Gentlemen, I'm pleased to welcome you. I hereby open the annual general meeting of shareholders of Royal Philips N.V. Our annual meeting is an important occasion for us, and we are delighted to have you all here with us once again, and we greatly appreciate your commitment to our company. Well, that aligns with the next sentence. Global tensions in geopolitics have further intensified over the past year. For a multinational such as Philips, with operations in over 70 countries, navigating this is a challenge in diverse economic, cultural, and social conditions. I'm going to mention a few of the challenges that we face. The company is not immune to the ongoing geopolitical and macroeconomic uncertainties, including trade restrictions, import tariffs, and volatility in commodity and energy markets, as well as this volatility in fuel.
We're monitoring these developments closely and work with multiple scenarios to assess the potential impact on our supply chain margins and cash flow as carefully as possible and wherever possible to mitigate them. We continue to strongly condemn Russia's military aggression against Ukraine and sympathize with the suffering it has caused. Other conflicts in the world, especially in the Middle East, are also causing human tragedy and economic and political instability. We are trying to navigate these as best we can. In addition, globally, we see a shifting debate on the role and responsibility of businesses, including in sustainability, social engagement, and long-term value creation. In this regard, we have seen cultural divisions and polarization increase over the years.
Philips' commitment and that of its employees to sustainability, ethical conduct, and access to quality health care is not a temporary choice, but is inextricably linked to who we are and what we as Philips represent. These developments underscore that doing business in a global context requires care, diligence, a moral compass, and flexibility. This also demands respect for different perspectives and willingness to engage in dialogue. Various parts of the world view these issues from different perspectives. We believe that sustainable progress is achieved by working together and showing mutual understanding, and we see our responsibility as contributing to connection, stability, and trust. Our mission, improving people's health and well-being through meaningful innovation, remains the continual guiding principle in our decision-making. We deliver added value to billions of people in this world. Very well. Now I'm going to introduce a few people to you.
Seated next to me from your perspective from left to right, Herna Verhagen, Chair of the Remuneration Committee. Herna, welcome. Next to me is Marnix van Ginneken, our Chief ESG and our Chief Legal Officer. Of course, to my left from my perspective, from your perspective to my right, Roy Jakobs, our CEO, and next to him, Charlotte Hanneman, our CFO, and next to her, Liz Doherty, Chair of the Audit Committee. Seated behind me are also several Supervisory Board members from your perspective from left to right, Sanjay Poonen, Indra Nooyi, Peter Löscher, Paul Stoffels, also Chair of the Q&R Committee, Benoit Ribaudo, Chua Sock Koong, and Bob White. Marc Harrison is unfortunately unable to attend the meeting in person, but is following the meeting remotely. Also present in the room is John DeFord, whom we have nominated. Where is John? Yes, I see you.
Whom we have nominated as a new member of the supervisory board. Of course, later on in this meeting, we will address this nomination, and I will briefly give him the floor. Also present are Ad van Gils on behalf of our external auditor and assurance provider, PwC. The company secretary, Reinier Kleibol. Reinier, let's see. Yes, there you are. Deborah Blackstone Westbrook and Bart de Geus next to him, the secretary to the supervisory board. Before I give the floor to Roy for his speech, I will make a few remarks regarding formalities and practical arrangements during this meeting. In preparing for this meeting, the notary has confirmed that the legal and statutory requirements have been met. The general meeting has therefore been lawfully convened and is authorized to take valid decisions on the items listed on the agenda. As is customary with us, Dutch is the official language.
I assume that you're all proficient in Dutch. If not, we have interpretation available for you. Of course, you can listen to the English translation live via our webcast. As usual, voting will take place electronically. However, unlike last year, you are given the opportunity to cast your vote throughout the entire meeting on all agenda items. After this, I will explain the voting procedure briefly, after which we will proceed to the substantive discussion. To give everybody the opportunity to speak, that this is an important point I'm about to make, please limit your questions to two or at most three questions. If it's difficult for you to count to three, don't worry. I'll help you make sure you do not count beyond three. In the next round, the second round, you'll have the opportunity to ask the next three questions.
This is to avert certain people from dominating the entire meeting. Questions asked here in the room will, of course, be answered to the best of our knowledge by Roy Jakobs and his team. You will understand, however, that, well, it's almost excluded, but it's possible that somebody doesn't know the answer immediately, and then the answer will be conveyed at a later point in time. As mentioned, unlike last year and previous years, you may cast your vote electronically throughout the entire meeting. I will open the voting system following our CEO, Roy Jakobs' speech, and I will then state what proportion of the share capital authorized to vote is represented at the meeting with Marnix's assistance. The voting will be closed after agenda item nine. As soon as the voting system is open, you may cast your vote on all agenda items.
If you scroll through your voting handset, you will see exactly which agenda item you can vote on. You may vote continuously on all agenda items. If you say that you would like to vote before hearing the explanation, then that is up to you. Once you have heard the explanation, if you think, "Well, I would like to change my vote," that is also possible. Then you can enter the same agenda item and cast your new vote. You can do that endlessly until after agenda item 9. After that, I will share the outcome of the vote with you. Upon arrival, you received a brief guide containing some personal details and a description of the voting procedure via your mobile phone, as I have just explained. Please follow these instructions. The login code presented to you is obviously personal and corresponds with the number of shares you represent.
In the voting interface, when you have scrolled to the agenda item you choose, you may select whether you wish to vote in favor or against the proposal. If you wish to vote in favor of the proposal, please press four. If you wish to vote against the agenda item, please press against. If you wish to abstain from voting, please press abstain. If you have any questions or encounter difficulties, please raise your hand so that one of the members of the Philips team can come to assist you. Once the voting system has been closed, once again, I will share the outcome of the vote with you. Very well. If there are no additional comments or questions, I would like to invite Roy Jakobs to deliver his speech in English. On the webcast, you can hear the simultaneous Dutch interpretation. Roy, you have the floor.
Thank you, Chairman.
Ladies and gentlemen, welcome to the 2026 Annual General Meeting of Royal Philips. Thank you for joining us today. We are meeting at a time of significant change, shaped by geopolitical tensions and the transformative rise of AI, creating both uncertainty as well as unprecedented opportunity. In this context, I especially value the chance to connect with you and to reflect on our progress as Philips. It's a privilege to lead Philips together with the Board of Management, the Executive Committee, and under the guidance of the Supervisory Board and our chair, Feike Sijbesma. Before I continue, I would like to acknowledge the proposal for my reappointment. Leading Philips is a responsibility that I carry with great care. It's a responsibility not only to our shareholders, but to the millions of people who rely on our innovations every single day.
I'm proud of the progress we have made, and I'm encouraged by the momentum we are building. I also remain very aware that we have more work to do in executing our plan for the next phase. Over the past years, we have taken important steps to strengthen Philips, delivering on our purpose and creating value for all our stakeholders. If reappointed, I will continue to lead with that same focus, the discipline, and the passion, building on this foundation to further accelerate the value creation of Philips. In 2025, amid continued global uncertainty, we focused on delivering better care for more people, creating value with sustainable impact. When we started our three-year plan in 2023, we faced significant challenges. We committed to rebuilding our foundations, improving execution, and making tough choices. In 2025, the results of this work became increasingly visible.
We delivered solid progress, continuing to bring meaningful innovation to the market and improving two billion lives all around the world. We improved order intake, and we turned to comparable sales growth, reflecting our stronger demand for innovations. We expanded our margins and generated solid cash flow through disciplined cost management, productivity improvements, and simplification of how we work. In an environment shaped by geopolitical developments and tariffs, we stayed focused and acted decisively. We strengthened our supply chain resilience, and we are continuing to reduce complexity across the organization. With quality at the heart of our operations, we continue to strengthen our processes, controls, and culture, and we improved early warning systems. We are fully committed to continue our close work with regulators, ensuring that our standards consistently meet the expectations of patients, customers, and all stakeholders.
At the same time, we continue to live a culture where people feel empowered to speak up because this is essential to deliver safe and high-quality care. An example of this includes how we introduced the Blue Heart series for all employees of Philips. When I stepped into the role of CEO, I set out a clear direction, to innovate closer to our customers and focus on delivering greater impact. Today, I am pleased to see that this approach is yielding tangible results, delivering impact for patients, customers, and consumers, and on top of that, also to society. In 2025, we introduced several world's first innovations underlying our AI-enabled innovation power. We unveiled our latest innovations in helium-free MRI, combining breakthroughs in hardware with AI-powered software to improve outcomes for both clinicians and patients.
We introduced Verida, the world's first detector-based spectral CT, also powered by AI, which advances diagnostic precision whilst improving clinical and operational performance. Together, these launches reflect how AI is now a foundational capability across our innovation portfolio. In acquiring SpectraWAVE, we doubled down on Image-Guided Therapy and expanded our portfolio in the coronary intervention segment, further advancing our leadership and ability to innovate in this critical area of care and for many patients. We also introduced an innovative monitoring platform designed to help address critical challenge in cardiac care, with a key component being the next generation Telemetry Monitor 5500. They're also helping to address the ongoing growing pressure on healthcare systems, where they just don't have enough clinicians, nurses, and technicians to take care of the patients.
In the home, we continue to bring meaningful innovation to people in their daily lives, from oral care to baby feeding to personal grooming. We launched Lumea in the U.S., extending the world's number one IPL hair removal brand to more people, and we expanded our OneBlade platform into an all-body solution for consumers all over the world. Our valued partners are key to scaling this impact. A strong example of this is our long-term partnership with the Ministry of Health in Indonesia, where we are helping to expand access to critical care. Together, we are bringing life-saving cardiac and stroke care closer to communities in Indonesia. This is how we bring our purpose to life every day. Executing our plan also meant becoming simpler, more agile, and more resilient as a company.
We continue to drive productivity and improve profitability whilst strengthening our ability to respond to external developments, which is more needed than ever in this fast-changing world. In response to evolving tariff measures, we move quickly to mobilize additional savings, adapt our sourcing and manufacturing footprint, and reroute supply flows, ensuring continuity for our customers whilst mitigating cost and supply chain impacts. We also made very important progress in our culture. I see a company that is more open, more connected, and more focused on impact. Engagement has increased significantly, rising from 70% in the first half of 2023 to 79% in the second half of 2025, reflecting the dedication, the resilience, and the engagement of our team. This gives me full confidence that we are not only transforming our business, but also how we work together as Team Philips.
Moments like the opening of our new headquarters in Amsterdam reflect both our heritage and our culture, bringing our teams together in new ways. At the same time, we are strengthening our global footprint, including the expansion of our operation in Reedsville, Pennsylvania, as part of a more than a $150 million investment in U.S. manufacturing capability for our AI-powered health technology. We continue to integrate sustainability as well into how we do business every day, from improving access to care and supporting better health outcomes, to reducing our environmental impact and maintaining strong governance. We are now entering the next phase with stronger foundations. We have improved execution, strengthened our balance sheet, reduced risk, and built momentum. In parallel, we have consistently protected our investments in innovation, ensuring that our pipeline continued to advance.
Importantly, we are now shifting from stabilizing our business to accelerating profitable growth. We have launched our new next three-year plan for 2026 to 2028, focused on driving profitable growth to deliver sustainable value. This is a truly exciting next phase, where we will scale our AI-enabled innovations and unlock new opportunities. It builds on the progress we have made and is centered on three priorities. First, creating value through focused strategies. Secondly, innovation as a growth driver with platform-based solutions as our differentiator. Thirdly, continuing with disciplined execution across all of the company. Platforms are at the core of how we accelerate innovation and deliver impact at scale to our customers, consumers, and patients. Our unique strength lies in bringing together the best of hardware, software, and AI into one integrated platform solution that delivers meaningful benefits for those patients, customers, and consumers, and ultimately value for Philips.
We will continue to strengthen quality and compliance, increase our supply chain resilience, simplify how we operate, and step up commercial excellence and service excellence. This includes accelerating the deployment of AI at scale across Philips, further embedding it across how we innovate, how we operate, and how we collaborate. We will scale our innovation in the hospital and the home and expand our leadership in AI-enabled healthcare and self-care. At the same time, we remain very realistic about the complexity and the volatility of the world around us, and we're prepared to navigate it with agility and with discipline. Focus on what we can control. With this plan, by the end of 2028, we aim to have achieved between 4%-6% growth on average. We are expanding our margins towards mid-teens, and we want to significantly grow our cash flow over the period.
