Welcome to the Royal Philips Fourth Quarter and Full Year 2014 Conference Call on Tuesday, 27th of January, 2015. During the introduction hosted by Mr. Frans van Houten, CEO and Mr. Ron Wirahadiraksa, CFO all participants will be in a listen-only mode. [Operator Instructions]. I will now hand the conference over to Mr. Robin Jansen, Head of the Investor Relations. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. And welcome to Philips’ fourth quarter and full year results conference call. I’m here with Frans van Houten, CEO and Ron Wirahadiraksa, CFO. In a moment, Frans will make his opening remarks and will take you through our main strategic and financial highlights for the period. Ron will then provide more details of the financial performance during the quarter. After that, both Frans and Ron will be happy take your questions. Our press release and the related information slide deck were published at 7:00 A.M. CT this morning. Both documents are now available for download from our Investor Relations website. A full transcript of this conference call will be made available by tomorrow on our Investor Relations website. And before I turn over the call to Frans, I would like to remind you of 2 things. Following the decision in June 2014 to combine our Lumileds a lighting businesses into a standalone company and to explore strategic options to attract capital from third party investors for this business. The profit and loss of this combined businesses is now reported on a discontinued operations and that our assets for the business in the balance sheet on the line assets held for sale. The cash flow of the combined Lumileds automotive businesses is reported on the cash flow from discontinued operations. Therefore all commensurate that will follow in terms of sales and earnings at both the group level as well as the lighting sector level excludes performance related to the Lumileds automotive lighting businesses. Secondly, when we refer to adjusted EBITDA on this call this represents EBITDA excluding restructuring cost, acquisition related charges and other charges and gains above €20 million. With that, I would like to hand over the call to Frans.

Thanks Robin. Earlier today we announced that we generated €6.5 billion of sales in the fourth quarter of 2014 which reflects a 2% year-on-year decline on the comparable basis. Our adjusted EBITDA amounted to €743 million or 11.4% of sales compared to €827 million or 12.9% of sales in Q4, 2013. Our fourth quarter results underscored the 2014 was a challenging year, it goes without saying that we’re not satisfied financial results in 2014 and we’ve been taking clear actions to improve our performance in 2015 and beyond. Throughout 2014 our transformation efforts actually continue to show good results even as we address performance issues including the delays in our remediation efforts in Cleveland, continued softness in markets like China and Russia and stronger than anticipated foreign exchange impact particularly in emerging markets. Notwithstanding these issues, we’re encouraged by the fact that the underlying operational performance in most of our businesses improved throughout the year and in the fourth quarter as we continue to execute on our multi-year accelerate journey. Let me start with healthcare, our healthcare results underperformed our expectations in the fourth quarter largely due to soft end markets and the Cleveland remediation program which I will discuss in a moment. We were however encouraged by another quarter of good order intake growth in Europe and in most growth overseas especially in the Middle-East, Turkey and Africa and we believe we also continue to gain market share in areas like ultra-sound and image guided therapy. Regarding Cleveland, let me start by acknowledging that we have under-estimated how much time and effort it would take to solve this. Progress was delayed at the end of 2014 because it took longer than anticipated to complete the necessary remediation at some of our suppliers and to close final audit certification items.…

Thank you, Frans. I will now provide you with some additional detail about our financial performance. Comparable sales of €6.5 billion were 2% lower than the same period last year. If you take out currency and portfolio changes. Nominally sales increased by 2% and this was driven by positive currency translation effects of 3 percentage points and a 1 percentage point due to changes in scope of consolidation. Comparable sales in Western Europe and North America were stable low single-digit declines in healthcare were offset by mid-single digit sales growth in consumer lifestyle and more or less stable sales in lighting in both Western Europe and North America. Overall sales in the mature geographies declined by 2%. This reflected a tough compared to Q4, 2013 when we received a one-off IP royalty income in IG&S related to patent settlements in our Blu-Ray and TV licensing programs. In our growth geographies comparable sales declined by 2% in the fourth quarter, this was due to mid-single digit sales declines in healthcare and lighting which were partly offset by high single digit sales growth in consumer lifestyle. Country-wise strong contributions from countries like Brazil, India and Mexico and Poland were offset by significant sales decline in China, Russia and Saudi Arabia and this reflected the macro economic developments also. Sales generated by growth geographies represented 36% of total sales in-line with Q4 of last year. Let me now give you some financial details per sector, currency comparable equipment order intake declined by 5% compared to Q4 of 2013 in healthcare excluding the impact of our voluntary production suspension in Cleveland, equipment order intake declined by 1% in the quarter. Order intake in the growth geographies showed a low single digit increase were strong double digit growth in most regions was offset by double…

