Koninklijke Philips N.V. (PHIA) Earnings Call Transcript & Summary

Good morning, everyone. I'm here with our CEO, Roy Jakobs; and our CFO, Charlotte Hanneman. Before we begin, I would like to acknowledge that due to an administrative error, Philips' second quarter 2026 results were inadvertently published last evening ahead of our scheduled release. As a result, we brought this webcast forward by 2 hours. We apologize for any inconvenience this may have caused, and thank you for joining us on short notice. Our results press release and presentation are available on our Investor Relations website. The replay and full transcript of this webcast will be available on our website after this call concludes. I want to draw your attention to our safe harbor statement on the screen and in the presentation. I will now hand over to Roy.

Good morning, everyone. Thank you for joining us. I will start with an overview of our Q2 results and outlook for the balance of the year. We delivered in line with our expectations in a dynamic external environment. We grew comparable sales by 4%, driven by growth across all segments. Adjusted EBITA margin increased to 16.4%, including a tariff refund benefit, which Charlotte will discuss in detail. Excluding that benefit, our underlying margin was 12.2%. This reflects the expected pressure from higher tariffs and cost inflation, with productivity offsetting part of the impact. Free cash flow was EUR 220 million, including a tariff refund benefit. Against this backdrop, we reiterate our full year comparable sales growth outlook range of 3% to 4.5%, and our underlying adjusted EBITA margin outlook also remains unchanged. Excluding the tariff refund benefit, we continue to expect a full year adjusted EBITA margin of 12.5% to 13%. At the halfway point, we remain solidly on track for the full year. On a rolling 12-month basis, order intake grew 5%, demonstrating the resilience of our commercial momentum. Customer demand for our innovations remains healthy. Europe delivered strong order growth, and North America has a healthy pipeline, with large orders already secured in Q3. Comparable sales grew 4% in the first half. We also improved underlying profitability year-on-year through productivity savings, helping to largely offset tariffs and cost inflation. And we largely completed the U.S. tariff refund process during the quarter, demonstrating the agility of our teams in a changing environment. Together with the continued progress in innovation and execution, this gives us confidence in the balance of the year. Turning to orders in Q2. Order intake declined 1% as certain larger monitoring orders specifically moved to Q3. This followed 6 consecutive quarters of growth. Importantly, our equipment order book remained at a record level, providing good visibility for the periods ahead. In Diagnosis & Treatment, orders grew low single digit, following double-digit growth last year. Strong performance in North America and Europe was partly offset by continued weakness in China. Within the segment, image-guided therapy delivered another quarter of strong growth in North America, while in the international region, Q2 last year included a multiyear nationwide agreement with Indonesia's Ministry of Health. Precision Diagnosis delivered strong order growth, including double-digit growth outside of China, reflecting broad-based demand and traction from our recently launched innovations. In Connected Care, Enterprise Informatics delivered solid order growth in Q2, particularly in Europe. Monitoring orders declined, reflecting the timing of certain larger North American orders shifting into Q3. Importantly, this did not reflect a deterioration in underlying demand. Overall trends across our health systems segments support our confidence in the commercial momentum for the balance of the year. With good visibility into our pipeline, we expect solid order growth in Q3. Let me now turn in how we are executing our strategy across our segments. D&T strengthened its leadership position in Q2. In IGT, North America continued to deliver an exceptionally strong win rate, supported by large customer orders. We signed an agreement with a leading U.S. nonprofit health care system to equip 14 catherization laboratories. We also secured a long-term enterprise partnership, covering over 300 health technology projects across 200 hospitals in Poland, spanning IGT, imaging, ultrasound and patient monitoring. This demonstrates the value of our broad portfolio and strong customer relationships. In Precision Diagnosis, innovations presented at CMD are gaining strong customer traction. Spectral CT Verida, wide bore CT Rembra, helium-free MRI and point-of-care ultrasound were key contributors to the order growth in the quarter. Across D&T, we also expanded strategic collaborations to accelerate innovation. Our alliance with WellSpan Health combines long-term commercial partnership with the co-development of AI-enabled healthcare technologies. We also announced a joint investment with the Dutch government to accelerate the next generation of AI and robotics enabled image-guided therapy. These collaborations extend our innovation ecosystem and strengthen our long-term competitive position. Earlier this month, a leading U.S. health system deepened its relationship with Philips, extending patient monitoring across its large hospital network. This follows strong commercial activity in H1. Another major health system broadened its Philips' patient monitoring footprint across more than 50 hospitals. Several orders, including NYU Langone Health continue to standardize on Philips' patient monitoring across their networks. We are seeing strong momentum also beyond the hospital walls. In Europe, Karolinska University Hospital selected a Philips-led consortium to support the whole region of Stockholm first region-wide hospital-at-home program. It will use advanced remote monitoring to extend hospital-level care into patients' homes, supporting up to 15,000 patients annually to