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

[Interpreted] Ladies and gentlemen, welcome, and I hereby open the General Meeting of Shareholders of Royal Philips N.V. Our annual meeting is an important moment for us, for you as well. We're pleased to see you here once again, and we'd like to thank you for your commitment to our company. We very much appreciate that. I would like to introduce you to a number of people. You may not be familiar with all of them. Sitting next to me, from left to right, Paul Stoffels, Vice Chairman and Chairman of the Remuneration Committee; Marnix van Ginneken, our Chief ESG and Legal Officer; next to me on the other side, Roy Jakobs, our CEO; Abhijit Bhattacharya, our CFO; and Liz Doherty, Chair of the Audit Committee of the Supervisory Board. Behind me, are also supervisory directors from your point of view, from left to right: Peter Löscher, Herna Verhagen, David Pyott, Chair of the Quality & Regulatory Committee; Sanjay Poonen; Chua Sock Koong; and Marc Harrison. Indra Nooyi, unfortunately, is the only member who cannot physically attend this meeting due to personal circumstances, but she'll be following the meeting remotely. Here in the audience is Charlotte Hanneman. I'll be referring to later on. We have nominated her as new member of the Executive Board. And if appointed, she will be the CFO as from the 1st of October. And in the room next to her is Benoit Ribadeau-Dumas, whom we have nominated as a member of the Supervisory Board. And his nomination follows the arrangements made with Exor. And I'm sure we'll be discussing that at a later point of time. And I should also give them the floor briefly. So furthermore, present Frank Blenderman, right here in the front, on behalf of our external auditor, EY; and the civil law notary of the corporation on that side, Martin van Olffen from De Brauw Blackstone Westbroek; and here at the left-hand side in front of me, [indiscernible], Corporate Secretary -- or sorry, Secretary of Supervisory Board. Okay. Having introduced you to these people. We can kick off the meeting. Once again, we very much appreciate you coming here today this morning with the general meeting of another company that I'm rather familiar with, DSM. And I just saw in a press release that all resolutions have been adopted well. Well, we'll have to wait and see what happens at this meeting. Ladies and gentlemen, Philips, has made significant progress in 2023 and that was quite necessary. The financial performance has improved by focusing on execution. Processes around patient safety and quality have been reinforced. The supply chain has been made more reliable, and the Philips organization has been simplified over this past year. In the first year that Roy Jakobs was at the helm, he focused on these priorities and brought the company further. Fine progress has been made also with respect to talent. And I'd like to refer to the appointment of Charlotte Hanneman as member of the Board of Management and CFO. And in addition, you will know important steps have been taken in settling various aspects of the Respironics safety notification that we did in 2021. We put an end to the uncertainty surrounding many lawsuits in the United States. So it was about a week, 8 days ago, and I'm sure you were able to follow it all with Exor. We have welcomed to a new long-term shareholder who, just like us, sees the opportunity for sustainable value creation at Philips. The knowledge and experience of Benoit, who hopefully, we'll be appointing later on will prove to be a valuable addition to the current Supervisory Board. So a lot of progress has been made and major problems have been addressed. And of course, including litigation that we haven't finished all these legal proceedings, but we've taken important steps. But this means that we've laid the foundation for the current and future growth of the company, and we'll be focusing on this during this meeting, no doubt. Before I give the floor to Roy for his speech, I would, first of all, prior to proceeding to the first item of the agenda, I'd like to make a few comments on the practicalities. As you have heard, Dutch is the language of this meeting. And on the webcast, obviously, you can listen to English interpretation. Questions asked here in the room will be answered to the best of our knowledge. But I'm sure you understand that perhaps not all questions can be answered here from behind the table. And in such cases, we will be reporting back to you. But we will be doing our utmost to answer all your questions adequately. And as usual, it is possible to vote electronically. I'll give you the details later on as to how to proceed to the vote, and we have several people here present in the room to help you. First of all, we're going to start with Roy Jakobs presentation, and then we will be addressing several items of the agenda, and I shall be pointing out when there's an opportunity to ask questions. I would request you, and it's always a challenge, an interaction between the audience and myself, we've always been able to solve this, but to limit your questions to 2 or maximum of 3 questions to also give other people the opportunity to ask questions. And if you then still have questions, you can always come back. For those people find it very difficult to count right to 3, I'm more than happy to help you in lending -- lend a helping hand. Right. So let us start with the first item on the agenda, which is Roy Jakobs speech.

