Welcome to the Royal Philips Q2 and semi-annual 2023 results conference call on Monday, July 24th, 2023. 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. Replay will be available on the investor relations website of Philips, 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 Q2 and half year 2023 results webcast. I have here with me our CEO, Roy Jakobs, and our CFO, Abhijit Bhattacharya. The Q2 and half year press release and slide deck, as well as the frequently asked questions and deck on the Respironics recall, were published on our investor relations website this morning. The replay and full transcript of this webcast will be made available on the website as well. Before we start, I want to draw your attention to our safe harbor statement on screen. You will also find the statement in the presentation published on our investor relations website. In today's call, we will discuss our results as well as the progress on the actions we are taking across different areas to drive performance improvement. With that, I would like to hand over to Roy. Thank you, Leandro. Good morning, everyone, welcome. It's good to be with you. I want to start with the key highlights for this quarter. First, we delivered an improved operational performance with 9% comparable sales growth and improvements in profitability and operating cash flow. The improvements were across the company with all business segments and all regions contributing. These positive results are a result from our ongoing actions to strengthen our execution. Secondly, we are making progress in executing our plan and on our three priorities: enhancing patient safety and quality, strengthening our supply chain reliability, which supported our performance in Q4 last year and the first half of this year, and establishing a simplified, more agile operating model, supporting our productivity. Thirdly, resolving the Respironics recall for patients remains our highest priority. The vast majority of the sleep therapy devices are now within the hands of patients and care providers, and the complete testing and analysis for sleep devices affected by the recall showed positive and reassuring results for patients. Looking ahead, based on our strong performance in the first half of the year, our order book and the ongoing actions to improve execution, we have raised the outlook for the full year 2023. Whilst acknowledging that uncertainties remain, we now expect mid-single digit comparable sales growth and adjusted EBITDA margin at the upper end of the high single-digit range. On to the key financial highlights in the quarter. We had a strong, comparable 9% sales growth. Diagnosis & Treatment grew 12%, Connected Care grew 6%, and I'm encouraged by the return to growth in Personal Health. Our adjusted EBITDA margin was 10.1%, a strong improvement of 490 basis points compared to Q2 2022. Operating cash saw an inflow of EUR 135 million, a step up of EUR 440 million versus last year. Our order book increased 3% year-on-year, even after strong order book to sales conversion of the last three quarters. I'm confident that this order book will continue to support sales growth in the coming quarters. On the back of the high order intake in Q2 2022 and Q1 2023, comparable order intake declined 8% in the quarter. Excluding Russia, this would have been 4%. This confirms our earlier view that orders would be lumpy as we work hard to deliver order intake growth in the second half of the year. This is founded upon strong fundamentals of the markets in which we operate as they remain strong. I'm very confident that our innovation portfolio is well positioned to help hospitals worldwide address their staffing shortages, enhance productivity, and improve patient and staff experience. The order funnel remains healthy, and we see signs of improvement in cost inflation and staff shortages in hospitals compared to 2022. We also continue to expect hospitals and healthcare systems in the US and other mature geographies to exhibit cautious buying behavior in the short term, given the global macroeconomic conditions. During the Q2, we achieved some key customer and innovation milestones. We signed a multi-year agreement with University of California Irvine Health to provide Enterprise Monitoring as a Service, including informatics solutions to standardize, centralize, and scale monitoring across the health system. Five top hospitals in Shanghai, with more than 10,000 beds, installed the Spectral CT 7500. We also expanded our leading Image-Guided Therapy portfolio with the launch of Zenition 10, a cost-effective mobile imaging system to guide high-volume routine surgery, as well as complex orthopedic and trauma procedures. We introduced the cloud-based Philips HealthSuite Imaging PACS on Amazon Web Services designed to enhance image access speed, reliability, and data orchestration for clinicians across the imaging workflow. In Personal Health, we launched the premium 7 Series Shaver in China, in partnership with JD.com, which debuted as the number one shaver on this online channel. With that, I would like to give the floor to Abhijit to take us through Q2 in more detail. After which, I will come back on the progress on our execution priorities. Abhijit, please. Thanks, Roy. Good morning, everyone. Let's begin by looking at the segment highlights from the quarter. In Diagnosis & Treatment, comparable sales increased by 12%, driven by strong double-digit