Welcome to the Royal Philips Fourth Quarter and Full Year 2017 Results Conference Call on Tuesday, the 30th of January 2018. During the introduction hosted by Mr. Frans van Houten, CEO; and Mr. Abhijit Bhattacharya, CFO, [Operator Instructions]. 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. Pim Preesman, Head of Investor Relations.

Thank you, and good morning, ladies and gentlemen. Welcome to Philips' Fourth Quarter and Fiscal Year 2017 Results Conference Call. I'm here with our CEO, Frans van Houten; and our CFO, Abhijit Bhattacharya. On today's call, Frans will take you through our strategic and financial highlights for the period. Abhijit will then provide more detail on the financial performance and market dynamics. After that, we will take your questions. Our press release and related information slide deck were published at 7:00 a.m. 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 end of today on our website. Before I turn over the call to Frans, I would like to remind you that Philips' shareholding in Philips Lighting is currently 29% of Philips Lighting's issued share capital. As a result, Philips no longer has control over Philips Lighting and has ceased to consolidate Philips Lighting under IFRS. The remaining Philips Lighting stake is presented as an investment included in assets classified as held for sale in the financial statements of Royal Philips as from the end of November 2017. Finally, as mentioned in the press release, adjusted EBITA is defined as income from operation excluding amortization of acquired intangible assets, impairment of goodwill and other intangible assets, restructuring charges, acquisition-related cost and other significant items. Comparable growth for sales and orders are adjusted for currency and portfolio changes. With that, I would like to hand over to Frans. François van Houten: Yes. Thanks, Pim, and thank you all for joining us today. 2017 was a good year as we continue the transformation of Philips into a focused leader in Health Technology, and we achieved our improvement targets in the challenging year. For this, I…

Thank you, Frans, and good morning to all of you on the call and the webcast. Let me start by providing some color on the fourth quarter comparable sales growth of 5%. The growth for our three business segments, that is excluding the license income, was 5.4% for the quarter and 4.3% for the year. The Personal Health business and Diagnosis & Treatment businesses both delivered 6% comparable sales growth. In the Personal Health business, this was driven by a high single-digit growth in both Health & Wellness and Sleep & Respiratory Care. In the Diagnosis & Treatment business, this was driven by high single-digit growth in Ultrasound and mid-single-digit growth in Image-Guided Therapy and Diagnostic Imaging. Our Connected Care & Health Informatics businesses showed a 2% comparable sales growth after the strong 8% comparable sales growth in the third quarter. We recorded 7% comparable sales increase in the growth geographies, which was largely driven by double-digit growth in China, Central/Eastern Europe, Middle East and Turkey and India. In the growth geographies, the Personal Health businesses recorded their third successive quarter of double-digit comparable sales growth. Sales in North America grew with 5% and in Western Europe by 4%, while other mature markets posted a 3% comparable sales growth, mainly due to South Korea. In HealthTech Other, net sales decreased by €34 million, reflecting lower royalty income as we didn't reach an agreement with a particular licensee. As Frans mentioned, comparable order intake overall grew by 7% where Diagnosis & Treatment business showed a double-digit growth, where the North America and China markets were particularly strong with mid-teens comparable order intake growth. The Connected Care & Health Informatics business declined low single digit as certain large orders in health informatics were postponed to 2018 as well as an order intake…

[Operator Instructions]. We will now take our first question from Ms. Yi-Dan Wang from Deutsche Bank.

Yes. So just a quick question on the order intake in North America and why that has slowed down despite an easier comparison. And if I could tag on a financial one, in terms of the FX exposures, it will be helpful if you give us some sense of what your exposure in revenues is and also cost to key currencies. That continues to be a source of negative surprises and I think will be good to tighten up consensus a bit on that. François van Houten: Yes, this is Frans. So overall order intake growth in North America was around 3% for the year. We spoke about some larger orders in Connected Care & Health Informatics not coming through in the fourth quarter. But now we expect these in the quarter of 2018 as decision-making in U.S. hospitals, also given that's an uncertainty, gets extra scrutiny. So overall, we feel that the market will continue to support our growth targets. I'm particularly pleased with the strong performance in diagnostic and treatment, where we saw double-digit order growth for the full year 2017 in North America. That basically underlines the proof that we are recovering market share. Our innovations in Diagnostic Imaging, Ultrasound and Image-Guided Therapy are very well received. I don't think that we have seen such strong order growth in D&T in North America for a long time, and we are really leaving behind us, let's say, the consequences of, let's say, Cleveland some years ago, and we are in a good mood. I also in Davos met several U.S. health care providers that we now have many follow-up actions with as they are interested to having long-term strategic partnerships to drive patient outcomes and productivity. For the forex, I will look to Abhijit on my right-hand side to answer the question.