[Operator Instructions]. We will take our first question now from Simon Toennessen from Credit Suisse. Please go ahead.

My first question is on Cleveland, you obviously said that you’re shipping products again. Can you just in order to just for us to quantify, can you just give us an idea as a percentage of total those shipments account for, i.e. of the product ranges that you usually are shipping how much of the percentage do the current shipments account for versus let's say 2013 levels and the second question is on the contribution impact of Cleveland, I think you said a 100 million from H2 onwards, can you just clarify that again and how much was the Cleveland contribution in the past just maybe to quantify as a percentage - the impact. Thanks very much.

Let me first reiterate that I'm happy that we’re back in business in shipping not only from Cleveland but also from Haifa and Suzhou. We have also flagged that it will take us time - the whole operation robust, we want to be very sure that we now stick to the new quality management system and it also applies to our suppliers. So we will see a gradual ramp-up and we will only at the end of this year be back to capacity on an aggregated level between the three production locations because going forward we will have a distributed regional manufacturing setup and no longer being single sourced out of one location. You asked at what kind of percentage of capacity are you - I don’t want to be too precise because obviously it fluctuates week by week, a rough indication is that we’re currently only at about 10% of the overall capacity that we would like to be reflecting that slow ramp-up as we grow gradually into a higher production mode. We said that 2015 will show an improvement of the EBITDA related to the CT category as produced in Cleveland, Haifa and Suzhou by approximately a 100 million and that debt is backend loaded. In fact the first half of the year still has a year-on-year negative impact and that is caused by the fact that last year even though we were not shipping new machines out of Cleveland the field was still installing production out of 2013 with revenue recognition in the first half of 2014 and therefore there is a trailing effect if you like where we don’t see the year-on-year improvement yet in the first half of 2015 but only in the second half of 2015 or let's say from this summer onwards. So I hope with that Simon I gave you enough color on this whole dossier, we will diligently work to really now get this back to full satisfaction.

Can I just have a very quick follow-up on healthcare? You said I think, one you said that you expect growth in China to be similar to 2014 levels. Can you just say what the overall growth for your healthcare sales in organically in China was in 2014 and whether that was, your comments were referring to the market growth or for you? Thanks very much.

My comments refer to the market growth in China. So we see a similar situation unfold in 2015 I guess we’re saying as you know don’t bank too quickly on China lapsing back to what we have seen before in terms of growth. It's going to be really on the very modest growth side. Now we have also said this is due to the government initiatives, nothing at least by stimulating local innovation and of course we ourselves have to come back from where we left off with Cleveland as Frans just elaborated upon. So the market growth is not going to be very significant. Now if you look at the growth in China for the full year, this year was minus 13%. Now in there of course there is significant part of CTs because China has been always a very important CT market for us so this is what we need to comeback from and nevertheless the growth in China for this year in our healthcare business it will probably be for the reasons mentioned that particularly because the Cleveland comeback gradually over the year higher than market growth, that’s what how I would guide it.

Thank you. The next question comes from Mr. Andreas Willi from JPMorgan. Please state your question.