growth in ultrasound and Image-Guided Therapy, and mid-single-digit growth in Diagnostic Imaging. Adjusted EBITDA margin was 10.6%, an increase of 380 basis points over last year, mainly driven by operating leverage, a favorable mix, and productivity measures. The profitability sequentially was impacted by mix and cost phasing. In the first half of the year, adjusted EBITDA margin was 11.8% for Diagnosis & Treatment, an increase of 460 basis points compared to the same period last year. This, together with our productivity, pricing actions, and order books, gives us confidence for the coming quarters. Connected Care comparable sales increased by 6%, driven by double-digit growth in monitoring, partly offset by Sleep and Respiratory Care. adjusted EBITDA margin was 7.5%, an increase of 570 basis points, driven by productivity measures and a significant improvement in the profitability of monitoring. Personal Health returned to growth with 3% comparable sales increase, which is encouraging. Consumer demand remains subdued globally, as we expected, but there is evidence of gradually improving sell-out trends. adjusted EBITDA margin was 13.4%, an increase of 100 basis points, driven by pricing and productivity measures. adjusted EBITDA margin for the group increased by 490 basis points to 10.1%. Wage and component price inflation came in at 260 basis points. This was more than offset by 150 basis points from operating leverage and by our productivity and pricing actions, which contributed a further 580 basis points. The Q2 adjusted EBITDA included a positive impact from phasing of royalty income, in line with the guidance we provided for the segment other for the quarter. We continue to improve our cash flow with a significant year-on-year improvement. This has delivered an improvement of the leverage from 3.6x to 3.1x times adjusted EBITDA in the first six months of the year. Our productivity initiatives are on track and delivered savings of EUR 237 million in the Q2. Operating model productivity savings amounted to EUR 112 million, procurement savings were EUR 57 million, and other productivity programs delivered EUR 68 millions of savings. Adjusting items in the quarter included EUR 161 million of charges, mainly related to accelerated execution of the workforce reduction plan, with 6,600 role reductions to date, out of the planned reductions of 7,000 roles for the year and 10,000 roles till 2025. Moving to our order book, which ended the Q2 3% higher compared to last year. It's worth noting that this is significantly higher compared to the period before the global supply chain constraints, even after the strong order book to sales conversion over the last three quarters. Orders and order book are an important leading indicator for around 40% of our revenue. The remaining 60% comes from recurring revenues, such as services and consumables, from book-to-bill business and from Personal Health. As you can see at the bottom of the page, the absolute levels of order intake remain healthy, but we see a steep increase in sales levels year to date due to enhanced order book-to-sales conversion following supply chain and execution improvements. In Diagnosis & Treatment, comparable order intake declined 8%, or -2%, excluding Russia. This follows the double-digit comparable order intake growth in Q1 2023, and a high order intake in Q2 of 2021 and 2022. Overall, order intake in Diagnosis & Treatment was mid-single digit up, excluding Russia, following a mid-single digit order intake growth in the first half of 2022. The Russia impact is due to longer lead time because of additional export control procedures in place since this quarter. Order intake declined 7% in Connected Care in the Q2 due to the tough comps in hospital patient monitoring after the expansion and renewal of the installed base during the period 2020 to 2022. For context, Connected Care orders continue to run at levels double-digit higher than pre-COVID, driven by fundamental demand shift in adoption of our patient care management solutions and expanding market shares. As Roy mentioned, we have raised the outlook for the full year 2023. While acknowledging that uncertainties remain, we now expect mid-single-digit comparable sales growth and an adjusted EBITDA margin at the upper end of the high-single-digit range. We expect to carry the positive momentum into the second half of the year, while facing tougher comparison base in the Q4. The full year outlook for restructuring, acquisition-related, and other charges remain in line with the guidance provided in January, despite some shifts between the different cost buckets based on year-to-date results. With that, I'd like to hand it back to Roy. Thanks, Abhijit. I would like to continue on the topic of the Respironics recall, which has been and remains our highest priority. To date, around 99% of the new replacement devices and repair kits have been produced. Over 4.5 million of the produced sleep devices are now in the hands of patients and home care providers, while the remediation of the affected ventilators is ongoing. Regarding the test and research program, Respironics has published complete testing and analysis for DreamStation 1, DreamStation Go, and SystemOne sleep therapy devices in Q2, which showed positive and reassuring results for patients. We continue to work through the testing for ventilators. As previously discussed, the litigation investigation by the US