In addition, we have launched our 2030 Impact Ambitions, reinforcing our commitment to improving 2.5 billion lives per year by 2030 while acting responsibly towards society and the environment. Reflecting the progress we have made and committed to dividend stability, we propose to maintain the dividend at EUR 0.85 per share, with the option for a shareholder to receive it in shares or in cash. Healthcare systems around the world remain under big pressure. Recent industry insights, including the latest MedTech report I co-authored, highlight both the scale of these challenges as well as the critical role innovation must play in addressing them. Simultaneously, people want to take greater control of their own health and well-being. Philips is uniquely positioned to help meet these needs through our technology, our innovation, and our partnerships.
We believe in an open ecosystem approach, collaborating deeply with the best hospitals, universities, tech partners, suppliers, and the governments to drive systemic change. As I look ahead, I'm confident and energized by the opportunities before us. We have a clear plan, the right capabilities, and a dedicated, passionate team united in purpose. We have demonstrated that we can execute with discipline and adapt in a changing environment. In a world in motion, which is complex, unpredictable, but also full of opportunity to provide better and more care, Philips will lead and innovate to improve lives. That's what drives us. I would like to thank our employees for their ongoing dedication and resilience in a very demanding environment. My colleagues of the Board of Management, the Executive Committee, and of course, the Supervisory Board for their guidance, their commitment, and their very hard work.
I also want to thank our customers and our partners, our consumers for the collaboration and their trust in Philips. And to you, our shareholders, for your continued support. Finally, I want to thank my family for their love and care in helping me doing this every day. At Philips, we have momentum, and we are determined to build on it, delivering better care for more people. Thank you.
Thank you very much, sir.
Thank you very much, Roy. Elucidation of the progress Philips has made over the last year.
[Non-English content ] You will have the opportunity at agenda item 3C when we're addressing the financial statements to ask questions about Mr. Jakobs' speech. Before moving on to the next agenda items, I would like to share a statement from our Chief Legal, Mr. Van Ginneken, as to who are present here at the meeting. EUR 154 million, rounded off. Excuse me? Well, we received a reply from the room of EUR 154 million of the issued share capital entitling 769 million votes, which amounts to 81% of the issued capital entitled to vote present or represented at this meeting. This meeting has therefore been legally convened with the correct representation. That means that from this point onward, I am opening the voting system.
From now on, you can scroll down to the agenda items you would like to vote on, and you can vote for, against, or abstain on these items. That takes us to agenda item three. Agenda item three includes some minor elaborations briefly, and after that, I'll give you the opportunity to ask questions. Agenda item 3A is the explanation of the Dutch Corporate Governance Code in 2025, which was updated in March 2025. Our governance structure is described in detail in our annual report, which also describes to what extent the stipulations in the code are complied with by Philips, and the update to the code has not been cause for any substantial changes to our governance code.
Please note the new wording in the statement on risk management, which the board of management has included on page 253 of the annual report. This so-called VOR, V-O-R, comprises several statements and must be read in conjunction with the design and operation of internal risk management and control systems at Philips. Accountability for these systems, which are of course specifically tailored to Philips, has been provided in the annual report. That was 3A. As for 3B, the dividend. Mr. Jakobs already referred to this. The dividend proposal is EUR 0.85 per ordinary share that's proposed, payable in shares or in cash at the shareholder's discretion. Profit for 2025. For additional information, please see the explanatory notes to the agenda. The dividend aligns with the company's current dividend policy.
That takes us to remuneration, but I'm going to hold on to that for a bit because first I'll see whether there are any questions about item 3A to the speech by Roy Jakobs and the explanation concerning corporate governance, the reservation dividend policy, and the financial statements, and the dividend proposal. An explanation is not a proposal. The proposal of EUR 0.85 is a specific proposal, and that will take us to the remaining items in 3, including remuneration. Who would like the floor regarding these initial agenda items? Agenda item 2, agenda items 3A, 3B, 3C, and 3D. Thank you, Mr. Chairman. I'm Gerben Everts, and I represent the Association of Stockholders on behalf of over 25,000 retail investors in the Netherlands and presumably people who are not members. That was a remarkable start.
We're running through this very quickly. I'm familiar with the restrictions that everybody is subject to. I thought that the introduction deviated from what I'd expected. It was a marketing pitch. That was based on Philips. It was enthusiastic about how well everything is doing, even gratitude to family, which you don't often see when people are eligible for reappointment, but when they leave. That was striking. Quality monitoring was not very pronounced. It shouldn't be too tenacious. Both Roy Jakobs and Marnix van Ginneken and the board members of Philips potentially have interests that are at odds with Philips, specifically the sleep equipment and the miserable PE-PUR foam, which is a concern not only to us as investors, but also to the patients and customers of Philips.
That concern persists for Jakobs as CEO, the treatment and settlement of disputes, especially concerning his personal actions as business leader of the Connected Care division between early 2020 and October 2022. For Mr. Van Ginneken as Supervisory Board member and Chief ESG and Chief Legal Officer of Philips, the treatment and settlement of disputes relate to his personal conduct and to actions in 2014 versus a member of the Philips Executive Committee and from 2017 as a member of the Board. Since 2017, Mr. Van Ginneken has also been General Counsel and Corporate and Head of Legal. The VEB had the following questions relating to the governance and current procedures on the Board and the Supervisory Board, as well as the governance between the Board of Management and the Supervisory Board.
First, which considerations within the Board of Management and the Supervisory Board were made to prevent Management Board members or Supervisory Board members with potential personal interest that is at odds with those of the company from participating in deliberations and decisions, specifically the apnea scandal and insurances and indemnifications and communications about those? Which concrete safeguards has Philips set up to avert conflicting interests from surfacing, and has legal counsel been obtained? Second, has Philips contained in connection with the sleep apnea issue and the arising discussions to set up a litigation committee or separate independent structure?
Third and lastly, in what measure has the Supervisory Board in its proposal to reappoint Roy Jakobs considered that there are various cases pending between against Philips and Jakobs in which their personal conduct and liability may be subject to debate? Thank you, Mr. Evers. This relates to potential claims and lawsuits by the VEB and others that were filed against Philips. I think it would be unwise in a public shareholders meeting to address specific claims by one or more shareholders in detail. I will not do that. Of course, wherever applicable, we will consider that there should be no conflicting interest, not on the part of Mr. Jakobs or on the part of Mr. Van Ginneken. I do not believe that is the case at present, but if that is the case, we will certainly take that into consideration.
Otherwise, in all other respects, I refer to the discussions that we will conduct with each other about these topics. Did I leave anything out? No. That basically covers it. Mr. Sijbesma, your answer was too brief, unfortunately. I'll be happy to answer at greater length if you like. There are no claims pending from the VEB. There is a court case scheduled for the docket at the Enterprise Chamber on 25 June. That's not an illusion. There is a firm lawsuit pending, and I'm not asking about what will be discussed then. I'm asking about how in recent months in the coming month and a half you will be dealing with this problem, which is a problem for you. I believe that the question is very justified. Which safeguards have been taken within Philips?
You say at present it is not an issue. I believe it is an issue. Have Messrs. Jakobs and Van Ginneken explicitly refrained from decision-making because of this? We're entitled to ask you those questions. I believe that these questions require a more specific answer than simply a denial of it being an issue, because it is an issue. We identified it very specifically, and it will be discussed in court. How are you dealing with it at this moment? As I believe you know, we do have a litigation committee. We examine all allegations or claims as well as investigations within the litigation committee and any proposals made. On behalf of the litigation committee, we will discuss these. I do not recall any specific abstentions. Marnix, do you? No.
I would like to add, if you permit me, Mr. Chairman, that these questions from Mr. Everts have all been submitted by the VEB to the Enterprise Chamber in a motion spanning a few hundred pages. We have until 28 May to formulate our answer, and then there will be a court hearing. It is awkward, and this is not the right forum to rehash this. I understand your questions, and you're entitled to submit them to the Enterprise Chamber, but to address all these questions when we're still working on our defense is not productive. I have a remark about that, Mr. Sijbesma. The fact that you gave Mr. Van Ginneken to answer this, even though he'll become a subject of investigation, that's exactly what we worry about. You mentioned the litigation committee that exists. That's new information to us.
We would like you to share the composition of the litigation committee with us. Yes. Some of the Supervisory Board members serve on that and through some advisors from the Board of Management, including Mr. Jakobs and Mr. Van Ginneken. I believe that Mrs. Hanneman is also a member of this committee. We do not see that as a conflict of interest. I do understand that you have a different view, and you're entitled to that, but we do not, and we're entitled as well.
Mr. Chairman, may I add for each board session, we have an extensive private session with the monitoring committee of the supervisory board in which Roy and the management are specifically excluded from the discussion, and each committee meeting has a private session in which the members of the executive committee are excluded and the supervisory board is present and reaches its own conclusions. These discussions are conducted outside the presence of the executive committee members. This happens very consistently at each meeting, and we report this. I have a final comment. I have an extensive track record, and you have to be crystal clear with an organization when people from the organization are sub-sort of subjects of investigation.
Quite honestly, our appeal to the Enterprise Chamber is justified because we believe that if independent investigators need to conduct investigations that are very unfortunate for patients and investors, this caused massive damages, and it's very odd whether it's in a private session or not. It's very strange for those concerned in contributing to the problem at the time it was caused and who should have provided part of the solution in recent years. It's very odd to include them in preparing that investigation. One final question on my part. Well, wait a minute. That's a private session of the supervisory board without the board of management. I understand that, you yourself said in the litigation committee, the members of the board of management are there. You mentioned advisory, they are present. I think that's very odd.
Based on my knowledge and experience, it would be a very good idea for the supervisory board to control this themselves. Persons are subjects of investigation. At least we hope they will be, the Enterprise Chamber has yet to rule on that. It would be a good idea to include those safeguards to avert conflicts of interests. You're asking whether we do that. Yes, we do. The board of management members have extensive knowledge, and we use that for advisory purposes. At the start of the discussion, after that, we go into private session, and we share our views on that.
I understand that they have extensive knowledge, but this is exactly why such an inquiry investigation is necessary so that in addition to hearing what the people with that knowledge are willing to say, but you also investigate everything that is there, and it's not possible within the forum that you've set up. Now, my final question. Is the Board of Management and the Supervisory Board convinced that the quality management, risk control, and compliance and governance within the Philips Group is adequately structured? What is the foundation for your conviction? We believe it is. Since 2001, a great deal of effort has been invested in quality, patient safety, I mean, procedures, systems, reporting, culture. Philips has shown massive improvement in those respects.
We also see this based on the responses from the regulators all over the world who indicate that we have made a quantum leap. You can never say it with 100% certainty, but to the extent that we can be certain, we have systems and procedures and reporting and a culture that safeguards that as much as possible. Thank you. In the annual report, we read otherwise to our serious disappointment. We see that in the past year, there were 10 FDA inspections with Philips in which there were 14 observations, and Philips mentions one new FDA warning letter, two Class I recalls, and 38 Class II recalls concerning the quality monitoring. That's not such a good performance. I'll leave that as it is. I'm going to ask about last year's performance as well.
We need to discuss that as well. It's not all gloom and doom and the situation in the U.S. that you mentioned in your intro relating to the Connected Care and the VOR statement on risk management. I'll leave that aside for now. Thank you for your comments and questions. The fact that there are still investigations that is likely to remain so eternally in this branch of industry. I'll try to answer to the best of my ability. Mr. Spanjer. Good morning. I see I have some fans at the table to start for the minutes. I'm Mr. Spanjer. Let me start with a question about what Mr. Jakobs, who just delivered a presentation. May I ask a question about that?
He said that the software that Philips uses is processed based on AI, but we all know that AI is vulnerable to cybercrime. How do you safeguard? I didn't see it in the annual report, unless it's in one tiny word that I may have missed. How have you safeguarded all applications with the cyber consequences of the patients who use this at home relating to AI? Should I continue my list of questions? Yes, please continue. Okay, on to my second question. The director of Philips México has been arrested in México City. Philips confirms the arrest of an employee and asserts that it's doing everything possible to get him released as quickly as possible. This is what Edwin Timmer wrote on 23 May 2025.