My question is on your commentary on 2016 and the 1% tracking below your plan. I'm a bit confused about this 2016 commentary and also given that you have the separation ongoing doesn’t make sense at this point in time to comment on that and given you’re going to have new targets anyway. But what exactly do you want to say in terms of when you say you’re tracking 1% below because as you could say I'm tracking below but I'm doing something to catch up or is this just a form of reduction of margin target we should just breakdown into the two new companies when we look at the 2016 potential and what do you include for incidentals in that 2016 number because without knowing that it's very difficult to have a view on what it means. Thank you very much.

So first of all let's example once again what it means that we’re tracking 1% point below on growth and profitability. We want to be transparent to our shareholders of where with current insight we expect to land in 2016 and as such versus the original target that is 1% lower. Obviously that is caused primarily lighting and healthcare and to a degree to IG&S where some of the separation cost land and let's for now say it's about equally split around those three factors. Consumer lifestyle continues to perform very well and it's not causing this adjustment, this trading update. You’re right in observing that it doesn’t make at this time sense to set new targets because we’re in the middle of the separation and it depends of course on the separation parameter on how exactly the assets is allocated and also the balance sheet will pan out and therefore we said in our press release that we prefer to come back later in the year when we’re further progressing on our separation to talk about HealthTech and Lighting Solutions and the performance outlook for that and likely at that time since we’re that very close to 2016 we would like to create even a longer perspective because we strongly believe in the long term opportunity of the HealthTech market and the lighting market where we’re positioning ourselves for success. I must say I was also encouraged by let's say the trends in the United States for value based healthcare, accountable care and outcome based which is exactly aligned to our strategy of being a part to hospital systems to drive better productivity. Okay let me not digress and get back to your question. So we give transparency on where we expect to land in 2016 and the main drivers are healthcare and lighting and IG&S and later this year we plan to more formerly update the targets.

And the follow-up just to clarify on Ron's earlier comment about a 100 basis point improvement, I didn’t quite catch what exactly that relates to in terms - is that the group adjusted EBITDA margin?

So we were proud if you allow me to digress a little bit, we were proud that despite all the headwinds in 2014 we saw the operational result improve by approximately 90 basis points, right? It was improved because of overhead cost reduction, the procurement program and our productivity drive and then it was offset by headwinds like currency and what have you in incidentals. So if you keep that context then between 2015 and 2016 we expect to further improve our operational result of each division, each sector and this is where Ron said that for 2015 that’s going to be approximately 100 basis points or operational results improvement.

For the group underlined?

Yes. So you can also look Andreas at page 57 of the deck where we have basically outlined for 2014 the 7.5% of incidentals as you know we’re not part of most of that but that at least indicate, and then we have showed you 2015, 2016 so it's a bit too early to guide for '16 itself but what I said over '15 was on various points adjusted EBITDA improvement, I also flagged 2015 in 2015 for restructuring and 300 million to 400 million of cost for GEMINI, those are some of the main incidentals that we had--

Thank you. The next question comes from Gael De Bray from Societe Generale. Please state your next question.

Firstly looking at the profit bridge in the slide show and how do you explain that the contribution to profit from other heads and end to end savings was actually much lower in Q4 than in prior quarters, so that’s question number one and then secondly one of your competitors today just indicated that it would likely benefit from a 30 to 40 bps positive impact on margins in '15 related to the FX changes, so using the current currency rates. So I guess I'm curious to hear from you on these as well. And the last question, the final question, is on lighting, it seems that the LED based sales growth was just about 20% in Q4. So I think that’s probably one of the slowest quarterly growth ever achieved by the business. I mean that would be great if you could comment on that. Thanks very much.

All right. Let's divide the work here and have Ron comment on the FX. Let me start with the overhead cost, look, overhead cost reduction is not a linear process for the year, right? We deploy measures to the organization. We encourage them to go as fast as possible within a year and then it comes let's say was up - puts and takes through the year. In fact I’ve here an overview of quarter-by-quarter I think it was 70 million in Q1, 61 million in Q2, 68 million in Q3 and 22 million in Q4. All right? So it comes with puts and takes and that will also happen in 2015. You know that we have announced a raise in the overhead cost savings as the capital markets stayed back in September. The teams are now working very hard on that, we have pass it through let's say our social partners, the works councils, we feel good about our ability to again achieve these productivity improvements to the tune of the 100 let's say over the 100 basis points that rolled flat [ph] across the three programs. Ron, maybe you take the FX?

