Welcome to the Royal Philips Electronics Q1 results call on Tuesday 18 April 2006. The introduction is by Mr. Pierre-Jean Sivignon. All participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. If any participant has difficulty hearing the presentation at any time, please press * followed by 0 on your telephone for operator assistance. Please note that this call will be recorded and is available by webcast on the website of Royal Philips Electronics. I will now hand the conference over to Mr. Pierre-Jean Sivignon. Please go ahead, sir.

Thank you. Ladies and gentlemen let me firstly welcome you to this conference call for the Q1 results of 2006 for Royal Philips Electronics. I will make a few introductory remarks and then open up to the call to answer your questions. This quarter has again been one in which we have seen more evidence that the targets we have set for ourselves are being or will be met. Let me be more specific; the comparable growth for the company was 10%, with all main divisions contributing toward this figure. In fact, the lowest for any division was 8% growth. The growth in the quarter supports our average annual target of 5-6% growth on comparable terms. And I mean organic growth. The EBIT margin in the quarter was 4.5% compared to 3.2% in 2005. This improvement QoverQ helps us move toward our target of 7-10% as from the end of 2006. Please remember that Q4 is always our strongest quarter. In Medical Systems, the comparable growth was 8%, which supports our annual target of 6%. This was also underpinned by the 18% growth in equipment order intake which is a continuation of the strong trend that we saw last year. In addition, the order intake for Medical IT was excellent. The margin continues to be affected by the same factors that we saw in Q4 2005, however this in now way diminishes our expectation to return to higher margins within a few quarters, as we have identified the actions to be taken and these are in process. In DAP the excellent quarter has given us a 10% comparable growth which supports our target of 7% for the year. As part of the high growth rate, we saw a continuation of the success of our new shaving range. The underlying development…

Thank you, sir. If any participants would like to ask a question, please press the * followed by the 1 on your telephone. If you wish to cancel this request, please press the * followed by the 2. If you please limit yourself to one question with a maximum of one follow-up, this will give more people the opportunity to ask questions. If you are using speaker equipment today, please lift the handset before making your selections. There will a short pause while participants put forward a question. The first question comes from Mr. Nav Sheera. Please state your company name followed by your question.

Good morning, Nav Sheera from Lehman Brothers. Pierre-Jean, I just wanted to ask you some more detail about what you’re doing in terms of the Medical Systems margins, because I’ve seen obviously from last quarter that it was customers placing orders due to new products and some of the emerging market activities as well. What, specifically, are you doing that you believe will lead to better margins for the next few quarters, number one, and a follow-up on semis. Thank you.

Well I think the margin of Medical if you actually strip it of exceptionals is actually in absolute terms in line with last year in absolute Euros. Basically, this particular quarter, still I think the gross margin we will need to improve and there we told you what we were doing at the end of Q4 and we are consistently pursuing that. It’s easy to remember low-cost sourcing, low-cost manufacturing. I think those elements are very much still in play. The other thing which is very much in play is obviously the improvement of the mix. To prepare for this call, I actually looked at in detail the mix between service and products by geographic areas. Today, given the very strong growth of our equipment sales and of our install base, that growth of equipment is still, in a number of regions, outpacing the growth of the service business. In other words, increase of revenue coming from equipment sales as we speak is still going faster than service. Of course, add the impact of the mix and time will come where obviously this will go the other way round and the better margin on services will start to help us, but today the only territory where this is the case i.e. where the growth of service is actually higher than the growth of equipment that is actually the U.S. which is the most mature of our territories. In the other territories, that’s not the case today. So one of the other elements, if you remember, of Q4 was that the mix between service and equipment sales, which obviously we want to push more toward service, and as equipment sales are growing quite rapidly, we have that mismatch right now. So that is the second element. In terms of the reorganizing, we have disclosed to you that we’ve made a few moves in the U.S. Actually it said in our press release that we are combining the manufacturing for NukeMed and we’ve moved it from California to Cleveland, I think, and we’ve actually combined the two sites that we have there, so we are doing that as well. Last but not least, I will say that in Q1 of 2006 our selling expenses were a bit high and that was on the back of the reorganization of the selling and service structure, that we have now centralized with centralized management. We had some one-off cost in this particular quarter on the back of that. Those four things together would be my answer to your question.

