Koninklijke Philips N.V. (PHG) Q3 2006 Earnings Report, Transcript and Summary

Ladies and gentlemen good morning, let me first welcome you to this conference call for the Q3 results of 2006 for Royal Philips Electronics. I will make a few introductory remarks and then open up the call to your questions. The largest single item in our results this quarter is the €4.2 result from discontinued operations. This relates to the disposal of our semiconductor division, and the figure contains many items for which we have given you a specification in the press release. You will also see in our balance sheet that the expected large amount of cash has been received. It brings the semiconductor disposal to a conclusion in such a short period of time and we see this as a tribute to the very many people in Philips and I would like to publicly recognize this today. Before getting into the details of the results, I would like to explain the change in the accrual for asbestos claims against a subsidiary company. Up until now, the subsidiary has accrued for asserted claims as and when they were received and we have fully disclosed the situation in our annual reports of the last few years. An accrual with respect to unasserted potential future asbestos related claims has not been established in prior periods. Since then the company with the assistance of an independent asbestos evaluation expert concluded it could reasonably estimate the liability in accordance with applicable accounting rules. In Q3, in light of additional claims history experience by the subsidiary and other changes in circumstances, the third party experts provided the company with a project of the subsidiary’s liability for pending and unasserted future asbestos related claims up to 2016. Accordingly the subsidiary recorded an accrual for the additional liability. Additionally, the anticipated insurance recoveries from insurance carriers with which agreements have been reached were recognized. This has resulted in a net pre?tax charge in this quarter of €265 million. This quarter has again been one in which we have seen more evidence of sales growth and increasing profitability towards our margin targets. Let me be more specific: the comparable growth for the company was an excellent 5% with all divisions except consumer electronics being above this figure. In fact, Medical was 6%, DAP was 9% and Lighting was 10%, the average for those three divisions being 8%. This means that we are growing in the right areas. These growth levels support our average annual target of 5?6%. The EBIT in the quarter was €290 million before allowing for a provision of €265 million relating to the change in accounting treatment for asbestos claims. Excluding this amount, EBIT was 4.6% of sales and compared with 3.5% of sales in 2005 once excluding the gain of €136 million on the TPV transaction which took place in Q3 2005. The underlying margin in this quarter was in fact higher than 4.6% and it included some charges that we have specified in the press release. This improvement helps us move to the higher levels of margin that we have been forecasting. Please remember that Q4 is always our biggest. In medical systems, the comparable growth was 6% which is in line with our annual target of 6%, but it looks like 2006 will be higher. The 6% growth in equipment order intake gives us a growth of approximately 9% for the first three quarters of this year. In addition, the order intake for iSite packs was excellent, so we are far exceeding the plans that were formed at the time of the acquisition of Stentor last year. The margin in the quarter, compared to one year ago, increased in both absolute amounts and percentage as we had forecast. This improved performance was broadly based and evident in virtually in all business units of Medical. In DAP, the excellent quarter has given us a 9% comparable growth which more than supports our annual target of 7%. This very strong growth came mainly in shaving and beauty and all healthcare, and was primarily focused in emerging markets, mainly China and Latin America. We included one month of Avent, which was in line with our expectations. The underlying development of the margin was strong and supports our annual EBIT target of 15-16% prior to purchase accounting charges. We continue to work towards picking costs out of this division to liberate funds for investment in innovation and marketing. Sales in Consumer Electronics on a comparable basis declined by 1%. There was, however, continuing growth in connected displays and peripherals and accessories. The margin in the quarter was 2.2% which is higher than what we recorded in the second quarter. This positive margin development in spite of the difficult market circumstances at the beginning of the quarter is a tribute to the robustness of the business model and to our focus on margin improvement. The Lighting sales growth was 10%, driven up by UHP, Automotive, special lighting and lighting electronics and supports our annual target of 6%. Lumiled is on track to achieve 25% annual sales growth. The Lighting margin was strong after allowing for charges taken in the quarter that we have specified for you in the press release. In other activities, we continue to work towards the disposal of the businesses and we have continued to make progress. I expect we will make further announcements soon. The EBIT includes the €265 million charge that we have taken in relation to asbestos liabilities. In unallocated, we continue to add costs to becomes SOX compliant, but these costs will not continue after the end of this year. The net cash in the quarter was €3.4 billion compared to €2 billion net debt at the end of Q2. This change was totally due to the receipt of the proceeds from the sale of the shares in our former semiconductor division. During this quarter, we have implemented a share buyback programme that we announced three months ago. During the quarter, we bought back 32.4 million shares at a cost of €848 million which is at an accelerated rate, as we indicated on September 11th. The inventory percentage of 12.7% is 20 basis points lower than one year ago and we consider this a strong performance. There are still one or two areas where the inventory to sales ratio can be improved and we are working on those areas. The results from non-consolidated companies reflect the lower results of LG Philips LCD which were anticipated. There are some items that you must take into account when forecasting the results for Q4. The main ones are: in Medical we are making the assumption that the Intermagnetics transaction will close in Q4, which will create a charge in the quarter of approximately €75 million. Due to the change in spending of the brand campaign, we expect Q4 to include an amount of €85 million. Q4 2005 included €187 million relief on a post-retirement provision for medical benefits and this will not be repeated in Q4 2006. Excluding the expected Intermagnetic charge of €75 million, and the Q4 2005 accrual for Medquest. We expect the medical margin in Q4 in amount and in percentage to be above last year. I would now like to open the call for your questions.