start. Together, these examples underscore that customers increasingly recognize the value of patient monitoring as an enterprise platform integrated with software and clinical informatics. They also support extending care beyond the hospital. A notable Q2 win in Enterprise Informatics was a full cloud conversion under a new 10-year agreement with a leading U.S. health system. Once fully deployed, the platform will support around 1.7 million image studies a year in this health system alone. The scale and duration of this order demonstrates the trust customers place in Philips as they transform their health systems and technology infrastructure. These enterprise cloud transformations are complex by nature and are implemented in carefully managed phases, aligned with customer readiness. Revenue, therefore, builds over time, as implementation progress across sites and clinical teams. Turning to Personal Health. The segment delivered another strong quarter. Broad-based momentum across categories was driven by strong commercial execution, innovation and expanded retail distribution. We gained market leadership in power tool brushes in the United States, with our newest launched Sonicare platforms. We also strengthened our position in modern child care, with Philips Avent products continuing to gain market share. In China, we launched the Compact S800 shaver powered by our new TurboMax motor. It ranked #1 in first day sales in its category on JD.com. As part of a technology company, our Personal Health business is uniquely positioned to apply AI across its portfolio, creating smarter, more personalized consumer experiences. We are scaling cry interpretation in Avent baby monitors, AI-guided voice assistant in Lumea hair removal devices and sense acute technology in premium shavers. This demonstrates how we combine health technology expertise with consumer insights to create winning innovations. Turning to innovation across our health systems. We are differentiating our portfolio by improving clinical outcomes and productivity. In Image-Guided Therapy, we introduced Smart IQ for our Azurion platform. It advances coronary image quality and dose management, using over 50% less x-ray dose than our current low dose settings. In Ultrasound, we are accelerating innovation and bringing our best-in-class technology to general imaging, supported by the FDA clearance of Elevate Plus. In MR, we introduced the first multi contrast 4D MR imaging solution for radiotherapy simulation. It allows patients to read normally during imaging, while helping clinicians to better visualize moving tumors for treatment planning. We also unveiled Titanion, our next-generation ultra-high gradient 3 Tesla MRI platform. It is designed to provide more precise clinical insights and advanced quantitative imaging. These innovations strengthen our differentiated portfolio and support our long-term growth. Disciplined execution is how we build a stronger, more resilient business. It starts with patient safety and quality remaining our highest priority. Product nonconformances remain on track for a fourth consecutive year of reduction. Corrective and preventive action performance reaches highest level since 2022. We are also increasing the speed at which we bring innovations to customers. Building on a strong first quarter, we secured another 9 FDA 510(k) clearances and premarket approvals across key franchises in Q2, bringing the year-to-date total to 29. These include important clearances across ultrasound, CT and hospital patient monitoring. In China, regulatory approvals for Rembra, Areta and Verida position us to further expand the reach of our next-generation CT portfolio. AI is also helping accelerate our regulatory processes, improving both -- improving both speed and quality. It enables us to respond more quickly to local market needs. HealthTrust, one of the largest health group organizations in the United States, recognized Philips as is 2026 Capital Supplier of the Year. This award reflects our ability to understand and respond to HealthTrust's specific needs and of which the large customers it serves as well as the value we bring to their health systems. Now turning to our regions. Our regional growth profile reflects the priorities we outlined at our Capital Markets Day. North America and Europe continued to drive health systems growth, while consumer sentiment in Personal Health remains broadly unchanged relative to last quarter's strengths. In North America, healthy patient volumes, procedural growth and sustained capital investment by large health systems continue to support demand. Customers increasingly want to standardize care through fewer, deeper strategic partnerships. Our platform-based portfolio, differentiated innovation and strong customer engagement positions us very well to capture that demand in North America. A healthy order pipeline supports our confidence in the outlook for the region. Turning to Europe. Europe delivered another quarter of strong and increasing performance, particularly in the D&T and Connected Care segments. European health systems are investing in productivity, digitalization and in modernizing care delivery. Our differentiated portfolio and commercial execution continue to resonate with customers. This gives us confidence that Europe will remain an increasingly important contributor to our growth. In China, market conditions developed broadly in line with our expectations in Q2. Personal Health remained relatively stable, with health systems continue to face a challenging market environment. The expansion of centralized procurement and subdued hospital investment continued to weigh in on the health systems market overall. For the full year, we now expect China to be broadly stable overall, with strength in Personal Health offsetting continued weakness in health systems. Demand remains, so purchasing behavior has become more timing-driven as hospitals adapt to evolving procurement and funding frameworks. I will now hand over to Charlotte.