Yes. So what Frans said is of course correct and overhead savings comes in lumpy, there was some more investments in Q1 and Q4, I think the other thing to look at is that we made more than the committed target for 2014, something we’re proud of and we’re going to get this continuance as we have already flagged in earlier communications. Yes, on the forex, of course you’ve seen 30 million negative, why was that? Well three basically underlying reasons. One, we sold less than anticipated because this is firstly surely a guidance of what we expect this - deposited. So sales was less so that the influences your footprint if you will, your sales footprint. Two is the forex rate change. Of course the U.S. dollar impact was a very positive but then we have these emerging market currencies that offset them and that doesn’t help and unfortunately we had also somewhat larger balance revaluation at the end of Q4 that was in some of the U.S. obligations including the Masimo claim and also some of the emerging market where we saw strong year-end decline. Now if you ask me what is for 2015 on the horizon I think it would be around breakeven for us, we have to bear in mind that we also, it's also that same completive as you mentioned flat, too early to see tailwinds because also of some of the hedging contracts that we did. So I would say output is at this moment around breakeven at prevailing rates. Now the uncertain factor is still the emerging market currencies and of course we’re doing our best not only looking at hedging but also pricing [ph] actions where we can which is tough taking cost out and looking at more to footprint rearranging wherever possible. So there is a lot that we do to manage that but particularly in emerging markets over the past year that has been proven somewhat volatile. Frans do you want to?

Yes let me comment on LED based sales growth, I mean if you look at the last 2 or 3 years then we have seen ups and downs in the growth rate. It is in true that Q4 is the lowest I think in a sequence of about eight quarters. It's of course also the case that the underlying base of LED business is becoming more significant which would cause it to become normal but the sales growth rate becomes a low percentage of the total. I mean 37% of Philips business is LED and that’s already significant. We continue to expect strong sales growth in LED, I would not take that to Q4 is now the new normal. We expect strong uptakes most on the consumer side as value proposition has actually become quite affordable. We’re now in product ranges and price points where consumers will see the opportunity to make switch and in the professional side, of course you will get all the way all the time to talk about the energy efficiency and that’s highly attractive. So let's not consider the 20% normal, we continue to drive this hard and we’re very optimistic about the quality of this business and I'm very pleased that the growth margins in LED continue to edge up despite price erosion.

The next question comes from Martin Wilkie from Deutsche Bank. Please state your question.

A couple of questions related to the portfolio, so the first one is you obviously announced the acquisitions of Volcano back in November, its first sort of larger deal that you’ve done. In the past you’ve said that the company needs to earn the right to do deals after some of the headaches that the company experienced after Genlyte en Respironics and I was just wondering if you can let us know do you feel the company is now at a stage where further deals could happen or was it the Volcano deal something of a one-off opportunistic just so that we can understand what the intentions are on the M&A side particularly given as obviously many things happening inside the company with Cleveland and the split and so forth. And the second question was just on the lighting split, you mentioned about some non-binding bids. There has been some press commentary that the overall lighting business has received bids from private equity as well. I'm not sure if you can comment directly on that but just generally you probably still believe the best way to do this is to sell components first and separately have that capital markets listing for the remaining lighting business at some time in 2016. Thanks.