Hi there, Pierre-Jean. First question, on the group margins now that we are excluding semiconductors, would you care to help us model EBIT margins for the group going forward, versus your prior [signaling of?] 7-10%. I have a follow up on cost management, thanks you.

For 2006, I would say no change. We basically guided you specifically product division by product division. I think there is no change to those percentages. I would say that as far as the overall guidance of getting the group, including semiconductors, in the range of getting to 7% for next year. That guidance is confirmed. As far as unallocated and ‘other’, we have guided you closely as we could in the press release. If we need to do more, I am sure Alan can do it offline. For 2006 we have been as precise as we can. As far as 2007 is concerned, we have not made a decision yet and I think we will be talking to you on this at the beginning of 2007.

On consumer electronics, which is probably the guidance missing from the press release and your statements opening the call, your previous statement was just shy of 44.5% margin in 2006. Could you qualify this for this year and maybe give us a broader view on how margins will develop?

On consumer electronics, there is no change. It is slightly shy of 4% which we indicated at the end of Q2, which still holds. If anything, Q3 stripped of the incidentals is actually in progress. For the total year, we stand by the number which should be between 3.5% and 4% for the year. Our guidance for next year has not changed. It will be in that domain. As I said, I will come back to you in three months from now, but it shouldn’t be different from this. There is no change on Consumer Electronics, we’ll continue to focus on margin and not guide you on revenue. No change there.

The next question comes from Mr Janardan Menon, from Dresdner.

Just a couple of questions. One is on your consumer healthcare solutions business. What is the outlook in terms of profitability and growth that we can expect over there? You are currently loss making to a small extent. Is that likely to change over to profits in the coming quarter?

I think on that particular line we have not guided you. It is a line where we basically have our investments. It includes lifeline, which is in reality positive and if you include investments we are doing in the other territories on that line, we are in this particular quarter on a slight negative. We have not decided on guidance for next year. On this particular one, we will discuss it on the back of the Q4 numbers but we are not expecting to be significantly in the red there. We will guide you in three months there. As I said, it is a combination of life line, which is a positive and some negative on the back of the investment we’re doing in that particular territory. DAP numbers, net of that is 15-16 as we’ve said a couple of times.

Going back once more to the consumer electronics, given that you are pruning your sales quite a bit, can you give us some clarification as to what areas you are pruning these sales in? To that extent, as you go through that process is there any upside that you can go back to your original 4-4.5% target rather than the 3.5-4%? Secondly, can you give us a number for the royalties for the quarter?

I think if you refer to the pruning or disposal of mobile, which we announced a couple of days ago, this will have a slightly positive impact on the mix. I think your remark is absolutely correct. Should that help us to go back to the 4-4.5% for next year? Yes, there is a positive impact there. As I said, I will come back to you early next year with that specific answer, but that definitely will help us. In terms of more pruning, we try to increase peripherals and accessories via internal and external growth and that adds to some accretion to consumer electronics. In all the particular product groups of consumer electronics, we apply the model for profitability gain, including if and when it is at the expense of the revenue. We’re not planning any more pruning besides the phones. The phones were becoming very marginal for us. We had a world market share of around 3% so for us that was not very efficient. The existing portfolio we have right now is the one we want to focus on and continue to improve in every sector and geography.

Your statement that ‘as anticipated, growth in flat panels showed signs of deceleration’ – can you just clarify that comment? What kind of deceleration are you seeing?

