Welcome to the Royal Philips Second Quarter 2015 Results Conference Call on Monday, the 27th of July, 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. After the introduction, there will be an opportunity to ask questions. Please note that this call will be recorded and is available by webcast on the website of Royal Philips. I will now hand the conference over to Mr. Robin Jansen, Head of Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, ladies and gentlemen. Welcome to Philips second quarter 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 on the financial performance during the quarter. After that, both Frans and Ron will be happy to take your questions. Our press release and the related information slide deck were published at 7:00 AM CET 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. Before I turn over the call to Frans, I would like to remind you of two things. Following the decision in June 2014 to combine our Lumileds and Automotive Lighting businesses into a stand-alone company, the profit and loss of these combined businesses is now reported under discontinued operations. And the net 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 under cash flow from discontinued operations. Therefore, all commentary that will follow in terms of sales and earnings at both the group level as well as the Lighting sector level excludes the performance related to the Lumileds and Automotive Lighting businesses. Secondly, when we refer to adjusted EBITA on this call, this represents EBITA excluding restructuring costs, acquisition-related charges and other charges and gains above €20 million. With that, I would like to hand over the call to Frans. François A. van Houten - Chairman and Chief Executive Officer: Thanks, Robin, and good morning, to everybody on the call. Our…

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

Good morning gentlemen. Just one question then from my side. If we look at the market shares in Healthcare, I appreciate that order intake is generally lumpy, but it occurs to me that there is a few quarters running now where you're underperforming both GE and Siemens. How are we thinking on getting that market share back? And the related question to that is obviously if you are still sticking to your slightly higher price erosion estimates that you've previously communicated and if you could just repeat what those were exactly, that would be helpful. Thank you very much. François A. van Houten - Chairman and Chief Executive Officer: Yeah. Thank you, David. Let me first comment on the market share. We are looking back at a tough 2014. We have taken a lot of measures last year with regard to management, with regard to quality management systems, with regard to, for example, the sales organization in North America. And I see that we are starting to see the positive effects of that. And most notably in the United States where we saw strong order intake as well as sales growth. A small portion of that is attributable to the Cleveland manufacturing resumption, around 2%, which leaves ample of improvement for other regions, which I just described. So I think all in all, we are reclaiming market share in that market. Admittedly, that was necessary, but I'm pleased that it is happening and we talk about it here internally as we are encouraged to see that trend. And it also leads us to say that we can expect continued operational improvement going forward while hastening to say that we still have a lot to do to really further solidify and underpin that. A big order like Westchester actually indicates that…

Thank you very much. That's very helpful. By way of follow up, the digital pathology solutions looks very interesting, it could potentially be quite a big market, I think. What's your internal estimates there for kind of future growth? Are you booking revenues already and crucially also, if you could hint towards where the margins would be versus, say, the average Healthcare margin, I would appreciate it. Thank you. François A. van Houten - Chairman and Chief Executive Officer: Yeah. Glad – thanks for picking up on that. Digital pathology is one of our startups within the Healthcare Incubator. If this would be a standalone company, I think, people would be writing rave reviews about the strengths of this startup. Of course, you guys look at the totality of Philips and sometimes, these startups are then not seen. Yes, this startup is already booking revenue, and we already have tens of hospitals using the equipment. The recent order in the Netherlands is where one pathology lab is entirely upgrading to the digitization using our scanners but also, our management software and services for analytics of tissue samples. And you can imagine that that is attractive because then the – creating the whole ecosystem for digital pathology and not just hardware. We are also making progress in other countries in the world, notably the United States, but also in Japan. I'm very optimistic about the longer-term prospects of this startup. At this moment, I cannot give you details on margin profiles and so on. Obviously, we are still investing. There is a significant R&D bill associated with this business. It falls under the IG&S results where we have previously flagged that we have increased investments, and that has a negative drag on near-term earnings. I'm convinced that this will become a very attractive business, but it will still take, yeah, a few years to have a meaningful bottom-line impact.

Thank you very much. François A. van Houten - Chairman and Chief Executive Officer: You're welcome.

