Welcome to the Royal Phillips first quarter 2016 results conference call on Monday, April 25, 2016. During the introduction hosted by Mr. Frans van Houten, CEO, and Mr. Abhijit Bhattacharya, CFO, all participants will be on 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. Good morning, ladies and gentlemen. Welcome to Philips' first quarter fiscal year 2016 results conference call. I'm here with Frans van Houten, CEO; and Abhijit Bhattacharya, CFO. In a moment, Frans will take you through our strategic and financial highlights for the period. Abhijit will then provide more details on financial performance. After that, we will be happy to take your questions. Our press release and the related information slide deck were published at 07:00 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 the following three things. First, starting this quarter we published our quarterly financial results under the new segment reporting structure, reflecting our strategic approach in the health technology market. The new reporting structure will enhance transparency and has no impact on total Philips' financials. You can access prior period financials under this new segment reporting structure on our IR website in the financial reporting update section. Second, following the decision in 2014 to combine our Lumileds and Automotive, Lighting businesses into a standalone company and to explore strategic options to attract capital from third-party investors. The profit and loss of these combined businesses is reported under discontinued operations, and the net assets of 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 total level as well as at the segment level continues to exclude the performance related to the…

Thank you, sir. The first question comes from Mr. Max Yates from Credit Suisse. Please state your question. Max R. Yates - Credit Suisse Securities (Europe) Ltd.: Hi, good morning. Thank you. So my first question would just be around the IPO and the potential timeframe. Could you just give us a bit of guidance on, if we were to progress via that route, what the timeframe would be, when we should expect the IPO to be launched? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: Hi, good morning, Max. This is Frans. What we flagged in the release this morning is that we plan to take a decision shortly, meaning that at this time we are still evaluating both tracks with the various bids under study and the IPO preparation in full swing, as we then take a decision shortly then after things could go fairly fast. Max R. Yates - Credit Suisse Securities (Europe) Ltd.: Okay, thank you. And just one follow-up would be, obviously, in the press around the bidding, GO Scale Capital have been rumored to be involved in the bidding process again. Given you now have a fairly detailed understanding of the CFIUS process, is there any work you can do initially to try and understand their position on any bids from GO Scale for that business, and have you actually been in contact with CFIUS so far? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: I had my share of the CFIUS process last year. I can say that. I've been to Washington. But in my understanding, it's a process that you can only do after you actually register a request with…

The next question comes from Mr. Ben Uglow from Morgan Stanley. Please state your question, sir. Ben E. Uglow - Morgan Stanley & Co. International Plc: Abhijit and Robin. So, my first question is I'd like to know how to think about the margin in Diagnosis & Treatment just conceptually. When I look at the margin for the first quarter and, obviously, I understand that it's a low quarter and that we still may have some remediation impact, 2% feels quite low. And what I'm trying to figure out is what over time – I'm not necessarily saying in the next six months, but what over time – where should that division fit in terms of its profitability? And if I think about the old healthcare targets, which, admittedly, we're now going back to 2015, divisionally, we were considering 16% to 17% reported EBITA. Should Diagnosis & Treatment be in line with the old divisional target above or below? And is there anything in particular in the businesses, for example, a big difference between ultrasound and the advanced imaging, what would make that division be above or below the old margin targets? So, that was question number one. Question number two; very briefly, patient monitoring had a very strong quarter, it was growing at 9%. Is that a catch-up effect? Is there a base effect or could you just explain the sales growth there, please? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: All right. Ben, let me start and then Abhijit will help me to provide more color where necessary. You refer to the guidance on healthcare. In fact, we gave directional guidance on all of HealthTech by saying it should be in the mid-to-high teens EBITA in…

Our next question comes from Mr. David Vos of Barclays. Please state your question, sir.