You remember that this is on the back of a very strong Q2. There was a high level of expectation because of the world cup. In particular, in the early part of Q2. Obviously the market knew that Q3 would be a bit of a slowdown in that particular domain. I have to say that our connective display, which includes that particular LCD offering, did well because we ended Q2 with an inventory that was under control. There was an anticipated slowing down of the market. In Philips, we tried to isolate ourselves as much as possible from revenue to guide you on margin and we finished Q2 with a controlled inventory, which enabled us to have a Q3 where year on year our connective display improved compared to the year before.

The next question comes from Mr Navdeep Sheera, Lehman Brothers

The first question with regard to Lighting: as I read it, the charges that you took in the quarter were one-offs so the question is do we expect the division to go back to normal EBIT margins, so above the 12% for the year?

We had a rather high level of one-offs in Q3, which were basically related to some restructuring as well as some other one-offs including a write-off of assets. I would consider that as a high level of one-offs and that does not change our guidance for Lighting, where excluding the one-off which again should be lower next month, it would be an improvement year on year. Nothing has changed on the Lighting guidance compared to what we told you in particular at the end of this conference a couple of weeks ago.

On Medical, are you still seeing the same level of top line seasonality going into Q4 with a sharp spike in sales – has that left this time around?

It is always difficult to say. I think we have guided you for the year on a revenue increase like for like of medical at 6%. That is what we did in Q3. We expect to be slightly north of that for the year. If you do the math, you will see that includes Q4 which will still be high. Would we like to move away from that seasonality? Yes, definitely. I think it would probably be better for the business. The reality is that a lot of those purchases in those hospitals are awarded on a yearly basis and you still have the need to spend the money as the year ends. We are doing our best to evolve that seasonality, but it is turning out to be difficult. I would say we are still expecting a comparatively strong Q4, versus the other three quarters, with a year which would be all in like for like north of 6%. We will continue to try to move away from that seasonality in the future, but it is not easy. After having looked at it carefully, it is not an easy target.

Judging by GE’s results on Friday, certainly you seem to be more optimistic going forward for medical. Can I read into that market share increase, something which you could possibly share with us?

It is a bit early to fully read from what has been given in the last couple of hours – I wouldn’t even say days – on the back of Q3. I take some comfort from incoming orders of Q3 because that is really what you should look at. I think 6% of incoming orders in the market which we know is a market which grows at 4-5%, I would take some comfort from that. Remember we had a lower quarter on incoming orders in Q2, which raised a couple of questions, so we’re back to 6% in Q3. Are we gaining market share? I think the market grows at 4-5%. We booked orders at 6% so in my book that must mean that we are doing well.

Your next question comes from Mr Jonathan Crossfield, Merrill Lynch.

My first question would be on the ‘other’ activities, where following further divestments that you hinted to in Q4, and potentially lower future asbestos charges following the provision, how do you see the run rates of losses in that area developing over the next year or two?

Basically, in other activities, if you look at the past three years as an average, even though it had a declining impact during those last three years, the asbestos charge was an average of €40 million all in. With a declining effect coming down from three years ago to 2005, that kind of average impacted us over the first two quarters of 2006, so I would say that amount will go away from the line ‘other’ next year. In terms of the corporate investment portfolio, which is still costing us money this year, in terms of operating margin and excluding the impact of divestiture one-offs, I would say that next year we should be close to break even on that particular line and we should be left with essential research as well as our incubators and a couple of other incidentals. I think next year you should have research, incubators and a couple of incidentals like realistic gains which are very hard to produce, and no loss on the back of asbestos, and no more loss on the back of the corporate investment. That is the guidance I can give to you for ‘other’ next year.

Do you have anything you can say about plans for the brand campaign going into 2007, whether the direction there would be higher or maybe a little lower than we saw in 2006?

First of all, we have guided you on 2006 Q4. You saw that in Q2 we did not catch up on the lag we had in Q2 versus the year before so we guided you on Q4. It is too early to talk about next year. We have not made that decision yet, we will be discussing that in the coming weeks. I would say that next year should be at the very max what we have spent this year. We haven’t decided more precisely and we will guide you more precisely on the back of the Q4 numbers as far as the brand spending is concerned.

Your next question comes from Didier Scemama, ABN AMRO.

Good morning, it’s Didier from ABN. One stupid question from me, as usual I guess, the €265 million asbestos, can you suggest where you booked that in the P&L in the US GAAP format?

