Welcome to the Royal Philips Second Quarter 2019 Results Conference Call on Monday, the 22nd of July 2019. [Operator Instructions] Please note that this call will be recorded and is available by webcast on the website of Royal Philips. I will now hand the conference over to Mr. Leandro Mazzoni, Head of Investor Relations.

Good morning, ladies and gentlemen, welcome to Philips' Second Quarter 2019 Results Conference Call. I'm here with our CEO, Frans van Houten; and our CFO, Abhijit Bhattacharya. On today's call, Frans will take you through our strategic and financial highlights for the period. Abhijit will then provide more detail on the financial performance and market dynamics. After that, we will take your questions. Our press release and the related information slide deck were published at 7 a.m. CET this morning. Both documents are available on our Investor Relations website. A full transcript of this conference call will be made available by end of today on our website. Finally, as mentioned in the press release, adjusted EBITA is defined as income from operations, excluding amortization of acquired intangible assets, impairment of goodwill and other intangible assets, restructuring charges, acquisition-related costs and other significant items. Comparable growth for sales and orders are adjusted for currency and portfolio changes. With that, I would like to hand over to Frans.

Thanks, Leandro, and good morning to you all. Thank you for joining us today. I'm pleased with the 6% comparable sales growth in the second quarter with all businesses contributing. We also recorded a strong 8% comparable order intake growth, driven by the continued demand for our innovative product portfolio across the Diagnosis & Treatment businesses. Adjusted EBITA margin for the group improved 60 basis points despite adverse currency and tariff impacts of 60 basis points in total. I am also pleased with the double-digit comparable order intake growth - the order intake in the growth geographies, mature geographies order intake growth was flat on the back of double-digit order intake growth during the second quarter of 2018. Our Diagnosis & Treatment businesses, as well as our Connected Care businesses delivered 6% comparable sales growth for the quarter. The Personal Health businesses delivered comparable sales growth of 5% for the second quarter in a row, driven by new product introductions and investments in advertising. Sales in Oral Healthcare remained strong with high single digit growth in the quarter. Let me expand on our strategic journey to leadership in health technology. Our value creation story is built around three key levers: driving growth in our core business, innovating solutions and driving operational excellence in all our activities. Let me expand on that. As a way to create value in our core businesses, we continue to drive market share through deeper, more comprehensive customer partnerships and pursuing growth by increasing geographic coverage and market penetration. During the second quarter, we entered into several new long-term strategic partnerships with leading hospitals in the United States and Europe. For example, we signed a 10-year agreement with the Centre Hospitalier Régional Universitaire de Nancy in France to implement our IntelliSpace Enterprise Imaging Solution. The collaboration…

Thank you, Frans, and good morning to all of you on the call and the webcast. Let me start by providing some color on the second quarter comparable sales growth of 6%. The Diagnosis & Treatment businesses delivered a 6% comparable sales growth as well, driven by strong performance in North America and the global geographers including China. Image-Guided Therapy grew double digit in both systems and devices and Ultrasound grew high single digit. Diagnostic Imaging sales were in line with last year on the back of tough comparables in the Advanced Molecular Imaging business or AMI, which had a comparable sales growth of 50% in the second quarter of last year. The sales for the Connected Care businesses in the second quarter also grew by 6%. The Monitoring & Analytics business showed mid-single-digit growth and our EMR business delivered strong double-digit growth. Sleep and respiratory business grew mid-single digits, driven by the success of the DreamWear Full Face mask and the launch of our DreamWisp minimal contact mask in the first quarter. The Personal Health businesses delivered 5% comparable sales growth during the second quarter, led by high single-digit growth by our Oral Healthcare business. The Personal Care and Domestic Appliances businesses' comparable sales grew by mid-single digits. Group sales in mature geographies in the second quarter increased by 5% on a comparable basis, reflecting growth in Western Europe, North America and other mature geographies. Sales increased by 9% on a comparable basis in our growth geographies, led by double-digit growth in China, Russia and Central and Eastern Europe. During the second quarter, comparable order intake overall grew by 8% with Diagnosis & Treatment businesses up double digit due to strong performance across the portfolio and further building on the double-digit growth in Q2 2018. China and overall growth…

Thank you, sir. [Operator Instructions] We will now take our first question from Veronika Dubajova from Goldman Sachs. Please go ahead.