DOJ related to the Respironics field action, as well as the discussions on the proposed consent decree, are ongoing. We are also in continued dialogue with regulators across our key markets on how to service new patients going forward. I'm confident that our focused growth strategy for scalable innovation will further strengthen our businesses and results going forward. I would like to highlight some of the progress we have made in the quarter on our execution priorities. First, on patient safety and quality. Our new Patient Safety Advisory Board went live in the quarter, driving deeper engagement with patients, healthcare professionals, and industry experts. We continue to add significant capabilities and talents across the businesses. For example, we appointed strong regulatory affairs and quality leaders to the newly formed Enterprise Informatics business. Patient safety quality reviews are fully embedded in the new performance management cadence. We remain on track to deliver 45 production in a number of quality management systems this year, building on a 30% reduction by the end of last year. With respect to supply chain, as of the Q2, we have moved to customer-centric end-to-end teams, closely aligned to the different businesses we operate. We continue to make progress to reduce materials and component risks, although challenges remain. For example, we have accelerated the redesigns of components by completing 160 printed circuit boards, compared to 56 as of the end of Q4, and we are on track to meet our target to de-risk all our high-risk components by year-end. As you have seen in the results we have presented today, I am pleased to see that the actions we have taken continue to positively impact our sales as well as our service levels. Finally, we are simplifying our operating model by putting prime accountability into the businesses, supported by strong regions and lean functions. This also included the difficult but necessary reduction of our workforce by 10,000 roles globally by 2025. To date, we have reduced 6,600 roles, as mentioned by Abhijit. I want to express my gratitude to all my Philips colleagues for their dedication and commitment to deliver results as we create a more focused and agile organization. We are also strengthening our teams with new health tech talent, adding seasoned leaders with deep domain expertise across businesses, regions, and functions. Year to date, close to 300 talents with a health tech background joined our organization. Let me close out by repeating the key messages of the quarter. We delivered strong operational performance in Q2, with 9% comparable sales growth and improvements in profitability and operating cash flow. We are making progress in executing our plan and on our three priorities: enhance patient safety and quality, strengthen our supply chain reliability, and establish a simplified, more agile operating model. Resolving the Respironics recall for patients remains our highest priority. Looking ahead, based on our strong performance in the first half of the year, our order book and the ongoing actions to improve execution, we have raised the outlook for the full year 2023, acknowledging that uncertainties remain. I would like to thank you for joining the call, and we will now take your questions. Thank you, sir. If any participant would like to ask a question, please press the star followed by two times one on your telephone. Due to the time, please limit yourselves to one question with a maximum of one follow-up question. This will give more people the opportunity to ask questions. There will be a short pause while participants register for questions. We will now go to your first question, and it comes from the line of Hassan Al-Wakeel from Barclays. Please go ahead. Good morning. Thank you for taking my questions. I have three, please. Firstly, on the guidance upgrade, can we read anything into your consent decree assumptions that you've embedded into guidance, and whether they've changed at all over the last two to three months? Is the delay driving any meaningful guidance benefit, and is it fair to assume that your central case is not a Respironics-wide injunction? Secondly, and also on guidance, your new guidance implies a step down in growth in the second half, and no real improvement in margins sequentially, despite productivity and pricing benefits, as well as higher absolute revenues in the second half. What's driving your caution here? Finally, could you talk about your return to market, in CPAP, outside of the US, and whether you're in discussions with regulators, and what the process is here? Do you expect to return to other markets in the second half of this year? Thank you. Thank you, Hassan. Let me start with taking your first question. In terms of the guidance, and whether there's anything to read into to the CD. Actually, we have not adjusted any CD assumptions as we are still in discussion on the CD. As we don't want to speculate on any outcome, we also have not touched any of the underlying CD assumptions. What we have looked at is the underlying improvement of our business, and after you have seen, based on a strong Q1, a strong Q2, and also the fact that the actions we are taking are yielding their results in terms of getting more supply to convert our order book, that is strong, as well as driving productivity, that has been the reason why we kind of have upped the raise, for the full year, and