Thank you for the comprehensive answer. Just one thing on sales, I noticed that your book to bill ratio is 1.12, which is a lot higher than last quarter. Is this across all end markets, or is there something specific, e.g. wireless, which is driving the increased order activity? Thank you.

I think the activity was stronger than we thought, to be totally clear. It was across our four verticals. If I had to pick out two verticals which have done better, that would be multi-market but certainly as well alternative and identification. Those are the two where I think we’ve been doing better. All in all, I would say a strong quarter everywhere. Ahead of what you guys were expecting, and certainly ahead of all expectations.

Thank you. Your next question comes from Mr. Nicolas Gaudois. Please state your company name followed by your question.

Hi there, Nicolas Gaudois from Deutsche Bank. A first question, Pierre-Jean, on Medical and then a follow-up if I may on the group consumers side. On Medical, could you give us some granularity on IT and software revenues? I think you indicate in the press release that the start of the year was strong. Could you get us more details on what the strength is coming from? Your eyesight launch, as well as on the (inaudible) side, Vinity(?) and how do you expect these to potentially help margins as well within the next 12-24 months?

I think you have to realize, I’m absolutely prepared to talk about that, but you have to realize that in relative terms compared to the rest, it is still very small. But to give you an idea, on Medical IT, the growth for Q1 2006 compared to Q1 2005 was a bit north of 20%. So that tells you that the growth there – and I’m talking about revenue growth – is north of what we see on the rest of the activity. In relative terms, that is small. Today it is I would say below 10%. I can’t be much more specific, but keep in mind that it’s below 10%. It’s still a small amount in absolute terms, but good growth in relative terms. In terms of bottom line, it is hard basically to be too specific now because we are still in the integration phase of Stentor. We basically are seeing incoming orders on their own products which is clearly ahead of what we expected. I think we disclosed in the press release some number there, so that’s clearly growing faster than we thought. In terms of contribution to the bottom line, we will have to wait for a couple of quarters because the nature of the business model of Stentor is going to make it that it will be a sustainable line because as you know it’s a pay per use so it’s going to be more sustainable than in the previous model we had of the Philips product. But it’s probably only going to come in the latter part of 2006 if not in 2007. Basically, the bottom line in fact from Stentor, net-net is still to come after a couple of quarters of integration, it’s coming from the new business model of Stentor compared to what we had before. If anything, the news there is going to be better than what we had anticipated when we acquired the company.

Right. Actually my follow-up is on something else, not consumer. Could I have a progress report please on your cost-cutting program for Euro 250 million per annum by September? How much do you think of that is already completed? Also, could you qualify this qualitatively?

Yes, it is hard obviously to be totally specific. The one territory I can be specific on, on the depreciation side I would say I can give you a guidance that you probably don’t have yet. I would say that probably the reduction of differentiation would be around Euro 100 million I think, on the back of 2006. So by the end of 2006 you should see that Euro 100 million (come off the depreciation life?) as part of that business renewal plan. I think for the rest of the plan, are all the other elements are going along. It’s probably going I would say in due proportion to the time which has lapsed. If I can give you a guidance in terms of impact on the bottom line, I would say that you know that plan started last year, we gave ourselves a period of time of two years and we said this plan would be completed by the end of 2007 and I would say the progress is probably going along as a proportion of the time which has lapsed on the non-depreciation part of that plan. I will let you run the maths there.

OK, that’s great, thank you.

But it’s on plan, I mean, Nicolas, the thing is obviously it’s not exactly the way we had planned it a year ago, but in terms of progress and in terms of impact I think we will be on target.

OK, thank you, Pierre-Jean

Thank you. The next question comes from Matthew Gehl. Please state your company name followed by your question.

Yes, with Goldman Sachs. I just wanted to follow up on the questions on Medical, and hopefully just get a bit more detail on the Q2 environment. The (fees cost?) you mentioned in Q1, I’m just interested in how much of an impact they’ll still have in Q2. I’m wondering if you could just make a comment. You said excluding MedQuist your absolute margin in Q1 was higher than it was in Q1 of 2005. Do you think that will remain constant in Q2, i.e. is your Q2 absolute margin going to be above what it was in 2005?

