Prepared remarks
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 two 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 222 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 six 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 catheterization 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 a long-term commercial partnership with the co-development of AI-enabled health care 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 others, 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's 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 progresses 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 toothbrushes in the United States with our newly launched Sonicare platforms. We also strengthened our position in mother and 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 number one 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 SenseIQ 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 SmartIQ 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 breathe 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 advance 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 reached its 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 nine 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 speed and quality. It enables us to respond more quickly to local market needs. HealthTrust, one of the largest health group purchasing organizations in the United States, recognized Philips as its 2026 Capital Supplier of the Year. This award reflects our ability to understand and respond to the specific needs of 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 continue to drive health systems growth, while consumer sentiment in Personal Health remains broadly unchanged relative to last quarter's trends. In North America, healthy patient volumes, procedural growth and sustained capital investment by larger 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 position 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, digitization 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 while health systems continued to face a challenging market environment. The expansion of centralized procurement and subdued hospital investment continued to weigh 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, but 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%. 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 markets, particularly India and Latin America, 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-on-year to 13.9%, including the impact of the tariff refund, which I will discuss later. Excluding the refund, margin declined by approximately 420 basis points to 9.3% as productivity measures were more than offset by cost inflation, higher tariffs and currency effects. 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%. 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 the 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 higher tariffs and cost inflation. In Personal Health, comparable sales grew 8% in Q2 with all three businesses contributing. Growth was broad-based, led by North America, while China benefited from an easier comparison base. Demand remained strong for premium shavers, OneBlade replaceable 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 in 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% 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 three-year savings 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 Illuminate 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 one third 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 General. 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 three 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 engagements 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.
Questions and answers
The first question comes from the line of Hassan Al-Wakeel of Barclays.
I have two, please. Firstly, if you can expand on the D&T margin performance, please, of 9.3% excluding the 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 excluding tariffs to expand year-over-year in Q3 and Q4? And then what about the full year? 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 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. 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. That is 10 basis points of margin expansion in the first half of the year, excluding tariffs, in a very dynamic environment. So we're actually pleased with that, and it's exactly in line with our expectations. 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. There are a few things impacting the D&T margin. First, cost inflation had a somewhat greater impact in D&T than in the other segments. We also saw higher tariffs, as Q2 was the last quarter where we didn't see those full tariffs. Specifically in D&T, we saw a higher currency effect as well. Another driver was that last year we had a higher contribution from a one-off effect. Then the other element, and you alluded to it in your second question, was China, where Precision Diagnosis has a somewhat higher exposure to the market in China, and that impacted margins in Q2 as well. But overall, we are exactly in line with where we thought we would be for Q2. We are on track with 10 basis points of margin expansion for the first half. And we are reiterating our full year margin outlook for the year between 20 and 70 basis points. On the gross margin from innovations and how that is developing, we see that continuing to develop in the right direction. For instance, Rembra in CT and Verida in our premium CT segment are really driving up gross margins underlying, excluding tariff and excluding cost inflation. Also in MR, we have a lot of help from our service upgrades. Last quarter we talked about SmartHeart and Precise software upgrades; those are also driving underlying margins up. With that, I'll hand over to Roy for the centralized procurement question.
On centralized procurement in China, you might have seen that the government expanded the centralized procurement policy across China. What that means is a prolonged scope of implementation of a new policy. As we learned earlier, this creates turmoil in the market because customers are learning what the new process is and bringing technologies under that process. Unique technology still has a specific way of finding a position in that centralized procurement. But more commoditized segments, where technology is less differentiated, will be more affected by the procurement process as defined. At Philips, we have a very selective go-to-market approach in China. For MR, we are banking heavily on the helium-free BlueSeal MR platform, and we are working with the Chinese government on an accelerated path for the 3T helium-free in China, which is well on track. For CT Spectral, we have seen good momentum and positive orders in China; we got Rembra and Verida approved there, which will help us compete with truly unique innovations going forward. The IGT franchise remains strong in China as well. We have been planning for a China market that remains more cautious, and for the full year we have been taking that into account. Importantly, we saw North America and Europe strengthening. We are pleased with the double-digit order growth in Europe because that helps compensate for China. North America remains strong over a 12-month period with double-digit order growth. We view Q2 as a slip driven by a few larger orders that moved into Q3. We expected a low single-digit outcome because we were coming off a very strong comparable last year with several large deals. With some orders shifting into Q3, the balance moved. The Monitoring platform deals are multimillion-dollar, long-term, and often take additional time to conclude legally and administratively, making them less predictable than standard renewals. These are good deals that will come in with good margins, but the phasing pushed some into Q3, which should make Q3 stronger than originally planned. Combined with continued momentum in markets like India, we have good visibility on an 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 2027 and beyond? Or do you think this is well covered in your macro uncertainty buffer in the bridge that you presented at CMD?