upped the guidance. We also said that uncertainties remain. That's something that we have been saying from the beginning of the year. We are still living quite a dynamic macroeconomic environment. That's something that we keep on the back of our minds, so that we kind of also are ready to kind of address any of those dynamics that could happen also in the second half. We, of course, remain fully focused to carry the good momentum through into the second half, but also do have some tougher comps that will kick in, especially in Q4, as that's the moment that we turned back into growth last year, and that we have, of course, been able to pull through in Q1 and Q2. That's in essence, combining, I would say, the answers in your first and second question. In return to market out of U.S., we are indeed in discussion with regulators, as we are also now completing, especially on the sleep side, the recall in many markets. We have made great progress there, and that then also leads to the subsequent discussions on how and when to return to growth. That's something that we will see probably materialize further into second half, and we'll keep you updated the moment that we have any further news there. That's helpful. Roy, I guess if I can just follow up on the CD, I mean, you state that you're in advanced discussions and you have received drafts even in the recent months. Have your discussions with the FDA changed at all, and is it fair to assume that your central case, which you embed within guidance, is not a Respironics-wide injunction? As you said earlier, we do not speculate on the outcome of the CD, as many variations are possible. I can continue to stress that we are in active dialogue with the FDA. That remains ongoing. There's also no specific reason kind of for kind of further timeline on that. We want to get it, of course, resolved as soon as possible, as does the FDA, with the patient interest in mind. It also is fair to say that these are important and detailed discussions that are happening, and that's why kind of we continue to progress on those. Perfect. Sorry, final one, just to follow up on the margin commentary. Just given the strength in Q2 and the impact from workforce reduction, how far are we through that in terms of the realization of benefits, and what should we expect for the remainder of the year? Thank you. Hi, Hassan, this is Abhijit. Good morning. You know, we've been moving at a pretty good pace in terms of our reduction of headcount, we just said that we've done about 6,600 of the 7,000 planned for the year. That should give us a benefit going into the second half. The original plan was roughly, you know, we had 3,000 last year, plan was 4,000 this year, evenly split through the quarter. We are slightly ahead, and are confident of making that plan. I think that's where I would leave it. Thank you. We will now go to your next question. Your next question comes from the line of Veronika Dubajova from Citi. Please go ahead. Hi, Roy, hi, Abhijit, hi, Alejandro. Thanks so much for taking my questions. I have two, please. The first one is just going back to the guidance. I mean, if I just look at the mid-single-digit growth guidance that you've given for the year against the delivery in the first half, it does imply pretty significant deceleration in growth into sort of flat to low single digit range. Just want to understand, is there anything that you're seeing at the moment that makes that a likely outcome, or are you just embedding a degree of conservatism? If you can maybe talk through- I don't know, I know July is barely started, but just maybe comment on what you're seeing in the quarter- to- date, against that guide, that would be helpful. My second question is on the order book momentum, and clearly pretty significant deceleration here versus what you delivered the prior quarter. I appreciate there are some difficult comparisons in there, but I just may be curious to get your thoughts where, I mean, if I look across your performance and your peers' performance, we are clearly seeing some slowdown in order growth, this year. Just kind of put it into context for us, because, you know, at the outset of the year, I think everyone was pretty excited about China. That's growing pretty healthily from what we understand. Is this a problem in the U.S.? Is this a problem in Europe? Is this a problem somewhere else? What gives you the confidence that this can improve as you move into the back half of the year, and that it can support that sort of mid-single-digit growth in the D&T and Connected Care businesses that most of us expect for 2024? I know there's a lot of moving parts there, but if you can just give us a little bit of that'd be helpful. Thank you. Hi, Veronica. Let me take the first part of the question. I think, if you take a step back, we had planned for actually a back-end loaded year. We ultimately saw that the supply chain improvements came in earlier, and therefore, we have had a strong start to the year. As you've seen in the Q2, our go-growth was a bit flattered also because of our royalty income. If you take that into account and look at the second half, we see good momentum going into the Q3, but also you should remember that the Q4, we are battling tougher comps. If you remember last year in the Q4, health systems businesses grew mid-single digit. Of course, therefore, the growth will be, let's say, the year-on-year growth in the Q4 would not