This was in the 2025 financial year, so it's relevant, and it was written at 10:43 A.M., and the most recent update at 12:14 continuing. According to Mexican media, the management member, of course, my Mexican is not wonderful, Ducastelo Campos, is believed to be suspected of involvement in selling defect respiratory equipment during the pandemic. Philips denies this. Apparently, Philips denies everything. According to the company, there is no link to Philips equipment. Well, why was he arrested? Guess you'll tell me in a moment. The spokesperson for Philips emphasizes that no lawsuit is imminent against the company in Mexico. Well, how is that possible? Of course, that can't possibly be right, but I'll tell you that in a moment.
Our employee is being held in a civil suit relating to a commercial dispute and not relating to our respiratory equipment, explains a spokesman. The spokesman doesn't elaborate. I have a question about that as well. The arrest was said to have taken place on May 20th. Is that true? That's also a question. Philips asserts that this dispute was settled last year. The annual report mentions nothing about this dispute or its settlement or solution. That's also very odd. We believe that this lawsuit was resolved. The arrest was unjustified. How is it possible that he was arrested on April 20th and then on April 23, 72 hours later, this was written, and then you say it's been resolved? I simply don't believe a word of this.
Philips in the U.S. is involved in various lawsuits concerning the problem with the anti-apnea equipment. The company that's based in Amsterdam, this cost the company in Amsterdam a lot of money, and it will cost a lot more money. My question about this is, please be clear, why is this not in the annual report? Why does it say that there is no lawsuit pending, whereas, in one state, because this Edwin Timmer, who's a journalist, has not been sued by you, so he must be writing the truth. Why do you deny his account? I'd like you to tell me that. It was written within 72 hours, how can you possibly say that it was resolved in 2025? I don't see any of this in the annual report. This is hogwash from you.
I want to know why this gentleman was sued because in Dutch law, if it's an employee, then Article 107 stipulates that the boss of the employee is in charge. In this case, Philips is responsible for this employee because Philips is a Dutch organization and is subject to Dutch law. This is one of your employees, and you're not disclosing this, so you're in violation of the law. Yes, indeed. Otherwise, I'll get back to this at another point in time. You're in violation of the law, so I would like to know what's the story here. Mr. Spanjer, thank you for your two questions. Well, I have more. I have more. I'll be back in the 2nd round. I would like answers to each question I asked about this issue. Thank you. Let me try.
You started with a question about AI and its use in software and solutions. Well, that's an excellent and a justified. I always ask good questions. This was a very good question. Well, like any other terminology you need and technology, you need to test and validate it very well. The regulations stipulate that if you market a product, it needs to pass all the tests, and we do the same with AI. As said, we have our own responsibility, and we have our own code of conduct that we subject AI to, so that if we use it, we need to be certain that it does what it's supposed to do. In addition, you mentioned cybersecurity. That's also an excellent point. We're continuously alert to what AI can do in cybersecurity.
As a large enigmatic company, we also face regular cyber attacks, and we need to be well-armed against that. AI has many facets, and we see this as an opportunity to improve healthcare and to offer better solutions for patients and to assist doctors with operations. Based on excellent testing, we also know the effects. If you look at this quarter, there are some new solutions that were just released by the FDA that, in our view, will have an excellent impact on patients, and they've also been tested and validated. In addition, we scrutinize AI developments and what they can do for cybersecurity for us as well as for our customers, it certainly has our attention. As to Mexico, yes, that is indeed a commercial dispute. It's not material. That's why it's not included in the annual report.
Yes, an employee was involved. We take serious responsibility for our employees, joined immediately to do everything possible to protect him in this commercial dispute, and we did that in this case as well. Marnix, do you have anything else you would like to contribute about that? Well, it's an incredibly unfortunate situation. Mexico is very awkward. This is truly a commercial dispute. We parted ways with a certain party that was not grateful about this. Well, that's one possibility. One of the things that's happening is that an employee was arrested there and was released immediately. He was not charged. All the allegations were dismissed. That dispute is ongoing. You're asking me, why is that not in the annual report? Well, we do have detailed procedures concerning materiality and what's in the annual report and what is not.
We're familiar with what's happening in Mexico. It does not have the materiality that justifies including it in the annual report. I disagree with you because Philips's name is mentioned there, and this concerns an employee. It's a worthless excuse. They mentioned that it happened on May 20, and Philips is asserting that there is no dispute and that it was resolved last year. That's impossible because if on 20 April he was handcuffed and arrested, and if it were resolved last year, then we're talking about 2024. If that's the case, I should get a refund on my tuition because I don't get it. You should also get a refund on your tuition because then you're in the wrong position because it's strange for a Philips spokesperson to state that without any inspection by an organization within Philips.
That's disastrous. If they then say, "Well, it's already been resolved." No, it has not been resolved yet because the opinions concerning a lawsuit, apparently there is one, because he was arrested, and it wasn't for a pound of sugar that he didn't pay for at the supermarket, so more is amiss. When I asked a question, you replied that we did part ways with a certain organization. Which organization did you part with? I'd like you to state the name and why. Those are the two questions that I'm asking based on Mr. Van Ginneken's comments. You're saying that Yes, there was a dispute, and there was a settlement, but unfortunately, that settlement was then another issue that may be what led to the confusion, and it is a commercial dispute.
It's not a criminal prosecution, and the employee was immediately released again. The consequence, which we regret as well, is that it has not been resolved yet. It's very unfortunate and very awkward and sensitive, and that's why I'm very cautious and reticent about that as I am with any pending case. We're doing everything we possibly can to resolve it, and we're trying to do this through various channels. It's a very difficult setting to operate. As you rightly pointed out, since it has not yet been resolved, I would like to be reticent about that. Well, I can understand you saying it has not yet been resolved. Can you give me a timeframe within which it will be resolved?
If a Philips spokesperson says on Philips' behalf that it's not really a legal dispute and that it was actually last year, the spokesperson speaking in this article on behalf of Philips, will that person be suspended or be held accountable? That individual is basically spouting nonsense. Otherwise I wouldn't need to ask questions about this because otherwise it would have been clear. At this point, the account has 25,000 loose ends that raise questions. It is a complex situation, and it had been resolved. That's no longer the case. It's still pending. Regarding the dates and the spokesperson, I'll take a careful look, and I'll certainly talk with that employee. Very good. I'll show you the article after the meeting. I'll get back to the next one later on.
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Very well. That means that not all have to claim their tuition fees back immediately, and we can move on. Thank you, Marnix. Yes, please. Thank you that I have my turn as well.
To the executive suite and the board in the back and of course to all Philips employees. My name is Denise Rijken, and I represent the Dutch Association of Investors for Sustainable Development, or as we say in Dutch,[Non-English content]. Since 30 years, we represent institutional and individual investors that are dedicated to making the Dutch capital market more sustainable. Like Philips, we are a front runner on sustainability. One of our aims is to engage companies on topics that may only become important materially, if you might say, five to 10 years from now. Think of fair taxation, biodiversity, or living wages. Philips has picked up on all of these topics. As a first thing, we would like to congratulate you again today for achieving to pay all the employees in your operations a living wage. We applaud this.
Philips has the ambition that its suppliers also pay living wages to their employees. Therefore, this was integrated in the Supplier Sustainability Declaration, and we would like to know, how do you translate this ambition into practice? How is this monitored? Is this part of the Beyond Auditing program or other assessments? Can you share any insights on this with us, and how do you support your willing suppliers? This was only one question in the spirit of the man who asked questions before. The VBDO has also chosen a new topic for engagement this year in its spirit as a front runner, as I was mentioning earlier. That's pollution. With this, we mean mostly chemical pollution. Think of additives and hazardous substances. They represent a challenge in relation to one of Philips' key strategies, creation of circular value.
Philips did unfortunately not meet the target to fully close the loop on its medical appliances by 2025. We see a direct risk for Philips' long-term ambitions through the use of such heavy pollutants in the manufacturing of medical devices. Even if this happens mainly at other value chain steps, and even if this happens, and that I have to point out to shareholders that may not know, this happens for safety reasons. Paradoxically, we do need certain amounts of what can be hazardous chemicals in order to create safe appliances. They are very bad for closing the material loop, and they can pose a hindrance to achieving such targets. We would like to know, has Philips considered setting public targets for the use of hazardous substances that exceed the legal requirements to push innovation on this subject further?
Also here, we would like to know how you handle this topic with suppliers. You state in the Supplier Sustainability Declaration that suppliers are expected to minimize emissions, to minimize discharges, wastes, and to conserve natural resources. How do you monitor this in practice? Is this part of the deep dive assessments? Are there suppliers that you have agreed with that they need to exceed the legal requirements in order to push them forward? We would also like to have some insights here. My final question regards the CSRD, so that's the sustainability reporting legislation. Philips has, in the past, obtained reasonable assurance on several sustainability subjects. The investors that we represent highly value this. Now, recently in March, the so-called Omnibus package has entered into force, and it is expected that some companies will reduce their ambitions on reporting as a result of that streamlining.
We would like to know how Philips is going to handle this. How will Omnibus affect your reporting? Will you continue to report more than is required? Will you stick to the ambition to gain reasonable assurance on more topics, or are you going to reduce your investment into sustainability assurance? Thank you.
All right. Roy.
Thank you for the questions. Also thank you for the compliments. As you know, as Philips, we take a sustainable approach to doing business very serious, we have our own objectives that we also work together with our partners and supply chain. Let me start with the first one. We spoke about the living wage. I think indeed we are happy that we have it across Philips, we're also working very hard with suppliers. As you mentioned, we have it in the Supplier Sustainability Declaration. We then follow up in our audits, also in our individual discussions with suppliers to see if they adhere, if not, what the consequences will be, because we want them over time to come to this. That's also being part of Philips requires that we expect them.
That's the continuous improvement that we see in our supply base and how we kind of engage with them. It's not only in the declaration, it's also being followed up, audited, and then actioned. I think that's on the living wage approach. And I would also say that in general, this is very well received by our suppliers. They understand it. They also want to work with this. We see this as moving in the right direction. On the second one, on pollution, there we have a clear ambition to transition to a circular economy. Actually, in 2025, we exceeded our example for circular revenues. We had 28% versus a target of 25%. We also delivered on our zero waste to landfill target.
On the specific hazardous substances that you call out, we have in our new impact ambitions included a target to reduce the use of classified substances, and actually doing that by 30% compared to our 2026 baseline. We are also taking very concrete and specific action on that in our new ambitions that we just launched. We also take this very serious. Indeed, as you say, there is safety involved. We also see it as good business practice to act on it. That is embedded. We also look through our ISO certification, where we have qualified for it, so actually we embed it further in our management and quality management systems.
On the third element, the CSRD, as you also know that, we have been a very strong supporter of transparent reporting. I think we even got some prizes for that. There is evolution in the discussion around that, where we also actively take part. We are actually part of the advisory group to the European Commission to strike the right balance. Also we plan to continue to provide the insightful information. The Omnibus package is still in discussion, as you know. It's still not finalized, it's too early to say exactly how we need to respond to that. We are looking into how we can fulfill. In 2025, we increased the number of disclosures with reasonable assurances.
We expect the Commission to only publish the new ESRS in June. After that, we can also see kind of where we are in the reasonable assurances towards that.
Thank you very much for these insights. We are very happy to hear about the target on hazardous substances. I think there you also set a new bar, and not many companies are doing that yet. I'm wondering regarding the insights on living wages and suppliers and how far they adhere to that, is this a subject area that Philips considers to report on in the future? Or are there reasons that would speak against that from your perspective? Thank you.
Good question. I've not kind of given that explicit deliberation, so maybe Marnix.
Anything.
I know.
No, sure. No, thank you. Thank you for those questions. Look, I think, as you can also see, and as we have discussed many times, we are quite proud of our Supplier Sustainability program. I would like to add also there, for example, on environmental, we have far-reaching targets in the supply chain. For example, we have the target for 2025 to reduce carbon emissions, 50% in spend of our suppliers, reduce carbon emissions. We achieved 52. Living wage, as Roy said, is part of the Beyond Auditing program. The pollution, as you say, the hazardous substances are part of the Beyond Auditing program, we take them into that whole cycle where we indeed believe it's not just checking, but also helping suppliers to improve.