The next question comes from Mr. Gaël De Bray of Société Générale. Please go ahead. Gaël De Bray - SG Securities (Paris) SAS: Hi. Good morning. Thanks very much for taking the questions. How do you – the first question is on the currency impact, how do you explain the huge gap between the 14% positive FX impact on the top-line and actually the negative impact you had on EBITA? So maybe, could you elaborate on your net currency exposures, and maybe give us what's the existing mismatch between your revenue base and cost base in dollar terms. And maybe as a follow up, with the new orders for Healthcare now declining low-single digit in Europe in the second quarter, I think that's probably the first time it is back in negative territory since 2013. So just how concerned are you by the decline in Europe? And maybe do you see a little bit more aggressive competition in Europe from the likes of GE, Siemens, Toshiba maybe now that some of the historically faster growth markets like China are slowing down? François A. van Houten - Chairman and Chief Executive Officer: Maybe I'll take quickly the second one and then I'll move to Ron. Yeah, Gaël, I wouldn't read too much in the European negative order intake in the quarter. We had a very strong first quarter, and orders come in lumpy as you know. And we don't see any particular shift in market strength. We think we are performing strongly there. Macroeconomically, Europe is certainly not yet out of the woods. I mean, there is still concern about the fragility of the macroeconomic recovery of Europe and all first-half discussion around Greece certainly didn't help in reinforcing growth, but we feel strong about our market position. Ron H. Wirahadiraksa…

Our next question comes from Mr. Mark Troman of Bank of America Merrill Lynch. Please state your question, sir.

Thank you. Good morning Frans and Ron. First question, just on the guidance for this year, you talked about modest sales growth, Frans. And I think on the last call or last couple of calls, we talked about 100 basis points of adjusted EBITA improvement. I just wanted to check that's still the case. I guess, you did about 50 basis points positive in this quarter and Q1 was obviously a bit behind. So I just wanted to check that 100 basis points. And just to follow up on Healthcare. In terms of the book-to-bill, is that enough to sustain sales growth this year? So obviously, you've had a strong 8% in the quarter. Do you feel you can get a reasonable level of sales growth in the next year (38:50) in Healthcare (38:51)? Thank you. Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: Yeah. Hi Mark. Already in April, I flagged that it's going to be quite challenging to achieve the EBITA improvement. We are laser-focused on operational results improvement in order to get as close as possible to our objectives. Despite the currency headwinds, you saw operational improvement coming through. That is good. Now, we also flagged the macroeconomic headwinds, so there is more work to be done. And we continue to make progress. On the Healthcare side, obviously, the second quarter was very strong and we are more conservative in our overall outlook. We believe that we can see modest growth for Philips overall and that takes into account growth from Healthcare. And I'd like to leave it at that.

Okay. Thank you very much.

Our next question comes from Mr. Philip Wilson of Redburn. Please state your question, sir. Philip H. Wilson - Redburn (Europe) Ltd.: Hi. Yes. Good morning everyone. Thank you for taking the questions. Just, two please. But firstly, just on FX, just given that previous commentary. You talked about the margin impact only being slightly dilutive. And given you're going to have an FX benefit to the top-line of €2 billion, that requires a huge positive number in the second half of the year between €150 million to €200 million. Is that the sort of scale of absolute impact we should be thinking about in the second half from FX? And perhaps, my understanding as to how that happens, is it because of the timing of hedging? And secondly, just on Lighting, this business has now been in decline for about 3% for the last six quarters or since you started disclosure in this current state. Is this a business that we should be thinking about as now in decline at about that level of minus 3%? So with that structure decline, I understand you're doing a good job on the margin but is it a business decline at minus 3%. Or is there something that you think will help improve the top-line in the future? Thanks. Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: So thanks for the ForEx question. So yes, the currency impact, if you add it up for the first half, it's about €1.2 billion. So it could go in the direction that you say. And as I said, we do expect a tailwind in the bottom-line, but you have to also remember what I said on the footprint, yeah? So the footprint of the company is also under the influence of, for…

Our next question comes from Mr. Ben Uglow of Morgan Stanley. Please state your question. Ben E. Uglow - Morgan Stanley & Co. International Plc: Oh, yeah. Morning, everyone. I had a couple of questions on Healthcare. First of all, can you – Frans, can you give us a bit more granularity on the trend in the Imaging Systems business in North America? You've got double digit order growth in North America. How much of that is coming from Imaging Systems? And what's actually going on in Patient Care? What I'm interested to know is post-Cleveland, have you restarted that business across all modalities in Imaging Systems? So that was question number one. Question number two is a much more general one, about the – what the underlying or what the real margin number should be, what true profit level is for the Healthcare business? If we go back to December last year and even in the slide presentation today, the reported EBITA target for that business is 16% to 17%. I think at the EPG conference and elsewhere, you talked about different headwinds between investments, Cleveland price, et cetera. And what I really wanted to know is, what is the size or what is the scope of those headwinds going forward, i.e., is this is a small effect, 1 or 2 percentage points? Or is it actually going to be far more material on an ongoing basis, i.e. is this a 3 percentage point, 4 percentage point, 5 percentage point line item? How should we think about Healthcare margins going forward? François A. van Houten - Chairman and Chief Executive Officer: I wouldn't call that just a general question. Ben, that's a very sophisticated question. But anyway, let me talk a little bit around it, right? First question is…