It’s booked as far as the income statement is concerned, it is booked in ‘other’ and as far as if you want to be more precise, the cost of the income statement by nature, it is in cost of sales in the gross margin. The answer is when you look at our press release, it is in the ‘other’ line, right? And if you look at the income statement classified by nature of cost, it’s included in cost of goods sold.

The next question comes from Simon Schafer, Goldman Sachs.

Just looking at the pro forma analysis of NXP, I think it’s apparent that there’s a good amount of G&A cost that at some point on a pro forma basis go away from the parent company and will have to be digested by NXP. In reality obviously it will take some time for those to come through, but I was wondering whether you can give us some detail as to how we should look at G&A as a percentage basis for the parent company now as we go into 2007?

It’s hard for me to comment on the SG&A of NXP. I think with their higher cost in Q2 and Q3, obviously there were some costs and it was a very active G&A which was obviously spent on the back of the transaction everybody worked very hard on. Some of those costs were part of the transaction cost, but certainly there was some G&S activity there. Would it come down? Please bear with me – NXP is now a third party company in which we own 19.9% so I will not guide you on NXP. Bear with me moving forward.

As a follow up question, more on the balance sheet, obviously a very significant net cash position now and it’s nice to see that you have found the ability to schedule the EGM and get up to the 4 billion number that will then be redistributed through buybacks around the end of next year, but in light of the pending disposals potentially with LG and TSM, that will still leave you in a fairly under leveraged balance sheet situation. So I was wondering, given that your previous statements have always been that your net debt to equity would probably be capable of sustaining 25% or so, what does that mean in terms of potential scope for acquisitions or other means of redistribution of cash?

Before I answer that, let me just say one word on the first part of your question, which relates to the buybacks, so that what we have done here and communicated to you is crystal clear. We announced 1.5 in July, you remember that. On the back of the semi press release, we announced that we would distribute four including the 1.5, but we left obviously I would say pending the way this would be split so in the meantime we worked in order to get maximum tax efficiency on the whole amount. The new piece of news – there are two new pieces of news in this press release. The first piece of news is that we think that we will be able to buy back the full 4 billion in a tax efficient manner. I think that’s the first piece of news. The second piece of news is that given the accelerated pace of buyback, we believe that by the end of 2006, we should be around 2.5 billion on our way to the 4 billion share buyback. Those are the elements. As part of this process, as you have mentioned, we will have an EGM some time in October to get our shareholders in line with this particular process. That is the first answer. Indeed, that is the newest piece of news there. As far as acquisitions are concerned, this leaves us with some cash in the balance sheet. I want you to realize that technically we have spent slightly shy of €900 million on the back of share buyback in the second half. We will be spending another €1.6 billion to go to the 2.5, the other thing we’ll have to spend in the course of Q4 will be the closing of Intermagnetics. Those are the expected cash disbursements in Q4 2006. Moving forward, we are looking at acquisitions. You know that. It is very hard to give an amount and it is very hard as well to give a timing. This will be obviously only if it makes money and if it makes sense. It is hard to guide you much more on that. In terms of the split, if you look back at what we have done historically, it has been 60% to shareholders and 40% plus reinvested in the business. I am not saying it’s a proxy moving forward, but that is what we’ve done looking back. The last thing I want to say is that in terms of the segments we’ll be looking at, there is nothing new there. We will be looking at lighting, we will be looking at DAP, Alscal[?] and Wellness and we will be looking at Medical. If and when it makes sense, some very specific targets in Consumer Electronics. As you have seen, one of the three is peripheral and access oriented. That is as much as I can tell you today. On the stakes, you have mentioned the stakes – the stakes will become available technically in the course of next year, but there will be issues of liquidity as well as target prices. We don’t want to compromise on those stakes and we will see how we can actually move on those stakes in order not to compromise on the value we expect from the portfolio for those two particular stakes.

Your next question comes from Antoine Badel, Credit Suisse.

I would like to know what is on management’s agenda for 2007. You’ve executed the semiconductor divestiture, you’re returning more cash to shareholders, operational performance is good as it is today – what can we look forward to as incremental opportunities for value creation next year?