Good morning, gentlemen. Thanks for taking my question. I also had a kind of a more general question on the Connected Care & Healthcare Informatics business and it's very similar to Ben's question really. Margin improvement has been pretty good there from 0.8% to almost 4%, but it's still a little bit lower than what you reported in Q1 2014. So I was just wondering if you could help us understand where your ambitions lie there. And maybe as a kind of a second leg to that question, if you could frame your ambitions in the context of what we see your competitors in the Healthcare Informatics space do – thinking, for example, about Cerner where you see EBITA margins north of 30%, which is quite a long way north of where Philips is at the moment? That'd be very helpful. Thank you very much. François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: David, the ambition for Connected Care & Health Informatics is in the same order of magnitude as I've explained for HealthTech, so in the mid-to-high teens, and I don't make a distinction between the three reporting segments. Now, what you need to realize that is in Connected Care & Health Informatics, there are sizeable investments, step-ups in R&D versus the first quarter of 2015; for example, investments in extending patient monitoring towards wearables as well as investments in Health Informatics among which our HealthSuite Digital Platform and the extension and build out of our consulting activities around Healthcare Transformatory Services. So overall, it is a segment that is heavily weighed down by those investments, which of course will pay off over time. And then, by the way the high growth that you see in that segment, of course, also reflects the fact that we are making new investments. Then your point on peers; let say in the medium-term, we look to these mid to high teens EBITA. And that doesn't mean that there are no businesses that would be above-average and certainly I can have – we can look at Cerner and other companies' profitability margin, but at this time, we will strive to get to the mid-to-high teens.

Okay, thank you very much. That's it from me.

Our next question comes from Mr. Peter Olofsen from Kepler Cheuvreux. Please state your question sir.

Good morning, first two questions on Lighting please. On the overhead and support functions within Lighting, now we have some of the former IDNs growth having been allocated there, do you think the cost structure is appropriate for the size of this business? Or do you see room for meaningful reduction in overhead and support costs in coming years? And then, on the lamps side, conventional lamps; could you remind us what you expect to spend annually on the footprint adjustments in conventional lamps? And then my final question relates to working capital. I think both Connected Care & Health Informatics as well as Lighting showed pretty nice improvements. You think these improvements are sustainable? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: Okay, thank you, Peter. We have done the separation and it gives us the insight that we can further simplify over time. The overhead support functions can be expected to have further productivity enhancements over the next one year to two years. In any case, as part of the plan for improving the Lighting profitability, we expect to be able to make significant productivity enhancements in the business as we strive for steady profit enhancements year-on-year. The lamps' footprint reduction will be answered by Abhijit. Abhijit Bhattacharya - Chief Financial Officer, Executive Vice President & Director: I think we have said so far that conventional footprint was about 1.5% to 2% of sales. So you could say that for this year, roughly between €90 million to €100 million would be the range. Regarding your question on the working capital, that clearly we believe is sustainable and we have some runway there to go as well. So clearly we are working on that. You see now that for the second quarter, you see our inventory levels also coming down, and that is something we will continue to drive in the coming quarters.

Okay, thank you.

Our next question comes from Mr. Phil Wilson of Redburn. Please state your question. Philip H. Wilson - Redburn (Europe) Ltd.: Good morning, it's Phil from Redburn. Thanks for taking the questions. I'll do one at a time, if that's okay. Firstly, just looking at your guidance, 11% adjusted EBITA margin, which you appear to have stuck to, that looks quite a challenge given the first quarter. To what extent do you need a macro-based second half growth recovery to achieve this versus your internal measures of savings and Cleveland coming back? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: Hi, Phil. Frans here. We have said it is going to be around the 11%. So of course, that has a bandwidth around it. We believe that there is a lot of self-help improvement possible. We've already talked on Ben's question on Diagnostic & Treatment being quite back-end loaded. So we will continue to make improvements through the year, and indeed, we have still quite a journey to make. Philip H. Wilson - Redburn (Europe) Ltd.: Okay, thank you. On slide 46, you talk about how you expect the overall U.S. healthcare market to grow. It looks like you actually expect the Diagnosis & Treatment markets, the imaging market, to decline low single digits in 2016, which is different to what other peers I think are saying about the imaging market. Can you talk about what the drivers are behind the potential decline in the U.S. imaging market in 2016? Abhijit Bhattacharya - Chief Financial Officer, Executive Vice President & Director: I think overall, we've said that we expect procedures to grow. But with cuts in reimbursement, it could be flat to slight growth in the market. You see that for Patient Care, Monitoring, and Health Informatics, we see a bit of growth, and that could be marginally offset with reimbursement cuts in the Diagnosis & Treatment area. But it's a very minimal decline, you could say more flattish than anything, and that's based on the current projections we have. Philip H. Wilson - Redburn (Europe) Ltd.: Okay, thank you. And then finally, I see, as you said, Professional Lighting in North America return to growth. Can you give some help on what the margin currently is for PLS North America and where you think that can settle? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: No, Phil. We are not detailing out the margin in North America, but it is safe to assume that as we are back to growth, also our margins are improving. Philip H. Wilson - Redburn (Europe) Ltd.: Is it profitable? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: We are not detailing out the margin, as I said. Philip H. Wilson - Redburn (Europe) Ltd.: Okay, thank you very much.