Yes. I think for forex, you've seen this year we have not really called out any major impact. We don't expect a big impact next year. I think overall, for the U.S. dollar, we are neutral. And then for emerging currencies, of course, we have hedging strategies in place but also pricing strategies with which we hope to cover. I think where it gets a bit tricky is when you compare, let's say, market estimates in absolute euro values to our actual performance and then you see some people talking about missing or coming in lower. But that - so I think it's always good to look at comparable sales growth and EBITA margin and when you look at the margins and the comparable sales growth than the FX exposure that's taken out. I mean, there are sudden switches of course that could lead to some impact, but overall, for the year, we think it will be negligible.

Okay. If I could follow up quickly on the FX and the North America order book, on the FX, would it be possible for you to provide a sensitivity table by major currency? We tend to get that for other med tech companies in the sector, so it will be really helpful if you can do that. And then on the order book, so given the double-digit growth in order book in North America for D&T, should we expect your growth - so the absolute growth - comparable growth you report in that part of the business starting to accelerate meaningfully through - as we go through 2018 or is the order book very sort of longer term? So we won't be able to see much of it in '18, but it's more of a '19, '20 trend. François van Houten: Well, we will see the benefit of that order growth in the course of the year. In the speech, I said it will be back-end loaded because typically, for larger capital equipment and certainly for the operating rooms for Image-Guided Therapy, that takes quite a lot of planning also on the customer side. So I expect those orders to have an average throughput time to revenue of around nine months. In any case, just for your awareness, as a new analyst, we only record orders that can be turned into revenue on average in 18 months. So we don't book long-term orders as such. Maybe that's something that we should clarify for all the new people that follow the Philips stock.

Yes. Regarding the FX sensitivity table, that's, of course, tricky because the exposure changes quarter-to-quarter depending on our supply pattern as well as the sales pattern. But maybe we can take that off-line to see if there's slightly higher-level guidance that we could provide. But the sensitivity table is a moving table so giving that out would not be wise at this time. François van Houten: But maybe good to take the opportunity, Abhijit, to talk a little bit about that. Let's say we use currency-comparable metrics to report on growth and all improvement targets. I think this morning, there was some confusion about did we miss or did we beat targets with the dollar lower. Obviously, nominal growth in euros is lower. But that's why we measure on a currency-comparable basis and we also do not include the acquisitions within a 12-month frame. So the 5% growth in the fourth quarter was real growth, and we actually are pretty pleased with that because it shows an increasing momentum. And we hope that also all the new analysts that maybe are more used to companies that report in U.S. dollars understand, let's say, how we try to give transparency on a ForEx-neutral basis on real underlying activity growth.

The next question from Mr. Patrick Wood from Citi.

The first would be on the tax situation. Maybe you could give us some clues on what some of the offsets are. I know it's complex legislation, but the lack of effect for you guys relative to your exposure to the U.S. is, I should say, somewhat in contrast to some of the other companies we cover. So I'm just curious as to what some of those offsets are that are making you confident that you're not going to get that tax gain. So that will be the first question, please. The second question would be really on the diagnosis and imaging side. It's been a while since we've seen the mid-single-digit growth, and equally, as you point out, the D&T orders are very, very strong. Is that across all modalities, particularly in the D&T order book? I know you called out Ultrasound in general, but I'm just curious, do you think that's strength across the board? Because this is a very large number. And within that, is there any one-off large order that would be boosting that or is it just taking share back really? François van Houten: All right. Patrick, let me take the second question first and then defer to Abhijit. The order growth is across all modalities. We see strong traction in Ultrasound, in Diagnostic Imaging, as well as in - with the Azurion platform. We also see it across customers and across the globe. Gaining traction, therefore, is expected to continue. Over to you, Abhijit.