Right. I think yes indeed, I said excluding MedQuist the absolute margin was that level, absolutely. As far as Q2 is concerned, I mean the guidance we’ve given to you for the whole year was that the margin of 2006 will be higher than the margin of 2005. That guidance we have given to you and we stand by it. We start in Q1 with a margin which is in percentage terms lower than the one in 2005, so it means that gradually we are guiding you for a gradual bounce back. There is nothing new compared to what we said in January. We said that we would have a slower start to the year at Medical in line with Q4 of last year and it would have a stronger second part of the year. All that guidance absolutely stands and Q2 will probably stand in the middle. So I would say if I have to guide you on Q2, that would be something between a lower Q1 as we’ve seen it now, and of course a stronger second half so that would be something in between those two borders for the margin of the second quarter.

So you’re saying, you didn’t say below Q1, you said…

No, I said Q1 was lower in percentage than last year, and I’m saying that still in percentage, Q2 should be in line with last year given that we plan to have the overall year up and accordingly obviously the second half of the year clearly stronger. I said that Q2 should be in percentage between what we’ve seen in Q1 and what we expect for the second half. And I’m talking percentage margin.

OK. So somewhere between around the 7% level and up beyond where your second half target is?

Right.

OK. And a follow-up on the semiconductor business, can you give us a sense of what happened with the inventory levels in the semiconductor business, both for yourself and if you have any comment on what you’re seeing with your distribution partners, that would be extremely helpful.

Well actually, the inventory for – we are in the same situation at the end of Q1 as we were at the end of Q4, which is to say that in the inventory channels, we do not see any real signing up of inventory. Actually, basically we made the point at the end of Q4 where we said the channel looks OK to us, nothing particular to report, no old products in the pipeline and in percentage terms I could tell you that the end of Q1 2006 is in line with Q4. Before I could start telling you that expressed in percentage, the inventory has actually come down a little bit from the level it was at the end of the previous quarter. So I would say the situation is quite comparable to the one we had at the end of the previous quarter. I can’t really comment on the industry; you guys probably have spent more time that I have on this. It looks like we are very much in the same situation that we were at the end of Q4.

OK. Thank you.

Thank you. The next question comes from Jonathan Dutton. Please state your company name followed by your question.

Good morning, it’s from UBS. Just a couple of questions, firstly on semis. On a year on year basis the margins have improved from 1% to 9%. I think in the past you’ve guided to a 5-15% margin target. Do you think that’s something of a conservative assumption based on the margin improvement that you’re pushing through? And also, could you possibly just elaborate a bit on how much of a contribution Nexperia is making to the margin expansion and the sales for 2006?

OK. I think the guidance we gave to you was indeed 5% minimum, 15% maximum and that was what we have given. If you read what we mentioned at the time, when we referred to the 15% we mentioned a minimum of 15% in the upper part of the cycle, so that tunnel you are referring to is a tunnel which is giving you a minimum and a maximum, but we presented the maximum at the time as something which would be the minimum in the upper part of the cycle. Are the results of Q1, which are all clear of exceptionals because you see in the press release that we had actually two exceptionals in Q1. We had one restructuring for the semi organization in Europe and we had the legal cost for the (cab out of the division?) and if you exclude those elements the margin indeed stood at 9% for Q1. Does that make us change the guidance? No. I think it clearly gives us comfort. Clearly those numbers are north of what we were expecting, but I don’t think we want to guide you anywhere different than what we’ve done so far. My only body language, I’d say certainly that Q1 was a bit stronger than we thought, yes, but in terms of guidance, no change.

Great. I’ve just got one quick follow-up on the Consumer Electronics business. The top line growth was the strongest on a divisional basis. I just wondered if you could share your views for the outlook on the LCD TV market, what the level of inventories are and what sort of sales growth we might look for in the next few quarters ahead of the World Cup?

Right. Just before I go to this, you asked about Nexperia. Just a word on Nexperia, Nexperia is absolutely fundamental to the growth on the TV side and clearly obviously I would say at the center stage on the digital side for the televisions for that particular vertical. Certainly Nexperia has been in the previous couple of quarters quite crucial to our growth there. To your question now on LCD, no I am not aware of high inventory in LCD. If anything on LCD, very good growth. Is it going to increase even more on the back of the World Cup? Hard to say. I think, you know, the World Cup is very important indeed for us in terms of events, but I don’t know, we have one event like this every year. I would say for us the World Cup is probably important from another angle. It will be the first time that high definition signal will be broadcast for a major world sport event. I would like to say that probably, in terms of viewing experience, if anything that’s more important for us than the World Cup per se. In terms of impact on the margin, as you know we have structured the business model of Consumer Electronics to be somewhat independent from the volumes. To answer your question, we could see more volumes in Q2 on the back of that, but in growth terms for us, the information that our business model is rock solid regardless I would say of the fluctuations during the year to deliver to you the 4-4.5%.

