effect at the moment, so what are you assuming for the rest of the year for Stellarex? And that would be helpful.

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [41]

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Yes. We are not breaking out the Stellarex category from the rest of the medical device business. And I want to be cautious. The class effect will, may be kicking a bit stronger in Q2 than in Q1, all right? After all, everybody had to digest the news. And before it affects people's habits, it takes time both negatively and positively. As I said, we do think we have gained share in Q1, but the 2 effects combined of our share going up while the category may be a bit under pressure makes it very hard to give a precise forecast for the year, so I don't want to do that now. But I have said that I remain very confident about our device business overall, in line with the question that we got earlier where I responded that we are well on our way towards EUR 1 billion in device business by 2020.

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Operator [42]

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We will now take our next question from Max Yates from Crédit Suisse.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [43]

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Just my first question is on Oral Healthcare. So you grew double digit in the quarter, and I just wanted to come back to sort of how you think about any restock of brush heads and sorting out the supply chain issues and how that may have affect it. Because it seems quite a lot faster than the underlying category is growing. So maybe if you could talk about what the core Oral Healthcare business was growing and maybe the growth rate that we should expect going forwards and actually whether there was any benefit from supply chain issues being removed and therefore customers restocking brush heads. That's my first question.

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [44]

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Yes, I don't think the restocking as such is the reason for a boost in revenue, but the fact that we had brush heads again on the shelf also meant that retailers were more inclined to support us with our handle business. So the whole category for Philips was under a cloud last year because of lack of confidence, and the brush heads contributed very much to that. So once that's restored, we now see this whole positive inclination, added with the new products that we launched, added with a better A&P execution, we get to this much higher growth. Let's also not forget that the category as such is still growing, all right? So we are lifting on a growing category in which we are restoring our rightful market share.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [45]

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Okay. And maybe just, Abhijit, on FX, if you could talk a little bit around just, firstly, how much of that 30 bps at group level went through Connected Care so just so we understand sort of how much the margin decline was specifically FX. And maybe if you could give any guidance on the transaction and for margin impact as we go into the second quarter, how that 30 basis points evolves into Q2.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [46]

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Yes, Max, if I could give you FX projections, I would be a rich man, but let me attempt a little bit. I think you know what happened in Q3 last year, where the emerging market currencies dropped. That has, of course, an impact to -- for 12 months. So yes, I think it will be safe if you had similar impact for Q2. Connected Care had a bigger-than-expected income mainly because of how the flows work. So they had slightly more than 50 basis points of currency impact also in the quarter.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [47]

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Okay. And if I could just have a sort of quick housekeeping question just on Connected Care. When you think about the sort of order intake that you've had over the last sort of 4 quarters averaging at mid-single digit, how much of the actual Connected Care revenues are underpinned by that order backlog? And then is there any way we can think about the average lag time for when we see an order translate into revenue growth across the business just to try and understand how much of that growth flows through to how much revenues in Connected Care and how long that should take?

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [48]

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Yes. So if you look at last year. I think overall Connected Care order intake grew by 5%, but that happened largely in the fourth quarter, right, when we had a 14% growth. Now given that we recognize revenue not when we ship the equipment but when it's installed and ready for the first patient use, I think you should start seeing impact already from Q2 onwards. But let's say, Q2, Q3 Q4, you will see a strengthening as the order book starts maturing to revenue.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [49]

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And my understanding is that in, say, D&T half of the order book -- half of the revenues are driven by the order book, and the rest is sort of service and booked and billed in the quarter. Is a similar level true of Connected Care?

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [50]

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Yes. I think, more or less -- it's a little bit higher but not significantly.

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Operator [51]

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We will now take our next question from Daniel Wendorff from Commerzbank.