Ladies and gentlemen, welcome to the 2024 Annual General Meeting of Royal Philips. When I stood here in front of you this year last time, my first AGM as CEO, I said Philips had to change. I outlined a multiyear plan to create value with sustainable impact, with patient safety and quality as our top priority and execution as our key value driver. And I spoke openly about the actions we will be taking to address our challenges and to deliver focused growth and people-centric innovation at scale. Today, I welcome this opportunity to share an update on this journey. While we have made good progress, we still have a way to go, but we are focused and determined and clear on the way forward. We are also inspired by our football team, PSV, for winning its 25th National Championship. I'll be privileged to be leading Philips on this journey. Together with my Philips Executive Committee, all here, and of course, the Supervisory Board and Chair, Feike Sijbesma. I also feel a strong urgency to get Philips back where it belongs. The progress we are making reinforces our confidence in delivering on our 3-year plan as reflected in our 2023 year financial results. In 2023, we presented a good start with our sales amounting to EUR 18.2 billion. We achieved our raised outlook with strong sales growth improved profitability and strong cash flow despite the uncertainties brought about by an increasingly turbulent geopolitical environment we operate in. Along the way, we also entered into a relationship agreement with Exor, and they bought 15% shareholding in the company, a strong sign of confidence in our plan our people and most importantly, our future. Among other milestones, we were recognized for innovation impact, for example, as a top global innovator by Clarivate. We also marked our 100 years anniversary of Philips in China, a remarkable achievement. We started 2024 in line with our plan, with order intake outside of China turning to positive and with strong margin improvement. Supported by key innovation launches and strong focus on our execution priorities, we remain confident in our performance improvement plan for 2024. When we look at health care today, we see huge opportunities to make a real impact. We want to improve 2.5 billion lives per year by 2030. And including EUR 400 million in underserved communities. That's what drives us, because we see a future of better care for more people, and there's much to be done. People everywhere want easier ways to take care of their health and well-being. And health care is simply not working as it needs to be. There are more patients, but there's less staff. There's more pressure but less financing and the list goes on. That's why we are advocating for systemic change, and we are enabling that shift that's so badly needed. And in my experience, there is a real desire for real change in health care. I hear this time and again from the health care providers who mail me about short-staffed departments and from the healthcare leaders I meet on regular occasions. And this makes me even more determined to help drive the change that we need to see in health care, but also in Philips, focusing on our efforts where we can make a real difference. We want to help more health care providers help more patients and doing that in a sustainable way. At the same time, we want to empower more people to take care of their health and wellbeing themselves. And we want to help by applying our combined capabilities in innovation, design and sustainability. I truly believe artificial intelligence can help revolutionize health care, the delivery of it and contribute to better health for all. But we must get it right. To help I'm co-chairing United States National Academy of Medicine's AI initiative, along with leaders from Mayo Clinic and Google. We want to help realize the full benefits of AI in health care, but we also want to ensure that it's applied fairly and it's applied responsibly. To deliver our vision for the future of health care and get Philips back where it belongs, we have been driving change right across the company with clear focus on our priorities, improving patient safety and quality, strengthening our supply chain and simplifying how we work. Patient safety and quality is our highest priority. And we have taken important steps in further resolving the consequences of the Respironics recall. The remediation of the sleep therapy devices for patients is almost complete. And the test results to date show the use of these devices is not expected to result in appreciable harm to health. I would like to reiterate that we do regret the concern that patients may have experienced. I also want to stress that we're taking the learnings from the Respironics recall and using them to improve right across the company. The approved consent decree and the economic loss settlement and now the resolution of the personal injury and medical monitoring litigation in the U.S. are significant milestones. They provide further clarity on the way forward for Philips. We are proactively addressing quality improvements and first-time-right design. And we are further investing in systems capabilities and in training. In order to drive and to create a more reliable and resilient supply chain, we have significantly reduced our high-risk components and our inventories. And the actions we have taken continue to have a positive impact on our sales and service levels. We also have a dedicated team redesigning components and products to increase our resilience to more volatile demand. And while we are working hard to address shorter components in 2023, all focus is now on delivering the health systems we partner with, with first-time right quality products and services. We are implementing our simplified operating model to enable us to better serve our patients, customers and consumers. To this end, we're improving quality, and we are boosting our agility and speed, always with a focus on those we serve. We also completed the realignment of workforce roles. This included the very difficult but necessary reduction of force of approximately 8,500 roles to date out of the planned 10,000 roles by 2025. As a leader in health technology, we are on a journey to reinvigorate our culture so that we become even more people-focused, we have more reduced complexity and we drive greater accountability. Our renewed culture focuses everyone at Philips on delivering impact with care for patients, people and the planet with patient safety, quality and integrity at the heart of all we do. In parallel, our executive committee was strengthened in 2023 and with the arrival of 4 new members. And many new senior leaders are joining Philips in 2023 and to date with rich health tech experience to create a better future in health care. Further to this, we welcome the proposals to appoint Charlotte Hanneman as member of the Board of Management, fulfilling the role of Chief Financial Officer effective October 1. Also, we welcome Benoit Ribadeau-Dumas as a new member of the Supervisory Board effective May 7. Let me also pause here to thank Abhijit. Abhijit Bhattacharya, who was our Financial Officer -- who is our Financial Officer and who decided to retire at the end of September after 38 years of service at Philips. Abhijit, thank you for your significant contribution to the company during all these years, but especially during your time as CFO. Your leadership, your passion and dedication have truly made a lasting impact. As a health technology company, we operate in growing market segments where attractive margins provide a foundation for sustainable value creation. To deliver on our strategy, we are concentrating our resources more on the areas where we have strongest positions and can accelerate growth and expand margins more quickly, such as image guided therapy, monitoring, ultrasound and personal health. In doing so, we will focus to support clinical workflows in the areas where we have domain leadership, such as cardiology, and that build on our deep strength in intensive care unit and, for example, in the cath lab. In Diagnostic Imaging, our goal is to help health care providers who need to do more with less with AI-enabled innovations to increase their productivity, efficiency and financial sustainability and help more patients. In parallel, we help our customers to unlock actionable insights from pools of data supported by artificial intelligence. We are scaling our Enterprise Informatics business while building long-term customer relationships. Our Personal Health business plays an important role in enabling healthy individual care routines, the technology and solutions that support people's long-term health and well-being. A notable aspect of our commercial strategy is driving increased direct-to-consumer relationships and sales through our consumer communities and online store. Additionally, we remain committed to rebuilding our position in sleep and respiratory care while continuing to resolve the facts of the Respironics recall. At Philips, we have been innovating for 130 years to improve lives. People's needs are at the very heart of how we innovate and design for sustainable impact with a safety-and-quality-first mindset. I see this impact every time I visit the health system and every time someone tells me about the personal health propositions that have helped them. In our businesses, we are focusing our efforts and resources on fewer projects, offering greater scale and greater impact. We do this by balancing new breakthrough innovations with also continuous life cycle management. In 2023, we announced a raft of new innovations, like our next-generation ultrasound system that increases diagnostic confidence and workflow efficiency. We also signed a 10-year EUR 100 million enterprise monitoring as a service agreement with one of the largest health systems in the U.S. covering 20 hospitals with over 3,000 beds. The agreement provides a health system with constant access to the latest technology, including software and services, while lowering initial investments. We also launched successfully the new Sonicare DiamondClean 7900 series. We did that in China through major online shopping channels like Alibaba and JD.com. Showing the strength of the product, it claimed the #1 position in the high-end tooth brush category straight after its launch. We are proud of our innovations and especially of what they mean for so many people that they use. Next, let me also allow to highlight that environmental, social and governments are 3 key dimensions defining our approach to doing business responsibly and sustainably. We want to make health care more sustainable and reduce its impact on the environment. And we will continue to operate carbon neutrally and partner with customers and suppliers to reduce emissions together. I'm excited that we see increasing momentum within the health care industry to reduce its environmental impact, and we are uniquely placed to help with our circular portfolio and innovations such as our MR with BlueSeal magnet for helium-free MR use. This is an industry-defining innovation that uses 53% less power per patient, supporting our commitment and that of our customers to make health care more sustainable. More than 1,100 Philips MR systems with the helium-free operations and AI support have now already been installed globally. We also now brought a mobile version into the market, which is even more agile and lightweight, so it can be located in more convenient places for patients outside of the hospital. We are now in the second year of the plan, capturing the opportunities, improving and addressing challenges while changing what needs to change. It is a journey. It's not an easy journey, but it's a necessary one, one that will continue. And we acknowledge that there will be challenges along the way. But we know that this is part of the process to get to where we want to be. And at the same time, we are encouraged, encouraged by the progress that we have made and the impact of our actions. For example, just last week, Moody's rating agency changed their outlook for Philips from negative to stable, noting our progress in improving operating performance with ongoing sales growth, improving profitability and further resolving the Respironics recall. Now over 18 months in as CEO, I can tell you that I'm more determined than ever to ensure that Philips gets back to where it belongs, delivering value for all its stakeholders. And while I remain realistic about the global challenges and uncertainties, I'm also confident that we will continue to deliver on our 3-year plan that we laid out, helping our consumers to lead healthy lives and health care providers to deliver efficient high-quality care in a sustainable way. To this end, we expect further performance improvement in 2024. Reflecting the importance we attach to dividend stability, we propose to maintain the dividend at EUR 0.85 per share to be distributed fully in shares. Before closing, let me say that my heart goes out to our people and partners affected by ongoing wars. People who, despite great uncertainty, carry on to serve patients and health care professionals to do their jobs. I remain deeply hopeful for a peaceful resolution. Finally, on behalf of the Executive Committee, I would look to thank our consumers, our customers and their patients; our suppliers and ecosystem partners for their support; the Supervisory Board for the trusted guidance; and the chair, Feike Sijbesma, for his strong collaboration and oversight. I also want to express my deep gratitude to all of the Philips employees for their enormous dedication; and to you, our shareholders, for your continued support and trust. Let me also thank Exor for their trust in our future. As I look ahead, let me reiterate that I'm realistic about the challenges that Philips still faces, but that I'm optimistic about building on momentum that we have created. And I'm truly excited about delivering on our purpose, delivering better care for more people. Thank you.

[Interpreted] Thank you, thank you, Roy Jakobs, for this presentation that provides us with a good overview of everything that was done at Philips this past year, both the state of players, where we stand and an outlook vis-a-vis the future. That was the first item on the agenda. In a few moments, I'll be giving you the opportunity to raise questions about that. And we'll do that together with item 2C, which is the adoption of the financial statements. With that, I'd like to proceed to agenda item 2, which consists of 2A through to TG. It's all about the annual report, a number of agenda items. You can well imagine that there will be questions about that, but we'll be discussing that in a moment. Allow me to first of all, explain a few matters. Agenda item 2 concerns this past year 2023, A through G. 2A relates to the new corporate governance code that was introduced by the end of 2022. In the 2023 annual report, you have, of course, been able to read about corporate governance structure and how we apply the principles and best practices of the code. We've amended our regulations and policies here and there in response to this new code. but this has not led to any substantial changes. Just as under the previous compliance explain code, we apply all principles and best practice provisions addressed to the Executive Board and the Supervisory Board. So in that sense, we are completely compliant with respect to the new corporate governance code. Now that is 2A -- agenda item 2A explanatory notes. Now the others have to do with our dividend policy, the policy and also adoption of dividend. Roy Jakobs just said a few words about this. So we have a dividend proposal of EUR 0.85 per ordinary share, charged to the profit reserve. The dividend will be paid out in the form of new ordinary shares to further strengthen our liquidity position. The proposed dividend is in line with the company's current dividend policy. So agenda item 2C -- that was 2C, requires no further explanation. Roy just referred to the financial statements. And so you can include that in your questions. And then we will be looking at agenda items F and G. We'll be talking about remuneration later on. F and G concern the release of liability of the members of the Executive Committee and the Supervisory Board. We will hopefully see that the majority of our shareholders will agree to the release of liability. But you may have read that one of the voting consultants, Glass Lewis, not the other one, but one of the voting consultants, Glass Lewis, advises against the release of liabilities, members of the Supervisory Board. Now we disagree with their reasoning. We don't really understand this reasoning. As members of the Supervisory Board, we have worked very hard in recent years to remediate the consequences of the Respironics recall. And of course, the Supervisory Board does this from its supervisory task and remit. And I'd like to refer to the report of the Supervisory Board in the annual report, which covers the completion of the repair and replacement of the affected devices, the recall interactions with the FDA and on the recently approved consent decree on the management of the various terminated and ongoing legal proceedings. Not all of them have ended, but we have made headway and more broadly, strengthening the overall focus on patient safety and quality in the company. But as I said, the other voting consultants have voted in favor. And in a few moments, it will be up to the shareholders to cast their own votes. Now explanation with regards to E, which is a remuneration report. And of course, you can cast your advising vote for 2023. For that, I'd like to give the floor to Paul Stoffels. He is the Chair of the Remuneration Committee, so that he can give his comments on that, and Paul will do this in English.

