Julien Dormois: Okay, thanks.
Operator: Thank you. We will now get to the next question. And your next question comes from the line of Julien Ouaddour from Bank of America. Please go ahead.
Julien Ouaddour: Good morning. Thanks, Philip for taking my questions. So the first one, I just want to, let’s say, like come back on the settlement. What’s the likelihood of new claims surface after the six-months period for the plaintiffs to sign up for the settlement? And just maybe if you can explain us how difficult it might be for them to get a compensation? And if we need basically to add a sort of margin of safety on top of the €1.1 billion for these cases. Then the second question on orders. So you seem to be pretty pleased with the momentum in the U.S. And I think at the beginning of the year, you said that, I mean orders will be strong in the U.S. because like financing conditions would become a bit more easy for the year with interest rate cuts.
Seems we are more going in a situation where like interest rate cuts are not going to happen before the end of the year? Could it impact the demand at some point in the U.S.? And the final question is about China. So like the comment that you made. Do you have any sort of color about the installed base age in China? Because it seems that the sort of like installed base has been upgraded like in the recent years. So the overall hedge is like a bit like lower today? And if you can just give us a bit more color, but the real benefit from the stimulus that you think could happen? Thanks.
Roy Jakobs: Yes. Thank you, Julien. Good questions. Let me start with the first one, settlement. So the likelihood of new claims coming after six months. So I think it’s important, as we said that actually, we believe that [Technical Difficulty].
Abhijit Bhattacharya: No, no, no. Are you on the call?
Operator: You are now live, you are back. Thank you.
Roy Jakobs: Okay. I’m not sure whether you heard me in full. But so let me kind of repeat the essence. So firstly, we said kind of we believe really finality to what is out there. That is also not only our opinion, but also of the plaintiff’s leadership. They actually advertise for three years the case. So actually, they believe that the majority of people that know the cases there actually have a step forward are in the Census Registry, the 60,000, as you know, but then also 700 kind of claimants, then they have another six months, they can come forward. Thereafter, the whole case cease to exist. So the MDL will be closed. Also all the preparatory work that was done by all the kind of plaintiff lawyers will cease to exist. Therefore, any individual that comes thereafter will have to come on individual terms, they will be subject to a Lone Pine order, Lone Pine order means that there are certain criteria that you need to fulfill before you even can be taken into the case, you will not have access to any of the expert reports that was made or were made, so you need to do it yourself.
And as you know, kind of only for the testing, we spend millions of dollars to get to our outcome, we show that no breachful harm was done, and that’s also still standing as we have not admitted any guilt. And they are also subject to time restrictions, because there is a statute of limitations, and that actually is from the starting of the recall, so from 2021 onwards and normally, this is periods of two to three years. And finally, if you look to the trending of the Census registry, it has been stable for months already. So actually, we have seen that there was no significant info already coming lately. So taking all this together, yes, there’s a very strong confidence that we have that actually we have been dealing with the cases out there, and this truly will put an end to the personal injury and the medical monitoring claims in the U.S. and also the economic loss settlement.
As you have seen before, we reiterated actually the provision we took was enough even now after a year. So that was also, I think, well counted for, and we expect the same with this one. Then on the order intake, momentum in the U.S., it’s — I think you’re fair to say that maybe interest will not kind of move as we expected earlier. But at the same time, we have seen that the system itself is strengthening in terms of the patient throughput and therefore, the income they’re generating, and that also has been strengthening their investments. As we said also in our order intake. That’s something where we see that our innovations that we have been putting out to the market and I’ve been out there at, a lot of excitement about what we are offering in terms of our workflow solutions, we announced the CT 5300 AI suite that actually we’re putting out to the market, the new IGT Azurion solution for stroke.
So we are confident that actually the U.S. market will show continued strength throughout the year, and that’s unchanged. And then on the installed base age in China, I think it’s fair to say that they have a backlog in upgrades also, especially in a prolonged period of COVID. That’s why we did see actually 2023 when they came off COVID, a lot of investments coming into play. That’s what’s spurring last year’s very strong Q1 order growth, and we expect that also will therefore continue once the market opens up more. Now even further now kind of encouraged by the Chinese government. I also want to, I think support the investments to get the installed base to be placed, but also for them, it’s an expansion program as they also need to take care of more patients.