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Daniel Wendorff, Commerzbank AG, Research Division - Analyst [52]

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It's actually related to the D&T division and the Diagnostic Imaging business. When I look at the growth contributions in Q1, Image-Guided Therapy versus Diagnostic Imaging, and with the commentary you gave us on the drug-coated balloons, when you look into Q2 to Q4, how should we think of the growth projections for the different -- for these 2 different types of businesses sort of in the D&T division? Is it that Image-Guided Therapy will likely go down a little? And how fast will Diagnostic Imaging turn? So a bit more color there would be helpful. And on the margin in the D&T division, the quite strong uplift, in my view, year-on-year, is that largely due to mix? Any more color there would also be helpful.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [53]

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Yes, maybe a couple of things. So IGT will remain strong throughout the year, right? So our devices business is growing strongly. That will continue to remain strong, and our system business will also remain strong. DI had a bit of an impact. Or mainly the decline happened because of the comparables with the AMI business, as Frans mentioned and I mentioned also as part of the opening remarks. So once we see through that, DI will also have a low to mid-single-digit growth through the year. So I don't think you should look at, let's say, declining sales with DI for the rest of the year. The margin uplift was quite a few things. So the productivity plans that we are executing, that contributed a big amount to the increase. And I think the operational improvements. The factory, I mean, is part of the productivity, but the manufacturing footprint rationalization, et cetera, these are all pieces of the puzzle that are contributing to the improvement in profitability. So going forward, that trend has to -- or we plan to keep that trend going as well for the remainder of the year.

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [54]

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You also had (inaudible) -- yes.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [55]

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Yes.

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Operator [56]

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We will now take our next question from Julien Dormois from Exane BNP Paribas.

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Julien Dormois, Exane BNP Paribas, Research Division - Research Analyst [57]

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I have 2, I'll say, housekeeping questions left. Just curious on your comparable order intake. You have reported a pretty significant decline in North America. So I think high single-digit decline in the quarter. So just maybe a recap of where that's coming from and how we should think about the rest of the year. And the second question is again on Stellarex, maybe just to ring-fence the potential risk here. Can you just remind us or give us a ballpark estimate of how much sales you deliver on that side? Is that like a mid-double-digits million euro or something like this? That would be helpful.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [58]

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Okay. On the North America order intake, as Frans mentioned, last year, we had overall for North America a very strong order intake, last year. So we grew 8% order intake last year. And we ended actually Q4 with a 10% order intake. So the weakness in Q1 was both in Connected Care and in Diagnosis & Treatment, so it's not really linked to one side or the other. I think part of a catch-up impact. And I think more because we -- some of the businesses -- some of the orders, we expect to come in Q2. Regarding Stellarex, yes, do you want to...

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [59]

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Yes. I mean I just checked. Stellarex is several tens of millions, but in the totality of our medical device business it's still relatively modest. And yes, I hope that answers your question.

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Julien Dormois, Exane BNP Paribas, Research Division - Research Analyst [60]

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Yes, it does.

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Operator [61]

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We will now take our next question from Wim Gille from ABN AMRO.

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Wim Gille, ABN AMRO Bank N.V., Research Division - Head of Research & Equity Research Analyst [62]

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I would have a follow-up question on the Personal Health business, which had a good start of the year and partly obviously driven by the products introductions that you did with the value line in oral and the OneBlade in China. Can you give us a bit more color on what you expect to see in terms of your products pipeline for the remainder of this year? Is this kind of sufficiently strong to sustain the momentum that we see today? And then a bit of a follow-up -- or not a follow-up, a bit of a housekeeping one. You mentioned the IFRS split over -- of EUR 150 million for the EBITDA. Can you also give me the guidance on the impacts on adjusted EBITA and the phasing throughout the years?