Thank you, Roy. I will start with segment level performance. In Diagnosis & Treatment, comparable sales increased by 2.4%. Image-Guided Therapy delivered high single-digit growth, continuing its strong track record for the 22nd consecutive quarter. Performance was strong in Europe and North America, led by the Azurion platform, Zenition motorized mobile C-arms, higher service revenues and intravascular ultrasound. Precision Diagnosis comparable sales declined at a low single-digit rate, a slight improvement from Q1. Growth in Europe and several international regions, markets, particularly India and Lat Am was more than offset by China. MRI performed strongly, reflecting the strength of our differentiated portfolio, particularly the helium-free BlueSeal MR 5300 and the high-performance 3T MR 7700. Ultrasound performance was supported by momentum in our cardiovascular platforms, Affiniti, cardiovascular and premium EPIQ cardiovascular. The new Flash 5100 also contributed, expanding our presence in point-of-care ultrasound. Our recently approved CT platform innovations, Rembra RT and Areta RT also began contributing to revenue. Adjusted EBITA margin increased by 40 basis points year-over-year to 13.9%, including the impact of the tariff refund, which I will discuss later. Excluding the refund, margin declined by approximately 460 basis points to 9.3% as productivity measures were more than offset by cost inflation, higher tariffs and currency effect. We expect margin progression towards the end of the year, driven by higher growth, innovation led gross margin improvement, productivity and inflation mitigation actions alongside an easier year-on-year tariff comparison. Moving to Connected Care. Comparable sales increased by 2.2%. Monitoring delivered another quarter of strong mid-single-digit growth, led by North America and supported by Europe. Growth was driven by higher IntelliVue hospital monitors and ambulatory cardiac monitoring sales, continued adoption of PIC iX and strong performance in monitoring as a service, reflecting customer investments across hardware, software and services. Sleep & Respiratory Care delivered low single-digit growth, led by Europe and Japan. Enterprise Informatics sales declined mid-single digit, mainly reflecting the timing of order conversion. Growth in international region was offset by a decline in North America. Connected Care adjusted EBITA margin in Q2 expanded by 740 basis points year-on-year to 17.8%, including a tariff refund. Excluding this benefit, margin expanded by approximately 130 basis points to 11.7% as productivity measures more than offset the higher tariffs and cost inflation. In Personal Health, comparable sales grew 8.5% in Q2 with all 3 business contributors. Growth was broad-based, led by North America, while China benefited from an easier comparison base. Demand remained strong for premium shavers, OneBlade replacement blade and the recently renewed Sonicare 5000 to 7000 series. In Q2, Personal Health adjusted EBITA margin expanded by approximately 780 basis points to 23%, including the impact of the tariff refund. Excluding this benefit, margin expanded by 280 basis points. Sales growth, productivity measures and a particularly favorable innovation-led product and market mix supported higher gross margin. These favorable impacts were partially offset by cost inflation. Finally, sales and segment Other increased by EUR 62 million to EUR 182 million, mainly due to higher royalty income and activities related to a divestment. Adjusted EBITA increased by EUR 11 million to EUR 7 million, driven by higher royalty income. Now turning to the group results. Comparable sales increased by 4.1% in Q2 with growth across all segments and most regions. Adjusted EBITA margin for the group increased by 400 basis points year-on-year to 16.4%, including a tariff refund. Excluding this benefit, margin declined, as expected, by approximately 20 basis points to 12.2%. Sales growth, favorable mix effect and productivity measures were more than offset by cost inflation and higher tariffs. In Q2, we received virtually all of the tariff amount claimed. This includes an approximately EUR 25 million impact for annual incentive accruals from the increase in our reported full year guidance, which includes the tariff refund benefit. Consistent with the treatment of the original tariff cost, the majority of the refund was recognized