Yes. Patrick, as you said, the tax thing is complex, so I'm not going to give you a lecture on it now. But from a high level there, a couple of things. In the U.S., we had, of course, profits there but we were able to offset our interest on intercompany loans as a deductible, which therefore got our effective tax rate to similar level that we will have it post the new legislation. You are also aware of the BEAT tax that has been imposed. So therefore, on the short term, as our profits are still low, that has a negative impact. As it grows, as our performance in the U.S. increases over time, we will start seeing some benefits. But in the short term, not much. And as I mentioned, unrelated to this, we have brought down our overall tax guidance to the 26% to 28% range.

The next question comes from Veronika Dubajova from Goldman Sachs.

I'd like to start with Cleveland tonight. Noticed in the press release, you said you had a constructive meeting with the FDA. Can you maybe give us a little bit more detail on what you define as constructive meeting? And to the extent that we need to worry about further enforcement action to the FDA, can you put our mind at rest on that? And then I have a quick follow-up on the tax, but maybe I'll ask that after Cleveland. François van Houten: Yes. Veronika, I think we can put your mind at rest. I know it occupies many minds. So if I reframe it, we have the inspection, then the findings were disclosed, also thanks to your efforts to get it on the table. I always said then we need to have a conversation with the FDA. That took place in December. We actually saw that we were commended for our progress in many areas while we also still have room for further improvement. We concluded the meeting to - with the agreement to keep each other informed about further progress, and we can expect in due course another inspection. But that, I would say, is pretty much business as usual. So as long as we keep improving, then I think we are in good standing with regards to our Diagnostic Imaging facility in Cleveland.

So it's fair to say you wouldn't expect any further enforcement action at this stage. François van Houten: That's correct.

Okay. And can I quickly ask Abhijit on the tax rate? I appreciate - thank you for the medium-term guidance, that's very helpful. But if I look at your business, I can with the exception of 2015, where there were some one-offs, I cannot find the time when you were paying a 30%, even a 26% tax rate, right? This past year, you paid 25%. So as I look at my 2018 forecast, what should be the tax rate that we're using? Is it 26% or is it 25%? Or what's the appropriate number, I guess, for the very short term as we look at our 2018 and 2019 forecasts?

Veronika, if you look at the past years, it's almost impossible to give you a clean rate because we gain sometimes deferred tax assets. There are uncertain tax positions which, over a period of time, when there is no further follow-up from tax authorities, those provisions get released. So you can't bank on that for the future. I mean, those things come when they come. So therefore, we give a range of 26% to 28% and your guess at this stage is probably as good as ours. So we would be in that range. If we still have uncertain tax position releases, we could come a bit lower, but it's almost impossible to guide to that. We only know that during the year as the various hearings proceed.

We will now take our next question from Ian Douglas-Pennant from UBS.

And I'm sorry to belabor the point, but just a quick question on tax. Can I just confirm your 2018 tax guidance is also 26% to 28% as well as the medium term?

Yes. François van Houten: That's correct.

Sorry, was that a yes? François van Houten: That's a yes.

Perfect. And then on guidance, you're saying this year is going to be H2-weighted, and 2017 was also H2-weighted in terms of how the growth came through. So this seems like the comps in the second half would be quite tough. What gives you that confidence that, that large amount of orders will come through in the second half? And also, given you've had relatively strong order growth for most of 2017, why should we not see a kind of a bonus of sales coming through in the first half of 2018? And my last question on Cleveland, obviously, you gave us some good news there. Could you just give us some commentary on your efforts for improving quality control processes across the Philips Group rather than just focused in on the two facilities that got a lot of attention at the moment? François van Houten: Yes, Ian. Yes, so the tax is already confirmed. The guidance for the second half is actually based also on analyzing our order book and the order book composition. As it is, let's say, strongly related to the D&T portfolio, which is more capital equipment, then we see that the throughput time to realize that or turn that into revenue after sign-off by the customers, a nine-month throughput time is pretty normal. So that means that all those good orders will turn into revenue in the second half of the year, unfortunately, not in Q1 or in Q2. Of course, we also have book-and-bill business that will still help the first half. But despite the tougher comparison, we maintain a similar pattern of back-end loadedness. Then on quality and controls, this has been a focal point ever since, let's say, the wake-up call in 2014 where I was confronted with Cleveland and we intervened…

Maybe, Ian, just to add one more point regarding the seasonality of sales, I think it's important to note that earlier, we had a hump in Q1 because of Chinese new year for our consumer businesses. We see that more and more getting evenly spread through the year because there are special promotions that happen online like the 11/11 singles' days in China in November. That's where a lot of the buying takes place because there are heavy online deals which are available. Certain big platforms like JD.com, et cetera, have stuff that happens during the middle of the year. So that particular sensitivity to high Chinese New Year sales, also we expect next year to be more neutralized. François van Houten: This year.