Our next question comes from Mr. Andrew Carter of RBC. Please state your question, sir.

Good morning. I wonder if you could just help us understand a little bit what's going on in terms of the quarterly order intake at HealthTech. So I was looking at page 44, and I apologize if I missed something in the prepared comments there. But I was wondering. I guess in particular North America and Western Europe, you seem to have been flat to down, having been on a much improving trajectory over the last couple of quarters. Could you give us a bit of a feel as to what's going on there, whether any of it relates to comp effects? And also I guess in terms of how important the different quarters are as you go through the year in terms of building up the order backlog as you go into the following year? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: Sure. First of all, there is always unevenness in the orders, especially as we go to larger contracts. Having said that, in North America we grew orders mid-single digit. Do you want to... Abhijit Bhattacharya - Chief Financial Officer, Executive Vice President & Director: In Q4 last year, we actually had very strong order intake in North America, very strong double digit. And as Frans mentioned, it is uneven. So for Q1, it was largely flat. But that's something we expected in line with what we call sometimes lumpy or uneven. But if you look at the rolling 12-month order intake, you see that for North America we are in pretty good territory because if you look at the 12-month rolling, you then don't get caught up in the quarter-by-quarter fluctuations. And therefore, our recovery in North America is pretty good. Similarly, for Europe, as we called out when I was giving you the details, we had a very strong Q1 last year. So the comparables are tough, but we had an even stronger Q4, which of course therefore meant that the backlog of orders coming in the first quarter this year was a little bit lower. Regarding this year, we are actually pretty happy with our order book and commitments that we have, which is why we have guided that the second half of the year would be stronger than the first half in terms of profitability as well because we see our, let's say, order book coverage for the second half is pretty okay at this stage.

Thank you. Can I follow on just on Lumileds, please? I guess over the last several quarters the performance there, which obviously we can see a little bit of it, does look as though the performance there has been somewhat disappointing. Have you had to have a step-up in the restructuring measures and footprint measures and stuff in Lumileds? And if that's the case, how long is that going to take to execute on? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: That's good analytics, Andrew. Indeed, the Lumileds performance had been under pressure over a couple of quarters. We expect it to go up in the second half of this year. We make that statement on the basis of a good order book for the Lumileds products. We also have taken measures to improve the cost productivity. And these measures have typically taken effect in about six months, again, underpinning an improved second half of the year profitability. So we believe that we will come through this period. It's a good business. We have great design-ins with various mobile platforms for flash applications, also of course, for general illumination applications. So, overall, I expect a good future for Lumileds.

Our final question comes from Mr. Graham Phillips of Jefferies. Please state your question, sir.