as a reduction in cost of goods sold and was therefore included in adjusted EBITA. In Q2, we delivered EUR 132 million in productivity savings, bringing year-to-date delivery to EUR 258 million despite pressure from higher cost inflation. We are on track with good visibility to deliver our EUR 1.5 billion 3-year saving commitment. Progress in the quarter was supported by further operating model simplification, procurement and supply chain initiatives and footprint optimization. AI is strengthening these capabilities and helping us scale the benefits. In Personal Health, our internally developed Illumina AI platform combines consumer data and signals to generate innovation ideas, making concept development 50% faster. In engineering, we are scaling AI through initiatives such as Nova, helping teams develop product requirements with greater precision and more quickly, reducing rework and supporting first-time right development. Drafting time has been reduced by around 1/3, with further productivity benefits expected as adoption scales. Adjusting items were EUR 20 million, significantly below EUR 86 million in the prior year. The reduction was primarily driven by portfolio actions in Enterprise Informatics, including a one-off gain related to the divestment of the electronic medical records business completed in Q2. Given the year-to-date performance, we now anticipate a full year impact of approximately 180 basis points compared with our previous outlook of approximately 200 basis points. Free cash flow in Q2 was an inflow of EUR 222 million, broadly in line with last year, as higher working capital outflows were largely offset by the tariff refund. Moving to the balance sheet. We ended Q2 with EUR 1.8 billion in cash. Net debt was EUR 5.7 billion at the end of Q2. The leverage ratio improved to 1.8x on a net debt to adjusted EBITA basis from 2.2x in Q2 2025, driven by higher earnings and lower debt. Our balance sheet provides resilience in an uncertain environment, while giving us the flexibility to invest in long-term value creation. Now turning to our outlook. Through the first half of the year, we delivered against the priorities and expectations we set out at the beginning of 2026. We delivered against a persistently uncertain macro and geopolitical environment. We remain focused on what we can control and are executing the actions needed to deliver our priorities. Against this backdrop, we reiterate our full year comparable sales growth outlook of 3% to 4.5%. For the full year, we continue to expect Connected Care and Personal Health to grow at the upper end of the range and Diagnosis & Treatment at the lower end. For Q3, we expect comparable sales growth to be at the lower end of our full year range due to China and ultrasound. Our full year outlook for underlying adjusted EBITA margin also remains unchanged. Excluding the tariff refund, we continue to expect a full year adjusted EBITA margin of between 12.5% and 13%, driven by sales growth, innovation and productivity, partially offset by annualized tariffs and input cost inflation. This corresponds to 13.5% to 14%, including the tariff refund recognized in Q2. For Q3, we expect adjusted EBITA margin to be below the prior year level, primarily reflecting higher cost inflation and an unfavorable mix impact. In line with our Q1 view, we expect cost inflation to remain elevated, with a greater impact in the second half as higher costs held in inventory are recognized in the P&L. At the same time, the benefits from our mitigation actions are expected to increase during the second half, together with continued contribution from the productivity program. We remain on track with good visibility on the actions required to deliver our full year underlying margin outlook. Consistent with our approach over recent quarters, our outlook incorporates currently known tariffs, including those announced on July 23. We now expect reported free cash flow of between EUR 1.5 billion and EUR 1.7 billion, including the tariff refund. Our underlying free cash flow outlook remains unchanged at between EUR 1.3 billion and EUR 1.5 billion, excluding the tariff refund. As previously indicated, our outlook excludes ongoing Philips Respironics related proceedings, including the investigation by the U.S. Department of Justice and the State Attorneys channel. With that, I would like to hand it back to Roy for his closing remarks.