Great. Thanks very much.

(Jonathan Renan?), (Inaudible) : Hi, (inaudible). Just a question on Lighting. You’ve done extremely well on Lighting in the quarter. I’m just wondering, how much of that is from Lumiled and how much are other factors? More importantly, how sustainable is it through the rest of the year and future years? What I’m asking is are we taking this to a higher level altogether on Lighting, because certain factors are one-off factors in Q1 right now?

OK. I think as far as the Lighting is concerned, I’m glad you mention it. Because indeed, actually Lighting came up quite strong. I think 8% growth year on year. Clean growth, I think you will agree with me that’s a pretty strong number. That is certainly on the back of all the money invested in engineering in the last couple of years. So strong growth. To your question on Lumiled, when we acquired Lumiled if you remember, last year, when we disclosed the announcement on Lumiled mid-August, we talked about two numbers. We talked about a growth of 25% of revenue and we talked as well about the guidance of EBITDA 25%. What we see in this first quarter on Lumiled are exactly those numbers. Indeed, a growth of 25%, so strong growth very much in line with that we had guided you on. The other thing as well was the EBITDA margin of 25% very much (inaudible) as well. Lumiled is indeed having an impact on Lighting. But please, exclude Lumiled when you do your math, work backward and you will see that the performance of Lighting is not only Lumiled. You will see that basically Lighting has grown in about all its verticals. The other interesting thing is that, in terms of regions, the growth of Lighting was actually quite evenly spread. So I think it’s all in all a pretty strong quarter, even if you exclude the couple of exceptionals which we had disclosed in the press release. But certainly Lumiled is helping and on the way to continuing to help, definitely in line with the guidance we gave at the acquisition time. (Jonathan Renan?), (Inaudible) : And you said that you are going to deconsolidate Philips Optical Storage for about Euro 650 million of revenue. Can we assume that that is a break even business and therefore will make no impact on your absolute profits, but will increase the margin of the company?

You can make that assumption. By the way, the Euro 650 million is on a 12-month basis. Of course on three quarters you have to take a proportion. But your assumption is correct. (Jonathan Renan?), (Inaudible) : And just a last question on Consumer Electronics. You know, you may defer from me I think, but you work very strong sales with your sales rising almost Euro 300 million plus year on year. But your margin doesn’t seem to have shown that much leverage in the course of the quarter. Am I reading that wrong, or was there some kind of price pressure or any negative factor in the quarter?

I mean, as you know it’s an industry which is difficult. That being said, for us it’s a business model gain, right? You start the sentence with very strong growth but I will answer you with business model. I think all business model is 4-4.5% basically almost regardless of the strong growth. If you look at our first quarter, it’s a quarter which is in line with that guidance which gives us comfort on us meeting that particular target. So I prefer to basically put the emphasis on the business model and on the guidance of EBIT margin rather than on the growth. Because in that industry, as you know, sometimes growth can be your enemy. (Jonathan Renan?), (Inaudible) : But can I assume that you had about Euro 50 million in the quarter in earnings?

The guidance we’ve given to you is 1.5-2%. It’s not Euro 50 million, it’s more like around Euro 40 million, that’s I think the guidance we’ve given to you, and 1.5-2% on the year as a percentage of the total revenue. That guidance still holds. (Jonathan Renan?), (Inaudible) : Thank you very much.

Thank you. The next question comes from Mr. Didier Scemama. Please state your company name followed by your question.

Yes, good morning, it’s Didier Scemama from ABN AMRO. Just a couple of questions on what I’m looking for. In terms of U.K. pensions and contributions just short of Euro 600 million, is that something that can continue in the next few quarters? Do you expect to have additional contributions or is it just a one-off that won’t happen again? And my second question is regarding the other activities where you guide for an average quarterly loss similar to that of the first quarter. Can you maybe explain why that would not improve given the divestments that you have made? To finish off on the optical storage business, I’m not completely sure, have you totally gotten rid of the optical storage business? Have you done additional divestments today compared to the press release that you had a few weeks ago?