We are actually quite transparent already. Some of the things are moving targets. We need to make sure that we can really report accurately on those measures. For example, Roy mentioned the one on hazardous substances is for 2030. We just introduced it. Of course, we are always looking to be transparent on what we are doing. At the same time, I would like to say, Roy also mentioned, you mentioned CSRD and Omnibus, we continued reasonable assurance beyond what is necessary. We actually included a bit on reasonable assurance.
We also see the proportionality of all of this, we also need to see what is the risk-reward or the benefit, let's say, of all the investments, because sometimes these reporting, this requires a lot of investment for a very small, let's say, benefit. In general, I hope you will acknowledge we are trying to be as transparent as possible, and we will continue to do so.
Thank you for the elaborate answers.
Yeah. Yeah.
All right. Indeed. Thank you. Let me start with the first question. How dependent are we on U.S. software? Our software has been set up in such a way that we cooperate with several partners from around the world, including U.S. partners. Obviously, we look at the best quality, but also best security that can be provided by partners. When we look at suppliers or providers, we see that currently very few alternatives are available in the European context. We follow this very closely. We also have an open system, meaning we are not dependent upon one supplier. We make sure we have several of them in terms of cloud services or AI models or large language models. In these fields, we work with a variety of partners, including Mistral in Europe or AI from the U.S. We're even active in China.
In the Chinese context, we try and see what we can use in China and what ecosystem is there. We are working on this in a focused and conscious way to make sure that indeed we have no excessive exposure or dependence on one supplier than Mythos. This is a very relevant development. We have started testing it right away. We are part of the group of companies that have access to it to try and see what vulnerabilities can be identified. It's very powerful software. We can confirm that. We are looking at this very closely at this moment. Based on this, we are amending our own cybersecurity to be ready to face this. Thank you. Great to hear this. Thank you. Next question. Thank you, Chairman. This is not a question, but rather a matter of order.
You yourself are not easily audible in the courtroom, so please approach the microphone. I'm using the microphone, but I'll speak up.
Point of support.
Some support there. Well, a question maybe also to the technicians. Maybe the amplification of my microphone can be increased because I can't turn it up. It goes up and down. Sometimes you seem not to speak into the microphone, and sometimes you do. Okay, says the Chair. Very clear. I'll take stock of that. Mr. Evers. Thank you. I think we've come to the second round, if you permit. Thank you. U.S. software has been covered, but there's more happening in U.S. For instance, we have the tariffs. I would like to turn to this because tariffs are putting pressure on the margins of Philips for the near future. We have a cost inflation. We have a tricky supply chain. All of them also leave their mark on the results. This external environment is getting more volatile, harder to manage.
That brings me to my question. What part of the productivity program, of EUR 1.5 billion, can or will be brought forward? I think you need to do this to make sure that the results in the Q2 2020 can be supported. Does this include clawback of the illegally imposed tariffs as Heineken has intended or declared intention to do? Can you make such a statement here before us as well? In September 2025 last year, the U.S. Department of Commerce announced an investigation to the import of medical imaging equipment. The authorities want to know what the impact on national security is, the Section 232 investigation or inquiry. This also leads to uncertainty.
To which extent is the supply chain of Philips positioned and where to face this 232 investigation? Should there be more local sourcing in the U.S.? That's what the U.S. want. We are not so much delighted by this. What is Philips doing in the light of this? The annual report speaks of further strengthening the supply chain. What does it mean? Well, Philips wants to have two sites, Reedsville and Plymouth, to cover the sourcing problems. Is the quality sufficiently on par there? There has been a warning letter dated 9th September last year that exactly was about Reedsville, and we investors are not quite comfortable about this. If you like, I have a question about Connected Care, or would you rather cover these questions and then give me a further opportunity?
No, says the Chair. Please, the third question. Thank you. Philips has not included a return to the feedback market in the U.S. in its outlook for 2028 to 3 years. According to Roy Jakobs, Philips is working on a return, a preparation, and a return to the U.S. market obviously will be mainly determined by the FDA and not by Philips itself. Can you give us an update on the state of play? What conditions of the decree need to be fulfilled, allowing Philips to come back to the U.S., particularly with the sleep apnea equipment? What restrictions are there? What requirements still need to be fulfilled? What findings has Philips to share about this?
I already mentioned quite a few FDA investigations, also some remarks or observations from the FDA, there has been a warning letter from the FDA that concerned three producing facilities, Reedsville, Eindhoven, and Brazil, where the quality system were insufficiently operating. Also FDA said that on some sites there was adulterated documentation because production processes did not meet the criteria. The quality systems and the organization needed to be amended in a far-fetched way according to the FDA. You say and you write that patient safety and quality are the number 1 priority. How does the board of management explain the issuing of yet another warning letter for three sites, including Eindhoven itself? What does this say about the quality control systems across the board?
What measures have been taken to prevent new surprises? Mr. Jakobs, when you entered the job, that was your number one priority. Our conclusions are not so positive. Nearly for the final question, what investments are you making in the U.S. in terms of distribution channels, operational infrastructure, also what investments are you making in the pricing strategy to allow you, in the end of the day, to return market share in the U.S.? What is your target for a market share, what is your conviction about the possibility to reclaim market share?
Has the Supervisory Board ruled on the question to which extent the return to the U.S. market is reconcilable with the dependence you'll have on the FDA approval and the consent decree that needs to be issued still? That is my list so far. Then, I will have a question later about the auditor. Thank you. Great. Thank you for your questions. Let me start with the tariffs. The tariffs indeed have a significant impact on our operations in several ways. Our primary interest is to provide our clients with products, and that means an organization of the supply chain to make this possible. We are working on that.
As I said earlier, when looking at the world post-COVID, we see structural changes, more attention to local sourcing, and therefore, we don't expect that the instruments to compel this will go away because the U.S. and China and other main countries want to simply develop their own production capacities. We've done two things. First of all, we said that this means that to the extent necessary, we will have to bring capacities to the U.S. as we did to China in the past. We have set up the facility in Reedsville as we are doing, and obviously, we're doing this with the necessary safeguards for security, for safety to enter the market in a proper way. $150 million in investments have been announced that are currently being implemented as we speak.
We have a cost reduction pro-program that is an important part of our mitigation strategy. Every plan, over the past plan, we have saved EUR 2.5 billion, and on the Capital Markets Day, we have said that we are working on advancing some of the costs. This is not a back-end-loaded plan. We'd had a good start this year with EUR 160 million in savings in the first quarter, and we're speeding it up for the rest of the year to make sure that additional cost mitigation measures are taken for retail and for cost inflation because, or for the tariffs and the cost inflation because inflation is another crisis we have to deal with. About the clawback. Well, we have submitted a claim for repayment.
We did this on day one it became possible. We were well prepared. The only thing I want to say is that for the time being, it's not clear whether a refund will come and to which extent, and therefore it has not been reflected in our current plans. We are not counting money before we have it, but we have certainly submitted a claim with U.S. authorities on day one. At the same time, as you said, 232 is still in progress. We think that this will lead to either new tariffs or similar measures, meaning that later this year, we will come back to the situation we had before the Supreme Court declared or stopped the tariffs based on the legislation in force. Again, we don't have too positive expectations.
We think that this is going to be a recurrent phenomenon. That concludes what I wanted to say about the tariffs. Quality systems. As Feike already indicated and as we have been consistently stating, we are working very hard on improving quality, and we are seeing material, substantive progress in this field. You see this in a number of quality programs or initiatives that have been introduced and completed and the matrices. It's true that we had a significant number of inspections last year, and six of them were without any remark, so we are making progress. But it is not the case for all. We have work to do. We agree.
Looking at the industry average, you shouldn't say that we are now different from the industry average in the results of inspections, but obviously want to be better than the 6 out of 10. We'll work on this in different ways. An important point is the engagement survey, which reflects that our staff see safety and quality as really important, and the importance attached to this keeps growing. We want to reduce the complexity of systems. We see great progress there last year, and this helps us to improve execution. We are also engaged in a direct dialogue with the regulator, FDA and other regulators, to share our progress. To move from there to the CPAP is next up, and we are working with FDA about the consent process.
You are asking about the milestones that have been achieved, and I can tell you that at this point in time, in all points that we needed to work on that needed for third-party inspection have been inspected by FDA and not much comments have come through about this. We're on par in mitigating the tasks that we had to do in the in this circuit, in the process. There is no list of boxes to tick, meaning that if you do this and that, you'll be admitted back onto the market. This is a discretionary power of the FDA, which makes it very hard for us to say what is required. Even if we do everything, the conclusion still may be that something else needs to be done.
We are modest in terms of our expectations or plans for a re-entry of the U.S. At the same time, we try and make sure that we can return as soon as access is granted, that we have the products, that we have the market partners. We are working on preparing it with them. This has the full attention of the Board of Management and the Supervisory Board. Yesterday at the meeting of the Supervisory Board and Q&R Committee, we discussed this. Maybe Paul can say this because they look at this, and they keep a very close check on potential progress. It's discussed at every meeting of Supervisory Board and Q&R Committee. The relevant investments are obviously proportional to what's happening in the market right now.
We are taking steps, we're not working in anticipation towards a specific point in time. Therefore, we can't predict the market share. We have the intention to come back in strength in the U.S. market. We had a strong position. In other markets, we are growing once again in terms of apnea and respiratory devices. We are full of confidence that if and when we return, we can make an impact on the U.S. market. It's too early to state when this will be and what it will mean or how it will affect our results. Thank you, Roy. Paul, can you add something to this? I can only add that the Supervisory Board is very actively supervising what happens to the Q&R Committee.
We can also report good progress in all fields: staff, commitment, quality results, the CAPAs reduction, but also progress in attracting skilled staff for the devices. Together with the ExCo, we decided to have the safety officer and the head of quality in the Executive Committee, allowing them to independently report to the board and the committees independently from the business. This gives immense transparency. This really allows us to have active supervision. We're a complex business. We're under the enhanced scrutiny of the FDA. This is improving. The discussion with the FDA is nowadays very open, very constructive, the ongoing inspections do lead from remarks from time to time to warnings.
We will respond to this in the appropriate and proactive way to make sure that we have the perfect system in the end of the day. A running business always has its oversights, and it requires corrections to come with the appropriate answers. We see good progress, and we are full of confidence in the production but also in quality controls. Thank you. A brief reflection, if you allow me. The quality culture, seen from the point of view of investors, that leads something where the bar is always too low. You want to regain confidence, and the surprises we see time and again in terms of findings, in terms of delays, and Mr. Jakobs' answer was very clear, but still leads to concern.
A return to the U.S. market is important, the ambition to get quality in place needs to be enshrined in your culture. I heard a very positive reflection, there are disappointments that we see in the press, that we see in reports. We regret this. A brief question, later I want to have a question about the annual report. One brief question. Reclaiming the paid tariffs, it can be done in two ways. There's a webpage somewhere in the U.S. where you can report saying that you're part of the deal. That's obviously that the Americans are going to ignore for the coming two and a half years. If you really want to move, would you claim it through court?
To face the U.S. court system showing that Trump's reality was illegal and that you want to use the legal system of the U.S. to claim back the money. Are you passive or active? We want to be productive. We will follow the most productive path, currently we're exploring the options. We have heard our rights. We have claimed our rights. We'll see what the answer is, then we'll take the next step. My advice is do it proactively. Other companies such as Philips are doing this because the pressure needs to be put there where it belongs. The Americans need to make different decisions, we can help them do that. Thank you.
Well, I'll go for my second rant as well. I am still Mr. Spanjen. On the Capital Markets Day, I heard nothing about the agreement that the EU reached with India and with South America. What lies ahead with the outlook? It doesn't say anything for 2028 about what we saw. How do you envisage that agreement? Do you expect it to yield financial benefits for Philips? That's my first question in my second rant. My second question in this rant, I was surprised you, Mr. Sijbesma, you mentioned the litigation committee. Can you list the names? I didn't find that in the annual report either. Who were the members of that committee? My third question is that you've been at PI58 Amsterdam. How do you like being in PI58 Amsterdam? Well, the last question was really nice.