Thank you, Charlotte. Before we open the line for questions, let me leave you with 3 key messages. First, we delivered a solid first half in an uncertain environment, demonstrating the resilience of our business and our disciplined execution. Second, our first half performance, together with the momentum we are seeing across our customer relationships, technology collaborations and government engagement gives us confidence in the full year. We are, therefore, reiterating our comparable sales growth outlook and raising our adjusted EBITA margin and free cash flow outlook to reflect the tariff refund. Finally, we remain fully focused on delivering what we said we would do. Through the execution of our focused segment strategies, continued platform innovation and disciplined operational delivery, we remain on track to achieve the ambitions we set out at our 2026 Capital Markets Day: mid-single-digit growth CAGR and mid-teens adjusted EBITA margin by 2028. With that, operator, please open the line for questions.

[Operator Instructions] We will now go to the first question. The first question comes from the line of Hassan Al-Wakeel of Barclays.

I have 2, please. Firstly, if you can expand on the D&T margin performance, please, it's 9.3% ex tariff, which is meaningfully below expectations. What's driving this? And how are gross margins in the business trending given your prior comments on innovation and mix here? Do you expect underlying D&T margins ex tariffs to expand year-over-year in Q3 and Q4? And then what about the full year? And then secondly, also on D&T and really your thoughts on centralized procurement in China and the extent to which this is already impacting your margin mix in Q2. Roy, when we met last month, you talked about differentiated offerings such as BlueSeal MR and spectral CT being insulated from this. Is this still your view? Or is it changing? And do you expect further expansion of these initiatives in China?

Yes. Thank you, Hassan. Let me take the first question. Thanks for your question. So maybe take you one level back from a margin perspective. So I think it's important to note that overall, we delivered on our margin expectations exactly in line, as we said at the beginning of the quarter. And that is actually 10 basis points of margin expansion in the first half of the year, excluding tariffs, in a very dynamic environment. So we're actually pretty pleased with that and it's exactly in line with our expectations. Now if you then unpack that a little bit, it is fair to say that Personal Health did really well from a margin expansion perspective, Connected Care expanded margins, and indeed, as you mentioned, D&T had lower margins. Now there are a few things that are impacting the D&T margin. So as I said also, just previously in my remarks, of course, there was cost inflation, which had a somewhat greater impact in D&T than in the other segments. And then also we saw, as we also called out in the beginning of the quarter, we saw higher tariffs, of course, as Q2 was the last quarter where we didn't see those tariffs. Also specifically in D&T, we saw a higher currency effect as well. And then the other driver there is that last year, we had a higher contribution from a one-off effect as well. Then the other element, and you already alluded to it in your second question, was China, where we did and we know PD has a somewhat higher exposure to the market in China. And as a result, that also impacted the margins in Q2 as well. But if I then take you back, overall, we are exactly in line with where we thought it would be for Q2. We are on track with 10 basis points of margin expenditure for the first half and we are reiterating our full year margin outlook for the year between 20 and 70 basis points. Now to follow up on your last question, which is the gross margin from innovations and how that is developing. We do see that continuing to develop in the right direction. I'll give you a couple of examples. For instance, Rembra in CT in our Performance segment and also Verida in our premium segment in CT is really driving up gross margins underlying, excluding tariffs, excluding cost inflation. And also in MR, and we spoke about that on the call last quarter, we have a lot of help from our service upgrades. Last quarter, you might remember us talking about Smart Heart and also about Precise, some of the software upgrades that we have. Those are also driving underlying margins up. So maybe with that, I'm going to hand it over to Roy for the centralized procurement.

