Welcome to the Royal Philips Fourth Quarter and Full Year 2016 Results Conference Call on Tuesday, 24 January, 2017. During the introduction hosted by Mr. Frans van Houten, CEO, and Mr. Abhijit Bhattacharya, CFO, all participants will be in a listen-only mode. After the introduction, there will be an opportunity to ask questions. [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. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. Welcome to Philips' fourth quarter and fiscal year 2016 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 financial highlights for the period. Abhijit will then provide more detail on financial performance and market dynamics. After that we will take your questions. Our press release and the related information slide deck were published at 7:00 AM CET this morning. Both documents are now available for download from our Investor Relations website. A full transcript of this conference call will be made available by tomorrow on our Investor Relations website. Before I turn the call over to Frans, I would like to remind you of a few things. First, as you know, Philips retains a 71.225 stake in Philips Lighting and therefore continues to consolidate Philips Lighting’s results. However, because Philips Lighting reported its Q4 and full year 2016 results on January 23, we will focus our commentary on today’s call as much as possible on the performance of our HealthTech portfolio. We encourage you to review Philips Lighting’s fourth quarter and annual results materials, which are available on the Philips Lighting IR website. Second, as a reminder, following the decision in 2014 to combine our Lumileds and Automotive Lighting businesses into a stand-alone company, the profit and loss of these combined businesses is reported under discontinued operations and the net assets for the business in the balance sheet on the line, assets held for sale. The cash flow of the combined Lumileds/Automotive businesses is reported under cash flow from discontinued operations. Finally, when we refer to adjusted EBITA on this call, this represents EBITA excluding restructuring costs, acquisition-related charges and other charges and gains above EUR20 million. With that, I would like to hand over the call to Frans.

Yeah. Thanks, Pim, and thank you everyone for joining us today. 2016 was a defining year for Philips, in which we completed our transformation into innovative HealthTech leader with key competitive differentiators and a solid platform for profitable growth. During 2016, we executed on significant milestones of our strategic roadmap. We successfully listed our Lighting business in May, after extensive preparations where we executed on the separation project on time and below cost. This has given Philips Lighting the opportunity to further built on its leadership position in the exciting lighting industry. Secondly, after battling difficult circumstances and a limited buyer universe, we are pleased that we’ve found a good home for our combined Lumileds and Automotive businesses and are on track to close the transaction. It is important to note that the combined Lumileds and Automotive businesses had a very strong second half of the year as we expected and have ended the year with good momentum with an adjusted EBITDA for the year of 20%. We have successfully integrated the Volcano business, which had a stagnant top line at the time of the acquisition in 2015 and it has delivered double digit growth in the last four quarters and also contributed to the double digit sales growth in our Image Guided Therapy business overall for the last two quarters of 2016. Moreover, we have reduced over $40 million in cost to drive the Volcano business to profitability. We have successfully acquired an integrated PathXL, a Northern Ireland based leader in digital pathology image analysis, workflow software and educational tools. PathXL’s image analysis and tissue pathology software will compliment Philips’ Digital Pathology Solutions offering and help expand our leadership in this fast growing field. Then we have acquired Wellcentive, a leading U.S. based provider of population health management software…

Thank you, Frans. Good morning to all of you in the call and the webcast. Let me start by providing some color on the fourth quarter growth of 5% for the HealthTech portfolio. On a geographic basis, mature geographies delivered mid-single digit comparable sales growth with both Western Europe and North America growing mid-single digit, while other mature markets achieved double-digit growth. Personal Health recorded high single digit growth, Connected Care and Health Informatics mid-single digit growth and Diagnosis & Treatment low-single-digit comparable sales growth. In the growth geography, mid-single digit comparable sales growth was largely driven by double-digit growth in countries like Argentina, Mexico, Chile, Turkey, Indonesia and Singapore and partly offset by double-digit decline in India. In the growth geographies, Personal Health and Diagnosis & Treatment recorded mid-single digit growth for the quarter. In HealthTech others, sales increased by EUR27 million, mainly due to higher royalty income and one-time patent license deals. Turning to order intake, comparable currency order intake was flat year-over-year as expected on the back of a strong double-digit comparable sales growth in the fourth quarter of 2015. Connected Care and Health Informatics grew in the low-single digit while Diagnosis & Treatment recorded a low-single digit decline. In growth geographies, order intake on a currency comparable basis showed high single digit growth driven by Latin America. North America posted low-single digit growth. Western Europe posted a double-digit decline compared to a strong double-digit growth in the fourth quarter of 2015. Let me know turn to the EBITDA development for the group in the fourth quarter. The adjusted EBITDA margin of 13.8 in the quarter was 190 basis points higher than the year before. This strong margin increase was driven by an improvement of 100 basis points in Personal Health, 280 basis points in Diagnosis &…

Thank you, sir. [Operator Instructions] We will now take our first question from Ian Douglas-Pennant from UBS. Please go ahead.