It's wonderful in our new premises. The premises are very transparent. Of course, it's an old international school that was sustainably rebuilt. Yes, it was rebuilt into office space. Yes, they added a layer, didn't they? We added a layer on top and expanded it a bit, but it's very open and it's great for connecting, and it matches Philips today. The employees are delighted because it makes for a better working relationship, and that's why we did it. How can we connect people better? It also exudes positive energy. It's a wonderful building and we receive customers there. It represents us very well, and we're very satisfied with the premises and the location. About the agreements with India and South America.
Our primary position as we continuously convey in the U.S., in the EU, and in the rest of the world, we believe that to open trade is the best policy, especially for customers, patients, and healthcare. If there are trade agreements that facilitate certain elements, which the one in India does, we welcome that. There was already a good foundation agreement. We were doing good business in India previously. Philips is greatly appreciated in India as it's seen as the brand for India. One nice piece of trivia was when at this EU summit, Prime Minister Modi mentioned that Philips was the only medical company of the 30 companies seated at the table. We're asked to provide medical solutions for a very large country. Our consumer products do well in India as well.
We see India as a growth market. The same holds true for South America. We have done well in Brazil and have operated there for a long time as well. The more impediments are removed, the better for us. Thank you. Would you like to take that other comment about the Supervisory Board? Yes, the litigation committee. It's not an official committee. That's why you didn't find anything about that in the annual report. It's a structural committee. We don't hope that there will be an ongoing need for that. It's an ad hoc committee, and when an issue arises, it gathers, and the composition may vary depending on the issue.
Generally, the members are the chairs of various subcommittees, such as the Audit Committee, such as myself and the Q&R Committee, and so on, with an advisory vote from Mr. Jakobs and Ms. Hanneman and Mr. Van Ginneken. Thank you. Mr. Evers. Now for my final round. We haven't heard anything from Mrs. Hanneman, and we'll need to because she's our Rock of Gibraltar and our guiding light for financials. We haven't heard from Mr. Van Gils from PwC yet either, so I have a question for each of them. Mr. Van Gils will be speaking. Do you want me to wait till he completes his presentation? Yes, that would be very congenial toward him. I'll let Mr. Van Gils speak first. As for the annual report, I have a question about the statement on risk management, the VOR.
Quality and risk management is, of course, essential for Philips. How did the introduction of the VOR last year, this is the first year that you need to report on that. How did that specifically change assessing the risk framework with respect to previous years and what has become more rigid or more formal? Philips said in its board report that the board report sufficiently discloses any major failings, as they're called, in the functioning of internal risk management and control systems. Of course, our question is, which major failings were they in the view of the board of management, or does the content of the FDA warning letter apply to major failings or does it apply to the risk management and control framework that the VOR provides for?
Can the board effectively manage risk and compliance issues even though the FDA noted deficiencies in processes relating to security and safety? Thank you for your question, Mr. Evers. Yes, in 2025, we first reported on the VOR statement on risk management. We started very early because at the end of 2024, we formed a working group to see about after the implementation on the four and to relate it to our risk management and control framework. We took a very careful look at that and ultimately concluded that it need not necessitate major changes. From my perspective, we made things more transparent and took a careful look. Of course, it's always important to continue looking at it carefully.
One matter that we addressed, but is basically independent of the 4 concerns, the internal controls on sustainability, which you undoubtedly noted in the annual report. We are fine-tuning those as we look at them. That was, it was good that we took a look at that. From that perspective, it was a very good thing. What about those major failings? That was a very specific question. Which are those, and is the FDA warning about that? No major failings arose. Very well. That is not part of that. No. Is it part of risk management internal control framework at Philips? Well, within risk control and the internal framework, we look at sustainability, operational, and yes, it all applies to that. Of course, we cannot give you 100% ironclad certainty.
What we can do, we can say that our internal controls are satisfactory. We cannot say that what we did was not sufficient, we can do that for you. There's some tension between the external review of the FDA and the internal framework. Perhaps you might reconsider that as an external party that's a significant one, as they can impede access to the U.S., and perhaps rightly so, because if those findings exist, they should be taken very seriously. Well, yes, we do that, and Mr. Jakobs spoke about that as well. We reviewed the FDA warning letter very carefully, and of course, in our quality framework, we also look at it, and we take it very seriously. Indeed, we are achieving progress. That also came up. We know that we need to stay on top of that continuously.
Thank you very much. If there are no additional questions about agenda item 2 and agenda items 3 A through D, then I would like to proceed to agenda item 3 E, and that's remuneration policy. Once again, this year, an advisory vote will be held and is included in the 2025 annual report. I'll give the floor to Mrs. Herna Verhagen, the Chair of the Remuneration Committee, who will elaborate on the remuneration policy and will address the intent for the current remuneration policy of the Board of Management to be evaluated in 2026. We believe it is important to continue to offer a remuneration package that aligns with market standards to the Board of Management members and to attract and retain executive talent of the highest quality.
Of course, we have consulted our shareholders, and Mrs. Herna Verhagen will discuss the communication with shareholders in 2026 and report on this with some recommendations at the 2027 AGM. Herna, you have the floor. Thank you, Feike. Good morning. I'm pleased to elaborate on the remuneration report from 2025 for the Board of Management and the Supervisory Board. Philips achieved solid results in 2025 despite volatile geopolitical and economic environments, as explained this morning by Roy. There was consistent revenue growth and margin improvement, and clear progress has been achieved on our strategic priorities, including patient safety, quality, and innovation. This is reflected in the incentive payments to the Board of Management. For the long-term incentives awarded in 2023, the company's performance resulted in a result above target for the relative TSR and adjusted EPS metrics.
Performance also exceeded the target for the sustainability objectives. For the annual incentive relating to 2025 performance was on target for the Adjusted EBITDA measure and above target for free cash flow and comparable sales growth. Individual performance for all three members of the Board of Management were above target. The remuneration policy for the Board of Management, which was approved in 2024, offers the opportunity to increase target levels of the annual incentive in the event of favorable developments in operating results. Following the favorable performance we saw in 2024 and 2025, the Supervisory Board has decided to maintain the target levels for the to increase the target levels for the annual incentives from 2026.
This means that for the CEO, the target percentage rises from 100% to 120%, and for the CFO and CLO from 80% to 100%. This positions the annual incentives around the median level of the peer market with which we benchmark. Now, I'll briefly comment on a remark by Feike, which I also addressed in my remuneration brief to the Remuneration Report, which is that we think it's important that the remuneration policy for our Board of Management remains competitive. We note the gap with our Custom Peer Group is growing, and that's a good reason in 2026 to examine our remuneration structure and to see how we can keep aligning it with market standards. The most important reason is to retain our talent and to ensure that we have the opportunity to recruit new talents.
The evaluation will, of course, be far broader in scope than only remuneration levels. We will also consult our stakeholders proactively. That process may lead to a proposal to revise the remuneration policy for the board of management, which may be presented to the shareholders in 2027. This concludes my explanatory remarks. Thank you. I'll hand the floor back to Feike. Thank you, Herna. Questions about the remuneration policy. Mr. Spanjer. Yes, Mrs. Sijbesma. I have one question. We as Dutch shareholders have never seen any compensation for the loss that we suffered, the considerable loss we suffered in our shares. Three years ago, I asked the same question. I never saw any proposal from you, in the committee that Mrs. Verhagen chairs will be offering the board of management a fee that's basically paid at our cost, we never saw anything.
I don't know how many lawsuits will follow the Apnea case, which Mr. Jakobs was involved in as well as were some other people. Why are those people being rewarded from 100 to 120, from 80 to 100, whereas we as Dutch shareholders have never received any proposal. I'd like you to answer that right now. I already have a fan club here. Not very numerous. I can't say that. I heard only a few claps. I believe it's justified that there are only a few. That's nonsense. I don't know about that. I do. Very well. There's a huge difference between shareholders and employees within an organization. The employees and in the interest of the shareholders as well, will need to be remunerated as well as possible, including the board of management.
We do that. Mrs. Herna Verhagen and her committee from the Supervisory Board ensures that too. Investing in a company entails risks. You don't need to tell me that. Once again, you're trying to take the wrong turn rather than moving ahead. What matters is that in 2013 and 2014, we didn't know based on the annual reports that the Apnea device was problematic. We only heard that a few years ago. We didn't hear it when it was launched on the market. Then that Apnea situation arose that we still face. Everybody in the U.S., one crew after another, is receiving compensation the moment they speak. The Dutch shareholders, you're simply leaving us in the lurch, and you're not doing it for us.
I asked the same question three years ago, and now I want to know how you're going to compensate the Dutch shareholders. The U.S. shareholders are not receiving any different compensation from the Dutch shareholders. Legally, it's conceivable, but that's not the case at present. What we did in the United States at this point is that other groups that submitted claims such as patient lobbies, we reached agreements with them. When Dutch or other shareholders submit claims, then we'll take a look at those as well. As you know, some people do that, and we do consider those. I certainly distinguish between staff remuneration, employee remuneration, including the board of management. I distinguish them from shareholders claims or claims from other groups. That's not the case. No. The shareholders have lost EUR millions from the recall action.
The other amounts that you paid to patient lobbies and the like, all that comes out of the shareholders' pockets. The board simply allowed that to evaporate, let's be honest. Well, let's be honest, we didn't allow that to evaporate. Well, those EUR billions that it cost to recall the equipment because it had not been properly inspected when it was manufactured. All those devices needed to be recalled, and all those costs are paid by the shareholders. We as shareholders, we don't make those devices. We were presented with a bill. We have to pay the bill, but we're not being compensated. Yes, there's a huge difference between being compensated as a shareholder or pending lawsuits because there are claims that the firm was unable to settle.
Yes, what's being settled now? Those settlements were by people being given the prospect of higher bonuses. They're part and parcel of the damages. I think it's wrong to increase their bonus. Well, whatever they do in the U.S. and in China, I don't care about that remuneration system. What matters to me now is that the people who are receiving a higher bonus in 2026 and 2027 were largely to blame for the apnea problem. The increase from 100 to 120% was approved in the 2024 shareholders meeting. It was previously approved. Well, why are you recalling that now? We're introducing that as of January 1st, 2026 based on good financial results in 2024 and 2025.
That's the agreement that we reached with the shareholders back then, and that's why we're explicitly stating this again. It was already approved at the 2024 shareholders meeting. Yes, I'm raising this now, and you're telling me that it was approved in 2024 only in response to me. When you had the floor, you didn't tell me that we already did this in 2024. In my presentation, I literally said that the remuneration of the board of management that was approved in 2024, after that, I approved what was approved and what we will now be introducing. Well, we can talk about this until the cows come home, I disagree. Perhaps Mrs. Verhagen incorrectly assumed that shareholders remember what they approved at previous shareholders meetings. Mr. Everts. Thank you, Mr. Chairman.
Your comment that it was not a wonderfully welcome applause, it misstated, Mr. Spanjer. I have quite a few questions remaining, and I believe other shareholders do. On the other hand, we'll simply have to bide our time until the independent investigation has taken place. I recommend that everybody read the investigation motion that we issued on 31 December of last year, which raises a lot of realistic questions that have been asked not only by the VEB, but also by many shareholders, and I believe that there metaphorically should have been cause for applause. I have another procedural question before I respond to Mrs. Verhagen's remuneration report. Perhaps we missed the auditor. Where is he on the agenda? At the next 2 items. Okay. I made a mistake. We'll do it at the next item. Next, remuneration report.
We always have criticism about re-remuneration, not only Mr. Spanjer, the VEB does as well, especially when it's allocated for non-financial criteria. We see that Philips is generously remunerating without objective criteria, or in any case, they're not being shared with us. We read that in exactly the fields that we believe did not work out so well. In Philips, there are generous remuneration, patient safety and quality, managed legal issues, litigation strategy, potential liabilities. Those are the Respironics related charges. Exactly in those fields that the VEB asserts that Messrs. Jakobs and Van Ginneken might have an interest. Enough said. Next, the outcome of the calculations.
We don't know how exactly they were calculated, but Roy Jakobs has already received a considerable variable remuneration last year despite the consent decree and the FDA warning letter, and that astonishes us. At patient safety and quality, you see that there has been overall improvement in process controls and culture. Philips mentions that the FDA inspection resulted in a warning letter and that resolving the matter remains crucial. How can we reconcile these contradictory messages? Apparently, the bar was not set very high there. Next questions, which safeguards has the Supervisory Board introduced to avert Board of Management members with a potential interest in the apnea matter having the wrong incentives?