Yes. So on the centralized procurement, you might have seen that now, the China government expanded the centralized procurement policy across China. Now what that means is that you will have a further prolonged scope of implementation of a new policy. And as we learned earlier, this -- that creates turmoil in the market because people learning what this new process is. Of course, they're bringing them technology under that process. Still the point being, as we discussed earlier, Hassan, that unique technology still has a specific way finding a position in that centralized procurement. But the other kind of segments, like more value segment and kind of where you have less undifferentiated technology, you will go more into the procurement process as they have defined. Now therefore, as we said, at Philips, we have a very selective go-to-market approach in China where, indeed, for MR, we are banking heavily on the helium-free [ 1.5T ] and we are working with the Chinese government also on an accelerated part for the 3T helium-free in China, and that's actually well on track. Secondly, on CT spectral, actually, we have seen real good momentum and actually positive orders as well in China, and we got the Rembra and the Verida approved in China, and that will help us also competing with really unique innovation going forward. And then we have kind of the IGT franchise that remains strong in China as well. And then what we also said and maybe take you there as well, we have been planning on a China that will remain more cautious in terms of our outlook and inclusion. And what was important in combination with that was that we saw North America and Europe strengthening. Now we are really pleased with the double-digit order growth in Europe, as I mentioned, because that is actually a good place to compensate next to ongoing momentum in North America. And in North America, yes, we had now the slip in CC, but you saw actually that D&T was doing really well and actually PD in the second quarter was double-digit growth outside of China, mid-single-digit growth including China, and North America over a 12-month period has double-digit order growth. So we really see Q2 as a slip. Now also even the reason for the slip. We are talking about a few orders that fell at the wrong side of the quarter. We knew it was going to be low single digit because we were coming off a very strong comparable sales growth -- comparable order growth last year with the SIHREN deal and before that, the Bon Mercy Secours deal. And therefore, with a few falling into Q3, that we for shifted the balance. But the reason is that especially monitoring these big platform deals are multimillion, long term, and they are also breaking into new competition. So kind of concluding those also legally and administratively take certain time, and therefore, it's less predictable than a standard renewal. So these are good deals that will come in with good margins, but it's just that the phasing at this point made that falling into Q3, and therefore, Q3 will be stronger than we originally planned for because they will have some of these Q2 orders. And therefore, the combination of North America and China and even some other markets like India, where we're also doing really well, is compensating also for the full year outlook on the China pressures, and we have a good visibility of order pipeline for a strong full year 2026.

That's really helpful. If I could just follow up, Charlotte. Can you quantify the added cost inflation you're seeing or expect this year? And if this stays, how are you thinking about the impact for '27 and beyond? Or do you think this is well covered in your macro uncertainty buffer in the bridge that you presented at CMD?

Yes. Thank you, Hassan. So what we said prior quarter is that we see high single-digit cost inflation for the full year 2026. Our view on that hasn't really changed. It has ticked up slightly but not so much, actually. And as a result, we're also upping our cost mitigation actions where we have really good line of sight too. So as I said last quarter as well, actually, our view on that remains unchanged. For 2027, of course, there will be an annualization of the cost inflation. Although of course, depending on how the macro environment will unfold, there will also be some puts and takes there. We are taking that into account into our 2027 margin outlook. And also, as you rightly say, at CMD, we have been very clear about our EBITA margin bridge where we put in roughly 200 basis points for FX and macro uncertainty. That still very much falls within the bucket. And you heard Roy say also earlier today, we have -- we are on track to achieve our ambitions we set out at Capital Markets Day in 2026. And one proof point that you have already there is if you look at the first half productivity that I just called out, this is EUR 258 million, and that actually includes -- that absorbs some of the additional inflation we're seeing. So I think those are good proof points to be aware of.

We will now go to the next question. Your next question comes from the line of Richard Felton of Goldman Sachs.