Thanks very much for taking my question. It’s Ian Douglas-Pennant at UBS. So, my question is on the defibrillator DHA issue. And if it’s okay, I’ve got one question with three what I hope are short subparts. And so, how - I mean the key thing is, how can we be confident that this is not indicative of systemic quality controls issue at Philip? Obviously, Cleveland has taken longer to resolve and we hope, I appreciate this is small in the direct impact. But how can we get comfort that this is not wider problems? Perhaps you could talk about the changes you made off to Cleveland across the group rather than just in that one division? The two shorter follow-ups would be, did this impact Q4 results? And secondly, will you include the cost of resolving this issue in EBITDA adjusted or will you exclude them as one-off issues - going forward? Thank you.

Hi, good morning, Ian. This is Frans. Let me answer the first question and the other two I’ll ask Abhijit to elucidate. So, as I said, the discussion with DOJ, FDA relates to findings of past inspections two years and more in the past and relate primarily to compliance to quality management system regulations. And as such, there is no concern on product quality. In fact, our products are market-leading also in the area of quality and are highly appreciated by all customers. And over the last two and a half years, basically since the major interventions in our healthcare division, we have invested all across our sites and made significant impact on quality and quality compliance everywhere. I feel confident about that. And nevertheless, the impact of past inspections and a subsequent dialogue with DOJ means that we will have now the consequences of these past issues and will relate to, let's say, some impact in the business during 2017, as well as expenses on that business. That is as much as I can say about it. It is unfortunate. Nevertheless, it is certainly not comparable to Cleveland. It's a much smaller business, which the global business in defibrillator is around 290 million. Less than half of that is in the United States. So, we need to see it in that context and we will work diligently to get through this discussion. When the discussion with DOJ ends, we will, of course, immediately inform the market. But at this time we cannot give further detail. You need to appreciate that as we are in negotiations that this is sensitive matter. But rest assured we take it very seriously and I would like to ask Abhijit to talk about the financial side.

Yeah, so building on what Frans said, there is no impact in the Q4 results since we are unable to estimate at this point of time what the potential impact could be. As far as we adjusted or not, I think we will continue to use our standard definition. There are impacts, which are larger than 20 million. We take that out of our adjusted EBITDA, which are one-time impact and for the rest, it will be so. Once we know exactly what the conclusion is, then we will give you those further details, Ian.

Maybe one more addition to everybody in the call, also we have now given quite extensive discussion on this, we are not able to give more information at this time about this matter. So, with that I also hope that you appreciate that there is not a lot of point in going back to this point. Thank you.

Can I just violate your request that you [indiscernible] and just confirm that you - have you stopped selling products that you were selling before? Is the impact entirely a cost issue or are we looking at an opportunity cost in terms of lost revenues as well? And then I promise to stop looking up to that.

No, no, I fully understand that. I mean after all, it's your job to inquire, so I appreciate that. At this time, it's a business as usual. We have not concluded with DOJ. We can at this time not give you an estimate of the impact on the business. So, I have to leave it at that.

So, as things stand today there is no impact on revenues, but that might change in the future depending on DOJ say?

Correct. That's correct.

We will now take our next question from Mark Troman from Bank of America Merrill Lynch. Please go ahead.

Yeah, thank you. Good morning, Frans. Good morning, Abhijit. Just sticking with the defibrillator subject for a second, Frans, could you say, I know we don't know the impact, but could you say that the issues that are being addressed? Are they similar to what we saw in Cleveland? This is all about procedures. And is it that the remedies that you need to implement - is it a similar sort of process to Cleveland, albeit it seems like this is a lot smaller? It’s question number one. And then question number two, moving on demand in terms of your order pipeline, I know you give your outlook for the regions, in terms your order pipeline, have you seen any changes, I guess, post the presidential change in the U.S. and the uncertainty is coming through in terms of the U.S. demand profile in the near-term or is it sort of business as usual? Thank you.

All right, Mark. I’m violating my own [indiscernible]. It is not similar to Cleveland. We have made tremendous progress over the last two years through our investments in quality improvement and quality management systems improvement. And in that context, we are in a much better shape than what we were in 2014. We have made investments in all health care sites across the world and we believe we can stand up to any scrutiny that will come our way, also scrutiny as part of, let's say, discussion with the DOJ. And on top of that, as you said, it's a smaller business and we believe that the quality of our defibrillators is actually market-leading and we can - we measure that in the sense through, let's say, what we see as field goal rates and what have you. Our customers are very happy with these products. So, it is different. Nevertheless, it is a little bump in the road here that we need to deal with. So, now to your second question, there is a lot of uncertainty in the market related to potential policy changes in the United States. But to your question, we have not seen changes in order behavior in the U.S. market so far. In fact, we are proud that we have gained market share all across the world and also in the U.S., outgrowing on average competition. We also feel very encouraged with 15 large scale dues last year through the year and that kind of underlines that our strategy is very well received and that our innovations are spot on. So, at this moment the sentiment is okay. Now, I did speak with several hospital CEOs last week in Davos, the week before at the conference in San Francisco. I think everybody talks about it. Hospital CEOs are concerned what effect this may have on their Medicare or Medicaid patients and depending on the hospital that the proportion of their business differs between anywhere between 20% and 50% depending on what - which region they operate in. So, I think caution is necessary. And if we really see impacts, then of course we will flag that to the market. At this time I think we just need to be cautious.