Good morning, gentlemen. And thank you for taking my question. I want to start talking about Connected Care actually, and two questions for me. One is just the strong recovery in revenue growth that you have seen here in the second quarter. Can you help us understand to what extent this is now sustainable momentum and how we should be thinking about growth from a revenue perspective for the year? And to follow up on that, if I look at the sort of margin performance here, you are tracking meaningfully below the 16% to 18% margin target that you have here for 2020. So Abhijit, if you can give us a bit of a bridge as to how will you get here in the next 18 months, that would be very helpful? Thanks.

Hi, Veronika. This is Frans. You know, Connected Care has a lot of promise, and it is also a lumpy business as many hospitals are looking to adopt informatic platforms and expand monitoring and analytics to aid the workflow. So we are comfortable. We are positive, in fact, about the funnel of opportunities that we see. At the same time, we have seen quite a lumpy trajectory with orders coming in, for example, fourth quarter last year and then we see that now being translated into revenue. We do expect a stronger second half year also for Connected Care. That doesn't mean that the lumpiness is now behind us, and I think we need to continue to evaluate that business in that context. Margin is tracking below target. But we also had significant headwinds, and I'd like to go Abhijit for some more color on that.

Yeah. So if you look at on a, let's say, full year last 12 month basis, we are around the 13.7% and the target is 16%. So we have a little more than 200 basis points to cover in the next six quarters. So we think that is, let's say, well within reach. A couple of things, we had this quarter the biggest FX impact actually happened in Connected Care, so did the biggest tariff impact because we make a large amount of our production in the U.S., which also goes to China. We also have a specific mix impact this quarter as we sold more stationary oxygen systems in our respiratory business, which we don't think are all, let's say, continuing impacts for the rest of the year. So confidence is reasonably good that for the second half, we will see performance improvement, not only in the top line but also in the bottom line that helps us to bridge to the target.

That's very helpful. Thank you both And Abhijit, can I just confirm, when you say you expect to be shy of 14%, what exactly does that mean? Thank you.

Thank you, Veronika. But we don't guide specifically to the last decimal for the year. We said an average of 100 basis points for the last 3 years. We have been slightly above. This year, with all of the headwinds we'll be slightly below. So shy is just slightly below the 14%. That's the...

But is it round up to 14%? Is it that way to think about the shy comment?

Yes. Absolutely.

Okay. That’s very helpful. Okay, excellent. Thank you both very much.

Yeah.

We will now take our next question from Ed Ridley-Day from Redburn. Please go ahead.

Good morning and thank you. And my first question, also related to Connected Care. And Abhijit, you highlighted some mitigation efforts. Can you just remind us what you're specifically doing there, particularly on the cost side, to improve profitability in Connected Care? And secondly, just on obviously the excellent order growth in D&T, you gave us some color. Just backing that out, it would appear that perhaps your Image-Guided Therapy business had exceptionally strong order growth, more like in the high-teens, if you could comment on that.

Yeah. So if you look at the mitigation effects, quite a few. So there are some reallocation or movement of production sites. So we used to produce masks in Sleep & Respiratory Care in China. We moved that to another location. There are some pricing impacts which are happening. And then there are quite a few cost actions, which we are taking within this business and largely in Europe. And that goes through, let's say, with our social partners, just takes time in the discussion. So that holds us back a little bit in terms of timing. So all of those will get executed in the second and – sorry, in the third and fourth quarter. Regarding the order intake in Diagnosis & Treatment, I think it has been very strong all over. So yes, IGT has been exceptionally strong, but so are the other businesses as well. So if you look at Ultrasound, we have been in double-digit territory. If you look at Diagnostic Imaging, we are in double-digit territory. So it's not one of the businesses which is hugely skewing it one way or the other.