So 2 for me, please. The first one, I'd like to follow up on your assessment of global hospital demand. So on Slide 6 of your presentation, you're characterizing both North America and Europe is strong. I think actually on Europe, you've become a little bit more positive versus Q1. So 2 questions on that. One, what is driving the improvement that you're seeing in Europe? And secondly, when do you expect to see that strong demand translating into better D&T and Connected Care growth rates? That's the first one. Second question is on Personal Health. Can you discuss the drivers of the strong performance in Personal Health over the last few quarters outside of the China comps effect? What have you been doing differently in terms of innovation, your go-to-market strategy? And how should we think about the durability of those drivers of better growth going forward?

Richard, thank you for your questions. Let me go first to the global hospital demand. And as indeed, it's good to take a step back. So if we look underlying at the trends we see in North America to continue to be strong. And it's strong, as I said before, not evenly spread, right? So not every single hospital in North America is in a strong position, but especially the bigger hospitals, academic but also private, and the ones that are going also in a combination of hospital and ambulatory, they are strengthening. And those are the ones that we really cater for well with our platform-based innovations around kind of monitoring, IGT, but also imaging. And that's where we have seen a continued strong pipeline. As I mentioned, over 12 months period, we have double-digit order growth in North America. Yes, we had now a few slips in Q2. But actually, they come back and there are large contributors also to second half. And we have a strong outlook for order intake for full year 2026 in North America. And that also has been translating into strong sales growth, as you know, in North America and a strengthening contribution out of North America for the total group. In Europe, we indeed see a step-up versus last year, right? So we see Europe investing more. That is actually across various parts of Europe. So in Nordics, we closed this great Karolinska deal, which is for me a stellar example of how you see they're investing in health care to take it also into the home. So this is a unique hospital to home program, where we are the preferred partner to help them manage that system in a full province. And that's something that we see more broadly across Nordics. Then we also see strengthening in momentum in Central Europe. Now we mentioned some U.K. deals, where we had some big imaging informatic deals. Of course, U.K. is going through a challenging period from a health care perspective, but they are clearly having a determination to improve it and turn it around into better service delivery, and they're investing, especially digitally. So that's something that actually helps this. Then also, we mentioned that we had the CE Poland deal, where actually this is a nationwide deal. We are supporting 200 hospitals to really upgrade their full infrastructure. So you see that there are kind of programs. And even in Germany, I was recently kind of last 2 weeks, multiple systems we are discussing big projects with, both in terms of heart centers they are building as well as how they are digitizing more. So we see indeed that there is more money going into the upgrading of the infrastructure to serve patients better and we are well catered to that, and therefore, the double-digit growth in orders in Q2 is really encouraging and we also see a strong pipeline for orders in Europe for the full year. That also then should translate into the CSG. So that's also where you are right to say in kind of CSG in North America was already strengthening because we saw earlier a stronger order pick up there. Now of course, if you look into North America that has very strong monitoring and IGT, Europe will have a very positive impact also on D&T PD in particular because that's we're at, also there's more sizable uptick of the imaging one. And therefore, also what we said in the sales phasing where you saw that in PD, we are coming from turning this new innovation pipeline that we launched into orders, which we really have been seeing picking up. And I mentioned to you at the double-digit ex China and a mid-single digit, including China. We will now see that in the second half coming to positive sales growth, and then it goes into strengthening the full D&T because IGT has been remaining strong. So as we mentioned before, this will phase in. And then also on the margin point earlier, this will phase in at better margins. So this is also, therefore, -- and when you see the back-end loading kind of coming in, that is because you can see the new deals coming in with some better margin improvement. So that on the global hospital demand. Then turning to PH. I think PH is a dual story of structural strengthening. And actually, you have seen now that we have multiple quarters of very strong growth, beating competition and that is driven by 2 facts. One, we're really are launching innovations that resonate very well. And particularly, we see now a very strong contribution in '26 from our new Sonicare ranges. And we range -- and we kind of have been launching the 5,000 to 7,000 ranges in Sonicare are that actually took us back to market leadership in North America. Those had double-digit growth in Oral Healthcare in the second quarter. So the kind of the Personal Care franchise was already doing really well. OneBlade was fueling that to new shavers. We now have also the oral care franchise joining that. And this is just launched. So these new ranges have a lot of runway because one platform is just in the market 1 year, another platform just launched this year. And what positive innovations also kind of give us is more retail coverage. So we see that customers really want us either online and on the shelf. So we had big wins in North America and big customers like Walmart, Costco, of course, that gives sustained kind of runway to kind of strengthen your franchise. We're also expanding very aggressively in pharma -- in pharmacies because in the pharmacies, they kind of see modern child care, but also oral care as an important part of contribution. And therefore, you see that the new ranges also drive group margin, right? And if you look at the Q2 margin increase, of course, that's also really driven and supported by strong innovation contribution of the new ranges.