This year, sorry, 2018.

Sure, understood. Sorry, just can I just add a one-word follow-up? If north is where you were the day before the Cleveland thing in 2014 and 100 is where you want to be, where are we today? François van Houten: Not being zero, right? Okay, I understand what you mean. Obviously, you want to give me a self-assessment on where we are. This is difficult because you know I'm - as a Dutch person, I don't usually give high grades. So now I'm in a bind. Shall I give myself a high grade? I don't think I will do that because there's always room for improvement. The first thing I need to tell you, however, is that please do not equate the business group Diagnostic Imaging solely with Cleveland. We have been derisking Diagnostic Imaging tremendously, and I think Veronika observed that in her notes somewhere back in the fall, that in fact what remains in Cleveland is not very big. We are very strong now in Haifa in Israel, in Best in the Netherlands and in Suzhou in China. Those are the three main locations for the future. And the quality management system in those locations is definitely very, very strong. So 7, 8 score given my conservatism as a Dutchman. And as we talked about the constructive dialogue, there is still further room for improvement in Cleveland, but it is no longer that high risk factor that was on everybody's mind in the past. That is why we called it constructive and that is also why I said we are back into a normal mode where maybe we will get an annual inspection. But that's it. I hope that's helpful.

We will take our next question from Mr. Scott Bardo from Berenberg.

So as we look at fiscal 2017, I think you grew for the full year at 3.9%, so just a shade below the lower end of your quarter 6% guidance, so albeit not much. So I just wondered if you could give a little bit more details as to why revenues weren't more suddenly in the bandwidth this year. What was the principal drivers? And also talk about 2018, what will be the major segments, if you like, driving growth more suddenly in the bandwidth? Also, just with respect to the derisking strategy that you referred to which is ongoing, is it still the plan to transfer production and get approval of the Ingenuity line of CT scanners? And perhaps you can give some sense of when that will likely happen. Last question, please, just relates to the North American relocation of your headquarters to Cambridge. It seems like quite a major relocation exercise. Just wonder if you could give us a little bit of background as to why you do that and what the advantages are. François van Houten: Great. Actually, I'm happy with that question - first question, because the core business in Philips, so i.e. the sum of the three segments, grew 4.3% in 2017, offset by a decline in Philips Other, right, which is basically part of the license income. Some of the remains of the consumer electronics license income that we still carry with us at the group level. So 4.3% is what I think everybody needs to keep in mind as the foundational growth of our current HealthTech portfolio. And of course, we have every intention to continue that momentum. And if you then see that order growth was north of that, that also, I think, gives some evidence and confidence on that statement.…

Very good. Just one quick clarification, please. And also, does that encapsulate any R&D personnel and training personnel at Cleveland as well? Is that your expectation? François van Houten: That is not part of the transfer announcement, no.

The next question comes from Mr. David Adlington from JPMorgan.

A couple of clarifications and just follow-ups. So in your remarks, you mentioned on HealthTech and Other, which, I think, came in a bit below most people's expectations, that you mentioned an issue around a licensee. Was that a licensee you did not renew? And if not, why not? And secondly, just in terms of the defibrillator headwind, is that included or excluded from the 100 basis points of margin expansion this year? François van Houten: Do you want to go? Okay, go.

I think on the license one, we have negotiations with many, many potential licensees, and sometimes they aim on time and sometimes it takes longer. Sometimes, we have to even litigate to get our license revenue. And in this one case, we haven't yet reached an agreement. And hopefully, we get to an agreement into 2018, or if not, probably it could take longer if it goes into litigation. So I would not like what... François van Houten: But maybe David doesn't know the background that most of our license - or let's say a big part of our license income relates to patents on consumer electronics portfolios. And some of those patents are running out. And that's why over the last few years, we had a gradually declining license income. We are currently more seeing a flattening of that outlook. So we do not expect further deteriorations in the license income in the coming years. So we have most of that decline behind us. And then as Abhijit says, it is sometimes a lumpy business because you need to negotiate, so it is not always predictable in which quarter you will get an upside or not. And then the second question, Abhijit?