Well on Volcano, let me underline again that we think it's a highly synergistic business together with our own image guided therapy business that has very high market shares and is also highly profitable with the Volcano smart catheters we give - we combine that with our image guided hybrid operating suite and we really get more closer to cardiologist interventionist every day. So it was a deal that we wanted to engage on. You cannot always choose the moment that an asset like this becomes available and since that process was running last summer and fall we engaged on it. I don’t want to overeat ourselves, we have a lot on our plate, so we will make this deal a bit success, we have put a great team of people on it to do the integration and we expect to close this deal later this quarter and we’re very positive and optimistic about our ability to realize our business plan. Then of course we need to work diligently on the lumileds automotive deal which is expected to close in the first half of 2015 that’s a well-organized process where we feel that we’re on track and so we will not suddenly change our attack to do - so we will take it carefully step by step. Now on your point on lighting and the rumors in the market, and while I can say of course that the rumors underline that this is an attractive business and people see value in it and that pleases me. At the same time rumors should not become runaway rumors, that’s not healthy. It's very early days. We have said that we will first do the separation process and it takes us 12 to 18 months that only then do we know exactly the…

The next question comes from Mr. Ben Uglow from Morgan Stanley. Please state your question.

I had three questions, one was Frans, could you just give us a little bit of color just kind of market sense on the other parts of the North American particularly the U.S. diagnostic portfolio. How are things going at the moment in ultra-sound, patient care, home healthcare etcetera and what sort of growth are you seeing in those businesses at the moment? Second question is you know you have been very clear in saying that you’re going to have to offer some form of incentives and discounts around Cleveland in CT business in order to get the order book rebuilt. What I was curious to know is that just for CT or is it going to - is there a sort of reputation or a knock on effect across the portfolio i.e. are you going to have to be more aggressive on discounts in other parts of the overall imaging business. And the third question was I guess is a delicate one but it's a follow-up to what Martin just mentioned. Rumors or press reports etcetera I fully appreciate you can't comment on that but thematically what are - I'm curious to understand is if one was a financial or a trade buyer of lighting assets wouldn’t they prefer to automotive lumileds and lighting solutions altogether rather than already broken apart, if that’s an issue that you’re able to comment on I will be very appreciative.

I think we can answer all three questions, let me start with the first one. So for the North America business we have all three sectors there, consumer lifestyle had a very good quarter there we saw strong sales of our oral care business, our personal care business and so I was happy with the performance of consumer in North America. On the lighting side we saw strong performance on the lamps business and we already said in our commentary both Ron and I did that professional lighting solutions, not the old Genlyte did not perform as we wanted to do. We have an increase in the order book but we did not deliver all the details and overall we felt that we had to intervene and we have appointed Amy Huntington as the new leader for lighting for the Americas. In healthcare we actually have - I'm not proud of the whole year but we did see some strengthens in the fourth quarter in ultra-sound and in patient monitoring and that makes me happy because it shows that Brent Shafer, as the CEO of North America and he stepped in the healthcare role in the middle of the year and I also intervened in the overall leadership. That team is coming together. Ultrasound patient monitoring strong that’s pretty good, we also want the Mayo Clinic who will equip all their hospitals with our patient monitoring equipment so actually that looks good. Now on your point we do have to rebuild confidence around the CT portfolio and let's say from a competitive point of view we have seen some activities of bundled deals and then of course if you cannot deliver a CT then also have some effect on the bundle deals. So that’s unfortunate, we expect that we do…

The next question comes from Daniel Cunliffe from Liberum Capital. Please state your question.

So just quick question on the U.S. healthcare orders. We've heard from Siemens today, GE on Friday, the U.S. orders were up I guess mid to high single digit versus like Philips talking about double digits decline. So right about 15 point difference. If you can sort of work on how much to do with [ph] Cleveland, I'm assuming 8 points as you said it was a four point headwind for the whole division. So how much for Cleveland I guess eight is probably about right, how much for share loss and also how much for weaker pricing just we will make something of that difference, that’s the first question. The second question again on the U.S. healthcare, going forward as Cleveland recovers do you anticipate to be sort of above or below the market growth which you expect to be flat through the balance of 2015 and that’s the two question. Thank you.