Okay, thank you very much, Frans.

Welcome.

We will now take our next question from Ben Uglow from Morgan Stanley. Please go ahead.

Good morning, Frans. Good morning Abhijit. Thank you for taking the question. I'm sorry to labor the same point as I have been for a little while, but I wanted to understand the order trajectory, what is happening on the ground, if you like, in Diagnosis & Treatment. And the reason why I look at this particularly, I mean, it's a EUR7 billion business. So, it is most material part or a very material part I should say of HealthTech. If we look through 2016 over the course of a year, if the math is right and obviously we don't have the absolute numbers, you are ending the year low single digit down in orders. What I just want to understand is given the resumption at Cleveland and given the pickup we saw in China and the market generally, why have we not yet seen sort of a stronger reactivation in your Diagnosis and Treatment business? Why do you think that you're not posting the same level of order growth in imaging that we see appears [ph] and that we see in the market overall? So, that was question number one. Question number two and fairly obviously it relates to this. Your order book conversion is typically around 70%, something like that, are there other factors - that you see in the Diagnosis and Treatment division this year, they would bridge you towards 4% to 6% growth. i.e. if we put to one side this order book issue what other factors would allow you to have better growth i.e. mid-single digit growth plus during 2017.

Okay thanks Ben, yeah let's talk about it because - so maybe let me start with taking you all the way back to fourth quarter 2015, where Diagnosis and Treatment had a quarter intake of 21%. So we ended 2015 very strong. Then the beginning of 2016 was much weaker because maybe related to the adverse order intake in the first quarter of 2015. We had a positive order intake growth in the third quarter and closed to flat in the fourth quarter. We continued to sit on a healthy order book for D&T for the year 2017. Now bit more color, we saw that the ultrasound market actually shrunk in 2016, so that was not an easy market with strong traction in image guidance therapy and in the diagnostic imaging. We actually expect further traction in 2017 with a couple of new products coming on the market. We also have an important product launch expectedly later this year for Image-Guided Therapy and expect a strong attraction for ultrasound in 2017. So there are several positive drivers that give us the confidence that we can across the Philips portfolios support that's a gross target. I'm looking at Abhijit whether I missed anything.

No, I think the last thing is Ben as you know the order book is 30% of revenues right so 70% is still outside the order book which is comprises of the service business, Personal Health et cetera so. With those growing also pretty good we are pretty confident that we will still be within the guidance.

Okay so that’s very helpful and the color does help. So we I'm right that we can comfortably assume for diagnosis and treatment that we should be within the guidance band for the current year.

Well, the guidance band is for Philips in Health Technology.

If we take out, there is no Health, well I guess because the growth rate to be clear in the last couple of quarters were down to 3% now. So that’s why I am asking the question.

Yeah, while there is nothing shameful of 3%, that’s said the overall growth rate of 4% to 6% is for Philips in Health Technology, Personal Health, slightly ahead of that the other two slightly below that but overall we will stick to our guidance range. And maybe there is one more comment to make and that is that, some of these larger scale deals do not show up in the order intake numbers, because we typically only take 15 months window in recognizing orders. Now as time progresses that we will of course look back at these large scale and bring it to orders. Also the more managed equipment services deals that come as a recurring revenue stream you know may skew the picture here a little bit.

That’s really helpful, thank you very much.

You're welcome Ben, all right, next question.

We would now take our next question from James Moore from Redburn. Please go ahead.

Yeah, hi everyone and my first question surround the margin guidance of this year that 100 basis points on average you talked about over the years and I know you wanted to get away from individual based guidance but at the same time with the FDA issue today I sense you are trying to say that guidance remain applicable. Can we be very clear and say that guidance remains applicable for 2017 given the FDA issue, that’s the first question. Secondly I wonder if I can talk about your lighting stake and any reductions plan and the timing on that. And then finally could you give us a little color on the diagnosis and treatment business. The margin is progressing that sits up in the year in the quarter, you always had in the past the bigon [ph] issues, but there are movements in there for service margin, ultrasound and other pieces IGT et cetera, I wonder if you could just give us a bit of a feel for how much bigons improved and how much it has to go.