The next question comes from Mr. Andreas Willi of JPMorgan. Please state your question, sir.

Yeah. Good morning, everybody. I have two questions, one on the separation cost and then a follow-up on the currency and Healthcare. On separation, I mean, you're guiding us to kind of €0.5 billion costs for this task, which seems very high compared to other companies that's done spin-offs or break ups. Maybe you could give us some more indication of how that breaks down. What is external fees, what is staff that you've hired, what is non-cash items or write-downs or more legacy issues, just to give us a better confidence that this is not an underlying buildup of corporate costs or reallocation of corporate costs? Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: Okay, Andreas, hi. This is Ron. So you have to realize, and I know you do, that this a very complex separation. This is not your plain vanilla carve-out. We are literally resetting the company in more than 90 countries. Financially, tax wise, IT-wise, HR-wise systems, number of applications to be separated out, government contact and contracts, it is really a very arduous task. As Frans said, we're well on track. So, going into 2016, it doesn't mean that we're not on track. On the contrary, I would say, the costs are indeed, if you take the midpoint of what we are saying €400 million to €600 million, it's €500 million. That is 1.5% to 2% including restructuring. So we've said this earlier, we don't feel this is out of range. But you do have to realize that Philips is a company that has been deeply entwined and entangled in the absence also of an infrastructure that is more enterprise-wide architected which is exactly what the Accelerate! transformation program is doing, building that infrastructure. We are not at that point yet. And…

Thank you. And my follow-up question on currency, which I guess were a large chunk of it, of the negative we have seen so far seems to be also in Healthcare. I still struggle a little bit to understand given you have – currency seems to be a problem when the euro is strong and then, it is a problem when the euro is weak in terms of your exposure here. And if we look at other companies that have had significant currency headwinds because they're sourcing a lot in China or in U.S. dollars in general, we've seen price as a partial offset, even at companies like Electrolux, who in the appliance business is not known for very strong pricing power, why haven't we seen more of a positive price impact as you try to offset some of these currency headwinds in markets with weak exchange rates like Russia, like Brazil? Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: Yeah. Andreas, it's a very good point. So, I hear what you say. When the euro was weak, it's not good. When it's strong, it's not good. The backdrop to this is, of course, that the footprint has changed. And as I earlier said, we are having activities now in discontinued operations, for example, that provides a very different footprint impact. Then of course also, we have to think about the related currencies in developing markets to growth geographies. That basically have – were this time a plus last time, last year there were somewhat of a setback. And then there is the impact of the Chinese yuan that basically we are short in. So that hampers the equation also. This is not something out of the realm I would say. We have quite granular data to follow this. On your question on price increase, we did. So, particularly in Consumer Lifestyle, where we have a number of franchises that allow us to increase pricing, we were able to offset, and therefore, as we already explained, we have seen quite a strong operational performance despite the currency headwind. So, in our book and I hope I'm answering your question, there is nothing mysterious or strange about it. So, it's a matter of currency movements, it's a matter of seasonality and it's a matter of footprint. And then of course, we have hedges that are unwinding that have also influenced the footprint.

Thank you very much.

Our next question comes from Mr. Fredric Stahl of UBS. Please state your question, sir.

Yeah. Good morning, everyone. It's Fredric here from UBS. Could I ask you on Lighting, the LED margin there, what's driving that? Is there anything of one-off nature in terms of mix, for example, in the quarter? It's such a big uplift relative to expectations. If you can give us some more color on that, that would be helpful. Thank you. François A. van Houten - Chairman and Chief Executive Officer: Do you want to take that one? Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: Yeah. Are you talking about the growth in LED, the growth uptick or the margin uptick?