In North America the Cleveland effect is 6% to 8%, so excluding Cleveland we also had a negative order intake. Now it's important to note that we do not book the multi-year orders in our order intake, all right. We only book the near term part of that in our order intake. I don’t know how competitors are doing it but it's good to keep that in mind that when we win a large scale multi-year order that is treated perhaps in a different way from competition. And nevertheless I think it is fair to say that in North America our market shares have suffered a little bit partly due to Cleveland and partly due to the transformation that we’re doing on moving into an enterprise key account management approach which we believe is fundamental in order to capture the future opportunity of these large scale deals and becoming part of the job of helping deliver better outcomes at lower cost for hospital systems and engaging in let's say also care beyond the four walls of the hospital. Now going forward and I think that was the second part of your question, we want of course to recover, we’re totally unsatisfied with 2014. Everybody is excited and geared up to recapture the market share so our ambition level certainly is to grow above realistically speaking, it may still take us half a year to really get back to good performance also on the back of the gradual ramp up in Cleveland and all the work that we need to do.

Perhaps just one follow-up question, in terms of impact of resuming shipments, I know you don’t usually comment on sort of current quarters but I guess it will be quite interesting to understand the impact of Cleveland coming back to shipments in January, has that had any impact certainly on this month in terms of the U.S. orders and the outlook for this quarter? Thank you.

The redemption of the Cleveland shipments have not yet had an effect on orders. I mean we’re first delivering against the existing order book. I’ve already flagged that despite Cleveland we were able in other parts of the world to actually gain orders and even expand market share so that it feels perhaps a little bit like paradigm but in Europe we actually expanded market shares and so it's not an equal situation across the Board. The U.S. situation was partly Cleveland, partly also the transformation of the sales force. The gradual shipment redemption is expected to take let's say the better part of this year. We have flagged that the first half year-on-year still has a negative EBITDA impact this is because last year we were still doing sales recognition of shipments from 2013 sometimes it takes a while before all these large projects are installed and we talk about a 100 million EBITDA improvement in 2015 versus 2014 and you can derive that is basically all in the second half of the year.

Thank you. The next question comes from Mr. David Vos from Barclays. Please state your question, sir.

Two or three questions from my side please, the first one on healthcare, can we just circle back to the Volcano deal and explain in a little bit more detail the rationale behind it, why Philips is a better owner of this asset? I mean if I look at the growth profile of Volcano has been losing some market share, its existing technology has perhaps come under attack a little bit. So in that context are you really looking to use your own sales force to drive improvements in cross selling there or are you depending very much on their new technologies which are to a degree still experimental? That’s question one. And question two on LED pricing, you have mentioned a couple of times that that’s eaten into the margins a little bit although you have managed to contract that through other actions. I was wondering if you could comment on the pricing effects on where that’s coming from in the LED space, is that mainly China? Is it consumer? Do you also see some price erosion in professional if you could have some more color on that, that would be much appreciated. Thank you.

So, of course you’re right to observe that volcano's growth had stalled. From a great startup they have grown into a 400 million company that was an excellent job. Now we have technology in our organization that can help Volcano move into addressing structural heart disease. It's an area where we are strong and where we by integrating this Volcano can expand our offering. So we have technology on the shelf in our research labs that are going to be an injection into Volcano to strengthen their product range and get to higher growth, leveraging the sales channel of Volcano. So that’s one source of benefit. The second source of benefit is the integration of the consoles of Volcano into our image guided equipment in the hybrid operating room causing that the hospitals do not need to look at two monitors but rather than one which is a better deal for the hospitals and it will strengthen our systems integration in the operating room with an integrated offer that our competitors don’t have. Then certainly since the sales force of Volcano is constantly present or at least on the weekly basis in the operating room talking to cardiologist they are in fact much better place than we’re through our sales force in understanding when hospitals want to upgrade to the next minimally invasive LED. We also believe that this Volcano sales force can actually sell better than what we can do, the software applications around heart disease but also eventually other minimally invasive therapies in the brain or around cancer treatment. Software applications that will become a recurring revenue stream for Philips but that doesn’t really fit so well with the traditional CapEx oriented model of selling an operating room every once in 10 year. So I see multiple benefits, and then the last source of important benefit is playing all good cost synergies and Volcano is a listed company. We’re taking it off the market, we can adjust overhead cost as we integrate kind of really relatively fast. So overall it's a very strong business case. We have put our best people on it, our image guided therapy business is not affected by any of the topics that we discussed earlier. It's a strong business and well performing and we’re ready to go at the moment the tender offer is completed and we can expect later this quarter to come to a closing. If I may then I will switch gears to the LED pricing, maybe to give myself a chance to drink a glass of water. I will let Ron answer.