For Mr. Van Ginneken, for 2026, there are managed legal issues concerning how far litigation strategy is developed and how potential liabilities are managed. Which legal issues and potential liabilities does this relate to? Question to the Supervisory Board. Are these apnea-related claims, settlements, insurance issues, indemnifications, communication about these? I'm curious to hear your answer. Herna, could you take that one? Definitely. If we're talking about the short-term incentive, then 70% of that depends on financial targets and 30% on non-financial targets. I'm explicitly stating this to indicate, you say that the majority is non-financial. That's not true. 70% is financial, 30% is non-financial.
In the non-financial targets, which are focused on patient safety, customer strategy, and execution, and ESG, we also try to include as many quantitative elements in those non-financial targets because as a supervisory board, which of course we do in close consultation with the organization, we try not only to judge what we think happened in a year, but we try to see exactly what did happen in fact. Now, as for whether this is ambitious enough, whether the bar is sufficiently high, each year we try to set ambitious targets in financial criteria and on the non-financial criteria. Regarding your question as to whether we consider personal interest sufficiently, I believe that you might be getting ahead of a question that you asked the Enterprise Chamber about conducting an investigation.
The answer has not yet been forthcoming as to whether the investigation will happen, and if there is, then there will be an outcome in the short term. That means that we have sufficient safeguards on our Supervisory Board to determine objectively what her judgment is, and based on that assessment, we do not anticipate potential investigations that have not been decided yet whether they will take place. The same answer regarding Mr. Van Ginneken. The non-financial targets relate not only to the litigation, and if we're talking about litigation, then you also see that in the statement we issue about 2025, we consider all forms of litigation that exist within Philips, which is more than only the matter that keeps coming up here. A minor adjustment for the minutes. I didn't say that the remuneration was no broader than financial.
I do understand it's about financial performance, but the non-financial criteria were generously remunerated. That for the record. A final request, because it would make the discussion much simpler if the objectified quantitative criteria are known on our part so that then we know how the executive board members are incentivized. Because afterwards it's very easy to say, "Well, the board of management did wonderfully. The remuneration committee reviewed it." I'm not sure. Now I have to believe your blue eyes that you're doing it with care, but I'd like it to be more objective, especially the non-financial criteria. I believe that in sustainability, we'd like to brainstorm about how it is formulated, and that will enhance our insight. I have two answers. We don't believe it's generous.
We believe that we were sufficiently justified, and there's enough substantiation to reach these outcomes. Your comment about the non-financial criteria is excellent input for the evaluation that we're performing of our remuneration policy in 2026. Yes, I'll take your word for that. Thank you. Okay. Thank you. Any other questions about remuneration policy? I have one more comment on my own behalf, which is that you have said a few times now that Messrs. Jakobs and Van Ginneken have a conflict of interest or a personal interest regarding lawsuits concerning the sleep apnea problem. The Supervisory Board does not agree with that. Mr. Stoffels has already explained how we organized it so that if such a thing occurs, that it need not be a problem. We do not believe that Messrs.
Van Ginneken and Mr. Jakobs have any conflict of interest in that respect. You believe otherwise. You're entitled to your opinion. We disagree. We're entitled to do that. Ultimately, it's up to the court and the Enterprise Chamber to rule on that, and we'll hear that when the time comes. Okay. That said, also for the minutes, we will now move on to the next two agenda items, which are the discharge, and that takes me back to PwC. The financial statements for 2025 were audited by PwC, our external auditor. On behalf of PwC, Mr. Ad van Gils is present in this room, who is responsible for the audit. Mr. Van Gils will briefly elaborate on the audit performed by PwC and the statements as included in the annual report. You may ask him any questions you have. Mr. Van Gils.
Thank you, Mr. Chair. Can you hear me? Great. Good morning. It's a pleasure. As said, my name is Ad van Gils, and it's a pleasure to address you on behalf of PwC at your AGM. Our first audit of Royal Philips. I'm happy to give comments and to answer any possible questions. On ninth of February, we issued two reports on Philips annual report, one on the financial statements and one on the sustainability statement. On the very same day, we also issued a report on our integrated audit of the financial statements, including the effectiveness of the internal controls over financial reporting. This in line with the rules for foreign companies listed in the U.S.
In line with the agenda item for this meeting, my remarks today focus on our audit of the financial statements prepared in accordance with Dutch regulations and on the sustainability statement. Both report are unqualified for the financial statements. This means that in our opinion, they give a true and fair view in accordance with Dutch legislation. With regards to the sustainability statement, this means on the one hand that nothing has come to attention that leads us to suspect that the sustainability statement has not been prepared in all material respects in accordance with the ESRS reporting requirements. On the other hand, that specific KPIs selected by Philips have been reported in accordance with the applicable reporting criteria. We have also concluded that the information in the management report contains the required information and that it is consistent with the results of our own audit.
The report's details have been available to you. I would like to highlight some important elements of the reports and of our activities to you. First of all, 2025 was the first audit year for PwC. A transition to a new auditor is an intense period, both for us and for the finance department of the company. During this period, we deepened our understanding of the company's strategy, its operations, its IT systems, and its internal control mechanisms. We focused on the way this translates into the financial statements. We established a process for information exchange between Philips and PwC, implemented tools to support automated data analysis and testing. We made inquiries with the previous auditor, reviewed their audit files, and discussed and considered the outcome of their work. We attended some crucial meetings in respect of the 2024 annual report.
These procedures served as input for our risk assessment, our audit strategy, and our audit plan, which we discussed with the Board of Management and the Audit Committee of the Supervisory Board. Let me give you an impression of the scope and the extent of the audit. We conduct a highly centralized audit with a core team based here in the Netherlands. This means that we audit items that do not arise routinely due to their judgmental nature, such as revenue recognition, provisions, and valuations as a group team here in Amsterdam. The scoping paragraph in our auditor's report describes the scope of the group audit. In total, we have sent instructions to auditors from the PwC network in seven countries to audit Philips group entities, and this ensures adequate coverage in the audit.
The paragraph shows, among other things, that important group entities in the U.S., India, and China were visited in our role as group auditor to verify locally that work was being carried out in accordance with our instructions. In this light, we also concluded that the local auditors were independent and competent. As part of our audit, we engaged specialists in the field of IT, forensic investigations, valuation, taxation, and sustainability, all working with PwC. In total, the audit in its first year included more than 105,000 hours covered by over 300 colleagues. About 40% of this time was dedicated to the first year audit transition. Our scope of work covered more than 90% of the consolidated revenue and the consolidated assets. The components, therefore, outside our scope individually represent less than 3% of these ratios.
In the course of the year, my team and myself spoke with a wide range of people within Philips. We discussed the progress of the audit on a quarterly basis with management and the Audit Committee of the Supervisory Board. In the cooperation with Philips during our first year, we've experienced active engagement and the sense that our insights are taken seriously by the company. Fraud and continuity. As you could read in our report, we report in accordance with the guidelines of our Dutch professional body on the audit approach adopted with regard to fraud and continuity. The fraud risks identified relate to the reporting fraud risk assumed under professional regulations as a result of breaches of internal control by management and in relation to revenue recognition.
In addition, we carried out work on the risk of corruption due to Philips' presence in countries with a higher risk of corruption and the use of distributors, particularly in China. I can confirm that no fraud of any material importance has been found. Now, the key audit matters. These are the items that, in our professional judgment, were most significant for the audit of the financial statements. In our report, you'll find three key audit matters. With regard to goodwill, we note that this is a material item for which the company carries out an impairment test on an annual basis, and we focused in particular on goodwill in the Connected Care segment. Also we have a key audit matter concerning the Apneu equipment case, focusing particularly on comments in the annual accounts and risks that are not represented in the balance sheet.
Finally, we have a key audit matter for revenue recognition in Connected Care and the diagnosis and treatment segments. During our audit, we devoted significant time to determining whether revenues were recognized at the correct time and for the correct amounts. In our restatements, you can see what work has been conducted in respect of these three key audit matters. Let me now turn to the second report, which is the sustainability statement or report. This is a combined assignment with limited assurance in respect of the full sustainability statement, the sustainability statement in English, that has been prepared and aligned with the European CSRD rules, the EU Taxonomy. In addition, we provide a reasonable level of assurance on a number of specific APIs that have been included by Philips and covered in our report.
As concerns the limited assurance engagement, the auditor's work mainly focused on assessing the plausibility of the indicators and limited substantive checks. This was about gathering information from managers, analysis of figures. The level of assurance obtained is therefore significantly lower than that of an audit. We paid specific attention to the process of assessing double materiality within Philips and translating this into the information to be reported in accordance with the EU standards for sustainability reporting. For the comments concerning risk assurance, we have also worked on additional data acquired. Also, we specifically looked into the most important assessments, using a methodology or the methodology that is used for some matrices such as lives improved, Environmental P&L, and Scope 3 emissions. In conclusion, I'm happy to look ahead. Currently, we are planning the audit and assurance engagements for 2026.
We discussed our draft audit plan this week with management and with the Audit Committee. We are also working together with Philips on the further deployment of audit intelligence tools, including for testing work on financial statement items and internal control documentation. In addition, we anticipate in the future an increase in the controlled use of AI in our audits. For example, when analyzing contracts and making audit documentation entries. Currently, we expect the audit approach to be largely consistent with that of 2025, obviously with adjustment to take stock of changes in the global and business environment, such as the geopolitical developments already mentioned today and the impact of trade barriers, and then also of inflation. That concludes my general comments. Excellent. Thank you very much. Any questions to the external auditor, Mr. Van Gils? Mr. Evers. Thank you, Mr. Chair. Thank you, Mr. Van Gils.
You are doing this in our interest. We are among the most important stakeholders, we're always very happy to have auditors whose eyes are on the figures, on everything happening, and then reporting about this. Our gratitude for this. We have a striking feature this year, and that is goodwill under Connected Care with Philips. EY had not defined it as a key audit matter, and you have. Our question is, what concrete circumstances led PwC to conclude that goodwill for Connected Care is a key audit matter? You refer to ongoing challenging market circumstances, challenging geopolitical circumstances. Well, that leads to difficulties for assessing the input variables in the terms of an auditor. My question is this, what is the available headroom before an impairment would be required?
What assumptions of Philips in the impairment test are the most uncertain, are maybe too ambitious, or have the highest level of assessment insecurity? Some insight into the underlying layers of the impairment test. Thank you for your question. Indeed, we decided to define this as a Key Audit Matter. As I said in our statement, we have reported on this and gave insight in the considerations that match this conclusion. We've commented on the work conducted as well. As concerns the rationale, I think two points are most relevant. The materiality of goodwill as an item in respect of the balance sheet total. I think that's a very obvious point.
In the light of developments worldwide, developments that have been discussed at length already at this AGM, came to the assessment that the uncertainties that are inherently part of any financial planning, such as planning success of businesses when you have new business models such as AI, that such uncertainties in a quickly changing world have increased. That was the reason, the rationale, for making this a key audit matter, particularly focusing on the Connected Care segment, because we see that this is a segment where the impact of new technologies, and therefore uncertainties, is the highest. What is the headroom is question. That is the most relevant question for us. I think this is a detail that we will not share in this meeting. The headroom, in general terms, is larger in segments where you're dealing with less uncertainty.
Those segments where Philips has market positions that will make a major contribution to results. Headroom, in general terms, concerns mainly segments or business units that are stronger there than others. Would that be an argument in favor of defining it as a key audit matter next year again, or is the headroom sufficient to skip a year? It needs permanent attention of the auditor, obviously. We are following company that investigates headroom every quarter and has in full analysis every year. These analyses are guiding for us, and based on this, we will decide whether we will redefine it as a key audit matter for the audit of 2026. If we would have to assess input variables, what should we mainly focus on? What variables might lead to problems?
In general, input of variables, first of all, concern the financial forecasting. What growth do we see? What steepness do we see in top lines? What about the financial results for a specific element? We'll also look at the analysis that Philips is conducting, particularly concerning market growth potential. In the impairment assessment, we have internal and external analysis, and we cover that from a distance, so to speak. You have to trust the internal assessments and visions, or should we adjust them downwards because you're an independent auditor? Or is Philips rational in its assessment as a role? Well, the assessments are Philips's. We have as a role to challenge them, to charge them. We do.