Yes, on the defibs, yes, that is part of the normal business. So all the costs sit there. The only cost that we had guided to was the €20 million for this year and the €60 million next year...

Q1, €20 million. François van Houten: Yes, sorry. For 2018, we guided to €60 million for the full year, of which €20 million in the first quarter, that is adjusted out. So that is related to cost specific to the consent decree. But for the rest, the normal business is all part of the improvement.

The next question comes from Mr. Max Yates from Crédit Suisse.

Just two questions. So I just wanted to go back to a comment you made on the last call about I think you were saying that acquisitions would have a sort of 20 to 30 basis point impact on margins. And I presume because of where the acquisitions have gone into D&T, most of that was in the Diagnosis & Treatment divisions. So I just wanted to sort of understand a little bit, is that the case? And did that impact D&T margins this quarter? And if that is the case, then the underlying performance must have been sort of very strong in that division. So can we think about kind of the margins that the underlying business are generating having improved? And what's driving that? Is that the new product? Is that just volume in the factories? And if you could comment a little bit about the evolution of that margin. François van Houten: Hey, Max, that's a correct observation. I mean, we exclude from the results the post-merger integration cost. But obviously, the operational results of the acquisitions are part of the adjusted EBITA, as we reported. Some of the acquisitions are early stage, and they still have a negative EBITA. Others, of course, like Volcano, are now doing very well. But overall, the impact was, indeed, around 20 basis points. And that was both in the D&T and in the CCHI portfolios. The underlying strength of the profit improvement has to do, on the one hand, with the innovations that we have launched, innovations that have higher gross margin and higher growth. Secondly, of course, everybody benefits from the productivity programs that we run, with benefits being spread more or less equally across the businesses. And then D&T, in particular, is benefiting from the market share gains and recovery in Diagnostic Imaging where we are also taking costs and productivity measures on top of the overall company measures. Then I think a special mention is deserved for Ultrasound. Philips is the market leader in cardiovascular ultrasound. We have taken a conscious decision to spread our wings also in General Imaging and OB/GYN. For that, we have been developing new products over the last 2.5, 3 years. Those products have come into the market in 2017, start gaining really high traction in order growth and that will translate itself in higher revenue growth in 2018. Just to quantify that, we saw in the fourth quarter high-teens order intake growth in Ultrasound and double digit for the whole year. Now Ultrasound is, for us, a very high profit business. So as Ultrasound is getting at a higher clip - growing at a higher clip, that will also improve further the profit mix for D&T, but in fact, for the whole company because it is significantly above the average of Philips.

Okay. Just one follow-up. Obviously, we're getting quite a lot of disclosure from one of your peers around the IPO of their business. One that stood out, I think, from their Capital Markets Day was their advanced therapies business. Obviously, it looks sort of somewhat similar to your IGT business, but without the devices that you've acquired. They showed that they were doing a 22% margin in that advanced therapies business. So it looks like from what we know about your IGT business previously, even before acquiring Volcano and Spectranetics, it was quite a lot lower margin than that. So could you kind of help us a little bit with why you think that is and whether we're sort of comparing like-with-like. So your IGT business x devices, how does that look from a product standpoint versus their business? And is there any reason those two should be different margin - or materially different margins? François van Houten: Well, prior to the adjacency into devices, our Image-Guided Therapy business was in the high teens. And we have stepped up R&D in that business towards - to launch the Azurion platform, to get into the adjacencies of the hybrid operating room, adding all the software for guidance of the therapies and to work on innovations that leverage the device businesses. We have every conviction that the combined IGT business, so systems and devices, will get to around 20% EBITA by 2020. So it's kind of 20, 20, 20, and in a total size of around €3 billion in revenue, which is 2/3 systems and 1/3 devices. I would even volunteer that it doesn't stop in 2020 and it has further room to improve thereafter, given the potential in that business. Now having said all that, look, our Eastern neighbors are ahead of us in terms of profitability in the D&T cluster, although I think we are ahead in Ultrasound. But we definitely challenge ourselves to emulate that kind of profitability. And therefore, as a stock, Philips has upside to go. We - and we are demonstrating with an annual improvement of at least 100 bps and actually more so in D&T that we were also delivering on closing that gap.