And just a very quick add-on to that in terms of D&T, given where helium costs are currently, has that boosted your MRI franchise?

Yes. So that has impacted us a bit unfavorably in the first half. But as most of the mitigation impacts will come to us in the second half, that gives us also, therefore, the confidence that margins will keep further improving here. So let's put it this way, the worst of the helium impact, we have seen in the first half of the year.

Thank you very much.

By the way, those accelerate the interest in our helium-free operations MR system that has this closed cooling system and it doesn't need to quench pipe, which we launched late last year and that now is enjoying a very strong interest. And many hospitals are looking at that innovation as it would require significantly less helium going forward.

Yes. Thank you, Frans. That's also what I thought in terms of the - and you still, I think, will remain the only provider of that technology for - on the market for a little while longer?

Yeah. That's our expectation.

1,500 liters of helium going down to 7.

Great. Thank you.

It's a 99% reduction.

Okay. Now we have explained this sufficiently. We go to the next question.

We will now take our next question from David Adlington from JPMorgan. Please go ahead.

Morning, guys. Thanks. Maybe just following up on the margin expectations for the second half because I think the comps get a little bit more difficult in the second half. How should we be thinking about maybe the phase between Q3 and Q4? And sort of mix wise, how should we be thinking about the margins through those as well? Thanks.

Yes. Again, David, thanks for the question. But we are not going to be guiding specifically per quarter. But if you talk about comparables, if you look back at last year, the first half of the year, we had actually our bigger improvement. So the second half of the year, although we did overall the 100 bps in the year, the second half of the year had lower improvement. So I would, in fact, argue to the contrary. Let's say the second half gives us a better opportunity to make those improvements and both the improvements will happen in Q3 and in Q4.

But one thing I'll point out, Abhijit, was the fact that I think you had some one-offs in the third and fourth quarter in terms of provision releases and a big fourth quarter in terms of order recognition so that's kind of...

Yeah. I know. But let's say, this year, we will have - so if you remember last year, we had also quite significant bps in the profitability of Connected Care, and that improvement then should help to cover for those one-offs of last year.

Okay. Thanks very much.

Yeah.

We will now take our next question from Michael Jungling from Morgan Stanley. Please go ahead.

Thank you. And I had two questions. Firstly, on Personal Health, if I look at your organic sales growth adjusted for comparisons, your momentum is probably the weakest now in at least six quarters. And with this in mind, I'm just curious how you see organic sales growth in the second half if the trend would have continued. It seems to me more likely that we would see a further deceleration as the comps get tougher. So some sort of outlook for you on Personal Health in the second half on the directionality of organic sales growth would be useful. And question number two is on this China capital equipment plan that was announced in November of 2018, I think it was a couple of times at various meetings, and you're quite positive about the potential for an improvement in Chinese demand. And have we seen anything this quarter? I think last quarter, you mentioned there wasn't much activity besides what you normally get? Thank you.

Yeah. Hi, Michael. I don't completely understand your reasoning because like-for-like, Personal Health is seeing an acceleration. Last year, we were in low to mid-single digit. Now we are strongly into mid-single-digit territory, second quarter in a row of around 5%. We, as management, have the expectation that, that will continue. That means that the full year will be a significant step-up from last year. Of course, when I say like-for-like, I mean, we have taken SRC out of PH, moved it to Connected Care. So you need to do the same. And then I think you will see that it is, in fact, strengthening. Does that help you understand the Personal Health comparison?

I'm just looking at sort of the momentum indicator, where we look at the 2 year stack. And if you look at the math, yes, optically you see an improvement in Q1 and Q2 of 2019. But if you make an adjustment for comparisons, then Q2 is actually a reasonably weak quarter compared to what we had previous year. And if you then model for the second half, it seems to me mathematically speaking, without knowing what else you may have in the pipeline, it seems to me that the second half will be coming in somewhere around about 3%, 3.5%...