OK. I’ll take them in sequence. The first one, on the U.K., it’s definitely a one-off. We were under-funded. The reason why we decided to fund the U.K. is because the regulators there are taking a vested interest in this and there are possibilities that if you are not fully funded in that part of the world, the regulator could be in the way of potentially, for instance, reorganization of a portfolio. I think we had lots of reasons to fully fund given basically the evolution of regulation in the U.K. But it’s clearly a one-off. The one thing I will add is that we have negotiated in a way that if the fund will be over-funded, we would have a flexibility there in that particular country. So that’s definitely a one-off. On your second question of other, yes we guided you on a year, we should be algebraically four times what the first quarter is. You’re asking me why isn’t it better, well as you know in that line it’s a bit of a mixed bag, which is precisely why we want to reduce it as quickly as we can. But in that mixed bag, don’t forget we have real estate. Last year because you are now comparing year on year, I think when you say ‘improvement’, I’m assuming you are referring to potential improvement not just last year. Last year, we had some gain, some extraordinary gains on the real estate. Those things are not planned, they are not budgeted, I cannot count on them, I cannot exclude them for this year, but at this particular point we are guiding you on the four times what we had for Q1. That’s the best I can give you at this particular point. Again, a difficult line to predict, as you will agree with me.

Yes, definitely. Actually if I clean out – maybe I have not done the calculation right – but if I clean out all the exceptional gains and some special one-offs in 2005 in miscellaneous order activities, I get 271 loss. So that would be, roughly speaking, flat in 2006.

Well, I would have to come back maybe offline if you want more details on that particular line. I think we gave you, after (Rosenthal made a quick?) presentation back in December or November, where we gave you quite a few details on that particular line, so I send you back to the details. If you want to develop it we can discuss offline, but I think the core of your questions, because we have a lot of exceptionals both ways between the two years. Probably what makes the difference between what you are expecting and what we are guiding you on is probably the real estate gain of last year. I think that would be my assumption. But we can discuss that one offline.

No problem. Just to come back on my first question, on the optical storage side, are you completely out of optical storage now?

I think that once we’ve completed the BenQ operation which will have that significant impact on the revenue with no impact on the margin, as mentioned in a previous question; yes I think we will be almost completely out of optical storage.

Sorry to go on again, but of the Euro 67 million, once you’re out of optical storage (inaudible) break even, what is the big delta we should be looking for, because you also indicated that we should look for further divestments in the short term?

Just a correction, I am told by the real specialists around me that we will see that, because it is classified as part of that Automotive Playback. We will still technically have one small portion which we are currently working on and hope to announce later this year but by the end of this year we should be done. Automotive Playback (inaudible) announcement should still be a playmaker(?). We will still be left with a portfolio between 5 and 10 activities in what we call the corporate businesses. In this, there are two and in particular one that is still a bit of a headache for us. So I can’t be much more specific, but we will do our very best this year to fix that problem. I can’t be too much more specific, but we still have, in there, one headache.

OK. Final question, on the big picture. I think in the last six or seven years covering Philips, I’ve never seen a year over year growth rate of that strength across the business. Even if I take in a couple of other activities, it’s still a very strong double digit. I mean, what’s your feeling in terms of demand, (inaudible) are very strong but what’s your feeling there over the next nine months or so?

It’s hard to be smarter than you guys are on that particular subject, because you have more information. Everybody was scared about a weaker U.S. in the first quarter. I mean, that hasn’t really happened. So you know, the good thing is if you look at the geographic split that we give you as part of the press release, I think the good news is that our growth is actually evenly spread. You could see pretty strong growth in Latin America, actually solid growth in Europe on the back of a Europe which is doing, if anything, maybe a little bit better than planned, if I listen to the economic forecast. Asia is doing well, but really for us, innovation. I think if I want to take some comfort when I really drill down through that growth, when I look at Lighting, when I look at DAP, when I look at Consumer Electronics, when I look at Medical, I see all of them. Even when I look at Semi, all of that growth really can find an explanation through or from innovation. If you look at Lighting, new products which we introduced last year. If you look at Medical, look at our incoming orders. Extremely strong. North of 15% and there again, on the back of a new product introduction. If I look at Consumer Electronics, we will have a brand new range of LCD products introduced in the course of the second quarter, so this is still to come. If I look at DAP, we are still surfing on the new range of shavers, which was completely renewed in the second half of last year. For this particular year, we are introducing a brand new range of epilators as part of DAP, so I can’t really guide you more than we’ve guided you. What I can tell you is that we will definitely continue to innovate.