Okay. Maybe just a sort of one-word answer. On the Image-Guided Therapy business, all in with devices and systems, could you just give us where margins are today relative to that 20% that you talk about in 2020?

We are in the teens there, but we don't give, let's say, more specific than that. So we have, let's say--

Low teens, I guess. François van Houten: We are well enough in the teens that I can achieve the 20% by 2020. Obviously, if we were to be in the low teens, that would not be possible. Similarity there, no?

The next question comes from Mr. David Vos from Barclays.

Just one on Personal Health actually. Clearly, OneBlade has been a phenomenal commercial success. I was just curious to know how many of those type of projects or products that you have in the portfolio, i.e. how many products do get to €100 million of sales in sort of short period of time? And then clearly, also, what is the runway you see for OneBlade? Can it go to €500 million over a few years? Just can you help us scale that opportunity? François van Houten: Yes, let me first give a general remark. So obviously, we like businesses that have recurring revenues attached to them. And several of our businesses do in Personal Health, Sleep & Respiratory Care where you have services and masks, Oral Care where we have brush heads, and then Shaving where we have shaverheads. OneBlade is - as a hybrid shaver between wet and dry shaving, has a targeted renewal or replacement rate of 3 to 4 blades a year. Currently, we are tracking, off the top of my head, a 2.5 blade per handle per year. So as we are expanding the market penetration, the blade business is growing, and of course comes with very nice margins. The €100 million in 18 months is, for a new category, is quite exceptional. For an existing category, it is quite normal. So when we launched new Sonicare power toothbrushes, you typically - you get to these kind of fast ramp-ups for a single product. So that's quite normal. Now your question on, can we forecast how far OneBlade will go? We think it has a lot of runway. We have not quantified that runway. But if it continues at this clip, then it will more than offset, let's say, the more - the slow growth in the more traditional electric shaving market, which, for some years, has been more of a stagnant category. And so overall, then we are seeing nice growth in the Personal Care business.

The next question comes from Julien Dormois from Exane.

I'm left with two questions. The first one is I'm trying to reconcile your comments especially because you've just recorded one of the strongest order intake in a D&T business for some time in the U.S. But at the same time, you are guiding to uncertainty starting in 2018. So is it because you had a very strong - you had very strong orders from hospitals ahead of the abandon of the mandatory coverage from ObamaCare in 2018? Or is it just another example of just detriment conservatism, as you highlighted before? And the second question is just a housekeeping one regarding the guidance. You have said that you expect improvements in the course of the year, actually, in back half of 2018. I was just wondering - I understood that it clearly relates to organic growth accelerating in the course of 2018, but that also imply that the margin gains will also be stronger in H2 than in H1. Is that right? François van Houten: Well, let's first talk about the uncertainty that we see in the U.S. market. That comment covers all our businesses, not just D&T, right? So in Personal Health, we saw somewhat slower growth. In CCHI, we already talked about the postponement of some big orders and, let's say, the increased carefulness of large hospital providers or care providers to engage given the uncertainty in the reimbursement landscape. Within that environment, the D&T segment has just done very well, taking orders and market share. We, of course, are keen to continue to outgrow the market. And so you should see the statement of uncertainty more as a generic market assessment. Also to offset a little bit of the euphoria around the world economy, right, what we see that governments do across the world is trying to contain health care budget growth as they see aging population, more chronic disease. And they don't want to see that - those budgets to continue to grow so fast. And that is, I think, where some uncertainty should be recognized. Then on the second question, maybe I'll let Abhijit answer that.

Yes, I think what you said is right. We expect both sales growth, and therefore, related margin growth, to be more back-end loaded, similar to how the pattern we had this year. So we had strong margin growth in Q3 and Q4, so that helped us to get to the 110 bps for the year. We expect a similar trend next year as well.

The next question comes from James Moore from Redburn.

I've got three questions, if I could. Could you talk about the margin uplift in D&T for the full year of '17? Was it similar across DI, Ultra and IGT or was there any kind of ranking of progression that you could give us? And also within D&T, can you talk about whether the service margin is relatively stable and all the upside is coming from equipment or whether both sides are moving? That's the first question. And then secondly, could you comment on any progressions of market shares in orders from Ultrasound to MR and CT? I get the sense that Ultrasound must have moved forward, but are they all moving forward? Are there any differences by regions? And then finally, on the seasonality comment, I mean, if I go back over the last decade, sometimes you say it, sometimes you don't. In the last four years, you've done between 66%, 67% of full year adjusted EBITA every year. Does that decision to comment on the back end mean that this year we'll see even more than 66%, 67% of the profit in the second half or the usual?