No, no, no. Michael, there's some confusion. Let me clarify. When we reported, we also issued a restate of figures last year to make it comparable. And for the Q1 last year, our growth was 2.7%, the second quarter was 1% and the third quarter was 4% and the fourth quarter was 2%. So the growth for last year in Personal Health comparable for the same portfolio at the same exchange rate was 2%. And now for the last 2 quarters, we are in the 5% range. So I think there's something in the math that we could possibly sort out offline. But clearly, there is, on the comparable portfolio, significantly higher growth, so almost three times the growth that we had last year in the first half.

Yeah. And driven by core products such as the Sonicare portfolio.

I mean, we have the same numbers. But I'll give you a call later on because I obviously have slightly differently, but maybe...

We want to convince you, Michael, that it's not the case as you described. But the second question that you asked on the China CapEx plan, look, overall, I see strong demand for health systems in China. Abhijit just summarized in his introduction that we see mid- to high single-digit market growth. And in that market, we have been growing for quite a while in double-digit territory. So we have strong momentum. We do not think that, that is specifically related to the CapEx plan as announced. We have not seen a major shift in the market since that plan. Of course, it is always good news that such a plan is announced because it basically underlines that the strategy of the China government is to invest in health care. And it also coincides with the health care 2030 strategy that the Chinese government has published, which calls for a significant step-up in capacity in China of both government and public - as well as private hospital. We expect consequently that in the coming years, this demand can continue even when GDP growth may fluctuate as we currently see.

But if I look at the initiative that was announced last year, category B, there was 3,500 new CTs added, there was 4,400 new MRIs added. And given that it was a plan between 2018 and 2020, one would hope that by 2019, one would see the additional demand in the provinces that was included in that category B. Have we seen anything so far in the second quarter that points towards these additional orders coming through at Philips?

Yeah. We have not seen any step change in demand. We see strong double-digit or teens growth, but nothing that such -- that, that CapEx plan would justify. And neither do we see that with competitors. So this is not unusual that a plan is published that doesn't immediately translate in a major step-up in orders. I see it more solidifying the - underpinning the growth overall as we are enjoying now.

Okay. Thank you.

You’re welcome.

We will now take our next question from Patrick Wood from Bank of America. Please go ahead.

Thank you for taking my questions. I have two, please. The first would be on the composition of the order book, obviously good growth and off a tough comp. Just curious, is that a mix of longer dated project that we should expect to see coming over the long term? Or is this more sort of vanilla single systems that we should expect to see come through around the next 3 to 6 months as per sort of usual? And then the second question, just curious in China, with a lot of different confusing data coming out from companies operating in that market, both from the consumer side but also on the more industrial side, you guys are obviously big in the market. I'm very curious, just what are you seeing from the Chinese consumer in general? How do you feel about the health of that market overall? It would be great to get your views on that, please. Thanks.

Okay. Hi, Patrick. Well, we have a policy for recognizing orders, where we basically cut off equipment orders on a horizon of 15 months. And then if we book a contract that has a longer horizon, then they will come into that window of 15 months as time progresses. Within the 15 months' window, products like Ultrasound have typically a shorter cycle and products or systems like Image-Guided Therapy have the longest cycle, in fact, quite often close to that 15 months and sometimes beyond and then we put it in the parking lot and then it will fall in the window of order recognition in due course. So it is certainly not the case that we only see short term transactional sales. In fact, the ratio that we track on what we call solutions, which are all related to the more complicated advanced systems and longer term contracts with customers, have been edging up. And we are currently touching around the 34% of total revenue as a recurring and sticky kind of customer base. On China consumer side, we have enjoyed good demand. We track both sell-in data as well as selling-out data. Now last year, you remember that we said sell-out data are good. However, sell-in data, we see under pressure because inventory reductions in the pipeline. This year, that has more normalized, and therefore, sell-in and sell-out data are more in line. And therefore, you could say that our growth rate is a good indication of the traction that we are having in the marketplace, right? So consumer has stepped up over last year. Also on the back of innovations in shaving, in oral care, that has strong demand. Let's say the discussion around GDP growth slowing down has not yet translated in a reduction of consumer demand. We don't see that as of yet.