No, the margin uptick. Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: The improvement. Yeah. So, we're getting, of course, better in volume particularly on LED lamps. We've also seen in the beginning a lot of price erosion in the professional business where now we can say that LED business is significantly more profitable than conventional business. And also, the conversion there has gone very, very fast. We also are able to drive a quite good cost out in the Bill-of-Materials, which helped drive the margin improvement. And sometimes, this goes maybe a little bit more clunky, if you will. We'd run this in the DfX program. We run at these DfX conventions with organizations where we teach people how to do this, how to sustain it. And I think that compared to Q2 last year that has given a good boost to the program. And I can say that the DfX program, because it wasn't on top of, has also triggered much better normal building material savings. So, that explains the driving better LED margins, which we should also do, of course, as we grow and move forward in this business, and I'm not only talking about LED lamps, but, of course, also the LED in the professional business particularly. François A. van Houten - Chairman and Chief Executive Officer: Yeah.

Thank you. Could you give us an idea what the difference is in terms of profitability between the total LED segment and the conventional lighting segment? Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: Well, LED is profitable, overall as a business. So, it was mid-single digits. It will move up gradually as the conventional business, which is also still very profitable, but in the top line is coming down a bit as we have seen.

Thank you very much.

Our next question comes from Ms. Margaret Paxton of Nomura. Please state your question, madam.

Good morning. Thanks for taking my questions. I just have a longer-term question about Healthcare, please. I think, your R&D spend in Healthcare last year was around 9% and it had inched up a bit. Given the commentary around investing more in informatics and the importance of analytics and how to differentiate in general now in Healthcare, do you anticipate that that R&D spend as a percentage of sales will keep going up sort of in the mid-term? And related to this, there seems to be a lot of big IT companies like IBM doing healthcare analytics now. And I appreciate the term analytics can be very broad, but can you explain maybe the difference between what Philips is doing compared to what those sort of larger IT companies is doing and where the overlap is, if any? Thanks. François A. van Houten - Chairman and Chief Executive Officer: Yeah. Thank you for the question. R&D in Healthcare has certainly edged up a little bit. And as we go more in informatics, the nature of the business, including software would argue that the R&D spend actually may take a – due to mix effects, may take a stronger position because typically development is the factory of software. And so, I don't see it really come down as such. On your question on IBM and other competitors, our business, obviously, is also going to take more of a role in so-called big data, but are many market segments also in the market of big data. And we are very much focused on the delivery of care to consumers, to patients in the professional healthcare space in the hospital. So, colloquially – in a colloquial way, you could say we are there in the last 10 yards between the patient and the…

Okay. François A. van Houten - Chairman and Chief Executive Officer: Does that answer your question?

Yes. Thank you. Can I just clarify on the R&D question that you're saying that it won't go down, but are you saying it will go up or...? François A. van Houten - Chairman and Chief Executive Officer: Well, I said if the proportion of our business, the mix of our business shifts, for example, more HISS, more software business, that business comes with a higher proportion of R&D through the nature of its business, because software developers are "the factory of software". Maybe it's something that we need to reflect a little bit on as I recognize your question and provide some more commentary around Capital Markets Day. I think it may go beyond the scope of this call. As you indicated yourself, it's more a long-term question in nature and I think then the real answer is more around which business in Philip is going to grow fastest, all right? And then how does that influence the mix of R&D ratios per business? Is that okay?

Yes. Thank you very much. François A. van Houten - Chairman and Chief Executive Officer: You're welcome.