Good afternoon. It is my pleasure as the Chair of the Remuneration Committee to discuss the 2023 remuneration report for the Board of Management and the Supervisory Board. Before elaborating on the main activities of the Remuneration Committee and Supervisory Board during 2023, I would first like to reiterate the main elements of the 2020 remuneration policy, which were applicable in 2023. The annual incentive target is 100% of base compensation for the CEO and 80% for the other Board of Management members. There is an opportunity to earn double this amount for an at or above maximum performance level. On the downside, there is no payout for performance below threshold levels. The long-term incentive grant value is 200% of base compensation for the CEO and 150% for the other Board of Management members. The vesting of the annual grant is based on the realized performance measured over a 3-year period and can range from 0 to 2x the initial grant. Our compensation packages support a pay for performance focus to a variable incentive leading to 75% of the total compensation package of the CEO being at risk. Now coming back to the activities during 2023 and the compensation decisions made by the Supervisory Board in respect of the Board of Management in '23. In terms of the regular annual compensation cycle, the following decisions were made. First, the base compensation levels. During the regular remuneration review, which took place early 2023, no increase was applied to the base compensation levels of the members of the Board of Management to acknowledge the disappointing company performance in 2022 and to reflect the limited budget available for the annual compensation review for the wider population at that time. Second, the 2023 annual incentive in respect of the financial metrics performance over the full year 2023 was significantly above target as the company succeeded in achieving its raised 2023 outlook with strong sales growth, improved profitability and strong cash flow. Nevertheless, to acknowledge the decrease of order intake in '23, the Supervisory Board decided to apply a downward adjustment for the comparable sales growth realization. Individual performance realization was slightly above target for all 3 members of the Board of management recognizing the improved operational performance, driven by a strong focus on execution in order to enhance patient safety and quality, strengthen the supply chain reliability and establish a simplified operating model. Third, the awards granted under our long-term incentive plan in '21. The company performance resulted in a realization significantly above target for the sustainability objectives. For the relative TSR and adjusted EPS metrics in our long-term incentive plan, however, there was a below-threshold realization based on the performance since the start of the performance period in '21, and therefore, no payout for these elements. Next to these recurrent topics from the regular annual cycle, the remuneration committee carried out a review of the remuneration policy and the long-term incentive plan for the Board of Management and the remuneration policy for the Supervisory Board. Dutch law requires the renewal of our policy at least every 4 years, and we also consider that it is a good opportunity to test the alignment of our policies with our company strategy to review how they compare to market practice and to ensure our compliance with the updated regulatory and corporate governance requirements. Building on our stakeholder engagement during the past years, we engaged with stakeholders through a dedicated remuneration roadshow and other interactions to solicit their feedback on and support for the proposals. These discussions were held with several of our larger shareholders and institutional advisory organizations. The company also discussed the proposed 2024 remuneration policies with the employee representative bodies whereby the proposed changes were received well. The Supervisory Board highly values and appreciates the view that are shared by its stakeholders and the relevant feedback was considered and addressed in the main changes as included in the explanatory notes to the agenda of the AGM. This process resulted in the proposals to adopt and amend -- an amended remuneration policy for the Board of Management and an amended remuneration policy for the Supervisory Board. Please note that the 2024 remuneration policy will have a retroactive effect for the full year 2024. For that reason, our 2023 remuneration report already includes certain ex-ante disclosures in respect of the performance metric for '24 annual incentive and for the '24 annual -- sorry, long-term incentives. The proposed remuneration policies for the Board of Management and Supervisory Board as per 2024 are covered under agenda item 5. This concludes my discussion on the 2023 remuneration report. Mr. Chairman?

Thank you. Thank you, Paul. [Interpreted] Thank you. Okay. Well, I'd be discussing that later on. But there's still 1 more speech to go, and then you have the floor to ask questions. And this concerns financial statements 2023 audited by EY, our external accountant. We have Frank Blenderman here on behalf of EY, and he is in charge of the audit. Mr. Blenderman will give a short or perhaps not short presentation with respect to the audit of EY and the EY opinions included in the annual report. Should you have any questions to him, you can, of course, ask those questions later on. I'd like to give you the floor.

Thank you, Chairman. You were hinting to this. Every year, our presentation becomes longer and longer. Ladies and gentlemen, I'd like to take this opportunity to give you a presentation of our work audit, the financial statements of Royal Philips N.V. My name is Frank Blenderman, and I am the EY partner ultimately responsible for the audit of Philips. In this presentation, I have to check. In this presentation, I will be discussing the following items of the consolidated and separate financial statements 2023, the audit approach and focus, the outcomes, the key audit matters, fraud and noncompliance with laws and regulations, governance report, ESG, EU taxonomy information, communication and interaction and the control plan or the audit plan 2024, audit approach and focus. We have audited the company and the consolidated financial statements of Royal Philips N.V. And we have examined whether the annual report complies with statutory requirements, whether the content is consistent with the image, the financial statements and whether the annual report is consistent with our knowledge of the company. We determined the audit approach and the strategy at a consolidated level with a focus on the key developments and risks. Based on this, we determined which business units should be audited in which countries. And this also involves our international EY network. The central team from the Netherlands also visited foreign business units. And here, we speak on site. We speak to people about key developments, risks, audit findings, and we've also carried out file reviews. For the audit, we assembled an experienced and expert team with relevant sector knowledge. And in addition to that, we have called in some experts on some topics. And these topics would include valuation of intangible assets such as goodwill, financial instruments, taxation, IT, fraud risk and legal expertise. Materiality that we applied for the audit of the consolidated financial statement amounts to EUR 75 million. We discussed all areas above EUR 3.75 million with the Executive Board and the Audit Committee and Supervisory Board. As a basis for the determination, we have taken sales as an important KPI. Based on the materiality used and the risk we assessed, we then carried out our work. Now the outcomes. Yes. As you see, just as in previous years, we have issued several opinions, an unqualified audit opinion on the financial statements, and for the benefit of the U.S. regulator, an unqualified audit opinion for the Form 20F report, an unqualified opinion for internal control over financial reporting and an unqualified assurance report on ESG, reasonable assurance and EU taxonomy information, limited assurance as included in the annual report. There are no material audit differences remaining that have yet to be booked. We can furthermore report that there is no disagreement with the Board regarding estimates and that we generally qualify the estimates made by Philips as being balanced. The Board in preparing financial statements have made an assessment of the going concern assumption for the 12 months following the date of the financial statements. We have reviewed this analysis and have not identified any material uncertainties. And now key audit matters. Here, you can see an overview of the key audit matters as included in our opinion. They're largely the same as last year. And we focused on these key audit matters in our audit. I will elaborate on three, evaluating the goodwill of the Sleep & Respiratory Care business. The valuation of the Sleep & Respiratory Care business is a key audit matter because an impairment test is complex, and management estimates play a major role. Management conducted an impairment test during the year since large deviations in future cash flows could lead to further impairment. Important assumptions used by management include the discount rate, expected results and performance and the expected impact of the consent decree. And we have reviewed these assumptions for reasonableness. The valuation and disclosure of liabilities arising from legal claims. Philips as a party is involved in legal proceedings, including proceedings with regulators and investigations performed by local authorities, particularly in the United States. The valuation and disclosure for legal liabilities are complex and uncertain due to the difficulty of predicting the outcome, including potential related to outgoing cash flows that may be material. Philips uses external legal advisers from whom we have sought confirmations as part of our work. And last but not least, valuation and disclosure of U.S. deferred tax assets. Valuation of the deferred tax asset is complex and requires estimates and assumptions by management valuation depends into [ area ] on estimated expected future taxable profits for the United States tax unit. Valuation is a key audit matter because the valuation model is complex and the assumptions about management's expected future cash flows play a major role, including the expected impact of the consent decree. These assumptions have been reviewed by us for reasonableness. We assess whether estimates and assumptions are reasonable based on the audit information obtained. We can confirm that the management's estimates based on information available to us are consistent and acceptable. Fraud and noncompliance of rules and regulations. Ernst & Young focuses on fraud and noncompliance, is high on our agenda as is the case with Philips. We've determined the material impact of fraud risk factors for annual reporting coordinated with the Supervisory Board and the Audit Committee and included them in our audit plan. The Supervisory Board and Audit Committee are periodically briefed on the risk of fraud and noncompliance. We have reviewed these reports in detail, and we've involved forensic accountants as experts in this field in our audits. Philips' fraud and noncompliance highness agenda is alert to fraud signals and follow them up appropriately. The governance report ESG EU taxonomy information. We reviewed the annual report and Supervisory Board report and determined that there are no material misstatements. And we've done that in our role as auditors and the knowledge that we have as such in that capacity of the company. And furthermore, we review all the information in the annual report for consistency with the financial statements, which is a legal requirement as well. In terms of remuneration, we have determined that the required information was included. ESG information and EU taxonomy information. We have identified that the ESG information, as included in the annual report, is fairly stated on the basis of reasonable assurance in compliance with the reporting criteria. Key material performance indicators include, for instance, the environmental P&L, lives improved and the carbon footprint. With respect to EU taxonomy information, we have not identified any deviations from the said taxonomy regulation and have issued a limited assurance. Reporting on sustainability information in the 2023 annual report has been done on the basis of reporting with reference to the global reporting initiative supplemented with our own criteria. CSRD. Philips will report more comprehensively on sustainability information from 2024 onwards, in line with the corporate sustainability reporting directive. To this end, Philips has conducted a double materiality analysis and the CSRD gap analysis. By 2023, the disclosures on nonfinancial information in the annual report have already been further expanded in line with the results of the double materiality analysis. Philips is currently working on further implementation of these European standards. Part and parcel of that is monitoring the CSRD gaps and adjusting policies, processes, systems and internal control environment accordingly. Climate risk. In preparing the financial statements, the Board has considered whether the effects of any climate-related risks and liabilities have been appropriately accounted for and explained. Management has determined that climate risks do not have a material impact on the valuation of assets and liabilities. We've reviewed this analysis and concur with this conclusion. Communication and interaction. We have regular meetings with financial management, Executive Board, Supervisory Board and the Audit Committee of the Supervisory Board. Relationship with the company is transparent, professional, critical and independent. We've been able to perform our work well, and we have established that management, Audit Committee and Supervisory Board take our findings seriously and that there's adequate follow-up. We issued quarterly reports to the Executive Board, the Board -- the Supervisory Board and the Audit Committee. Topics on which we've reported frequently in 2023 are in addition to the key audit matters, the internal control environment, ensuring continuity of automated data processing, our view on key estimates and valuations are independents and tax matters. Now I'll be very concise, the control plan or audit plan 2024. Our audit plan is top-down and risk-driven. We discuss our draft audit plan with the Executive Board, the Supervisory Board and the Audit Committee. For 2024, there are no major adjustments in our audit approach, strategy and materiality with the exception of assurance on CSRD since this has now come into effect. If applicable, we will include changes in the Philips organization and other developments in laws and regulations. We'll take that on board. Another important development is the preparation of the risk management statement to be included in the Board's report as from 2025. Now a few words about transition. 2024 will be the last year that we will be the auditor for Philips, so we will support the transition for the new auditor. I would like to thank you for your attention and your confidence. And Chair, I'd like to give the floor back to you.