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [63]

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Let me start with the first question and then hand it over to Abhijit. And innovations are a big driver for success. And in fact, Personal Health derives about 50% of its revenue from innovations that were brought to market in the last 36 months. And between the new Sonicare range; the shaver introductions last year, the P 9000 (sic) [Series 9000 Prestige], now the S7000; the OneBlade; and several products coming out in Mother & Child Care and in Domestic Appliances, we feel good about the product pipeline and the underpinning for the revenue growth for the whole year. Couple that with a strong management focus and improved A&P effectiveness, we believe that we can sustain this higher growth rate through the year.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [64]

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On the IFRS 16, the main impact comes -- or the -- not main. Most of the impact comes because of the capitalization of the lease assets, which therefore creates an additional depreciation, which therefore -- when you take it out of the EBITDA, therefore, that goes up. So the impact on adjusted EBITA is almost nothing. Regarding the phasing of the year, let us get back to you with Pim and team. I think it should be more or less even throughout the year, but you never know. I will make a double check, but I expect it to be evenly spread through the year.

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Operator [65]

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(Operator Instructions) We will now take our next question from [Martin] (inaudible) from (inaudible).

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Unidentified Analyst, [66]

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It's [Martin Baykov, DID]. I have a question, if you look at your targets regarding the last 12 months, growth rates and just interest [great] margin. In the past 2 quarters, you've been helped very much by development of Other, but you have never disclosed any targets for the Other division. Let me address it like that. Could you give some color on that, please?

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [67]

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Yes, I think what we do every year is we give guidance for the full year. I gave that as well earlier in the -- in my opening remarks. I think it's EUR 100 million for the year. So we guide to that. It becomes a bit difficult to be very precise during the quarters, especially because of the IP&S part. And after IFRS 15, actually you need to book. So earlier, if you signed a licensing deal with a certain counterparty, you will book that income over the period of the deal, which is why if you signed a few big deals, you never got a big impact. Now when you sign a deal, you need to book all of that in your income, and that causes a bit of lumpiness. However, overall for the year we are still pretty much on track to what we have guided for. So we guide for it, that the number is EUR 100 million for the year for Other. And I mean, if you have some further clarifying questions, we are more than happy to take it on later on through IR.

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Operator [68]

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The last question comes from Michael Jungling from Morgan Stanley.

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [69]

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I have one question about the EBITA margin and the impact from foreign exchange transactional headwinds. And for the first quarter, I think you've guided towards a headwind of 30 basis points. If I look at current exchange rates and -- I would assume that, that headwind goes away or becomes less for the remainder of the year. Am I correct? And perhaps you can be more precise in guiding what the transactional headwind may be for the full year.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [70]

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Yes. I mean, Michael, as you know, if I knew more how foreign currency will behave for the rest of the year, I would give you a very accurate estimate. So based on the rates as of now and based on what happened in Q3 last year, the FX headwind should be there till the middle of the year. If no currencies go kind of big time down after that, then let's say, from Q3 onwards, we should see that impact going away.

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [71]

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Okay. Great. And maybe one follow-up on the D&T: The EUR 40 million that you had lost in sales, could you quantify what impact that had on the margin in the first quarter?

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [72]

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Well -- but we also said that we compensated that loss of sales through other means, and therefore impact is low.

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [73]

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We're -- still the -- profitability-wise, there will be some impact, but it will be then too precise to start giving for everything those details. But this is a high-margin business. So while, as Frans mentioned, we compensated some of it through other businesses, the loss on D&T, yes, will be the -- most of the margin that we make on this EUR 40 million of sales. But we are not going to get into that level of granularity.

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [74]

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But the compensation that you've made in the first quarter, will that not remain for the remainder of the year?

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Abhijit Bhattacharya, Koninklijke Philips N.V. - Executive VP, CFO & Member of the Board of Management [75]

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No. It's some stuff that we could pull in from Q2 to Q1 to mitigate some of the -- so this is not a on-top-of business. Because as you know, this is a order book-driven business, so it's not something that comes on top of in such a short period of time. So it's more a timing thing that we try to smoothen out.

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François Adrianus van Houten, Koninklijke Philips N.V. - Chairman of the Board of Management & CEO [76]

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Okay. All right, everybody. Then I, we thank you very much for your attendance. And we remain at your disposal through IR for further questions.

Thank you very much.

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Operator [77]

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That concludes the Royal Philips First Quarter 2019 Results Conference Call on Monday, the 29th of April 2019. Thank you for your participation. You may now disconnect.