Very helpful. Thanks, guys.

You’re welcome.

We will now take our next question from Scott Bardo from Berenberg. Please go ahead.

Thank you for taking the questions. Frans, I wonder if you could flesh out a little bit the comments around the consent decree and how typical is it to get observations when you're under consent decree. And does this signal or flag any escalation of risk about plans? And maybe you could talk a little bit around that. And second question, please. Nice to see you're confidently reiterating the 2020 targets, €20 billion top line, €15 billion [ph] margin. But as we go into next year, can you provide some high level thoughts about the next guidance period? Is this sort of growth you see as sustainable going forward? Perhaps you can highlight some further opportunities that you identified to progress margins further from the 15%, maybe a little bit of discussion on how you see the next period, too? Thanks.

Okay. Sure, Scott. Yes. Well, a consent decree typically stays with the company for several years. We have studied other companies being on the content degree, and then we see that periods of 4 or 5 years of increased scrutiny are not abnormal. Now to make this story a little bit more complex, part of the consent decree is an injunction on the factory in Bothell for production and sales in the United States, while we continue to export elsewhere. We had hoped that, that injunction would be lifted already some months ago. That has not yet happened. And it is being held up by additional increase of the FDA, basically testing whether our quality management system has improved enough as evidence to lift it, and of course, that is a dialogue. We have the independent auditors that have come in repeatedly. They have written favorable reports. These reports have been handed over to the FDA. FDA then asks additional questions, right? Examples of these questions can be, okay, you have shown evidence for 1000 examples, maybe you can provide evidence for 10,000 examples, okay? That kind of back and forth is going on. So no new observations, no new bad things to discover or tell you. It is much more in, you could argue, the deepening of the evidence that we are in a good shape now. Then the next question is how long could that continue? This is something that we are - had all hoped that it would go faster, right? Currently, we hope that, let's say, after this summer that we are in a much better space when it comes to lifting the manufacturing and sales injunction for the United States. Does that answer your question?

I think it does.

Okay, thanks. Then if we go to your question on next year. Well, let's first deliver on our stated guidance before we get ahead of ourselves and talk about what's next. But people who have seen us act in conferences and roadshows know that we had to field this question that you asked many times, right? And then typically what we say is that the world does not end after meeting our 2020 targets. And of course, we expect to further improve afterwards. We have just not quantified how much that is. And frankly speaking, I don't think today is the moment to do that. So - but we are an ambitious bunch and we know exactly where we are in the competitor peer group, and we know that world-class looks different than where we are today. So I think we should leave it with that kind of positive sentiment.

Very good. And just with respect to growth or medium term growth, does growth become more difficult the bigger you become as a company? Or is it that you're in this continued field innovation cycle such that these sorts of levels of growth are sustainable over the medium term. Can you perhaps touch upon that?

It may differ by segment, of course. But what springs to mind immediately as you ask this question is let's demonstrate that our investments in Connected Care had a great return, right? I expect that the growth of Healthcare Informatics and Connected Care as such and telehealth and home care that are all great opportunities. And we have been investing in these things. And also we have been acquiring some of these, let's say, more start-up like companies that in their business cases all need to deliver as these products comes to market and therefore should also show a nice growth path. So look, there are plenty of things to be excited about. And therefore, I would continue to be positive about growth.

Very good. Thanks, Frans.

You’re welcome.

We will now take our next question from Max Yates from Credit Suisse. Please go ahead.