[Interpreted] Very good. So thank you, Mr. Blenderman of EY for your elaborate explanation. Thank you, about the financial statements. Now this brings us to the discussion on the items listed under agenda item 1 and 2. And I will try to do that in a structural management manner with your assistance, please. First, we will discuss agenda Item 2A, corporate governance code next. I will allow you to ask questions about B and D together, the dividend. Next, about the financial statements and the speech of the CEO, item 2C. And finally, your vote on the remuneration policy 2E and then 2F and 2G discharge. So please do not ask questions yet about items 3 to 9 on the agenda because we will address them a lot later, depending on the number of questions that you have. Now who would like to take the floor about item on the agenda 2A, as I said, compliance with the updated corporate governance code in the Netherlands, with which we comply completely? So that's what we want. No questions. Now item on the agenda 2B and D, which is the explanation of the dividend policy and the proposal 2D, about adoption of the dividend on the past year. Does anybody want to take floor about the dividend?

[Interpreted] Mr. [ Springer ]?

[Interpreted] Yes. My name, [ Springer ], is the name for the minutes. I have a question. Your share -- you want to issue a share for EUR 0.85. Do you buy the shares on the stock exchange? Or do you print them? Another question. You didn't tell us when I can ask my question about the annual report, because I do have a question about the CEO's speech, but also about the auditor. Can you give me some guidelines when I'm allowed to ask all these questions because it's not clear to me?

[Interpreted] Yes, you can ask that question.

[Interpreted] When I open item of the CEO and item 2C, the annual accounts or the financial statements and also the questions to the auditor.

[Interpreted] I will address that later with you. Dividends, indeed. It will be paid out in shares.

For the period, we will issue shares, so new shares from the company. We don't buy from the open market.

[Interpreted] So you will buy these shares?

We will not buy shares.

I'm not too happy about that, because then for the future, there are a lot of more -- of shares. And I'm not so happy with that. [Interpreted] I'm not so happy with that. I'm not happy at all, because it means an increase in shares on top of it. And in the year 2030, the dividend must be distributed on many more shares. So it doesn't help us at all. So you'd rather say, let's buy stocks on the stock exchange, because in 2030, you say, yes, let's buy back shares. So that's something new. I'm just kidding, but let's, indeed, buy the shares we need this year on the stock exchange. What's your answer to that?

Given the fact that we have a large legal liability, we needed to ensure that the cash was properly dealt with. And therefore, for one year, we decided to do a fresh issuance of shares. Now there is also a share buyback, which was ongoing, so that those shares will be canceled. So we will try to ensure that the dilution is kept to the minimum. And of course, hopefully, you get an appreciation in the share price, which you have seen so far.

[Interpreted] Yes, of course, I can follow you. But it's a circle. You create them, you take them out of the market, you create them, you take them out of the market. It's continuous. But you say it's a one-off. That's what you say in a minute. So as of 2024, so for the remainder of the time, you won't do that again.

[Interpreted] Well, we do realize very well that there is dilution as you state. And I do understand that you say, I'm not over the moon about that. However, it's also in response to a question of many shareholders to do pay dividends, but to do it by issuing shares, what we did. And we do understand fully, and I think Abhijit agrees with me that towards the future -- I wouldn't say it's exclusively this year, but for the future, I understand that you would like to see a different approach. We do understand that. And for this year, it is due to the fact that we try to guarantee the cash position of the business in view of the context in which we operate. Thank you. We will address you later. Mr. [indiscernible]?

[Interpreted] Thank you. My name is [indiscernible]. I speak on behalf of the Stockholders' Association. Well, dividend in shares is what we have already -- something we've already paid for because there's dilution of the number of shares that we have. And I do recognize what you say. I think it is wise this year to offer dividend once more in shares, but it raises a question why -- whether the development of the free cash flow wouldn't allow us to pay a cash dividend. We see a more robust free cash flow, EUR 1.6 billion. And of course, the cash flow benefited from the fact that no net dividend was paid out in cash. And we also see that a part of the solution with your patient was paid by your insurance, which was also helpful. Now is it correct that what you say, that no new shares will be issued next year, not just to make sure that the dividend, but also the solution for the problems? And will this better start position in the cash flow? Doesn't it allow you to either to pay out cash dividend next year or even to buy back shares? And if you do intend to do so, at least to make sure that the dilution that took place this year and last year to take that out of the market, such as Rabobank did very successfully. We believe that would be the right step ahead. Can you indicate at what term you would see an opportunity to do so?

I think it'd be a bit premature to discuss dividends for next year. I think that's a subject for the Annual General Meeting of next year. I think in terms of your question on the free cash flow, the EUR 1.6 billion that we delivered last year was prior to any dividend payments over the way we calculate free cash flows before any dividend payment. I think you rightly mentioned that we do get a certain amount of money from insurance, but still, we have a large payout. You've seen the recent settlement that we've had plus there is some more cost on remediation as well for the consent decree. So based on all the projections for cash that we had, we thought this year is the right decision to go in for a dividend in script. And I'm sure next year, the Board will consider in what form they want to make the payment. And hopefully, that's in a better financial situation than we are in today.

[Interpreted] I would like to ask you Mr. CFO, to note in your transfer file to your successor that your shareholders have told you that they would like to receive a cash dividend and that in your transfer file, you print that boldly. And I also noticed that somebody in the room mentioned that...

[Interpreted] Yes, indeed, the successor is in the room. She speaks Dutch. And she heard you loud and clear. I'm not sure what she will do about it, of course. And let's be honest, the point you're raising, and of course, what Mr. [indiscernible] has raised is very understandable. And of course, we issue dividends, and we do it by now -- by dilution, indeed. And you call it something you've already paid for. I wouldn't like to state it like that, but I don't think it's fully nonsense. So I do understand the item you're raising. So we will reconsider that next year. And the further we have developed the matter of litigation, the more we will know. Other questions about Item 2B and 2D when we talk about dividends. Nobody? Now Mrs. [indiscernible], I would like to move on to item 1 of the agenda, the speech by Mr. Jakobs and item 2C of the agenda, adoption of the financial statements and also the explanation by the auditor. Questions to the auditor, questions to the management about the financial statements?

Chairman, good afternoon, everyone on the Executive Board and the Supervisory Board. My name is Denise Reike, and I represent, together with my colleagues here, the VBDO, which is, in English, the Dutch Association of Investors for Sustainable Development. Since almost 25 years, we have, as our mission, to make the Dutch capital market more sustainable. And Philips knows that very well because almost as long, we do engagement with you on sustainability. Very often when we have raised topics, Philips has shown itself as a frontrunner on these topics, for example, circular economy. But today, I would like to address a topic which we have addressed -- or two topics, which we have addressed ten and five years ago, respectively, on which relatively little progress has been made, at least when it comes to addressing these topics in the supply chain of Philips and beyond your own operations. And that is biodiversity and the issue of living wages. Let me say that Philips is not alone with this. It is a struggle for many companies. However, as Mr. Jakobs has outlined, strengthening the supply chain is an absolute priority for the coming years, forever. Well, we really think that for the long-term value of the company, these topics are key. So let me start with a compliment. We are very pleased that you seek to set science-based target for nature. Philips acknowledges that 90% of biodiversity loss occurs upstream in the supply chain, most notably in extraction and mining. However, biodiversity is not acknowledged as a material topic in the double materiality metrics. And we see that the efforts that you're making are still, just like 10 years ago, mostly limited to your own operations. There is a hotspot analysis of 23 manufacturing sites and we welcome that. But we are a bit concerned that biodiversity not appearing as material might actually relate to the limited insight that Philips has more upstream in the chain and the way you assess this materiality at the moment. So what we would like to know is, when can we expect a more systemic effort deeper in the chain, addressing biodiversity there? Does Philip already has a road map for this? Or if not, can we expect that you will draw up such a road map? We would also like to know if, roughly speaking, you expect changes in the materiality assessment of topics like biodiversity, but also water and pollution if we would look towards this deeper in the chain and take a broader view? This is my first question. The second one is on living wages. And we know that Philips really finds fair and equal wages, an important topic. This is also one of the topics where when we raised it years ago, you were one of the first to say, yes, we would like to investigate this. And we would like to look at how you can measure this in a reliable way. So we can actually make a clear statement about this. Much progress has been made, but also most of this progress relates to Philips' own operations and not so much to deeper levels in the supply chain. So here, I would like to know, what insight does Philip have today on Tier 1 living wages, beyond Tier 1 living wages? And what are your next step on this? And can you let us know how you plan to assess this in the future?