We will now go to our next question. And your next question comes from David Adlington of JPMorgan.

A couple from my side. So just to follow up on the cost inflation question. So just wondering, presuming you still have some hedges in place for this year. Just wonder as those roll off, the high single-digit cost inflation you're seeing for this year, I just wanted to get early thoughts in terms of where you're seeing cost inflation for next year. And the second one is just -- we've got some conflicting data points around U.S. procedural volumes so far this quarter. Just love to get your thoughts on what you're seeing in the end markets there.

Yes. Thank you, David. Let me take the first one. So as I said, on cost inflation, now we see a high single-digit million -- million euros since Q1, maybe slightly higher than that at this point in time. And as I would break it down into the different components that we are seeing, they are actually 3, right? First of all, there are the e-components that we've seen increase significantly. We don't have hedges in place for that. So that just rolls over into 2027. We have freight costs significantly increasing as a result of the Middle East tensions. And the third component, which is very, very small for us, is energy. So where, indeed, we have hedges in place. So when you think about the hedges we have in energy, actually, and we also -- when we model that towards 2027, that will not have a significant impact. So where I -- where we stand today, also how we think about it today is, of course, the cost inflation will annualize, assuming that nothing will change in the world, of course. And -- what we will do, as we have always done, we will mitigate that with our cost actions, where we have really good line of sight to go after further bill of material -- bill of material improvements, further AI boosting to also help us find savings on the back of AI and further also tariff mitigation. So all of that is you should think about it as a package. Yes, we see cost inflation potentially annualizing, although the year is still long. Our hedges, the way we're hedging actually won't make a big difference, and we have mitigation efforts in place where we have line of sight that, that will offset. And as Hassan also asked earlier, when we were at Capital Markets Day, the 200 basis points that we then called out for FX and macro uncertainty, that will cover us also for our midterm guidance. And that...

Let me take on the U.S. procedural volume. So David, we also saw some of that. Let me kind of give our color. So as I said, North America overall for us is really strong, and we see it continue to be strong. We gave -- and I gave one example of that, actually, we have been voted the preferred supplier for HealthTrust. HealthTrust is one of the biggest kind of purchasing groups of very large health systems in North America. We have some of the health systems where indeed, they reported the procedural growth of it was less, but actually, the revenue growth has been strong. And if you look to our, for example, IGT business, that is an excellent proxy for procedural growth. We have now 22 consecutive quarters of growth. So that remains very strong and especially in North America that keeps expanding and growing, both in devices as well in systems. Secondly, also, what we see is that we still have ample penetration opportunities. So HealthTrust is a big group with very large kind of especially private hospitals. We were also just losing some competition. So that's another source of growth for us because we have, again, access to those you can grow in a different way because you were just not there. But even on the procedural side, our IGT is for us the best proxy and the pipeline is actually -- continues to be strong kind of going on. And that's also where you see the orders in the kind of D&T mix. Of course, we talked about strong PD and picking up and generating on the back of the latest kind of launches, strong traction. But don't forget IGT that has been consistently delivering in that mid-single-digit plus kind of order range, and that is predominantly also driven by a very strong North America

We will now go to the next question. And your next question comes from Veronika Dubajova of Citi.