Thank you. Just my first question is on Personal Health. Could you talk a little bit around what you're seeing on the competitive landscape, particularly pricing, how you're seeing some of your key competitors in the market acting? That would be the first one.

It differs by product category, Max. And I think last year, we had quite a lot of dialogue on oral care, specifically in North America, which is the most advanced market when it comes to power toothbrushes with a population penetration of around 37% or so and where competitors are becoming more aggressive. Now then you recall that, first, our impression was that this was a temporary thing. I think in the meantime, we explain it more as being part of a market where we now are looking at the majority of the franchise of consumers coming into the franchise, which then also warrants to have power toothbrushes at multiple price points, recognizing and realizing that we have introduced in North America power toothbrushes at lower price points. What we announced today that we had the entry level power toothbrush in Americas [ph] in Q2 is a demonstration of that, and we are seeing good demand on that. I think it will also make us less vulnerable for, let's say, outright price competition. And there is also some new players in the North American market, very much in the low end of the market. We will continue to position ourselves as a premium brand. Internationally, in other markets, we don't see the same dynamic as in North America. Prices in China hold up well, prices in Europe hold up well. So as such, the reason why Personal Health profitability did not expand is much more in relation to the step-up in advertising, as well as the currency headwinds that were visible in the second quarter than anything else.

Okay. And just the second question would be on Connected Care. And is there any way you can give us a sense of when you look at the order backlog, how that looks compared to 12 months ago at Q2 '18? Just trying to get a sense of obviously the softer order growth that you've had in the first half of the year, how quickly that feeds through to second half revenues or actually whether the orders that you took in the end of last year will still support healthy mid-single digit organic revenue growth as we go into the second half. So just trying to understand where the level of backlog is and how much the better orders we've seen?

Yes. No, that's great. So you recall from last year that, in fact, the orders came in, in Q4. And as a consequence, we guided in January that it would be second half year-loaded when it comes to revenue growth. So you have some - you've seen some of that come through in Q2. And we - let's say the way we talk about it now is that the second half will be stronger than the first half. In other words, we expect for Connected Care a stronger second half year still, let's say, on the back of that order book. Now it remains a lumpy business with larger customer installations that also need to be accepted and then signed off and then revenue recognized. But yeah, I reiterate a stronger second half year. I look to Abhijit, whether he has anything else to say?

No. I think it's fair because last year, we had 14% growth in orders, I think, in Q4 that got us 5% order intake growth for the year. And those orders will get fulfilled in the remaining part of the year. But yeah, we also need the newer orders to come in, and the funnel is there, so we see clearly the funnel there. But we have to get that to signature and hopefully that comes in the coming two quarters as well.

Sorry to be pedantic, but just when you talk about the better second half, are you referring to order momentum? Or are you referring to better second half growth rates in terms of revenues? I'm just trying to understand what those...

Both.

Both. The revenue growth is on the back of orders we already have, and obviously, we need order momentum to also underpin next year. And that's where I have referred to the lumpiness. If I look in the funnel of opportunities that we track in our sales force, then the engagement with customers and their interest is substantial. It's just turned out to be much more work to get them from interest to orders and from orders to revenue. We talked about that, if you recall, at the Capital Markets Day, where in fact, we lowered a bit the near term guidance for Connected Care because of this kind of market development. It doesn't diminish my longer term expectations about the opportunity in Connected Care, also as I described in relation to the questions from Scott. But near term, it's a lumpy and an uneven market. I hope that, that answers your question.

That was great. Thank you.

We will now take our next question from Julien Dormois from Exane. Please go ahead.

Hi. Good morning, guys. Thanks for taking my questions. I have two to finish with. It's on Diagnosis & Treatment. And I would like to get into a bit more details on two of the divisions, namely imaging and IGT. Quite opposite trend because in IGT, I think you've been in the double digits for five of the past six quarters. So I was just wondering whether you could elaborate a little bit on where this strength is coming from. Is it across the board or is it coming from specific products and how long you think this can last? And in an opposite manner, in imaging, you are now out from your third quarter of flat or declining sales in the business. So I'm just curious as to what you think is the trajectory for this business going forward and especially where you think you stand in terms of the innovation cycle in that division. Are there seems to be some meaningful product innovation and launches to be expected here?

