Co-owners,

We've spun the wheel for the Europe bucket. The ticker has landed in the Netherlands, on a company whose name has been on shelves for more than a century, and which almost nobody can correctly describe. You think you know this one. You probably don't.

Before we dive in, a reminder of what the index itself has delivered over time.

Every week, we pull one company at random from the FTSE All-World with ~4,200 companies representing 90% of global stock market wealth. We share the index's long-term returns since inception in 1986 as a reminder of why we're here: the long game. New to the newsletter? Start here.

Founded in 1891 in Eindhoven, the Netherlands. Headquartered in Amsterdam. Listed on Euronext Amsterdam (AMS: PHIA).

Say "Philips" and most people picture a lightbulb. Or a television, a radio, an electric shaver on the bathroom shelf. All reasonable. All wrong, or at least badly out of date. Philips hasn't been in the lightbulb business under its own roof since 2016. It left televisions years before that. The company that carries one of the most familiar names in the world spent the last two decades quietly becoming something else entirely: a medical technology company. The MRI scanner that took the image of your knee, the monitor beeping above the bed in intensive care, the machine in the operating theatre guiding a wire through an artery. There is a good chance Philips built them.

And here is the twist that makes this a story rather than a profile. The one Philips product you might have in your own home, the sleep machine that helps people with sleep apnoea breathe through the night, is the product that nearly destroyed the company.

A few key facts:

Philips began in 1891 when Gerard Philips and his father Frederik opened a lamp factory in Eindhoven. For a hundred years it was one of the great names of consumer electronics. It built the first Philishave electric razor, invented the compact cassette in 1963, and co-developed the compact disc with Sony. At its peak it made everything: radios, televisions, semiconductors, medical scanners, coffee machines, light.

Then it started letting go. Faced with cheaper Asian rivals and collapsing prices, Philips spent thirty years shedding the businesses that made it a household name. It spun off its semiconductor arm as NXP in 2006. It licensed away its televisions. In 2016 it spun off its lighting division, the original business, as a separate company called Signify. In 2021 it sold its kitchen appliances. What was left, deliberately, was health technology and nothing else. If that instinct sounds familiar, it's the same move we watched DCC make in an earlier edition, selling its healthcare and technology arms to become a focused energy business. Philips did the same in reverse, keeping only the hospital.

The business splits three ways, and the proportions are the surprise.

Diagnosis & Treatment is the largest part, nearly half of all sales. This is the imaging business: MRI machines, CT scanners, ultrasound, and the image-guided therapy systems surgeons use to thread catheters through the body without opening it up. These are the flagships, sold under names like Azurion and the new helium-free MRI magnet. When a hospital images a stroke, a tumour or a blocked artery, Philips is one of a small handful of companies whose equipment does it.

Connected Care is roughly a quarter of sales. Patient monitors, the screens tracking heart rate and oxygen above the bed, plus the software that ties a hospital's images and records together. This segment also contains the sleep and respiratory business, which we'll come back to.

Personal Health, the part everyone actually recognises, is the smallest, around a fifth of sales. Sonicare toothbrushes, Avent baby bottles, Lumea hair removal, and the shavers Philips has made since 1939. The irony sits right there in the numbers. The Philips you know is the small corner of the Philips you own.

In June 2021, Philips recalled millions of its sleep and respiratory devices, the machines that keep people with sleep apnoea breathing at night. A sound-dampening foam inside them could break down over time and release particles and chemicals into the air the patient was inhaling. American regulators classified it as their most serious category of recall. Reports of harm ran into the tens of thousands.

The damage was enormous. The share price fell from around €50 before the recall to roughly €12 within eighteen months, wiping out something like €38 billion of value, more than two-thirds of the company. For a business built entirely on the promise that its products keep you safe, it was close to an existential wound. In 2023 the Agnelli family's investment firm, Exor, stepped in with a 15% anchor stake, a vote of confidence at the darkest moment. In April 2024, Philips agreed to pay USD 1.1 billion to settle the personal-injury and monitoring claims, far less than the feared figure, and the shares jumped on the relief.

But the story is only half finished, and this is the part worth being honest about. The damages to patients are settled. The investigations are not. Philips is still working through inquiries from the US Department of Justice, including a criminal one, the US securities regulator, the attorneys general of 41 US states and territories, and Australia's medicines watchdog. The company explicitly leaves all of it out of its financial guidance, because nobody yet knows what it will cost. The recall isn't behind them. It's still being written.

The recovery is real but unspectacular. Sales in 2025 were €17.8 billion, essentially flat on the year before. The headline that matters is lower down: a net profit of €897 million, against a €698 million loss in 2024, a swing of well over a billion euros as the settlement charges cleared. Free cash flow came in at €512 million, after Philips handed over a billion euros for the sleep-device settlement. The dividend was held at €0.85 a share.

The stock tells the fuller truth. At around €22, it is still worth roughly half what it was before the recall. This is a genuinely world-class business, dominant in hospital imaging, that has been a frustrating thing to own for years. Whether the turnaround under chief executive Roy Jakobs, built on AI-powered scanners and steady cost-cutting, finally closes that gap is the open question. The headwinds are real: a soft Chinese hospital market, US tariffs, and that unfinished legal tail. The case for it is that the world is ageing, hospitals everywhere need to image and monitor more people, and very few companies can build the machines that do it.

Most weeks we introduce you to a company you've never heard of. This week is the opposite: a company you know by name and have never once looked at properly. You almost certainly own a piece of it, and through it you own the shaver in your bathroom, the toothbrush by the sink, the scanner that will one day take your image in a hospital, and a lawsuit or two that haven't finished yet. All from a firm that started by making light 134 years ago and now spends its days trying to see inside the human body.

If you hold a European or global index fund, Philips is in there. The familiar name hiding the unfamiliar company.

Data and images sourced from the Philips Annual Report 2025 and the Philips Q2 2026 Quarterly Report. Share price and market cap as of writing.

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