Okay let's give it a try James. In fact in the past we had the habit of giving a far out target, three years away and then we typically had to do a sprint towards the end of the three years to get there. So at the Capital Markets Day, Abhijit and I said look we want to become a more predictive company and provide an annual improvement in results. So in fact we are not stepping away from guidance that relates to a year improvement. We have however said that it is on average 100 bps per year, which could mean that in one year you are little bit over that number and in another year you are little bit below. So I don’t want to be stuck on exactly a 100 bps within a given year. It could be around that number, either above or below. But then it should average out on a 100 bps on average for a three to four year period. So I hope that helps and we remain committed to that statement also for 2017. That means that we will compensate for the impact that potential agreement with FDA will have within our business. We feel that we have enough levers to pull productivity, new product introductions, margin expansion, growth that we are able to absorb that. We think it is, even though it is a disappointing I want to reassure you that this relates to past inspection issues related to quality management system, there is nothing wrong with our products and that we will continue to push the envelope. We have momentum right and that’s how we talk about in 2016, is working and we will just continue with that momentum. The second question, if I may go to lighting stick, I…

No, I think you have seen from last year to this year, a significant improvement in the D&T margins. In the overall plan that we have made we are also looking at 100 bps improvement next year across the group and that would mean that it comes pretty much evenly across the businesses. So it is not that there is one outperformer and there is a lagging business. So if you look at the productivity savings that D&T has lined up the procurement saving that are lined up the cost initiatives, that they have lined up, I think we expect the momentum that we have gained on margin improvement to continue into next year although not as steep as it has been this year. Which is again you have seen in the fourth quarter I think it is well above the 200 bps, it is about 280 bps. So that trend should continue next year.

I could add to that Abhijit and James, you know the product portfolio is strong, diagnosis has for example strong MRI range, radiology solutions, performance bridges productivity for radiologist and ultrasound, we are moving beyond cardiology in ultrasound into OB/GYN and general imaging and then I think we are really on a role with Image Guided Therapy, Volcano is working out fine, is really very good with double digit growth. So I think there are several growth levers that also will improve the margin through mix and in growth. Okay James? Does it answer the question?

Yeah, that’s quite helpful, could I just circle back to your comment about the compensating in 2017 for FDA's is that really to say that if there is an impact it would be contained within a single fiscal year as opposed to say two or three as we saw with Cleveland.

Well, I would like to postpone let's say the discussion of impact till the moment when the discussion with DOJ are finalized and leave it for now at a meaningful impact. Now I am going against my own word again, I mean I want to reiterate this is not a product issue, right this is related to the past findings on the quality management system and we need to demonstrate that is all in order. So that causes potential disruption. I would like to leave it at that and will get back to you if and when we conclude with DOJ.

Thanks Francs.

We would now take our next question from Andreas Willi from JP Morgan Cazenove. Please go ahead.

Yeah. Good morning gentleman thanks for your time. First question I have is on Connected Care and Health Informatics, you had some negative sales growth in the informatics business in Q4 maybe you can comment a bit around that and certainly an area where would have expected to see some more growth given the product launches and what do you talked about in the past and what should we expect from this business here in the past also mentioned that you see the growth accelerating there. So if that Q4 just one off or is this something in the business in terms of that holding back the growth at this time. And my second question on capital allocation and dividend. We kept the dividend flat, but the off rate again as a stock dividend with the potential of dilution in terms of number of shares, do you feel it is an attractively valued health tech play with balance sheet should it really issue shares overtime and why you are not buying back shares that are issued through this dividend scheme which appreciate us, tax advantages for the shareholders they can participate but dilution risk for the others.

Yeah, thanks Hi, Andreas. Well you know Connected Care, Health Informatics; we saw strong sales growth in patient monitoring and bit more lumpiness in Health Informatics. Health Informatics is much more a project business, moreover as we move forward to SaaS and PaaS business models you build up a revenue stream that is coming in over time. We did see very good order intake growth in the fourth quarter for Connected Care, Health Informatics and therefore we are confident about our ability to grow this business in the future. Now my team here is scribbling next to me, okay so Abhijit why don’t you.

Andreas, if you look at Q4, we had a 4% in Connected Care and Health Informatics, PCMS grew nicely well above the 5%. So I think overall growth this year was around the 5% compared to a 2% growth last year. So I think we have, 2% in Q4 but for the full year last year it was actually flat and this year we are up close to 5% so I think we have actually pretty happy with return to growth in CC and HI. And we had good mid-single digit growth in PCMS as well for the year which was flat last year.

Okay so maybe that gives a different perspective than what you had in mind Andreas, it is an exciting business for us. Your second question and I am sure Abhijit would also like to contribute to that. We have of course over the last years down, sizeable share buybacks and in that sense we are ahead of the game in shrinking the share count and over a longer period this time. There is no dilution, if you especially if that include this year's upcoming dividend payment as a combination of cash and script. So just to reinforce that, we are cognizant about the, that the importance of not diluting but we have looked carefully and we are not diluting.