Good morning. My question is around Cleveland. You spoke about the €100 million improvement last year, and I think in the end, it was a slight decline. You're now saying €100 million improvement in the second half. Why did we slip last year? What more has to be done to get this improvement from just a little over two month's time? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: Graham, we started out by remediating Cleveland factory itself in 2014 and 2015. And then we have extended the efforts to include our supplier base in supporting our suppliers with the right measures is a, you could say, a hand-holding effort that takes a considerable investment. And we are partly also transitioning the supplier base towards alternative suppliers. So all of that is proven to be a quite a bit of a project. We do see light at the end of the tunnel. We're very pleased with how the manufacturing is going. Production levels are back to normal. We have just introduced another product line that was still outstanding. There is now only one small product line to go. We have started to ship our IQon Spectral CT in several countries. So all in all, I say we are having the situation well in hand, albeit with cost levels that are higher than originally planned. But I intend to do this well, and so a bit extra cost is an acceptable price to pay. And then we expected the second half of the year to show stronger bottom-line results.

Okay, thank you. And the one follow up is around the Lighting IPO. Have you looked at the cost alternatives between IPO or an asset sale to the firm? And if you did go for an IPO, what would the proceeds likely be used for afterwards? François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: We've looked at all the various options, and at this time are comparing a private sale versus an IPO. The proceeds will be used. Well, first of all, the proceeds need to come in, and if there's an IPO, of course, they'll come in in a phased manner. The proceeds will be likely used in a blended form, partly to pay off existing debt, for example, the debt that we have for – that we used for Volcano acquisition, partly for additional pension liability reduction that we've already communicated before, that we would still do later this year. Partly, we have a share buyback program to finish this year, and then we will also consider M&A activities to boost the portfolio that we have in HealthTech. So that's the update that I can give you today.

And you prefer that rather in a simple spin than putting perhaps more debt into that business because you actually want the cash for these other proceeds. François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: Yes, that's right.

Okay, thank you. François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: Correct.

We have an additional question over the telephone. It comes from Mr. Ian Douglas of UBS. Please state your question, sir.

Hello. Thanks very much for squeezing me in. Again, most of my questions have been answered already. I just had one, last one on your working capital, and all of the lines there had declined materially this quarter. Is there some change in scope that we should be aware of or – and are you – is this a focus-reducing working capital at the moment, and if so how far could that go? Thank you. François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: I can give a compliment to my CFO, Abhijit, who has certainly made working capital a focus area, and I'll let him speak to how much further we can improve. Abhijit Bhattacharya - Chief Financial Officer, Executive Vice President & Director: Thank you, Frans, but this is – we had a fair amount of cash blocked in this. We've been working for the last couple of quarters to see a tangible improvement. You see that across the board, and that's not only in inventories but also in our receivables and overdue. So we believe there is still some room to grow at this stage, I'm not specifically guiding how much, but, clearly, there is still some more improvement which is possible for the rest of the year. And we are driving that hard every day.

And then, obviously, a lot of that's been offset by decline in payables year over year. Is that just an accident of timing? Should we expect to increase that back again? Abhijit Bhattacharya - Chief Financial Officer, Executive Vice President & Director: So payables is directly a factor of what we are doing in terms of contracts that we have to pay. But partly, the lower payables is also due to the payment of the CRT fines as well as certain pension payments. So these are not let's say current trade payables which are going down. In fact, our DPO, as we call it, days payable outstanding, has been sweeping up slightly to the levels which we want it to be.

Okay, great. So cash flow should be pretty good in the second half as well is the answer. Thanks very much. Abhijit Bhattacharya - Chief Financial Officer, Executive Vice President & Director: We had pretty decent cash flow last year, and we are looking to build on that this year as well.

Thank you.

Thank you. Mr. van Houten and Mr. Bhattacharya. There are no further questions. Please continue. François A. van Houten - President, Chief Executive Officer & Chairman of the Board of Management and Executive Committee: All right, thank you, everybody. Let me give one elucidation because you may have noticed that there were less – fewer questions than usual. And in fact, a couple of good attendees were not speaking up, and that is a reflection of the fact that a number of the analysts that cover Philips have currently suspended their active coverage as the institutions that they work for are involved in the preparation for a potential IPO. So at least, that is how I explain it, and time will tell exactly, of course, that. Thanks very much for attending, everybody. It was a pleasure and have a great day.

This concludes the Royal Philips first quarter 2016 results conference call on Monday, the 25 of April 2016. Thank you for participating. You may now disconnect.