be as strong as it has been for the first two quarters this year. That's the color I can give you on how we expect growth to play out for the remainder of the year. It's not that there is a specific issue or something that we want to signal at all. We need to just get through quarter- by- quarter. The supply chain improvements have happened, but it's not over. We are still working these through, and as we get through every quarter, hopefully, we are able to deliver in line with the commitment. Now, coming to a second question, maybe I hand it over to Roy. Yeah, I think, Veronika, thank you for the question. On the order book, indeed. I think, important a few parts to take together. First of all, as we highlighted, we have still been growing versus last year. It's really important to recognize the strength of the order book that we have, and actually, we are still challenged to burn it down faster. Actually, that is one area that we also want to work through, and that's where this remaining focus on getting more supply to be able to deliver more of the products actually will help us to deliver also better to customers. Then also take more orders into our order book. Secondly, there is indeed a certain lumpiness. I started the year with saying that this is not a business as usual year. I've been talking to many customers. A few weeks ago, I went to China. China actually is coming back very strong, as you have seen. That started already Q1, it continued in Q2. We actually see it continuing in Q3 and Q4. We can expect, I think, a double-digit contribution out of China for this year. That's great to see China coming back. We also saw now in Q2 that Personal Health came back into growth. That's also important momentum that we will continue into third and Q4. I also went to the U.S. Actually, I was there even last week. I've been talking to customers also there. I must say that I've been encouraged by some of the signs that I'm seeing when talking to customers, that there is some stabilization coming in, and for example, challenges. Whilst they're still challenged on it, actually, they seem to be finding resolutions. We're also helping them with that, with our technology and innovations. That's what we're also talking about. Also, they're combating the inflation, I think, more effectively. That's what I would also take into the second half, where actually I would expect that the order intake would see growth coming back into play. That will then not only be growth of the absolute order book, but also in order intake. We will work hard for that across the globe. And that's maybe the last piece. I think what I was also happy about is that you saw that our contribution into the growth delivery in this quarter came from all businesses and all regions, which also means that there is no specific part that is laying back or is behind. Personal Health was the one that was still not as strong as we hoped for in the first half. We knew it, we expected that. Now we hope to continue the growth momentum across all segments into the second half. There is no, I would say, specific reason for caution or for kind of concern, but we remain, at the same time, realistic that this is not a business as usual year, and that our customers and also the world, is working through the current inflation, the interest, and the challenges that are in the labor market. Can I just ask a quick follow-on, or just on the consent decree? I think before you had talked about you had hoped to get it resolved and settled in the first half of the year. I might have missed it, but I didn't see a comment on the updated timeline in the press release this morning. Do you have any thoughts on when we might see a resolution there? No. I've not. That's also why we did not put a timeline in. I also don't want to further speculate on it. I think it's important to stress that there's no specific reason that I would call out, or any specific concern that this is indicating something. I think it only indicates that this is being worked through very diligently, and at the same time, as I said earlier, there's a lot happening across the plate of both the FDA, but also on our side. I think on both parties, we are putting all our efforts into it to bring this to the best possible conclusion. The moment we will get any update on timing or conclusion, of course, we will come forward with it, but it's hard to put a specific timeline on it. When I said earlier in the year, I would hope for first half, indeed that was my hope, but I also said it's not in our control, as yeah, there's a lot to be worked through, and that's kind of what, yeah, we have seen materializing now. Understood. Thank you guys so much. Thank you. We will now move to our next question, and the question comes from the line of Richard Felton from Goldman Sachs. Please go ahead. Good morning, thank you for taking my questions. My first one is on Connected Care. Strong performance on the margin, which drove the beat at group level in Q2. Could you provide a little bit more color on the margin drivers within the division, please? Specifically, interested to know the impact from monitoring versus Sleep and Respiratory Care. Were there any one-offs which drove strong performance in the quarter for monitoring? That's my first one. My follow-up, also on Connected Care, it looks like Sleep and Respiratory Care still had a fairly material revenue decline in Q2. Given the system