So yes, so if you look at price erosion particularly LED it comes from the LED lamps and that is basically I would say across regions. It is a little bit stronger in Asia where as you know price points are typically lower. So we see strong double digit price erosion in that lamps particularly. So that makes the price erosion of LS&E one of the key business groups into the mid-single digit. If you look at PLS it's more like low single digit and for consumer luminaries, it's somewhat higher because we’re also introducing a lot of new products in there that actually goes quite well, you’ve seen some excitement about our home connected lighting suites, video TV, etcetera. So overall the price erosion for lightings in the mid-single digit, we’re offsetting that by better material, by taking cost out and we did improve particularly in LED lamps and systems, our EBITDA margin in last year compared to 2013 but of course we need still to drive more volume there.

The next question comes from Olivier Esnou from Exane BNP Paribas. Please state your question, sir.

Three questions please. I would like to conduct for lighting component disposal process. As you review the bids are you now purely in a value maximization for 100% of lighting component. Are you still looking at patent sharing and possibly keeping retaining 40% or about 40% of the asset meaning this is part of the adjustment when you review those bids, that’s question number one. Question number two on the lighting separation cost of 300 to 400, I like to have a bit more granularity on that number and possible - it's just like almost a year of EBITDA for lighting now. Is it purely cash or do we have as well write-down of the non-cash adjustment and if you could just maybe say a little bit more about what it relates to? And third question, the U.S. professional Luminaire Development is quite a setback in Q4 in two months ago, you will fulfill a profit year and I just wanted to have your thoughts on to what extent you think after almost trying for two years to come back some really structural issues and beyond - this means in the portfolio or what drives you to believe now you can still come back here. Thank you.

So on the LED component process we’re inviting investors to take a 60% to 80% share of the business and lumileds will continue to be a supplier to us to lighting so there will be a supply agreement and obviously that’s important to us, right? Philips lighting solution is the largest lighting play in the world and we will have a big demand for LEDs and obviously lumileds is a very important part of that and we together do a lot of innovation. I don’t want to let you look inside our deepest thinking around choosing the eventual partner. You will find in due course but we will look at all factors. Then the separation cost, we have done many separations in the past and they typically cost money as we need to separate IT systems, we need to setup new legal entities in countries, we need to shift personnel, we have advisors, we need to setup data rooms. So all of that is cost and mostly its cash related cost. I'm now looking to Ron to see whether I say this correctly.

You said it correctly, Frans. So it's mostly cash, it's exactly for what you just said. It's across many functions, finance, HR, supply chain, IT infrastructure, and real estate, the whole works and if you look outside we’re still trying to look at a bit of relevant benchmark but this certainly not seem to be out of way. So this is for 2015 and we will have to see by 2016 what it would look like probably lower but too early to tell. So initially it's a buildup of couple of bottom up plan and of course as we move along progressively we’re going to update you. I think this is now pretty good estimate.