The next question comes from Mr. Alfred Glaser of Oddo Securities. Please state your question, sir. Alfred Glaser - Oddo & Cie SCA (Broker): Yes. Good morning. Thanks for taking my questions. First, I wanted to get back on your target and the outlook for 2015. Previously, you said that you were targeting a 100 basis point improvement of the adjusted EBITA margin. Do you still target this or is this now more a qualitative target than previously? And my second question was on the free cash flow that was slightly negative in Q2. Could you give us some more detailed elements on the full year outlook, what should be taken into account for free cash flow this year? François A. van Houten - Chairman and Chief Executive Officer: Yeah. Thanks, Alfred. I think Mark also asked about the near-term guidance with regard to improving the adjusted EBITA in the year. And my response was that we face quite a lot of headwinds and it will be quite a lot of work and we are focused to get as close as possible to our target. But it is certainly not in the bag yet. Then maybe, Ron can talk about the cash flow side of your question. Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: Yeah. So, if you look at the free cash flow and, as mentioned in the speech, the €30 million negative is basically influenced by the CRT settlement mostly of €73 million. Also, if you look at the calendar, as you know, we switched to the Gregorian calendar this year, so we're not going to have phenomena anymore in the year of payments and receipts falling in or outside the quarter. But it does mean when you compare with last year, there is some impact. I think they should achieve (01:08:34) free cash flow at the first half with this – with having said this actually very healthy. If you look for the full year, it's a little difficult to comment on that at this point because there are a lot of moving pieces, also under the influence of what I earlier said around pensions. We will give an update on that later on in the year when we have firmed up the de-risk plan or able to better quantify this for you. The operations, otherwise, generate the cash flow they usually generate. So, it goes basically down to incidentals where we're going to end the year with. Alfred Glaser - Oddo & Cie SCA (Broker): Okay. So on cash flow, the underlying cash conversion rate should be comparable to what it was last year, is that correct? Ron H. Wirahadiraksa - Chief Financial Officer & Executive Vice President: Yes. Yes. Even slightly better, I would say, because we have made also improvements in our operational performance. Alfred Glaser - Oddo & Cie SCA (Broker): Okay. All right. That's clear. Thank you very much.

The next question comes from Mr. Michael Hagmann of HSBC. Please state your question, sir.

Two questions, actually; two follow-up questions from my side, if I may. First one is on guidance. As you have been realizing, I guess, throughout the call that some of us are still quite at a loss in respect to what we can expect for 2016. Now, I do appreciate that there is a Capital Markets Day in the middle of September, but given that normally July and August are quite slow months anyways and, halfway through September, you will not have much additional information about September, I was wondering if you couldn't try to give us some help on what we can really expect for 2015 and 2016, if you can't provide that information, I was wondering if you could tell us what we can expect on the Capital Markets Day in respect to the guidance? Will you give us a more narrow range for 2015, a narrow range for 2016? Or will it be more like a mid-term outlook to 2018? And then the other follow-up question just on pricing, please, I was just wondering if you've been able to pass on writing raw material cost in LED replacement lamps in Europe towards your customers. Thank you. François A. van Houten - Chairman and Chief Executive Officer: Yeah. Michael, let me try again a little bit then on 2015 and 2016. First, 2015, in January, we said we strive for 100 basis points improvement. In April, I flagged that that's going to be challenging, but we will try to do that. And today, I reiterate that we are laser focused on driving further operational improvement. We are encouraged by second quarter. It's a step in the right direction. The year is only halfway. So, we still have six months go to. We will try to get as close…

Thank you very much for the elaborate answer. Thank you. François A. van Houten - Chairman and Chief Executive Officer: You're welcome.

Unfortunately, we only have time left for one more question. We will now take the last question from Mr. Peter Reilly from Jefferies. Please go ahead, sir.

Good morning. I just wanted to come back to your comments on China, Russia and Latin America, where you're concerned about the macroeconomic environment. Is that something you're seeing today in your order intake or in terms of talking to your distributors? Or is that just a more general concern you got based on what we can all read in the newspapers? François A. van Houten - Chairman and Chief Executive Officer: Yeah. Thanks, Peter. It's just specific concern as it affects our business already today. We see – we had five fabulous years in China, of course, where we grew strong double-digit, and it has been gradually slowing down. Currently, in China, we had negative order intake on Healthcare, also on Lighting projects, given the weak construction market. So, it is impacting the business. I think, going forward, we need to be much more modest on expectations in – with regard to China growth. That's just being realistic. Russia is facing a deep economic crisis and consumers keep their wallet closed. That affects us. I think the Healthcare business in Russia is probably already flattened out because there we saw a big impact in 2014. And I don't see currently a further decline, but the consumer behavior is very much under pressure. And then in Latin America, I think we see a deteriorating Brazil both on the macroeconomic side, but it translates into weaker business performance across the board in all three sectors.

Thank you very much. François A. van Houten - Chairman and Chief Executive Officer: You're welcome. All right. Sorry that time is up. I know that there were more people wanting to ask a question. Of course, our Investor Relations desk is always available for you. And let me just round off by saying that I'm encouraged by the improvement in the second quarter. We have a lot to do for the coming quarters. And we are going at it with full force and will make step-by-step further improvements on our operational results. Thank you.

This concludes the Royal Philips second quarter 2015 results conference call on Monday, the 27th of April (sic) [July] (01:17:51) 2015. Thank you for participating. You may now disconnect.