So it’s a combination that we expect to come into play later into China.
Julien Ouaddour: Thanks, Roy. Any idea about just like the age of the installed base in China at the moment?
Roy Jakobs: No, I would not be able to give a specific number. What I do know is that kind of that it qualifies for equipment of six and eight years of age. So that’s kind of the conditions that they have put out the government, and that’s kind of where they have the current — what the customers are currently putting forward.
Julien Ouaddour: Perfect, thank you very much. Great, helpful.
Operator: Thank you. Your next question comes from the line of Robert Davies from Morgan Stanley. Please go ahead.
Robert Davies: Yes, good morning. Thanks for taking my questions. Most of them we covered. I have a few left. One was just on — you mentioned, obviously, the normalization of the order book overall, but it’s still elevated, I think versus pre-COVID levels. Just — how do you think about that sort of delivery time line? How quickly is that going to catch up? Is that a part of your kind of confidence in the second half numbers is a kind of accelerated delivery of that order book through H2? And should we be a kind of normal run rate on the order book by the end of the year? That was my first question. My second question was on the EBITDA bridge you provided with the cost headwinds against productivity and pricing measures, which were obviously net positive.
Just be curious, within those productivity and pricing measures, how much of that came from headcount reductions? I guess my question is really, has the headcount reductions tail off? Or are you still confident to get a net benefit of cost versus productivity going forward? And then finally, just if you could flesh out in a little bit more detail some of the different regional trends you’re seeing across the Personal Health business. Just I know you called out consumer weakness in China, but perhaps across some of the other markets, I’d be interested. Thank you.
Abhijit Bhattacharya: Yes. Robert, regarding the normalization of order book, I think you’re right, the confidence in the second half comes from the fact that we expect deliveries to take place in the second half. And therefore, that normalization should happen by the end of the year. Maybe we will still be a tad higher at the end of the year, but not as high as we are now. So that should kind of be through the second half. From the headcount reduction, I mentioned in the speech that operating model savings were, I think €55 million in the quarter. So it’s still significant, because we had just started, let’s say, last year in Q1 with the reduction. So there is still quite some more to come throughout the year. And then…
Roy Jakobs: I can take on the age. So if you look to the globe, I think what we’ve seen is that China indeed subdued. We see actually quite strong rebounds in Europe. So actually, we saw some strengthening in Europe. We also think that’s on the back of some of the wage increases that have been put out there. So you see consumer have more to spend, and we have been benefiting from that also in the growth markets. I think the other market that is not yet as strong as we would like is North America. We do see the sellout strengthening, but not yet fully kind of the sell-in. We also know that actually customers have been reducing their inventory levels. So they are pretty tight on their cash management as well. So therefore, actually, it makes shorter lines.
So in sum, I would say globally, we expect that consumer will strengthen throughout the year. And also in terms of that towards the guidance, we expect they will be also towards that guidance of 3% to 5% and now starting with 3%, that should actually through the year increase. But that will also be on the back of China, which second half will have the most, I think contribution into that.
Robert Davies: That’s great. Thank you.
Operator: Thank you. We will now take your next question. And your next question comes from the line of Sezgi Ozener from HSBC. Please go ahead.
Sezgi Oezener: Thanks for the presentation and taking my questions. And congrats on the settlements. One thing — one question on the insurance claims. Can you give us a color on how these insurances work and whether your premiums for insurance are likely to go up after the payout? And do you have the same kind of insurance on product liability in all of your products? And my second question relates to Connective Care going forward, you mentioned you’re growing quite a bit in Japan, which is normally a lower margin market. But in this case, you mentioned that the leasing model makes it more attractive. Do you have any other factors that will create a different margin outlook for Connected Care going forward? Thanks.