Thank you, Hassan. Last quarter we said we see high single-digit cost inflation for the full year 2026. Our view hasn't really changed; it has ticked up slightly but not materially. As a result, we're increasing our cost mitigation actions where we have good line of sight. For 2027, there will be an annualization of the cost inflation, although the macro environment will determine exact puts and takes. We are taking that into account in our 2027 margin outlook. At Capital Markets Day, we put roughly 200 basis points in the bridge for FX and macro uncertainty; that still falls within the bucket. As a proof point, in the first half we delivered EUR 258 million in productivity, which absorbs some of the additional inflation we're seeing. So those are good proof points to be aware of.
Your next question comes from the line of Richard Felton of Goldman Sachs.
So two for me, please. The first one, I'd like to follow up on your assessment of global hospital demand. On Slide 6 of your presentation, you're characterizing both North America and Europe as strong. I think actually on Europe you've become a little bit more positive versus Q1. So two 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. On global hospital demand, if we look underlying at the trends, North America continues to be strong. It's not evenly spread—bigger hospitals, academic centers and those expanding into ambulatory settings are strengthening. Those are the customers we serve well with platform-based innovations across Monitoring, IGT and Imaging, and we have a continued strong pipeline. Over a 12-month period we have double-digit order growth in North America. Yes, Q2 saw a few slips, but they come back and are large contributors to H2, and we have a strong outlook for order intake for the full year in North America. In Europe, we see a step-up versus last year and investment across various parts of Europe. In the Nordics, the Karolinska deal is a stellar example of investment to extend care into the home using our remote monitoring. We see strengthening momentum in Central Europe; for example, the Poland nationwide deal supports 200 hospitals upgrading infrastructure. In the U.K., despite challenges, there is determination to modernize and invest in digital solutions. Germany also shows multiple systems engaging on big projects, both for heart centers and digitization. So there is more money going into upgrading infrastructure, and we are well positioned. The double-digit order growth in Q2 is encouraging and we see a strong pipeline in Europe for the full year, which will translate into comparable sales growth as those orders convert. North America has been translating earlier because of prior order momentum; Europe will contribute more to D&T and Connected Care as deals convert. On Personal Health, it's a dual story of structural strengthening. We have launched innovations that resonate—strong contribution from the new Sonicare ranges has helped us regain market leadership in North America. OneBlade, new shavers and oral care innovations contributed strongly. These new ranges have runway because some platforms are only one year in market and others just launched this year. New ranges drive broader retail distribution—wins with major retailers and expanded pharmacy presence help extend the runway. These innovations also drive good margin, which is reflected in the Q2 margin increase and supports durable growth going forward.
And your next question comes from David Adlington of JPMorgan.
A couple from my side. To follow up on the cost inflation question: presuming you still have some hedges in place for this year, as those roll off, where are you thinking cost inflation could be for next year? And second, we've had conflicting data points around U.S. procedural volumes so far this quarter. I'd love to get your thoughts on what you're seeing in the end markets there.
Thank you, David. On cost inflation, as I said, we see high single-digit cost inflation for full-year 2026, maybe slightly higher at this point. Breaking it down, there are three main components: electronic components, where prices have increased significantly and for which we don't have hedges in place; freight costs, which have increased due to Middle East tensions; and energy, which is relatively small for us and where we do have hedges in place. When we model toward 2027, energy hedges mean energy won't be a significant incremental impact. Cost inflation will annualize into 2027 if current conditions persist, and we will mitigate it with further bill of material improvements, AI-driven savings and tariff mitigations. Think of this as a package: higher inflation potential, mitigation actions with line of sight, and the 200 basis points for FX and macro uncertainty in our CMD bridge covering midterm guidance.
On U.S. procedural volumes, David, we see North America overall as really strong. Some hospitals report lower procedural growth, but overall revenue growth is strong. IGT is an excellent proxy for procedural growth: we have now 22 consecutive quarters of growth, driven predominantly by North America. There's ample penetration opportunity; winning preferred supplier positions with groups like HealthTrust gives us access to large health systems and displaces competition. The pipeline and order momentum in IGT remain strong, which supports our view of continued procedural demand in the U.S.
Your next question comes from Veronika Dubajova of Citi.
I'm going to keep it to two as well. First on the full year guidance, Charlotte, where in the range on margins do you feel most comfortable? If I take your guidance for Q3, you are going to have to deliver an absolutely massive Q4, especially to come in anywhere but at the lower end. By my math, we'd be looking at Q4 margins of 16% to 17% or a bit higher. Q4 would account for 40% of the full year, which my Philips model goes far back but I can't find a single year where that was the case. Can you talk through what gives you confidence in that Q4 margin being as strong as necessary to hit guidance? And comment in particular on D&T? Second question, on China: you have expressed an expectation of China returning to 3% to 5% growth in the midterm. In the context of the centralized procurement notice, how do you feel about those expectations you put out at CMD? Is there further downside risk now that we have visibility on that?
