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

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Abhijit Bhattacharya: Yes, I can. I think also following up on what Hassan was asking, this is largely in the domain of Diagnosis & Treatment, where we have — I think we have had good dialogue with the customers because these orders were taken long back. They were not at the margin generation that we were expecting. So, it has been done in collaboration with the orders. Regarding the scrip dividend, I think given that last year, in 2022, our cash flow was negative, and for a number of reasons, which I just explained in the presentation, first, we had a lower income, the buildup of our inventories, as well as the one-off costs related to the Respironics recall, it puts us in a position where we don’t want to further pay out cash in terms of dividend for this year. So, we have, therefore, taken this plan to make it a scrip dividend. And then, as we see how it develops during the course of the year, we will see how we decide on this going forward.

David Adlington: Perfect. Thanks. And then, just a follow-up. Just in terms of, I think, it was €60 million litigation in the fourth quarter, I just wonder if you’d tell us what that related to?

Abhijit Bhattacharya: Yes. It’s not related to the Sleep recall. It’s an old litigation that was on and we have — we expect to come to a settlement of around that amount and, therefore, we have provided for it. But it has nothing to do with the Sleep recall, if that was type — intent of the question.

David Adlington: Okay. Thank you.

Operator: Thank you. We will now go to our next question. And the next question comes from the line of Graham Doyle from UBS. Please go ahead. Your line is open.

Graham Doyle: Good morning. Thank you for taking my questions. It should be two for me. So, just firstly, on sort of phasing, I suppose. So, you obviously had a really high conversion rate in Q4 ’22, given revenues were up and order book down. But you’re pointing towards a sort of a slower Q1 and then order conversion improving through the year in ’23. So, is it reasonable to assume that there is a slower or weakened order conversion in Q1 versus Q4? Is there any reason there was some pull forward of revenue there, I suppose? And then, second question relates to ozone testing. You’ve been pretty helpful in the detail you provided in the past. And obviously, today, you’ve given us a bit of a timeline for testing results. But one of the things you disclosed in December 21 was the level VOCs being measurable at cycle 200, I suppose having run through it again.

Is there — you did the same cycle and I presume the same testing at the cycle 500. So, it’d be good to know what happened beyond cycle 200. So, that VOC level, did that change once you went past cycle 200? It would be great to know that given the test should have been run. Thank you very much.

Abhijit Bhattacharya: Maybe let me take the first one, Graham. So, the conversion rate, what we have also said on Q1, with the slow start, we have indicated that the health systems businesses, so Diagnosis & Treatment and Connected Care, which are built off the order book, they actually start also with good growth. The issue is in Personal Health, we start with a decline, because last year, we had a strong growth of 8%. We had a 17% growth in North America. So, there is a bit of that comparables that play. And of course, the China situation does not improve in Q1. So, we have lower sales in Connected Care, and we have lower sales in license revenue, and that is causing the kind of slower start that we have indicated for Q1. Let me hand over to Roy on the testing.

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