Let me also underline that we’re trying to setup two lean and agile companies and that we don’t want to have any stranded cost hanging around. So also take the right measures to make sure that we set ourselves up for future success. Yes and then the third question Olivier, Professional Luminaire North America of course is a setback, disappointing. We have taken the measure to appoint Amy Huntington to take the team now the next step forward. However that does not mean that the measure that we have taken were wrong. No, they were right. What we found in the Genlyte acquisition is a multitude of disparate brands, R&D locations and factories. Over the last two years we have taken a lot of action to rationalize that base, to bring products under the Philips brand and the Lightolier brands to move the sales force to be able to do large scale projects and key account management, appoint the new agents representing the consolidated brand portfolio to roll out SAP in that part of the business and so on and so on. So, now we can all of course regret that that wasn’t done years ago but so be it, we took in fact when I was the interim CEO of Lighting, we started this process, we took decisive action to overhaul this business. It has been very painful, we have lost market share primarily to you know one of the North American competitors but we do feel that we have taken the right actions. Now we need to refine those measures and reinvigorate the whole situation and we believe that Amy Huntington that she is absolutely the right leader to do that. I also flagged that in fact we had orders on hand in the first quarter that we were not all able to deliver and yes if we would have had a little bit more luck I think the results would have looked already different. Of course luck doesn’t count, we need to perform and that’s what we’re setup to do. So we expect a gradual improvement during 2015. We should give Amy sometime to get her bearing and to start contributing but I'm convinced that we’re able down the road to regain our market share and I say that with conviction on the back of our product range which in other parts of the world is very strong, is very convincing to professional building owners, to cities, in stadia, and so on. So I don't see any reason why we would not have a positive uptake later on.

The next question comes from Ms. Daniela Costa from Goldman Sachs. Please state your question madam.

My questions are mostly answered but if I can just follow-up on something on Cleveland, out of the 225 million and can you break down or give some color on how important is the component of I guess lost sales versus write-off of stocks and penalties to customers and then more generally how should we think about the time that takes to regain these market shares? So if you’re negotiating a package now and for CT scanners and you just for Siemens or for GE. How long are you locked in? When will you be back in rethinking this in the decade or can this actually be regained quicker? Thank you.

Yes so if you look at the 225 million about 140 million plus is from lost sales. You know that we had a stock write-off in Q3, and then we had - the rest is for consultants and other costs that breaks down the 225 million.

Now then time to regain. We have flagged that it will take us the better part of 2015 to get back to volume that is approximate to the level of 2013. So I think that indicates our current conviction that we are able to repair the situation. I already said we are still getting orders for example, European deals, for example, the Saudi Arabia deal. So it is not that customers have totally stopped ordering. We'll take this account by account. Some of course have - the ones that we’re affected by the delay will remember that more than the customers that we’re not expecting a delivery and basically are prepared to give us the next shot at the delivery. So it's a mixed picture globally. We are committed to repair this situation over the next 12 months.

The final question comes from Peter Olofsen from Kepler Cheuvreux. Please state your question.

On the Lighting business, you mentioned that the performance was impacted negatively by China and conventional lighting. Maybe on China, the declines that you saw there was it just a reflection of weaker end customer demand or were there also some destocking effects? And to what extent was China impacted by customer credit provisions? I recall you had some in Q3, but was that also the case in Q4? And then on conventional lamps, the issues there is it mainly a matter of lower volumes or do you also see some price erosion on that side?

Yes. So on the China Lighting decline, there was some weaker end demand. As you know, in China, construction is not exactly what it was earlier on, so we feel that. Some new construction, some retail construction is lagging behind. That definitely impacts end markets and not only destocking. So the credit provisions in China are below 10 million. We could release some because some people paid us as according to plan and there was at the end some that we had to hold on to. So that impact is abating. Price erosion in conventional in China, yes there is price erosion in conventional. It doesn't take the magnitude of what I earlier said on LED lamps, but conventional China pricing goes a little faster than across the globe on an average. As you also know, the conventional wind-down is now about 13%, so that is a low double digit if you will and in China, that has gone a bit faster. Of course because we had to hold back and didn't want to overstock and certainly not see a repeat of Q4 last year, that definitely also played a role in the China performance. So we're looking forward to the New Year where we're working through this customer payment plans apparently on track apart from a few that I just mentioned and we should see some improvement in 2015.

Thank you, Mr. van Houten and Mr. Wirahadiraksa. There are no further questions. Please continue.

All right. Well, I want to thank everybody for joining this call and giving us a chance to answer your questions and I look forward to meeting you soon again. Thank you. Bye, bye.

That concludes the Royal Philips' fourth quarter and full year 2015 results conference call on Tuesday, January 27, 2015. Thank you for participating. You may now disconnect.