Earlier, I said that we have experts engaged in own valuation to make sure that the expertise we have as auditors can be used elsewhere in the market to challenge management on the assumptions they are using. Thank you once again. Thank you. Mr. Spanjen. Mr. Sijbesma. Spanjen is my name for the minute. Obviously, I have also read through your pages of stories twice. I've also looked at the other financial data. If we turn to page 108, second column for 2025, we read PwC network has charged this amount where EY in 2024 charged only EUR 5.5. In other words, PwC network was 0.7% more expensive.
Your report from page 255 and following shows no information as to why or how your hourly rate is higher than that of EY, although just now you have explained how much you as auditors leave to AI, meaning the bill should be lower because you know that your colleague is in an argument with KPMG, his own auditor, about the bill. My question is this. First question, I would like to have an itemized substantiation of why you, PwC network, are 0.7% more expensive in 2025 than the auditor in 2024. I want to have a qualified answer, and therefore, later I will come back to the CFO asking for his stake on this. Then, as an auditor, how much of your work has been left to AI? What is this about?
Is it about column one, 2025 on page 108 of the annual report? What percentage has been subcontracted to AI in column two from PwC network? My third question, how or in what way have you tested the work of PwC network? You just told us that only in 7 countries you have managed your auditors, but Philips is in more than 7 countries. Have you been using other auditors in other countries? Have you given them assignments, and how did you check their work? That's not clear to me either. What instructions have you given to your PwC network? How are you going to prevent that in 2026, the costs of PwC network will once again be higher than in 2025? That's my third question. Question 4.
As you know, the AEX-listed funds, and that is related to your professional organization, need to have auditors looking over their shoulders. What auditor within your organization has been looking over your shoulder? What points of improvement have they shared with you? Curious to hear that. What have you told the board in your management letter, for instance, about hedging? Yes, I also have headroom. You, as auditor, have you found the headroom, or was it the PwC network that made remarks about the headrooms available? That covers my questions so far. That brings us to 3 questions of Mr. Spanjer about this point. I counted 1 more, but if you think it's 3, that's fine, as long as they're answered. Mr. Van Gils. I also counted differently, I hope someone is taking notes.
I have no pen, unfortunately, to take down questions. As for the remuneration of the auditors, as we have commented in the annual report, I would like to ask you, certainly when it's about our predecessors, to raise that question with management because we have agreed our wages with management. Fair enough. I will raise the question with the CFO if the chair approves. No problem. As to the use of AI, I already stated in my presentation that in the future we intend to use it. This is not a form of down-sourcing work. On the contrary, this is about the use of technology in a way that will make our audits more effective in terms of quality and hopefully also more efficient. We do this in-house.
We do this in a controlled environment to make sure that we only use controlled input so that the outcomes can be subjected to critical self-reviews, making sure that we can lean on the information, we can trust the information that is AI-generated, and all of this obviously within the control mechanism of the PwC house structure. As to the use of the PwC network, the PwC network has been active from the start of the financial year 2025 in many of the countries where Philips is active, particularly for the statutory audits that are required by law in many jurisdictions. The seven countries that you refer to, the seven countries about which we report in our statement are countries where we use teams for the group audit. These are countries where Philips has the most important representation or activity.
Obviously, this is the U.S., this is about China, countries such as Germany and Japan, but it is also about the countries where the processes are situated, for instance, India and Poland. The colleagues in these seven countries have worked together with the team here in the Netherlands, covering over 90% of all the figures that find their way into the annual report. What instructions did you give to your network? We work in the following way. We indeed write instructions, very detailed instructions, that are about many aspects of quality as we use them in the Netherlands in auditing, as exists worldwide in auditing quality systems, training, monitoring the implementation and the quality checks as apply on the national local level.
Periodically, we're in touch with our colleague auditors on the progress of their work. We receive written reports that we assess. Wherever we deem it necessary, we conduct country visits to look over their shoulder, something we have indeed done once again this year. PwC network means it's not only your PwC offices but also other audit firms? We have not used other audit firms in our audits than companies or firms that belong to the worldwide PwC network. What was in the management letter as concerns hedging? Apologies. What is the question? What did you write in the management letter as concerns hedging in your letter to management? Currencies are volatile, softly speaking. What did you put in the management letter? We report to management particularly on internal control mechanisms and effectiveness.
When we conclude any shortcomings, we report to management. When there are significant shortcomings, we also communicate them to the supervisory board. When we see material weaknesses, this will have an official statement. There has been no such situation, let me highlight that. We have reported on financial reporting, we have issued an unqualified auditor's opinion. May I conclude that for the management letter 2026, you will tell them to get the internal controls better to improve them? That is a summary that I will really leave to your account. What did you put in your management letter?
As I just pointed out, we have reported on shortcomings that we have concluded in the reporting mechanisms in such a way that the shortcomings can be addressed by the company, allowing us to check their follow-up. Thank you, Chairman. May I address my first question to the CFO? The PwC network has become 0.7% more expensive than EY. How did you interpret this? Was this something you were aware of beforehand when you received the price quotes? How did you interpret this, and how will you deal with this for the future? Thank you, Mr. Spanjen. We have a holistic view. We look at holistic fees, and you have seen doubtlessly that is the case in the report. We paid EY EUR 72 million, and the total fees, EUR 14 million for PwC.
We see a significant reduction that is driven, as Mr. Van Gils just told you, by further simplification, the further use of AI. You're absolutely right in stating that the mix and the composition of the fees has changed. We see a slight increase in PwC's fees towards the PwC network and less to the Dutch operations of PwC. We have looked into this. We have discussed this, but this is factually related to several issues. First of all, the fact that we have competence centers worldwide, for instance, in India, which required a bit more work of PwC than from EY, and more work has been dedicated to the statutory audit.
We take a holistic view towards the fees, and we discuss it with Mr. Van Gils and his team, and the Audit Committee obviously also has to sign it off and approve it. How is the cooperation between yourself and the Audit Committee? If the Audit Committee says everything's well, will you then blindly accept it? Will you tell the Audit Committee that some rates are too high, it doesn't work this way? How does that cooperation work? I think that's a very valid question. It's the other way around. It works as follows. First of all, we have a detailed discussion of this matter with Mr. Van Gils and his team. We discuss how to safeguard quality. That's important. Also, we discuss how the price-quality ratio can be correct.
When Mr. Van Gils and his team and myself and my team come to agreement, it will be submitted to the Audit Committee and its chair. Well, there's this breakdown that we see on page 108, a breakdown by networks, and that means that you can say that it's holistic, that it's lower, but still, I mean, you made that breakdown yourself. Very well. Do we have any other questions to Mr. Van Gils, our external auditor? If not, we turn to questions about agenda items 3F and 3G, discharge of members of the board of management and discharge of the members of the supervisory board. Any questions about this, these agenda items? Yes, please. Thank you. Everts on behalf of VEB. 3F, 3G. Let me be clear.
VEB is voting against the discharge for the members of the board of management, and this is mainly about the facts around the sleep apnea case, settlement of claims, the claims that come up, and the FID and the information provided. This is about last year, and hence, we cannot support this point. I think that these items, once again, were insufficiently clarified during the meeting, so it is not without a reason that it's before the Enterprise Chamber of the Amsterdam Court of Appeal and we were expecting that. Still, a discharge decision, as far as we are concerned, cannot be seen as a complete endowment or liberation of responsibility because that's before the Amsterdam Court of Appeal.
Supervisors, Mr. Stoffels being appointed for a third term of office, is a concern. That's injury time. It's allowed, but only as an exception and with good motivations. Mr. Stoffels within Philips was the chair of the Quality & Regulatory Committee, and we therefore have some misgivings, some doubts. We would like to hear the point of view of the Supervisory Board. We wonder whether Mr. Stoffels sufficiently executed supervision when there were warning letters, recalls, 34 such letters. I mean, that's not nothing. We're happy with Mr. DeFord, and I hope that comes through in translation because he is being nominated because of his expertise in the field of regulatory and quality, and this is a source of gladness. A question to Mr. Sijbesma.
Does the Supervisory Board acknowledge that there has been a shortcoming in supervision and that structural problems that exist really call for more intensified supervision? I mean, we understand it this way. Two questions. Mr. Stoffels, was that enough? The appointment of Mr. DeFord, is that a sign of enhanced attention to supervision? Thank you, Mr. Chair.
How can I put this correctly? It nonetheless bothers me a bit that each time that so-called conflict of interest on the part of the Board of Management, specifically Mr. Marnix van Ginneken and Roy Jakobs, is raised, I understand that you're entitled to your opinion, but it's irritating. The Board of Management, especially in that sleep case, has made huge progress in addressing the problem and resolving it and wrapping up and settling those claims and litigations properly. Nonetheless, I heard what you said about the discharge for the members of the Board of Management regarding Mr. Paul Stoffels. Mr. Paul Stoffels chaired the Remuneration Committee. He did excellent work and last year started to chair the Q&R Committee, and he did excellent work there as well.
The fact that we still need Mr. Stoffels' expertise has led us to ask him to serve a third term for a 2-year duration with us, we're delighted that he agreed. He is certainly not the reason behind any potential comments from the FDA. Is there a shortcoming, a deficiency? No. Is that cause to appoint Mr. DeFord? No. Does the Supervisory Board believe that we need to keep adding reinforcements in quality, regulatory, patient safety, and so on as a company? Yes. All the options that we see, we welcome and have welcomed, and we also appreciate your support for his appointment. That was my response. A very brief reflection. You're depicting me as emphasizing a conflicting interest and a personal interest.
It is our opinion with respect to the legal case, the FDA has certainly sounded the alert and has also sent a strong message to Roy Jakobs by personally involving him in the consent agreement 2023 and 2024. It's not only the opinion of the VEB, but it's been broadly shared by the independent regulator. I believe that the supervisory board has too few safeguards at an urgent point within Philips, and that justifies our refusal to approve a discharge for the board of management. We also believe that the supervisory board could have managed this more wisely. We're voting against the discharge of the supervisory board for exactly the same reason as we're voting against the discharge for the board of management. Thank you. Any other remarks about the discharges?
That takes us to agenda item 4, composition of the Board of Management. That relates primarily to Roy Jakobs. Roy Jakobs has served on the Board of Management since 2022. His reappointment is recommended in view of the progress achieved during his first term. He has the full confidence of the Supervisory Board as Philips enters the next phase. Roy Jakobs demonstrates clear leadership, decisive management, and truly focuses on strengthening Philips in an uncertain macro environment. He has laid a sound foundation for the coming years with great financial resilience focused on an impact-driven culture. The proposed term of appointment for Roy Jakobs is 4 years. This means that his term of office will expire at the end of the annual general meeting in 2030. The contract agreed with Roy Jakobs has been published on our website.
Please refer to that for additional substantiation regarding this agenda item. See the notes to the agenda for this meeting. Who would like to speak on the proposed reappointment of Mr. Jakobs? Yes, Mr. Evers. Well, before we break for lunch, this is an essential issue, this reappointment. We've had enough exchanges today and that strong alert on our part and by others about Mr. Jakobs. I hope that that did not fall on deaf ears. We would like to see Philips introduce clear safeguards for the future to avert conflicting interests. You say that's not an issue. Well, we'll see whether the court has an opinion on that. We also have reservations about the role of Mr. Jakobs in the past. In the past four years, his role in the Apnea case and its settlement, it didn't happen properly.
It wasn't fast enough. I think it worked out all right for the patients, as investors, we believe that they come first, but after that, it's our turn. Over EUR 16 billion in shareholders' value has been dissipated through the intervention of former board members as well as incumbent board members. That's no small potatoes. That's one of the most serious amounts of damages in the history of Dutch corporate industry, you see that others feel differently and everybody is doing his or her level best. Well, we can agree to disagree, but the role of Mr. Jakobs in this case and in the past does not merit reappointment, and everybody is entitled to his own opinion.