No, I think that’s a fair reply to look at buy backs we have done over the past two years we have been actually accretive. So couple of years if we do this and it actually a choice dividend unfortunately or fortunately so the shareholders make a choice on what they want to do. We made a small change so the default setting that we had earlier, we used to actually put to script and we have put that to cash. Now so that’s in line with market practice. And then you know there are shareholders who gain tax advantages by taking on the scrip dividend and give them that opportunity but as far as mentioned you know the long term plan is of course not to be diluted.

Thank you.

All right.

We will now take our next question from Gael de-Bray from Deutsche Bank. Please go ahead.

Yes, good morning everyone. My first question is on the defibrillator business or at least on the investigation process. Clearly I am not familiar with the process here but I mean could you explain why the DOJ is involved and not just FDA this time and so that’s question number one. And question number two is on the contribution from Cleveland which was probably EUR10 million or EUR15 million below expectations in Q4. So that would be great if you could comment about that. I mean in particular the Cleveland contribution was the same in Q4 as in Q3 despite the higher revenue number and if you could comment about what we should expect for 2017 that would be obviously very good.

Yeah. Hi, well, the FDA is not an enforcement agency in their own rights. They do inspections but when they want to enforce something then they go to their colleagues of the DOJ. So that’s like if you would hire a law firm. I hope that answers the involvement of the DOJ, so that’s normal, it is not exceptional when the FDA wants to enforce they go to the DOJ. The contributions of Cleveland, the way we report them of course is related to the improvement actions, not necessarily to the sales progress for example, with cost containment, lesser expense on remediation actions and so on. It is not an exact science or MF rate, we had originally indeed targeted slightly higher amount I think we came in around EUR80 million, it was about EUR10 million short but the direction is, that we are absolutely on track and we also expect to continue to improve in 2017.

And would you expect to fully catch up on the last EUR175 million also you had over the past couple of years materials. What would you see the timing for that?

We have said that, would be over the next couple of years, so I think we are on track for that. The way we look at Cleveland is you know production is back to where it should be. We are now making sales so it is not something that, it is part of the overall improvement that we will drive next year. So it is not something that I think we need to call out anymore because the operations are back on, let's say where they should be and now we need to build back market share and the more volumes we drive the higher will be the contributions for the CT, AMI [ph] business because we have not restricted to just the Cleveland side because we are also manufacturing from other side. So I think we should at the end of the fourth quarter we will bring the Cleveland issue to a close on this.

We would now take our next question from Max Yates from Credit Suisse. Please go ahead.

Hi, thank you. Just my first question would be on the overhead cost savings and gross margins for next year. You gave in that bridge where you showed the 100 basis points of margin expansion per year, sort of 1.9% from gross margins and 0.5% per year from overhead. I just want to understand the sort of phasing of that, through the three or four years and whether we should expect that to be sort of evenly split over the next four years or whether any of that sort of front loaded because you would already started closing some of the smaller manufacturing footprints, so just a little bit of color on that.

I think Max, you should look at that as something that would be evenly spread, because even on manufacturing footprint by the time you would finish with the all consolidation and get the savings into your P&L. It takes a while whereas the overhead savings and gross margin improvements comes a bit earlier. So if you look at the entire package I think and even phasing throughout the three year is a fair way to look at it.

Okay and maybe just a quick follow up, I just wanted to understand the historic timeline around as it relates to issues. So there was an inspection in 2015, since then you have been sort of working with the FDA going back and forth and this word compliance was used because the FDA ultimately didn’t get what they wanted and brought in the DOJ or is it more a case of it was inspected in 2015, you had very little and now the DOJ has been brought in, I just want to understand a bit about that some historic timeline.

It is even a bit earlier than that, where most of the past inspections were well before 2015 and the way you describe it is the latter. So we are in fact it is only recently we were contacted and engaged in dialog with the DOJ.

And is there any way you can give us any confidence that sort of inspection even before sort of through 2015 that’s, are there any more of these sort of ongoing way you have contact from the FDA regarding something that happened maybe back in 2014 or 2015.

If I take a wider perspective and as I told you that we have made a lot of investments and we have made a lot of progress on quality across the board. We have ongoing inspections from regulatory bodies including the FDA all the time and in fact we are quite pleased that in the last two years we have had no warning letters anywhere which demonstrate the statement of progress. So we can actually demonstrate to ourselves that the findings of let's say habitual inspections as they may occur from time to time that they are showing the progress that we have made. As I said as you were referred, we didn’t hear for a while and there is an enforcement action on past inspections and that consequence is now even though we have made a lot of progress.