All right. Thanks for your questions. So we buy the compliment on SBTI. And we will also answer the questions. Roy, first on supply chain and especially, impact on biodiversity then on living wages.

Yes. Thank you for the question. And I think it's important indeed to clarify that whilst biodiversity did not show up out of the double materiality assessment, it's not that it's not important for us or out of limited visibility. Actually, we are looking at biodiversity. We also launched a natural resource program and a national capital program, where we are locating the impacts and dependencies of biodiversity along the value chain. And yes, we started with own operations because that's, of course, clearly where the obvious assessment can be done. But we are also aiming to expand this, and that's something that we will be working on together with the task force on nature-related financial disclosure and the science-based targets for nature. So that's something that we are working on, we will also follow, and then we will also report back on that. So we take it serious and we acknowledge your question that actually, this has to be on the agenda. So the second one on the living wages. As you indeed say, this is important to us. We have since long recognized importance of living wage. And also, we are working on that with our suppliers. We have a supplier sustainability program, where we visit suppliers, we validate how they work, and we also kind of validate the living wage. We also actually have, as part of our conditions of purchase, a requirement where living wage is part of. So actually, through that way, we also make sure that any supplier that we kind of work with, their status has to kind of report on this. We have a growing number of suppliers in a supply sustainability program that actually is then adhering to this, that also goes beyond Tier 1, and that's something that we will continue to work on because we also acknowledge that it is work to actually go upstream and to go further on the supply chain, but something that we're willing to undertake and we are working on already. And we have hard baked that in our code of conduct with our suppliers.

Okay. Thank you very much. So I conclude that we will hear more about this in the coming years.

For sure. Thank you for your question.

Very good. please.

Thank you. Mr. Chairman. My name is [indiscernible], I work at PGTM. I'm here today on behalf of the Dutch Healthcare Pension Fund and some media members. I have one question for the Chair of the Audit Committee, but before I submit in my question, I shortly want to share appreciation of the Remuneration Committee for the opportunities that we were given to provide feedback on the proposed remuneration, which, of course, is another agenda item, but I'll share it now. And all the discussion that we had on the elements of the policy, and also Philips incorporating that feedback. So for us, as shareholders, it's important to be heard, and we definitely feel like we were by the Rem Co. So our appreciation there. Ms. Dorothy, with respect to the investigations by the AFM into Exim fraud. How is Philips assured that none of the proposed PwC audit team members was involved in cheating in Exim's? And can the company also assure that none of the current E&Y audit team members were involved in the Exim fraud allegations.

Thanks very much for your question. We were aware of the potential for Exim fraud last year as much as a year ago, KPMG have notified us, or at least me, separately. And as a result of that, we carried out -- the company carried out investigations and discussions with the incoming proposed auditors, PwC. And we also did the same with E&Y. And both companies or both firms have actually said that they're in the middle of processes or procedures internally just to make sure that they, themselves, have not got the same issues as KPMG. Those investigations haven't yet concluded, but we have had assurances, both from Frank and his team that as far as they are concerned, they themselves are not implicated. And as of now, they are not aware of anything in any of the teams, and that would also be true of PwC.

[Interpreted] Yes, Mr. Sijbesma, that's me again. The first question about the presentation of Mr. Jakobs. You say that you've celebrated 100 years in China. However, a few days ago, the FDA wrote that Chinese hotels or rather Chinese hospitals do not want to buy appliances from Philips. What about that? Can you explain that to me? That's question one. Question two. Page 5 of your story says, in the first column, third paragraph of Page 5, Line 3, you talk about 2030. I believe we are here to discuss the year 2023 and not the year 2030. And if not, I have to go back to school and more people should. But 400 million deferred communities or communities and areas, but Mr. Jakobs, you bought Philips Respironics. Mr. Jakobs, for reasons at your discretion, you did not perform fundamental investigation into Respironics, whether everything was okay. And apparently, there are people from communities that are in the areas and they are still shareholders and that have suffered, have suffered financial damages or you are at contrary to European legislation. My question is now, a few days ago, you have paid or rather promised to pay EUR 1.1 billion. But when will you compensate us, the shareholders, when will you tell us what we will receive as compensation today? I want to know when we receive a proposal from you, not what other people receive in America. Now what we, as shareholders receive, us that have been so loyal to the business for a very long time, when will you compensate us? So give me your answer, please.

[Interpreted] Well, your questions are clear. I would not -- well, we'll discuss whether you go back to school or not, we'll discuss that later. Now let's talk about China. That's the easy one. With regard to China, I don't know what newspaper you read, the FT, The Financial Journal, the Dutch Financial Journal, a good newspaper. Following the daily practice, we can still do business in China and Chinese hospitals buy our appliances and use it every day. However, regulations will be stronger or more strict on how or what you can sell, you need to sell more locally, you need to innovate more locally. So the regulations become stricter. We meet those regulations. We transferred more of the operations to China. So we can indeed participate in that market because it's an important part of the total annual turnover. So we can continue to contribute to that market, and we will make sure that we can do so in the future. And we are in close consultation with the Chinese government to make sure that the market is still open and that we can participate in.

You went to China?

Yes. I went to China.

But you went to France, too, but...

Yes. But Mr. [indiscernible] is in France, yes. But we will still be active in China and the 100 years that we have been in operations successfully will be continued.

Now what's about the issues? When you create chips in China, now the America says, "Well, I don't want that." Now how can you solve that?

Well for now, several countries in the world have legislation that you want to comply with, if you want to sell, we don't have issues with chips that we use, that we can't use them in the U.S. Also in America, you need to comply with legislation, but the Chip Act is not likely to have an effect on us. It may be used in the future to apply more local legislation. We have a strong footprint also in the U.S. We also have operations over there. We manufacture there. So we are reorganizing our supply chain to make sure that we can comply with the various requirements that are drawn up by countries.

My second question now, please. It was about 2030. No, 2030. That's what you state in your report, but it's about how will you compensate us, the shareholders? Because a few years ago, N.V. said EUR 16 billion. How will you repay us?

But I continue to remind you. Otherwise, you will have to go back to school, indeed. You will have to repay your school fees.

Now then the second question. You had hidden 2 questions. First, why do you discuss 2030, not 2023? And then the second part of the question.

The first question, 2030, Yes, we have an ambition for 2030. It doesn't mean that we will report on that in 2023. We will report how many lives we've improved. And you can see that in the annual report. We have that ambition for every year, but with a total ambition of 2.5 billion people in 2030 and 400 million community centers. I think it's a good idea in the long term to keep a dot on the horizon. Now with regard to financial damages to shareholders. Our position is that, obviously, in the Respironics case, we have provided new products to the patients. As such, we've met the requirements with regards to a quality issue on foam and we performed a lot of tests to demonstrate that no damage was caused to health of patients. Yes, we had a quality issue, but it didn't result in health damage. Then indeed, there's a separate case with shareholders with one of the parties that is in the room. We will not explain any discussions that are ongoing in this room. What we focus on is that in the daily practice, we want to enhance Philips. We want to make sure the company performs better and also reward the shareholders as such. And since we started executing the plan, we had an impact to shareholders too, and we try to continue along those lines as soon as we can and as fast as we can. So hopefully, there will be more reward for shareholders. But that's the way in which we direct the company and hope to reward shareholders. But you...

I don't like smoke screens. I want to know a few years ago, we were shareholders, and Respironics, so the drama was not mentioned to -- it was only known to the Board of Management. I don't have to repeat all that. Then the stock price dropped, plummeted. How will we be compensated financially? How will you offer us some sort of compensation financially? The N.V. said EUR 16 billion has evaporated. How will you compensate as shareholders? I don't want you to mention all sorts of smoke screens. The question is how will you compensate us for the loss that took place because it was clearly assessed that Philips, the Management Board of Philips, has withheld information about America. It has been assessed clearly in many court cases and it's been in the media. There was never a summon. So the press is consequently right, but how will you compensate us? That's my question.

Yes, but still, I believe 2 matters. Also for the minutes, I don't think we can state Philips or the Board of Management has withheld matters intentionally.

No, it was known in 2020.

No. And there were no court cases. We have to see how the full winding up of this case will be affected. But I cannot agree with you now that you accuse the former management board. I cannot second that. If there are claims by shareholders, of course, you can listen to that. Questions always are these just because stock prices change, things happen to companies. And as Mr. Jakobs has mentioned, the spot price has increased too. I think it started at 15. We are now at 25. You see that, too. And we will assess all the benefits. And we will not discuss it in a shareholders meeting. I don't think that's the right place to discuss that. It's a bit odd. Now let me move on to the other representatives of the VEB. Mr. [indiscernible].

