Koninklijke Philips N.V. (NYSE:PHG) Q4 2022 Earnings Call Transcript

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We will take our measures to improve the supply chain and also the other measures that we presented. And then, actually, we’ll come forward step by step in terms of how we deliver on the plan. Secondly, if you talk about the SRC assumptions, you have seen that what we included in the guidance is that we said for SRC, we have taken the base assumptions that we also took last year in terms of the outlook that we currently hold, which is a 10% CSGR. And in that, we have a modest assumption of low single-digit growth and a breakeven assumption for 2023. So that’s the grounding of the plan, also as we don’t know yet what the constant degree will have as a potential further impact to this.

Hassan Al-Wakeel: Roy, it’s very helpful. And if I can squeeze in one other on the order book. Could you talk about the rationale for canceling orders and which modalities these were for? Given the order book was flattish, excluding this globally as well as in the U.S., are you concerned about the state of U.S. hospitals?

Roy Jakobs: So maybe two answers to that. First, we have been looking at the quality of the order book and where we have been going in is especially in all orders that have and were older, because they were actually contracted at earlier pricing as well as the lead times for them are long. If you look into specifically where it was and good area, as an example, is the MR. We have a lead time that is over a year. So that means that actually also in this area, we have long lead times for our customers, as well as then if you take the pricing that we had from the past, that actually has a negative effect. So, we combined both and said, okay, if we go back to the customers, but then also work on the quality of our order book, actually, we take lower margin orders out, strengthen the order book in terms of what we can deliver and when, and therefore, we have a better strength of the overall order book that we have.

If you look at the American hospital system, and I think you have seen how they have been trending, we do put a bit more cautious outlook on the spend profile for 2023 that they will have. We believe that they are under tremendous pressure. They have huge staff shortages. They are also dealing with the inflation. At the same time, they also still need to catch up from the technology that they need to kind of invest in that they did not invest in during COVID. So, there are multiple trans playing, but therefore, we are cautious on the immediate outlook. We do think that mid-term, it will pick up again. And also, if you look to the order book that we have, we can still actually generate an attractive growth there, but we do — we are mindful of the state of affairs in the U.S.

Hassan Al-Wakeel: Perfect. Thank you.

Operator: Thank you. We will now take our next question. And your next question comes from the line of David Adlington from J.P. Morgan. Please go ahead. Your line is open.

David Adlington: Good morning, guys. Thanks for the question. Just also on the orders, I just wanted in terms of cancellations, what customer reaction to those cancellations was and where they were going in terms of trying to source those canceled orders? And then, secondly, just in terms of the dividend, I just wonder what your plans are on turning to the cash dividend, why put in place a full scrip dividend? Thanks.

Roy Jakobs: Thank you, David. Maybe Abhijit, you want to take the question on the orders?

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