Okay I understand thank you very much.

You are welcome.

We will now take our next question from Daniel Cunliffe from Liberum. Please go ahead.

Hi, thanks for taking my questions, two questions. First is just on PH the 7 points of - it is based on top line growth. Can you just give us a sense of how much of that is, due to the earlier selling from the change in the Chinese new year timing and that’s is first question. Second question again coming back to the defibrillator unit, now I think I would call it Cleveland was around about EUR700 million to EUR800 million and that saw 340 basis points margin decline. The defibrillator unit probably about 20% the size of Cleveland, is it fair sort of assume that 20%, this was the size of the impact i.e. 60 basis points margin pressure, now I appreciate you can't sort of help on this you said, you wouldn’t I mean that’s clearly our job but I am more looking for sort of color how this compares to Cleveland in terms, give us a sense of the nature of remediation actions that would be required, are they sort of in line with what you saw with Cleveland and not as harsh, just sort of some kind of bit more detail on that so we can make our assumptions on the likely impact, thanks very much.

Daniel, I am smiling because it clearly not very successful. It is pop in the floor questions here. Let's first talk about personal health. You know the team is doing a fantastic job as I really want to compliment the Personal Health folks because the growth is driven across the broad, we saw strong growth in United States, strong growth in Europe, Strong growth in China, so you cannot infer that there was big of impact of the Chinese new year timing. All right, if anything it was relatively small. The take away is that Personal Health has great innovations very strong execution and we expect just continuation of growth of course not every quarter can be the same and that is why we wanted to flag the Chinese new year timing because if not Chinese new year is later in the quarter then you have relatively speaking stronger first quarter. All right now Chinese new year is early and it may mean that the first quarter is little bit weaker and that is why we wanted to talk about. All right does that answer you first question Daniel?

Absolutely, thank you very much.

Okay then, the computer tomography and advanced molecular imaging business actually was over a billion in size, saw a little bit bigger than what you had in mind. But it would be wrong to associate let's say percentage impact to the business in proportion to the sales. Unfortunately it may not work like that. Right now we have not yet been able to estimate the impact for the defibrillator business. We can only do when there is clear what the final outcomes of the discussions with the DOJ are. What we did want to say is that the defib business is of course much smaller business and only about half or less than half of the business is in united states. And for the rest I am afraid there have to be patience till the conclusion of the discussions.

Okay thanks.

We will now take our next question from Jonathan Mounsey from Exane BNP Paribas. Please go ahead.

Hello, hi, thanks for taking my call, couple of questions, first of all on capital allocation, obviously you cannot tell about the timing of selling down the stake in lighting, the moment that you quite keen to get that moving. Once you do get the money and could you say similar maybe acquisitions thoughts about how to deploy the money and just secondly on HealthTech, just looking through that business or that division. It looks like it was central cost that kind of drove the high level of the cost division this quarter but also sense of expectations, is that something we should model going forward, will central cost be higher than maybe the street currently thinks in HealthTech or other?

So two questions, I will start and then Abhijit will finish. We have, if I first may take you to 2016, we have in fact used quite a bit of the cash generation to strengthen balance sheet, with taking the expensive bonds out and in 2017 with the redemption of 2018 bond actually we continue on that policy. We of course and that will be becoming a very cash generative business, actually my compliments to Abhijit for how he is driving working capital improvement and we probably can expect to further improvement in that area. So in terms of capital allocation, M&A will potentially play a role going forward and I've often referred to Volcano as a good indication of a deal we have executed very well on that deal and it could be kind of direction to look at these kind of sizes of deals but at the same time it needs to be actionable, it needs to have a good payback, we have high hurdles to apply. So I don’t want to get ahead of ourselves. And for the rest I would ask Abhijit to compliment my introduction.

Yeah, so I think if you look at HT others, the central cost look high because we actually have centralized a lot of cost this year, so that we let's say for finance and other functions, so that we manage those at group level that is actually part of our program to get our enabling functions cost to benchmark levels. So I think I have guided for next year overall at a number of 100 million with around 40 million of restructuring. So you have a clear guidance there and that would give you a net in the adjusted EBITDA of around 60 million, which is a combination of lower license revenue of 25 million to 30 million or 25 million to 35 million which we will offset with further cost reductions that we would drive. So that's how we should look at HealthTech other for next year or for this year rather.

Okay, I've just one small follow up. So, on the capital allocation, should we be thinking that pretty much all of the money that is returned from lighting is potentially to reinvest in acquisitions or does that actually maybe potential for capital return excess of that.

Really, I think we have said that number of times, there are few things that we are doing. One is cleaning up the debt portfolio, we have paid back also the loan we had taken for Lumileds, that is done and yes part of that money will be reinvested in M&A opportunity arise and if the opportunities don't arise then we will look in the next year's what we should do but I think at this stage, currently we are going to hold a stronger balance sheet for a while.