Okay, let me take them one by one. So if you look at D&T, the margin improvements are coming largely across the board. I would say the biggest part of the margin improvement comes in DI, followed by IGT. And in Ultrasound, actually, the value-creation story around Ultrasound is a high-margin business, so we are pushing, therefore, growth and not so much the margin improvement because at the levels that we are, the overall cash generation from that business will grow as we grow the size of the business. So highest in DI, second in IGT and then slightly less in Ultrasound. Service margins are, by and large, stable. So basically, the cost reductions and the operating leverage is coming from the growth that we are generating, as well as the cost that we are taking out. The footprint reductions, et cetera, impacting more the equipment profitability. The progression in market share actually is across modalities. So as Frans mentioned, although it's double-digit growth for D&T, it's high single to very high double-digit across the modalities. So it's not that there is a modality which is in the low or mid-single digit. They're all growing extremely well. And I think one of the key drivers there is the renewal of the portfolio. So in DI alone, about 70% of the portfolio is renewed over the last 1.5 years and about 60% for the whole of D&T. And that is, of course, driving the market share growth that we are seeing as well, which is, from our current estimate, is about a 60 basis points increase in market share. Now on the seasonality, the profit that we make through the year is more second half weighted. So what we are telling you is that the year-on-year improvement will be more in the second half than in the first half. So the overall rating for the year remains, but the improvement is more in the second half than in the first half. François van Houten: Like in the fourth quarter, we had 140 basis points profit improvement in Q4 and slightly below the 100 basis points in the first half of the year.

Exactly.

We have a follow-up question from Ms. Yi-Dan Wang from Deutsche Bank.

Yes, so two very quick ones. The one-off cost for the quarter was much lower than expected. Just wondering what the reason for that is. Is it just cost that's being delayed or have you, for some reason, decided not to continue with those programs? And then secondly, on the financial cost, that also ends up being much lower than consensus expected. Can you give us some guidance for 2018? That would be great.

On the one-off cost, there are a couple of reasons. So one is the post-merger integration cost of Spectranetics was lower than we had anticipated. So we have been tight in that task, especially related to IT costs where we have much more efficient ways of integrating than we had planned earlier. The second part is a particular program has moved forward to Q1. So it's not that we are abandoning any cost reduction, but it is linked to the timing of the announcement. And there are certain rules by which you can book those provisions. So that has moved to Q1. We also mentioned in the press release that we had a bit of a release of certain provisions related to legal cases that we had booked earlier that went our way. So that was also a bit of a good fortune. And last, but not the least, on financial income and expenses, we did get a dividend payout from Lumileds, which was not planned, and that helped to reduce the number for Q4. But overall, from an interest expense point of view, we expect next year to be flat to this year. So this year, we had a big reduction, over €100 million in the year on our interest cost, and now we expect that to flatten for next year.

Okay. And the Lumiled dividend, do you expect some of that next year? Is that just so uncertain that we should just leave it for now?

Yes, that depends on how Lumileds is performing and how their cash situation is. But I think that is something we will update you when it happens.

Okay. And then on the one-off cost, how much of the one-off cost is moving to Q1 '18?

We have guided specifically for Q1 '18 in the press release. So you have a specific guidance for each of the clusters for Q1.

Mr. Bhattacharya, that was the last question. Please continue. François van Houten: Okay. Well, thanks, everybody, for a great session. I think it's very important that we get all the questions and we'll try to answer them as detailed as possible to get your understanding up. We welcome all the new analysts as part of our community. Feel free to contact Pim Preesman and his team of Investor Relations later today or throughout the week as more questions come up because we value the correct understanding of our results. Let me end on the note that we feel very confident and positive about the trajectory that we are on, the order growth that we are seeing, the innovations that are well in demand by our customers. We also believe that we have behind us all the difficult transformation that some of our competitors still needs to go through. So we are going to benefit from that focus, and I think customers recognize that we have made our choices. With that, I'd like to close the call. Thank you very much, and have a great day.

This concludes the Royal Philips fourth quarter and full year 2017 results conference call, on Tuesday, the 30th of January 2018. Thank you for participating. You may now disconnect.