Yes, [indiscernible]. Director of the Dutch Association of Shareholders. However, the last speaker did not represent the VEB for the minutes. I think your response is wise. Both as a Board of Management and as a Supervisory Board. We will indeed issue a claim. It's better not to discuss it here. And also some piece inquired often guarantee a more beneficial result for all the shareholders at the time in Philips. So I will refrain from that. I can argue a lot about it, I won't. What I do notice is that Philips is indeed getting out of the hole they dug themselves and it's very good that Mr. Jakobs made excuses, made apologies to the patients. And you are also willing to draw lessons from the issues that you've had with all the people that work at Philips. I think that the approval of the consent decree is a good step ahead. Also, the settlement with the U.S. patients last Monday that you referred to. It's something that we are looking forward to as investors, and you can also see that when risks have been eliminated from Philips. Although it costs money, it will eventually lead to a better stock price. I think the impact of insecurity has had much more effect on the stock price than solving it and financially compensating it. So I think solving everything properly with all patients is a good idea, and there will be a good case to invest in Philips, and we can move on to the fundamentals of the business. And now as a Board, of course, you have full liberty to focus on the wonderful products manufactured by Philips for all of us because that's what you need to do. You are a very important player in the medical market, a market that's increasing all the time structurally and you are not sin-free. And when we look at the stock price from 15 to 25. But it started at 50. So there's a lot to be gained yet in enhancing confidence that customers and investors have in Philips. What we noticed, which is a bit worrying, 7 quarters in a row, the order book is not developing very well. And also the criminal investigation of the Department of Justice in the U.S. is still ongoing. And what you just stated is that it was not demonstrated that health risks would have occurred due to the foam that has detached. It's not something that the U.S. is totally sure about. So the additional testing that's taking place, the status of that is not very clear to us. And we also wonder when you can meet all the requirements of the consent decree. And I'm sure that within a few years, you will do so, whether Philips can actually return on the U.S. market or have your competitors already taken your place? So there is a big question mark about the great logo of Philips. So can you indeed regain trust from patients, from investors? Will you execute your strategy? Well, Ms. Sijbesma has also issued execution is important. Yes, it is. And I think in brief period, it was not happening at Philips. So that sustainable value creation is something we all long for. And the question is, do the shareholders recognize themselves in the picture that you paint? And you also mentioned the Glass Lewis negative voting advice. But the question for investors is still is Philips effective? And will it act fast enough? Would it act decisive to solve the problems? And we will see when we vote on this charge. But it's not the right use of that method, but I hope that the issues from the past will be solved effectively and decisively and quickly. Very specific questions. I had a lot because I thought you will discuss all these topics one by one, I already had to improvise with dividend. Now I had a question for the auditor, too. I will ask that later.

About the financials about the targets. The consent decree was signed and it was approved by law. So now we must indeed go through the step-by-step plan to be able to sell the respiratory equipment in the U.S.

How do you rate the option that Philips can return at the market share it used to have in the U.S.? Should we count on lower margins as investors if it would happen at all? Do you have margins in these activities in connected care? We also see R&D costs are 20% lower. Why is that? Is it because you don't invest so much in sleep apnea in R&D? What part does that have in connected care? And how do these expenditure related to what was spent in the past? And is the R&D budget enough to also be effective against competitors in the future? It's easy to spend on R&D, but it must have results in the future. Did you consider in the past few years to say goodbye finally to the sleep apnea activity, sell it or wind it up? Second question about the order intake. In your preference, Mr. Jakobs, you said that order intake wasn't -- was down. It wasn't as well as you would have expected. And you need to approve on that. Now what action plan do you have in place? What action plan is necessary? Why is the order intake negative? And how do your improvement plans materialize? How -- what do they look like? And I also asked it because in your 6-month figures, second half of last year, you were more optimistic. How come it is not as good as you expected? And what is your view on the market? And to what extent will it have an impact on the financial targets for the next year? You expect a midsized digit turnover growth, which is 5% to 6%. Is it realistic with a negative order intake? Third question about your settlement, the claims. The medical claims with patients have now been finalized. Thank you for that. Now, how do you assess the risk of new claims either individually or class action after 6 months period in the U.S. because that's how everybody in -- now, everybody now interprets the risk is no longer existing. And is there a risk that patients will indeed get ill later now after using the sleep apnea equipment in the past. In Bloomberg, Philips acknowledges that the settlement does not take into account future patients that will become ill, but the FDA, and that is my penultimate item, says that 5,061 reports were received that have a link to also deceased patients. And I believe you just said that there's no demonstrable impact on health? Well, death is, of course, an outlier anyhow. But to what extent does it -- does the settlement take into account people that have actually died? Do you know the number of the FDA? Or is it exaggerated? Let me limit myself to these questions. And I hope I can ask questions to the auditor, too.

Yes, indeed. Now when I have the notes of Mr. Jakobs next to me and his numbers, I don't know whether I end up at 3:00. This, we will finish by 4:00. Anyway, Chairman. I'm glad you say that discussions about shareholders' claims, whether or not they are all right or not or should not be pursued here. But I'd like to emphasize what Mr. Jakobs said. We are working on remunerating shareholders by making the company perform better, which is what we've been very successful in. And I'd also -- you also referred to Glass Lewis. I'd like to emphasize that the Supervisory Board, of course, is far from pleased with what happened in 2022 and the recall. And I will repeat what Mr. Jakobs said, there was no health risk. And I also repeat that since then, as a Supervisory Board, we have particularly supervised together. And also it's been executed by the Board of Management. So that is the finalization of the recall settlement of economic loss. The consent decree agreement with the FDA and the recent medical monitoring personnel injury agreement. Well, we're not there yet, but these are the key issues that we've been dealing with over the past few months. Great. Now the remaining 3 questions. Well, first of all, the Sleep & Respiratory business, let me take one step back because a lot -- there's a lot of attention for the Philips respiratory business. But we have to look at the 18 billion turnover that we have and how we can grow. And sleep and respiratory care is only 1 billion of that. So we should look at everything that we're doing across the board, making sure that we're strong as possible in all respects of the business so that we can mitigate the effect and impact of the Sleep & Respiratory business. Okay. So that's where we see the acceleration of growth in Sleep & Respiratory Care business. It's important to say that in the U.S., we still have sales. So it's not that we're not selling anything. We still go to patients to provide them with masks and accessories. So we still use those channels, which is important for coming back, which means that patients are still using our products. They're very loyal. And it's also important to keep in mind that the Sleep & Respiratory Care market, of course, well, every year, more and more patients are being diagnosed with sleep issues. So that means that every year, there's a new opportunity of an enormous influx of new patients. We see this outside the U.S. where we are coming back into the market. And we're also coming back into the market without having to buy ourselves into the market with margins, Of course, we have to restore them because we don't have the scale anymore that we used to have, but we are going back to the high teens margin. So we see that we can return to the market and we are returning. And we've always said, we're very committed to the business. We never intended to withdraw from the business because this is a segment that represents growth and in which we have unique skills and capacities and innovation. We can really serve the market well. There are 2 very big players in the world. We are one of them. We have an important role to play. And there are lots of partners that really want us back. So this is about the Sleep & Respiratory Care part. R&D percentage now in Connected Care. Well we are still competitive, especially if you take into account what we've invested. And if you look at the informatics part, we are investing enormously. You have all these different R&D percentages. Informatics is double-digit, monitoring, high single digit. And of course, there's been a decline in innovation in Sleep & Respiratory Care because they're smaller business. But we're still innovating. So we have no concerns about the power of innovation in the Connected Care business. What's more, if we look at this year, the contribution that we are expecting from Connected Care in order sales and margin, we expect that they will be making a major contribution to the overall performance of Philips. And if we look at what we are spending in R&D across the board, it is still above average. We do have a tighter expenditure here because we really want to look at where we have a return. We do fewer projects, but projects that have a high return. So we are more efficient, but we're spending more than average, if you look at competitors such as Siemens, for instance. Order intake now, which is incredibly important, and we came from a situation in which we were off balance. There was an enormous backlog of orders that we needed to process. And for that, we needed a bit better supply chain. We started working on that and then we started to process the orders. But we still have a couple of businesses in which we cannot supply without any inhibitions, without any problem. So that does have an impact. And an important element was in Q1, that we saw particularly in China, there was an enormous impact of negative order intake. And you see that Siemens disclosed these figures today, and we see that they have the same problem. So, yes. This -- nobody had expected that the Chinese government in 2023 would start with an anticorruption program. We didn't know that, and it came somewhere half way into the year. That had an enormous impact on the Chinese market. It declined by 20%, more than 20%, and we see the same pattern in Q1, and we expect that, that will still have an impact in Q2. And we do expect that China will recover more strongly in the second half of the year. But quite apart from China, we're positive because North America started growing in Q1 and the other regions, Europe and the international markets also moving towards growth. So for this year, we have a strong ambition and strong goal to be positive in terms of order intake, and we're still committed to that. So those are the questions. Have they been answered to your satisfaction, sir?

Well, no, well, there's still some questions about the settlement issues with patients, Mr. Jakobs.