sales were already zero last year, could you provide a little bit of color on where those incremental declines are coming from, please? Thank you. Hi, Richard, this is Abhijit. On Connected Care, as we mentioned also in the commentary upfront, is coming mainly from monitoring. You know, It's a very profitable business, and monitoring, as you would remember last year, was really hit by the component situation. I think we have had a 20-plus% growth in the Q2, and then when you get operating leverage, of course you get a big impact. Besides that, in Sleep and Respiratory Care also, we had started in Q1 taking cost actions, so therefore there, the profitability starts to improve. I think overall it's pretty much organic, so there are no real one-offs. Maybe I can take the second one on the SRC side. If you look to the SRC mix, actually you see that the ventilation side was where we saw the decline. We're also still working through the remediation on that, so actually that is connected. At the same time, if I look to masks, actually we have seen masks coming back stronger, and that was a positive development in the quarter. It's a mixed issue where the ventilation is actually driving the decline, while mask is offsetting some of that, whilst we of course have the ongoing effect of the sleep remediation in the sleep devices part of the business. Great, thank you very much. Thank you. We will now go to our next question, and your next question comes from the line of David Adlington from JP Morgan. Please go ahead. Morning, guys. Thanks for the questions. Firstly, just on orders. You said you faced a tough comp, but I think it was only 1% last year, and the year before that was down 15. I just wondered if you had some further call, be useful either by notable weakness, either by product category or by region. Secondly, just on your one-off charges, it looks like you've shifted 100 basis points from restructuring to other quality-related charges in Connected Care. I just wondered what the reason for that change was, please? Yeah. Hi, David. Maybe, let me answer the first question. I mentioned that, you know, there were tough comps on 2021 and 2022. We had actually a 36% increase in comparable order intake in Diagnosis & Treatment in Q2 2021, and we followed that by another 2% increase last year. I think that's where the tough comps come, because it's already on a high order intake number. You see that also in the IR deck. We have shown that on page 14. The second thing is, of course, we mentioned earlier that it's lumpy, right? Q1, we had strong growth. We had a double-digit growth in Q1. This lumpiness will continue. We say also that we have confidence in order intake growth in the second half of the year because the funnel remains strong. The one-off charges. I missed the second part of the question. The one-off charges is for what? Could you just repeat that, David, your second part of your question? Yeah. The your guidance on the one-off charges, 100 basis points seems to have shifted from restructuring. That's gone down by 100 basis points, but your quality-related charges with respect to Connected Care has gone up by 100 basis. I just wondered if we should read anything into that? Yeah, no, not really. It's basically as we have been going through the restructuring, we have found that there has been also some attrition, so that cost has gone down, and in the second half of the year, we are continuing with the remediation of the Form 483 that we had. That is leading to some costs as well as legal costs related to sleep and respiratory. Again, overall, the guidance remains the same, but it's just a shift in line. Okay, maybe just a cheeky follow-up. Just into the foreign exchange impact, just wondering where you're expecting that to be at current rates for the rest of the year? Thanks. Yeah, look, typically, you know, the way we manage our forex, it fluctuates between plus to minus 10-20 basis points in a year, so it should be within that range. It's not something big that we expect. Thank you. We will now go to your next question. Your next question comes from the line of Robert Davies from Morgan Stanley. Please go ahead. Yeah, thanks for taking my questions. My first one was just around the cash guide. I noticed there was no change in the free cash flow guidance for the year, even though you had some notable improvement year-on-year in, I think, in the working capital metrics, January to June. Also the CapEx is running lower. Just be kind of interested why you didn't revise the free cash flow guidance, even though the EBIT, sorry, the sales and margin guidance had been updated. That was my first question. My second question was just on trajectory of margins, I guess, in Personal Health. I'd just be curious what your thought process there going into the back half of the year. I noticed you were obviously back into positive growth territory, but the margins haven't really kind of kicked through. Is there a sort of level we should think about where margins could kick in? I know there's quite a seasonal heavy Q4 trajectory there. I just wondered if there's anything to think about heading into the back half of this year that might change that. Then the last one was just within the D&T business. Obviously, you had a few questions already about order trajectory. Just be curious in terms of modality of product within that business, if you're seeing anything to particularly call out as