Four years ago, we gave him the benefit of the doubt, but as far as quality control and resolving highly urgent cases were impossible for the CEO to make a difference there. It's an awkward message because we had wished him the best, but these past years did not justify the benefit of the doubt on our part toward his reappointment. Well, we'll see. We, as the Supervisory Board, have expressed all support for Mr. Jakobs, and we believe that in the past year, excellent progress has been achieved. Of course, we can agree to disagree. Ultimately, all shareholders will collectively express their opinion when they cast their vote. Now on to agenda item 5, reappointment or appointment of Supervisory Board members. Let me start with Mr. Stoffels.
Mr. Stoffels has been a member of the Supervisory Board since 2018. His reappointment is proposed in recognition of his contributions to the Supervisory Board over the past 8 years. As stated, he has keen judgment and is an independent as the Vice Chairman of the Supervisory Board and former Chair of the Remuneration Committee, member of the Corporate Governance Committee, and now Chair of the Quality & Regulatory Committee, which attests to the huge effort delivered by Mr. Stoffels that he continues to deliver to Philips. In keeping with best practices for corporate governance, Mr. Stoffels is being nominated for a 2-year term.
The Supervisory believes that Mr. Stoffels' background and experience will remain valuable for the company and will enhance continuity in the 2026-2028 period, including focusing on innovation and additional enhancement of patient safety, as explained in the notes to the agenda. Who would like the floor about the reappointment of Mr. Stoffels? Mr. Spanjer. Mr. Chairman, I'm Mr. Spanjer for the minutes. 2 years fly by. What will you do when the 2 years are over? They do fly by. Do you already have on your drawing board somebody who would step in to replace him on the Supervisory Board? Have you approached a headhunter that will conduct a search? Are you exploring your own network? How will you do this, or will that Mr. DeFord that we would be appointing in a moment, step into his shoes?
Because the Supervisory Board, will it be expanded temporarily or permanently? How will you crystallize the succession of Mr. Stoffels? That's a good question, but I'm sure you believe that all your questions are good ones. That's correct. Okay. We almost entirely agree on that. The Supervisory Board will not be expanded because Mr. Harrison will be stepping down after eight years on the Supervisory Board. We believe that in those two years that Mr. Stoffels is still with us, either internally or externally, perhaps internally, we will have the right individuals, and you mentioned one. Perhaps we will have been able to find such a person to take over Mr. Stoffels' duties. Thank you for your reply.
If we're done with asking questions about Mr. Stoffels, on to Mrs. Verhagen, who has been a member of the Supervisory Board since 2022 and is being nominated for reappointment in recognition of her valuable contributions to the Supervisory Board over the past 4 years and the manner in which she has served as Chair of the Remuneration Committee and member of the Audit Committee. During her first term, she demonstrated that she was a committed and constructive member of the Supervisory Board and its committees and has shown sound judgment and a strong sense of independence. The Supervisory Board expects that she will continue to contribute to effective functioning of the Supervisory Board and to maintaining an appropriate balance of skills, experience, and diversity within the Supervisory Board. The proposed term of appointment for Mrs. Verhagen is also 4 years.
Not also, it is four years. I will also refer to further substantiation in the explanatory notes to this agenda item. Who would like the floor regarding the reappointment of Ms. Herna Verhagen? Nobody. I will move on to agenda item 5C, the reappointment of Mr. Sanjay Poonen. Mr. Sanjay Poonen has also been a member of the Supervisory Board since 2022 and is being nominated for a four-year reappointment. Also thanks to the way he serves as a member of the Remuneration Committee. During his first term, he contributed his expertise and extensive experience in information technology and digital transformation. His knowledge is particularly relevant for the company's strategic focus as well as the growing importance of digitalization, artificial intelligence, data management, and cybersecurity. As previously stated at this meeting, the proposed term of appointment is four years.
Regarding Mr. Poonen, the same holds true. Additional substantiation appears in the explanatory notes to the agenda. Would anybody like to comment on the proposed reappointment of Mr. Sanjay Poonen? Nobody? I will move on to agenda item 5 D, the appointment of Mr. John DeFord. John DeFord is being nominated for appointment as a Supervisory Board member based on his extensive experience in the medical device industry, the MedTech industry as senior technology manager with considerable expertise in regulation and quality systems, particularly in the United States, our most important market, and his strong track record in innovation and product development. The proposed term of office for Mr. DeFord's appointment is four years, and once again, additional substantiation appears in the explanatory notes to the agenda. I would like to give John the opportunity to introduce himself briefly. John.
Thank you very much. It's really my pleasure to address you today. The first thing you'll likely notice is that I've shaved. The technology that Philips provides is excellent. I can attest to that. I've been given the message to be very quick. I will be. It's an honor to be nominated to this supervisory board. You know, Philips has an amazing and long history of innovation and impacting the lives of patients around the world. I have seen that personally. The goal of impacting 2.5 billion patients per year is laudable and frankly amazing. Now, it's not lost on me that Philips is going through some challenging times, as is the world. We have a tough global economic situation. We have some quality issues that the company continues to work through and make progress on.
I'm confident that the strategy is sound, the execution is strong, and I've worked my entire career kind of at the crossroads of MedTech, innovation, quality, regulatory, and clinical environments with patient safety always at the forefront. With your support, I commit to you that I will work collaboratively with the leadership team of the organization, but also with strong oversight, working with my colleagues on the Supervisory Board. With your support, look forward to helping move this company forward for the impact to patients, to customers, to shareholders, and all stakeholders. Thank you.
Thank you, John. Who would like the floor regarding the appointment of Mr. John DeFord? Nobody? Okay. I'd like to express thanks to Marc Harrison. As I said, after this meeting, Marc Harrison will step down from the Supervisory Board after having served for eight years, and we are very grateful to Marc for the excellent working relationship and his input on the Supervisory Board. Roy, do you have anything to say to Marc? I believe we're very grateful to Marc for his contributions and advice and his active role on the Supervisory Board, as well as a personal advisor. He delivered a special contribution in the Quality & Regulatory Committee, and his clinical insights were very enriching. Thank you very much, Marc, and we will ensure an appropriate farewell. That's what I had to share, Chairman.
On to agenda item 6. That is the remuneration of the Supervisory Board. The current remuneration policy for the Supervisory Board dates back to 2024. We indicated previously that the policy is in principle reviewed every 2 years, and that has resulted in the proposal on which you may cast your vote. Last year at the AGM, we explained what we will do, and we have divided that into 2 sections. The proposal has been carefully drafted. As is customary, we consulted several stakeholders and predominantly positive feedback. The Supervisory Board attributes great importance to the views shared by the stakeholders, and it expresses its appreciation. The remuneration policy for the Supervisory Board is designed to attract and retain Supervisory Board members of the highest caliber with the right expertise and experience internationally as a health technology company.
We operate in complex technological fields, that requires knowledge and experience which we expect to be able to do justice to with this remuneration policy. Approval of the proposal will raise remuneration levels towards the median within our Quantum Peer Group. The increase will take place in 2 7% steps. As I mentioned, the first this year in 2026, the second one will take effect next year in 2027. In addition, we propose increasing the attendance allowance insofar as international and intercontinental travel is required. The new allowances are explained in detail in the tables included in the remuneration policy available on our website. Would anybody like to speak about the Supervisory Board remuneration policy? If nobody would like to speak, I will move on to agenda items 7, 8, and 9.
Agenda item 7 concerns the authorization of the Board of Management to issue shares or grant rights to acquire them and to restrict or exclude preemptive rights. Agenda item 8 is the authorization of the Board of Management to repurchase own shares, and item 9 is the cancellation of shares. You can vote independently on items 7, 8, and 9, but I would like your questions concerning these 3 items in a single block. Does anybody have any questions about agenda item 7, 8, or 9? Nobody? You may cast your vote. Excuse me. It works.
I don't have a question. I just have a remark to you, Mr. Chairman. I wanted to say that, looking left and right here, we see two women on the screen. Today you overlooked me. You didn't see me. While I was standing here for 5 minutes, you saw Mr. Spanier first and gave him the word first. [Foreign language] This can happen, as we say in Dutch. Then you also only complimented the men for their questions. I just want to say to you today, if you see me again next year, maybe give me some compliments as well on my excellent questions. Thank you.
Thank you very much. The people who know me know that I will not wait till next year, but I will do that right now. Thank you for your remark already. It has nothing to do with male or female. On the contrary, I really appreciate your remark, and you get all credits from me now already. I ask Bart to remind me that I don't make that mistake next year, and that I will start giving you a compliment in the assumption that you will join again next year.
Perfect. Let's agree on that.
Okay. Good. Yeah. Yeah, that may have.
Okay, that covers item nine as well. As I said previously, item nine is the last voting item. If you have not cast your vote yet, please do so in the next few seconds. You have had nearly two or three hours to vote, which is far longer than the previous time. I assume that you have now cast your vote. If not, we'll give you another 10 seconds to vote on these agenda items. Afterwards, I will close the vote. Bart or Marnix will tell us the results of the vote, and I'll share those with you. Before we disclose those votes, any other business? That's agenda item 10. Would anybody like the floor during any other business? Have I overlooked anybody? Very good. Nothing for any other business. Very well. On to the voting results.
For all agenda items, 3C through 9.
99%.
3C. 99% voted in favor. That concerned the financial statements. They have been adopted. 3D, the proposal to adopt the dividend, also 99% in favor. That's also been adopted. 3E, remuneration policy, 97%, nearly 98% voted in favor. That has also been adopted. Proposal to discharge the board of management members. Nearly 96% has voted in favor. 3G, proposal to discharge the supervisory board members. Over 90% voted in favor. That has also been adopted. Item four, proposal to reappoint Mr. Jakobs. Nearly 98%, nearly 99% voted in favor. That has also been adopted. Congratulations, Roy. 3D. Wait a minute. Where are we now? 5A, excuse me. Appointment of Mr. Stoffels. Nearly 95% voted in favor. That has also been adopted. 5B, Mrs. Verhagen. Nearly 98% is in favor, also adopted. 5C.
My compliments to Mr. Stoffels, Mrs. Verhagen on your reappointments. Congratulations on your reappointments, and also to Mr. Poonen. That takes us to 5D, Mr. DeFord. 98% in favor. Welcome among us as the new supervisory board member, John. Agenda item 6. Proposal for the remuneration policy for the supervisory board. 99% has voted in favor. That's been adopted. 7A, authorization to issue shares. 99% has voted in favor. It's also adopted. 7B, authorization of the board of management to restrict or exclude preemptive rights. 98% has also voted in favor. That's been adopted as well. Agenda item 8. Also adopted with 98% in favor. Finally, agenda item 9, cancellation of shares. 99% has voted in favor. That means that all resolutions and proposals have been adopted.
Bart, we will be publishing those in a press release after the end of this meeting. I would like to add something to this meeting. This morning, I was at a hearing at the Council of State. Ordinarily, this meeting is always in the afternoon, and that's how I scheduled it and indicated that to the Council of State that I was only available in the morning. All of a sudden, Philips had its shareholders meeting in the morning. There are people who come all the way from the north or the south of the country. In the future, could you have the meeting start at 2:00 P.M. or as with the supervisory board arrange hotel rooms? This is very poorly scheduled, and I would like to call the board of management to this.
Security also blocked my entrance, even though I registered at 9:00 A.M., and my voting handset was ready. I would like that unfortunate security staff to be held accountable. My neighbor had problems with them at the head office. Don't repeat that one. You need to do it better next year. Start at 2:00 P.M. I don't care what your reason was, but you need to arrange that properly, not at 10:00 A.M. in the morning. Come up with something else. Apparently, others agree with me. From at least one person, but I'll consult with Bart and Roy and Marnix why we started at 10:00 A.M. Quite honestly, I don't know. We did always have this meeting in the afternoon.
I don't know if it's because of Friday afternoon traffic that we wanted to help you out. No, that's not true. Friday morning traffic is no worse than in the afternoon, but we'll look into this. Your remark is loud and clear, so we'll see what we can do to accommodate you. Yes. By the way, I'm also from Eindhoven. That's all very well. I am not going to give security a hard time because they do a good job, but we will look into it. I'm glad you got through, by the way, and also that you had the opportunity to make this remark, but we'll see how we can improve on that.
If there are no additional comments, I'll close this meeting, and then outside lunch is served for those of you who are willing and able to stay. We have managed to have this meeting in three hours. Thank you for your interest, and thank you for coming. At the very least, I look forward to seeing you next year, but possibly before that. Thank you