Important for the settlement were 2 things. One, it was important to put an end to uncertainty regarding litigation in the U.S., which is why we reached a settlement. We never admitted our culpability. And we have also said, and I've said this before, that we're not in a position in which health damages have been caused, and the FDA did not say that they do not concur with our test, but they've requested additional tests. And we are in consultation. We are talking to the FDA right now. This is a position that we will reinforce further, but it was very important also to come to this settlement. And then if you look at the deal and the way it's been structured in principle, all the ongoing, the pending claims in the U.S. now been settled with this. And there was also a part medical monitoring, that was part of it. So not only patients that had claimed damages, health damages, but also the ones that could potentially do so, they're all covered. And now there's 6 months in, which people can talk to lawyers and to say that they want to be part of the settlement, but that will be for the same amount because we settle for the entire pool. And if they want to come forward later on, they will have to do so individually with their own evidentiary material, that there's a causal link between our device and the illness that they may be claiming. So those are the hurdles to enter the American legal system. There's a certain threshold there. And then there's causal link that they will have to prove. And individually, it's going to be very difficult for us alone. I mean, we conducted a test for 3 years, spent millions. So for an individual, it's not going to be any easier, but we're absolutely convinced that we did not cause any damages, which is why we're saying that the finality is very strong. And then the alleged that -- people claim alleged death, people claim that there have been deaths as a consequence of using the devices. These are claims once again. It hasn't been proven. And the FDA has not taken a position. All that has been included in the settlement. Once again, we say that there are no consequences. So we are not dealing with the payouts. So the overall amount, the entire amount goes to the law firms who will then decide how much people will get, who will get what and how much they will get themselves. So our conclusion is justified that Philips' own test, this causal link does not -- do not prove the causal link. And the only way in which someone can get an additional compensation aside from the settlement is if FDA draws different conclusions that Philips with these additional investigations. It's an uncertain factor, but then the causal link will have to be proven very strictly. That's the only -- well, there's one thing that I would like to dispel here. The FDA, the way we see it will not take a position in testing. They do not consider themselves as a testing agency. So if someone wants to draw a different conclusion from a test, will have to present their own tests. So the FDA will take a look at things, see whether the materials that you present is sufficient to substantiate your position. And they will ask questions about methodology. In our view, they will not come up with a position and will say, this is a test that is good or not good. So that's why people can't wait for an outcome from the FDA because most probably will never take place. So they will have to embark on their own path, which is not going to be an easy path. And furthermore, we're convinced. What we saw, these were 5 independent testing agency, and there were also a large independent test that has proven that there's no causal of link between the use of the device and the illness.

Well, I hope you're right, because that would be good news for the patients and also for our investors.

Yes. You've been standing there for a while.

My name is Robert Vreeken. We Connect You Public Affairs and Investor Relations. And I also look at the bigger picture. And it strikes me that Feike Sijbesma is doing an excellent job, a stellar job this year again. And the critical questions you're asking to Mr. Jakobs. I think Mr. Jakobs is doing an excellent job as well. Mr. -- the gentleman from the VEB is also and I'm a member of the VEB, the Stockholders Association, is also doing a great job. Well, good. So there's a great atmosphere here. And so what's also very important to what we see is that we have the pharmaceutical industry and the medical industry. And wouldn't it be wonderful if these industries would move to reasonable margins. Drugs that cost 1 million or 0.5 million a year. And I'm talking about cancer medication. Of course, that's very unpleasant. And it's important that people have access to medication and that with reasonable margins, you can maintain the system in the Netherlands and keep it affordable. And it's also important for all stakeholders that you, as an industry, the pharmaceutical and the medical industry, if something goes wrong, that you pass that on as soon as possible, that you ring the alarm bell. Why is that important? Because the sooner you know something, the lower the damages will be. Now we've been dealing with this problem for years and years, and this has generated a great deal of negative publicity. Negative publicity has an enormous impact, costs a lot of money. It's only a product -- about a product with a turnover of EUR 1 billion. Is that correct? When you've got all the other products, MRI scanners, toothbrushes, things like that. And you can really focus on that. And Oral B is doing much more advertising than Philips. Whereas we have a much better toothbrush at Philips, as far as I understand. So why don't you communicate that? My own dentist doesn't -- well, that's what my dentist tells me. What else? Sustainable industry is going to triple up to 2030 to EUR 600 billion. Now, it would be good if Philips could combine that with what they are good at doing. They would like -- Philip should ride the wave. All the devices should have a backup should there be a problem with electricity. There should be combined packages for that, for home use and in hospitals so that patients can be independent should there be a power cut. What else do I think is important? Well, let me see. You have plants in several continents, not only in China. But there's a war going on in Ukraine with Russia, supported by China and North Korea is helping Russia. And then we've got Iran helping Russia. Iran is the sponsor of most terrorist organizations in the world. So they have a testing ground in Gaza, where they're shooting thousands of missiles and 700 kilometers of tunnels is what they have. All this with the help of Iran. So it's important that you have plans in America, Latin America, Europe, Africa and other regions in Asia. Can you work towards that along with other countries? And then in conclusion, Oh, yes, there's one more thing. [indiscernible] in the Netherlands. He is a professor who talks about more exercise and eating more healthily. More than half of the Dutch nationals are obese and do not exercise enough. Same goes for the U.S. And if you want to focus on that and if you want to use this as a flagship, if want to do something about this, that would be great because the healthier we become the smaller the pressure will be on the health industry. I think that's more or less. I don't know whether you were able to follow my questions.

No, no, no. We can note that. The only thing you didn't give us was the name of your dentist who never recommended the Philips toothbrush.

I'll give it to you in a moment. I have an excellent dentist, by the way.

Let me start at the beginning. You were talking about reasonable margins. Well, as you've been able to see and read annual report, our margins are quite different from the margins of pharma companies. Last year, we had 10.5% EBITDA profit. We talked about innovation. We spend, on average, 9% of our sales, we invested -- reinvested in new innovation. So if you're going to talk about the margin that we have, well, we will have to improve our margins. They're not excessive because we want to innovate in the longer term. We absolutely agree with you that access to health care is something that we need to pay attention to. We pay a lot of attention to the productivity of hospitals and hospital systems, and that also means that we are trying to help hospitals to reduce costs and to help more patients and how our technologies can help hospitals in that respect. So you're quite right. We have to make sure that our health system remains affordable, and we're helping in that respect, and we are indeed explaining our margins. And if we look at our competition, well, we still have a long way to go in order to reach the same margin levels as they have. So we're working really hard at this, and we will continue to work hard at that. Now just in terms of facts, we've increased our market share, perhaps not with your dentist, but globally, that is indeed a fact. And it's an important element of our operations and the different positions. We are #1 in North America. Oral B in Europe is #1. If we look at the growth percentages that we've shown in Personal Health, you see that we are strengthening and reinforcing our position and that our penetration of Sonicare is doing really well. The new innovations that I just mentioned contribute to that. So indeed, it is something that we focus on. We know that it's very important that we do this incorporation, in collaboration with dentists and dental care professionals. So I hope we will soon be able to visit your dentists to convince him that there are alternatives to competition. Third point, plans globally, worldwide. We have to make sure that our supply chain can operate independently from geopolitical tensions and the wars that we see emerging, left, right and center, unfortunately, which means that we are working on this very actively. We have production capacity across the continents, in North America, in Europe, in India, in China and also in Latin America. So we do have differentiation. We are working on our differentiation. Further a number of our operations are moving to India. We're also looking at China. So this is a major point for us. And also the robustness of the supply chain, how to deal with geopolitical tensions, costs and things like that. We're paying a lot of attention to that, and that will remain the case in the future. Food and exercise, very important. We recommend that everybody focus on healthy eating and exercise. Now we don't have an ambition to move to food technology. We've made choices in terms of innovation. We're monitoring patients, we're scanning patients, and we also focus on minimal invasive interventions and then, of course, some consumer products. So we acknowledge the link with eating good food. Lots of patients suffer from obesity. There's very often a correlation. We do see an impact. But this is not something that we will be working on and finding solutions for. About the margin. The pension funds in the Netherlands have 1,500 billion in -- at their disposal, and a lot is invested abroad. If the pension fund of DSM or Philips were to invest more in Philips, that would be wonderful. And I'm calling on all the members of Executive Board, Supervisory Boards in the Netherlands, it's important to invest in this country so the country becomes more sustainable and that we invest more in R&D. I'm sure you have children and grandchildren. And wouldn't it be great if in 10 years' time, they would say, "Oh, Daddy. Oh, Grandpa, you did an excellent job." So I would keep that in mind if I were you, because I would assume that your children and grandchildren will become more and more critical with respect to our society. And Holland is a wonderful country to invest in, and particularly with respect to sustainability and medical technology. There are a lot of benefits. You don't have to force them, but you can engage with pension funds to invest more in the Netherlands. So that about the pension fund of DSM and Philips. Thank you for that. Philips does invest a lot in the Netherlands. I'm thinking of the high-tech campus in Eindhoven. Then we've got [indiscernible], Best, and we've got other centers and hubs. I mean, I don't -- you can't say that Philips is not investing in the Netherlands. But Philips pension fund does not invest in Philips, and DSM's pension fund doesn't invest in DSM. Whether DSM pension fund is willing to invest in Philips, well, I would encourage them. I would recommend them to do so. So whether the Philips Pension Fund would want to invest in DSM, while I would recommend that as well, but I'll leave it to them. On the pension funds, you're quite right. There are lots of larger pension funds in the Netherlands. Public money essentially is invested abroad. And in other countries, if I look at Switzerland or Denmark, situation is quite different. But this brings me to the field of policies encumbered on the pension funds themselves. I'm not going to comment on that. But our pension funds are not going to invest in our own company.

I'm glad with your visions. [indiscernible], I'm sure you know him. He always said the company should invest much more in Dutch companies. You can invest 30% to 40% in your own economy. Now if you can all agree on that. There'll be much more money available for Philips.

Chairman, great. We'll take that on board. Several initiatives, by the way, to see whether with public money pension funds, so we can invest more in our own country, such as some other countries do, and I mentioned Sweden -- or I'm sorry, Denmark and Switzerland, but the same applies to France, et cetera. So as far as that's concerned, we are a liberal country, but we're not going to talk politics here. Have your questions now been answered?