I would say – and I do not mean to be funny – but I would say ‘do it again’. One of the reasons why we have a discount – you are the experts, and for you to tell us – what we understand is that the discount attached to our stock is partly linked to the volatility of our numbers. If we can prove now that we have refocused our portfolio on more predictable businesses, we would hope that by delivering the performance we are currently delivering in 2006 again in 2007, that would help create some upside. I would say that the first part of the answer is consistency and predictability out of the company which I am sure you will agree was perceived as not fully delivering on that particular angle. The second element is to continue to grow in the high margin territories. If you look at Q3, and you spend one minute zooming from Medical up 6% to Lighting up 10%, with DAP in between growing 9%, with good margin in all of those three, our objective is to continue to grow in those particular product divisions with the kind of guidance we gave to you on margin in order to create value. The trick there will be in a predictable environment, to continue to grow and then create some value there. The third element will be to keep on taking care of shareholders, as we have tried to do over the next 12 months via increased attention there. The fourth element will be to basically manage our stakes in an efficient manner and make acquisition in a value creating manner. Those would be the elements which would all be on our agenda from next year.

A quick second question – I don’t think you’ve broken out revenues in IFO for optical licensing?

As you know, we like to present the consumer electronics number as a package. That is why we don’t put it in the press release but I will give it to you – the number for Q3 2006 was €36 million.

Your next question comes from Thomas Brenier, Societe Generale.

The first question on the Medical division – I remember last quarter you told us that you were expecting order intake to grow north of phase growth. I understand it has grown about the same pace. Is that something that is disappointing for order intake, and do you expect this order intake to accelerate in Q4?

My comment there was for the year. Am I considering the 6% for Q3 disappointing? No. In particular Q1 was extremely high. These markets – and I go back to the first question on this Q&A which related to the comparison to GE, clearly this market grows at 4-5%. 6% is a good number for incoming orders. On the total year, I would still hope that incoming orders would be north of the 6% guidance for revenue and I’m talking of incoming orders. Am I disappointed? No. I can’t add very much. What is interesting in Q3 is that if you zoom, the good product divisions of Q3 were a little bit different, in particular we did well in EMEA in Q3. The interesting thing in Q3, beyond the fact that it was 6%, was the fact that the good numbers came from different businesses from the one which was particularly strong in Q1. It is not only the number but also the mix of that number. The other thing you should keep in mind – and we have disclosed it, because it is important for value creation on Stentor – is the very strong incoming orders – this is something to obviously watch. You know the business models there will enable us to start delivering bottom line as we have guided you by Q4 next year. It is particularly important to see that our backlog on the iSite ex-Stentor product is continuing to come in very strongly in Q3. That is important for our medical informatics product group.

My second question would be on consumer electronics. I just noticed the number of employees is up significantly from Q2, I think 10% QoverQ. Is there something that explains this change?

Yes, I think that is essentially seasonal. As you know, in Consumer Electronics our model is very different. One of the reasons why we have a very low asset base and a low account which is open to fluctuation up is because we stripped off our business model essentially from factories and when we need to we adjust upwards on an as-needed basis. Basically, it is done via temps and in a way which can almost be treated online the following quarter. Don’t read more than the fact that we have strong activity versus what we had expected in Q3, which by the way translates in the margin of Consumer Electronics and should not be seen as an increasing fixed cost looking forward.

The next question comes from Francois Meunier, Cazenove.

Just to come back to Consumer Electronics, I wanted the exact number for licensing in Q3 – maybe you could record what it was in Q2?

In Q3 I just mentioned it, €36 million. For Q2 2006 year it was €45 million.

In terms of Medical, the year on year growth we are seeing is a bit slower than the peak we saw in Q4 and Q1 this year. It was closer to 14-15%. Shall we read anything into that?

No, I think with that – are you talking revenue or incoming orders? I’m assuming you’re talking incoming orders?

And revenues as well.

Revenues as well. Okay. Incoming orders, what has happened, we had an extremely strong Q1. We had a lower Q2 and there we are in Q3 with 6%. The guidance for the revenue growth of Medical is 6% and we confirmed that. As I mentioned, we should finish the year 2006 north of that 6%. I think that there is nothing new there. The market again of Medical grows at 4-5%. Some people were telling me again that GE is guiding down. Okay, we are absolutely speaking to the guidance we gave to you, which is a 6% revenue growth for the year. As I said, if anything in 2006 we should be north of that.

Okay, so basically you should see stabilization or slight acceleration in Q4? That’s what you’re saying?

You will calculate back towards what it gives for Q4 revenue – now I’m talking revenue – the year should be indeed in a way that enables it to finish north of 6%. That enables you to calculate the kind of growth we should have in Q4.