Thank you.

Thank you. The next question comes from Mr. Thomas Brenier. Please state your company name followed by your question.

Good morning, it’s Thomas Brenier from Societe Generale. I have a general question on the restructuring and acquisition related costs. If I calculate correctly for Q1, these costs represent about 0.7% of space(?). If I factor that into Q2 we would probably be in the region of 0.4%. Should we look at the return level around 0.5% for the whole group going forward? Is there a time, maybe down the road, two or three years, where we could have a lower impact from these kinds of costs, or should we really see them as recurring?

It’s hard to guide you on this because it really depends on acquisition. I think we are totally transparent (with you?), as you’ve seen we have introduced the concept of EBITDA in our comments and we’ve used the word EBITDA in particular for Lumiled so that you guys can actually run your math and you can actually make the clear distinction between ongoing results and virtual accounting results, which in your vocabulary includes not only the one-off acquisition costs but as well the amortization of the intangibles. Now to guide you on what is going to be going forward is really hard, because it’s totally dependent on acquisition. I think what I can tell you is every time we acquire, we will give you very precisely what comes with the acquisition. As soon as our auditors have discussed the split of purchase accounting in the goodwill and the impact of the amortization of intangibles, then we’ll have to take it from there. I think the numbers you have so far have been disclosed and are correct. Moving forward, I think that’s a tough one. But we will disclose to you, and keep in mind as well that we’ll try to come up with acquisition which are (earnings per share criteria?) as quickly as possible.

Maybe I can be a bit more specific. I understand for acquisition it is difficult to forecast, but on the restructuring part of these costs, especially for divisions like Lighting, I have the feeling that these costs are becoming a bit more recurring than I would have thought at the beginning. Can you comment on that?

Yes I can comment, no they are not higher. The rules we have is that we normally disclose to you on a particular quarter for a particular product division when the cost is north of Euro 10 million. I think that’s a rule we’ve followed, so for this particular quarter we ended up disclosing a couple of those. But in our forecast right now for restructuring – and I’m talking about restructuring, not purchase accounting, lets make a distinction there. Our forecast for restructuring this year is in line, if not maybe a little bit lower than it was in 2005. Nothing special there this year.

Can I ask another very short question, I’m sorry if you already answered part of it. The Q1 group stage(?) growth was in the region of 10% if we take comparable growth, and you still have a guidance for the whole group of around 5-6% annual growth. I understand maybe the comparison data is not there for the second half, but do you expect a kind of slow-down, or is it more that you want to be on the safe side?

I think we don’t want to play games with you. We believe in the 5-6%. We don’t want to chance anything there. As you know, the group has very strong seasonality. This quarter was stronger than you guys thought, probably a bit stronger than we thought. But 5-6% with in relative terms a stronger Q4 is very much still what we want to stick to in terms of guidance. That means that upcoming quarters, obviously, in order to be 5-6% with a 14% on the first one, clearly there will be an adjustment to meet the 5-6%. So at this point of time, we don’t want to change the guidance.

Thank you very much.

Thank you. The next question comes from Mr. Jonathan Crossfield. Please state your company name, followed by your question.

Good morning, it’s Merrill Lynch. My first question was on the LG Philips Displays charge which you took voluntarily at Euro 45 million. I appreciate this is only part of the capacity that’s being closed down, is there any chance that we’ll see further charges like this coming through?

OK. I think the story there is that you’ve used the word ‘voluntary’; I think it’s exactly the way to describe it. The company doesn’t belong partly any more to Philips at all. We have actually no obligation whatsoever. The equity, as you know, was written off in our books at the end of Q4, and the voluntary contribution was part of the elements that we had made available to the management in those particular countries. We had made a certain number of things at their disposal to accommodate the difficulty of the workers there. So that’s the rationale behind that voluntary Euro 45 million, should they be more, I can’t comment on that but certainly not of a material nature for Philips and today we very much stand by what we’ve told you at the end of Q4, which is that Philips is not exposed any more to this business.