Yes. Thank you for that.

Except for the auditor, do you have any other questions about the annual report, the financial statements, the clarification on Mr. Jakobs? Not about that or the auditor? Not yet. So please go ahead.

Well, it's democracy. So we are allowed to. I do have a few separate questions, and then I will ask a question about the auditor's report. But I do that only after you've given me the floor once again. I have a question about quality control guarantee assurance. A new model must make sure that there's more accountability and ownership within Philips. Part of the program is to lower complexity of the organization. We read about it. We read it on the sheet and also lowering the number of quality management systems. And unfortunately, we saw the other side of that coin, but it's important not to work with various systems that may not communicate or may not be integrated. That's one of the lessons learned. So the questions we have, it's a great ambition as far as we're concerned, but what is the status of these programs? And an important question now, does Philips believe that the quality systems already are adequately enough in their performance? So are they happy with the progress made with enhancing? Because in the past, it was also said that when quality systems are improved, let's think about the CT scanners in 2015 in Cleveland. We would definitely like to see positive results now. Also, because we are a bit worried about mergers and acquisitions, we do understand that Philip has been focusing on something else in the past few years. What we noticed is that both investments by the company in mergers and acquisitions are a lot lower than last year. Is it tenable? Is it responsible? What do you foresee for the spending in the next few years? And did you also do a portfolio review, which is quite common at a level you operate and to see what markets are not well represented from the perspective of Philips or whether there is not enough competitive power? Then what we heard about mother and child care, very important, the bottles and food, it's 11% of the division of Personal Health, 400 million turnover. At Philips scale, it's not a lot. Is it something that you want to create shareholder value on the long term? Or is it something that you don't want to pay your attention to by the management? We -- then I would like to ask questions about Philips consultancy. There was a decrease in sales in last year because you discontinued it. So we are interested to learn, what type of consultants did you have? What sort of services did they provide to whom? And what sort of sums were involved? Then because I move -- before I move on to the auditor, which I will do later there is a facility that you've created for legal matters of EUR 31 million. Provision for legal matters. Page 151, when people check. We wondered, can you clarify this? Because EUR 31 million, it will not affect much in reality, but the figures are important because it can be representing a lot more? Is it about EMEA or something else? Please, your reply on these matters?

Yes. Let me start with quality assurance. Indeed, it's very important, and it's a combination of people and systems, which is why we have this as the #1 priority in the organization. A cultural shift. We've made it very clear in targets that every organization has. We also changed leaders on positions that are important for quality revenue. Clinical leader, they have an independent line upwards to escalate matters, but at the same time, we make sure that they collaborate in the businesses with innovation to make sure that the products we launched will be meeting the highest requirements. At the same time, it's important that when they notice something that people feel at liberty to report so we can act swiftly. Mistakes will be made in any organization, but the fact -- it's important whether you can act on that quickly. What we also note is that we have too many systems and too many complicated systems. We had a 50% reduction in quality systems in 2025. This year, we'll move on to 65%. We will combine the systems and the processes that are laid down have been simplified. What we noticed is that we were over processing due to the FDA visits. We have laid down matters in so much detail that it wasn't operational anymore. So indeed, yes, quality systems at this time meet the requirements that we must meet. Yes, we want to enhance them. Yes, we want to improve them. So it's a very clear focus area to us and we will invest a lot of resources on this. Then M&A, indeed with regard to the position that we have, the cash position that we have, it was the last item we wanted to spend on. It doesn't mean that we ignore smaller M&As in echography. We did a very good acquisition on AI-related propositions. It was possible with the cash flow and we were lucky that very few M&A activities happened in the health market and the general market, also in view of the situation in the market. So we didn't miss out. Matters that were available on the market would not have been bought by others. We fully focused on increasing the cash flow and indeed, the settlement that we have reached helps to provide clarity and also with improvements in operation, make sure that we have more firepower for the future. So it means that we will indeed assess what we want and can do in the market, but primarily, we focus on autonomous growth because we think that it will be generated by the business and the products that we have. Now consultants. We had 2 types. One in the innovation branch. They provided innovation advice to other companies. Then we have an innovation unit, 100 of our people moved over to ASML. They were fully engaged by ASML, although they were hired by Philips. And we said our core business is not consultancy. If we want to advise, we want to do it ourselves. So they moved to ASML. And design services, we provided to hospitals. We downscale that. That's what was reflected in the financial statements. Then the legal matter of EUR 31 million?

It was from one of the government, but not related to the recall.

Okay. And that's a final settlement or a final?

No, that's the best estimate we could make at that point of time. And we will still have a negotiation on that, but that was the best estimate.

[Interpreted] Okay. And then we have another. Mother and child care, another question. Yes, EUR 400 million is substantial for us in size because it's one business unit, and it's growing double digit this year. So we noticed a strong demand in the market. It also links up very closely to what you need at home and what you need in hospitals. So fetal monitoring in hospitals. We have special monitoring solutions for babies and mothers, and we managed to link it up to at home care. So we see that as a very important activity in the Personal Health segment, and it's growing, and we see potential for the future.

So based on the units. The leader of the unit is nodding on the first row. I noticed that you had a question, too.

Yes. I have a question for the auditor.

Well let's start that now. No further questions about the financial statements, the financial report, annual report. So then Mr. [indiscernible] about the auditor.

Edwin Janssen. My colleague has already spoken of the investors for sustainable development. We have a number of questions for the auditor, mainly about double materiality. And it's good to hear that other investors ask about the sustainability topic. We've been asking questions for so many years. It's great that other people are joining us. I will ask my question in English, has been providing reasonable assurance on the double materiality assessment. To what extent does it believe the current report complies with ESRS applicable as of next year? Are there any areas that foresees obstacles or challenges? And has it had access to any topic-specific materiality scoring legends? If not, how does it validate assessment of the impact materiality scores? Have financial materiality was mentioned at 75 million for this year. But how does it look at materiality for the various sustainability topics?

I have made note, yes. This year, we looked at double material assessments as in the annual report. It hasn't yet been drafted according to CSRD, but the global reporting initiatives added with our own criteria. And in 2024, we will indeed do that in line with CSRD and IRS. Philips is implementing CSRD. I think they are on the right track, and we are joining them full time in addressing this. And we don't see any obstacles. And we see that there is already a sound double materiality analysis and also a full road map to meet the CSRD in full. You also asked whether we have sufficient insight. Yes. We have been following these developments at Philips for a number of years. We have had insight for many years and we have full transparency and information that we require. And anything we will request, Philips has been fully transparent in executing the double materiality analysis, what topics are important, et cetera, et cetera.

And my final question. If access to every information that we need. So indeed, so also with regard to threshold, anything.

Okay. Okay. [indiscernible], do you have questions, too for the auditor? Yes, we believe so.

Mr. [indiscernible]. To me, an auditor, is nowadays similar to internal fraud. Frauding -- fraud with exams. So that's why I ask this question? Who was the OBK with you? When did the OBK investigation start? Were they -- or were they executed on various units? When were they completed? And the outcome, this is the unit that has determined OKB policy in advance? And how do you check that within your team? And these questions are all originating from 11 47 of MBA.

Yes. At Philips, we also started an OKB, a Dutch colleague of me, does everybody know what an OKB is? Well, it's an independent quality assessor of the audit. And at Philips, we have various because we also -- we have a Capital Markets review, which is an American that checks out where the reports are in line with the American Stock Exchange and [indiscernible] in the Netherlands, as we mentioned. During the year, they check out the work that we perform. They have specific matters they focus on. And I thought it was a great question. You said, when was the OKB finish this year. So the independent quality assessor. It was at 2:30 in the night -- on the day, we finalized work. So she's very thorough. They work very thoroughly and they don't take it easy. Maybe good to report the AFM, the Dutch Financial Authority has already investigated these independent quality assessments at the larger offices. And the person in my team was also part of that assessment and the result was that it was very good. So the quality of these OKBs that EY has guaranteed.

But can you also tell me what questions the OKB asked you? Because let me say it like this, they just look over your shoulder to see what comma you put where and why it's there. So what questions did your OKB ask? Because I can't see that it's paragraph 13 and paragraph 20 of the professional rules, I couldn't distill that from it, you are right?

You are right. Sometimes the questions are, what does it say behind the comma. They go in very much detail. But indeed, they focus on important matters, key audit matters, for instance, that I've explained. And other methods that are important to them is quality of the team. They have sufficient staff members. Of course, it's a very large audit. Philips has activities in 70 countries. So we made sure that we have the right staff members, the right number of staff members. And also for American financial reporting, whether we had the expertise and whether the right questions were asked in the audit.

That's fine. But what I can't see, Article 8 of the EU Claim 537 214 is something I couldn't retrace in your story. Why are you so foggy about this?

Well, explain to me what you mean.

Well, it's in the MBA 11 47 in your guidelines. Now what do you refer to exactly? Because it's quite a list.

Article 8 of the European Union, I don't know that.

No, that's clear that you don't know it from the top of your head.

I assume you do because you looked it up.

Yes, but that's why I'm asking you, why didn't you apply it?

I think I applied it. Why I wouldn't I?

I don't know because I can't find it. I can't retrace it.

That's why. So we will discuss that after the meeting.

We always do, Mr. [indiscernible]. We always do.