Understood, thank you.

We will now take our next question from Peter Reilly from Jefferies. Please go ahead.

Good morning, I just got one question please. It was another very good quarter for personal health, it continues to grow faster with higher margins and the rest of the group. Can you give any tangible examples of any synergies between Personal Health and rest of the group and it was obviously part of your HealthTech strategy but are there any tangible things you can highlight which show why that business, benefits by being part of the group?

Yeah, Peter as you already indicate yourself. It is part of our strategy, if you look at the overall healthcare expenditure in the United States, it is shifting towards more ambulatory spending, so where originally 40% of spending in hospitals and 60% will spend outside hospitals actually, now that moves to 30% and 70%. So there is a quite significant shift of healthcare spending in ambulatory settings. We expect that with digital and cloud consumer health activities and home bill actually become larger and larger. We see that we are quite unique in positioning ourselves along the health continuum with regards to the ability to preventative care and also support for chronic disease for consumers at home. We have a lot of interest from hospital system to understand how you actually influence consumer behavior and we believe that our trusted brand for the consumers will give us opportunities in the future. At the same time Personal Health benefits from the connection to deep clinical insides and professional endorsement, the fact that we are growing oral care so well is because of our efforts on clinical evidence that our products actually have a better impact for health than consumers. Our hair business is now starting to tackle allergens. So we see down the road more and more proportions coming that are going to be kind of hybrid. So we are definitely going to stick with this business, we think it is great. We also by the way are applying skills from consumer to professional and we have buildup quite a sizeable knowledge base on digital marketing that we are now going to apply towar4ds health professionals reaching more decision makers for our professional business.

And as you say you are unique in your positioning and if it does give a lot of tangible benefit, do you think other people are going to follow your example or do you expect to remain in a key position in that space because there is an unusual combination?

Yeah, it may be unusual from a med-tech traditional point of view where med-tech companies are focused on devices but I can tell you that in my discussion with med-tech companies they all struggle with what outcome based care is going do to them. Because in volume market you sell lots of devices but once you have to prove outcomes you need to understand what an individual patient has as benefits of your devices. Same with pharma companies, pharma companies need to demonstrate impact, need to demonstrate compliance and results. They are actually talking to us with regards to our health digital platform where we can help them deliver the evidence of patient outcomes. So if anything I would say more healthcare companies are going to seek for ways to become consumer centric in their efforts. So I predict that over the next years we will see dissertational stronger and then maybe finally I don’t want to blabber it, but you start seeing Apple and Google and other silicon valley companies getting into the space, I don’t see that as a threat to Philips because we are so called in the last yard of patient engagement and patient care and sporting doctors. But I do see it as an evidence that the consumer angle is going to play a bigger role in cloud based health care delivery.

That’s very helpful, thank you.

Okay thank, I am sure we can continue this dialogue at some point in time, that’s fine.

We will now take our next question from Alok Katre from Societe Generale. Please go ahead.

Hi, Alok Katre from So Gen. Thanks for taking my question. I just have one really; in Diagnosis & Treatment you sort of mentioned that in 2017 you don’t expect a similar level of margin improvement as in 2016. I just like to understand what's driving that common given you still get a bit of bump up from Cleveland and that actually should make life a bit easier for the margin expansion. So what are the factors that should then hold back to margins if you know that Cleveland still going to contribute in 2017 at D&T.

Alok, hi, for 2016 we had pretty significant increase, I think it was well over 100 basis points, close to 150 or 160 and basically that’s what we said, we will not be able to repeat for 2017 because we would go into let's say more the I think for DI for 2016 to 2017 we had over 240 basis points improvement and that's not what is going to happen for 2017, that’s all. So there is still a big improvement but the amount of improvement is just huge between 2016 and 2017.

Yeah, I mean if I just rephrase differently I mean 2016 you had roughly about 80 million or 75 million from Cleveland, you still got about 100 million to be recouped over the next sort of couple of years. I mean even if we assume its 50 million, 60 million or bit more on Cleveland coming in that’s still close to odd 80 to 100 basis points for the D&T margins. So are you sort of intending to say that the underlying improvement ex-Cleveland and D&T cannot be more than 50 basis points, I mean is that how should we thinking about it?

No I think you make it little bit, too complex. So the year-on-year improvement for D&T was 150 basis points right, 2015 to ‘16. We don't see - with the current plans we don't see that higher level of improvement. It would be closer to the 100 basis points than 150 is what I would say.

Okay. Okay, fair enough.

We will now take our next question from Veronika Dubajova from Goldman Sachs. Please go ahead.