strong or weak in the quarter. Thank you. No. Let me. It's a good point on cash guidance. Look, we had given a range of EUR 0.7 billion-EUR 0.9 billion, which was, let's say quite a. Mm-hmm ... a broad range. We will have improvements in earnings, as you've seen. You know, we have upped the guidance there to the higher end of the range. I expect that it will take a bit longer for us to get our inventories down as much as we would have liked this year, because, let's say, to get all the matching inventories and flow through to customers will probably take till middle of next year. Again, we would probably be at the higher end of that guidance, but not at this stage to raise that guidance amount by a small amount. We are confident of being- Mm ... in the range. We have started well, we will continue down that track. Regarding margins in PH, you know, we have already got into the, I think it was 100 basis points already in this quarter. Growth will continue in Q3 and Q4, you should see also margin improvements coming in Q3 and Q4. There's nothing that I would signal in terms of, yeah. Of course, given where we are in demand, we are going to need to invest in advertising and promotion to kind of stimulate some demand to drive that growth, not really much different. Your last question was on the order intake and in the modality. There's not- Yes ... really something significant to call out there. I think most of the lumpiness we see across the portfolio. We had, let's say, good order intake across modalities in Q1. We see, let's say, the mirror impact in Q2. As we work down the backlog in MR, which currently is long, we hope to, let's say, start getting more and more order intake there, because currently, given the lead times, we are a bit hindered there. There's not any specific modality which is, let's say, hugely different in terms of the pattern that we see. That's great. Thank you very much. Thank you. We will now go to our next question. Your next question comes from the line of Graham Doyle from UBS. Please go ahead, your line is open. Good morning, guys. Thanks a lot for taking my questions. Just one on D&T, on one of the consent decree. The margin was obviously down sequentially, obviously, strong, but down sequentially in D&T in Q2. I think at the start of the year, we were kind of still talking about relatively normal phasing in that. Typically, each quarter goes by, you generate more revenue, you generate a better margin. How should we think about Q3 and Q4? When we think about that mix effect, you flagged Abhijit, how do we think about that going through the next couple of quarters? Then just a sort of broader question, the consent decree, which isn't the specifics of timing, it's just we think about the process that's been going on for a year now. Is it presumably that is a sort of negotiation, and there are things that you want, that you are trying to push for and vice versa. Is it feasible that we just don't get an agreement on a consent decree, and what happens there? Thank you very much. Yeah. On, on D&T, I don't, like I mentioned in the speech, right, there is a shift of phasing of cost as well as mix between Q1 and Q2. I would not read that too much as structural. Yes, we will have a stronger Q2, second half in terms of margin in Diagnosis & Treatment. You know, I think if I remember right, in 2020 or 2019, we were at 12.7%. We make a kind of good recovery towards that, so there will be strong improvement year-on-year. Again, between one quarter and the next, I would not read too much into it. We had also a higher mix, if I recall correctly, of ultrasound in Q1, and a slightly stronger mix of DI in Q2 that affected it a bit, and a certain phasing of service costs between Q1 and Q2. I would not read too much into that at this stage. We will continue improving as the year goes by. On the second one, maybe on the CD. Starting with your last part of the question, I think we will get towards consent decree. It is a matter of time, so I don't think it's there's no scenario that we will not get there, because it was initiated, so it will be concluded. I think if you look at the timeline, actually, we are now kind of in the year after it started, but actually, if you look to a comparable own experience we had with the AD, which was of much smaller size and complexity, it also was over a year discussion to get to kind of an a consent decree. I would not read also too much into the fact that we are now passing the one-year mark. Also, if you look to other consent decree discussions with other parties, you will see that these timelines are not kind of out of the normal. This needs to be done diligently, and as we said before, yeah, this is a significant one, given that the Sleep and Respiratory recall was a sizable affair. I think that is what we are working through together, and that's also what we will bring to a conclusion at the right time. Okay, great. That's really clear. Thanks a lot, guys. Thank you. We will now go to our next question. Your question comes from the line of Sezgi Ozener from HSBC. Please go ahead. Your line is open. Hi. Thanks for taking my questions. Just two, please. First of all, on the change that you had, the transfer of Enterprise Informatics from D&T to CC, we can see how the margins of that business was so far. Going forward, can you give some color on the projected outlook of that business in terms of growth and margins and what kind of