OK. Just as a follow-up on semiconductors, your commentary on the orders and the backlog was that you’re receiving orders for beyond the second quarter. Is that in any specific end markets? What do you think is driving the lengthening of the order book?

First, the rules of the game that we reiterated to you at the end of Q4, meaning no visibility, are very much in play today. We are today, mid-April, the visibility we have on our revenue of Q2 2006 is probably at best today 50%. This is to tell you that the visibility we have in that industry continues to be extremely short-term. Now, to your question, what are the particular verticals which have if anything else, the potential on our first quarter to be better, as I have said it is definitely a multi market and it is Automotive and Identification with a particular note on Identification.

OK. Thank you very much.

Thank you. The next question comes from Mr. Francois Meunier. Please state your company name, followed by your question.

Good morning, it’s Francois from Cazenove. Just a question on the licensing income in Consumer Electronics. Could you give us a precise number? Because it says smaller than last year, so I guess it’s more than Euro 32 million, but can you give a more precise number?

Yes I will, the precise number is Euro 45 million.

OK thanks. Now for the targets you have for the company as a whole; comparable 5-6% growth and a 7-10% EBIT margin. Now given the growth that you have at the moment, I would say the lack of leverage on margins may be in Consumer Electronics. Would you think that it is more likely to be at the top end of the forecast for comparable growth and at the low end of the EBIT margin forecast?

Two things. First, on the leverage of growth, Philips has added about Euro 1 billion of revenue year on year and if you count, about Euro 120 million of EBIT margin, so it’s north of 12% contribution. Is that good, is that bad? I think it could always be better, but I would say that this particular quarter in terms of margin is definitely a better quarter than last year at the same quarter. Your question, which is really a question related to the mix; could we see a situation where the vast majority of the growth comes from Consumer Electronics and then adding potentially an impact or guidance in EBIT margin, which is what I think you are really asking me? I think we stand by what we’ve told you. We’ve guided you almost for every product division on the growth of revenue. The one product division for which we have not guided you in terms of revenue growth is precisely Consumer Electronics because there the name of the game is to deliver the 4-4.5% because that is definitely the target and that is definitely the challenge to stay there year on year, thanks to the business model that we have deployed there. Basically, no change to the 5-6% in terms of comparable growth. In terms of EBIT margin, we want to go from the 5.9% of 2005 to something between 7-10% in 2007, so definitely the year 2006 will have to be in the middle, regardless of the respective weight of Consumer Electronics. None of that is changing.

OK. Thank you very much, Pierre-Jean.

Thank you. The next question comes from Mr. Jan Willem Berghuis.

Yes, hello, good morning, it’s Jan Willem from Kempen. My question is, you mentioned in the next two months of this year a buy back program will be formally finalized and that you also were reviewing the acquisition targets in Medical. Can you say what is your targeted balance sheet structure by the end of the year? In other words, how much room do you have to leverage up the balance sheet in your opinion?

I think to say one word on the share buyback; technically we have acquired all the shares up to the 1.5 billion that was disclosed mid-August. When we say it will be completed in the next two months, we refer very specifically to something that is quite important for you analysts, which is a cancellation of the shares. Because we are one of those companies which will ultimately cancel almost all the shares that we have bought back as part of that 1.5 billion. So this will be done for legal reasons over the next two months, and I think this will lead to reduction of quantitative share by up to almost 6% I think, which is obviously quite significant. That’s the first part of your question. Second part of your question; yes we’ve mentioned in the press release that we’ll continue to look at our portfolio of acquisition. I don’t think we mentioned Medical, I think we said portfolio of acquisition. Nothing new there. The domains we are looking at are the ones we disclosed in the past, so they are there, I won’t repeat them, there’s nothing changed. At the time, we used all cash. In the coming quarters, we will look at those same three opportunities(?), which is share buyback, dividends and acquisitions. I think on the back of Q1, as you’ve seen, we used quite a bit of money on pensions, buyback and acquisition. Actually, if anything we did exactly in Q1 what we said we would do as a rule. Now to the last part of your question; what is an optimized balance sheet structure for Philips. There again is no change, our gain is still to adhere to the guidelines of an A rating, we are as you know there for one agency, not quite there for the other one. We’re still very much working on getting there for the second one, indeed which is (inaudible). If you look at the gain, even though that’s not the elite(?) criteria because there is one related to cash, but the one related to leverage is about 20-25% of your equity as a maximum amount of debt once, then you have to deduct the under-funding of pensions and (inaudible), so I’ll let you run the math and you can then calculate what it comes down to.