Abhijit Bhattacharya: So regarding insurance claims, yes, it’s a bit of speculation now whether it will go up or not. So that’s something we will see in the next round because it’s the first time we are claiming such large amounts. It’s not that we have a long history of claims. So we will have to see how those discussions go, but also the actions that we are taking to improve quality, et cetera, should have — will be part of those discussions. Regarding Connected Care, in Japan, it is not a low-margin market, so I just want to correct that. And we have a very strong Sleep and Respiratory Care business that operates on a recurring revenue basis, so that also drives margin. So as far as Japan is concerned, let’s say, the core of the underlying business still remains very strong.
Sezgi Oezener: Thanks very much. As a follow-up, may I ask like usually what’s the term of insurances like do you conclude insurance agreement on a yearly premium? Or are we looking more on a multiyear basis?
Abhijit Bhattacharya: Yes. It depends on — each policy differs. So I think that would be too much of detail to put, but there are policies which have three-year terms, one-year terms, et cetera. So each one of them differs.
Roy Jakobs: But I think it’s important we have these insurances for all our products. So it’s actually ongoing and common business. So I think that’s also how this will be seen. This is part of a long-term kind of insurance trajectory that we have out there.
Sezgi Oezener: Perfect, thanks very much.
Operator: Thank you. Your next question comes from the line of Falko Friedrichs, Deutsche Bank. Please go ahead.
Falko Friedrichs: Thank you. Good morning. And I have two clarification questions on the finality of the settlement agreement here. Firstly, can you confirm that there is no chance of a court trial now? So essentially can anyone in the Census registry — can anyone still bring their case to court or is that essentially impossible now under the agreement? And then secondly, on these additional testing programs you’re running according to the FDA requests. First of all, are they going as planned? And then in case those additional tests go against you right and let’s just say they show a potential harm to patients, could that put anything with this framework you put in place at risk? Or could that open up a new avenue for plaintiff lawyers, a little bit more clarification there would also be helpful. Thank you.
Roy Jakobs: Yes. Falko, thank you to clarify further. So in terms of the court trial, so the MDL will not be pursued. So the Census registry and the MDL will be terminated. So they cannot kind of pursue further trials out of the current MDL or Census registry. What could happen is that people individually would like to come forward and still go on an individual case. But as we said, even for those, there will be very high barriers to do so, because it will be standalone that will need to adhere to the Lone Pine order, they will need to come up with their own expert reports, gone to show whatever focality, they want to show and we have our own testing, as you know, that shows no appreciable harm and there is time limitations towards the time that they can do this.
That’s why we are very confident on the finality as we said before. I think also what is important on the testing, there is no coordination at all between the testing and finality of this case. So any further outcome in testing will not have any impact on the current settlement. Settlement is as is, the amount is kept and final, and there will be no testing related to this.
Falko Friedrichs: Okay, thank you.
Operator: Thank you. Your next question comes from the line of Wim Gille from ABN AMRO – ODDO BHF. Please go ahead.
Unidentified Analyst: Yes, very good morning. This is [indiscernible] from ABN AMRO. Two questions from my end. First, on the €540 million to be received from the insurers for the Respironics claims to which part of the recall is this exactly related? Is this the physical recall costs? Is it the economic loss part? Is it the personal injury part? Or is it the total issue? And are any other insurance-related discussions ongoing? And then the second question will be on the legal saver battling that you have with SoClean. Can you give us a bit indication what the expected time lines are? And what the range of outcomes is if any? Thanks.
Abhijit Bhattacharya: Yes. So the insurance is not for the recall cost, but everything outside of that. So the whole list you gave. So it does not cover the recall cost, but of course, the product liabilities, the personal injury monitoring and all of that. The second question you had was on SoClean?
Roy Jakobs: Yes, SoClean, maybe I can take it. So I think — so there’s no time line that we can give to that. Of course, that is still in process. Therefore, also it’s kind of too preliminary to give a range of outcome for the SoClean case. So I think this is something that is ongoing and we will keep you posted on any contribution that might flow from there. And that’s, I think as much as we can say now.