The next question comes from Neil Dizwart[?], Rabo Securities. Q - Neil Dizwart[?], Rabo Securities : Many of my questions have been answered, but on your tax credit, could you elaborate on that and give us some guidance for your expected tax rate for Q4 now your portfolio (inaudible) excluding some [micro numbers?]

I think the tax rate is severely impacted by lots of moves. The tax rate applied to the investors[?] was one I think of 36.5%. Basically for the year I would continue to guide you, excluding these exceptionals at a tax rate which should be in the region of 31-32%. For next year, we haven’t looked at it yet and I will guide you for next year with the Q4 results. As of today I can’t see why there should be a very significant change there post the sale of the semiconductors. We will have to redo our numbers there in the coming weeks.

The next question comes from William Mackie, Mainfirst.

Just a few short questions please. Firstly, could you give us a little more guidance on the non-recurring costs related to Sarbanes-Oxley that you incurred this year? Also sticking with the development and regional overhead costs, once you exclude NXP, can you provide a little more guidance on how the regional costs may develop as we move into 2007/08 on the normalized structure?

AdvancedPost Status: Published Draft PrivateSend trackbacks to: Separate multiple URIs with spacesPost slug:Delete: Custom FieldsAdd a new custom field to this post:KeyValue - SelecThe Sarbanes-Oxley costs I would say is between the impact – once we are looking at the complete year, the big bulk of those costs came in Q3 as I’m sure you saw in our press release. I would say probably non-recurring between €20-30 million. That would be my number. For the non-recurring portion of Sarbanes?Oxley costs, which are accounted for on that line ‘other’, that is the first question. To your second question, guiding you on unallocated – we have three territories. I think I answered it on brand earlier on in this call. We will guide you on brand, it will be max what we spend each year. How much more, precisely, I will guide you in Q4. On pensions, I think it would probably be the same, max what we sent this year, probably I would say around those numbers. There as well we would guide you on the back of Q4 for pension costs. It would be in that territory. For headquarter expenses, which are the bulk of the rest, there you have to isolate the one related to SOX and the rest of the headquarter expenses, if you remember, we guided you on an objective of 1% of revenue, meaning we would reduce those costs to take into consideration the fact that our portfolio doesn’t include semiconductors any more. We aren’t going anywhere regardless of the change in portfolio to continue to reduce those costs in central. That’s the guidance I can give you on unallocated.

The last question comes from Mr Birt Van Dyke, HET Financial[?] Q - Birt Van Dyke, HET Financial[?]: To clarify on the asbestos claims charge, is it correct to assume that there will be no additional charges in the coming quarters for those specialist claims?

t - votio enclosure or Post Preview (updated when post is saved)Koninklijke Philips Electronics Q3 2006 (Qtr End 7/31/06) Earnings CallThat is the plan. In reality on asbestos, there is nothing new besides the fact that it has been disclosed, as you know, ever since 2002. It goes back to 1981. It’s not a new problem in Philips, there is full disclosure in our annual report for the last three years. What is new is two things, one is the fact that the legislation which many people expected until quite recently was actually waived. That is the way we understand it. The other things is that with the help of an external expert, we were capable of simulating what we expect the costs to be for us net of reimbursements over the next 10 years. The one?off charge of €265 million we took in Q3. It is expected to cover us from that customer perspective for the next 10 years. Q - Birt Van Dyke, HET Financial[?]: A last follow up question, I was wondering if you could give me the figure of the new product sales as a percentage of total sales?

You have caught me off guard there. The objective was disclosed, if you go back to our slide of January, which is I think still on our website, you will see the objective we have given ourselves for the year, which I will give you in one minute. From what I know, I believe we will reach that objective. I think we will have to give you that offline. Alan will give that to you. We will definitely make the objective, I think on Q2 we were at the 55% and our objective is to increase versus last year by a couple of percentage points. We will reach that objective. If you look at the objective we disclosed to you in January, like for like, we will make the objective if our ratio of new product sales, which is defined as products which have been introduced for less than two years. We will reach or exceed that objective we gave you at the time. I think if you don’t mind, we have to go now. Unless there are any more questions?

Mr Sigivnon, there are no further questions.

That’s what I understood. I thank you very much and if there are any further questions, as usual, Alan Cathcart will be more than happy to answer the additional questions. Thank you very much, good bye.

This concludes the Royal Philips Electronics Q3 results call for Monday 16 October 2006. Thank you for participating, you may now disconnect.