Good morning gentlemen and thank you for taking my questions. I want to return to the D&T growth in the U.S., because I appreciate that orders are not necessarily a big part of the book. But even if I look at what you disclosed in your press release this morning, it seems like the U.S. D&T business was effectively flat year-on-year in 2016 and I’m just surprised by the comments given some of the statements you’ve made about Volcano doing really well and also Cleveland coming back on track. So, is this a sign that the ultrasound business is really struggling in the U.S.? And if so, what can you do to address that? That's my first question and then I have a quick follow-up.

We finished the year stronger than we started it, right, and that resulted in the overall flat situation. We do believe we have the opportunity to grow the business in 2017. We expect an uptick from ultrasound. We expect IGT to do well. The bigon business market in the United States is flat overall. So, that kind of gives you the picture. China actually performs well. Europe, we expect again a lower growth.

So, Frans, you would think the U.S. business as a whole and D&T accelerates in ‘17 that would be your expectation irrespective of some of the concerns around ACA repeal?

As I said in an earlier discussion, we don't see the effect of that yet. I've said we need to be cautious with the potential repeal and replace. I don't want to take in advance in hedging the traction that we are having, right. So, if the market is flattish in the United States and we are gaining share, then we should be growing at a low single digit rate in the United States for this part of the business. We expect to also outgrow the other markets. So, across the board I think we are confident about the ability of D&T to grow. D&T versus the rest of Philips, I've said I think in an earlier question that PH is a little bit above the overall guidance of the group. CCHI is fully on the guidance of the group and D&T is slightly below the overall guidance of the group. So, I hope - is that that I've given you a bit more color?

Yeah. That’s very helpful. And my second question is very quickly on the M&A priorities. I know you’ve said size wise Volcano was of interest, but if you look at the portfolio that you have, which particular areas or categories would you be most interested in making acquisitions? And that will be it from me in terms of questions. Thank you.

Well, you can have two Russian allies for M&A. One is, you can scale up and therefore you can get cost synergies or you can have adjacency in your portfolio and you get growth opportunities. Volcano was an example of growth. If I look across the portfolio, I can certainly identify businesses where we are not yet number one, and therefore a scale play could be interesting and I can also identify opportunities for further adjacencies for example in the area of Image-Guided Therapy and Health Informatics. But all of that is under the umbrella of, well, what is actionable, does it give you a return on investment, and therefore it is very difficult to have a narrow guidance on where M&A will go. We have done two acquisitions in 2016 that were both related to informatics, Wellcentive and PathXL. Clearly, there is going to be a lot of activity around digital artificial intelligence, machine learning that is very applicable to our business. Much of these areas we can also do through organic growth. We have a keen eye on the market, but we will not, let’s say, do anything stupid when it comes to engaging on M&A if it doesn't return on - if it doesn't return a good financial success.

Thank you.

I realize I'm not completely answering your question, Veronica, but I cannot be more precise than that. I hope you understand.

Unfortunately, we only have time left for one more question. We would now take our next question from Mark Schwartz from Henderson [ph]. Please go ahead.

Yeah, hello, just a brief question with regard to your U.S. business - well, the medical equipment which you sell in the U.S. To what extent is this all produced in the U.S.? Or put it differently, to what proportion are you importing from Europe or from elsewhere?

Yeah, good question. I also came up this morning some of the wires. Philips has always had a balanced approach to employment. And so, if you look at our geographical footprint and let's make rough statements and we say that about one-third of revenue is in the U.S., one-third in Europe, one-third in growth markets. Our employment base mirrors that. So, actually we have more employees in the United States than we have in Europe. And sometimes I joke that we are as much an American company as we are a European company. And of course I say the same in China where we have a sizable workforce. But, so back to the U.S., approximately one-third of our employees are there that applies both to manufacturing and to R&D. Nevertheless, supply chains are complicated. So, take ultrasound, we make the majority of our ultrasound equipment in the United States, but we also export to other countries. Some other products we may not make in the United States but import. So, of course, you're referring to the risks of border tax and I hope it will not come to that, because I don't think it's good for the world. And - but if something like that would happen, then we would point to the fact that we produce a fair share of everything we make in the world in the United States is about one-third and that it’s in balance with the one-third of revenues that we have in the U.S., and then we’ll take it from there.

Okay. Thank you.

You’re welcome.

Thank you. Mr. van Houten and Mr. Bhattacharya that was the last question, please continue.

Yeah, I'd like to thank everybody for a good one and a half hours of questioning and like to point to the fact that 2016 was a pivotal year for us, a defining year. We ended the year with strong moment. We have every intention to go to continue that momentum throughout 2017 on the basis of strong innovation, lots of more productivity opportunities and an enormous enthusiasm and commitment in our employee base and that's also what I hear from our customers that they believe we are on the right path. So, thank you for your attention and talk to you soon.

This concludes the Royal Philips' Fourth Quarter and Full Year 2016 Results Conference Call on Tuesday, 24 January, 2017. Thank you for participating. You may now disconnect.