Thank you, Veronika. I remain very confident in our full year margin outlook. To explain the shape of the year: we delivered 10 basis points year-over-year improvement in the first half despite a dynamic environment of higher tariffs and cost inflation. Q3 we expect adjusted margin to be slightly below the prior-year level due to inflation and unfavorable mix. In Q4 we expect a meaningful step-up with margins reaching the upper end of the mid-teens. What supports that is higher volumes, which provide operating leverage; innovation-led gross margin improvement from several product and software contributions; and stronger contribution from productivity and inflation mitigation actions that build over time. These actions take time to flow through the P&L. Also, the sequential margin step-up in Q4 is consistent with normal seasonality. We have record order books in some high-margin businesses such as IGT and Monitoring, and PD orders are showing a strengthening margin profile. All of that gives me confidence in the Q4 acceleration and delivery of the full year outlook.
On China, the expansion of centralized procurement means more timing-related delays and margin pressure for commoditized products. However, differentiated innovations can still command value. We expect this environment to continue and have been cautious in our planning. We received approvals for Rembra and Verida in China and are advancing helium-free MR work there, which supports our premium positioning. Importantly, North America and Europe trends are accelerating and can mitigate China weakness. India is also picking up strongly for us with double-digit growth and is an exciting growth prospect both for hospitals and consumer. So while China remains cautious and could be slower than hoped, we have multiple geographies contributing to growth that help offset China pressures, and our full-year outlook already reflects that cautious view.
Our next question comes from Julien Dormois of Jefferies.
First, related to the strong order intake you've delivered in the past six or seven quarters: with the exception of this quarter, you've had a healthy order book, yet we still see limited growth in D&T and Connected Care, likely low single-digit. How should we reconcile that and when could we see the strong order momentum transforming into sustainable faster growth? Second, Enterprise Informatics used to be a strong growth driver and now we have two quarters in a row of sales decline. Is this the transition to more of a SaaS model impacting this and when could we see better trends?
Thank you, Julien. On order intake: yes, we've had several quarters of strong order intake and we see that continuing into Q3 onwards. We believe we are on a good trajectory for strong demand across our offerings—CC, IGT and PD. The conversion to revenue can take longer because larger deals are more complex to implement and installation capacity in the market is somewhat constrained, which lengthens conversion timelines. Despite that, our Q2 comparable sales growth of 4% reflects stepped-up contribution from health systems as well as Personal Health. The order momentum is expected to convert over time; that's built into our full year plan. On Enterprise Informatics, the decline reflects the transition from on-prem implementations to cloud and SaaS models. We are winning cloud orders, but these large implementations often take 12 to 18 months to convert into revenue, and SaaS changes the revenue recognition profile. So EI is in a transition phase: order momentum is building, but revenue conversion is slower. We expect EI to strengthen over time, contributing to Connected Care growth as it does so.
Our next question comes from Hugo Solvet of BNP Paribas.
Two as well, please. First on D&T underlying ex tariff: Charlotte, can you expand on the composition of the headwind in Q2 between mix, FX and inflation? And second, Roy, on India: do you see increasing competition there from Chinese players and how does your positioning and pricing play out in this market?
Hugo, to confirm, you asked about Q2. We said last quarter we expected a slight decline in margins versus last year at the Philips level, which is where we came in. We expanded margins by 10 basis points overall in the first half versus last year. Connected Care and Personal Health expanded margins excluding tariffs, and D&T declined. In D&T, cost inflation hit harder than in other segments, tariffs impacted Q2, we saw an additional negative currency effect, and China remained a headwind—PD has higher exposure to China and ultrasound is a higher-margin modality. Also note Q2 2025 was a very strong comparable period—the highest margin quarter since 2021 for D&T—which makes comparisons tougher.
On India, it's an exciting opportunity with strong growth driven by both consumer and health systems demand in premium segments. We are winning with high-quality solutions and a platform approach for health systems, and our innovations are resonating. That supports attractive growth and margin for us in India. Competition exists, including from Chinese players, but our value proposition, service, and technology differentiation underpin our positioning and pricing. We see ample opportunity in India to develop and strengthen our business further.
Our last question today comes from Graham Doyle of UBS.
Firstly, on the Q3 guidance: did you always expect margins to be down in Q3? I'm trying to work out how much extra work has to be done versus the original guidance in order to keep the full margin range intact. Second, on order intake: you commented that some orders were pushed into Q3. Is it reasonable now to expect orders to be up mid-single digits plus as they have been for the last six quarters?
Yes, Graham. The margin phasing throughout the year is exactly in line with our underlying plans. So Q3 below prior-year level and Q4 acceleration are consistent with how we saw the year play out. There's no additional surprise in the phasing; it's in line with expectations.
On order intake, you should expect we return to the mid-single-digit range in Q3 and beyond.
That was the last question. Mr. Jakobs, please continue.
Yes. Thank you for listening in. As we said at the beginning of the call, three core messages: One, we delivered the first half in line with our plan in an uncertain environment, demonstrating growth in orders and sales and a step-up in margin. Two, we are fully in line with our full year plan; we reiterate with confidence our guidance on comparable sales growth range of 3% to 4.5%, and we raised our adjusted EBITA margin and free cash flow outlook to reflect the tariff refund. Three, we remain disciplined and agile in an uncertain environment. Through 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. We are excited about the journey, remain disciplined and look forward to continued engagement. Thank you.
Thank you.