Okay. Hi, Julien. The IGT is a success story, and I think it best represents the strategy that we have to move into solutions. Ever since the Volcano acquisition, the innovation strategy is around innovating the procedure rather than just providing hardware. So we can go into a hospital or an office based lab and demonstrate that said hospital or the interventionist can treat more patients in a day in the same room, while having less staff and therefore being more productive with better patient outcomes, and that is a very compelling story. And the Azurion platform, which is a systems platform and a software that guides to doctors, has proven to be very, very strong, even so that we could raise prices and have more demand. And then we link in the devices business and get strong traction at the same time. So this strategy, I think, is a nice demonstration of applying the quadruple aim thinking into our innovation road map. We aim to do that everywhere. It's just that in IGT, we see the most strong benefit from that. Then talking about imaging, we have been growing nicely in Diagnostic Imaging. And in the earlier question, Abhijit already gave a response that in the second quarter, the order intake for DI was also in the teens. So in other words, we are enjoying strong interest on the innovations of Diagnostic Imaging. Notably, the MR system is doing very well. But also the other systems enjoy a good interest. So I am optimistic that the growth momentum in DI also in revenue terms can step up as we move forward.

Okay. That's very helpful. Thank you. And just as a quick follow-up, regarding the closing of Carestream, is it still on track for an H2 closing?

Yeah. Carestream is on track. I don't know whether we give any specifics as to when. But I think it's a Q3 event.

Okay. Thank you…

Julien, we get positive customer reactions on the Carestream acquisition. So it's very much welcomed by all.

Good to know.

We will now take our next question from Sebastian Walker from UBS. Please go ahead.

Hi. Thanks for taking my questions. I've got two on Personal Health, if I could. So first, just thinking about the investments. Do you think that investments, particularly in advertising, are going to continue at the current levels for the remainder of the year? Or should we expect those to fall off? And then just thinking about those advertising investments, I mean, are those exclusively kind of short term payoff investments and therefore we've seen the benefits of those in Q2? Or were there some longer term investments that we should expect to have a positive impact on growth in Q3 and Q4? Thanks.

Yeah. The way to answer this, Sebastian, is that the investments in advertising in the first half were kind of on top of. As we move into the second half, we will see the benefits of our marketing transformation kicking in, where we have a longer term conviction that we need to shift internal expense or agency expense into working advertising share of voice, right? That enables us to maintain a higher advertising spend while not increasing overall marketing spend, right? So in other words, we will compensate the step-up in advertising over time. We couldn't fully achieve that in the first half of this year. But it is our intent to mitigate the extra advertising. I think it will be the new normal to have more advertising. But of course, we maintain our commitments to improve margins as well, so thereby lowering some of our other cost buckets accordingly.

And just to clarify, it's not a Q2-only impact. So the growth impact, we expect the growth trajectory for the remaining part of the year to be similar to the first half of the year. So it's not that it's just 5% in Q2 and then it goes down.

Thank you.

[Operator Instructions] We will now take a follow-on question from Michael Jungling from Morgan Stanley. Please go ahead.

Thank you. All my questions have been answered. Thank you.

Yeah, thanks.

Thank you. As there are no further questions in the queue at this time, I'll hand the call back to your speakers today for any additional or closing remarks.

Okay. Well, I appreciate very much everybody attending the call. I wish you good vacations, if you have them, while we will continue to run the ship into the third and fourth quarter. And I appreciate very much your support. Have a great day.

This concludes the Royal Philips Second Quarter 2019 Results Conference Call on Monday, the 22nd of July, 2019. Thank you for participating. You may now disconnect.