OK. Thanks very much.

Thank you. The next question comes from (Philip Mouvon?), please state your company name followed by your question. (Philip Mouvon?): Hi, good morning. I just one precise question regarding the CAPEX transfer(?) fee. I know you integrate Lumiled, you had an increase on the CAPEX side. Could you give us maybe (inaudible) on the guidance for the full year, what you could expect for the whole envelope for the full year? And a second question is coming after your answer to the previous question, on LPD. Should we understand that LPD is not considered as a financial investment as of Q2 2006, and will not be any more consolidated within the results from unconsolidated companies?

OK. As far as CAPEX is concerned, we basically guided you at Euro 1 billion. That was indeed before we integrated Lumlied. I think the new guidance on CAPEX is probably going to be closed to Euro 1.1 billion. I think if you have to have a number, it’s probably going to be between Euro 1 billion and Euro 1.1 billion, and as we see it today probably around Euro 1.1 billion. You know, we usually are understanding on CAPEX as you know historically, but that is today probably the best guidance I can give you. On LPD, can you… (Philip Mouvon?): Yes. LPD, as far as I understand, and from the way you present the results from unconsolidated companies within the results, do you consider LPD as a financial investment, a bit like TSMC, not considering it as an associate any more? Is that correct, or not?

No actually, LPD is completely out of our books. I think it’s not considered as anything any more. (Philip Mouvon?): Anything?

It is actually not in our books any more. (Philip Mouvon?): None at all?

No, none at all. Actually, LPD for us is now absolutely deconsolidated and as I mentioned on a previous question, our legal exposure and financial exposure is zero. What has taken place in Q1 was a voluntary move for the reasons which I just mentioned. But it’s totally out of our books. (Philip Mouvon?): It means that there will be no other contribution whatever from a voluntary or from a legal point of view over the next quarter?

No, of course I cannot say that because there might be, but that would not be material. I think we will leave our managers in certain circumstances, obviously some latitude, and not necessarily by the way via cash. There are other ways to help the people, but we will only do it at our discretion on an exceptional basis, and certainly with no material impact on Philips. (Philip Mouvon?): Which means that you are planning to give the 15% you own in the company to the managers, basically?

We don’t own any more 15%. Legally and practically, that 15% doesn’t belong to us any more. We don’t own any more of LPD today. (Philip Mouvon?): OK. Thank you.

Thank you. The last question comes from Mr. Herman Betzim. Please state your company name, followed by your question.

Good morning, Herman Betzim from Betzim Burs Media. Most of my questions have already been asked, but I would like to still ask you what the guidance is on the utilization rate in Q2 and as a follow-up on that, if you would be able to give me the breakdown of the semiconductor division as far as product lines are concerned, for instance what’s the part of communication as part of the revenue?

Actually, in terms of guidance, we normally I think do not guide you there. I think the actual utilization was 82%. I think the guidance we normally give to you on semiconductors is beside the guidance on the values for the margin is the guidance on the revenue. I think that particular guidance is in the press release. On utilization, I think historically we’ve not guided you.

And as far as a breakdown is concerned?

You mean breakdown for the second quarter?

No, for the first quarter. What percentage of revenue was Automotive and Identification, for instance?

Let me go to the next one and I’ll come back to you. If you have one more question, let me see what we can give to you in terms of macro trends on the semiconductors.

Yes, thank you.

Thank you, Mr. Sivignon, there are no further questions.

Basically, the two drivers - let me try to put this right for you. If I combine them, the largest would be mobile and personal. I think that’s north of 30%. The second largest would be multi-market, north of 25%. The other two being more or less comparable. That would be the split on the revenue of the first quarter.

This concludes the Royal Philips Electronics Q1 results call on Tuesday 18th April 2006. Thank you for participating, you may now disconnect.