markets you're seeing there? Second of all, on free cash flow, it was shortly mentioned, of course, the fact that the guidance remained the same despite higher guidance, and also, even though the Q2 tends to be a lot stronger from a cash flow perspective. Was the fact that some of the liabilities are not certainly a factor in that? Do you see any downside risk to that guide of given the first half, free cash flow, stood much lower? Thank you. Maybe let me take the first one. Indeed, I think we put Enterprise Informatics to Connected Care. I think the importance was that we really put it as a separate vertical, where we combined the different informatics assets, actually to ensure that the capabilities to run that in an end-to-end manner actually yield its effect. I can say that actually we do see the impact coming into play. We have mentioned that the growth we expect should be double of what we grow at Philips, and also we have seen strong growth in that. On order intake, we also said that kind of we would be a bit cautious because we really want to fulfill well, and the delivery of these installations are important, so we are working hard on adequate delivery. The margins are increasing. We have made certain choices for scaling the bigger platforms that we have, and that is healing effect. We expect with further growth acceleration that that will scale further. Actually, we have seen the first impact, which is positive. There's a lot of momentum, as you can understand, there's a lot of demand for workflow improvement. AI is very hot, and a big topic to see kind of how we can help the current customers with generative and analytical AI in their workflow and to drive patient outcomes. We're also applying that, and we have multi-vendor solutions that actually can help across imaging, monitoring, and also in providing care across care settings. This is a part which actually is generating a lot of interest, and we're having the dialogues with customers as we speak. Yeah, Sezgi, maybe to understand your question on cash flow, is it that, because we have a stronger second half, you're questioning the guidance, whether it should go up? I'm not very clear. Sorry. Could you just ask that again? Actually, the question is more like, do you see the risk to the current guidance, which was not up-updated, to the downside or upside, given that your second half tends to be much stronger, but you had a guidance upgrade in other metrics, but not in free cash flow? The first half guidance, first half actual free cash flow is, it shows significant improvement year-on-year, but compared to guidance, it's on the weaker side. Yeah, I would not say that the first half guidance is on the weaker side. If you look typically, like you mentioned, you know, our second half cash flow is much stronger. We are actually pretty happy with where we are with the first half of the year. I don't see any risk to the guidance. In fact, as I just mentioned, we will probably be at the upper end of the current guidance. Okay, that's very helpful. Thanks a lot. Thank you. As a reminder, if you would like to ask a question, please press the star followed by two times one on your telephone. We will now go to your next question. Your next question comes from the line of Falko Friedrichs from Deutsche Bank. Please go ahead. Thank you, and good morning. I have two questions left, please, both on D&T. The first one on this mid-single-digit growth in Diagnostic Imaging. Can you provide some kind of a split into MRI and CT? Secondly, what was driving this continued strong growth in your ultrasound business? Thank you. Yeah, Falko, we provide a lot of color now going into every modality, and the specific becomes maybe even too much color. Yes, across the board, we continue to grow. Both, MR and CT were actually nicely up. The growth in ultrasound comes from the fact that, you know, the order book is very, very strong. Once that is resolved, we are just going through the order book. That continues good momentum, and our shares are also trending well. I think overall, yeah, it's... You see growth across the board, and ultrasound is largely due to the order book that we were carrying. Perfect. Thank you. Thank you. Gentlemen, that was the last question. Please continue. Thank you all for joining our call. As I said at the beginning, I'm pleased with the progress that we are making, as we see that the measures that we have been taking at the beginning of the year are really yielding effect. As a result, we delivered strong operational performance with 9% comparable sales growth, improvement in profitability, operating cash flow. That was coming from all businesses and all regions. We also expect to carry that into the second half, that positive momentum, based on further progress on the three priorities that we are executing against, and that actually led us to raise our guidance for the full year. Whilst uncertainties, especially also in our environment, remain, we remain confident in our plan, the execution of it, and we'll stay the course to kind of come back quarter-over-quarter, showing an improvement path for Philips on the long term value creation trajectory. Thank you for listening in. Looking forward to connect with you, and wish you a further great day. Thank you. This concludes the Royal Philips Q2 and semi-annual 2023 results conference call on Monday, July 24th, 2023. Thank you for participating. You may now disconnect.